SEMINAR ON ISSUES IN SERVICE TAX RETURNS

SEMINAR ON ISSUES IN SERVICE TAX RETURNS Filing of Service Tax Returns By CA. Manish Gadia On Saturday 9 th April, 2011 At J.S. Lodha Auditorium, ICAI Bhawan, WIRC, Mumbai Organised by WIRC of the Institute of Chartered Accountants of India

FILING OF SERVICE TAX RETURNS 1. INTRODUCTION TO ACES 1.1. BACKGROUND: Way back in 2003, CBEC has introduced the facility of electronic filing of returns for service tax from the month of April 2003. Initially, this facility was made available to ten service categories on an all India basis and it had been decided that it would be gradually extended to other services subsequently. Unfortunately, attempt of this automation was not successful. Once again in November 2009, Board has then introduced new centralized and web based software application - Automation of Central Excise and Service Tax (ACES) that provides electronic interface with the department to reduce paper work, visits to the departmental offices and improving transparency, accountability and efficiency in indirect tax administration in India. Currently ACES is launched successfully at almost all Commissionerates all over India. This automation is providing / will provide following facilities to the assessee: a. Online registration and amendment of registration details; b. Electronic filing of documents such as Returns, Refunds, Intimations and Permissions; c. Online tracking of the status of applications, claims, and permissions; d. Online facility, to view documents like registration certificate, Returns, Show cause notice (SCN), Order-in- Original etc.; e. Internal messaging system for faster communication; f. Application accessible from anywhere, anytime (24x7) through the Internet; g. Online authentication of PAN with the Income Tax database; Page 2 of 17

h. Online self learning tutorials (LMS), Users Manuals & FAQ's for help in using ACES. i. Online payment of service tax. 1.2. MODULES IN ACES: Presently there are 5 active modules are available in ACES which are as under: a. SDR: Dispute Resolution Module Under this module assessee can create and maintain Portfolio of case s such as Show Cause Notices, Personal Hearing Memos, Adjudication Orders, on line filing of Appeals with Commissioner (Appeals), Appellate Orders, Review and related matters. b. PRA: Provisional assessment Module Under this module assessee can prepare the return and subsequently file or upload return in Form ST-3A electronically. Module also provides facility of viewing the returns filed by assessee. c. REF: Refund Module Under this module assessee can file application of refund claims online and can also view the status of refund claims, view E- acknowledgement of refund application and orders passed by the department. d. REG: Registration Module Under this module assessee can file application of registration and subsequently amend the certificate of registration if required. Moreover, assessee can also view the certificate of registration online. Even cancellation or surrender of registration is possible from this module. e. RET: Return Module Under this module, assessee can prepare and file half yearly service tax returns. Further, revised return can also be filed through this module. Assessee can view all the returns filed by them. Page 3 of 17

1.3. HARDWARE AND SOFTWARE REQUIREMENTS: For effective use of ACES, assessee must have following Hardware and Software support: a. Processor: Intel Pentium II and higher; b. RAM: 256 MB and higher; c. HDD: 80 GB and more; d. Web browser: IE 6.0 and above or Netscape 6.2 and above; e. Sound card, Speaker / Headphone, color monitor for using Learning Management System (LMS). 1.4. BENEFITS TO THE ASSESSEES Following are some of the benefits to the assessee of E-Governance: a. Reduce Physical Interface with the Department; b. Save Time; c. Reduce Paper Work; d. Online Registration and Amendment of Registration Details; e. Electronic filing of all documents such as applications for registration, returns [On-line and off-line downloadable versions of ER 1,2,3,4,5,6, Dealer Return, and ST3], claims, permissions and intimations; provisional assessment request, export-related documents, refund request; f. System-generated E-Acknowledgement; g. Online tracking of the status of selected documents; h. Online view facility to see selected documents; i. Internal messaging system on business-related matters. 1.5. CERTIFIED FACILITATION CENTRE (CFC): CBEC had set up ACES Certified Facilitation Centres (CFCs) with the help of professional bodies like Institute of Chartered Accountants of India Page 4 of 17

