[as
introduced by the Finance (No. 2) Act, 2004]
Forward
Contract services are brought under the service tax net by the Finance (No. 2)
Act, 2004, w.e.f. 10-9-2004. The services shall be taxed if
provided by a member of a recognised association or a registered association.
Rate of Service Tax: The rate
of service tax is specified in section 66 of the Act. As per section 66, which
covers charging of tax on aforesaid service, introduced by the Finance (No. 2)
Act, 2004, rate of service tax on this service shall be 10% ad valorem.
Further, the Finance (No. 2) Act, 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 forward contract has been given under clause (46A) of section 65.
That is:
'forward
contract has the meaning assigned to it in clause (c) of section 2 of the
Forward Contracts (Regulation) Act, 1952"
As per
clause (c) of section 2 of the Forward Contracts (Regulation) Act, 1952:
"forward
contract means a contract for the delivery of goods and which is not a ready
delivery contract"
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 -
reference Circular/letter F. No. B2/8/2004-TRU, dated 10th September 2004
(appended as Annexure 1).
The
definition of taxable service provided by a member of a recognised association
or a registered association has been given under sub-clause (zzy) of
clause (105) of section 65. That is:
"any
service provided "to any person, by a member of a recognized association
or a registered association, in relation to a forward contract".
Service
tax is liable to be paid when forward contract services are rendered by a
member of a recognised association or a registered association.
(1) What
is 'recognised association'?
"recognised
association has the meaning assigned to it in clause (j) of section 2 of the
Forward Contracts (Regulation) Act, 1952" [clause (89A) of section 65].
Section
2(j) provides as under:
"recognised
association" means an association to which recognition for the time being
has been granted by the Central Government under section 6 in respect of goods
or classes of goods specified in such recognition;"
(2) What is 'registered association'?
"registered
association has the meaning assigned to it in clause (j) of section 2 of the
Forward Contracts (Regulation) Act, 1952 [clause (89B) of section 65].
Section
2 (j) provides as under:
"registered
association" means an association to which for the time being a
certificate of registration has been granted by the commission under section
14B."
Forward
contract services are liable to be charged to tax
Forward
contract services are liable to be charged to service tax when provided to
§
any person
§
in relation to forward contract
(1) Meaning of a 'person'?
The term
'person' has not been defined in the context of service tax. But, the term
'person' has been defined as "person shall include any company or
association or body of individual, whether incorporated or not" [clause
(42) of section 3 of General Clauses Act, 1897].
Therefore, even though, in general, person is understood as only natural person (i.e. human being) but in the context of service tax, it includes both natural and artificial and juristic person also. Thus, partnership firm, company, corporation, societies, government enterprises, Hindu undivided family (HUF), etc. will also fall under the definition of person.
Therefore,
when service is provided to any of the aforesaid person, it will fall under the
service tax net.
Value
of taxable services for charging tax
The value
of taxable services in relation to forward contract services provided by a
member of a recognised association or a registered association to any person
shall be the gross amount charged from any person in relation to forward contract
[section 67]. The words 'gross amount' are 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 be part of value of taxable services and certain amount
shall not be part of the value of taxable services, but nothing has been
specified in respect of forward contract services.
(A) Exemption for the amount received prior to
10-9-2004
The
Government, w.e.f. 10-9-2004 has exempted from whole of service
tax, the portion of the taxable value, in respect of the 'forward contract
services', which is received by the service provider prior to the 10th day of
September 2004 [vide Notification No. 18/2004-ST, dated 10-9-2004
appended as Annexure VIII in the - 'Outdoor Caterer's Services']. It may
be noted that the Government in its Circular No. 65/14/2003, dated 5th
November, 2003 (appended as Annexure VII in the - 'Payment of Service
Tax') had clarified that "where the value of taxable service has been
received in advance for a service which became taxable subsequently, service
tax has to be paid on the value of service attributable to the relevant
month/quarter which may be worked out on pro rata basis". Further, w.e.f.
9-7-2004 the Service Tax Rules, 1994 have been amended vide
Notification No. 5/2004-ST, dated 9-7-2004. As per the
aforesaid amendment, where the value of taxable service is received before
providing the taxable service, the service tax shall be paid on the value of
service attributable to the relevant month, or quarter, as the case may be. In other
words, where payment is received in advance, service tax will be payable on pro
rata basis. Therefore, if the above exemption Notification would not have been
issued then a service provider would be held liable to pay service tax on the
portion of amount so received in advance before the imposition of levy of
service tax which related to the portion of taxable services rendered on or
after the date of imposition of service tax.
(B) General Exemption
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.
Issues pertaining to service tax -
Regarding
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.