www.CAnaresh.com - Chartered Accountant Naresh Shah, Mumbai - 022-23878321 / contact@canaresh.com
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SERVICE TAX |
OVERVIEW
Based on recommendations made by Chelliah Committee on Tax Reforms, Service Tax was introduced for the first time in the year 1994. It is a Union levy, with a selective approach, whereby it is applicable to selected categories of services and not to all the services.
There is no separate statute for service tax, instead it is governed by Chapter V, Chapter VA [Sections 64 to 96(I)] and Chapter VI [Section 86 to 96] of Finance Act, 1994 (all the chapters together are hereinafter referred to as the "Act") as amended from time to time and the following rules:
Service Tax Rules, 1994
Service Tax (Advance Ruling) Rules, 2003
CENVAT Credit Rules, 2004
Export of Services Rules, 2005
Service Tax (Registration of Special Category of Persons) Rules, 2005
Authority for Advance Rulings (Central Excise, Customs & Service Tax) Procedure Regulations, 2005
Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
Service Tax (Determination of Value) Rules, 2006
Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007
Service Tax (Publication of Names) Rules, 2008
The Act extends to the whole of India (including the designated areas in the Continental Shelf and Exclusive Economic Zone of India1) except the State of Jammu & Kashmir. The Excise Department of the Central Government administers the Act.
The Government/CBEC (Central Board of Excise & Customs) has been issuing various notifications, trade notices, circulars and orders granting exemptions, abatements and giving clarifications on various issues. For meanings of various terms, definitions of services and service providers etc, the Act refers to various other laws such as Architects Act, 1972, Motor Vehicles Act, 1988, Banking Regulation Act, 1949 etc. Words and expressions not defined in the Act but defined in Central Excise Act, 1944 or rules made thereunder, apply to Service Tax as well.
1.1 Rate of Service Tax
Period ST Rate Education Cess Rate Secondary & Higher
Education Cess RateEffective levy 1st July, 1994 to 13th May, 2003 5% NIL NIL 5% 14th May, 2003 to 9th September, 2004 8% NIL NIL 8% 10th September, 2004 to 17th April, 2006 10% 2% NIL 10.20% 18th April, 2006 to 10th May, 2007 12% 2% NIL 12.24% 11th May, 2007 & onwards 12% 2% 1% 12.36% 1.2 General exemptions
All categories of taxable services are exempt from service tax in the following circumstances:
Services for which payments are received in India in convertible foreign exchange and the same are not repatriated from or sent outside India fully exempted up to 14th March, 20052.
Services provided to United Nations or an International Organisation3 fully exempted.
Services provided to a developer of SEZ or a unit (including unit under construction) of SEZ by any service provider for consumption of services within SEZ subject to prescribed conditions4.
Services provided by Technology Business Incubator (TBI) or Science & Technology Entrepreneurship Park (STEP) recognized by National Science & Technology Entrepreneurship Development Board (NSTEDB) subject to prescribed conditions5.
Services provided by an entrepreneur located within Technology Business Incubator (TBI) or Science & Technology Entrepreneurship Park (STEP) recognized by National Science & Technology Entrepreneurship Development Board (NSTEDB) subject to prescribed conditions6.
Value of goods and material (supported by documentary evidence) sold to the recipient of service7 subject to following conditions8:
Service provider has not availed credit under CENVAT Credit Rules, 2004 for such inputs or capital goods sold; or
In case such credit is availed by service provider, the amount equal to such credit is paid before sale of such goods or material.
Services provided to any person by RBI fully exempted9.
Services provided by any person to RBI for which service tax is payable by RBI u/s. 68(2) or u/s. 66A fully exempted10.
Services provided for the office use of a foreign diplomatic mission or consular post in India fully exempted11.
Services provided for the personal use or for the use of family members of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consular post in India fully exempted12.
CLASSIFICATION OF TAXABLE SERVICES (Section 65A)
Classification is based on definitions of taxable services under various sub-clauses of section 65(105). When for any reason a taxable service is prima facie classifiable under two or more sub-clauses, classification shall be based on following principles:
Most specific description to be preferred to a general description.
For composite service — the service category that gives essential character.
When both the above test fails — -the service category under sub-clause that occurs first, among sub-clauses which equally merit consideration.
TAX ON IMPORT OF SERVICES (Section 66A)
Where any taxable service is:
provided or to be provided by a person who has established a business or has a fixed establishment from where the service is provided or to be provided or has his permanent address or usual place of residence outside India; and
received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India
such service shall be liable to service tax and shall be treated as if the recipient has himself provided the service in India except where the recipient of service is an individual and has received the said services otherwise for use in business or commerce.
In cases where service provider has business establishment both in that country and elsewhere, the country, where the establishment is directly concerned with the provision of service is located, to be treated as country from which the service is provided or to be provided.
A person carrying on business through permanent establishment in India and through another permanent establishment outside India, all such permanent establishments to be treated as separate persons.
Import Of Service Rules
Governed by Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 introduced from 19th April, 2006113.
For the purpose of these rules, the meaning of terms "input", "input service" and "output service" shall be that as defined in The CENVAT Credit Rules, 2004.
