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Chartered Accountant Delhi

A trustworthy name, A Chandak & Company is a professionally managed, services oriented and knowledge based Chartered Accountant Firm.

Service Tax

Overview of Service Tax

Background of service tax Valuation and Description of Service
Valuation will be as per section 67 of Finance Act, 1994 read with Valuation Rules. Interpretation of description of service (classification of service) based on principles indicated in section 66F of Finance Act, 1994

Service tax on portion of deemed sale of goods
The ‘deemed sale’ as aforesaid has been specifically excluded from definition of ‘service’ itself vide section 65B(44) of Finance Act, 1994 introduced w.e.f. 1-7-2012. However, on some portion of ‘deemed sale’, service tax is imposed. Works contract is a composite contract which comprises of goods plus service but where the intention is not to sale ‘goods’ as ‘goods’. Examples are – sale of constructed flat, painting of car, taking Xerox copy or photograph etc. In such cases, Service tax is imposed on service portion of Works Contract and State Vat is imposed on goods portion. Service portion in activity of supply of food in any manner as part of that activity (like serving of food in restaurant or outdoor catering or catering as part of other services like mandap, shamiana, convention) is subject to service tax. State Vat is payable on goods portion.


Service Tax under Negative List Approach

Meaning of ‘service’ [section 65B(44)]
‘Service’ is defined for first time w.e.f. 1-7-2012 vide section 65B(44). As per the definition, any activity carried out by a person for another for consideration is ‘service’ – It also includes ‘declared service’.

Activity – CBE&C Clarification dated 20-6-2012
The word activity would include an act done, a work done, a deed done, an operation carried out, execution of an act, provision of a facility etc. It is a term with very wide connotation. Activity could be active or passive

Exclusions from definition of ‘service’
Section 65B(44) also defines what is not ‘service’. Distinction between ‘Negative List’ and activities excluded in section 65B(44) is that activities listed in ‘Negative List’ is service but not taxable while activity excluded from definition of ‘service’ is not ‘service’ at all. Thus, service in ‘Negative List’ will have to be considered for purpose of rule 6 of Cenvat Credit Rules but not activities which have been excluded from definition of ‘service’

What is not ‘service’ [Explanation to section 65B(44)]
Mere transaction in money is not service Declared Services
Renting of immovable property, construction, software, temporary transfer of IPR, hiring, leasing, hire purchase and financial lease, service portion in execution of works contract, service portion of supply of food, agreeing to refrain from act or tolerate an act or situation, or to do an act are ‘declared services’ [section 66E]. This is ‘deemed service’ to make clear the intention that these activities will be subject to service tax. Some of these are specifically included as these are partly covered under List II i.e. State List (like works contract, supply of food, hire, financial lease, hire purchase).  Renting of immovable property has been specifically included as there were disputes and litigation on taxability of this service, though now its validity has been upheld by six High Courts. Service tax on software is a debatable issue since software (both packaged and tailor made) have been held as goods. Hence, it is included in ‘declared service’ to make the taxability clear.

To do an act


Exemptions in service tax

Exemption and Negative List

In addition to negative list, there is a huge list of 39 services which have been exempted, vide Mega Exemption Notification No. 25/2012-ST dated 20-6-2012. Distinction between exemption and Negative List is that service in negative list is ‘service’ but not taxable at all. Exempted services are taxable but are exempted by Central Government by issue of a notification. Exemption can be changed easily but not Negative List. Activity excluded from definition of ‘service’ under section 65B(44) is not ‘service’ at all. Hence, rule 6 of Cenvat Credit Rules will not apply.

Important Exemptions
In the negative list, terms like ‘excluding’, ‘other than’ and ‘except’ have been used. It means those service mentioned after ‘excluding’, ‘other than’ or ‘except’ would be taxable i.e. they are not in negative list. Remember – Two negatives make one positive.

Small Service Provider Exemption
Exemption if value of taxable services rendered in previous financial year did not exceed ` 10 lakhs – Notification No. 33/2012-ST dated 20-6-2012. Exempted turnover not to be considered for 10 lakh limit. Turnover of sale or manufacture of goods is not to be considered for calculating the ten lakh limit. If turnover crosses ` 10 lakhs in any financial year, tax payable after Rs10 lakhs in that financial year. However, no exemption will be available in next financial year. He is required to register when his turnover crosses ` 9 lakhs.

Need for interpretation of description
Description of service used at various places like- (a) Negative list of services (b) Declared list of services (c) Services exempted by a notification (d) Place of Provision of Service Rules to determine where the service is provided (e) Service Tax Rules (f) Cenvat Credit Rules (g) Service Tax Valuation Rules etc.

