Service tax not applicable to consultant playing executive role

Our company is incorporated in India and manufactures switchgears. We would like to hire a financial expert from outside India on retainership. He will act as a chief financial officer and will handle all day-to-day financial matters in our company.

Written by Fe Bureau | Published:August 20, 2010 12:51 am

Our company is incorporated in India and manufactures switchgears. We would like to hire a financial expert from outside India on retainership. He will act as a chief financial officer and will handle all day-to-day financial matters in our company. He will not be providing any advisory services to us. Please clarify whether we are liable to service tax under the management consultant service on payment of retainership fees to such expert as a service recipient.

In terms of the applicable service tax laws,any person who provides any service in relation to the management of any organisation or business in any manner,including providing advice,consultancy or technical assistance in relation to various areas of management like financial management,human resource management,marketing management,etc,is liable to service tax under the taxable category of management or business consultant services. However,on the basis of the facts provided above,it appears that the expert shall not be providing a service to your company,but shall be engaged in an executive role for running your finance department on a day-to-day basis. Given the above,in our view,amount paid to the expert should not be liable to service tax. However,it needs to be ensured that the agreement between the company and expert is properly structured to avoid any disputes with the authorities.

We construct residential complexes. It has been brought to our notice that sale of flats before the completion of construction and before obtaining the completion certificate has been brought to the net of service tax through the Finance Act,2010. We have finished a project prior to July 1,2010,but have not obtained the completion certificate. Further,another project of ours was started before July 1,2010,but yet to be completed. Please advise us whether we are liable to charge service tax from our customers on the sale of flats in both the cases.

The explanation inserted in Section 65 (105) (zzzh) of the Finance Act,1994,as amended by the Finance Act,2010,extends the scope of service tax under the category of construction of complex service. As per the explanation,the builder is liable to service tax on the sale of residential complexes if it receives partial or full payment from the buyer at any time before,during or after construction,but before receiving the completion certificate from the competent authority.

Receipt of payment or advance is not relevant to determine the tax liability. Service tax is applicable on provision of services. Since in the first case,no service is provided after July 1,2010,service tax should not be applicable. In the second case,where construction activities have been partly completed before July 1,2010,service tax should only be levied on such part of the services rendered after July 1,2010. However,this position is litigative and you may have to prove it by showing proper accounts and records.

We manufacture electronic goods and avail services of goods transport agency (GTA) for removal of goods from factory gate to depots and customer premises. Our prices are based on FOR basis,ie. inclusive of all expenses,including transport expenses up to the customer’s premises. We calculate duty on MRP-based valuation as required under section 4A of the Central Excise Act,1944. Please clarify whether Cenvat credit of service tax of the GTA services taken on transportation of goods up to the customer premises would be available to us under the Cenvat credit Rules,2004.

Input service in the case of a manufacturer defined under Rule 2(l) of the Cenvat Credit Rules,2004 (CCR) includes outward transportation up to the place of removal. The place of removal has not been defined under the CCR,2004 to include depot or premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory. Accordingly the place of removal in your case is to be treated as customer’s premises. Therefore,GTA services availed for transportation of goods from the factory gate to the place of removal,ie. customer premises,should be treated as input service and entitled to Cenvat credit.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice. Neither Ernst & Young nor this publication is liable for any action taken on the basis of these replies

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