Cattle Insurance provided under the Central Sector Scheme on Cattle Insurance,

Indian Service Tax

Notifications

Agricultural Insurance

[Notification No. 3/2000-ST, dt. 6/7/2000]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable services in relation to general insurance business provided under the National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana ) or the Pilot Scheme on Seed Crop Insurance, from the whole of the service tax leviable thereon under Section 66 of the said Act.

Cattle Insurance

[Notification No. 4/2000-ST, dt. 31/7/2000]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services in relation to Cattle Insurance provided under the Central Sector Scheme on Cattle Insurance, from whole of the service tax leviable thereon under Section 66 of the said Act.

Diplomatic Missions

[Notification No. lO/96-ST, dt. 26/11/1996]

Exemption to non-life insurance premium of specified Diplomatic Missions

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by any insurer carrying a general insurance business for non-life insurance premium to the Diplomatic Missions specified in column (2) of the Schedule hereto annexed from the whole of Service Tax leviable thereon under Section 66 of the said Act.

Sl. No. Name of the Diplomatic Missions Sl. No. Name of the Diplomatic Missions Sl. No. Name of the Diplomatic Missions 1. Afghanistan 25. Iran 49. Russia 2. Algeria 26. Iraq 50. Sahrawi Arab Democratic 3. Angola 27. Israel 51. Republic 4. Austria 28. Japan 52. Saudi Arabia 5. Bangladesh 29. Kazakstan 53. Senegal 6. Belarus 30. Kenya 54. Singapore 7. Bhutan 31. Democratic People's Republic of Korea and Republic of Korea 55. Slovakia 8. Bulgaria 32. Kuwait 56. Sri Lanka 9. Burkina Faso 33. Kyrghyzstan 57. Switzerland 10. Cambodia 34. Malta 58. Tanzania 11. Canada 35. Mauritius 59. Trinidad and Tobago 12. China 36. Mexico 60. Turkey 13. Colombia 37. Mongolia 61. Turkmenistan 14. Croatia 38. Morocco 62. Uganda 15 Cuba 39. Myanmar 63. Ukraine 16. Cyprus 40. Namibia 64. United Arab Emirates 65. U.S.A. 17. Czech Republic 41. Nepal 65. Uzbekistan 18. Finland 42. Nigeria 66. Venezuela 19. Germany 43. Norway 67. Vietnam 20. Ghana 44. Oman 68. Yemen 21. Greece 45. Palestine 69. Yugoslavia 22. Holysee 46. Philippines 70. Zaire 23. Hungary 47. Poland 71. Zambia 24. Indonesia 48. Qatar 72. Zimbabwe

Group Personal Accident Policy of Rajasthan

[Notification No. 1/2000-ST, dt. 9/2/2000]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable services provided, by Government of Rajasthan under Group Personal Accident Scheme, to its employees in. relation to general insurance business, from whole of the service tax leviable thereon under Section 66 of the said Act.

Jan Arogya Bima Policy

[Notification No. 12/97-ST, dt. 14/2/1997]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided, by an insurer carrying on general insurance business, to a policy holder of Jan Arogya Bima Policy in relation to general insurance business, from the whole of service tax leviable thereon under Section 66 of the said Act.

Specified Services

[Notification No.3/94(S.T), dt. 30/6/1994]

Exemption to specified Insurance Schemes and Telephone calls made from Public Booths, Free Telephones at Airports and Hospitals

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services, as are specified in column (2) of the Table hereto annexed, from the whole of service tax leviable thereon under Section 66 of the said Act.

Specified Taxable Services

• Personal Accident Social Security and Hut Insurance Scheme.

• Comprehensive Crop Insurance Scheme.

• Cattle Insurance under Integrated Rural Development Programme.

• Scheme for Insurance of Tribals.

• Janata Personal Accident Policy and Gramin Accident Policy.

• Group Personal Accident Policy for Self-Employed Women.

• Agricultural Pumpset and Failed Well Insurance.

• Premia collected on insurance of export of goods from India and export credit insurance.

• Premium received from Re-Insurance both domestic and overseas.

• All business for which premium is booked outside India.

• Small transactions involving premium of less than rupees fifty except motor insurance.

• Departmentally run Public Telephones for local calls.

• Guaranteed public telephone operating only for local calls.

• Free telephone at Airports and Hospitals where no bills are being issued.

This notification shall come into force on the 1st day of July, 1994.

