Chapter 29

Services by the intermediaries

 

Effective date:

(1st July, 2012)

Scope of Exempt Service –

Services by the following persons in respective capacities –

(a)  sub-broker or an authorised person to a stock broker;

(b)  authorised person to a member of a commodity exchange;

(c)  mutual fund agent to a mutual fund or asset management company;

(d)  distributor to a mutual fund or asset management company;

(e)  selling or marketing agent of lottery tickets to a distributer or a selling agent;

(f)  selling agent or a distributer of SIM cards or recharge coupon vouchers;

(g)  business facilitator or a business correspondent to a banking company or an insurance company, in a rural area; or

(h)  sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt

 

Meanings and Definitions:

authorised person” means any person who is appointed as such either by a stock broker (including trading member) or by a member of a commodity exchange and who provides access to trading platform of a stock exchange or a commodity exchange as an agent of such stock broker or member of a commodity exchange

banking company” has the meaning assigned to it in clause (a) of section 45A of the Reserve Bank of India Act,1934(2 of 1934).

business facilitator or business correspondent” means an intermediary appointed under business facilitator model or business correspondent model by a banking company or an insurance company under the guidelines issued by Reserve Bank of India.

commodity exchange” means an association as defined in section 2 (j) and recognized under section 6 of the Forward Contracts (Regulation) Act,1952 (74 of 1952).

distributor or selling agent” has the meaning assigned to them in clause (c) of the rule 2 of the Lottery (Regulation) Rules, 2010 notified by the Government of India in the Ministry of Home Affairs, published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (i), vide number G.S.R. 278(E), dated the 1st April, 2010 and shall include distributor or selling agent authorised by the lottery- organising State

insurance company” means a company carrying on life insurance business or general insurance business.

“life insurance business” has the meaning assigned to it in clause (11) of section 2 of the Insurance Act, 1938 (4 of 1938).

rural area” means the area comprised in a village as defined in land revenue records, excluding,-

(i) the area under any municipal committee, municipal corporation, town area committee, cantonment board or notified area committee; or

(ii) any area that may be notified as an urban area by the Central Government or a State Government,

sub-broker” has the meaning assigned to it in sub-clause (gc) of clause 2 of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992;

 

(See Notification no. 25/2012 dated 20.06.2012, effective from 01.07.2012)

 

Clarification by the Board

(Taxation Guide – Guidance Note – 7 – Exemptions dated 20.06.2012)

7.11.10 What is the tax liability on services by the intermediaries to entities those are liable to pay tax on their final output services?

Services by following intermediaries are exempt from service tax:

A.  sub-broker or an authorised person to a stock broker;

B.  authorised person to a member of a commodity exchange;

C.  mutual fund agent to a mutual fund or asset management company;

D.  distributor to a mutual fund or asset management company;

E.  selling or marketing agent of lottery tickets to a distributer or a selling agent;

F.  selling agent or a distributer of SIM cards or recharge coupon vouchers;

G.  business facilitator or a business correspondent to a banking company or an insurance company in a rural area; or

H.  sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;

7.11.11 Whether the exemption provided in the mega -exemption to services by way of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., is also available to the sub-contractors who provide input service to these main contractors in relation to such construction?

As per clause (1) of section 66 Freference to a service by nature or description in the Act will not include reference to a service used for providing such service. Therefore, if any person is providing services, in respect of projects involving construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., such as architect service, consulting engineer service ., which are used by the contractor in relation to such construction, the benefit of the specified entries in the mega-exemption would not be available to such persons unless the activities carried out by the sub-contractor independently and by itself falls in the ambit of the exemption.

It has to be appreciated that the wordings used in the exemption are ‘services by way of construction of roads etc’ and not ‘services in relation to construction of roads etc’. It is thus apparent that just because the main contractor is providing the service by way of construction of roads, airports, railways, transport terminals, bridges, tunnels, dams etc., it would not automatically lead to the classification of services being provided by the sub-contractor to the contractor as an exempt service.

However, a sub-contractor providing services by way of works contract to the main contractor, providing exempt works contract services, has been exempted from service tax under the mega exemption if the main contractor is engaged in providing exempt services of works contracts. It may be noted that the exemption is available to sub-contractors engaged in works contracts and not to other outsourced services such as architect or consultants.”