(ICAI), Institute of Cost and Works Accountants of India (ICWAI) etc. These CFCc provides a host of services to the assessees such as a. Data entry of returns; b. Data entry of forms other than returns; c. Scanning of documents and conversion to PDF format; d. Laser printing (B & W); e. Uploading returns and other documents with ACES; f. Attaching documents with e-form; For detailed FAQ on CFC kindly visit the following link - http://www.icai.org/post.html?post_id=5737&c_id=219. 2. TPIN GENERATION 2.1. FILING OF DECLARATION FOR ACES The existing assessee opting to go on-line and not having TPin has to make an application with the respective jurisdiction declaring to go on-line through ACES. 2.2. MAILING OF TPIN A mail will be received by the client wherein a TPin number and a password would be given to login into the ACES site. On login into the site with the help of the TPin and password the assessee can change the username and password and can use the said for filing of return, etc. 2.3. ISSUE Whenever any communication is done electronically for rejection of registration certificate or any other similar communication then it is made as your company. The mail does not mention the Name of the assessee, in such situation if single e-mail id is given for more then one assessee (applicant) then it becomes difficult to relate that the said communication relates to which particular assessee (applicant). Eg.: If Mr. A is the accountant of 4 (four) group companies and at the time of application if in all the 4 applications Mr. A gives his e-mail id, then whenever any communication is done by the department to the said e-mail Page 5 of 17

id the communication is addressed as Your Company rather than giving the name of the assessee. In such a case it is difficult for the assessee to relate that the said communication is done for which particular assessee (applicant). 3. E-RETURN 3.1. MANDATORY E- FILING OF RETURN Vide Notification No. 1/2010-ST Dt. 19 th February, 2010 w.e.f. 1 st April, 2010 that, where an assessee has paid a total service tax of rupees ten lakh or more including the amount paid by utilisation of CENVAT credit, in the preceding financial year, he shall file the return electronically. The Service Tax returns, however, can be revised once as per rules up to 90 days from the date of filing the initial return. Both the Original and the Revised return can be viewed by the assessee online. At present digital signature is not required for filing return electronically. There is no requirement to file return physically, once it is filed electronically. 3.2. UTILITIES FOR FILING OF RETURN There are two utilities for submission of service tax return online: 3.2.1. Online utility a. Returns can be prepared and filed on line by selecting the File Return option under RET module after logging into the ACES. b. All validations are thrown up during the preparation of the return in this mode and the status of the return filed using the online mode is instantaneously shown by ACES. c. Confirmation for successful filing is generated immediately. d. Even if data for filing of return is not 100% ready the return can be prepared using this utility and can be saved on the site. After compiling the data assessee can go to amend ST3 option in RET module and amend the ST3 return saved and not submitted. After filing the return in totality assessee can click submit button to finish the filing. Page 6 of 17

3.2.2. Offline utility a. Returns can also be prepared and filed off-line. b. Its advisable to use Excel 2003 instead of Excel 2007, since Excel 2007 has higher security features and built in macros for checking and validating the file may not work effectively in excel 2007. c. Enable the Macros (if disabled) as per the following instructions, so that all the functionalities of e filing utility will work fine. 1. On the Tools menu, Point to Macro, and then click Security. 2. Click on either Medium or Low to select the Security Level 3. On the Trusted Publishers tab, select the Trust all installed add-ins and templates check box. 4. Please make sure that system date is correct. d. Downloads the Offline return preparation utility available at http://www.aces.gov.in (Under Download) e. Downloaded utility contains one Microsoft Excel file containing eight (8) work sheets to be filled in by the assessee. These eight work sheets are: 1. Instructions: This sheet provides various instructions to be followed at the time of filling up of return. 2. Return: If assessee is providing more than one services only one return have to be compiled for all the services. 3. Payable Service: In this sheet details have to compiled on the basis of service provider (SP) and service recipient (SR) in connection with the selected services. 4. Advance Payment: In this sheet, all advance payment made during the period, have to be compiled 5. Paid Service: In this sheet details as to Service tax, Education Cess, Secondary and Higher Education Cess and other amounts paid needs to be filled. Page 7 of 17

