SERVICE TAX It is an indirect tax. Service tax is a tax on services provided.the provisions of service tax are contained in chapter V of the Finance Act, 1994 and administered by the Central Excise Department. The word Service is not defined in Finance Act, 1994. APPLICABILITY OF SERVICE TAX: The Act extends to whole of India except the state of Jammu and Kashmir. Service tax not applicable on Export of services, subject to Conditions given in Export of service rules, 2005. ILLUSTRATION : Mr. J of Jammu and Kashmir is providing advertisement service in the state of Jammu and Kashmir as well as in other parts of India. Service tax is not applicable for services rendered in the state of Jammu and Kashmir. However, he is liable to pay service tax on those services which are rendered outside the state of Jammu and Kashmir. Service tax liability is based on the place where the service has been rendered, but not the place from which the service is provided. STATUTES GOVERNING THE LEVY OF SERVICE TAX: The following are the sources provide provisions relating to service tax. Service tax is governed by Finance Act, 1994. Rules Notifications Circulars/ Office letters Orders Trade notices VARIOUS RULES IN FORCE Service tax Rules (1994). Service tax (Advance rulings) Rules 2003. CENVAT Credit Rules (2004) Export of Service Rules, 2005. Service tax (registration of special category of persons) Rules, 2005. Service tax (Determination of Value) Rules 2006.
Taxation of services (provided from outside India and received in India) Rules 2006 Works contract (Composition scheme for payment of Service Tax) Rules 2007 Rules are supplementary to carry out the provisions of the Act. Rules can never override the Act and cannot be in conflict with the same. Service tax is a tax levied on specified services provided by the service provider (including private businesses). This tax is normally charged by the service provider from the person to whom service is provided and is then deposited in government s account. Service Tax is a Central levy on provision of notified taxable services specified under Chapter V of the Finance Act, 1994. The Finance Act in the year 1994 has introduced service tax only on three services viz. (1) Telephone (2) Stockbroker (3) General Insurance. But over the years, numerous services have been brought under the purview of this tax. Due to constant amendments in the Finance Act by introduction of new services, the maximum GDP of about 55.1% in the year 2006-07 was collected from the Service sector. At the time when this tax was introduced, the rate of service tax was 5%. But over the years this rate had increased upto 12% along with Education Cess of 2% and Secondary & Higher Education Cess of 1%. Currently the rate of Service Tax is 10% plus education cess of 2% and secondary & higher education cess of 1% i.e. 10.30%. Service tax is a destination based consumption tax. When any taxable service classified under Section 65 (105) of the Finance Act is rendered, the service provider is liable to pay service tax. The service tax is actually borne by the service recipient in normal circumstances. The total consideration paid by the recipient of the taxable services is considered to be the amount on which Service Tax is chargeable. RATE OF SERVICE TAX : At present, the effective rate of Service tax is 10.30 %. The above rate comprises of Service tax @ 10 % on Gross Value of taxable service. Education cess [EC] @ 2 % on service tax amount. Secondary and Higher Education cess [SHE] @ 1 % on service tax amount. TAXABLE SERVICE : The Act provides the list of services to which the Act applies in section 65 (105) of the Act. At present there are more than 119 services covered under the service tax net. TAXABLE VALUE : Valuation under service tax is only with reference to the valuation rules namely Service Tax (Determination of Value) Rules, 2006. TAX LIABILITY : One major change made in service tax effective from 01-04-2011 is the introduction of Point of Taxation Rules, 2011 to (a) introduce the provisions relating to payment of service tax on accrual basis instead of receipt basis and (b) to specify date relevant for determining rate of service tax. So far the provision was that service tax was payable on receipt basis i.e. on receipt of payment of the invoice or bill from the customer or receipt of advance, whichever is earlier. Now w.e.f. 01-04-2011,
