Dry
Cleaning services are brought under the service tax net by the Finance Act,
2002 w.e.f. 16-8-2002 vide Notification No. 8/2002, dated 1-8-2002.
The services shall be taxed if provided by a dry cleaner.
Rate of Service Tax: The rate
of service tax is specified in section 66 of the Act. The Finance (No. 2) Act,
2004 has substituted the charging section 66, and the rate of service tax is
enhanced from 8% to 10% ad valorem. The increase in tax rate has come into
force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004.
Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also
levied an education cess @ 2 % of the service tax. The cess paid on inputs
services shall be available as credit for payment of cess on output services.
For further discussion in this regard, refer to -'Payment of Service
Tax'.
The
definition of dry cleaning has been given under clause (37) of section 65. That
is:
"dry
cleaning includes dry cleaning of apparels, garments or other. textile, for or
leather articles".
The
definition of dry cleaning is very wide and covers host of services within the
ambit of dry cleaner's services. The definition is inclusive not exhaustive,
therefore, it not only includes the services specified in the definition but
also covers the services which are commonly understood as dry cleaning
services.
(1) Government Clarification:
Dry
cleaner normally performs following process on clothes during the process of
dry cleaning:
(i) Tagging and inspection -
Dry cleaner inspects the clothes and tags them with an identification label.
(ii) Pre-treatment -
A stain remover is applied to remove the stains. Use of stain remover depends
on the nature of stains such as stains of grease, oil, ink, colours, etc.
Fabric/cloth is then rinsed and dried.
(iii) Dry cleaning - A
dry cleaning machine is a motor driven washer/ extractor/dryer and it holds
clothes in a rotating, perforated stainless-steel basket. Clothes are washed
with a solvent. There may be various types of solvents used for dry cleaning
such as perchloethylene (perc), carbon tetrachloride, trichloethylene and
petrol, etc. As the clothes rotate in the perforated basket, there is a
constant flow of clean solvent from the pump and filter system. After cleaning,
the clothes are drained to expel the solvent and then goes into a dry cycle by
circulating warm air.
(iv) Post spotting - If
there is any spot/stain left after the dry cleaning, it is removed, using water
or any other appropriate chemical.
The definition of taxable service provided by a dry cleaner has been given under sub-clause (zt) of clause (105) of section 65. That is:
"any
service provided "to a customer, by a dry cleaner in relation to dry
cleaning".
(1) Wet cleaning is taxable service
No, in a
point raised before the Government - whether service tax is leviable on
wet cleaning also? the Government in the Circular F. No. B.11/1/2002-TRU,
dated 1-8-2002 (appended as Annexure I) has clarified that service
tax is leviable only on dry cleaning. Wet cleaning is a process of cleaning
garments in water and water soluble detergent. Accordingly service tax is not
leviable on wet cleaning/ washing provided the dry cleaner clearly mentions it
in the bill. If details are not mentioned in the bill, it would normally be
understood that clothes have been dry cleaned and in such situation service tax
is liable to be paid.
(2) Dyeing, darning etc. are taxable service
No, in a
point raised before the Government - whether service tax is payable on
the job of dyeing, darning, etc., the Government in the Circular F. No.
B.11/1/2002-TRU, dated 1-8-2002 (appended as Annexure I) has
clarified that since these activities are not dry cleaning, these services are
not taxable provided it is clearly indicated in the bill.
Service
tax is liable to be paid when dry cleaning services are rendered by a dry
cleaner.
'Dry
cleaner
The
definition of dry cleaner has been given under clause (38) of section 65. That
is:
"dry
cleaner means any commercial concern providing service in relation to dry
cleaning".
Therefore,
dry cleaner is -
§
any commercial concern;
§
that is providing services in relation to dry cleaning.
(1) 'commercial concern'
The term
'commercial concern' denotes a firm or a business entity or organization,
engaged in commercial activities like sale, purchase or providing services for
consideration and having profit motive. A charitable institution cannot fall
under the category of a 'commercial concern', because it does not have profit
motive. The term 'commercial concern' in the context of this service means the
concern engaged in providing dry cleaning services.