6. Challan Service: In this sheet details of challans through which Service tax, Cess and other amounts paid by assessee during the half yearly period needs to be filled. 7. Cenvat: In this sheet details of Inputs Stage Input Credit needs to be filled. Further, details are not required to be filled if assessee is Input Service Distributor (ISD) or paying service tax by receiver of services under Reverse Charge Mechanism. 8. Distributor: In this sheet detail of Cenvat Credit for Input Service Distributor (ISD) needs to be filled. Further, assessee have to certify the self declaration part in the sheet and than validate the return for up-loading. f. The return preparation utility contains preliminary validations which are thrown up by the utility from time to time. validate the file thereafter an XML file will be generated. g. After generation of XML file assessee is required to log on to the site by using the User ID and password. h. Select RET from the main menu and upload the return. i. Returns uploaded through this procedure are validated by the ACES before acceptance into the system which may take up to one business day. Assessee can track the status of the return by selecting the appropriate option in the RET sub menu. The status will appear as uploaded meaning under process by ACES, Filed meaning successfully accepted by the system or Rejected meaning the ACES has rejected the return due to validation error. The rejected returns can be resubmitted after corrections. It is advisable to the assesses opting for offline utility to file the ST-3 return at least 2 days in advance as the return may be rejected and it shall amount to non-filing of return. Page 8 of 17

4. FORMAT OF DATA FOR FILING THE RETURN The format in which the data can be called for from the client is enclosed as Annexure I. The said format is not prescribed under the law; it is prepared by our team of experts on the basis of their vast experience. 5. AUTHORIZATION FROM CLIENTS The return filed by consultants on-line on behalf of the assessee does not have any signature on the same, except in cases where digital signature is done. At present the digital signature facility is not available, in our view the consultant should get the authorization from the clients in the following manner: 5.1. AUTHORIZATION THROUGH E-MAIL Once the return is filled on-line the same shall be saved on-line and a copy of the same can also be mailed to client for their confirmation and once the same is confirmed from client s end return can be submitted on-line. 5.2. DATA RECEIVED At times, it is not possible or very less time is left for the due date to submit the return and no confirmation is received from the clients or not possible to receive the same then the data received from the client in the format (enclosed as Annexure I) can be considered as proof-cum-confirmation from client 5.3. PHYSICAL LETTER Besides the above, the consultants can even get the confirmation from the client in writing that the data send is correct and return can be filed on the basis of said data. 6. PRACTICAL ISSUES IN E- FILING Some of the issues faced have been listed down here with the practical solutions as he deems appropriate. However there may be more issues than listed and difference of opinion with regard to the solution to the issues. Page 9 of 17

6.1. ISSUES FACED WHILE FILING E-RETURN a. Deletion of category of taxable service In case of online filing of service tax return, option has been given to assessees to add or delete category of taxable service. While deleting a particular category of service, other categories adhocly gets deleted. For Eg: If the assesee is registered under Works Contract, Business Auxiliary Service, Business Support Services and Transport of Goods by Road service and does not wish to file return for Business Auxiliary Service, then in case assesee deletes Business Auxiliary Service, other Service category also gets deleted adhocly. The current solution to this problem is to manually add again the deleted categories of taxable service. b. Two Additional Tax rate for same category of service (Eg: Transportation of passenger by Air Service) Notification 26/2010-St dated 22 nd June, 2011, provides that Service tax applicable in respect of Transport of passengers by air service" is as follows: Sr. Particulars Existing No. 1 Domestic Rs. 100 Per Journey 2 International (Economy) Rs. 500 Per Journey The above rates are not present in the Form ST-3. Due to lack of provision of space for above rate. In such a scenario, the assessee has to key in any one of the rates and manually fill service tax amount combined for both rates. In such a case, the assessee has to file intimation manually to jurisdictional superintendent giving the bifurcated figures separately later on. Page 10 of 17

