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CA Sandesh Mundra

Consult Us For Construction

Comments on Negative Service List - Mohan Lavi

Posted by on in Service Tax
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While the Government's move to introduce a negative list is welcome, the list should not become an extension of service tax provisions.

The American actress Mae West once remarked “I generally avoid temptation unless I can't resist it”. Succumbing to, or resisting such weaknesses, may now be chargeable to service tax, since the draft paper on a negative list of services issued by the Government includes a clause “obligation to refrain from an act, or to tolerate an act or a situation, or to do an act” under the definition of service.


If the intention is to tax non-compete fees and other similar payments, the wording of the clause does not give even an inkling of that. A lot of ink has been expended in attempting to define what constitutes a service. The ‘exclusive' portion of the definition excludes anything that does not constitute supply of goods, money or immovable, while the ‘inclusive' portion adds a right to use immovable property, construction of a complex, temporary transfer or permitting the use or enjoyment of intellectual property, leasing and hiring and a right to enter any premises, to the clause on the obligation quoted above.

A long-winded definition offers additional scope for interpretational innovation, leading to disputes. As the definitions of manufacture and sale have evolved with time and are fairly clear now, it would probably be a simpler solution to negatively define a service as anything which is not a manufacture or a sale. The negative list can take care of services the Government intends to exempt from the levy.



The paper debates briefly on the pros and cons of a positive list vis-a-vis a negative list, before deciding on the latter. There cannot be much disagreement on the fact that the present system of regularly adding items to a positive list has made the law lengthy and litigious. Habitually, the Government included items in a positive list and later inserted a few negative lists within the positive list. For example, representation services by chartered accountants were exempt till this year's Budget notifications were published. Continuing with the positive list would have only made it lengthier, which settles the argument in favour of a negative list.

The negative list has been organised into 9 sectors and comprises twenty-seven items. The attempt to include some items from all sectors is apparent. The sectors comprise specified persons, social welfare and public utilities, agriculture and animal husbandry, financial sector, transport, construction and real estate, education, health and others.

First impressions of the list indicate that it is a little long and runs the risk of getting additions at regular intervals. This was one of the shortcomings of the existing service tax regime, wherein service areas were picked and chosen for levy of tax or an exemption. For instance, the negative list under the ‘others' category has an entry “representational services provided by an advocate to an individual”. Other professionals are going to seek a similar exemption based on the concept of equity in taxation.


The negative list does the Government a double favour by excluding transport by rail and services, provided by a clinical establishment with a turnover in excess of Rs 4 crore (as an option) from the list, thereby making them taxable — areas where the Government developed cold feet in the past. The other option for healthcare was to include hospital, medical care, diagnostic, para-medical services, except in relation to preventive health check-up, within the precincts of a clinical establishment, cosmetic or plastic surgery, in the negative list. The negative list also puts to rest the fuzziness regarding levying service tax on renting of immovable property and sale of a SIM-card — both are clearly identified as services.

An instant reaction to the publication of a negative list would be that Goods and Service Tax (GST) will come at some point in the future, since it would be difficult to undo the knots in the present service tax legislation with a negative list, which could lead to plenty of transition issues. It is unclear at present if there would be a separate list of zero-rated items in addition to the negative list. Most countries that have been there and done that in terms of GST have a separate list for zero-rated items.

A zero-rated list seems imminent, since services to Special Economic Zone (SEZ) units do not find a place in the negative list. Having a separate list of zero-rated items provides the Government the flexibility to tax them when felt necessary. This would seemingly work better than removing an item from the negative list. While the move of the Government to introduce a negative list should be appreciated and the chinks in the list would hopefully be removed, the list should not become an extension of the service tax provisions at present.

(The author is a Bangalore-based chartered accountant.)

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CA Sandesh Mundra, Consultant – Management Audit and Indirect Taxation - Chartered Accountant, Diploma in Information System Audit, Diploma in Insurance & Risk Management , Certificate from ICAI on International Financial Reporting Standards. Actively associated with clients in the industrial construction sector since last 9 years.He possesses special skills in structuring the indirect tax component of the works contracts and as management auditor, has visited several construction sites in various states like Orissa, Rajasthan, Gujarat, Maharasthra, Madhya Pradesh etc. During the course of said visits he has been to very large industrial complexes, refineries, power plants etc


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