RSM India - Service Tax Regulations In India-An Insight (2013)

Service Tax Regulations In India – An Insight

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Service Tax Regulations In India– An Insight

| Service Tax Regulations In India – An InsightRSM Astute Consulting

Chapter 1: Background of Service Tax in India 1

Chapter 2: Chargeability And Principles Of Interpretation 6

Chapter 3: Negative List 11

Chapter 4: Exemptions From Service Tax 19

Chapter 5: Place of Provision Of Services Rules, 2012 39

Chapter 6: Point Of Taxation Rules, 2011 45

Chapter 7: Person Liable To Pay Tax 49

Chapter 8: Valuation 53

Chapter 9: Procedural Aspects 64

Chapter 10: CENVAT Credit 71

Chapter 11: Assessment Proceedings, Settlement Commission

And Advance Rulings 80

Chapter 12: Fine, Interest, Penalties And Prosecutions 84

Chapter 13: Others 90

Service Tax Regulations In India- An Insight

CONTENTS

| RSM Astute ConsultingService Tax Regulations In India – An Insight

Chapter 1: Background Of Service Tax In India

Chapter 1: Background Of Service Tax In India

1.1 Background

Service sector in India is now occupying the center stage in the economy so much so that, in the contemporary world, development of service sector has become synonymous with the advancement of the economy. The growing importance of this sector can be gauged from the fact that the contribution made by the service sector to Gross Domestic Product (GDP) now accounts for 56.5% relegating the contribution of traditional sectors of agriculture and manufacturing to background. In case construction sector is included, the share in GDP of the

1services sector would increase to 64.8%.

The key segments include: lBanking, Financial Services and InsurancelHospitality, Leisure and EntertainmentlEducation, Healthcare and Community ServiceslTechnology and Business ServiceslConstruction services

Chart indicating percentage contribution of Services sector to the GDP in 2012-13.

43.5%56.5%

(Source: www.indiabudget.nic.in)

The service tax regulations are of paramount importance for most business organizations as it is a “top line charge” viz. based on the turnover and is charged at the rate of 12.36%. Secondly, it is a misnomer that the levy of service tax is restricted to only the persons engaged in providing taxable services since under the “Reverse Charge Mechanism”, even the manufacturing or trading entities are liable to pay service tax in respect of certain input services. Finally, the availment of proper input credit is critical to ensure that there is no “burn out” or “leakage”

Agriculture and Manufacturing Sector

Services Sector

2 | RSM Astute ConsultingService Tax Regulations In India – An Insight

1. www.pib.nic.in

| Service Tax Regulations In India – An InsightRSM Astute Consulting 3

of credit on this front.

The Finance Act, 2013 has bestowed far reaching powers with the service tax authorities including the power of arrest for willful evasion of service tax and non-payment of service tax collected.

The increase in ambit of service tax, reverse charge and improper credit availment has resulted in widespread non-compliances in several cases either in entirety or partially. As a result, the Government of India has notified “Voluntary Compliance Encouragement Scheme” (VCES) which is one time amnesty scheme for non-f i lers or stop-filers or persons who have not made a truthful declaration in their service tax return. Under the said scheme, amnesty is granted from late filing fees, interest and penalty chargeable under service tax laws for undisclosed service tax. Further it will also grant amnesty from prosecution provisions. The declaration for the same must be filed on or before 31 December 2013. The Amnesty scheme is applicable for undisclosed service tax dues arising for the period from 1 October 2007 to 31 December 2012, not paid till 1 March 2013.

Direct Taxes (52.4% of total tax revenue) and Indirect Taxes (47.6% of total tax 2revenue) are the major sources of revenue for the Government of India.

Chart indicating share of Direct Taxes and Indirect Taxes to the total Tax Revenue.

Direct Taxes

Indirect Taxes

The current structure of Indirect Taxes in India is complex with taxes levied by both the Central Government and the State Governments. The major taxes levied by Central Government are Excise Duty, Import Duty, Service Tax and Central Sales Tax (CST) while taxes levied by the State Governments are Value Added Tax (VAT), Luxury Tax, State Excise and other levies. Service Tax comprises of 28% of the total

1share of Indirect tax revenues of Central Government.

