Meaning and scope of term ‘service’ under service tax

By | November 22, 2013

Meaning and scope of term ‘service’ under service tax

Service is (Sec 65B (44))

  • Any activity
  • For consideration
  • Carried out by a person for another
  • And includes a declared service

In the absence of any of these essential ingredients, the activity will be not be considered as service. Also, the activities which are covered under the declared service category will automatically become service

But ‘Service’ does not include –

  • Any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner
  • A transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
  • A transaction only in (iv) money or (v) actionable claim
  • A service provided by an employee to an employer in the course of the employment.
  • Fees payable to a court or a tribunal set up under a law for the time being in force

All services, other than services specified in the Negative List, provided or agreed to be provided in the ‘taxable territory’, by a person to another would be taxed.


‘Activity’ has not been defined in the Act. In terms of the common understanding of the word activity would include an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation.

Activity could be active or passive and would also include forbearance to act. Agreeing to an obligation to refrain from an act or to tolerate an act or a situation has been specifically listed as a declared service under section 66E of the Act.


“Consideration” includes any amount that is payable for the taxable services provided or to be provided.

In simple terms, ‘consideration’ means everything received or recoverable in return for a provision of service which includes monetary payment and any consideration of non- monetary nature or deferred consideration as well as recharges between establishments located in a non-taxable territory on one hand and taxable territory on the other hand.

Activity carried out without any consideration like donations, gifts or free charities are therefore outside the ambit of service. For example grants given for a research where the researcher is under no obligation to carry out a particular research would not be a consideration for such research.

Donations to a charitable organization are not consideration unless charity is obligated to provide something in return e.g. display or advertise the name of the donor in a specified manner or such that it gives a desired advantage to the donor.

Monetary consideration

‘Monetary consideration’ means any consideration received in the form of money. ‘Money’  includes not only cash but also cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler’s cheque, money order, postal or electronic remittance or any such similar instrument.

Non-monetary consideration

‘Non-monetary’ consideration essentially means compensation in kind such as the following:

  • Supply of goods and services in return for provision of service
  • Refraining or forbearing to do an act in return for provision of service
  • Tolerating an act or a situation in return for provision of a service
  • Doing or agreeing to do an act in return for provision of service

To be a service an activity has to be carried out for a consideration. And fines and penalties which are legal consequences of a person’s actions are not in the nature of consideration for an activity.

The consideration for a service may be provided by a person other than the person receiving the benefit of service as long as there is a link between the provision of service and the consideration. For example, holding company may pay for services that are provided to its associated companies.

By a person for another

Provided by one person to another’ signifies that services provided by a person to self are outside the ambit of taxable service. Example of such service would include a service provided by one branch of a company to another or to its head office or vice-versa.

There are two exceptions of said provision

An establishment of a person located in taxable territory and another establishment of such person located in non-taxable territory are treated as establishments of distinct persons.

An unincorporated association or body of persons and members thereof are also treated as distinct persons.

Who is a ‘person’?

‘Person’ is not restricted to natural person. ‘Person’ has been defined Section 65 B of the Act. The following shall be considered as persons for the purposes of the Act:

  • An individual
  • A Hindu undivided family
  • A company
  • A society
  • A limited liability partnership
  • A firm
  • An association or body of individuals, whether incorporated or not
  • Government
  • A local authority, or
  • Every artificial juridical person, not falling within any of the preceding sub-clauses.

If services are provided by one department of the Central Government to another department of the Central Government or by a department of a State Government to another department of the same State Government then such service would not be taxable as it would amount to self-service. To be taxable a service has to be provided to another person.

On the other hand if a service is provided by a Central Government department to a State Government department or vice versa or a by a State to another State Government or by a Government to an autonomous body, the same would be taxable if such service does not falling the negative list.

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