service tax will be payable on billing basis and not on receipt of payment basis i.e. on accrual basis and not cash basis (option has been granted to assessee to continue payment on receipt basis upto 30-06-2011, if they so desire. SERVICE TAX REGISTRATION PROCEDURE Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 prescribe the manner and form for registration as an assessee, of any person liable to pay service taxin accordance with the provisions of Section 68 of the Finance Act, 1994. Below set, in brief is the procedure for registration: An application for registration in Form ST-1 has to be made to the concerned Superintendent of Central Excise within 30 days from the date on which service tax becomes leviable. However, where a person has commenced his business for providing taxable services after the date when Service Tax is levied, the application for registration is to be made within 30 days from the date of commencement of business. Penalty is levied in case the service provider fails to seek registration within the prescribed time limits. Registration: The service provider whose gross receipts exceeds Rs. 10,00,000/- (One Million Rupees) needs to be registered with the Service Tax Department. The gross receipt upto the extent of Rs. 1,00,000/- are exempt from Service Tax. However, this exemption is available only once till the gross receipts have not crossed the Rs. 10 lacs limit. Once the gross receipt exceeds Rs. 10 lacs, the services provider needs to collect and pay service tax on each billing. SINGLE PREMISE REGISTRATION: In case service provider is providing services from multiple place of business, separate registration is required in respect of each premise from where the services are rendered. The application shall be filed in Form ST-1. CENTRALIZED REGISTRATION: In case where the service provider is providing taxable services from more than one premises and has Centralised billing system, Centralised accounting system, he may at his option opt for the centralized registration for all such premises. other hand if taxable services are provided by the assessee from more than one premise, and he does not have a centralized billing system, he has to make a separate application for registration in respect of each of such premises. The application shall be filed in Form ST-1 with additional documents. INPUT SERVICE DISTRIBUTOR: An office who is receiving only input services and not providing any outprut service can distribute the CENVAT Credit of the service tax paid on input services. An input service distributor must make an application for registration within 30 days from the commencement of business. The assessee has to give some information like his name, address and the category of services rendered except in the case
of registration of a Stockbroker. The Service Tax (Amendment) Rules, 2001, with effect from 16-7-2001, has inserted a new column No 2A in Form ST-1 for furnishing PAN Number by the Assessee. If PAN has not been allotted or applied for, the same is to be indicated. A certificate of registration in Form ST-2 shall be issued within 7 days from the date of receipt of the application in Form ST-1. However if the registration certificate is not granted within the 7-day period, the registration applied for shall be deemed to have been granted. In the latter case where registration is deemed to have granted a slight anomaly may arise owing to the non-allotment of registration number in the light of the fact that Circular No. V/DGST/30-Misc- 29/2001/3674 dated September 18, 2003 read with the Service Tax Credit Rules, 2002 require all service providers providing taxable services to quote their registration number on their invoices. Every instance of transfer of business of a registered assessee to another would entail the obtaining of a fresh certificate of registration. Every registered assessee, who ceases to provide taxable service, for which he is registered, shall surrender his registration certificate immediately. The registration certificate issued to an assessee can be amended on various grounds namely change in address of business premises, change in name and style of firm etc. There is minimum/threshold limit that is prescribed for registration. if you are engaged in providing a service which fall under the scope of specified taxable services, you are liable for service tax, unless specifically exempted (like aggregate value of services rendered in the entire financial year do not exceed Rs 10 Lakhs). Service tax is currently levied on more than 114 notified categories of services. Failure of registration may attract a penalty up to Rs.1000/ - under Section 77 of the Finance Act, 1994. Service Tax Code (Registration Number) 15-digit number (Based on PAN of the assessee). Ex: STC No+ PAN+ ST+ 001 Ex: ABXFC1234AST001. PREMISE DETAILS: Address of Premises for which Registration is sought / registered. Here, name of the premise, location of the premise, Block, Taluk, Sub-division, town/ city etc has to be mentioned. More than one premise can be registered for an assessee. REQUIREMENTS FOR SERVICE- TAX REGISTRATION The requirements for Service- Tax registration is as follows: Self certified copy of Permanent Account Number (PAN) issued by income Tax Authorities (both side). Proprietor/ Firm/ Company