Service tax was introduced in India in the year 1994. It is a tax on ‘services provided’ by one person to another. As an indirect tax, the final levy is borne by the consumer of services, though the intermediate liability falls on the supplier. Service tax is collected at each stage by the service provider by charging it to the recipient of the 1. www.pib.nic.in 2. www.indiabudget.nic.in

47.6% 52.4%

service. Service tax is applicable to all States in India except the State of Jammu and Kashmir.

With effect from 1 July 2012, Government of India has adopted negative list based taxation approach as against the positive list approach which prevailed since the introduction of Service tax in year 1994. This sweeping change has brought all services in the tax ambit except for the services specified in the Negative List and covered by Mega Exemption Notification. The negative list based taxation is followed in most developed European economies.

Article 265 of the Constitution of India (Constitution) lays down that no tax shall be levied or collected except by the authority of law. Schedule VII to the Constitution divides this subject into three categories:

a) Union list (only Central Government has power of legislation)

b) State list (only State Government has power of legislation)

c) Concurrent list (both Central and State Government can pass legislation).

To enable Parliament to formulate the law principles for determining the modalities of levying the service tax by the Central Government and collection of the proceeds thereof by the Central Government and the State, an amendment

ndvide Constitution (92 amendment) Act, 2003 has been made. Consequently, new article 268 has been inserted for service tax levy by Union Government, collected and appropriated by the Union Government, and amendment of Schedule VII to the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on services as well as in article 270 of the constitution the clause (1) article 268A has been included.

Service tax is administered by the Central Board of Excise and Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India.

ØThe Finance Act, 1994 (the Act)

ØService Tax Rules, 1994

ØService Tax (Advance Rulings) Rules 2003

1.2 Constitutional Validity

1.3 Administrative Mechanism

1.4 Statutes And Rules Governing The Taxation Relating To Service Tax


ØCENVAT Credit Rules, 2004

ØService Tax (Registration of Special categories of persons) Rules, 2005

ØService Tax (Determination of Value) Rules, 2006

ØDispute Resolution Scheme Rules, 2008

ØService Tax (Provisional Attachment of Property) Rules, 2008

ØService Tax (Publication of Names) Rules, 2008

ØService Tax Return Preparer Scheme, 2009

ØPoint of Taxation Rules, 2011

ØPlace of Provision of Services Rules, 2012

ØService Tax (Compounding of Offences) Rules, 2012

ØService Tax (Settlement of Cases) Rules, 2012

ØService Tax Voluntary Compliance Encouragement Scheme, 2013


Chapter 2: Chargeability And Principles Of Interpretation

Whether activity coveredwithin a definition of service ?

NotTaxable

No

No

Yes

Yes

Yes

Yes

No

No

Whether Provided inTaxable Territory ?

Whether coveredunder negative list ?

WhetherExemped ?

Taxable

2.1 Chargeability And Framework

Service tax is applicable at the rate of 12% on the value of all the services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another. (Section 66B of the Act)

At present, the effective rate of service tax is 12.36% on the value of the taxable service. It comprises of Service tax @ 12% payable on the ‘Gross Value of Taxable Service’, Education Cess @ 2% on the Service Tax amount, and Secondary and Higher Education Cess @ 1% on the Service Tax amount. The effective rate is subject to composition scheme, abatements, etc. Figure 1 shows the basic framework of service tax.

Figure 1. Basic framework of service tax


Chapter 2: Chargeability And Principles Of Interpretation

2.2 Definition Of Service

(A) SERVICE MEANS

ØThe term ‘Person’ is defined in section 65B(37) of the Act to include:

lIndividuallHindu Undivided FamilylCompanylFirmlSociety or Limited Liability Partnership (LLP)lGovernmentlLocal AuthoritylAssociation of Persons or Body of Individuals, whether

incorporated or notlEvery Artificial Juridical Person

ØAn unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons.

ØAn establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.

ØA person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory.

(B) SERVICE INCLUDES: Service includes a ‘Declared’ service.

Section 66E of the Act provides the list of declared services . The same are tabulated on the following page.

Any ActivityCarried out bya person for

another

For aConsideration


Section Declared services66E(_)

(i) Renting of immovable property

(ii) Construction of a complex, building, civil structure or a part thereof (including additions, alterations, replacement or remodeling of an existing civil structure), including a complex or building intended for sale to a buyer wholly or partly except where the entire consideration is received after issuance of completion certificate by the competent authority.

