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30.8.2010        
INTRODUCTION
Statutory Provisions Sections 64 to 96I of Finance Act, 1994
Applicable Rules Service Tax Rules, 1994
Jurisdiction Whole of India except J & K State
Q.1 What is Service Tax? Is it an indirect tax?
Q.2 What is the jurisdiction of service tax provisions?
Q.3 Whether service tax is applicable outside India also?
Q.4 What is the sanction behind the service tax? How is its collection authorized?
Q.5 Whether levy of service tax has been held by court to be constitutionally valid?
Q.6 What is the scheme of administration of Service Tax?
Q.7 What is the basis of taxability for service tax?
Q.8 How should the service be classified into a taxable service?
Q.9 What is meant by service?
Q.10 Whether all services provided are subject to service tax?
Q.11 Can service tax be levied on sale of goods?
Q.12 When is service tax levied and becomes payable?
Q.13 Is service tax a deductible expense under Income Tax Act?
Q.14 Does delaying payment of service tax attract penal interest?
Q.15 How should service tax be paid?
Q.16 What records should be maintained for service tax?
Q.17 Will Modvat or Cenvat be available on service tax?
Q.18 Whether service tax has to be paid on bills raised or amount of bills received in a month / quarter?
Q.19 Who is the proper officer for assessment of periodical returns filed by the service tax assessee from time to time?
Q.20 Can Central Excise Officers / Superintendents visit the premises of service tax assessees? If so, under what circumstances?
Q.21 Is there any minimum limit or basic exemption limit on levy of service tax?
Q.22 Is service tax applicable to persons residing abroad?
Q.23 Is separate registration, filing of return etc. required for a single assessee providing multiple taxable services?
Q.24 Is service tax payable on overseas projects in which payment is received in foreign exchange?
Q.25 Is a non resident or person from outside India required to pay service tax or file return?
Q.26 What does a ‘quarter’ mean under Service Tax Rules?
Q.27 What is the rate of Service Tax?
Q.28 Who is liable to pay Service Tax to the Govt?
Q.29 What are the general exemptions available to all service providers?
Q.30 What is the value taxable services?
Q.31 Whether TDS provision exists in case of service tax, like income tax?
Q.32 What rules have been framed for service tax purposes?
Q.33 What are the registration requirements for registration in case of assessees who providing services from multi-premises?
Ans.1 The service tax is an indirect tax levied on certain services provided by certain categories of persons / firms / agencies. Service sector which represents nearly 50% of GDP had remained untapped as a source of revenue in India for a considerably long time. For the first time, the services came to be taxed in 1994 Budget through Chapter V of the Finance Act, 1994. It then covered just three services and came into force with effect from the 1st day of July, 1994. The scope of levy of service tax was enlarged in the Finance Act, 1996 the Finance Act, 1997 and the Finance Act, 1998 by bringing in three, twelve and twelve services respectively. However, three of services, introduced in 1997 i.e., services of outdoor caterers, pandal or shamiana contractors and goods transport operators were deleted from the list of services in the Finance Act, 1998. No fresh services were brought under the tax net either by the Finance Act, 1999 or by the Finance Act, 2000. Finance Act, 2001 had added 15 new services to the list of taxable services w.e.f. 16.07.2001. Further, the services provided by Mechanized Slaughter Houses were exempted w.e.f. 01.03.2000. The Finance Act, 2002 levied tax on 10 new services followed by 7 in 2003, 13 in 2004 and 9 in 2005. Presently, there are 81 services under the tax net.
Ans.2 The statutory provisions of the Finance Act, 1994 (Chapter V and VA) extends to the whole of India except the state of Jammu & Kashmir.
Ans.3 Service tax is not applicable on export of services outside India and also service provided to special economic zones or units set up in SEZs but is applicable to Indian territorial waters, continental shelf and exclusive economic zones.
Ans.4 The service tax gains its authority from Item No. 97 in the Union List of the Seventh Schedule to the Constitution of India. Section 64 to 96I of the Finance Act, 1994 (Chapters V and VA), as amended from time to time, provide the legal basis for the levy and collection of tax. Section 66 of the Act authorizes the charging of service tax.
Ans.5 Yes, in several cases, Supreme Court of India and High Court have held levy of service tax to be constitutionally valid. Some of the decided cases are- - Addition Advertising v. Union of India (1998) 1 GLR 317 (Gujarat) - INI Express Worldwide Pvt. Ltd. v. Union of India (1998) 97 ELT 407 (Bombay) - Chartered Accountants Association v. Union of India (2001) 115 Taxman 543 (Gujarat) - All Kerala Chartered Accountants Association v. Union of India (2002) 176 CTR 268 (Kerala) - Kerala Colour Lab Association v. Union of India & Others (2003) 264 ITR 633 (Kerala) - Advertising Club & Others v. CBEC & Others (2003) 264 ITR 386 (Madras) - GDA Security Pvt. Ltd. v. Union of India & Others (2003) 364 OTR 396 (Madras) - Tamilnadu Kalyana Mandapam Association v. Union of India (2004) 267 ITR 9 (Supreme Court) - Gujarat Ambuja Cement Ltd. v. Union of India (2005) 182 ELT 33 (Supreme Court) - All India Federation of Tax Practitioners v. Union of India (2001) 116 Taxation 420 (Bombay)
Ans.6 Service tax as an indirect tax is administered by Central Board of Excise and Customs (CBEC) through its Commisionerates and office of Director General of Service Tax. Presently six Commissionerates are set up at Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Ahmedabad. Offices of Central Excise and Customs have through out the country service tax cells to administer the service tax. Finance Act, 1994 (as amended) provides the method of levy of service tax, taxable services and their valuation, procedures and rules alongwith prescribed forms. Certain provisions of the Central Excise Act, 1994 also apply to service tax.
