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SERVICE TAX

 
     Tax on Services     Administration     Liability     Goods Transport Services     Tax on Services     CENVAT Credit       Import Export of Services     Exemptions     Annexure I: Taxable Services  
 


Tax on Services:

Service tax is a tax on services provided. The following can be considered as essential characteristics of service

  • Existence of two parties – service provider and service recipient
  • Service as distinct to sale
  • Consideration for the service. There is no service tax on free services.
Administration:

The tax is administered by the Central Excise Department and is governed by the Finance Act, 1994.

Liability:

The tax is attracted only on selective services. The list of services is attached as Annexure I. There is no residuary category for taxing all services. The current rate of service tax is 12% of the value, education cess of 2% and secondary and higher education cess of 1% of the tax. Therefore effective rate is 12.36% of the value. In most of the cases, the tax has to be paid by the service provider but in some cases, service recipient may be liable to pay the tax.

In certain cases, abatement is provided for material component of the transaction (For example, in Mandap keeper service, the standard service component is assumed to be 60%). In such cases, the effective service tax rate may vary. The abatement rates are mentioned in Annexure I.

Service Recipient Liable in some Cases:

A service recipient is liable to pay the tax in case of import of services, goods transport services, etc. Except in such special cases, the service recipient is not liable for payment of service tax. Even if the service provider does not collect the tax, there is no liability on the service recipient.

 
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Goods Transport Services:

The Service Tax Rules, 1994, were amended with effect from 01.01.2005 to provide that, in the context of services provided by a GTA, where the Consignor or Consignee of goods is a specified entity “the person liable to pay services tax” is the person who is liable to pay freight either himself or through his agent for the transportation of goods. The specified entities as notified are a factory, a company a statutory corporation, a society, a co-operative society, a dealer of excisable goods, a body corporate or a partnership firm. In cases where neither the consignor nor the consignee is one of the specified entities mentioned above then GTA would be liable to pay Service tax in such cases.

Taxable Event:

Service Tax is attracted on services provided or to be provided. However, the tax has to be paid only on the receipt of the consideration. In case the service is realized in advance, tax has to be paid in advance.

Value on which tax is to be paid:

Service Tax is to be paid on the amounts billed to the clients. Service tax is also required to be paid on reimbursements unless the reimbursements satisfy the conditions specified in Valuation Rules. In cases where the consideration is in kind, one has to follow the valuation rules. There is no related party concept under service tax.

CENVAT Credit:

Excise Duties & Service Taxes paid on expenses and capital goods can be adjusted against the service tax payable on income and only the balance tax has to be paid. Credit for capital goods can be adjusted to the extent of 50% in the year in which it is purchased and balance in the successive year. However, when the recipient of service is liable to pay tax (in case of Import of service), the service tax paid on other expenses would not be available as CENVAT Credit against the service tax payable on such reverse charged expenses.

Import & Export of Services:

All taxable services which are provided from outside India and which are received in India for the purpose of business and commerce (“Import of Services”) are liable for service tax in India. The service recipient is liable to pay tax. Export of services is exempted from payment of service tax. Further, rebate/Refund can be claimed if taxable services are exported.

Both import and export of services are subject to alternative place of supply rules mentioned hereunder: The same are mentioned in Annexure “I”
  • Property Based Test – (I)
  • Performance Based Test – (II)
  • Recipient Based Test – (III)
 
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  Exemptions:
  • All taxable services provided by any person to the United Nations or an International Organization are exempted from service tax
  • Services provided to units situated in special economic zones and to the developers of such special economic zones and consumed within such Special Economic Zone are exempted subject to the certain conditions
  • Services exported outside India are exempted.
  • An exemption is provided for the value of goods and materials sold by the service provider to the recipient of service provided that there is documentary proof specifically indicating the value of the said goods and materials. The said abatement is available subject to the condition of non-availability of CENVAT Credit on the inputs and capital goods
  • Services provided within the State of Jammu & Kashmir are not liable for service tax.
  • Small service providers have been granted an exemption for first aggregate realizations (across all service categories) of Rs. 10,00,000 in a financial year provided the gross taxable services in the previous year were below Rs. 10,00,000/-

Registration:

A person liable to pay service tax is required to register within 30days from the date on which service tax is payable or commencement of business whichever is later. Certain other persons (like small service providers and input service distributors) may also be required to register even though they may not be liable for payment of tax.