The taxable service provided from outside India and received in India are classified on fulfilling various conditions listed here below:
Category of Service Sub-clause of Section 65(105) Conditions for service to be treated as import of service, if service is • General Insurance • (d) provided in relation to an immovable property situated outside India
• Architect • (p) • Interior Decorator • (q) • Real Estate Agent • (v) • Commercial or Industrial Construction • (zzq) • Site Formation & Clearance, Excavation & Earthmoving & Demolition Services
• (zzza) • Dredging services • (zzzb) • Survey & Map Making Services • (zzzc) • Construction of Complex • (zzzh) • Auction of Property • (zzzr) • Mining of mineral, oil or gas • (zzzy) • Renting of immovable property • (zzzz) • Works contract services • (zzzza) • Stock Broker • (a) • Performed partly or wholly outside India
• Where taxable service is of
1) Management, Maintenance or Repairs
2) Technical Testing & Analysis
3) Technical Inspection & Certification
Provided in relation to goods, material or immovable property situated outside India at the time of provision of service through internet, electronic or computer network or other means, such taxable services to be treated as performed outside India.• Courier • (f) • Custom House Agent • (h) • Steamer Agent • (i) • Clearing & Forwarding Agent • (j) • Air Travel Agent • (l) • Mandap Keeper • (m) • Tour Operator • (n) • Rent-a-cab Operator • (o) • Practising Chartered Accountant • (s) • Practising Cost Accountan • (t) • Practising Company Secretary • (u) • Security Agency • (w) • Credit Rating Agency • (x) • Market Research Agency • (y) • Underwriter • (z) • Photography • (zb) • Convention • (zc) • Videotape Production • (zi) • Sound Recording • (zj) • Port Services • (zn) • Authorised Service Station • (zo) • Beauty Parlour • (zq) • Cargo Handling • (zr) • Dry Cleaning • (zt) • Event Management • (zu) • Fashion Designing • (zv) • Health & Fitness • (zw) • Storage & Warehousing • (zza) • Commercial Training or Coachhing • (zzc) • Erection, Commissioning & Installation • (zzd) • Internet Cafe • (zzf) • Management, Maintenance or Repairs • (zzg) • Technical Testing & Analysis • (zzh) • Technical Inspection & Certification • (zzi) • Other Port • (zzl) • Airport Service • (zzm) • Transport of goods by air • (zzn) • Business Exhibition • (zzo) • Transport of Goods by Road • (zzp) • Opinion Poll • (zzs) • Outdoor Caterer • (zzt) • Survey & Exploration of Mineral • (zzv) • Pandal or Shamiana • (zzw) • Travel Agent • (zzx) • Forward Contract • (zzy) • Cleaning Activity • (zzzd) • Membership of Club or Association • (zzze) • Packaging Services • (zzzf) • Transport of goods in container by rail • (zzzp) • Stock Exchange, Commodity Exchange & Process/ Clearing House Services • (zzzzg, zzzzh & zzzzi) • General Insurance other than in relation to immovable property • (d) • Received by a recipient located in India for use in relation to business or commerce.
• Where taxable service is of “supply of tangible goods for use” provided to recipient located in India, the tangible goods so supplied should also be located in India during the period of its use by recipient of service.• Advertising • (e) • Consulting Engineer • (g) • Manpower Recruitment or supply • (k) • Management Consultant • (r) • Scientific or Technical Consultancy • (za) • Online Information & Database Access • (zh) • Broadcasting • (zk) • Insurance Auxiliary-General Insurance • (zl) • Banking or Financial • (zm) • Cable • (zs) • Life Insurance • (zx) • Insurance Auxiliary-Life Insurance • (zy) • Rail Travel Agent • (zz) • Business Auxiliary • (zzb) • Franchise • (zze) • Forex Broker • (zzk) • Intellectual Property • (zzr) • Programme Producer • (zzu) • Transport of goods, other than water, through pipeline or other conduit • (zzz) • Survey & Map Making other than in relation to immovable property • (zzzc) • Mailing list compilation & mailing • (zzzg) • Registrar to an issue • (zzzi) • Share Transfer Agent • (zzzj) • Automated Teller Machine Operation, Maintenance or Management Services • (zzzk) • Recovery Agents • (zzzl) • Sale of space or time for advertisement • (zzzn) • Sponsorship Services • (zzzq) • Business Support Services • (zzzm) • Auction of Property other than in relation to immovable property • (zzzr) • Public Relation Services • (zzzs) • Ship Management Services • (zzzt) • Internet Telephony Services • (zzzu) • Credit card, debit card, charge card or other card services • (zzzw) • Telecommunication Services • (zzzx) • Development & supply of content • (zzzzb) • Asset management services • (zzzzc) • Designing services • (zzzzd) • Information Technology Software Services • (zzzze) • Management of Investments under ULIP • (zzzzf) • Supply for Tangible Goods for use • (zzzzj)
Following taxable services specified in sub-clauses of Section 65(105) not to be considered for these rules:
(zzzo) — to any passenger by an aircraft operator in relation to scheduled or non scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class.
(zzzv) — to any person, by any other person, in relation to transport of such person embarking from any port or other port in India by a cruise ship.
The recipient of taxable service provided from outside India and received in India to make application of registration u/s. 69 of The Finance Act, 1994.
The taxable service provided from outside India and received in India shall not be treated as output service for the purpose of availing CENVAT credit.
The value of taxable service provided from outside India as per provisions of Section 66A shall be the actual consideration charged.
The value of taxable service specified in Rule 3(ii) of Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 (i.e., partly performed in India) shall be the total consideration paid by the recipient of such service including value of taxable service partly performed outside India.
VALUATION OF TAXABLE SERVICES (Section 67)
The value of taxable service is:
in cases where consideration is in money; the gross amount charged by the service provider for such services provided or to be provided;
in cases where consideration is not wholly or partly consisting of money, such amount in money as, with the addition of service tax charged, is equivalent to the consideration;
in cases where the consideration is not ascertainable, the amount as determined in accordance with The Service Tax (Determination of Value) Rules, 2006.
The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
W.e.f. 16th May, 2008 the value of taxable service shall be deemed to have been received by service provider for the transaction of taxable services with associated enterprise, at the point of time when the amount credited or debited to any account including suspense account in books of accounts of the person liable to pay tax.
When charges for services are inclusive of service tax, the value of taxable service shall be arrived at as follows:
amount charged x 100
Value of taxable services = ————————————————————
100+Rate of service tax
The terms "consideration", "money" and "gross amount charged" are defined for the purpose of valuation of taxable services.
4.1 Valuation Rules
Governed by The Service Tax (Determination of Value) Rules, 2006 introduced from 19th April, 200614
Where consideration received is not wholly or partly consisting of money, value of taxable service shall be equivalent to gross amount charged by the service provider to provide similar service to other person in the ordinary course of trade.