Ans.7 Service tax is presently charged @10% of the value of taxable services. Taxability in most of the services is on the gross amount charged / collected from the client / customer by the service provider in relation to the services provided subject to exemptions and abatements, wherever applicable.
Ans.8 Section 65A of the Finance Act, 1994 provides the basis for classification of taxable services w.e.f. 14.05.2003. Accordingly- (1) Classification of taxable services shall be determined according to the terms of the sub-clauses of clause (104) of section 65. (2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (104) of section 65, classification shall be effected as follows:
(a) The sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description.
(b) Composite services consisting of a combination of different services which cannot be classified in the manner specified in clause
(a0, shall be classified as if they consisted of a service which gives them their essential character, in so far as this criterion is applicable.
(c) When a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.
Ans.9 The word ‘service’ has not been defined any where in Act or in any of the rules. The dictionary meaning of service is an act of help or human intervention, voluntary in nature which may be tangible or intangible. Service is an act of helpful activity, act of doing something useful, intangible commodity in the form of human effort and it excludes sale of goods, commodities or properties. It pre supposes existence of service provider and service receiver.
Ans.10 No, only those services which are covered under section 65(105) as taxable services are only subject to levy service tax. India follows a selective approach for levy of service tax and presently 81 services are taxable service.
Ans.11 Service tax cannot be levied on contracts or services which are in the nature of sale of goods. While sale tax is a state subject, service tax is a union subject.
Ans.12 The taxing event is the rendering of service and receipt of amount on which service tax is levied. If the service has been provided before it became a taxable service but payment is received after it become taxable service, there will be no levy of service tax.
Ans.13 In my opinion, yes, to the extent it is not recovered from clients. It can be treated as business expenditure and charged to profit & loss account. W.e.f. 16th October, 1998, service tax payable shall be computed on gross value of taxable services collected during the period.
Ans.14 Yes, presently at the rate of 13% simple interest per annum of delay is payable for the period by which payment is delayed.
Ans.15 According to Rule 6 of the Service Tax Rules, 1994, service tax shall be deposited under the head ‘service tax’ on Form No. TR-6 challan in the authorized bank branches only. Each assessee should choose only one bank branch convenient to him and all payments shall be made in that branch only. The challan used should be only Yellow coloured TR 6 challans, which are to be pre-printed by the agency or depositor. The tax has to be paid on a monthly or quarterly basis depending upon the constitution of the assessee. For details, see Rule 6 of the Service Tax Rules, 1994.
Ans.16 According to Rule 5 of Service Tax Rules, 1994, the records as maintained by the assessee in accordance with the various laws enforced from time to time shall be acceptable to the Excise Department. This will also include computerized records, data and accounts. No specific records have been prescribed to be maintained by a service tax assessee except invoice / bill / challan / consignment note.
Ans.17 The benefit of Cenvat credit is available under the present Cenvat scheme for service tax w.e.f. 10.09.2004 across goods and services. Prior to this, input tax credit was available for consumption of input services in rendering of output taxable services.
Ans.18 Service tax is required to be paid on the value of taxable services billed / charged and received from the clients. The liability to pay the tax on the bills collected generally lies on the service provider.
Ans.19 As in case of Central Excise, in the case of service tax also, the jurisdictional Superintendent of Central Excise is the proper officer for the verification of periodical returns filed by the assessee.
Ans.20 No visit should be made by Central Excise Officers to the premises of service tax assessees for carrying out any routine checks, visits for the purpose of rectification of mistakes under section 74 of the Finance Act, 1994 and all other visits should be made only with the permission of the jurisdictional Commissioner of Central Excise. The assessees should be given at least 15 days notice about the intended visit, its purpose and the documents that may be required during the visit. However, none of the above restrictions would apply in cases where the Department has received any specific information / intelligence regarding evasion of service tax or contravention of the law. Section 82 provides for power to search premises on the authorization of Commissioner of Central Excise.
Ans.21 No such limit exists. All assessees are required to pay service tax at the prescribed rate of the value of taxable services rendered. There is no basic exemption available but a exemption scheme for small service providers has been notified w.e.f. 01.04.2005. (See Chapter 10)
Ans.22 People residing abroad but rendering taxable services in India from their foreign offices are also liable to service tax in India. Service tax is a destination based consumption tax and only export of services are exempt from service tax.
