Economy & Nation Exclusive
No service tax on financial leasing services

The Union Budget 2012 has introduced universal service tax. All services other than those that are negative-listed are liable to service tax. However, as the transfer of right to use is completely taken out from the purview of service tax, operating lease and financial lease are completely out of service tax

The Union Budget 2012 has introduced universal service tax-that is, all services other than those that are negative-listed are liable to service tax. The negative list is a narrow band of 17 services. The markets in general and the consumers have reacted adversely to this. The reaction is natural-as service tax is an indirect levy and affects cost of goods and services across the board. Given the list of 17 services, there is apparently no exemption for banking and financial services, and consequently all banking services, other than merely interest have come for service tax.

However, an interesting point that emerges is-what about leasing contracts? It is a matter of common knowledge that the option to lease capital goods, instead of taking a loan, was quite popular in the early 1990s in India when introduction of sales tax, and later on, introduction of service tax, made that business very complicated. Recently the Supreme Court in the case of Association of Leasing and Financial Services upheld the levy of both service tax and sales tax on certain lease transactions. It should be noted that "transfer of right to use goods" is included in the definition of "sale" under sales-tax/ VAT laws. Financial leasing was also covered by the definition of "banking and financial services" under service tax.

With the introduction of universal service tax, a question that comes is-what will be the position of operating leases and financial leases for service tax purposes?

Universal definition of "services"
The service tax law as proposed in the Budget has introduced a universal definition of "service". The proposed section 65B (44) of the Finance Bill defines "service" to mean any activity carried out by a person for another for consideration, includes a "declared service", but excluding  a transfer of title in goods or immovable property, transaction in money or actionable claims, and services by an employee to an employer. All other services are included within the framework of services, unless they are covered by the negative list given in Section 66D.

The concept of "declared services" is perhaps clarificatory and assertive-to state the legislative intention that these services will, without getting into whether there is an element of service involved in such activities or not, be necessarily included in the definition of "services". Therefore, all declared services are services.

Transfer of right to use goods:
The finance minister has repeatedly stated that the introduction of universal service tax is to pave the way for a comprehensive GST. Under a comprehensive GST, it cannot be that the same activity is liable to tax under two separate heads. Therefore, the overlaps between sales tax/VAT and service tax, which exist currently, get eliminated under GST.

In light of the fact the "transfer of right to use" is defined as "sale" under sales tax/VAT laws, there is a good reason to say that a transaction involving transfer of right to use goods should not come under service-tax law.

Now, in light of this, let us have a look at the list of "declared services" under Section 66E. Item (f) provides for the following: (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods (emphasis supplied).  The first few expressions-hiring, leasing, licensing, etc-are intended to cover transactions of leases. But then the excluding expression-"without a transfer of right to use goods" would mean, wherever there is a transfer of right to use goods, the transaction will not be a declared service, and therefore, not a service. The idea of "declared services" is to explicitly include certain services and that explicit inclusion clause explicitly excludes a case where there is a transfer of right to use goods, the exclusion should be given effect to.

A question that may come up is-if the idea is to exclude transfer of right to use goods, then why would the law include leasing, hiring, etc. After all, what is leasing other than the transfer of right to use goods. In fact, the present service tax law also has a clause-65 (105) (zzzj) which covers supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliance. This clause flows from the ruling of the Supreme Court in Bharat Sanchar Nigam  and  other rulings which distinguished between "transfer of right to use" and "provision of right to use", such that in transactions where control is not handed over, the transaction will not amount to a transfer of right to use.

There is a good justification in the proposed amendments intending to exempt "transfer of right to use goods"-as discussed earlier. Transfer of right to use goods is chargeable to sales-tax/VAT, and hence, it is logical that service tax should not override on the domain occupied by sales tax.

Consequence on financial and operating leases:
In our view, as the transfer of right to use is completely taken out from the purview of service tax, we are of the view that operating lease and financial lease are completely out of service tax.

We are of the view that this is clearly a booster for the leasing industry, which is seemingly reviving. VAT continues to apply, but VAT is offsettable.

Good days are back for the leasing industry!

(Vinod Kothari is internationally recognised as an author, trainer and expert on specialised areas in finance, including securitisation, asset-based finance, credit derivatives, accounting for derivatives and financial instruments, microfinance, etc.)