The term "competent authority" means the government or any authority authorized to issue completion certificate under any law for the time being in force. In case of non- requirement of such certificate from such authority, any of the following––

(a) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(b) chartered engineer registered with the Institution of Engineers (India); or

(c) licensed surveyor of the respective local body of the city or town or village or development or planning authority.

(iii) Temporary transfer or permitting the use or enjoyment of any intellectual property right

(iv) Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software.

(v) Agreeing to the obligation to refrain from an act, or to tolerate an act or situation, or to do an act.

(vi) Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods.

(vii) Activities in relation to delivery of goods on hire purchase or any system of payment by installments

(viii) Service portion in execution of a works contract

(ix) Service portion in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity

List of Declared Services


2.3 Principles Of Interpretation Of Service (Nature Of Service)

It is essential to determine the nature of services which are provided since the applicability of various provisions, exemptions, abatements, etc. depend upon the nature of services provided.

lGeneral rule: The reference to main service shall not include a service which is used for providing main service.

lIf the services provided are capable of differential treatment for any purpose: Most specific description would be preferred over and above the general description

lBundled services: “Bundled Service” means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.

Bundled Services

Services that are naturally bundled

Services that are not naturally bundled

Service which attracts the highest amount of Service Tax

Single service basedon its essential character

Any activity which constitutes

Mere transfer of title in goods or immovable property, by way of sale/gift or any

other manner

Deemed sales under

article 366(29A)of

the constitution

of India

Mere transaction in money

or actionable

claim

Service by an employee

to his employer, in relation to

employment

Fees taken

by court/

tribunal

(C) SEVICE EXCLUDES:

The exclusion of an activity from the definition of service is given in figure 2

Figure 2: Exclusions from the definition of Service

Figure 3: Interpretation of Bundled Services


Chapter 3: Negative List

As per charging section, section 66B of the Act, the services specified in the negative list are not liable to service tax. Section 66D of the Act provides the list of services comprising in the negative list. The same are given here below:

Chapter 3: Negative List

Section Negative list services Remarks66D(_)

(a) Services by Government/local authority excluding the following services to the extent they are not covered elsewhere-

(i) Services by department of post by way of speed post, express parcel post, life insurance and agency service provided to a person other than Government;

(ii) Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(iii) T r a n s p o r t o f g o o d s o r passengers; or

(iv) Support service, other than services covered under clauses (i) to (iii) above, provided to business entities.

l“Suppor t Serv ice” means infrastructural, operational, a d m i n i s t r a t i v e , l o g i s t i c , marketing or any other support of any kind, comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.

lS e r v i c e s p r o v i d e d b y pol ice/secur ity agency to corporate entities or sports events held by a private entity are taxable.

(b) Services by RBI

(c) Services by a foreign diplomatic mission located in India

(d) Services relating to agriculture or agricultural produce by way of-

(i) Agricultural operations directly

l“A g r i c u l t u re” m e a n s t h e cultivation of plants and rearing of all life forms of animals, except the rearing of horses, for



related to production of any agricultural produce including c u l t i v a t i o n , h a r v e s t i n g , threshing, plant protection or testing;

(ii) Supply of farm labour;

(iii) Processes carried out at an agricultural farm including tending, pruning, cutt ing, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;

(iv) Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(v) Loading, unloading, packing, storage or warehousing of agricultural produce;

(vi) Agricultural extension services;

(vii) Services by any APMC or Board or s e r v i c e s p r o v i d e d b y a commission agent for sale or purchase of agricultural produce.

fibre, fuel, raw material or other similar products.

l “Agriculture Produce” means any produce or agriculture on which either no further process is done or such processing is done as is usually done by cultivator or producer which does not alter its essential characteristic but makes it marketable for primary market.

l “Agricultural Extension” means application of scientific research and knowledge to agricultural pract ices through farmer education or training.

l"Agricultural Produce Marketing Committee or Board" means any committee or board constituted under a State law for the time being in force for the purpose of regulating the marketing of agricultural produce.

food,



(e) Trading of goods l

are covered under trading of goods.

lCommodities futures are not covered under the definition of service.