Dry cleaner's services are liable to be charged to tax
Dry
cleaning services are liable to be charged to 'service tax when provided to
§
a customer
§
in relation to dry cleaning.
(1) Customer
Services
are liable to be charged to tax only when it is provided to a 'customer'. The
word 'customer' as per the dictionary meaning is "one accustomed to
frequent a certain place of business: a buyer: a person" (reference the
Chambers English Dictionary) or "a person buying goods or services from a
shop, etc." (reference the Oxford Mini Dictionary). Therefore, the
'customer' is necessarily an external person who purchases a commodity or
service from a shop or business concern for consideration. However, it is not
necessary that customer should be a regular customer of the dry cleaner.
The
value of taxable services for charging tax
The value
of taxable services in relation to dry cleaner's services provided by a dry
cleaner to a customer shall be the gross amount charged from the customer in
relation to dry cleaning [section 67]. The words 'gross amount' is used in
contrast to the 'net amount', therefore, no abatement shall be allowed in
respect of administrative/ office expenses incurred in respect of such
services.
Explanation
1 has also been added to section 67, which provides that, for the removal of
doubt, in respect of only certain specific services, it is declared that
certain amount shall form part of value of taxable services and certain amount
shall not form part of the value of taxable services, but nothing has been
specified in respect of Dry cleaner's services.
The
Government has granted exemption from the whole of Service Tax in respect of
all taxable services, for services provided to United Nations or an
International Organisation. Similarly, the exemption, subject to certain
conditions, has also been granted for taxable service provided to a developer
or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November,
2003 has restored the exemption, as an interim measure, from the whole of
service tax when payment is received in convertible foreign exchange for the
taxable services rendered in India provided it was not repatriated from or sent
outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003.
The reader may note that detailed discussion about aforesaid exemptions along
with relevant notifications have been given in the 'Exemption from whole of
Service Tax - Some Cases'.
N.B. The readers may note that provisions, procedures, and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate.
Clarification on the scope of the term
for levy of service tax
1. The sections referred to
hereinafter are the sections or clauses of the Finance Act, 1994 as amended by
the Finance Act, 2002. Reference to sub-clause 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 (31), as
it then was, "dry cleaning" includes dry cleaning of apparels,
garments or other textile, fur or leather articles. As per clause (32), as it
then was "dry cleaner" means any commercial concern providing service
in relation to dry cleaning. The taxable service, as per clause (90)(zt), as it
then was, is any service provided to a customer, by a dry cleaner in relation
to dry cleaning.
3. Dry cleaner normally performs following
process as on clothes during the process of dry cleaning:
(i) Tagging and inspection-
Dry cleaner inspects the clothes and tags them with an identification label.
(ii) Pre-treatment -
a stain remover is applied to remove the stains. Use of stain remover depends
on the nature of stains such as stains of grease, oil, ink, colours, etc.
Fabric/cloth is then rinsed and dried.
(iii) Dry cleaning - a
dry cleaning machine is a motor driven washer/ extractor/dryer and it holds
clothes in a rotating, perforated stainless-steel basket. Clothes are washed
with a solvent. There may be various types of solvents used for dry cleaning
such as perchloethylene (perc), carbon tetrachloride, trichloethylene and
petrol, etc. As the clothes rotate in the perforated basket, there is a
constant flow of clean solvent from the pump and filter system. After cleaning,
the clothes are drained to expel the solvent and then goes into a dry cycle by
circulating warm air.
(iv) Post spotting- If
there is any spot/stain left after the dry cleaning, it is removed, using water
or any other appropriate chemical.
4. A point has been raised
as to whether service tax is leviable on wet cleaning also. Wet cleaning is a
process of cleaning garments in water and water soluble detergent. It is clarified
that service tax is leviable only on dry cleaning. Accordingly service tax is
not leviable on wet cleaning/ washing provided the dry cleaner clearly mentions
it in the bill. If details are not mentioned in the bill, it would normally be
understood that clothes have been dry cleaned and in such situation service tax
is liable to be paid.
5. A point has been raised
whether service tax is payable on the job of dyeing, darning, etc. It is
clarified that since these activities are not dry cleaning, these services are
not taxable provided it is clearly indicated in the bill.