Invoices and other Records should contain the following details:
  • Serial number
  • Name, address and registration number of all the services
  • Name and address of the service receiver.
  • Description, classification and value of taxable services
  • Service tax, education cess and secondary and higher education cess payable thereon
  • Signature of the person providing services or authorized signatory

Payment of Service Tax:

The tax is to be paid on the 5th day of the next calendar month. (subject to the monthly or quarterly liability) in GAR-7 challan. Effective from 01/10/2006, any person who has paid tax exceeding Rs. 50 lakhs has to pay service tax electronically popularly called as E-Payment.


Returns:

Returns have to be filed on half yearly basis within 25days of the next month. (i.e. 25th October and 25th April) in triplicate in Form ST-3. A “Nil” return is also required to be filed. In case there are any errors in filling up returns, the same can be revised within 90 days from the date of filing of the original return.

Assessments:

Service tax Law provides for self-assessment by the assessee through the filing of returns. However the service tax department has a power to recover service tax when there is under-payment of tax. Such underpayment may be detected either on verification of returns, on the basis of cross check from existing dealers, on detailed audit of accounts or on the basis of market intelligence.

Refund of Tax:

The claim of refund of excess service tax is fairly cumbersome and must comply with the following conditions:

  • Application must be in Form R
  • Application must be filed with one year from the end of the financial year
  • It should be supported by the proof that the incidence of tax is not passed on to other person.

Interest and Penalty:

A simple interest @ 13% p.a. is required to be paid when the tax is not paid within due date. In addition to this, a penalty could be levied which would be not less than Rs. 200/- per day or 2% per month whichever is higher, restricted to the amount of tax. Penalty could also be levied for the contravention of the provisions or rules of the act and suppressing the value of taxable services.

 
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  Annexure I: Taxable Services:

Taxable Services Effective Date Abatement Place of Supply Criteria
Advertising Agency 11/01/1996 - III
Air Travel Agency 07/01/1997 - II
Airport Services 09/10/2004 - II
Architects Services 16/10/1998 - I
Atm Operations, Maintenance & Management