Forward contract in commodities

(f) A n y p r o c e s s a m o u n t i n g t o manufacture or production of goods

l “ P r o c e s s A m o u n t i n g t o Manufacture or production of goods” means a process on which duties of excise are leviable U/s.3 of the Central Excise Act, 1944 or the Med ic ina l and To i le t Preparations (Excise Duties) Act, 1955 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act.

(g) Selling of space or timeslot for a d v e r t i s e m e n t o t h e r t h a n advertisements broadcast by radio or television

Sale of space for advertisement in bil lboard, public place, building, conveyances, cell phones, ATM, internet or aerial advertisement are covered under negative list and hence not taxable.

(h) Service by way of access of road or a bridge on payment of toll charges

Service charges paid to toll collecting agency are not covered in negative list.

(i) Betting, gambling or lottery O rg a n i z i n g o r p ro m o t i n g gambling or betting events not covered under negative list and liable to service tax.



(j) Admission to entertainment events or access to amusement facilities

l

event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by w a y o f e x h i b i t i o n o f cinematographic film, circus, concerts , sport ing event , pageants, award functions, dance, musical or theatrical performances including drama, ballets or any such event or programme.

l“Amusement Facility” means a facility where fun or recreation is provided by means of rides, gaming devices or bowling allies in amusement parks, amusement arcades, water parks, theme parks or such other places but does not include a place within such facility where other services are provided

“Entertainment Event” means an

(k) Transmission or distribution of e lectr ic i ty by an e lectr ic i ty transmission or distribution utility

l

Distribution Utility” means the Central Electricity Authority; a State Electricity Board; the Central Transmission Utility or a State Transmission Uti l i ty notified under the Electricity Act, 2003; or a distribution or transmission licensee under the said Act, or any other entity entrusted with such function by the Central Government/State Government.

“Electricity Transmission or



(l) Services by way of:

(i) Pre-school education and education upto higher secondary school or equivalent;

(ii) Education as a part of curriculum for obtaining a qualification recognized by any law for time being in force;

(iii) Education as a part of an approved vocational education course

l

Course” means:

(i) a course run by an industrial training institute or an industrial training centre affiliated to national council for vocational training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961; or

(ii) A modular employable skill course, approved by the n a t i o n a l c o u n c i l o f vocational training, run by a person registered with the directorate general of employment and training, union ministry of labour and employment.

lEducation services provided for obta in ing a qua l i f i ca t ion recognized by law of foreign country is not covered under negative list.

lPlacement services are not covered under negative list.

“Approved Vocational Education

(m) Services by way of renting of residential dwelling for use as residence

l

permitting or granting access, entry, occupation, use or any such facility, wholly or partly in an immovable property, with or

“Renting” means allowing,



(n) Services by way of:

(i) Extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

(ii) Inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers.

l

Corporate deposit etc. falling under negative list

lLoan processing charges are not covered under negative list

Interest on FD, OD, Term Loan,

(o) Service of transportat ion of p a s s e n g e r w i t h o r w i t h o u t accompanied belongings by:

(i) A stage carriage

(ii) Railways in a class other than in First class; or an air conditioned coach

(iii) Metro, mono rail or tramway

(iv) Inland waterways

w i t h o u t t h e t r a n s f e r o f possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangement in respect of immovable property.

lResidential dwelling does not include hotel, motel, inn, guest house, campsite, lodge, house boat or like places for temporary stay

Se r v i ce ta x i s l i a b l e o n transportation by railway in 1st class or Air conditioned coach.



(q) Funeral, burial, crematorium or mortuary serv ices inc lud ing transportation of the deceased.

(p) Services by way of transportation of goods:

(i) By road except the services of a goods transportation agency; or a courier agency;

(ii) By an aircraft or a vessel from a place outside India upto the customs station of clearance in India; or

(iii) By inland waterways

l

and not covered under the negative list

lTransport of goods by railway, air and by vessel in coastal waters are not covered under negative list.

Express cargo service is liable

(v) Public transport other than predominantly for tourism purpose in a vessel between places located in India; and

(vi) Metered cabs, radio taxis or auto rickshaws.


