Services Tax

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Service tax is a comparatively new levy in India and very few judicial precedents are available on the subject. The language of the law is quite broad and generic and uses terms like "directly or indirectly" and "in any manner" which raise a number of issues regarding scope of specific category of service. Revenue authorities have been issuing explanatory circulars from time to time in relation to specific issues. Yet, there is, considerable ambiguity in the applicability of the service tax law to various services.

When two or more services are bundled together it would be classifiable under the category which gives essential character to the service. Classification rules are in place from 14 May, 2003. If in case of composite activities, one or more of the activities are liable to service tax and the others are not liable to service tax, service tax would ordinarily be payable only on the charges received for the services to which service tax is applicable, provided charges for each activity can be separately identified / determined and it is not incidental to the main service.There are no rules for such identification / allocation and, therefore, such allocation, if required, must be made on a reasonable basis.