Finance Act enacted-Service Tax Rate hiked to 12.36 per cent

AIT News Network

NEW DELHI. The President of India has given his assent to the Finance Bill 2007 by putting his seal and signature on 11th May 2007 and it has now been enacted as the Finance Act 2007.  Service Tax Rate has been hiked to 12.36 per cent as Secondary and Higher Education Cess of 1 per cent on service tax has come into force with effect from 11th May 2007. ( Click here for full text of Finance Act 2007 )

 Clause 130 of the Finance Act 2007 provides as under:

 “130. (1) The Secondary and Higher Education Cess levied under section 126, in the case of all services which are taxable services, shall be a tax (in this section referred to as the Secondary and Higher Education Cess on taxable services) at the rate of one per cent., calculated on the tax which is levied and collected under section 66 of the Finance Act, 1994.

(2) The Secondary and Higher Education Cess on taxable services shall be in addition to the tax chargeable on such taxable services, under Chapter V of the Finance Act, 1994 and the Education Cess chargeable under section 95 of the Finance (No. 2) Act, 2004.

(3) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder, including those relating to refunds and exemptions from tax and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Secondary and Higher Education Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made thereunder, as the case may be.” 

The new services subject to service tax including service tax on commercial renting will be in force from the date which is being separately notified by the Finance Ministry by a Notification.

“ Renting of immovable property for use in the course or furtherance of business or commerce service”   is also going to be under service tax net from the notified date.

The scope of “renting of immovable property” under the Finance Act 1994 as amended by the Finance act 2007 ; includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include-

(i) renting of immovable property by a religious body or to a religious body; or

(ii) renting of immovable property to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

The term“for use in the course or furtherance of business or commerce” includes use of immovable property as factories, office buildings,warehouses, theatres, exhibition halls and multiple-use buildings 

"taxable service" means any service provided or to be provided to any person, by any other person in relation to renting of immovable property for use in the course or furtherance of business or commerce.

“immovable property” includes—

(i) building and part of a building, and the land appurtenant thereto;

(ii) land incidental to the use of such building or part of a building;

(iii) the common or shared areas and facilities relating thereto; and

(iv) in case of a building located in a complex or an industrial estate, all common areas and facilities relating thereto, within such complex or estate,

but does not include-

(a) vacant land solely used for agriculture, aquaculture, farming, forestry, animal husbandry, mining purposes;

(b) vacant land, whether or not having facilities clearly incidental to the use of such vacant land;

(c) land used for educational, sports, circus, entertainment and parking purposes; and

(d) building used solely for residential purposes and buildings used for the purposes of accommodation, including hotels, hostels, boarding houses, holiday accommodation, tents, camping facilities.

An immovable property partly for use in the course or furtherance of business or commerce and partly for residential or

any other purposes shall be deemed to be immovable property for use in the course or furtherance of business or commerce(Vide Finance Act 2007)   

 The scope of “design services” includes services provided in relation to designing of furniture,consumer products, industrial products, packages, logos, graphics, websites and corporate identity designing and production of three dimensional models. 

"taxable service" means any service provided or to be provided   to any person, by any other person in relation to design services,

but does not include service provided by-

(i) an interior decorator referred to in sub-clause (q); and

(ii) a fashion designer in relation to fashion designing referred to in sub-clause (zv);  

The scope of “development and supply of content” service includes development and supply of mobile value added services, music, movie clips, ring tones, wall paper, mobile games, data, whether or not aggregated, information, news and animation films.  "taxable service" means any service provided or to be provided to any person, by any other person in relation to development and supply of content for use in telecommunication services, advertising agency services and on-line information and database access or retrieval services.

Further, the Finance Act 2007 has widened the scope of “Management or Business Consultant  Service”   to cover Business Consultants.

“management or business consultant” means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization or business in any manner and includes any person who renders any advice, consultancy or technical assistance, in relation to financial management, human resources management, marketing management, production management, logistics management, procurement and management of information technology resources or other similar areas of management.

(  Click here for full text of Finance Act 2007 )

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