Universal Health Insurance Scheme

[Notification No. 16/2003-ST, dt. 11/7/2003]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable service provided by an insurer carrying on General Insurance Business to a policy holder in relation to general insurance business provided under the Universal Health Insurance Scheme, from the whole of the service tax leviable thereon under Section 66 of the said Act.

"General Insurance Business" has the meaning assigned to it in clause (g) of Section 3 ofthe General Insurance Business

Indian Service Tax

General Insurance Service

Effective Date: 01/07/1994.

Authority: Notification No. 1/94-ST, dt. 20/6/1994 (for full text of Notification see under'Telephone Service').

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13-5-2003). 10% .from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definition

"General Insurance Business" has the meaning assigned to it in clause (g) of Section 3 ofthe General Insurance Business (Nationalisation) Act, 1972 (57 of 1972), [Section 65(49)]

Taxable service: Insurance service provided by the insurer to the policy holder in relation to General Insurance business.

Value of taxable service: Amount of the premium received by the insurer from policy holders.

Person liable to pay: Insurer carrying on general insurance business.

Head of Account

Minor-head 004400102 General Insurance Services S1. Code SCCD Sub-head 00440010201 Tax Collection 00440005 117 Sub-head 00440010202 Other Receipts 00440006 112 Sub-head 00440010203 Deduct Refunds 00440120 119

Questions & Answers

Q. 1 What is the taxable service under insurance sector?

Ans. Taxable service under insurance sector is the service provided to a policy holder, by an insurer carrying on general insurance business, i.e. fire, marine and miscellaneous insurance business.

Q. 2 What is the value of taxable service in case of Insurance Services?

Ans. In the case of Insurance services, the value of taxable service is the total amount of premium received by the insurer from policyholder.

Q. 3 Are any of the Insurance activities exempted from the levy of Service Tax? If so, what are they?

Ans. Following activities under insurance sector are exempt from the levy of Service Tax.

• Life Insurance

• General insurance services provided to U.N. or International organisations.

• Services provided to policy holder of Jan Arogya Bima policy in relation to General Insurance business.

• General insurance business for non life insurance premium to specified Diplomatic mission.

• Personal Accident, social security and Hut Insurance Scheme.

• Comprehensive crop Insurance Scheme.

• Cattle Insurance under Integrated Rural Development Programme. ­

• Janata Personal Accident Policy and Gramin Accident Policy. ­

• Group Personal Accident Policy for self-employed women. ­

• Agricultural Pumpset and failed well Insurance.

• Premia collected on insurance of Export of goods from India and Export Credit Insurance.

• Premium received from Re-insurance both domestic and overseas.

• All business for which premium is booked outside India.

• Small transactions involving premium of less than rupees fifty except Motor insurance.

(Authority: Notfn.3/94-ST, dt. 30/6/96, No. 10/97-ST, dated 26/11/96 and 12/97-ST, dated 14/2/97).

[Source CBEC Website]

Main text of Departmental Circular/TN

[TN No. 111/94, dated 05/07/1994 of Hyderabad Commissionerate]

In relation to General Insurance business also the facility of one point payment of service tax by the Chairman or Chairman-cum-Managing Director of the insurance companies has been extended. For this purpose, the service tax will be paid by GIC and New India Assurance Company Ltd., in Bombay, National Insurance Company will be paying the tax in Calcutta, Oriental Insurance Company will be paying the tax in Delhi. The United India Insurance Company Ltd., will be paying the service tax in Madras. The branches and divisions of the insurance companies will not pay the service tax and it is their head office which has been made responsible for payment of service tax. They will apply for registration to the jurisdictional CCEs. The jurisdictional CCEs may advise them to furnish a list of their offices with addresses who will be involved in the mechanism of collection of service tax and from whom returns indicating computation of service tax is furnished to their Head Office. These assessees will be required to furnish at the time of filing their quarterly return for the first time, a list of accounts maintained by them. This will include the statement that they receive from their banks/division offices for their headquarters for consolidation of service tax figures.

The franchisee is required to pay to the franchiser, directly or indirectly, a fee,

Indian Service Tax

Franchise Service

Effective date: 1/7/2003.

Authority: Notification No. 7/2003-ST, dt. 20/6/2003 (For full text see under "Business Auxiliary Service").

