In the present regime of separate taxes on manufacture of goods (Central Excise) and on service (Service Tax) there is no positive definition of manufacture of goods or of services. The definitions are inclusive or in some cases enumerative. By inclusive definition we mean expressions like, “manufacture includes”. By enumerative we mean that for each type of goods or for each service the expression used is like, “design services includes …......”. In some cases individual services have been positively defined like “courier agency means ….....”. There is no general definition either of manufacture of goods or services. This regime has been going on for a long time but now when we introduced goods and services tax (GST) we may have to define goods and also services positively. First issue is – do we need positive definition. Second issue is – what should be the definition.
Let me make the conceptual position clear first. The taxable event now is the act of manufacture for goods under Entry 84, List-1 of Schedule VII in the Constitution. The taxable event for service tax is supply of service as per Entry 92 C of the same List. Once it becomes GST, the taxable event will change. It will be the act of adding value by supply (sale) of goods and services. There will be no need of definition on manufacture. There will be no need of distinguishing between goods and services. Manufacture will meet with its demise. The demise of manufacture will be the biggest event. So all that we will have to define will be goods and services.
The definition of goods now in the Central Excise Act is the following:
1. 'Goods' includes any article, material or substance, which is capable of bought and sold for a consideration and such goods shall be deemed to be marketable. The new definition need not have the expression 'and such goods shall be deemed to be marketable' because the question of marketability will be irrelevant. But it will be necessary to clarify that immovable property is not included. And a major change will be that unmanufactured goods will also be subject to GST.
Now, there is no excise duty on live animals such as horse and dogs. When the GST comes a sale of horse and dogs will attract tax. So the final definition should be like this: “Goods means any article, material or substance which is capable of being bought and sold for a consideration and does not include immovable property”.
However, there has to be a negative list for goods which will be exempted and such goods will have to be defined. Supposing bread or sweet meat are exempted. They will have to be defined if the common parlance understanding is not very clear.
So far as the service is concerned the present definitions are sometimes inclusive and sometimes enumerative for each individual item. Such individual definitions will be irrelevant because it will be a comprehensive tax on all goods and services. There will be no existence of individual goods and individual services. So service by itself will have to be defined.
Defining service is quite difficult but we may go by international experiences. Definition in Canada is the following:
“Anything other than property (tangible, intangible, real, personal, moveable, immoveable, corporeal, incorporeal).
Anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person”.
Services means anything done or to be done, including the granting, assignment, cession or surrender of any right or the making available of any facility or advantage, but excluding a supply of goods, money or any stamp, form or card.
Anything which is not a supply of goods but is done for a consideration (including, if so done, the granting, assignment or surrender of any right) is a supply of services.
A supply of services means anything which is not a supply of goods or money.
A service is any commercial activity other than a supply of goods. Services also include refraining from doing something and the granting and surrendering of a right.
Services are defined as all commercial supplies that do not constitute supplies of goods
Anything which is not a supply of goods but is done for a consideration (including, if so done the granting assignment or surrender of any right) is a supply of services.
So we should have a definition of service which is like this, “Service means any activity which does not constitute supply of goods , money or immovable property.' There is no need for exclusions or inclusions.