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Business Auxiliary Services – Is it taxable?



business auxiliary servicesBusiness Auxiliary Services – It means any service in relation to –

  • Promotion or marketing or sale of goods produces or provided by or belonging to the client; or
  • Promotion or marketing of service provided by the client; or
  • Any customer care service provided on behalf of the client; or
  • Procurement of goods or services, which are inputs for the client; or
  • Production or processing of goods for, or on behalf of, the client; or
  • Provision of services on behalf of the client; or
  • A service incidental or auxiliary to any activity specified above, such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a Commission Agent, but does not include any activity that amounts to ‘manufacture’ of excisable goods.

In this context we will provide you the following details  –

Date from which such service is taxable – 1st July, 2003

Service provider – Any person

Service Receiver – A client

Scope of taxable services – Any service provided or to be provided to a client, by any person in relation to business auxiliary service.

Exemptions– Various exemptions have been provided in this context.

1. Exemption to commission agent in relation to sale or purchase of agricultural produce - The business auxiliary services provided by commission agents in this relation are exempt from service tax payment.
2. Exemption to specified services provided in specified sectors – The taxable service provided to a client by any person in relation to the business auxiliary services, as it relates to-

  • Procurement of goods & services, which are inputs for the client
  • Provision of service on behalf of the client
  • Production or processing of goods for, or on behalf of, the client
  • A service incidental or auxiliary to any activity specified above.

3. Exemption to job work in relation to manufacture of diamonds, gem stones and jewellery – The taxable service of production or processing of goods for, on behalf of, the client under the category of business auxiliary services provided by any person in the course of manufacture of –

a) Cut and polished diamonds and gemstones

b) Plain and studded jewellery of gold & other precious metals are fully exempt from service tax payment.

4. Exemption to job worker –The taxable service of production or processing of goods for, or on behalf of, the client is exempt from service tax subject to the following conditions :

i.  Goods are produces or processed using raw material or semi- finished goods supplied by the client

ii. The goods so produced or processed are returned back to the said client for use in or in relation to the manufacture of any other goods on which “appropriate excise duty is payable” i.e. the final product should not be wholly exempt or subject to ‘NIL’ rate of duty.

5. Exemption to business auxiliary service provided by the sub- broker to a stock- broker – The business auxiliary service provided by a sub- broker, to a stock- broker in relation to sale or purchase of securities listed on a registered stock exchange has been totally exempted from service tax payment.
6. Exemption to value of inputs for providing business auxiliary service during manufacture/ processing of alcoholic beverages – The value of inputs, used in providing the business auxiliary service provided by a person to any other person during the course of manufacture or processing of alcoholic beverages by the service provider, for or on behalf of the service receiver, is exempt from service tax payment subject to following conditions –

  • that no CENVAT credit has been taken under the provisions of the CENVAT Credit Rules, 2004
  • that there is documentary proof specifically indicating the value of such inputs.

7. Exemption to service provider in relation to manufacture of specified goods charged to excise duty under Medicinal and Toilet Preparations – The business auxiliary service provided by a person to a client in relation to the manufacture of pharmaceutical products, medicines, perfumery, cosmetics or toilet preparations containing alcohol, being charged to excise duty under Medicinal and Toilet Preparations has been exempted from payment of service tax.
8. Exemption to the manufacture of parts of cycles or sewing machines in relation to Specified Processes – Business auxiliary services provided by a person to any other person in relation to one or more of the “Specified Processes” during the course of manufacture of parts of cycles or sewing machines are exempted from service tax payment.

         Specified Processes includes

  •   Electroplating
  •   Zinc plating
  •   Heat treatment
  •   Power coating
  •   Anodizing
  •   Painting including spray painting or auto black

9. Exemption to transmission of electricity – Taxable services being provided to any person by any other person for transmission of electricity is fully exempted from service tax.
10. Exemption provided to Indian News Agencies – Service tax exemption has been provided to Indian News Agencies under ‘online information and database retrieval service’ and    ‘ business auxiliary services’ if such agency is –

  • Notified as a news  agency set up in India solely for collection & distribution of news
  • Is specified under sec 10(22B) of IT Act, 1961
  • Applies its income or accumulates it for collection and distribution of news & does not distribute its income in any manner to its members.

11. Abatement of 30 % of the gross amount charged in case of processing of parts & accessories services used in the manufacture of cycles, rickshaws & hand operated sewing machines for client – This abatement is provided when the gross amount charged from the client is inclusive of the cost of inputs & input services, whether or not supplied by the client.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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