BUSINESS AUXILIARY SERVICE
Date of introduction : 01.07.2003 – vide Notification No. 7/2003 Dated 20.06.2003
b) “Business Auxiliary service” means any service in relation to -
i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
ii) promotion or marketing of service provided by the client; or
iii) any customer care service provided on behalf of the client; or
iv) any incidental or auxiliary support service such as billing, collection or recovery of accounts and remittance evaluation of prospective and public relation services, and includes services as a commission agent, but does not include any information technogloy service. Explanation: For the removal of doubts, it is hereby declared that for the purposes of this clause “Information technology service” means any service in relation to designing, development or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer system. In the Budget proposal for the year 2004-05 following further additions are proposed in the definition of “Business Auxiliary Service”. iv) procurement of goods or services, which are inputs for the client; or
v) production of goods on behalf of the client; or
vi) provision of service on behalf of the client; or
Further the earlier entry no.(iv) is proposed to be amended as under and renumbered as (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision. and includes services as a commission agent, but does not includes any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.
Value of Taxable Service:
of taxable service shall be the gross amount charged by the service provider of
such service rendered by him.
i) Scope of Service: Any service provided to a client for promotion or marketing of his goods/services, providing customer care service on behalf of the client, or providing any incidental or auxiliary support service to the client for conduct of his business is taxable. However services in relation to information technology are excluded from tax net.
i) Call centres & Medical transcription centres are exempted from payment of service tax (Notfn.8/2003 S.T. dated 20.06.2003)
ii) The commission agents were exempted from payment of service tax vide Notfn.No.13/2003-S.T. dated 20.06.2003. However with effect from 09.07.2004, by virtue of amendment to above notfn. Vide Notfn.8/2004-S.T. dated 09.07.2004, the exemption is available only to the commission agents dealing in agricultural produce.
Board's Clarification: Circular No.59/8/2003 dated 20.06.2003
As per the definition of business auxiliary services, services of commission agent are considered business auxiliary services. However services of commission agents have been exempted from service tax w.e.f. 1st July, 2003 vide notification No.13/2003-Service Tax dated 20th June 2003. Commission agent has been defined in the notification, as a person who causes sale or purchase of goods, on behalf of another person for a consideration, which is based on the quantum of such sale or purchase. It may be noticed that the exemption under this notification is for a commission agent while the services of a consignment agent remain taxable under the category of Clearing and Forwarding Services. It may be appreciated that the nature of service provided by a Consignment agent is different than that provided by a commission agent. A consignment agent's job is to receive the goods from the principal and dispatch them on the directions of the principal whereas a commission agent's job is to cause sale/purchase on behalf of another person. Thus, the essential difference is that a commission agent sells or purchase on behalf of the principal while consignment agent receives and dispatches the goods on behalf of a principal. It is possible that a person may be a consignment agent as well as a commission agent. Such a person would already be covered in the category of Clearing and Forwarding agent and would be liable to pay service tax in that category. In other words, the present exemption is available only to such commission agent who is not a consignment agent.
Certain doubts have been raised in case of business auxiliary services. In this regard the following is clarified, While it is not possible to give an exhaustive list of business auxiliary services, the following are illustrations of services that are covered under this category viz. evaluation of prospective customers, processing of purchase orders, customer management, information and tracking of delivery schedules, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, managing distribution & logistics. The services provided in relation to getting a customer, verification of prospective customer, processing of purchase order etc would also be covered under service tax, as the law specifically provides for inclusion of such services as business auxiliary support services.
As regards the question whether insurance agents, C&F agents working on commission basis fall under the definition of business auxiliary services, it is clarified that they do not, as they are specifically covered within the definition of other specified taxable services, namely the Insurance service and C&F service respectively. Under Section 65A of Finance Act, 1994, it has also been provided that in case of overlap, a service would be classified under the head, (a) which provides most specific description, (b) in case of a composite service having combination of different taxable services, the service which give them their essential character and (c) in case the test of (a) and (b) does not resolve, the service which comes earlier in the clauses of Section 65, i.e. the service that was subjected to service tax prior to imposition of tax on business auxiliary service, the insurance agents, C&F agents working on commission basis would fall under those respective categories. From this, it follows that a particular service can be taxed only under one head of service.