Chapter 4: Exemptions From Service Tax

Chapter 4: Exemptions From Service Tax

1. Services provided to the United Nations o r a s p e c i f i e d i n t e r n a t i o n a l organization.

The following are the Specified international organizations:

lIn ternat iona l C iv i l Av iat ion Organizations

lWorld Health Organizations

lInternational Labour Organizations

lFood and Agriculture Organization of the United Nations

lUN Educational, Scientific and Cultural Organization

lI n t e r n a t i o n a l B a n k f o r Reconstruction and Development

lInternational Hydrographic Bureau

lUniversal Postal Union

lInternational Telecommunication Union

lWorld Meteorological Organization

lPermanent Central Opium Board

lInternational Monetary Fund

4.1 Mega Exemption

In the pre negative list regime, the Government of India has granted exemption from the levy of service tax on various services through more than 85 notifications.

In the negative list regime, the Government of India has issued notification no. 25/2012-ST dated 20 June 2012, referred to as “Mega exemption”, granting exemption from the whole of service tax on various services. The description of services in respect of which exemption is granted are given here under:

Sr.No.

Exempted Services Remarks


Sr.No.


2. Health care services by a clinical establishment, an authorised medical practitioner or para-medics.

l“Health care Services” means any service by way of diagnosis or treatment or care for illness, injury, d e f o r m i t y, a b n o r m a l i t y o r pregnancy in any recognized includes services by way of transportation of patient to and from a clinical establishment, but does not include hair transplant or system of medicine in India and cosmetic or plastic surgery, except

lCommissioner for Indus Waters, Government of Pakistan and his advisers and assistants

lAsian African Legal Consultative Committee

lCommonwealth Asia Pacific Youth Development Centre, Chandigarh

lDelegation of Commission of European Community

lCustoms Co-operation Council

lAsia Pacific Tele-community

lInternational Centre of Public E n t e r p r i s e s i n D e v e l o p i n g Countries, Ljubljana (Yugoslavia)

lInternational Centre for Genetic Engineering and Biotechnology

lInternational Jute Organization, Dhaka, Bangladesh

lSouth Asian Association for Regional Cooperation

lAsian Development Bank


Sr.No.


when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital d e f e c t s , d e v e l o p m e n t a l abnormalities, injury or trauma.

lThe term "clinical establishment" is defined to mean a hospital, nursing home, clinic, sanatorium or any other institution by, whatever name called, that offers services or facilities requiring diagnosis or treatment or care for illness, injury, d e f o r m i t y, a b n o r m a l i t y o r pregnancy in any recognized system of medicines in India, or a place established as an independent entity or a part of an establishment to carry out d iagnost ic or investigative services of diseases.

lThe term “authorised medical practitioner” is defined to mean a medical practitioner registered with any of the councils of the recognized system of medicines established or recognized by law in India and includes a medical professional having the requisite qualification to practice in any recognized system of medicines in India as per any law for the time being in force.

lPara-Medics not defined, but it generally means trained health care professionals who assist the doctors, for example nursing staff,


physiotherapists, technicians, lab assistants, etc.

Sr.No.


3. Services by a veterinary clinic in relation to health care of animals or birds

4. Services by an entity registered U/s.12AA of the Income Tax Act, 1961 by way of charitable activities.

The term “Charitable Activities” is defined to mean activities relating to:

I. public health by way of –

(a) care or counseling of –

(i) terminally ill persons or p e r s o n s w i t h s e v e r e physical ormental disability,

(ii) persons afflicted with HIV or AIDS, or

(iii) persons addicted to a d e p e n d e n c e - f o r m i n g s u b s t a n c e s u c h a s n a r c o t i c s d r u g s o r alcohol; or

(b) public awareness of preventive health, family planning or prevention of HIV infection;

II. advancement of rel igion or spirituality;

III. advancement of educational programmes or skill development relating to -

(a) abandoned, orphaned or homeless children;

(b) physically or mentally abused and traumatized persons;

(c) prisoners; or


(d) persons over the age of 65 years residing in a rural area;

IV. preservation of environment including watershed, forests and wildlife.

Sr.No.