Where value cannot be determined as aforesaid, the service provider shall determine the equivalent money value of such consideration, which in no case be less than cost of provision of taxable service.
In cases Central Excise Officer is not satisfied with the value so determined by the service provider, he shall issue notice to service provider and after giving reasonable opportunity of being heard, determine the value of such taxable services.
All expenditure or cost incurred by service provider in the course of providing taxable service to be included in the value for the purpose of charging service tax.
On satisfying all the following conditions listed here below, all expenditure or cost incurred by service provider as a pure agent15 of the recipient of service to be excluded from value of taxable service:
the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;
the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;
the recipient of service is liable to make payment to the third party;
the recipient of service authorises the service provider to make payment on his behalf;
the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;
the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;
the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and
the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.
The value of taxable service provided from outside India as per provisions of Section 66A shall be the actual consideration charged.
The value of taxable service specified in Rule 3(ii) of Taxation of Service (Provided from Outside India and Received in India) Rules, 2006 (i.e., partly performed in India) shall be the total consideration paid by the recipient of such service including value of taxable service partly performed outside India.
There are specific inclusions and exclusions for valuation of taxable service.
Inclusions
The commission or brokerage charged by a stock broker including commission/brokerage paid to sub-broker;
Amount adjusted by telegraph authority out of any deposit for telephone, pager, facsimile, telegraph, telex or leased circuit;
Premium charged by the insurer from the policy holder;
Commission received by air travel agent from airline;
Commission, fee or other sum received by actuary, intermediary, insurance intermediary or insurance agent from insurer;
Reimbursement received by the authorized service station from manufacturer for carrying out service of motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;
Commission or amount received by rail travel agent from Railways or customer;
Remuneration or commission paid to clearing and forwarding agent by the client for rendering services of clearing and forwarding operations; and
Commission, fee or other sum paid to insurance agent by insurer in relation to insurance auxiliary services
Exclusions
Initial deposit paid for telephone connection, pager, facsimile, telegraph, telex or for leased circuit;
Airfare collected by air travel agent;
Rail fare collected by rail travel agent; and
Interest on loans.
4.2 Value of services for the purpose of works contract services
Value of taxable service for works contract services shall be equivalent to gross amount charged for works contract less value of transfer of property in goods involved in execution of said works contract.
In case VAT or Sales Tax is paid on actual value of transfer of property in goods involved in execution of works contract, then such value adopted for payment of VAT to be taken as value of transfer of property for determining the value of works contract service as referred above.
There are specific inclusions and exclusions for valuation of works contract services.16
4.3 Issue of bill, composite billing for service charges & tax
Rule-4A(1) requires every taxable service provider to issue, not later than 14 days from date of completion of service or receipt of any payment towards such service, whichever is earlier, serially numbered invoice or bill or challan duly signed by him or person authorized by him containing following details:
name, address and registration number of service provider;
name and address of service receiver;
description, classification and value of taxable service;
service tax.
In case any payment towards value of service is not received and such taxable service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, taxable service provider is required to issue an invoice/bill/challan within a period not later than 14 days from end of such period.
In case of service provider of Banking and Other Financial Services, any document containing prescribed particulars will be considered as invoice/bill/challan and such document need not contain serial No. and address of service receiver.
Besides issuing invoice or bill or challan containing prescribed particulars, Rule-4A(1) requires Goods Transport Agency (other than GTAs whose services are wholly exempted in relation to transport of goods by road)17 to issue serially numbered consignment note containing:
name of consignor and consignee;
registration number of goods carriage in which goods are transported;
details of goods transported;
details of place of origin and destination;
person liable for paying service tax whether consignor, consignee or GTA.
Rule 4A(2) requires, every ‘input service distributor’18 to issue serially numbered invoice or bill or challan duly signed by him or person authorized by him containing following details:
name, address, registration number, serial number and date of invoice or bill or challan of input service provider;
name & address of input service distributor;
name and address of recipient of credit;
amount of credit distributed.
In case of input service distributor being an office of a Banking and Other Financial Service provider, any document containing prescribed particulars will be considered as invoice/bill/challan and such document need not contain serial No.
TIME LIMITS
| Registration | Within 30 days from the date on which service tax is levied or within 30 days of commencement of business of providing a taxable service, whichever is later. | ||||||||||||||
| Payment of Service Tax |
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| Filing of half yearly return |
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THRESHOLD LIMIT
From 1st April, 2008, exemption19 granted to service provider from levy of service tax on taxable service of "aggregate value not exceeding ten lakh rupees"20 in any financial year. The above exemption not available to:
taxable services provided by a person under a brand name or trade name21 of another person; or
such value of taxable service for which service tax is payable by person specified in section 68(2) (i.e., other than service provider).
The above exemption is available subject to following conditions:
exemption is optional, which once exercised in a financial year, cannot be withdrawn during remaining part of such financial year;
service provider not to avail CENVAT credit (under Rule 3 or Rule 13 of CENVAT Credit Rules, 2004) of service tax on any input service used for providing such taxable service for which exemption is opted for;
service provider not to avail CENVAT credit (under Rule 3 of CENVAT Credit Rules, 2004) of duty on capital goods received in his premises during period of availment of this exemption;
service provider to avail CENVAT credit on inputs or input services (used for providing taxable service) received on or after the day he starts paying tax;
service provider to pay an amount of CENVAT credit taken by him for inputs lying in stock or in process on the day on which he starts availing exemption;
balance unutilized CENVAT credit on account of inputs and input services (used in providing service for which exemption is availed) to lapse on the date on which he starts availing exemption;
for arriving at aggregate value of taxable service, services provided under all the categories from one or more premises to be included;
aggregate value of taxable service rendered by service provider from one or more premises not to exceed rupees ten lakh in preceding financial year.
For determining aggregate value not exceeding rupees ten lakh in relation to taxable service provided by GTA, the payment received towards such services, on which service tax is payable by person other than GTA, shall not be taken into account.
REGISTRATION (Section 69 & Rule 4)
Application for registration to be made by every person liable for paying the service tax in Form ST-1 within 30 days from the date on which service tax is levied or within 30 days from the date of commencement of business of providing taxable service, whichever is later.
