services by employer to employees may be taxable under service tax

We all know that new system of taxation of services with kick start from 1st of July. In the new system, all services are taxable if it is not in the negative list or any exemptions list.

A question may arise like this, whether services provided by employer to employees are liable for service tax under new system?

If we refer the definition of the term 'service' as contained in section 65B (44), provision of service by an employee to the employer in the course of or in relation to his employment is excluded from the definition of the term 'service'. Hence, service by employer to employee is outside service tax net.

But what about services by employer to employee?? Is there any such services normally provided? Is it attract service tax with effect from 01.07.2012?

The Guidance note issued by CBEC states as follows:-

2.9.1 Are all services provided by an employer to the employee outside the ambit of services?

No. Only services that are provided by the employee to the employer in the course of employment are outside the ambit of services. Services provided outside ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service. Likewise a person engaged by the employer in private capacity and beyond the demands of employment will be taxable.

If we read through the above answer by CBEC, there seems a mistake in the Question itself. The question pertains to services by employer to employee, but the answer is given considering the service by employee to employer.

Whether the question is wrong or correct, let us leave it. What about our basic question - whether services by employer to employee taxable?

Consider the following situations:-

1. Reimbursement of expenses by employer from employees by way of deduction from salary or otherwise.

2. Concessional transportation facilities to employees.

3. Subsidized food to employees.

There may be several this types of receipts by employers which may be liable for service tax under new system of taxation of services which are effective from July 1st.