Rate of Service Tax: 8% upto 9/9/2004. 10% nom 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

''Franchise'' means an agreement by which -

• Franchisee is granted representational right to sell or manufacture goods or to provide service or ,undertake any process identified with franchiser, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved

• the franchiser provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee

• The franchisee is required to pay to the franchiser, directly or indirectly, a fee, and

• The franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person, [Section 65 (47)]

"franchiser"means any person who enters into franchise with a franchisee and includes any associate of franchiser or a person designated by franchiser to enter into franchise on his behalf and the term "franchisee" shall be construed accordingly, [Section 65(48)]

Taxable Service: Services provided by a franchiser to a franchise relating to franchise

Value of Taxable Service: Gross amount charged by a franchiser to a franchisee for such services

Exemption: Mere licensed production

Person liable to pay: Franchiser or his authorised agent.

Head of A/c: Tax Collection - 00440237, Other Receipts - 00440238, Deduct Refund - 00440239

Questions & Answers

Q. 10.1 What is the taxable service under Franchise Service?

Ans. Franchise Service is a service provided by franchisor to a franchisee under a specific type of agreement known as franchise agreement. This agreement includes the franchisee being obliged to follow the concept of business operation, managerial expertise, market techniques etc. of the franchisor and is under an obligation not to engage in selling, producing or providing similar goods or services, identified with any other person. The franchisee is required to pay to the franchisor, directly or indirectly, a fee which is chargeable to Service Tax.

Q. 10.2 If the franchisor is not normally resident of India, who has to pay Service Tax?

Ans. As per Service Tax Rules in all such cases the service receiver in India would be liable to pay Service Tax on behalf of the service provider.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003],

Main text of Department Circular/Trade Notice

[Para 2.4 of Cir.No. 59/8/2003, dt. 20/6/2003]

2.4 Franchise Service:

Franchise service is a service provided by franchisor to a franchisee. Section 65 of the Finance Act 1994, (sub-section (47)) defines franchise as a specific type of agreement. This agreement has various ingredients, which have been specified in the said definition. For removal of doubt it is clarified that unless all the ingredients mentioned at (i) to (iv) of the said sub section are satisfied, the agreement can not be called as franchise agreement. These ingredients are,­

• The franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved,

• the franchisor provides concepts of business operation to franchisee, including knowhow, method of operation, managerial expertise, marketing techniques or training and standards of quality control except passing on the ownership of all know how to franchisee, .

• The franchisee is required to pay to the franchisor, directly or indirectly, a fee and

• The franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person

For example, the mere fact that a principal manufacturer has allowed production of goods bearing his brand name by another person under 'License Productiqn Agreement', does not make the agreement a Franchise Agreement.A franchise agreement also includes the franchisee being obliged to follow the. concept of business operation, managerial expertise, market techniques etc. of the franchisor and is under an obligation not to engage in selling, producing or providing similar goods or services, identified with any other person. Therefore, in the absence of such ingredients, a mere licensed production cannot be called as a franchise agreement and accordingly the license fees paid for such license production cannot be charged to service tax.

Taxable service means any service provided to any person, by a member of a recognised association or a registered association

Indian Service Tax

Forward Contract Services

Effective Date : 10/09/2004.

Authority: Finance (No.2) Act, 2004

Rate of Service Tax: 10% - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"Recognised Association" has the meaning assigned to it in clause (j) of Section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952), [Section 65 (89a)]

"registered association"has the meaning assigned to it in clause (jj) of Section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952), [Section 65 (89b)]

Taxable service

Taxable service means any service provided to any person, by a member of a recognised association or a registered association, in relation to a forward contract, [Section 65 (105) (zzy)]

Value of taxable service: Gross amount

Exemptions: See Notification No. 18/2004-ST, dt. 10/9/2004 at the end of the Chapter of "Airport Services".

Ready Delivery Contracts.

Person liable to pay: Forward Contract Service Provider

Head of Account: To be issued.

Main text of Department Circular/Trade Notice

RNo. B2/8/2004-TRU, Date: 10/9/2004

10. Forward contract services: As per the provisions of Forward Contract (Regulation) Act, 1952, a forward contract is a contract for delivery of goods, which is not a ready delivery contract. For commodities notified under the Act, forward contracts can be entered into only through members of association recognized under that Act. For other commodities, future trading can be done through associations registered with Forward Market Commission. The levy of service tax under this category is on the services provided by members of such associations (commonly called as commodity exchanges) to any person in relation to forward contracts.

Notification

Exemption

[Notification No. 18/2004-ST, dt. 10/9/2004]

For full text see under "Airport Services".

"Foreign Exchange Broker" includes any authorised dealer of foreign exchange, [Section 65 (46)].