Application for registration in Form ST-1 to be made by Input Service Distributor within 30 days from the date of commencement of business or 16th June, 2005 whichever is later
Application for registration in Form ST-1 to be made within 30 days by service provider whose aggregate value of taxable service in a financial year exceeds rupees nine lakhs23.
Normally, the service provider is liable to register & pay tax, except in case of:
insurance auxiliary services provided by insurance agents related to general insurance or life insurance business, where, General Insurance Co. or Life Insurance Co. (who has appointed such agents) is liable to register and pay tax;
taxable service provided or to be provided by any person from a country other than India and received by any person in India u/s. 66A of the Act, it is the person receiving the taxable service in India who is liable to register and pay tax24.
taxable service provided by GTA in relation to transport of goods by road in goods carriage, where either consignor or consignee of goods is;
any factory registered under or governed by The Factories Act, 1948;
any company formed or registered under The Companies Act, 1956;
any corporation established by or under any law;
any society registered under The Societies Registration Act, 1860 or any law corresponding to that act in force in any part of India;
any co-operative society established by or under any law;
any dealer of excisable goods, who is registered under The Central Excise Act, 1944 or rules made thereunder; or
any body corporate established, or a partnership firm registered, by or under any law it is the person making payment of freight who is liable to register and pay tax.
business auxiliary service of distribution of mutual fund provided by distributor or agent of mutual fund, where, Mutual Fund (who has appointed such distributor or agents) is liable to register and pay tax25.
sponsorship services provided to any body corporate or firm, where, the body corporate or firm located in India26, who receives such sponsorship service is liable to register and pay tax27.
Separate registration to be obtained in respect of each premises from where taxable services are rendered/received.
In case assessee liable to pay service tax on taxable service provided/received from more than one premise or office and has centralized billing or accounting system, he may register such premise or office where centralized billing or accounting system is located. In such cases, application for registration to be made to CCE in whose jurisdiction the premise or office, from where centralized billing or accounting is done, is located28.
Assessee to obtain single registration for all the taxable services provided by him29.
Every assessee to intimate in writing to AC/DC of any change in information or detail furnished in Form No. ST-1 at the time of registration or any additional information or detail which he intends to furnish within 30 days of such change30.
Registration certificate in Form ST-2 shall be granted within 7 days from date of application/intimation, failing which the registration applied for shall be deemed to have been granted.
In case of transfer of business, transferee to obtain a fresh certificate of registration.
Registration certificate to be surrendered immediately to the Superintendent of Central Excise by an assessee who ceases to provide taxable service31.
Superintendent to cancel the registration certificate after ensuring that the assessee has paid all monies due to the Central Government32.
PAYMENT OF SERVICE TAX (Section 68 & Rule 6)
While charge of service tax is on provision of service, tax is payable only when the value of taxable service is received.
W.e.f. 10th May, 2008, in case of transaction of taxable service with any associated enterprise, service tax is payable on value of taxable services debited or credited in the books of person liable to pay service tax or payment received against the value of taxable service, whichever is earlier.
Service tax is not payable on services provided free of charge33
For due dates for payment of tax refer table given in clause No. 5 hereinabove.
W.e.f. 1st April, 2007, service tax to be paid in Form GAR-734 into the designated bank.
W.e.f. 1st October, 2006, the assessee who has paid service tax of Rs. 50 lakhs or more in preceding financial year or has already paid service tax of Rs. 50 lakhs or more in current financial year is required to deposit service tax electronically through internet banking35.
The date of presentation of cheque to the designated bank shall be the date of payment, provided the cheque is not dishonoured.
Option to assessee to pay service tax in advance and adjust the tax so paid against his liability of service tax for subsequent period subject to following conditions:
the amount of service tax paid in advance to be intimated to the Superintendent within 15 days from the date of such payment
indicate the details of advance payment and its adjustment in subsequent service tax returns.
Excess tax paid for service which is not rendered fully, is allowed to be adjusted against subsequent period’s liability, provided the service charges & service tax thereon is refunded to the service recipient.
Excess service tax paid is permitted to be adjusted against liability for succeeding month/quarter subject to following conditions:
excess payment is not on account of reasons involving interpretation of law, taxability, clarification, valuation or any exemption notification;
assessees holding centralised registration may adjust excess payment without any monetary limit if it is on account of delay in receipt of details of payment from branches;
in case of other assessees, adjustment is restricted up to Rs. 1,00,000/-36;
the details and reasons of such adjustment to be intimated to the Superintendent within 15 days from the date of making such adjustment.
Application to be made to the Central Excise Officer (CEO) to make provisional assessment of tax, when assessee is unable to correctly estimate actual tax payable.
FILING OF RETURNS/E-RETURNS (Section 70 & Rule 7)
Half yearly returns to be filed by 25th April and 25th October in every financial year.
Returns to be filed in Form ST-3 in triplicate, indicating inter alia, month/quarter wise details for each of the taxable service rendered along with copies of relevant challans.
Input service distributor to file half yearly return in Form ST-3 by 30th April and 31st October in every financial year [Rule 9(10) of The CENVAT Credit Rules, 2004].
Option to file returns electronically (E-returns) available for all categories37.
Every assessee, at the time of filing first return or 31st January, 2008, whichever is later, is required to furnish list of records maintained for accounting of transactions related to:
providing of any service;
receipt or procurement of input services and payment for the same;
receipt, purchase, manufacture, storage, sale or delivery related to input & capital goods;
other activities such as manufacture/sale of goods;
all other financial records maintained under normal course of business.
Assessee may revise return within 90 days from the date of submission of original return.38
A NIL return is also required to be filed.
Assessee who has obtained service tax registration in view of Rule 3(2) of Service Tax (Registration of Special Category of Persons) Rules, 2005 is not required to file half yearly service tax return till he is not liable to pay service tax39.
In case of provisional assessment for any month/quarter, assessee to submit a memorandum in Form ST-3A, giving details of difference between the provisional amount of service tax deposited and the actual amount of service tax payable for each month along with the half-yearly return in Form ST-3.