5. Services of-

(a) Renting of precincts of a religious place meant for general public; or

(b) Conduct of any religious ceremony.

lSection 65B(41) of the Act defines “Renting” to mean allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing or other similar arrangements in respect of immovable property.

lThe term “general public” for the p u r p o s e o f t h e exe m p t i o n notification is defined to mean body of people at large sufficiently defined by some common quality of public or impersonal nature.

lThe term “religious place” to mean a place which is primarily meant for conduct of prayers or worship pertaining to a religion, meditation, or spirituality.

6. (a) Services provided by an arbitral tribunal to

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year.

l“Legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.


Sr.No.


(b) Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to -

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year.

(c) a person represented on an arbitral tribunal to an arbitral tribunal.

7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the DCGI.

8. Services by way of training or coaching in recreational activities relating to arts, culture or sports.

The benefit is available to coaching/ training relating to all forms of dance, music, painting, sculpture making, theatre, sports, etc.

9. Services provided to an educational institution in respect of education exempted from service tax, by way of :

(a) Auxiliary educational services; or

(b) Renting of immovable property.

“Auxiliary educational services” is defined to mean any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but


Sr.No.


may obtain as outsourced services from any other person, including services relating to admission to such institutions, conduct of examination, catering for the students under any mid-day meal scheme sponsored by Government, or transportation of students, faculty or staff of such institutions.

9A. Any services provided by -

(i) the National Skill Development Corporation set up by the Government of India;

(ii) a Sector Skill Council approved by the National Skill Development Corporation;

(iii)an assessment agency approved by the Sector Skill Council or the Nat iona l Sk i l l Deve lopment Corporation;

(iv) a training partner approved by the Nat iona l Sk i l l Deve lopment Corporation or the Sector Skill Council

in relation to -

(a) the National Skill Development Programme implemented by the National Skill Development Corporation; or

(b) a vocational skill development course under the National Skill Cer t i f i cat ion and Monetary Reward Scheme; or


Sr.No.


(c) any other Scheme implemented by the National Skill Development Corporation.

10. Services provided to a recognized sports body by-

(a) an individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body

(b) another recognized sports body

Services provided by individual such as selector, commentator, curator, technical experts etc. are not exempted.

11. Services by way of sponsorship of tournaments or championships o r g a n i z e d b y s p e c i f i e d federations/associations.

12. Services provided to the Government or local authority or Governmental Authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of-

(a) a civil structure or any other o r i g i n a l w o r k s m e a n t predominantly for use other than for commerce, industry or any other business or profession;

(b) a h i s t o r i c a l m o n u m e n t , archaeological site or remains of n a t i o n a l i m p o r t a n c e , archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958;

(c) a structure meant predominantly

l“Residential Complex” means any complex comprising of a building or buildings, having more than one single residential unit.

lConstruction of hospitals and educational institutions for Government or local authority or Governmental Authority are only exempted. In case the same are constructed for others, there is no exemption.


Sr.No.


for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

(f) a r e s i d e n t i a l c o m p l e x predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act.

13. Ser v ices prov ided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of-

(a) A road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) A civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awas Yojana;

(c) A building owned by an entity registered under Section 12AA of the Income tax Act, 1961 and meant predominantly for religious use by general public;


Sr.No.


(d) A pollution control or effluent treatment plant, except located as a part of a factory or

(e) a structure meant for funeral, burial or cremation of deceased.

14. Services by way of construction, erection, commissioning or installation of original works pertaining to,-

(a) An airport, port or railways, including monorail or metro;

(b) single residential unit otherwise as a part of a residential complex;

(c) low-cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the “Scheme of Affordable Housing in Partnership” framed by the MHUPA, Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

(e) mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.

Single residential unit is defined to mean a self-contained residential unit which is designed for use, wholly or principally for residential purposes for one family.

15. Temporary transfer or permitting the use or enjoyment of a copyright,-

(a) Covered section 13(1)(a) of the Copyright Act, 1957, relating to original literary, dramatic, musical


Sr.No.


or artistic works; or

(b) of c inematograph f i lms for exhibition in a cinema hall or cinema theatre.

16. Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador.

“Brand Ambassador” is defined to mean a person engaged for promotion or marketing of a brand of goods, service, property or actionable claim, event or endorsement of name, including a trade name, logo or house mark of any person.

17. Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India.

18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent.

“Declared Tariff” is defined to include charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.