Ans.23 The assessee may make a single application for registration detailing therein different services rendered by him from single or more than one locations.
Ans.24 Taxable services rendered in India by an assessee to a client in respect of overseas projects for which payment is made in convertible foreign exchange were exempt from levy of service tax till 14th March 2005. This exemption was effective from 16th October 1998 for all assessees and to claim this exemption. Two conditions must be satisfied – it should be an overseas project or service and payment must be received in convertible foreign currency or exchange. With effect from 15.03.2005, Export of Services Rules 2005 have been notified.
Ans.25 Yes, a non-resident or a person from outside India who does not have any office in India is required to pay tax as well as file return on taxable services provided in India through his authorized representative [Refer Rule 6(1)].
Ans.26 A ‘quarter’ means a period of three months and following are the four quarters in a financial year-
01st April to 30th June
01st July to 30th September
01st October to 31st December
01st January to 31st March
There are four quarters in a year and service tax has to be deposited quarterly in the following month of the quarter end in case of individual and firms and monthly in case of other assessees.
Ans.27 At present the rate of Service Tax is ten percent to be levied on the “value of taxable service”. Generally speaking “value of taxable service” means the gross amount received by the service provider for the taxable service rendered by him. The rate of service tax has been as under –
5% since inception (01.07.1994)
8% w.e.f. 14.05.2003
10% w.e.f. 10.09.2004 (plus 2% education cess thereon)
Ans.28 The person who provides the taxable service is liable for paying the Service Tax to the Government except in certain and collects charges specified cases.
Ans.29 Following general exemptions are available in respect of all taxable services-
i) Services rendered to the United Nations or an International Organisation (Vide Notification No. 16/2002-ST, dated 2-8-2002)
ii) Services rendered to Special Economic Zone (SEZ) developer or to a unit located in SEZ for the development, operation and maintenance or setting up SEZ units. (Vide Notification No. 17/2002-ST, dated 21-11-2002 as amended by Notification No. 4/2004-ST dated 31.03.2004)
iii) The cost of goods or material sold by the service provider to the receiver of such services, during the course of provision of the taxable services (Vide Notification No. 12/2003-ST, dated 20-6-2003).
(iv) Export of services is exempt from service tax. Service tax is a destination based consumption tax and it is not applicable on export of services. (Refer Circular No. 56/5/2003-ST, dated 25.04.2003).
Export of Services Rules, 2005 are applicable w.e.f. 15.03.2005 (Refer Notification No. 09/2005-ST dated 03.03.2005)
(v) Payment received in India in non-repatriable convertible foreign exchange, is exempt from service tax from the period 09.04.1999 to 28.02.2003 and from 20.11.2003 to 14.03.2005 (Refer Notification No. 06/99-ST, dated 09.07.1999, Notification No. 21/2003-ST dated 20.11.2003 and Notification No. 10/2005-ST dated 03.03.2005)
(vi) Exemption is available w.e.f. 01.04.2005 to small service providers, whose aggregate value of taxable services during preceding financial year does not exceed Rs. 4 lakh vide Notification No. 06/2005-ST dated 01.03.2005.
(vii) Taxable services provided to an individual by a service provider, where such services are received and consumed outside India by such individual, not in relation to trade, commerce and business are exempt from service tax w.e.f. 16.06.2005 vide Notification No. 25/2005-ST dated 07.06.2005.
Ans.30 As per section 67, the value of taxable service in case of any taxable services shall be gross amount charged by the service provider for such taxable services rendered by it to any person.
As per section 67, the value of taxable service in relation to taxable services provided to any person shall be the gross amount charged from that person. Gross amount would mean the gross amount charged without any deduction of expenses incurred in rendering / providing the service and without any abatement from the taxable value. (except specified otherwise)
As per amendment made by Finance Act, 2005, value of taxable service will also include amount to be received by the service provider or amount received in advance from the customer or client. Gross amount charged for the taxable services shall also include any amount received towards the taxable services before, during or after the provision of taxable service.
The cost of material or goods sold if any, to service users will not form part of value of taxable service.
Ans.31 No, there is nothing like tax deducted at source (TDS) in service tax. Service provider is the person liable to pay service tax to the Government and service receiver is not required to deduct any amount of service tax as TDS.
Ans.32 Following existing rules and regulations have been prescribed so far in relation to service tax –
- Service Tax Rules, 1994
- Cenvat Credit Rules, 2004
- Service Tax (Advance Ruling) Rules, 2003
- The Authority for Advance Rulings (Customs, Central Excise and Service Tax) Procedure Regulations, 2005
- Export of Service Rules, 2005
- Service Tax (Registration of Special Category of Persons) Rules, 2005
(For text, see part III of the Book)
Ans.33 As per Notification No. 1/99-ST, dated 28.02.1999, where an assessee is providing taxable services from more than one premises or office and has a centralized accounting system in respect of such service rendered to clients from each such premises or office at any one premises or office. The Commissioner of Central Excise may permit such assessee to registering only the premises or office from where such centralized accounting is done, if he is satisfied that such registration shall not be detrimental to the interest of the revenue. [See Rule 4(3A)]
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