As per the definition of business auxiliary services, information technology service is outside the purview of business auxiliary services. in the explanation appended to the definition in the Act itself, it has been clarified that information technology service means any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. In this regard, it is clarified that only if the output service provided by a service provider is in the nature of the above operations, such exclusion would operate. The mere fact that a personal computer or a laptop has been used for providing the service does not, ipso facto, make the service an information technology service. Similarly, the fact that any of the IT services mentioned in the explanation has been used by the service provider as an input service does not automatically make the output service an IT service. Therefore, in such cases, individual service has to be examined with reference to the explanation provided to the definition of business auxiliary service and only such output services which qualify to be IT services in terms of the said explanation shall remain excluded from taxable service under the heading business auxiliary service.
Circular No.62/11/2003 dated 21.08.2003
Scope of IT service under Business Auxiliary Service :
The definition of Business Auxiliary Service in the law excludes the Information Technology IT services. As per the definition IT service means any service in relation to designing, developing or maintaining of computer software or computerized data processing or system networking or any other service primarily in relation to operation of computer systems. It was clarified in Circular No.59/8/2003, dated 20th June 2003 that only if the output service provided by a service provider is in the nature of the above operations, such exclusion would operate. The mere fact that a personal computer or a laptop has been used for providing the service does not, ipso facto, make the service an information technology service. Similarly, the fact that any of the IT services mentioned in the explanation has been used by the service provider as an input service does not automatically make the output service an IT service.
A doubt has been raised that the clarification in
the said circular dated 20.06.03, is at odds with the letter F.No.334/1/2003TRU
dated 28.02.2003 which states, "However computer enable services, namely, data
processing, networking, back office processing, computer facility management
shall not be subjected to Service Tax." It is claimed that back office
processing may include accounts outsourcing or payroll-processing activities
etc. and such service may not be primarily in relation to computer system.
It is clarified that there is no contradiction
between the clarifications dated 20.02.03 and dated 20.06.03. The scope of IT
services is explained in the definition of Business Auxiliary Service in the Act
itself as any service in relation to designing, developing or maintaining of
computer software or computerized data processing or system networking or any
other service primarily in relation to operation of computer systems. The last
words "primarily in relation to operation of computer systems" make the
intention abundantly clear. The words "back office processing" used in the
clarification dated 28.02.2003 have to be read in conjunction with the other
terms used therein viz. data processing, networking, computer facility
management. Thus any service of back office processing primarily in relation to
operation of computer systems will be covered as IT services and not taxable.
Payroll-processing, accounts management etc. even by using computer programs,
can not be termed as activities primarily relation to computer system. The use
of computer in these services is secondary and the primary activity is that of
business-related work. Thus these services will be taxable as Business Auxiliary
Services. This is exactly the position that has been clarified in the circular
Circular No.66/15/2003 dated 05.11.2003
Applicability of service tax on commission income
earned on distribution and marketing of units of mutual fund.
Some doubts have been raised regarding application
of service tax on the activity of Mutual Fund Distribution as to whether 1) the
commission received by distributors on mutual fund distribution as liable to
Service Tax under the category of Business Auxiliary Services? 2) the services
provided is exempt from service tax in terms of Notification No.13/2003 dated
20.06.2003. In this connection, it is clarified that the services provided as
referred above are primarily in nature of the services of commission agent in
relation to clause (ii) and (iv) of the category of services mentioned in the
definition of Business Auxiliary Services and hence should be leviable to
service tax under this category. This activity does not get covered under
exemption Notification No.13/2003-ST dated 20.06.2003 as this is not in relation
to sale or purchase of goods. The exemption provided under Notification
13/2003-ST is applicable only for commission agents dealing in goods.
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