Description of Services (Bundled Services)
The Finance Act,
2012 has made a paradigm shift in levy of Service Tax with introduction of
negative list approach to replace selective positive list approach to taxation
of services in India. Consequently, section 65A which dealt with classification
of taxable services shall not apply w.e.f. 1.7.2012 and cease to exist on the
statute as the classification of services may no longer be required for the
purpose of Service Tax.
However, in order
to arrive at correct and appropriate reference to a service, Finance Act, 2012
inserted a new provision in section 66F w.e.f. 1-7-2012 to provide for
principles of interpretation of specified descriptions of services or bundled
Composite and Bundled
Prior to Finance
Act, 2012 i.e., up-to 30th June, 2012, emphasis was mainly on classification of
composite services i.e., services where more than one services are provided and
which cannot be classified on the basis of specific description of taxable
service. In such a case, composite service was classified in the category which
gave it the essential character and where it was not possible, taxable service
was to be classified under that clause of section 65(105) which appeared first
amongst those requiring equal consideration on merits.
‘composite’ literally means made up of various parts or elements; a thing made
up of several parts or elements; putting together; combining two or more
things. On what were the criteria for classification of composite taxable
services, readers may refer to erstwhile provisions of section 65A of the
Finance Act, 1994.
means a collection of things, or a quantity of material, tied or wrapped
together; tie up or roll up a number of things together as though into a
The word ‘bundle’
has been used for the first time in the Service Tax and it has been
interchangeably used with the expression ‘specified descriptions of services’.
What is meant by specified descriptions of services has not been defined or
explained in the Act.
section 66F defines ‘bundled service’ to mean a bundle of provision of various
services where is an element of provision of one service is combined with an
element or elements of provision of any other service or services.
means a bundle of provision of various services wherein an element of provision
of one service is combined with an element or elements of provision of any
other service or services. An example of ‘bundled service’ would be air
transport services provided by airlines wherein an element of transportation of
passenger by air is combined with an element of provision of catering service
on board. Each service involves differential treatment as a manner of
determination of value of two services for the purpose of charging service tax
issue Post Finance Act, 2012 (w.e.f. 1.7.2012)
In the post Finance
Act, 2012 scenario w.e.f. 1.7.2012, classification of taxable services into
categories will no longer be required as it is either a service or not a
service. If it is a service, it would be a taxable service if it does not fall
under a negative list or an exempted list. This is so because there is no need
to classify the services into any specified categories of taxable services.
What will be more
important will be to classify an economic activity as a ‘service’ or ‘not a
service’. For this purpose, dominant test could be that laid down by Apex
Court in BSNL v. Union of India (2006) 2 STR 161 (SC).
section 66F of Finance Act, 1994, as inserted by the Finance Act, 2012 w.e.f.
1-7-2012, it has been provided that unless otherwise specified, reference to a
service shall not include reference to a service which is used for providing
the main service. This would indicate that input services or ancillary services
used in providing main output service would not take the same colour as that of
the main service. There could be a main service which is in negative list. It
would not imply that other services will also be in the negative list if such
services are subject to differential treatment based on their description.
Principles for interpretation of
specified description of services
negative list approach largely obviates the need for descriptions of services,
such descriptions continue to exist in the following areas –
In the negative list of services.
In the declared list of services.
In exemption notifications.
In the Place of Provision of Service
In few other rules and notifications.
provisions in relation to bundled services
In nutshell, the
new classification/interpretation principles are thus as follows –
- reference to main service will not
include reference to a service which is used for providing main service.
- Where a service could be subject to
differential treatment for any purpose based on its description, the most
specific description will be preferred over more general description (specific
would prevail over a general description). (For example, ‘road repair’ would be
better understood as ‘repairs to road’ rather than ‘repairs of immovable
- In a bundled service, where various
elements of service are naturally bundled in ordinary course of business, it
will be treated as a single service which gives such bundled service its
essential character. (e.g., event management service for a marriage comprising
of venue, mandap, catering, logistics, tour, entertainment etc.; meals and
air/rail travel; breakfast with hotel accommodation, boarding school, etc.).
- In a bundled service, if various
elements of bundled service are not naturally bundled in ordinary course of
business, it shall be treated as single service which results in highest
liability of Service Tax, i.e. which yields highest Service Tax revenue to the
Government (e.g., service comprising of consulting engineering, construction,
erection & commissioning, support services; construction and club membership,
dry-cleaning billed as electricity, chemicals, ironing and so on).
- Provisions of section 66F applies –
- where services have to be treated
differently, for any reason, and
- for determining the taxability of