The Centre has taken its first steps towards bringing in clarity on the levy of service tax on certain formats in the e-commerce space. Amending the service tax rules in the Budget 2015-16, the finance ministry has clarified that any service provided under “aggregator model,” will be taxable.
This would mean that cab services like Uber, which acts as a transport app service provider by online aggregation of luxury cab operators, and travel portals like TripAdvisor would be taxed with effect from Sunday.
US-based Uber, which offers its services to around 1,200 cab operators in 10 cities, came under the scanner of the services tax department when a tax enquiry was sent to them by the Mumbai service tax department. The department had not sent them a demand notice as they don’t have an office in India and are operating through their Netherlands arm.
The notice, the first such demand made to a service provider in e-commerce space, had started a debate about their taxability. The amendment says that “the aggregator, or any of his representative office located in India, is being made liable to pay service tax if the service is so provided using the brand name of the aggregator in any manner.”
In fact, if the aggregator does not have any presence, including that by way of a representative, in such cases any agent appointed by the aggregator will have to pay the tax on behalf of the aggregator, the department has clarified.
“All such companies which provide services by acting as aggregator like travel portals, food portals or cab services app will now be charged the tax. Logically they should have always been taxed. But the department has now made it very clear that they will have to pay through reverse charge mechanism,” Manish Mishra, executive director, Mazars Advisory Pvt Ltd, said.
This means companies like TripAdvisor, who act as aggregators, will have to pay the service tax, Mishra explained.
Further, service tax has also been imposed on online and mobile advertising while supply of manpower services and security services have been brought under the full reverse charge, meaning that the service receiver will have to pay the full tax. Earlier these two services were under the partial reverse charge mechanism, which meant that the service provider would partly share the tax burden and pay 25 per cent of the service tax.
Further, exemption from the tax for services provided by an artist in folk, classical art form of music, dance or theatre has been limited to cases where amount charged is up to Rs 1,00,000 per performance.