In some cases, a composite service may consist of two or more different services, termed as ‘bundled services’. In such case, it is necessary to determine whether a particular service corresponds to a specified head

Reference to main service does not include auxiliary service [section 66F(1)]
Reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service.
Composite Service – Bundled Services Services not naturally bundled
If services are not naturally bundled – then description as single service which results in highest liability of service tax will be adopted as description of that service. For example – Pure agent vis-à-vis ‘Bundled Service’
Distinction between ‘bundled service’ and service as ‘pure agent’ – Bundled service means all expenses incurred or sub-services provided are part of main service, while in case of ‘pure agent’, the expenses incurred are not part of the  service.

The service provider collects various amounts from customer which are not part of his value of services. For example, air travel agent collecting value of ticket in addition to his commission. This is termed as collection as ‘Pure Agent’ and then its amount is not included in value of his taxable service.

CHA arranging for internal transport, storage, loading/unloading/ stevedoring, crane charges etc. These are not part of his services. However, in most of the cases, he adds his mark up and then recover these amounts from customer. In that case, such collection is not as ‘pure agent’. In such case, a view is possible that all such services arranged by CHA are part of ‘naturally bundled service’ and CHA may be held liable to pay service tax on entire amount collected by him from customer (except the statutory charges paid by him on behalf of the customer).


Reverse Charge in service tax

Reverse Charge (Tax Shift)
Issues relating to reverse charge
The small service provider exemption of ` 10 lakhs not available when tax is payable under reverse charge. Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR-7 challan. Once paid, Cenvat credit can be taken if otherwise it is his eligible ‘input service’. Tax should be paid under service tax registration number of service receiver and included in his return as he is liable to pay service tax.

Business Entity and Body Corporate In some cases, reverse charge is applicable only when service receiver is business entity registered as ‘body corporate’.

“Business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Thus, Government, charitable organisation is not ‘business entity’.

“Body Corporate” – Company, LLP, Cooperative Society is Body Corporate – Firm, HUF, Trust is not ‘Body Corporate’ [Society registered under Societies Act is legally not ‘body corporate’].

Service Tax Responsibility chart under Reverse Charge
Nature Of Service Service Provider Service Receiver

Tax payable by Service Provider

Tax payable by Service Receiver

Insurance Services Insurance Agent Insurance Business Entity

Nil

100

Goods Transport Agency Goods Transport Agency Consignor Or Consignee, who is making payment (not applicable if person liable to pay freight is Individual/ proprietorship concern / huf)

Nil

100

Sponsorship Any Person Body Corporate Or Partnership Firm

Nil

100

Arbitral Tribunal Arbitral Tribunal Business Entity

Nil

100

Advocate Services Individual Advocate Business Entity having turnover exceeding ` ten lakhs per annum

Nil

100

Support Service By Government or Local Authority Government Business Entity

Nil

100

Rent A Cab Services Individual/ HUF/Proprietary Or Partnership Firm/AOP Company or any other Registered Body Corporate



(A) In Respect of Services Provider or Agree To Be Provided By way Of Renting Or Hiring Any Motors Vehicle Designed To Carry Passenger On Abated Value

Nil

100

(B) In Respect of Services Provider or Agree To Be Provided By way Of Renting Or Hiring Any Motors Vehicle Designed To Carry Passenger On Non Abated Value

60

40

Supply Of Manpower

25

75

Security Services



Works Contract Services

50

50

Director of Company



Where Services Provider Is Located Out Of Taxable Territory (E.G Import Of Services) Any Person Any Person

Nil

100


Note:-
In the following cases, 100% service tax liability rests with the service provider only if service provider is a corporate entity:-

i. Renting of Motor vehicle
ii. Manpower services & Security Agency
iii. Works Contract


Abatements and Composision under service tax

Composition Schemes In some cases, finding of value of service is not easy e.g. sale or purchase of foreign exchange, air travel agent – in such cases, optional composition schemes provided. In case of composite contracts, e.g. construction,  finding value of service is difficult. In such cases, optional composition schemes are available.

Abatement schemes In case of some services, abatement is available i.e. part of tax is exempted – e.g. 40% in case of air travel, 25% in case of GTA service, 40% in case of renting or hire of motor vehicle to carry passengers. Restrictions on Cenvat Credit. In some cases, abatement scheme is used as composition scheme