BEST JUDGMENT ASSESSMENT (SECTION 72)
CEO empowered to call accounts, documents or other necessary evidence in case person liable to pay service tax:
fails to furnish the return u/s. 70;
having filed return, fails to assess tax correctly
After giving an opportunity of being heard to assessee, CEO to make assessment of value of taxable service and determine sum payable by/refundable to assessee on the basis of assessment.
ADJUDICATION PROCEDURE (Section 83 of The Finance Act, 1994 & Section 33A of The Central Excise Act, 1944)
Opportunity of being heard to be given to the assessee if he so desires in any proceedings under this Act.
Maximum three adjournments can be granted to assessee on his showing sufficient and reasonable cause.
VALUE OF TAXABLE SERVICES ESCAPING ASSESSMENT (Section 73)
CEO may serve show cause notice on a person chargeable with service tax within one year from the ‘relevant date’, where any service tax:
has not been levied or paid; or
has been short levied or short paid; or
has been erroneously refunded
and thereafter determine the amount of service tax due and payable.
The period for issuing such show cause notice shall be
five years from the ‘relevant date’, where any service tax has not been
levied or paid or has been short levied or short paid or erroneously refunded
(hereinafter collectively referred to as ‘specified events’) by reason
of —
fraud; or
collusion; or
wilful misstatement; or
suppression of facts; or
contravention of any of the provisions of Chapter V of the Act or of the rules made thereunder with an intent to evade payment of service tax.
The "relevant date" to be determined as under:
| Circumstance | Relevant date |
|
Date on which return filed Last date on which the return is to be filed |
|
Date on which tax is to be paid |
| Where service tax is provisionally assessed | Date of adjustment of service tax after final assessment |
| Where any sum has been erroneously refunded | Date of refund |
Section 73(3) provides that for ‘specified events’, the person chargeable with the service tax or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment or on the basis of tax ascertained by CEO before service of notice on him u/s. 73(1) in respect of service tax and inform CEO of such payment in writing, who on receipt of such information shall not serve notice u/s. 73(1). The provisions of section 73(3) shall not apply to specified events occurring by reason of:
fraud; or
collusion; or
wilful misstatement; or
suppression of facts; or
contravention of any of the provisions of this chapter or of the rules made thereunder with intent to evade payment of service tax
and cases where service tax had become payable or ought to have been paid before 14th May, 2003.
Section 73(1A) provides that where any service tax has not been levied or paid or short levied or short paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of this chapter or rules made thereunder, with intent to evade payment of service tax by such person or his agent to whom notice is served u/s. 73(1), such person may pay service tax in full with interest u/s. 75 and penalty equal to 25% of service tax specified in the notice or accepted by him within 30 days of receipt of notice, the proceedings in respect of such person shall be deemed to be concluded. Where such person has paid service tax in part along with interest & penalty u/s. 73(1A), the CEO shall determine amount of service tax and interest not being in excess of the amount partly due from such person.
SERVICE TAX COLLECTED TO BE DEPOSITED WITH CENTRAL GOVERNMENT (Section 73A)
Service provider to pay forthwith any amount collected as representing service tax, from recipient of taxable service, in excess of service tax assessed or determined.
Any person to pay forthwith any amount collected towards service tax, which is not so required to be collected.
Delay in payment of such tax liable for interest @13% p.a. [Section 73B].
Such amount of tax to be credited to Consumer Welfare Fund as referred in Section 12C of The Central Excise Act, 1944 and be refunded to person who has borne the incidence of tax.
PROVISIONAL ATTACHMENT (Section 73C)
During the pendency of any proceedings u/s. 73 or 73A, for protecting the interests of revenue, CEO may provisionally attach any property belonging to the person on whom notice u/s. 73(1) or 73A(3) is served.
Every provisional attachment shall cease to have effect after the expiry of six months from the date of the order. However, the CCE may extend the period as he thinks fit which in any case not to exceed two years.
PUBLICATION OF INFORMATION (Section 73D)
The Central Government may publish in Official Gazette, print media, electronic media or any other means, the names and other particulars of:
person adjudged to have contravened any provisions with intent to evade service tax
person adjudged to pay but not paid any amount payable u/s. 73A.
No publication to be made in relation to any person until;
in case no appeal is presented, the time for presenting an appeal to the Commissioner (Appeals) or Appellate Tribunal has expired; or
in case appeal is presented, the same has been disposed off.
In case of firm, company or other association of persons, the names of partners/directors/managing agents/ secretaries/treasurers/managers/members of the association shall also be published if circumstances of case justify.
RECTIFICATION (Section 74)
Mistake apparent from records can be rectified by CEO within 2 years by passing rectification order after giving assessee reasonable opportunity of being heard, if the rectification results in increasing the liability or reducing a refund to the assessee.
APPEALS (Sections 85 & 86)
17.1 First Appeal to Commissioner of Central Excise (Appeals) (Section 85)
Assessee may file appeal against any decision or order passed by adjudicating authority subordinate to CCE.
Appeal to be filed in Form ST-4 in duplicate within 3 months from receipt of order of such adjudicating authority along with copy of decision or order.
17.2 Second Appeal to Appellate Tribunal (Section 86)
Assessee may file appeal against an order passed by Commissioner of Central Excise u/s. 73, 83A or 84 or an order passed by Commissioner of Central Excise (Appeals) u/s. 85.
Appeal to be filed in Form ST-5 in quadruplicate within 3 months of receipt of order.
Filing fees for appeal to Appellate Tribunal:
Service tax, interest and penalty involved Filing Fees (Rs.) Rs. 5,00,000 or less 1,000 Above Rs. 5,00,000 up to Rs. 50,00,000 5,000 In excess of Rs. 50,00,000 10,000
- Filing fees of Rs. 500/- to be paid along with every application made before Appellate Tribunal, in an appeal for grant of stay or for rectification of mistake or for any other purpose or for restoration of an appeal or an application.