Indian Service Tax

Foreign Exchange Broker's Service

N.B.: See also "Banking & Other Financial Services".

Effective date: 1/7/2003.

Authority: Notification No. 7/2003-ST, dt. 20/6/2003 (For full text see under "Business Auxiliary Service").

Rate of Service Tax: 8% upto 9/9/2004. 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"Authorised Dealer of Foreign Exchange" has the meaning assigned to "authorizedperson" in clause (c) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999), [Section 65 (8)]

"Foreign Exchange Broker" includes any authorised dealer of foreign exchange, [Section 65 (46)].

Taxable Service: Services rendered to a customer by a foreign exchange broker relating to Forex Services. Brokers in relation to banking and financial services are excluded from this service.

Value of Taxable Service: Gross amount charged for providing such service.

Person liable to pay: Any person or firm providing such forex services

Main text of Department Circular/Trade Notice

[Part of Para 1 of Cir.No. 59/8/2003, dt. 20-6-2003]

Foreign exchange broking service provided by any body corporate or non-banking financial company was covered under the tax net in the category of banking and other financial service with effect from 16/7/2001. Provisions have been made to extend the scope of the tax to include the service provided by all foreign exchange brokers (including moneychangers and forex dealers).

[Para No.4 of Cir.No. 62/11/2003-ST, dt. 21-8-2003]

Cir.No. 62/11/2003-ST, Date: 21/8/2003

4. Foreign exchange broking:

4.1 With regard to services provided by money changers, a doubt has been raised whether all trading in foreign exchange will be chargeable to service tax.

4.2 Prior to 1/7/2003 the service of "securities and foreign exchange (forex) broking", when provided by banking company/financial institution/body corporate was liable to service tax. Through Finance Act, 2003 "foreign exchange broking" when provided by foreign exchange brokers, other than banking company/financial institution/body corporate, were also brought under the tax net w.e.f 1/7/2003. As per the definition in law foreign exchange brokers include authorized dealers of foreign exchange. Authorised dealer of foreign exchange has been assigned the meaning of "authorized person" under the FEMA,1999.Accordingly authorized dealers/money changer etc. which are authorized to deal in foreign exchange are covered in the definition of "foreign exchange brokers" under service tax provisions. However, as explained above only the service of "foreign exchange broking" when provided by foreign exchange brokers (other than banking company/financial institution/body corporate which are already covered) has been brought under the tax net.

"fashion designing"includes any activity relating to conceptualising, outlining, creating the designs

Indian Service Tax

Fashion Designer Service

Effective Date: 16/08/2002.

Authority: Notification No. 8/2002-ST, dt. 1/8/2002 (for full text of Notification see under'Beauty Parlour').

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003). 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"fashion designing"includes any activity relating to conceptualising, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings and any other service incidental thereto, [Section 65 (43)]

"Fashion Designer" means any person engaged in providing service in relation to fashion designing; [Section 65 (44)]

Taxable service: Fashion designing service provided to customer by a fashion designer in relation to designing etc., of clothes, jewellery or any other article intended to be worn by human beings.

Value of taxable service: Gross amount received from customers for service relating to fashion designing.

Exemptions

• Ailor, jeweller, goldsmith, boutiques

• Making of garments

• Stitching charges

Person liable to pay: Fashion Designer

Head of Account

S1. Code SCCD Minor-head 004400153 Fashion Designing Services 00440212 Sub-head 00440015301 Tax Collection 00440213 116 Sub-head 00440015302 Other Receipts 00440214 113 Sub-head 0044001530311 Deduct Refunds 00440215 118

Main text of Departmental Circular/TN

F. No. Bll/1/2002- TRU, Date: 01/08/2002

1. The secti6n referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2002. Reference to sub­clause or clause means clause or sub-clause of Section 65 of the Finance Act, 1994 as amended by the Finance Act, 2002.

2. As per clause (37)"fashion designing"includes any activity relating to conceptualising, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings and any other service incidental thereto and as per clause (38) "fashion designer" means any person engaged in providing service in relation to fashion designing. As per sub-clause (zv) of clause (90), taxable service is any service provided to any person, by a fashion designer in relation to fashion designing.