Economy & Nation Exclusive
Hike in service tax, excise duty to put additional burden on aam aadmi

On one hand the finance minister doled out minor income tax benefits but on the other hand he put additional burden of 20% hike in service tax and excise duty on the common man

The Union Budget for FY2012-13, by and large, remained a non-event. Moneylife brings experts reactions, welcoming and opposing the budget.

The Confederation of All India Traders (CAIT) has criticised the union budget, calling it an inflammatory document. "…will encourage inflation and will wreck the bone of "aam aadmi" of the Country. Surprisingly just immediate before the budget, the reduction of interest on provident fund from 9.5% to 8.25% will crush the salaried class-said. Increase in Service Tax and Excise Duty from 10% to 12% will make everything costly in the Country. The overall impact of increase in Excise and Custom will prove to be inflammatory." 

In the light of the Finance Bill 2012 presented today, the finance minister has proposed a retrospective amendment (with effect from from 1 April, 1962) with a view to expand the scope to neutralize the Supreme Court decision in the case of Vodafone. Sandeep Ladda, Executive Director - Tax & Regulatory Services, PwC India, said, "The Government has sought to amend the Income tax law retrospectively to bring into the tax net Vodafone-Hutchison type of transactions.  This is with a view to override the recent Supreme Court decision.  Such a move by the Government is likely to create a lot of uncertainty for the global investor who is looking at investing into India."
Prithviraj Kothari, managing director, Riddisiddhi Bullions Ltd says that, "Budget 2012 has been a disappointing one. We strongly oppose this budget. It will create a negative impact not only for the bullion and jewellery dealers but also for the common man. We can say that government has levied an extra 2% duty on the common man. Increase in gold prices along with this increase in duty- how will the common man survive? This move will create a slump in the market and result in smuggling and opening up of other illegal channels to get gold in India. The only positive point is the removal of excise duty on silver branded jewellery. But I personally don't think that will really help."

Srini, Hyderabad-based healthcare activist, said that, "Government has completely surrendered the health sector into the hands of private-corporate entities by weakening govt health care and strengthening private health care. It has paid lip service thorough NRHM & NUHM services to common man across the country. This budget looks like depriving common man of their fundamental rights in health care. They have not provided for strengthening the scientific research in health care across the country," says

Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India says that, "The increase in the service tax rate from 10% to 12% will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users. Allowing External Commercial Borrowing (ECB) for affordable housing is, without doubt, an excellent move. It will ensure better capital availability for developers of low-cost housing. This sector is typified by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes."

Sunil Duggal, CEO, Dabur India Ltd, says that, "There are some positives in the Budget by way of a 2% cap on subsidies and its progressive reduction over the next few years, greater focus on Infrastructure, promise to curb black money and capital market reforms. It is heartening to see that the government has recognised the importance of infrastructure for future growth and is taking steps to augment infrastructure across the board, be it power, roads or civil aviation. However, the lost opportunities far outweigh the positives. There is no consensus or move forward in permitting Foreign Direct Investment (FDI) in multi-brand Retail and Aviation. This is surely a missed opportunity."

Neeraj Gulati, MD, Assotech Realty said, "By providing external commercial borrowings (ECB) for low cost affordable housing projects, it has helped to lower interest cost for developers. But there are some unfavourable aspects, like no legislation on Real Estate Investment Fund, no implementation of DTC and no talk on real estate regulator, No relaxed norms for repatriation of FDI in real estate to make the market more investment friendly. Last year, a 1% interest rate subsidy was provided for loans towards affordable housing. Realty sector wanted the scope of this subsidy to be amplified and broadened to include a wider price band of budget housing to benefit home buyers, especially in lower income groups. There has been no development on this,"

Pawan Chaudhary, CMD, Venus Remedies Ltd, said, "An additional Rs5,000 deduction for preventive health check up would also help the pharma sector indirectly and will provide headway for a better health culture in the country. A weighted deduction of 150% on capital expenditure to a hospital shall also augur well for the health-care sector."

Sachin Sehgal, director, Ore Team said there would be no radical shift as of now in the market as the budget is being called a 'neutral' budget.  "There is no introduction of any new incentives or subsidies as of now to either iron ore or steel as a package. The only advantage is the customs reduction but on the other hand the service tax and excise duty have been hiked to 12 per cent.  So the gains have been already washed off."