c. Service tax Payment made with a bank is not aligned with NSDL Site While keying in the challan identification number, the issue faced by assessee is that challan no. of the challan which has not been paid vide NSDL will not be present in the records of NSDL. Hence when the CIN is keyed in, an error message pops up stating that the CIN mentioned in not present in the records. However the assessee can manually override and proceed with filing of the return. d. Loss of unsaved data Many a times while filling the service tax return using online utility, the site develops a technical snag, and all the unsaved data in the return is lost. Also many a times, when the window for filling the service tax return is left idle for certain time, on resuming work, a message of the nature session expired appears. To overcome this issue it is preferable to keep on saving the data after certain amount of time. Further, there is no facility to save the data filled on every page / sheet of the return if someone have to save the data filled then he has to go upto the last page of the return and then save the data. Thus, even if someone has filled only half return then he has to go upto last page / sheet and then only can save the data. e. Service Tax Paid under protest There may be instances wherein an assessee may pay service tax under protest. Such an amount is usually paid when department raises Show Cause Notice on an assessee or the service tax may be required to be paid by an order of any adjudicating authority/ court. In such a scenario, there is no provision to disclose such an amount paid separately in service tax return. In such a case, the assessee has to file intimation manually to jurisdictional superintendent for such a payment made under protest separately later on. There is no provision in the Service tax law itself to pay under protest. Page 11 of 17

f. Disclosure of facts In the previous system of manual filing of return, assessee had the option to put up a disclosure note in the return. For Eg: If the assessee has not paid service tax on Renting of Immovable Property Service relying on the decision of HOME SOLUTION RETAIL INDIA LTD AND OTHERS Vs UNION OF INDIA {2009-TIOL-196-HC-DEL-SERVICE TAX}, the assessee could disclose the above fact in the service tax return filed manually by way of insertion of a note. However in case of E-filing of service tax return there is no place provided in the format of return to make any disclosure. In such a case, the assessee has to file intimation manually to jurisdictional superintendent for such a disclosure of information separately later on. g. E.Cess and S.H.E. Cess paid under rule 6(3) of Cenvat Credit Rules, 2004. In the form ST-3, there is no provision provided for disclosing the amount of E. Cess and S.H.E. Cess paid under rule 6(3) of Cenvat Credit Rules, 2004 paid vide CENVAT credit. In case of manual filing of service tax return, the assessee may add the detail manually but in case of E-Return the assessee cannot disclose the amount of E.Cess and S.H.E. Cess paid under rule 6(3) of Cenvat Credit Rules, 2004 vide CENVAT credit. In such a case, in our view the assessee has to fill in the details relating to E. Cess and S.H.E. Cess with the amount of service Tax itself and file intimation manually to jurisdictional superintendent for such a payment made vide CENVAT Credit separately later on. h. Mismatch of opening balance of CENVAT Assessee files the return first time through ACES. It shows mismatch of opening balance of CENVAT. Assessee has to ignore the same and go ahead for filing return. Page 12 of 17

i. Cash Payments made under Rule 6(3) of Cenvat Credit Rules, 2004 In cases of reversal under Rule 6(3) of the said rules, when there are cases of payments of Cenvat credit, excess utilized, in cash there is no separate space available to fill in the details of challan through which the said cash payments are made. In such a case, in our view the assessee has to fill the details of challan under Clause 4A(I)(d) of the return under any other amount and file intimation manually to jurisdictional superintendent giving details of such a payment later on. j. Any other amount (please Specify) under Clause 4A(I)(d)(x) In the said clause details pertaining to the amount or pre-deposit amount paid under the order by Commissioner (Appeals) or Appellate Tribunal or Courts. If any details are filled under the said clause, then there is no space available to specify the reason for such payment. In such a case, in our view the assessee has to file intimation manually to jurisdictional superintendent giving details of such a payment later on. k. Details of Source documents in case of Interest payments The assessee making interest payments has to fill in the details of source documents. The said details are cumbersome to fill. Following details is to be filled Pan based assessee code_10 digit Premises code_st3_032011 (in case of March end returns). 6.2. ISSUES IN EARLIER RETURNS In earlier period return there were other issues too such as Option of whether the assessee has availed benefit of any notification Payment of Service tax by way of abatement/exemption and non availment of same at the same time for a particular category of service (Eg: Construction Industry) Automated calculation of SHE Cess Page 13 of 17

