Tax on Services but What is Service

What constitutes ‘Service’ is certainly a subject matter of discussion. It’s plain meaning is an
Act of helpful Activity or Rendering of Assistance or Help. Service is generally a feeling in the
form of efforts and excludes sale of goods or property or commodities. It pre-supposes
existence of a Service Provider. For Service Tax purposes, if there is no Service, then there
should be no Tax.
‘Somebody’ wrote these beautiful lines what truly reflects the concept of ‘Service’ in our day
to day life: -
“Somebody did a golden deed; Somebody proved a friend in need; Somebody sang a
beautiful song; Somebody smiled the whole day long; Somebody thought, it’s sweet to live;
Somebody said, I’m glad to give; Somebody fought a valiant fight; Somebody lived to shield
the right; that somebody is a service provider.”
Even though Tax has been imposed on the Services by introducing Chapter–V in the Finance
Act 1994, but the term ‘Service’ has not been defined in Act or Rules or by way of any
explanation.
What is ‘Service’ under various popular Dictionary meaning?
Service has been defined differently under various Dictionaries.
Wikipedia, the free encyclopaedia defines economic sense of Service as to, the non-material
equivalent of a good in economics and marketing.
A service is the diametrically opposed non-material counter-piece of a physical good. A
service provision comprises a sequence of activities that does not result in ownership of the
outcome, and this is what fundamentally differentiates it from furnishing someone with
physical goods. Service provision is a process that creates predetermined benefits by
effectuating a change of service consumers, a change in their physical possessions or a
change in their tangible or intangible assets.
‘Service’ definition:
The generic clear-cut, complete and concise definition of the ‘service’ term reads as follows:
A ‘service’ is a set of singular and perishable benefits-
• delivered from the accountable service provider, mostly in close co-action with his
service suppliers,

• generated by functions of technical systems and/or by distinct activities of individuals,

respectively,

• commissioned according to the needs of his service consumers by the service

customer from the accountable service provider,

• rendered individually to an authorized service consumer at his/her dedicated request,

• and, finally, consumed and utilized by the requesting service consumer for executing
and/or supporting his/her day-to-day business tasks or private activities.
The concept of Service can be more definitely explained with the understanding of the
following examples:
Work done by one person that benefits another person.
Work done for others as an occupation or business: has done service for us as a
consultant.
Installation, maintenance, or repairs provided or guaranteed by a dealer or
manufacturer: a dealer with full parts and service.
An act or a variety of work done for others, especially for pay: offers a superior
service to that of his competitors; provides full catering services.
An act of assistance or benefit; a favor.
The serving of food or the manner in which it is served.
To make fit for use; adjust, repair, or maintain: service a car.
Type of business that sells assistance and expertise rather than a tangible product:
the field of management consulting is a service industry.
Useful labor performed by an individual or organization on behalf of others:
Doctors, lawyers, interior decorators, etc. provide services for which they are paid
by their clients.
What is ‘Service’ under Commercial Laws of the Country ?
Now, we may consider the concept of Service as envisaged under the various commercial
laws of India is more or less same in the Commercial Laws.
In contract law, service refers to an act or deed, rather than property.
‘Service’ under the Income Tax means Service of any description which is made available to
potential users and includes the Provision of services in connection with business of any
industrial or commercial nature such as accounting, banking, communication, conveying of
news or information, advertising, entertainment, amusement, education, financing,
insurance, chit funds, real estate, construction, transport, storage, processing, supply of
electrical or other energy, boarding and lodging.
Under the Monopolies and Restrictive Trade Practices Act, Service means service of any
description which is made available to potential users and includes the provisions of facilities
in-connection with banking financing, insurance, chit fund, real estate, transport, processing,
supply of electrical or other energy, board or lodging or both, entertainment, amusement or
the conveying of news or other information but does not include the rendering of any service
free of charge or under a contract of personal service.
Explanation.— For the removal of doubts, it is hereby declared that any dealings in real
estate shall be included and shall be deemed always to have been included within the
definition of ‘service’.
As per the Consumer Protection Act 1986, Service means service of any description which is
made available to potential users and includes the provisions of facilities in connection with
banking, financing, insurance transport processing, supply of electrical or other energy, board
or lodging or both, entertainment, amusement or the purveying of news or other information,
but does not include the rendering of any service free of charge or under a contract of
personal service.
Under the Foreign Exchange Management Act, 1999, Service means service of any
description which is made available to potential users and includes the provisions of facilities
in connection with banking financing, insurance, medical assistance, legal assistance, chit
fund, real estate, transport, processing, supply of electrical or other energy, boarding or
lodging or both, entertainment, amusement or the purveying of news or other information,
but does not include the rendering of any service fee of charge or under a contract of
personal service.
Under the Trademarks Act, 1999 and Competition Act, 2002, Service means service of any
description which is made available to potential users and includes the provision of services in
connection with business of any industrial or commercial matters such as banking,
communication, education, financing, insurance, chit funds, real estate, transport, storage,
material treatment, processing, supply of electrical or other energy, boarding, lodging,
entertainment, amusement, construction, repair, conveying of news or information and
advertising.
As per the International Accounting for Business, Service means something provided, usually
for a fee that may not be classed as manufacturing or production in any form (such as legal
advice, brokerage, agency services and financial advice).
Characteristics of Service:
Services can be paraphrased in terms of their generic key characteristics.
1. Intangibility
Services are intangible and insubstantial: they may not be touched, gripped, handled, looked
at, smelled, tasted or heard. Thus, there is neither potential nor need for transport, storage
or stocking of services. Furthermore, a service cannot be (re)sold or owned by somebody,
neither can it be turned over from the service provider to the service consumer nor returned
from the service consumer to the service provider.
Solely, the service delivery can be commissioned to a service provider who must generate
and render the service at the distinct request of an authorized service consumer.
2. Perish ability
Services are perishable in two regards
• The relevant resources, processes and systems are assigned for service delivery
during a definite period in time. If the designated or scheduled service consumer does
not request and consume the service during this period, the service cannot be
performed for him. From the perspective of the service provider, this is a lost
economic opportunity. Examples: An empty seat on a plane never can be utilized and
charged after departure.