19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

20. Services by way of transportation by rail or a vessel from one port in India to another of the specified varieties of goods.

The specified varieties of goods are:

lRelief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap;


Sr.No.


lDefence or military equipments;

lN e w s p a p e r o r m a g a z i n e s registered with the Registrar of Newspapers;

lRailway equipments or materials;

lAgricultural produce;

lFoodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or

lChemical fertilizer and oilcakes.21. Services provided by a goods transport

agency by way of transport in a goods carriage of the specified varieties of goods.

The specified varieties of goods are:

lagricultural produce;

lgoods, where gross amount charged for the transportation of g o o d s o n a c o n s i g n m e n t transported in a single carriage does not exceed one thousand five hundred rupees;

lgoods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty;

lfoodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

lchemical fertilizer and oilcakes;

lnewspaper or magazines registered with the Registrar of Newspapers;


Sr.No.


22. Giving on hire:

(a) To State transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

(b) To a goods transport agency, a means of transportation of goods.

lrelief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

ldefence or military equipments.

23. Transport of passengers by-

lair embarking or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Baghdogra located in West Bengal; or

la contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or

lropeway, cable war or aerial tramway.

24. S e r v i c e s p r o v i d e d t o t h e G o v e r n m e n t / l o c a l a u t h o r i t y/ government authority by way of -

lrepair or maintenance of vessel;

lcarrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation c o n s e r v a n c y , s o l i d w a s t e


Sr.No.


management or slum improvement and up-gradation.

25. Services of general insurance business provided under specified schemes

26. Services of life insurance business provided under Janashree Bima Yojana or Aam Aadmi Bima Yojana

27. Services provided by an incubatee up to total business turnover of Rs. 50 lakhs in an FY, subject to the certain conditions.

The conditions are:

ltotal business turnover had not exceeded Rs. 50 lakhs in the preceding financial year and

l3 years have not lapsed from date of entering into agreement as an incubate.

28. Service by an unincorporated body or non-profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges/share of contribution -

las a trade union;

lfor the provision of exempt services by the entity to third persons; or

lup to an amount of Rs. 5,000 per month per member for sourcing of goods or services from a third person for common use of its members in a housing society or residential complex.

The conditions are:

ltotal business turnover had not exceeded Rs. 50 lakhs in the preceding financial year and

l3 years have not lapsed from date of entering into agreement as an incubate.

29. Services by the following persons in respective capacities -

la sub-broker or an authorised person to a stock broker;


Sr.No.


lan authorised person to a member of a commodity exchange;

la mutual fund agent or distributor t o m u t u a l f u n d o r a s s e t m a n a g e m e n t c o m p a n y f o r distribution or marketing of mutual fund;

la selling or marketing agent of lottery tickets to a distributer or a selling agent;

la selling agent or a distributer of SIM cards or recharge coupon vouchers; or

la business facilitator or a business correspondent to a banking company or an insurance company in a rural area; or

lSub-contractor providing services by way of works contract to another contractor provid ing works contract services which are exempt.

30. Carry ing out an intermediate production process as job work in relation to specified goods

The specified goods are:

lAgriculture, printing or textile processing;

lcut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the CETA, 1985

lany goods on which appropriate duty is payable by the principal manufacturer; or


Sr.No.


lspecified processes during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of Rs. 150 lakhs in a financial year subject to the condition that such aggregate value had not exceeded Rs. 150 lakhs during the preceding financial year.

31. Services by an organizer to any person in respect of a business exhibition held outside India

32. Services by way of making telephone calls from departmentally run public te lephones, guaranteed publ ic telephones operating only for local calls or free telephone at airport and hospitals where no bills are being issued.

33. Services by way of slaughtering of animals.

34. Services received from a service provider located in a non- taxable territory by:

(a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or

(b) an entity registered u/s. 12AA of the Income tax Act, 1961 for the purposes of providing charitable activities.

