compliance for services businesses

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Ananya Shukla

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2A simple, fast and inexpensive compliance management tool designed for small and medium business

The Service sector covers a wide variety of activities like real estate, business services, financing, transport, storage and communication, insurance, community, social and personal services, trade, hotel and restaurants and services associated with construction.

The Consumer Protection Act, 1986 includes services like banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, entertainment, amusement.

The Service Tax Act, 1994 includes numerous services like Beauty treatment Services, Broadcasting Services, Business Auxiliary Service, Clearing & processing house services, Commercial training or coaching services, Courier Services, Credit rating agency's services, Dredging services, Health Services etc.

Today the service sector is the key driver in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment.


Indian Medical Association vs. V.P. Shantha and Ors. (1995 SCC (6) 661)Service rendered at a Government hospital/health center/dispensary where no charge whatsoever is made from any person availing the services and all patients (rich and poor) are given free service - is outside the purview of the expression 'service' as defined in Section 2(1)(o) of the Act.Service rendered at a Government hospital/health center/dispensary where services are rendered on payment of charges and also rendered free of charge to other persons availing such services would fall within the ambit of the expression 'service' as defined in Section 2(1)(o) of the Act irrespective of the fact that the service is rendered free of charge to persons who do not pay for such service. Service rendered at a non-Government hospital/Nursing home where charges are required to be paid by persons who are in a position to pay and persons who cannot afford to pay are rendered service free of charge would fall within the ambit of the expression 'service' as defined in Section 2(1)(o) of the Act irrespective of the fact that the service is rendered free of charge to persons who are not in a position to pay for such services.

Karnataka Power Transmission Corporation. and anr. vs. Ashok

Iron Works Pvt. Ltd. (MANU/SC/0158/2009)

Supply of electricity to a consumer would be covered under Section 2(1)(o) of Consumer Protection Act being

'service'.

Dr. A.S. Chandra vs. Union of India (1992(1)ALT713) Division Bench of Andhra Pradesh High Court has held that service rendered for consideration by private medical practitioners, private hospitals and nursing homes must be construed as 'service' for the purpose of Section 2(1)(o) of the Act.

Lucknow Development Authority vs. M.K. Gupta (AIR 1994 SC 787)The entire purpose of widening the definition of `service' under Section 2(o) of the Consumer Protection Act is to include in it not only day to day buying and selling activity undertaken by a common man but even such activities which are otherwise not commercial in nature yet they partake of a character in which some benefit is conferred on the consumer. the definition is not exhaustive.

Kishore Lal vs. Chairman, Employees State Insurance Corporation (MANU/SC/2148/2007 ) Medical service rendered in the ESI hospital/dispensary by the Respondent Corporation falls within the ambit of Section 2(1)(o) of the Consumer Protection Act.


Section 65b(44) of Finance Act, 2012

“Service” Means Any Activity Carried Out By A Person For Another For Consideration, And Includes A Declared Service, But Shall Not Include;(A) An Activity Which Constitutes Merely,I. A Transfer Of Title In Goods Or Immovable Property, By Way Of Sale, Gift Or In Any Other Manner; OrIi. A Transaction In Money Or Actionable Claim(B) A Provision Of Service By An Employee To The Employer In The Course Of Or In Relation To His Employment.(C) Fees Taken In Any Court Or Tribunal Established Under Any Law For The Time Being In Force.

Section 2(o) of Consumer Protection Act, 1986

“Service" means service of any description which is made avail able to potential users and includes, but not limited to, the provision of facilities in connection with banking, financing insurance, transport, processing, supply of electrical or other energy, board or lodging or both, housing construction, 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.


1. A restaurant is a business establishment which prepares and serves food and drink to customers in return for money, either paid before the meal, after the meal, or with a running tab. Apart from manufacturing various dishes, there is also a service element involved in the services provided by a restaurant. A restaurant also manufactures food items and then serves the same, of which service portion is only 40% of the total amount, balance 60% represents goods or for manufacturing activity.

3. Job Work• A large number of industries depends on outsiders

support for many things like testing, processing on raw material etc., for completing/semi completing the manufacturing process. Thus, the activity undertaken by small industries to complete the process on raw material/semi-finished goods as desired by principal manufacturer is known as "Job Work".

• If the process undertaken by the job worker amounts to manufacture as per the definition or decided case laws, the job worker would be liable to pay duty of excise on the goods so manufactured.

• Where the processing undertaken by the job worker does not amount to manufacture, the said job work could be liable to service tax.

2. Software can also be liable to Service Tax, VAT, Excise Duty, Customs Duty etc. depending on the nature of transaction whether it is sale of ‘goods’ or ‘service’ or ‘both’.


