The Hindu Business Line : The amusing case of service tax lingo

IT is very likely that more services get into the tax net today. As a result, there're going to be more disputes too between the taxpayers and the Government, to serve well perhaps the legal community.

Recently, the Chennai CESTAT (Customs, Excise and Service Tax Appellate Tribunal) decided a case that involved MRF Ltd and the Commissioner of Central Excise. The amount at stake was Rs 53,075 that the taxman demanded as service tax on charges paid by MRF to Tyreign Inc, a US company.

The payment was towards `consulting engineer service' said the Excise Department, but MRF said that the service was one of `scientific and technical consultancy'. While `consulting engineer service' became taxable from 1997, the latter, that is, `scientific and technical consultancy' was included in the list of taxable services only on July 16, 2001. MRF's contention was advantageous to the company because the payment in question had been made earlier to that date.

As one would know from the text of the tribunal's order, Fred Lewis, Director and Secretary of Tyreign, gave onsite technical support, technical training, field engineering support in Western hemisphere, raw material purchase support, and equipment inspection. He also gave complete technical information, methods, procedures, data and techniques to MRF.

What gave hope to the Department was the definition of `consulting engineer service' as "advice, consultancy, or technical assistance in any manner in one or more disciplines of engineering." The `scientific and technical consultancy' that MRF spoke of reads in the tax provision as service "by a scientist or a technocrat, or any science or technology institution or organisation."

Quite tricky, you'd agree, if one has to interpret the definitions and solve the dispute. So, what did MRF do? It dropped a bombshell saying that though Fred Lewis gave service for the company's "research and development activities with regard to automotive tyres," he was only a chemistry graduate, not a civil/ mechanical/ electrical engineer. In such as case, would it be right to call his service `consulting engineer service', asked the company? The decision went against the Revenue.

Normally, nobody sympathises with the taxman when he loses a case, but this decision can stir up some queasy questions such as whether we have to redefine what's `scientific', especially after a desi kid topped the `NASA' exam! For all you know, there can be many more cases in the pipeline seeking to benefit from the assessee-friendly ruling that emerged in the case of MRF.

Leaving that aside, let us cogitate on what may be the likely services that Chidambaram may include in the Budget. Rather than tax you with something serious, I can amuse you with inputs from the Missouri Department of Revenue. For, it taxes `amusement'. Such as "amounts paid for admission and seating accommodations, or fees paid in or to places of amusement, entertainment, recreation, games and athletic events."

There are decided cases, over time, on how the taxman has chased many different forms of amusement into putting money into the kitty. Thus, bowling fees and shoe charges, and coin operated amusement device receipts are taxable. "The following are deemed TO BE places of amusement by case law," states www.dor.mo.gov listing out adult bookstores, religious summer camps, nightclubs, hot air balloon rides, helicopters hired for sightseeing, and so on. Thankfully, `places of amusement' do not include parking lots, hotel lobbies, bus stations, rivers, airports and time-sharing resorts.

An interesting case on the site is that of Wilson's Total Fitness Center, which offered "strength, cardiovascular, nutrition-weight control, swimming, massage, basketball, tennis, and related activities for its members."

A tough call for the court because "the fine line between exercise that is primarily focused upon health benefits and exercise that is primarily focused on recreation couldn't be distinguished in a meaningful and consistent manner." Yet, the end result was: pay tax!

So, a good source of entertainment can be service tax cases, but let me caution you that a humourless tax law can seek to profit from amusement too by levying a service tax on top of entertainment tax that many States impose. In which case, you may have to laugh in private.

E&OE@TheHindu.co.in

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