The introduction of the negative list regime in the Budget 2012 was a major step by the the government towards taking the country closer to the Goods and Services Tax (GST). While this move brought a paradigm shift in the way services are taxed in India, the transition itself came with a lot of challenges. With Budget 2013 round the corner, the industry expects some conceptual as well as operational-level changes to cut down the complexities. Some of the issues that need to be addressed are highlighted in this article.While the negative list regime widened the tax base by bringing in more services under the tax net, no corresponding changes were made in the Cenvat credit scheme, which continues to provide restricted benefit to the assessees. As the country prepares itself for the transition to the GST regime, the Budget 2013 has to eliminate the limitations imposed under the current scheme and facilitate its seamless integration into the negative list regime.Along with the negative list of services, the new regime also provides exemptions to certain sectors. There is an urgent need to review this list as, in the absence of a positive list-based categorisation of services, many services in the critical sector remain unattended. For example, while maintenance and repairs of roads is covered under infrastructure-related exemptions, ‘management’ of roads (which was exempt under the earlier regime as ‘management, maintenance and repair service’) does not find a place in the said exemption. Similarly, while care has

been taken to provide a complete exemption to the education sector by providing exemptions on both the input as well as output sides, similar benefits have not been granted to the healthcare sector.Under the partial reverse-charge scheme, certain services, if provided by an individual, HUF, firm or AOP, are taxable in the hands of both service providers as well as service recipients. While the intention behind the introduction of this scheme was to cover the unorganised sector, today, many organised players are also required to comply with this rule. To illustrate, in the case of large infrastructure projects, it is common for big corporate players to pool in their resources and form joint ventures/AOPs to execute the project. By virtue of the partial reverse-charge scheme, service tax is only partly discharged by such AOPs on the work contracts being executed, resulting in an excess credit/adverse cash flow situation. In other cases, the mere nature of the services covered under the partial reverse-charge scheme has led to the tracking of petty transactions, causing operational difficulties and an increased compliance burden on the service recipient. Some relief is desirable on this front, including the introduction of a threshold limit, to remove the hassles faced under the scheme.The most complicated issue in the negative list regime is the concept of ‘bundled services’. Bundled services have been defined as provision of one type of service with another type or types of services. Further, the taxability of the same is determined on the

basis of the manner in which they are bundled i.e. ‘in ordinary course of business’ or not. There is a lack of clarity on the criteria to determine when the services would be said to be bundled ‘in the ordinary course of business’ or when the services will be considered as ‘naturally bundled’.Another concept introduced is that of ‘declared services’, which, for the removal of ambiguity, deems certain activities as ‘services’. One of the activities specified therein is ‘the act of agreeing to the obligation to refrain from an act or to tolerate an act’. Such an inclusion goes beyond the definition of service as refraining from an act itself means that there would be no activity to be performed and the performance of an activity is an essential ingredient to qualify as service. This clause needs to be revisited, and its scope should be limited by means of revisions or explanations.Budget 2013 is one of the most awaited events in the coming days and one hopes that the finance minister would come up with progressive measures to tackle issues brought up by the introduction of the negative list, which in turn will pave the way for a seamless and smooth implementation of GST in the days to come.