"Note on ABC Pvt Ltd. ActivitiesQuestionDraft analysis of the activities of the ABC Pvt Ltd.1. IntroductionABC (P) Ltd. has the talent and expertise to produce fresh, imaginative and practical designs.The Company has excellent technical expertise in fabric specification, garment construction,sizing and fit. LHCorporate offers a tailored approach to each client’s requirements and theability to think proactively. Its advanced technology and communication networks allow forcutting edge products. Strong distribution networks ensure prompt and efficient delivery.Itfollow ethical standards and standardized production in -line with ISO standards with all ofout suppliers and staff.2. Submitted facts:-a. The company gets contract from various dealers to manufacture the dresses other thanuniforms for fashion shows. For this purposethe main input i.e. the cloth is provided by thecustomer himself. The company does the stitching process and uses minor inputs which arerequired during manufacturing process like buttons, accessories etc. and return the same tothe customer.In most of the cases the dealers are from abroad and in some cases the contracts arereceived from domestic customers.b. Further the company has another business of “make to measure garments”i.e.manufacturing the dress as per individual measurement and also manufactures uniforms. In this case the company uses own material and does stitching process and then sell thesame in the market.1 Note on ABC Pvt Ltd. Activitiesc. Moreover the company is also engaged in providing Labour services for alteration indresses. d. The Company is charging service tax on all the activities except in case of Export.Queries:(i) Whether the activities mentioned above are taxable under service tax?(ii) If Yes, Under which category of Taxable Services, are they classified. 2 Note on ABC Pvt Ltd. Activities3. Legal Analysis& Opinion:3.1 The Finance Act, 2012 has ushered a new system of taxation of services; popularly known asNegative List regime. The new changes are a paradigm shift from the existing system whereonly services of specified descriptions were subjected to tax. In the new system, all servicesexcept those specified in the negative list, will be subject to taxation and provisions relating topositive list approach, namely, sections 65, 65A, 66, and 66A will cease to operate. 3.2 Under new system called as “Taxation of Services”, Section 66B specifies the charge of servicetax which is essentially that service tax shall be levied on –? all services;? provided or agreed to be in a taxable territory,? other than services specified in the Negative List.3.3 Meaning of ‘Service’As mentioned above, the first condition of charging Section provides that in order to attract thetaxability transaction must fall within the scope of what is called “service”. At the outset‘service’ has been defined in clause (44) of section 65B of the Act. Accordingly, it means –? Any activity;? for consideration;? carried out by a person for another;? andincludes a declared service.The said definition further provides that ‘Service’ does not include -3 Note on ABC Pvt Ltd. ActivitiesI- Transferof Title in ImmovableProperty E- Employer- M- Emplyee Transactionrelationship in Money servicesIMAGE A- G- Sale ofActionableGoods Claim 3.4 Meaning of ‘Declared Services’The phrase "declared service" has also been defined in clause (22) of Section 65B of Act to mean“any activity carried out by a person for another person for consideration and declared as suchunder section 66E”. Accordingly, 9 activities have been declared as such under Section 66Ewhich shall be deemed to be taxable u/s 66B.3.5 Provided or agreed to be in a “Taxable Territory”The second condition to attract the chargeability under “Taxation of Services” is that serviceshould be provided or agreed to be in a taxable territory. 4 Note on ABC Pvt Ltd. Activities‘Taxableterritory’hasbeendefinedinsection65B(52)ofthe Actastheterritorytowhichthe Actappliesi.e.the wholeofterritoryofIndiaotherthantheStateof Jammuand Kashmir. Further, Detailed rules called the ‘Place of Provision of Service Rules, 2012’ have been framedvide Notification No. 28/2012-ST dt. 20.6.2012 to determine, where a service shall be deemedto be provided, in terms of Section 66C of the Finance Act, 1994, having regard to thenature and description of various services.3.6 Service should not be specified in the ‘Negative List’The Third and last condition to attract the chargeability under “Taxation of Services” is thatservice should be one “other than services specified in the Negative List”. The negative list ofservice is specified in the Act itself in Section 66D. In all, there are seventeen heads of servicesthat have been specified in the negative list. Service specified in any of these seventeen headstherefore goes out of the ambit of chargeability.3.7 Therefore, in order to decide whether a particular provision of service is taxable or not underthe provisions of Section 66B, it needs to be decided in reference to all the conditions asexplained supra. If any of the condition is not satisfied, Charging Section will not be attractedand accordingly, no service tax would be payable.3.8 Besides this, The Central Government has issued Mega Notification No. 25/2012-ST dt.20.6.2012 to exempt the certain taxable services from whole of the service tax leviable thereonin terms of Charging Section 66B of the Act. Accordingly, even if an activity is taxable in terms ofCharging Section 66B read with Section 65B(44), 66D and 66E of the Act, no service tax wouldbe payable if same has been exempted vide Mega Notification. 5 "