Residential Address Proof of Proprietor/ Partners and Directors/Authorized Signatory -Rent Agreement/ Ownership Proof ID Proof (PAN Card) of Director/ Partner / Authorized Signatory Address of the Business Premises (to be registered) along with address proof Rent Agreement/ Ownership paper Name / Nature of Services Provided in detail description In case of Companies, please furnish Extract of Board of Resolution/ List of Director MOA with Form 32 in case of change in Directors In case of others Notarized Partnership Deed showing date of formation No Objection Certificate from other partners/huf Undertaking to be signed Format Enclosed Form of Declaration to be signed Power of Attorney to be signed POINT OF TAXATION AT A GLANCE S.NO.SCENARIO RELEVANT RULE FIRST EVENT SUBSEQUENT EVENT POINT OF TAXATION 1 Normal Situation (not covered Completion of service or receipt of 3(a) Issue of invoice under rule 4 to 9) payment Time of invoice 2 3(a) Completion of service Issue invoice within 14 days Time of Invoice 3 Proviso to 3(a) Completion of service Invoice not issued within 14 days Date of completion of service 4 3(b) and explanation to rule 3 Receipt of payment or advance Invoice or completion of service Time of receipt of payment 5 Taxable Service provided before change in effective rate 4(a)(i) of service tax Invoice issued and payment received after the change in effective rate N.A. Date of receipt of payment or date of issuance of invoice, whichever is earlier 6 4(a)(ii) Invoice issued prior to change in effective rate Payment received after change in effective rate of tax Date of issue of invoice Payment received before change in Invoice issued after change in effective 7 4(a)(iii) Date of receipt of payment effective rate of tax rate of tax Taxable Service provided Invoice issued prior to change in Payment received after change in 8 4(b)(i) Date of receipt of payment after change in effective rate effective rate effective rate of tax 9 of service tax 4(b)(ii) Invoice issued and payment Taxable Service provided Date of receipt of payment or date
received prior to change in effective rate of issuance of invoice, whichever is Payment received before change in Invoice issued after change in effective 10 4(b)(iii) Date of issuing of Invoice effective rate of tax rate 11 New service brought under 5(a) N.A. No Service tax payable tax net Payment received before service Issue invoice within 14 days of 12 5(b) No Service tax is payable became taxable provision of service 13 3(a) Service provided before tax became Invoice within 14 days and payment earlier No service tax is payable effective received after tax became effective 14 Continuous supply of service Completion of service or receipt of 6(a) Issue of Invoice (applicable separately to each advance payment Time of Invoice 15 event as specified in contract) 6(a) Completion of service Invoice issued within 14 days Time of Invoice 16 Proviso to 6(a) Completion of service Invoice not issued within 14 days Date of completion of service 17 18 Export of Service 6(b) and explanation 2 to rule 6 7(a) Receipt of payment or advance Invoice or completion of service Time of receipt of payment Completion of service 19 7 (a) and first proviso to rule 7 Completion of service 20 21 Service where tax payable by recipient of service under reverse charge 7(b) 7 (b) and second proviso to rule 7 Receipt of Service Receipt of Service 22 Professional and firms Invoice, completion of service or providing specified taxable 7 (c) receipt of payment in any sequence service 23 Service Provided from Date of credit in books of account of Third proviso to rule 7 associate enterprises when person receiving service 24 service provider outside India Third proviso to rule 7 Date of making payment Payment received within the period specified by RBI Payment not received within the period specified by the RBI Payment made to service provider in advance or within six months of date of invoice or service provider Payment not made to service provider in advance or within six months of date of invoice or service provider Date of making payment Date of credit in books of account of person receiving service Date of receipt of payment As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable. Date of payment As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable. Date of receipt of payment Date of credit in books of account of person receiving service Date of making payment Intellectual property service, where consideration not Receipt of payment or benefit is Receipt of payment or benefit is 25 8 Invoice issued by the service provider ascertainable at the time of received by service provider received by service provider service 26 8 Invoice issued by the service Receipt of payment or benefit is Invoice issued by the service