INTEREST AND PENALTIES/LATE FEES
Nature of default Section Quantum Whether
quantum is
discretionaryMaximum limit,
if anyInterest on amount collected in excess 73B Simple interest @ 13% p.a.
w.e.f. 19th April, 2006.Yes@ Not applicable Interest on delayed payment 75 Simple interest @ 13% p.a.
w.e.f. 10th September, 2004No Not applicable Penalty for failure to pay service tax 76$ Higher of Rs. 200/- or more per day or 2% of service tax p.m. Yes* Amount of service tax Late fees for delay in filing return 70(1)
&
Rule 7C
- Rs. 500/- for delay up to 15 days
- Rs. 1,000/- for delay beyond 15 days upto 30 days
- Rs. 1,000/- plus Rs. 100/- per day for delay beyond 30 days
- CEO empowered to reduce or waive penalty (late fees) for delay in filing return where gross amount of service tax payable is NIL.
No Rs. 2,000/-
- Failure to take service tax registration
- Failure to furnish information called by CEO, produce document called by CEO or appear before CEO in response to Summons or produce documents in an inquiry
77 Up to Rs. 5,000/- or Rs. 200/- for every day during which such failure continues, whichever is higher. Yes* Upper limit not prescribed
- Failure to maintain/retain books of account & other documents
- Failure to pay tax electronically through internet banking when mandatory
- Incorrect and incomplete details on the invoice or failure to account invoice in the books of account.
- Any contravention of the provisions or rules for which no separate penalty is provided
77 Up to Rs. 5,000/- Yes* Rs. 5,000/- Penalty for service tax not levied/paid or short levied/short paid or erroneously refunded by reason of :
- fraud; or
- collusion; or
- wilful misstatement; or
- suppression of facts; or
- contravention of any other provisions of this chapter or rules made there-under with intent to evade payment
of service tax78 Ranging from 100% up to 200% of the service tax sought to be evaded or erroneously refunded#. Yes* 200% of the amount of service tax sought to be evaded or erroneously refunded# @ No interest is payable where the amount becomes payable consequent to issue of an order, instruction or direction by the Board u/s. 37B of the CE Act, 1944 and such amount is voluntarily paid in full, without reserving right to appeal against such payment, within 45 days from date of issue of such order, instruction or direction.
* Section 80 provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for the relevant failure.
# W.e.f. 14th May, 2003, Finance Act, 2003 has restricted the penalty to 25% of service tax, if the amount of service tax, interest and such penalty is paid within 30 days of the date of communication of the adjudicating order. The benefit of such reduced penalty shall also apply where the order determining such service tax relates to notices issued prior to the Finance Act, 2003 coming into force.
$ If penalty is levied u/s. 78, no penalty can be levied u/s.76.
REFUNDS (Section 83)
Refund claim to be made to concerned AC/DC in Form R, which should be filed before the expiry of one year from the date of payment of tax40 and should be attached with proof that the incidence of tax has not been passed on to any person.
In case the refund is not given within 3 months from the date of receipt of refund application, interest should be paid for the period commencing from the date immediately after the expiry of the said 3 months till the date of refund at such rate, not below 5% and not exceeding 30% per annum as is fixed by the Central Government. The rate of interest currently fixed by the Central Government is 6% per annum.41
EXEMPTION FROM SERVICE TAX by way of refund (Section 93)
Exemption granted to following taxable services received by an exporter and used for export of goods42
General insurance including re-insurance
Port Services & other Port Services
Technical Testing & Analysis Services
Technical Inspection & Certification Services
Transport of Goods by Road from place of removal to Inland Container Depot/Airport/Port of Export
Transport of Goods in container by Rail from Inland Container Depot to Port of Export
Cleaning Services
Storage Warehousing Services
Courier Services
Custom House Agent Services
Banking & Other Financial Services
Business Auxiliary Services
Supply of Tangible Goods for use
Above exemption is subject to specific conditions notified qua services besides following general conditions, namely:—
the exemption shall be claimed by the exporter only for specified services;
the exemption shall be provided by way of refund of service tax paid on the specified services;
the exporter has actually paid the service tax on the specified services;
no CENVAT credit of service tax paid on the specified services has been taken;
no drawback of service tax is availed on the goods exported ;
the refund of service tax paid on the specified services shall not be claimed except under this notification.
RECOVERY OF ANY AMOUT DUE TO CENTRAL GOVERNMENT (Section 87)
CEO to recover any amount due to Central Government by one or more of following modes:
by deducting from the dues payable to defaulter under Central Excise or Customs; or
by collecting dues from debtors of defaulter or such other persons from whom the money is due to the defaulter; or
by collecting from bank account, post office account, deposit receipts or amount due against insurance policy or such other document; or
by distraining (seizing) any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid, or
by preparing certificate regarding arrears to be collected as land revenue and forwarding the same to the Collector of the district.
INPUT TAX CREDIT
Governed by CENVAT Credit Rules, 2004 introduced from 10th September, 200443.
ADVANCE RULING (Chapter VA of Finance Act, 1994 - Sections 96A to 96I)
Available only in relation to services proposed to be provided.
Can be sought for following specified purposes:
classification of services;
valuation of taxable services;
principles to be adopted for determination of value of taxable service;
applicability of notification;
admissibility of service tax credit;
determination of service tax liability on taxable service
Only following service providers can seek AR:
(a) Non-resident setting up joint venture in India in collaboration with non-resident/resident; or
(b) Resident setting up joint venture in India in collaboration with a non-resident; or
(c) Wholly owned Indian subsidiary company, of foreign company;
who or which, proposes to undertake any business activity in India;
a joint venture in India; or
a resident falling within any such class or category of person notified by Central Government. on payment of filing fees of Rs. 2,500/- along with application in Form AAR(ST-I) in quadruplicate.
"Joint venture in India" means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders is a non resident having substantial interest in such arrangement.
The authority shall pronounce its advance ruling in writing within 90 days of receipt of application & the same shall be binding on the applicant as well Commissioner of Central Excise & subordinates, in respect of applicant and in relation to question on which AR is sought.