A person who is a service receiver and service provider for the same category of service (Eg: Business Auxiliary Service Commission Agent) Two Additional Tax rate for same category of service (Eg: Air Travel Agency Service) However, the aforesaid issues were resolved on representation made by us through WIRC of ICAI to the Commissioner of Service Tax, Mumbai. 7. PENALTY PROVISION Section 70 read with rule 7C of The Service Tax Rules, 1994 prescribes for a specified amount of late fee and not the penalty linked to period of delay for filing of return after the due date. The assessee is required to pay following amount of late fee depending upon the period of delay, but not exceeding Rs. 2,000/-. It is proposed in the Finance Bill, that maximum penalty shall be increased to Rs. 20,000/- from the date of enactment of the Finance Bill, 2011 S. No. of Days delay from due date for filing of Late Fee in No service tax return Rs. 1 From 1 st day up to 15 th day 500 2 From 16 th day Up to 30 th day 1000 3 Delay beyond 30 days Rs. 100/- per day 100/- per day 8. CONCLUSION The prime intention of introducing the E-Filing was to reduce the interface between assessee and department and reduce the compliance work of assessee and make the department paperless. But from the above issues raised, it is noticed that the compliance burden of the assessee has increased, which has doubled up the work of the assessee. Although issues had cropped up in the initial kick-in stage of E-filing, it was resolved on the representation made by us. However, it is hopeful that the CBEC clarifies the above listed issues before end of September 2011, so as facilitate the Page 14 of 17

assessees to file their next service tax return on time without any difficulty. Overall the website www.aces.gov.in is a success and it seems that the government had done good homework before launching ACES as it has received the Best IT Initiative e-gov Project Award, 2010 awarded by PCQuest. Page 15 of 17

ANNEXURE I FORMAT OF DATA FOR FILING THE RETURN Name of the company / Service providers Category of Services Particulars Month / Quarter A 1 2 3 4 5 Billing Details Billing amount (without tax) on which service tax is charged @ 10.30% Billing amount (without tax) which are exported services and on which service tax is not charged - Billing amount (without tax) which are domestic (exempted) services and on which service tax is not charged - Billing for reimbursements on which no service tax is charged Total Amount billed during the period (Without Tax) - B 1 2 3 Receipt Details Receipt amount (without Service Tax but including TDS) on which service tax is collected @ 12.36% Receipt amount (without Service Tax but including TDS) on which service tax is collected @ 10.30% Advance Received (without Service Tax but including TDS) on which service tax is collected @ 10.30% 4 Receipt amount (without Service Tax but including TDS) which are exported services and on which service tax is not charged - 5 6 7 Receipt amount (without Service Tax but including TDS) which are domestic (exempted) services and on which service tax is not charged - Amount received towards reimbursements on which no service tax was charged Total Amount received during the period (Without Service Tax but including TDS) - Page 16 of 17

C Details of Service tax paid in cash 1 Name of Category of service a Service tax b Edu Cess c SHE Cess d Interest e Penalty (if any) f Total Challan amount - g Date of challan h Challan Number D Cenvat Credit Details 1 Opening Balance 2 3 Details of Cenvat credit taken during the period Cenvat credit on Inputs (Raw Material) taken a during the period Cenvat credit on Inputs services taken during b the period Cenvat credit on Capital goods taken during c the period d Total Cenvat taken during the period - Details of Cenvat credit utilsied during the period a Name of Category of service 4 Closing Balance - Page 17 of 17