27 Service completed on or before 30-06-2011 provider received by service provider provider 9 Issue of Invoice Receipt of payment Issue of invoice or date of receipt of payment PERSONS LIABLE TO SERVICE TAX : Any provider of taxable service whose aggregate value of taxable service received in any financial year exceeds Rs.10,00,000/- An input service distributor. Service receivers as specified in sec 68 (2) of Finance Act. *Where a provider of taxable service provides one or more taxable service from one or more premises, the aggregate value of all such taxable services and from all such premises and not separately for each services or each premises shall be taken into account for computing aggregate value of taxable service. *Input service distributor means on office managing the business of manufacturer or producer of final products or provider of output services, which receives credit towards purchase of input services and issues invoice, bill or, challan for the purpose of distributing the credit of service tax paid. The Input service distributor shall distribute Cenvat credit in respect of service tax, among its manufacturing units or among those providing output services. The Input service distributor must ensure that such a distribution should not exceed the service tax paid. In case of an input service is attributable to service use in a unit exclusively engaged in manufacture of exempted goods or exempted services, the such credit of service tax shall not be distributed. *SERVICES COVERED UNDER SECTION 68 (2): [DEEMED SERVICE PROVIDERS] The following table summarizes such services and the person liable to pay service tax Sl.no. Nature of the service Service Provider Service Receiver Person liable to pay tax 1 Insurance auxiliary service Insurance agent Insurance Company Insurance Company 2 3 Service provided to a Person in India from outside India Goods transport agency for transport of goods by road. Note: If the service receiver is individual, HUF etc., tax is payable by the Service provider (GTA) Person outside India Person in India Person in India Goods transport agency Any registered Factory. Any The service receiver or company. Any corporation. his agent. Any registered Society cooperative society. Any registered dealer Of excisable goods. Any registered firm
4 Business Auxiliary Service Mutual Fund distribution Mutual fund Distributor of an agent Or body corporate. Mutual fund company Mutual fund company 5 Sponsorship services Any person Body Corporate of firm Body Corporate of firm IMPORT OF SERVICES: Generally, the liability to deposit service tax lies with the service provider. In case the service provider is a non-resident, not having an office in India, the person liable to pay the service tax is the service recipient in India, in such case recipient of service has to get himself registered under service tax. This mechanism is poperly known as reverse charge mechnaism. EXPORT OF SERVICES: The Export of Services Rules, 2005 ( Export Rules ) have been enacted to regulate the export of services from India. As per the said Rules, the export of taxable services as defined under section 65 (105) of the Finance Act, 1994, are divided into three categories. The first category relates to the taxable services provided in relation to an immovable property which is situated outside India. The second category talks about the services which are partly or wholly performed outside India, and the third category where the services are provided in relation to any business or commerce located outside India REBATE REFUND OF SERVICE TAX: The service provider has two options; either to claim rebate or refund of the tax paid or not to pay the tax. Subsequent to the enactment of the Export Rules, two notifications were issued by the Government; for rebate of service tax and education cess paid on export of taxable services, and; for rebate of excise duty paid on inputs and service tax paid on input services which are used in providing exported taxable services PAYMENT OF SERVICE TAX: Service tax is payable on accrual basis as per point of taxation rule. Where the service provider receives only a part of the total service charges, Service tax shall be paid on proportionately only on such part and not on the entire consideration. The balance service tax will have to be paid on receipt of consideration. Therefore the service tax is payable only on realized value and not on bill value. Due dates for payment of service tax are as under : Category Frequency Due Dates Payments through Bank : In case of Individuals, Proprietary Firms & Quarterly as mentioned below - ( i ) For Q.E. 30th June - by 5th July
Partnership Firms (ii ) For Q.E. 30th Sept. ( iii ) For Q.E. 31St Dec. ( iv ) For Q.E. 31st March - by 5th Oct - by 5th Jan. - by 31st March Others (e.g. Companies, Societies, Trusts etc.) Monthly By 5th of the month immediately following the month in which payments are received towards the value of taxable services. However, in case of March, the payment should be made by 31st March. Electronic Payments through Internet : 40% 60% In case of Individuals, Proprietary Firms & Partnership Firms Quarterly as mentioned below - ( i ) For Q.E. 30th June (ii ) For Q.E. 30th Sept. ( iii ) For Q.E. 31St Dec. ( iv ) For Q.E. 31st March - by 6th July - by 6th Oct - by 6th Jan. - by 31st March. Others (e.g. Companies, Societies, Trusts etc.) Monthly By 6th of the month immediately following the month in which payments are received towards the value of taxable services. However, in case of March, the payment should be made by 31st March. In case of e- payment, due date shall be 6th of the respective month / quarter. If last date for paying tax is a public holiday, tax may be paid on the next working day. Tax is paid through GAR 7 challan.