3. Fashion designer conceptualises and creates designs/patterns applying his sense of aesthetic, keen sense of colour, visual imagination, knowledge of market trend and as per requirement of the client. Accordingly fashion designer may be involved in designing of any goods which are intended to be worn by human being and where aesthetic/looks/fashion is a criterion for wearing it. Fashion designers work include selection of material (for example type of cloth, its colour, design, quantity etc.), preparing design as per the trend or as per his visual imagination, preparation of pattern incorporating the requirement of the client. Fashion designer also keeps in mind the occasion, season and time etc. when his designed article is intended to be worn.

4. A point has been raised as to whether tailors and jewellers will be covered under the service tax. Taxable service in this case is designing of goods intended to be worn by human being. A tailor is involved only in stitching of clothes. As such no designing activity is involved. Hence tailor will not be covered under the tax net. Similarly jeweller essentially makes jewellery and sells it. Therefore, no designing is involved. However a jeweller may avail services of a designer to design jewellery. Service provided by designer to jeweller would be covered under the tax net in the category of fashion designing.

5. Some times the fashion designer not only provide designing service but also make the garments or the intended articles as per the requirement. A point has been raised as to what shall be the value of taxable service in such cases as the service provider charges in composite manner for designing as well as making of garments. It is clarified that service tax levy covers only the fashion designing service and as such making of garments is outside the purview of the levy. Therefore service tax would be leviable only on the designing charges provided fashion designer show the designing and making charges separately in the bill. However it is also clarified that if a fashion designers designs article for himself and makes these articles say garments and sells them, in such a case designing service is provided to oneself by the designer and therefore not liable to service tax.

6. At times fashion designer provides stitching service along with designing of cloth as per the requirement of client. In such case the fashion designer is liable to pay service tax only on designing service rendered by him provided designing charges are shown separately in the bill. However if designing charges and stitching charges are shown in consolidated manner, service tax will be leviable on entire amount.

"Facsimile (FAX)" means a form of telecommunication by which fixed graphic images

Indian Service Tax

Facsimile Service

Effective Date: 16/07/2001

Authority: Notification No. 4/2001-ST, dt. 9/7/2001 (for full text of Notification see under Broadcasting).

Rate of Service Tax: 8% from 14/5/2003 (5% upto 13/5/2003). 10% from 10/9/2004 - Cess 2% of 10% = 0.2. Total ST = 10.2%.

Definitions

"Facsimile (FAX)" means a form of telecommunication by which fixed graphic images, such as printed texts and pictures are scanned and the information converted into electrical signals for transmission over the telecommunication system; [Section 65(42)]

Taxable service: Facsimile service provided by the telegraph authority in relation to facsimile communication to a subscriber.

Value of taxable service: Gross amount charged from the subscriber, but the initial deposit made by the subscribers at the time of application shall not be included in the value of taxable service. However, any adjustment made by the Telegraph Authority from any deposit made by the subscribers at the time of application for such services shall be included.

Exemptions

• Fascimile Services where service charges are based on the number of telephone calls.

• Private fax operators – F.No. BII/I!2000-TRU, dt. 9/7/2001 ­- Annexure XII.

• Private PCO.

Person liable to pay: Telegraph Authority.

Head of Account

S1. Code SCCD Minor-head 004400137 Facsimile Service 00440148 Sub-head 00440013701 Tax Collection 00440149 118 Sub-head 00440013702 Other Receipts 00440150 110 Sub-head 00440013703 Deduct Refunds 00440151 111

Main text of Departmental Circular/TN

[Ministry's F.No. B.II/I/2000-TRU dated 9/7/2001 - Annexure XII]

1. As per Section 65(72) (zd),(ze), (zf) and (zg), taxable service in relation to these services is any service provided, to a subscriber, by the telegraph authority in relation to leased circuits, telegraph, telex and facsimile communication.

2. As regards facsimile services, at present the telegraph authorities are providing it i.n two ways. One is "bureau fax" where the charges are based on a flat rate per page depending upon paper size and the other is "ordinary fax" where charges are equivalent to the number of calls consumed in faxing the paper. In case of "bureau fax", this is provided by the Dept. ofTelecomthrough post and telegraph offices. In the second type of facsimile service, the service charges are equal to the telephone calls consumed and it is already covered in the ambit of service tax under the category of telephone connections. Therefore, service tax will not be payable in respect of those facsimile services where service charges are based on the number of telephone calls consumed. Private fax operators are providing the second kind of facsimile service and therefore, they are not liable to service tax again.

3. In respect of telegraph, telex and leased services, any service provided by the telegraph authority in this regard is the taxable service and service tax on such services shall be collected in the same manner as applicable to telephone services.