Sachin Tendulkar creates history with 100th century

With his 100th century, Sachin Tendulkar not just created history with the new record, but also took away all the limelight from the union budget and Pranab Mukherjee

Mirpur, Bangladesh: Iconic Indian batsman Sachin Tendulkar on Friday scripted history by becoming the first cricketer in the world to score 100 international centuries, a phenomenal feat which may remain unconquered for years to come, reports PTI.

Tendulkar, who already has a pile of runs and records to his credit, achieved the incredible milestone when he turned spinner Shakib-ul Hasan towards fine-leg in the Asia Cup match against Bangladesh here.

The star batsman first looked heavenwards and then acknowledged the cheers of his teammates and the crowd by lifting his bat.

It was the end of a long wait for the 38-year-old veteran, who had gone 33 innings and a year without a century. The right-hander made his 99th international ton in a World Cup match against South Africa in Nagpur on March 12.

Since then it had been an agonising wait for the maestro, whose every inning was watched with anticipation. He came close on quite a few occasion only to miss the milestone so much so that it became a huge monkey on his back and an unwanted distraction during every series that India played.

He was woefully out of form during India's Test and ODI whitewash at the hands of England last year and though he recovered quite a bit in the later series, the hundred was still not coming.

He carried the weight of expectation to what turned out to be a horror tour of Australia. Tendulkar seemed to be in good touch during the Tests but his form waned after he missed the 100th hundred despite coming close a few times.

Following this, he made himself available for the ODI tri-series against Sri Lanka and Australia but there too, the milestone proved elusive.

But the wait finally ended in familiar sub-continental environs.

With an over two decade long career, records are fairly routine for Tendulkar but for the cricketing fraternity every run he scores just adds to the legend that the diminutive right-hander has become.

The champion batsman has perhaps every batting record that is there to be taken under his belt and adding to the countless tally is the historic hundred he scored against England in the post-lunch session.

Much before his debut on November 15, 1989, Tendulkar's precocious talent was there to be seen when he shared an unbeaten 664-run stand with buddy Vinod Kambli in the Lord Harris Shield Inter-School Game in 1988.

The 1989 international debut was far less spectacular, in fact forgettable. A Waqar Younis bouncer left him with a bleeding nose but Tendulkar did not wince and the next two decades saw him punishing bowlers all over the world on all kind of surfaces.

His first Test century came in England next year at Old Trafford and the Mumbaikar rose in stature after the 1991-92 tour of Australia, hitting sublime centuries on a Sydney turner and a Perth minefield.

The rest is history. No existing batting record seemed safe. Other than Brian Lara's Test match highest of 400 not out and first class highest score of 501 not out, every batting record became Tendulkar's.

A staggering 15470 runs scored in 188 Tests at a robust average of 55.44 confirmed Tendulkar's greatness in the longer version of the game.

And in the 462 ODIs he played, a whopping 18,260 (before the Asia Cup match against Bangladesh) were added to his mountain of runs at an average of 44.64.

Tendulkar is also the only batsman in the world who has scored a double ton in ODIs, a feat he achieved in Gwalior against South Africa in February. This feat was included in 'Times' magazine's top 10 sports moments of the year.

A perfect teamman, Tendulkar has limited his Twenty20 ambition to the Indian Premier League where he leads Mumbai Indians, ruling himself out of national reckoning lest it upsets the existing equilibrium of the side.

The biggest compliment to his batting came from Sir Donald Bradman himself in 1999 when he said that Tendulkar's style of playing resembled his style. "That touch I used to feel when I batted," he had said.

Tendulkar's colossal batting exploits have completely overshadowed his utility as a part-time bowler who reveled in breakthroughs.

He was a complete enigma with the ball, sending down military medium pace, orthodox leg-break and off-spin with the guiles that often caught batsmen off their guard.

His 45 Test wickets and 154 scalps in ODIs underline the fact that Tendulkar could have also staked claim to be that elusive all-rounder that India has been desperately looking for since the legendary Kapil Dev. But shoulder problems have not allowed him to bowl as much as he and the team would have liked.

In the field, he is among the safest pair of hands in the slip and his flat throw releasing strong arm saw him manning the deep with equal aplomb. He has taken 113 catches in Test cricket and 140 in the ODIs.

The aura only grew in strength because of his impeccable demeanour, on and off the field.

His father's death had a deep impact on him and Tendulkar still looks heavenwards whenever he crosses a milestone to seek his blessing.


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