Excluding ‘Actionable Claims’ from Service Tax: A Bonanza for Service Providers?

Abstract

The Finance Act, 1994 levies service tax on taxable services. The legal position prior to 01.07.2012 was that the taxable services were specifically defined in Section 65 of the Act. The taxable event and the types of legal entitles liable to tax were also specifically provided for each of the services in Section 65 itself. This legal position was changed by amendments carried out by Finance Act, 2012. In terms of these amendments, the levy of service tax is now in terms of the ‘negative list’. This implies that any ‘service’ which is not covered under the ‘negative list’ and not specifically exempt is liable to service tax.

In as much as all the exclusions are not liable to service tax, it is important to determine the scope and ambit of these exclusions. One such exclusion is ‘transaction in actionable claim’. This exclusion is very wide and the expression has received extensive judicial scrutiny. This paper examines the scope and cover of this exclusion from the ambit of service tax to conclude that this exclusion may turn out to be a bonanza for service providers to the detriment of the Government’s intent to expand the base of service tax.

Keywords: actionable claim, service tax, India

JEL Classification: E62, H21, H25, H29, K34