01/05/2006

-

III

Asset Management Service

01/06/2007

-

III

Auctioneers Services

01/05/2006

-

I

Banking And Financial Services

16/07/2001

-

III

Beauty Parlours

08/01/2002

-

III

Broadcasting Service

16/07/2001

-

II

Business And Exhibition Services

09/10/2004

-

II

Business Auxiliary Services

07/01/2003

-

III

Business Support Services

01/05/2006

-

III

Cable Operators

08/01/2002

-

III

Card Services

01/05/2006

-

III

Cargo Handling Services

16/08/2002

-

II

Chartered Accountants

16/10/1998

-

II

Cleaning Services

16/06/2005

-

II

Clearing And Forwarding Agency

16/07/1997

-

II

Clearing House Service

16/05/2008

-

II

Commercial Training & Coaching

07/01/2003

-

II

Commodity Exchange Service

16/05/2008

-

II

Company Secretaries

16/10/1998

-

II

Construction Of Res. Complex

16/06/2005

67%

I

Industrial Construction Services

09/10/2004

67%

I

Consulting Engineer

07/07/1997

-

III

Content Development & Supply Service

01/06/2007

-

III

Convention Service

16/07/2001

40%

II

Cost Accountants

16/10/1998

-

II

Courier Agency

11/01/1996

-

II

Credit Rating Agencies

16/10/1998

-

II

Cruise Transport Services

01/05/2006

-

-----

Custom House Agent

15/06/1997

-

II

Designing Services

01/06/2007

-

III

Dredging Services

16/06/2005

-

I

Dry Cleaning Services

08/01/2002

-

II

Erection, Commissioning And Installation

07/01/2003

67%

II

Event Management Service

08/01/2002

-

II

Facsimile Services

16/07/2001

-

III

Fashion Designer Services

08/01/2002

-

II

Forward Contract Services

09/10/2004

-

III

Franchise Services

07/01/2003

-

III

General Insurance Business

07/01/1994

-

III

Goods Transport Operators

09/01/1997

75%

II

Health Club And Fitness Center

08/01/2002

-

II

Information Technology Software Services

16/05/2008

-

III

Insurance Auxiliary Services

16/07/2001

-

III

Intellectual Property Services Other Than Copyright

09/10/2004

-

III

Interior Decorators

16/10/1998

-

I

International Air Travel

01/05/2006

-

---

Internet Café

07/01/2003

-

II

Internet Telecommunication Service

16/05/2008

-

III

Internet Telephony Services

01/05/2006

-

III

Leased Circuits

16/07/2001

-

III

Life Insurance Services

08/01/2002

-

III

Mailing List Compilation

16/06/2005

-

II

Maintenance Or Repair Service

07/01/2003

-

II

Management Consultants

16/10/1998

-

III

Mandap Keeper Services

07/01/1997

40%

II

Manpower Recruitment Agency

07/07/1997

-

III

Market Research Agency

16/10/1998

-

II

Membership Of Clubs

16/06/2005

-

II

Mining Services

01/06/2007

-

I

Online Information And Database Access

16/07/2001

-

III

Opinion Poll Services

09/10/2004

-

II

Outdoor Catering

08/01/1997

50%

II

Packaging Services

16/06/2005

-

II

Pager Services

11/01/1996

-

II

Pandal Or Shamiana Services

08/01/1997

30%

II

Photography Service

16/07/2001

-

II

Port Services

16/07/2001

-

II

Public Relations Services

01/05/2006

-

III

Rail Containerised Transport

01/05/2006

70%

II

Rail Travel Agent

08/01/2002

-

III

Real Estate Agents

16/10/1998

-

I

Recovery Agents

01/05/2006

-

III

Registrars

01/05/2006

-

III

Rent-A-Cab Operators

16/07/1997

60%

III

Renting of Immovable Property

01/06/2007

-

I

Scientific And Technical Consultancy

16/07/2001

-

III

Security Agencies

16/10/1998

-

II

Servicing Of Motor Vehicles

16/07/2001

-

II

Ship Management Services

01/05/2006

-

III

Site Preparation And Clearance

16/06/2005

-

I

Sound Recording Service

16/07/2001

-

II

Space Selling

01/05/2006

-

III

Sponsorships

01/05/2006

-

III

Steamer Agent

15/06/1997

-

II

Stock Broker

07/01/1994

-

II

Stock Exchange Service

16/05/2008

-

II

Storage And Warehouse Service

08/01/2002

-

II

Supply of Tangible Goods for use Service

16/05/2008

-

III

Survey And Exploration Of Mineral

09/10/2004

-

III

Survey And Map Making

16/06/2005

-

II

Technical Testing, Inspection, Certification

07/01/2003

-

II

Telecommunication Services

01/06/2007

-

III

Telegraph Service

16/07/2001

-

III

Telephone Services

07/01/1994

-

II

Telex Services

16/07/2001

-

III

Tour Operator

09/01/1997

60%

II

Transfer Agents

01/05/2006

-

III

Transport Of Goods By Air

09/10/2004

-

II

Transport Of Goods By Pipeline

16/06/2005

-

III

Transport Of Goods By Road

01/01/2005

75%

II

Travel Agents (Other Than Air/Rail Travel Agents)

09/10/2004

-

II

Tv Or Radio Programme Production

09/10/2004

-

II

Under Writers

16/10/1998

-

II

ULIP Management Services

16/05/2008

-

III

Video Tape Production

16/07/2001

-

II

Works Contract Service

01/06/2007

-

I

 
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