Section 65B of Finance Act, 1994 – Interpretations and Definitions for Service tax

Background

The finance act 1994 (hereinafter referred to as ‘Act’), popularly known as Service tax act, was substantially amended by finance act, 2012, when the old system of service tax was scrapped with, and a new concept of a negative list of services was introduced. Service tax does not have its act like other taxes e.g. income tax is governed by Income-tax Act, 1961. The total taxation is governed by the Finance Act, 1994 when Service tax was introduced in India for the first time.

Section 65B: The bare Act

The bare text of section 65B can be found in the annexure, where you can view and download the section in pdf format

Version of this section

This section contains all the changes made by Finance Act, 2016.

Importance of Interpretations – Section 65B

Section 65B plays a vital role in the understanding of this new system of taxation. The heading of this section is misleading; it contains the essential definition which serves as important clarification/explanation for the whole Act. Though every definition/interpretation has its importance, still some of the relevant definitions should be look out for in section 65B are as follows:

1. Agriculture produce: "agricultural produce" means any produce of agriculture on which either no further processing is done, or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market;

2. Interest: "interest" means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) but does not include any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilised;

3. Person: “Person” includes, an individual, a Hindu undivided family, a company, a society, a limited liability partnership, a firm, an association of persons or body of individuals, whether incorporated or not, government, a local authority, or every artificial judicial person, not falling within any of preceding;

4. Renting: "renting" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property;

5. Service – Most Important: "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

1. An activity which constitutes merely –

• A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
• such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or
• a transaction in money or actionable claim;

2. a provision of service by an employee to the employer in the course of or about his employment;
3. fees are taken in any Court or tribunal established under any law for the time being in force.

Explanation 1— For the removal of doubts, it is declared that nothing contained in this clause shall apply to,—

1. The functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or

2. the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

3. the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.

Explanation 2— this clause, the expression "transaction in money or actionable claim" shall not include—

1. Any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
2. Any activity carried out, for consideration, about, or for facilitation of, a transaction in money or actionable claim, including the activity carried out—

• By a lottery distributor or selling agent on behalf of the State Government, about promotion, marketing, organising, selling of lottery or facilitating in the organising lottery of any kind, in any other manner, by the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998);
• by a foreman of chit fund for conducting or organising a chit in any manner.

Explanation 3. – For the purpose of this chapter, -

1. An unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;
2. An establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.

Explanation 4. -  A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;

6. Work contract: "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

Conclusion

The service tax is one of the most complicated taxes and can even confuse the master of this profession. Hence, it is always recommended to consult the expert before reaching any judgment.

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