Application shall not be allowed where the question raised is:
already pending in applicant’s case before any CEO, Appellate Tribunal or any court;
the matter already decided by Appellate Tribunal or any court.
EXPORT OF SERVICES
Governed by Export of Service Rules, 2005 introduced from 15th March, 200544.
For the purpose of these rules, the meaning of terms "input" and "input service" shall be that as defined in The CENVAT Credit Rules, 2004.
The taxable service to be treated as export of service on fulfilling various conditions listed here below:
Category of Service Sub -clause of Section 65(105) Conditions for service to be treated as export of service, if service is • General Insurance • (d) provided in relation to an immovable property situated outside India
• Architect • (p) • Interior Decorator • (q) • Real Estate Agent • (v) • Commercial or Industrial Construction • (zzq) • Site Formation & Clearance, Excavation & Earthmoving & Demolition Services • (zzza) • Dredging services • (zzzb) • Survey & Map Making Services • (zzzc) • Construction of Complex • (zzzh) • Auction of Property • (zzzr) • Mining of mineral, oil or gas • (zzzy) • Renting of immovable property • (zzzz) • Works contract services • (zzzza) • Stock Broker • (a) Provided in relation to goods, material or immovable property situated outside India at the time of provision of service through internet, electronic or computer network or other means, such taxable services to be treated as performed outside India
• Courier • (f) • Custom House Agent • (h) • Steamer Agent • (i) • Clearing & Forwarding Agent • (j) • Air Travel Agent • (l) • Mandap Keeper • (m) • Tour Operator • (n) • Rent-a-cab Operator • (o) • Practising Chartered Accountant • (s) • Practising Cost Accountant • (t) • Practising Company Secretary • (u) • Security Agency • (w) • Credit Rating Agency • (x) • Market Research Agency • (y) • Underwriter • (z) • Photography • (zb) • Convention • (zc) • Videotape Production • (zi) • Sound Recording • (zj) • Port Services • (zn) • Authorised Service Station • (zo) • Beauty Parlour • (zq) • Cargo Handling • (zr) • Dry Cleaning • (zt) • Event Management • (zu) • Fashion Designing • (zv) • Health & Fitness • (zw) • Storage & Warehousing • (zza) • Commercial Training or Coaching • (zzc) • Erection, Commissioning & Installation • (zzd) • Internet Cafe • (zzf) • Management, Maintenance or Repairs • (zzg) • Technical Testing & Analysis • (zzh) • Technical Inspection & Certification • (zzi) • Other Port • (zzl) • Airport Service • (zzm) • Transport of goods by air • (zzn) • Business Exhibition • (zzo) • Transport of Goods by Road • (zzp) • Opinion Poll • (zzs) • Outdoor Caterer • (zzt) • Survey & Exploration of Mineral • (zzv) • Pandal or Shamiana • (zzw) • Travel Agent • (zzx) • Forward Contract • (zzy) • Cleaning Activity • (zzzd) • Membership of Club or Association • (zzze) • Packaging Services • (zzzf) • Transport of goods in container by rail • (zzzp) • Stock Exchange, Commodity Exchange & Process/Clearing House Services • (zzzzg,
zzzzh &
zzzzi)• General Insurance other than in relation to immovable property • (d) (i) Where the taxable service provided is used in or in relation to commerce or industry:
• The recipient of such service is located outside India,
• In case the recipient of service has any commercial or industrial establishment or office relating thereto in India, order for provision of such service is made from a commercial or industrial establishment or any office located outside India;
(ii) Where the taxable service provided is used other than in or in relation to commerce or industry, the recipient of service is located outside India at the time of receipt of service.
(iii) Where taxable service is of “supply of tangible goods for use” provided to recipient located outside India, the tangible goods so supplied should also be located outside India during the period of its use by recipient of service.• Advertising • (e) • Consulting Engineer • (g) • Manpower Recruitment or supply • (k) • Management Consultant • (r) • Scientific or Technical Consultancy • (za) • Online Information & Database Access • (zh) • Broadcasting • (zk) • Insurance Auxiliary-General Insurance • (zl) • Banking or Financial • (zm) • Cable • (zs) • Life Insurance • (zx) • Insurance Auxiliary-Life Insurance • (zy) • Rail Travel Agent • (zz) • Business Auxiliary • (zzb) • Franchise • (zze) • Forex Broker • (zzk) • Intellectual Property • (zzr) • Programme Producer • (zzu) • Transport of goods, other than water, through pipeline or other conduit • (zzz) • Survey & Map Making other than in relation to immovable property • (zzzc) • Mailing list compilation & mailing • (zzzg) • Registrar to an issue • (zzzi) • Share Transfer Agent • (zzzj) • Automated Teller Machine Operation, Maintenance or Management Services • (zzzk) • Recovery Agents • (zzzl) • Sale of spare or time for advertisement • (zzzm) • Sponsorship Services • (zzzn) • Business Support Services • (zzzq) • Auction of Property other than in relation to immovable property • (zzzr) • Public Relation Services • (zzzs) • Ship Management Services • (zzzt) • Internet Telephony Services • (zzzu) • Credit card, debit card, charge card or other card services • (zzzw) • Telecommunication Services • (zzzx) • Development & supply of content • (zzzzb) • Asset management services • (zzzzc) • Designing services • (zzzzd) • Information Technology Software Services • (zzzze) • Management of Investments under ULIP • (zzzzf) • Supply for Tangible Goods for use • (zzzzj)
Besides conditions specified in column 3, following conditions are also required to be satisfied for any service to be treated as export of service:
Service is provided from India and used outside India45; and
Payment for such service is received in convertible foreign exchange.
Following taxable services specified in sub-clause of Section 65(105) not to be considered for these rules:
(zzzo) — to any passenger by an aircraft operator in relation to scheduled or non-scheduled air transport of such passenger embarking in India for international journey, in any class other than economy class.
(zzzv) — to any person, by any other person, in relation to transport of such person embarking from any port or other port in India by a cruise ship.