• When the service has been completely rendered to the requesting service consumer,
this particular service irreversibly vanishes as it has been consumed by the service
consumer. Example: the passenger has been transported to the destination and
cannot be transported again to this location at this point in time.

3. Inseparability
The service provider is indispensable for service delivery as he must promptly generate and
render the service to the requesting service consumer. In many cases the service delivery is
executed automatically but the service provider must assign resources and systems and
actively keep up appropriate service delivery readiness and capabilities. Additionally, the
service consumer is inseparable from service delivery because he is involved in it from
requesting it up to consuming the rendered benefits. Example: The service consumer must
sit in the hair dresser’s shop & chair or on the seat in plane; correspondingly, the hair dresser
or the pilot must be in the same shop or plane, respectively, for delivering the service.
4. Simultaneity
Services are rendered and consumed during the same period of time. As soon as the service
consumer has requested the service (delivery), the particular service must be generated from
scratch without any delay and friction and the service consumer instantaneously consumes
the rendered benefits for executing his upcoming activity or task.
5. Variability
Each service is unique. It is one-time generated, rendered and consumed and can never be
exactly repeated as the point of time, location, circumstances, conditions, current
configurations and/or assigned resources are different for the next delivery, even if the same
service consumer requests the same service. Many services are regarded as heterogeneous
or lacking homogeneity and are typically modified for each service consumer or each new
situation (customized). Example: The taxi service which transports the service consumer
from his home to the opera is different from the taxi service which transports the same
service consumer from the opera to his home – another point in time, the other direction,
maybe another route, probably another taxi driver and cab.
Each of these characteristics is retractable per se and their inevitable co-incidence
complicates the consistent service conception and make service delivery a challenge in each
and every case. From the service consumer’s point of view, these characteristics make it
difficult, or even impossible, to evaluate or compare services prior to experiencing the service
delivery.
Mass generation and delivery of services is very difficult. This can be seen as a problem of
inconsistent service quality. Both inputs and outputs to the processes involved providing
services are highly variable, as are the relationships between these processes, making it
difficult to maintain consistent service quality. For many services there is labour intensity as
services usually involve considerable human activity, rather than a precisely determined
process; exceptions include utilities.
Human resource management is important. The human factor is often the key success factor
in service economies. It is difficult to achieve economies of scale or gain dominant market
share. There are demand fluctuations and it can be difficult to forecast demand. Demand can
vary by season, time of day, business cycle, etc.
There is consumer involvement as most service provision requires a high degree of
interaction between service consumer and service provider. There is a customer- relationship
based on creating long-term business relationships. Accountants, attorneys, and financial
advisers maintain long-term relationships with their clients for decades. These repeat
consumers refer friends and family, helping to create a client-based relationship.
Thus, literally, ‘Service’ can be said to have the following salient features :
— Act of helpful activity
— Act of doing something useful
— Rendering of assistance/help
— Anything which does not involve supply or transfer of goods is service
— Transformation of user/user goods as a result of voluntary intervention of service provider
— Intangible commodity in form of human effort
— Excludes sale of goods or commodities or property
— Existence of service provider and service recipient.
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