4.Packaging Services: “Packaging activity” means packaging of goods including pouch filling, bottling, labelling or imprinting of the package, but does not include any packaging activity that amounts to ‘manufacture’ within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).In Assistant Collector of Central Excise, Guntur vs. Andhra Fertiliser Ltd. (1989 175 ITR 549), the Supreme Court held that the manufacture of fertilisers would be complete only upon loading them into bags, which would make it marketable. The Supreme Court held that without the packing activity the fertilisers would not be marketable. Thus when packaging activities become ancillary to the manufacturing process, it becomes part of manufacture of the product otherwise it will be part of Services rendered and service Tax will be levied on such packaging activity.

5. Cleaning Activity:"Cleaning Activity" (Section 65(24b) of the Finance Act, 1994) means cleaning, including specialised cleaning services such as disinfecting, exterminating or sterilising of objects or premises, of -(i) commercial or industrial buildings and premises thereof; or(ii) factory, plant or machinery, tank or reservoir of such commercial or industrial buildings and premises thereof, but does not include such services in relation to agriculture, horticulture, animal husbandry or dairying;

6. Services that a manufacturer provides to the end Consumer. Eg: Management, Maintenance or Repair.

Satnam Overseas Ltd. v. Commissioner of Central Excise A certain process would be treated as "manufacture" only if new product known to market came into existence with original product losing its original character. Mere addition to addition would not make it different product if the primary and essential character of the product after addition still remained same. There has to be a transformation of the product into new commodity, commercially known as distinct and separate commodity. Thus when any activity like packaging, cleaning, polishing, repairing becomes ancillary to the manufacturing process then it becomes part of manufacture.


Compliances on the Basis of Activity

Start of Operations

Ongoing Compliances

Shifting/Closure of Operations

• Registrations• Approvals• Permissions• Licenses• Consents

• Periodic Filings• Display Requirements• Maintenance of Registers and

Records• Maintenance of policy documents• Payment obligations

• Sending Notices• Notice of Closures• Full & Final Settlements


Compliances on the Basis of Other

Aspects

Industry Type Locations Strength of Workmen

• Telecommunication• IT and ITES• Research and Development• Automobile Service• Retail• Tourism and Hospitality• Healthcare• Education and Training• Media and Entertainment

• Central Act and State Rules• State Act and State Rules

• EPF• ESI• Contract Labour Act• Inter-state Migrant

Workmen Act• Provisions under

Industrial Disputes Act


Applicability of Laws for Service Sector

Definitely Applicable May be Applicable

• Employee Provident Fund Act • Payment of Bonus Act• Employees State Insurance Act• Payment of Gratuity Act• Electricity Act• Industrial Disputes Act• Equal Remuneration Act• Information Technology Act• Fire Safety Act• Professional Tax Act

• Legal Metrology Act• Air Act• Water Act• EIA Notification• Petroleum Act• BIS Act• Bio-medical Waste Management Rules• E-waste (Management) Rules• Motor Vehicles Act, 1988• Lifts and Escalators Act• Food Safety and Standards Act


Processes to provide quality service without compromising on compliances

Without Existing ProcessWith Existing Process

Create effective Compliance Management System through comprehensive compliance landscaping and allocate duties

Perform Gap Analysis of existing process to find loopholes. Fill in gaps and allocate responsibilities

• Align company policies with the statutory compliances that are either existing or are identified as applicable• Plan out a compliance map for contingent events• Legal Audit: Ongoing compliance monitoring• Training and education• Having Centers of Excellence (CoE)• Risk and Control Assessments• Documentation and Preservation of Records


In case of an existing/ going concern if you already have a system in place to follow the compliances then you should do a gap analysis between laws you already follow and the laws that you need to follow.

Identify the compliances to be followed under these statutes. Collate it with your existing system of compliance management.

An effective mechanism should be in place to review and keep a check on the extra compliance activities done by the personnel to whom it was allocated and the same should be done before the due date of the compliances arrive.


• Identify the applicable Statutes that your company or organization has to comply with.

• Detect if any exemptions as notified by the Central or State Government is applicable to your unit or company, for example factories located at SEZs get tax exemptions.

• Create appropriate structures reporting directly to the leadership or the Management/Board of Directors

• An effective compliance management system mitigates the adverse impacts on achieving objectives.

• All the compliance activities need to be segregated and allocated department wise. For eg. The Human Resource Management will take care of the Labour and Employment related Laws, the Finance Department will take care of the Fiscal Compliances, The company secretary will handle the corporate compliances etc.

• The company should have an effective mechanism in place to review and keep a check on the compliance activities done by the personnel to whom it was allocated and the same should be done before the due date of the compliances arrive.


Prevention of Sexual Harassment at workplace

Align company policies with the statutory compliances that are either existing or are identified as applicable

Waste Management policies

Maternity benefit

Leave policy

IT policy

Company Ethics

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