Appropriate classification of activities carried out by the service provider is of

utmost importance.The effective rate of the service tax varies from one taxable
service to another. Thus to determine the correct effective rate of service tax, it
is essential and of foremost importance that the service is properly classified.

Moreover, one may tend to lose some legitimate benefits due to

misclassifications. Incorrect classification of taxable service may result into non-
availability of certain exemptions or abatements. Thus, the assessee ends up
paying more service tax than what is actually required by the law. It may also
happen at times that certain exemption or abatement are not available to the
service provider however, due to misclassification the assessee may
unknowingly avail such benefit and as a consequence, the department may in
future initiate recovery proceedings along with interest and penalty.

Business Auxiliary Service (BAS) is one of the most important services in the
eyes of revenue department. It covers abroad spectrum of activities including
marketing, promotional activities, production, job-work etc., whereas "support
services of business or commerce" (BSS) means services provided in relation
to business or commerce and includes evaluation of prospective customers,
telemarketing, processing of purchase orders and fulfillment services, and other
transaction processing. These activities might seem to be overlapping with
those of BAS and thus create confusion as regards with proper classification. If
a service is classified under one category, the tax liability may start from earlier
period than other category. For example, service tax on Business Auxiliary
Service (BAS) was levied from July 01, 2003, whereas service tax on Business
Support Service (BSS) was levied from May 01, 2006.

On a closer look, one sees the overlapping activities between BSS and BAS.
The moot distinction between the two categories is that in comparison to the
BSS category, the category of BAS is more specific. There can be confusion at
times where the services provided such as billing, payments, collection,
remittance etc. are in relation to business or commerce. But essential difference
between the two categories is that BAS covers outsourcing transactions within
specific functional areas whereas BSS covers outsourcing transactions in
general.

One of the main areas causing such confusion is promotional activities carried
out on behalf of clients. In the case of SR Kaltankrishnan vs Commsioner of
Cochin, (STO 2007 CESTAT 1258) an identical issue was discussed. The
learned advocate stated that the appellant SR Kalyanakrishnan has been
appointed by M/s. ICICI Ltd., Mumbai in terms of agreement. As per the
agreement, the appellant has to verify the correctness, fairness and authenticity
of information furnished by those seeking loan from Bank. The types of
verification are residence verification, office verification and Tele verification.
The appellant was paid a fixed rate for such service.

The appellant was proceeded against by the revenue for non-registry with the
service tax authority. According to the department, the appellant is engaged in
the services of "Business Auxiliary Service" since the service was provided in
relation to promotion of service provided by the client. It was contented by the
learned advocate that there is no element of promotion of loan by the appellant.
The appellant did not promote the business of ICICI by persuading people to
take loan from ICICI.

On a careful consideration of the entire issue, the tribunal observed that the
verification of the details given by the loan seekers for ICICI cannot be treated
as promoting their business and that the services rendered by the applicants
would be rightly classifiable as "Business Support Service" which came into
taxable net only w.e.f. 1-5-2006. It is pertinent to note here that the inclusion of
a new category service automatically implies the exclusion from the earlier
category of service.

BAS is services provided in relation to marketing as well as services provided to procure

goods, services, proocessing of goods and services provided on behalf of another. BSS is
basically outsourcing what one would do oneself to concentrate on core competency.

Following is the extract of TRU clarifcation 3.13 Business Support Service.—Business

entities outsource a number of services for use in business or commerce. These services
include transaction processing, routine administration or accountancy, customer relationship
management and telemarketing. There are also business entities which provide
infrastructural support such as providing instant offices along with secretarial assistance
known as "Business Centre Service". Such outsourced services, if provided on behalf of a
person, they are already taxed under Business Auxiliary Service.

BSS – Outsourced services