Services Under Composition Schemes
Taxable Service Partial abatement / Composition Scheme Conditions Relevant Notification/Rule
Accommodation booking service by tour operator 10% of amount charged (Abatement Scheme, though really it is composition scheme) No Cenvat Credit. Invoice should be inclusive of cost of accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012.
Air Travel Agent Option to pay service tax at flat rate on ‘basic fare’ @ 0.6% in case of domestic booking and 1.2% in case of international booking – plus education cess (Composition Scheme) No restriction on availment of Cenvat credit Rule 6(7) of Service Tax Rules
Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Tax on 70% of amount charged including fair value of goods and services supplied by service receiver (to service provider) under same or different contract (Composition Scheme) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Sr. No. 4 of Notification No. 26/2012-ST dated 20-6-2012
Chit related services Tax on 70% of amount charged (Abatement Scheme) No Cenvat Credit allowed Sr. No. 8 of Notification No. 26/2012-ST dated 20-6-2012.
Financial leasing and hire purchase Tax on lease management fee, processing fee, documentation charges and administrative fee plus 10% of interest No restriction on availment of Cenvat Credit Sr. No. 1 of Notification No. 26/2012-ST dated 20-6-2012
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, if value of land is included in the amount charged from the service receiver Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) Cenvat credit of input services and capital goods can be taken but not of input goods Sr No. 12 of Notification No. 26/2012-ST dated 20-6-2012
Foreign Currency – sale and purchase At slab rates prescribed under rule 6(7B)on total gross amount of currency exchanged (OptionalComposition Scheme) No restriction on availment of Cenvat Credit Rule 6(7B) of Service Tax Rules
Foreign Currency – sale and purchase Value is difference between  buying or selling rate and RBI reference rate (Normal Scheme of valuation) No restriction on availment of Cenvat Credit Rule 2B of Service Tax (Determination of Value)  Rules
Life Insurance 3% of net premium (excluding investment or savings part, if such amount is informed to policy holder)  – If not so informed, 3% in first year and 1.5% in subsequent years(Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7A) of Service Tax Rules
Lottery ticket promotion ` 7,000 or ` 11,000 per ` 10 lakhs of ticketsprinted by State lottery  (Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7C) of Service Tax Rules
Outdoor caterer Tax on 60% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 50%) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of motor vehicle designed to carry passengers Tax payable on 40% of amount charged  (Abatement Scheme) No Cenvat credit available Sr. No. 9 of Notification No. 26/2012-ST dated 20-6-2012
Restaurant service Tax on 40% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 30%) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes Tax payable on 60% of amount charged (Abatement Scheme) (Till 1-7-2012, the tax payable was on 50% amount). Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 6 of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Package tours (“package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour). Tax is payable on 25% of gross amount charged (Abatement Scheme) No Cenvat credit available. Bill to be inclusive of all charges for the tour. Sr. No. 11(i) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour (If Bill includes cost of accommodation)   Tax is payable on 10% of  amount charged (Abatement Scheme) No Cenvat credit available. Bill to be inclusive of charges for such accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Other than package tours and other than service of booking accommodation where Bill includes cost of accommodation   Tax is payable on 40% of amount charged (Abatement Scheme) No Cenvat credit available. Bill to be inclusive of all charges for the tour Sr. No. 11(iii) of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 2 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by road by Goods Transport Agency (GTA) Tax payable on 25% of amount charged (Abatement Scheme) No Cenvat Credit available (Certificate should be taken from the GTA that he has not availed Cenvat credit, as tax is payable by service receiver under reverse charge – this headache was not there earlier) Sr. No. 7 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  in a vessel from one port in India to another Tax payable on 50% of amount charged (Abatement Scheme) No Cenvat Credit available) Sr. No. 10 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers by air Tax payable on 40% of amount charged (Abatement Scheme) Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 5 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 3 of Notification No. 26/2012-ST dated 20-6-2012
Works Contract Service Tax on value of service calculated as per rule 2A(i) or Tax on 25%/40%/60% of gross amount charged as specified in rule 2A(ii) (Composition Scheme) Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available Rule 2A of Service Tax (Determination of Value) Rules


Registration

What are the penal provisions for various contraventions of the Service Tax Law?
In terms of Section 69 of the Finance Act,1994 (Chapter V) read with rule 4 of the Service Tax Rules,1994 
  1. Every person who has provided a taxable service of value exceeding Rs. 9 lakhs, in the preceding financial year, is required to register with the Central Excise or Service Tax office having jurisdiction over the premises or office of such service provider.
  2. In case a recipient of services is liable to pay service tax he also has to obtain registration.
  3. The Input Service Distributors are also required to register them as per Notification No.26/2005-ST dated 07.06.2005 as amended.
  4. Every person who provides taxable service and is liable to pay service tax.

Payment of Service Tax

Category Frequency Due Dates
Payments through Bank :    
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 5th July 
- 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 : (Mandatory for assesses who have paid service tax of Rs.10 lakhs or more including the amount paid by utilization of CENVAT credit, in the preceding financial year).
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


Return of Service Tax

ST-3 Return is required to be filed twice in a financial year – half yearly.  Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively. 


Compliance Services at A. Chandak & Co.


Why A. Chandak & Co. requires for Service Tax Compliance

Service Tax has now become one of the major sources of yielding revenue to the exchequer. It has been extended to several items with enhanced rates in recent budgets. It's scope is very much likely to be widened and rates to be raised further.  

The rules and regulations and various procedures laid down under service Tax are very cumbersome, tedious and best with the problem of interpretation , disputes and litigation all its provisions have to be completed with very strictly . Even minor lathes can land you in soup. The tax has to be deposited in treasury with in the stipulated period and various returns are to be filed on prescribed forms with in specified dates failing which return penal action in called for.  

We have specially trained staff to handle the entire Service Tax work you may entrust this burden on us and feel free to focus your attention to enhance your business or profession.



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