Seeing cost sharing from a service tax perspective

The Finance Act, 1994, which provides for the levy of service tax in India, began its journey modestly with three taxable services. Now more than 118 taxable services fall within its ambit. Despite this, strangely, what constitutes a “service” is not conclusively comprehensible even today.

By contrast, the law on value added tax (VAT) on the sale of goods defines both “sale” and “goods”. The Central Excise Act, which provides for duty on the manufacture of goods, defines the term “manufacture”, and umpteen landmark judgments provide further clarity on its meaning.

Defining service tax

Some judgments have elucidated the concept of service tax. For example, in All India Federation of Tax Practitioners v Union of India (2007), the Supreme Court observed that service tax “is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services”.

Kulraj Ashpnani and Rajat Chhabra are associates at Economic Laws Practice. ELP is a full-service law firm with offices in Mumbai, New Delhi, Pune and Ahmedabad.