Any taxable service may be exported without payment of tax.
Rebate of service tax, education cess and secondary & higher education cess paid on taxable service exported in terms of Rule 3 of Export of Service Rules, 2005, to any country other than Nepal & Bhutan, granted subject to fulfilment of following conditions.46
Payment for taxable services exported in terms of Rule 3 is received in India in convertible foreign exchange;
Rebate to be claimed only if service tax and cess have been paid on the taxable service exported; and
Claim of rebate of service tax and cess is not less than Rs. 500/-.
The rebate so granted shall be recoverable with interest as per provisions of Sections 73 & 75 of The Finance Act, 1994 if—
Service tax and cess, rebate of which has been claimed, have not been paid on such taxable services; or
Taxable service, rebate on which has been claimed, has not been exported.
Rebate of duty paid on excisable inputs and service tax, education cess & secondary & higher education cess paid on taxable input service used in providing taxable services exported in terms of Rule 3 of Export of Service Rules, 2005, to any country other than Nepal & Bhutan, granted subject to fulfilment of following conditions47.
Payment for taxable services exported in terms of Rule 3 is received in India in convertible foreign exchange;
Rebate to be claimed only if duty, service tax and cess on inputs and input services have been paid;
Claim of rebate of duty, service tax and cess is not less than Rs. 500/-; and
No CENVAT Credit has been availed on inputs and input services on which rebate has been claimed.
The rebate so granted shall be recoverable with interest as per provisions of Sections 73 & 75 of The Finance Act, 1994 if—
Duty, service tax and cess, rebate of which has been claimed, have not been paid;
Taxable service, rebate on which has been claimed, has not been exported; or
CENVAT Credit has been availed on inputs and input services on which rebate has been claimed.
1 Notification No. 1/2002-ST dated 1st March, 2002.
2 Notification No. 21/2003-ST dated 20th November 2003 read with Notification No. 10/2005-ST dated 3rd March, 2005.
3 Notification No. 16/2002-ST dated 2nd August, 2002.
4 Notification No. 4/2004-ST dated 31st March, 2004.
5 Notification No. 9/2007-ST dated 1st March, 2007 w.e.f. 1st April, 2007.
6 Notification No. 10/2007-ST dated 1st March, 2007 w.e.f. 1st April, 2007.
7 Notification No. 12/2003-ST dated 20th June, 2003.
8 Notification No. 12/2004-ST dated 10th September, 2004.
9 Notification No. 7/2006-ST dated 1st March, 2006.
10 Notification No. 22/2006-ST dated 31st May, 2006.
11 Notification No. 33/2007-ST dated 23rd May, 2007.
12 Notification No. 34/2007-ST dated 23rd May, 2007.
13 Notification No. 11/2006-ST dated 19th April, 2006.
14 Notification No.12/2006-ST dated 19th April, 2006.
15 Defined in Explanation 1 to Rule 5 of Service Tax (Determination of Value) Rules, 2006.
16 For inclusions & exclusions, refer Notification No. 29/2007-ST dated 22nd May, 2007 & Table of Services at a glance of this section.
17 Letter No. F.No. 341/18/2004-TRU dated 17th December, 2004.
18 This term is defined in Rule 2(m) of CENVAT Credit Rules, 2004.
19 Notification No. 6/2005-ST dated 1st March, 2005 amended by Notification No. 8/2008-ST dated 1st March, 2008.
20 For definition, refer Explanation to Notification No. 6/2005-ST dated 1st March, 2005.
21 For definition, refer Explanation to Notification No. 6/2005-ST dated 1st March, 2005.
22 Notification No. 26/2005-ST dated 7th June, 2005.
23 Notification No. 26/2005-ST dated 7th June, 2005 amended by Notification No. 9/2008-ST dated 1st March, 2008.
24 Notification Nos. 9/2006-ST & 10/2006-ST both dated 19th April, 2006.
25 Notification Nos. 5/2005-ST & 7/2005-ST both dated 1st March, 2005.
26 Notification No. 1/2007-ST dated 1st March, 2007.
27 Notification Nos. 16/2006-ST & 17/2006-ST both dated 25th April, 2006
28 Notification No. 29/2006-ST dated 2nd November, 2006.
29 Circular No. 72/2004-ST dated 2nd January, 2004.
30 Notification No. 5/2006-ST dated 1st March, 2006.
31 Procedure for surrendering registration certificate prescribed in Trade Notice No. 3/2007-ST dt. 30th March, 2007 issued by Commissioner of Service Tax, Mumbai.
32 Notification No. 5/2006-ST dated 1st March, 2006.
33 Circular No. 62/11/2003-ST dated 21st August, 2003
34 As per Electronic Accounting System In Excise & Service Tax (EASIEST) Scheme notified by CBEC & Trade Notice No. 04/2007-ST dated 11th April, 2007 issued by Commissioner of Service Tax, Mumbai.
35 Notification No. 27/2006-ST dated 21st September, 2006 & Circular No. 88/06/2006-ST dated 6th November, 2006.
36 Notification No.4/2008-ST dated 1st March,2008
37 Circular No. 71/1/2004-ST dated 2nd January, 2004
38 Notification No. 4/2008-ST dated 1st March, 2008
39 Letter F.No.137/58/2007-CX.4 dated 29th March, 2007
40 As per section 11B of the Central Excise Act, 1944 which is made applicable to the Act.
41 Notification No. 67/2003-C.E.(N.T.), dated 12th September, 2003.
42 Notification No. 41/2007-ST dated 6th October, 2007 as amended by Notification No. 42/2007-ST dated 29th November, 2007, Notification No. 3/2008-ST dated 19th February, 2008, Notification No. 17/2008-ST dated 1st April, 2008 & Notification No. 24/2008-ST dated 10th May, 2008
43 Refer Central Excise Duty Reference Section for these Rules.
44 Notification No. 9/2005-ST dated 3rd March, 2005.
45 Substituted for words "service is delivered outside India and used outside India" vide Notification No. 2/2007-ST dated 1st March, 2007.