Classification Confusion: Business Auxiliary Services Vs.

Business Support
Service

Classification of activity entered into proper category of taxable service is of utmost

importance when one is dealing with Service Tax. Why? Because 1) 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 that the Service is properly classified.
2) Incorrect classification of service may result into non availability of certain exemptions
or abatements. Thus the assessee pays tax more than what is required by the law, or
vice-a-versa, it is also possible that certain exemption or abatement is not available to
the service provider however, due to mis-classification the assessee may wrongly avail
such benefit and as a consequence, the department can initiate Recovery proceedings
along with interest and penalty. If a service is classified under one category, the tax
liability may start from earlier period then other category. For example Service Tax on
Business Auxiliary Service (BAS) was levied from 01.07.2003, whereas service tax on
Business Support Service was levied from 01.05-2006. Therefore proper classification
becomes necessary to determine the date from which Service Tax was to be levied on
the service provided.

Business Auxiliary Service (BAS) is one of the most important services from angle of
the Revenue Department as it is very widely worded and covers many commercial
aspects. It also covers major economic spectrums like marketing or production (job-
work). 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,
information and tracking of delivery schedules, managing distribution and logistics,
customer relationship management services, accounting and processing of
transactions, operational assistance for marketing, formulation of customer service and
pricing policies, infrastructural support services and other transaction processing.
internet and telecom facilities, pantry and security.
On a close reading of the above definition, one finds significant elements of overlap
between Business Support Service and Business Auxiliary Service. But if we note the
distinction between the two categories BAS vs BSS being discussed here, in
comparison to the Business Support Service category, the category of Business
Auxiliary Service is more specific seeking to tax specified activities. There can be
confusion at times where the services provided are those such as billing, payments,
collection, remittance etc. are in relation to business or commerce. But essential
difference between the two categories being discussed here is that Business Auxiliary
Services covers outsourcing transactions within specific functional areas whereas
Business Support Services cover, outsourcing transactions in general. Business
Auxiliary Services would be more appropriate category in cases where the transaction is
on an agency basis whereas Business Support Services would be more appropriate
when the transaction is on a principal to principal basis.

While the understanding as settled by judicial decision is that the inclusion of a new
category service automatically implies the exclusion from the earlier category of service.
If subsequent entry was covered by earlier entry, there was no reason or scope to
create present entry. Introduction of new category implies that coverage in new
category for the purpose of tax was an area not covered by earlier category. Still so
much confusion prevails while classifying particular activity under BAS or BSS that
department aiming to achieve its targeted tax collection invariably raises demand under
BAS as it came into force earlier than BSS.