Big assesses with a service tax liability of Rs.10 lakhs and above should pay tax electronically. Interest in case of delayed payment of service tax. Delay in payment of tax attracts interest at the rate of 18 % p.a. (but relief of 3% to assessee having turnover less than of Rs.60 lakhs. The interest shall be payable for the period by which payment of tax is delayed. FILING OF RETURNS: Returns are filed half yearly in Form ST 3 [ Form ST 3A for PA]. If the service provider is not able to estimate the tax amount properly, he may apply for Provisional Assessment. ST-3 Return For all the registered assessee, including Input Service Distributors. ST-3A Return The assessee who is making provisional assessment under rule 6(4) of the Service Tax Rules, 1994. DUE DATES ARE AS FOLLOWS: 25th October for the half year ending 30th September. 25th April for the half year ending 31ST March. REVISED RETURNS : Revised returns can be filed within 90 days from the date of filing of original return. Nil return has to be filed even there is no tax liability and no taxable services rendered. DELAYED FILING PERIOD OF DELAY Up to 15 days LATE FEE Rs.500 16 days to 30 days Rs.1,000 More than 30 days Rs.1,000 plus Rs.100 per day till the date of filing return [Max Rs.20,000] RECORDS REQUIRED TO BE MAINTAINED The assessee is not required to maintain separate records for the purpose of service tax. However, the assessee is advised to maintain the following documents: A bill file, containing the bills in serial, issued to the clients in respect of taxable service rendered; Receipt, issued to the client in respect of payment received; A service tax register containing the details of the bills issued, payments received and service tax deposited; Proper records for all the credit notes issued to the clients; A list of all accounts, maintained in relation to service tax including memoranda received from branch offices, only at time of filing of return for the first time, is to be furnished to the Superintendent of Central Excise.
The records as maintained by the assessee in accordance with the various laws in force shall be accepted. Every assessee is required to furnish to the Superintendent of Central Excise a list of accounts maintained by him in relation to service tax. This is to be submitted only once at the time of filing the first ST- 3 return. Sales register Purchase register Cash book General ledger. Such records need to be preserved at least for a period of five (5) years immediately after the financial year to which such records pertain. (PENALTIES SEC. 76, 77 & 78) Sl. No Nature of Violation 1 Failure to pay Service Tax [sec.76] Penalty Not less than Rs.100 per day of default or 2 % p.m. of tax due which ever is higher. In no case penalty exceed the tax amount. 2 Suppression of value 100% of service tax sought to be charged 3 Failure of Registration 4 Failure to furnish information called by officer or Central Excise officer Rs.10,000 Rs.200 per day whichever is higher from the 1st day after due date till the day of Actual compliance Rs.10,000 or Rs.200 per day whichever is higher from the 1st day after due date till the day of Actual compliance