35. Services of public libraries by way of lending of books, publications or any


Sr.No.


other knowledge-enhancing content or material

36. Services by Employees’ State Insurance Corporation to persons governed under the Employees’ Insurance Act, 1948

37. Services by way of transfer of a going concern, as a whole or an independent part thereof

38. Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets

39. Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution

4.2 Threshold Limit ( Exemption To Small Service Provider)

4.3 Exemption To Services Rendered To SEZ Developer / Unit

ØExemption has been granted from the whole of service tax on providing taxable services of aggregate value not exceeding Rs. 10 lakhs in any financial year. The said exemption is at the option of the service provider and subject to conditions. (Notification no. 33/2012-ST dated 20 June 2012)

ØThe said exemption is not admissible to taxable service provided by a person under a brand name or trade name, whether registered or not, of another person or to such value of taxable services in respect of which service tax is paid by recipient of service tax under reverse charge mechanism.

ØExemption has been granted from the whole of service tax on providing specified services to SEZ developer/unit and used for authorized operations. (Notification no. 12/2013-ST dated 1 July 2013.)

ØThe exemption is granted by way of refund. However, if the said specified services are used exclusively for the authorized operations, the person liable to pay tax has the option not to pay the service tax ab initio, subject to conditions and procedure laid down in the notification.


4.4 Exemption On Payment Of Property Tax

4.5 Exemption To Goods Transportation Services Received By Exporter Of Goods

4.6 Exemption On Commission Paid To Agent Located Outside India For Export Of Goods

4.7 Exemption On Services To Foreign Diplomatic Mission

ØFor the purpose of calculating service tax, property tax levied by local authorities should be excluded from the gross amount charged for renting of immovable property. (Notification no. 29/2012-ST dated 20 June 2012)

ØAny amount such as interest, penalty paid by service provider on account of delayed payment of property tax or any other reasons not to be treated as property tax for the purpose of deduction.

ØExemption has been granted to taxable services of:

ltransport of goods by road in a goods carriage from any Container Freight Stations (CFS)/ Inland Container Depot (ICD) to the port or airport, from where the goods are exported; or

ltransport of goods by road directly from the place of removal to ICD/CFS/Port/Airport from where the goods are exported received by an exporter and used for export of goods from the whole of the service tax subject to condition that the exporter to produce the consignment note, by whatever name called, issued in his name.

ØThe said exemption is subject to condition as laid down in the notification. (Notification No. 31/2012-ST dated 20 June 2012)

Exemption has been granted to taxable services provided by a commission agent located outside India and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him to the extent of 10% of the FOB value of export of goods. Exemption is available subject to fulfillment of conditions/procedures prescribed in the notifications. (Notification No. 42/2012-ST dated 29 June 2012)

Exemption has been granted from the whole of service tax to all taxable services provided by any person, for the official use of a foreign diplomatic mission or


consular post in India or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein. (Notification No. 27/2012-ST dated 20 June 2012)

Exemption has been granted from the whole of service tax to all taxable services provided by Technology Business Incubator (TBI) and Science and Technology Entrepreneurship Park (STEP) recognized by National Science and Technology Entrepreneurship Development Board (NSTEDB) subject to condition that information as required in Format–I and Format-II is furnished to concerned Assistant Commissioner / Deputy Commissioner by 30 June of each financial year. (Notification No. 32/2012-ST dated 20 June 2012)

Exemption had been granted from the whole of service tax to all taxable services provided against a Focus Market Scheme/ Focus Product Scheme/ Vishesh Krishi and Gram Udyog Yojana (Special Agriculture and Village Industry Scheme) duty credit scrips issued to an exporter by the regional authority in accordance with the Foreign Trade policies subject to fulfillment of various conditions mentioned in the said notification. (Notification No. 6, 7 and 8/2013-ST dated 18 April 2013)

ØExemption has been granted from the whole of service tax to the following services provided in the State of Uttarakhand:

lServices by way of renting of a room in a hotel, inn, guest house, club, campsite or other commercial place meant for residential or lodging purposes;

lServices provided in relation to serving of food or beverages by a restaurant, eating joint or mess.

ØThis exemption is only applicable from the period from 17 September 2013 to 31 March 2014. (Ad-Hoc Exemption Order No.1/1/2013 dated 17 September 2013)

4.8 Exemption On Services By Incubator

4.9 Exemption On Services Provided Against Scrips Issued Under Foreign Trade Policy

4.10 Ad-hoc Exemption To Renting And Restaurant Services In The State Of Uttarakhand


Chapter 5: Place of Provision Of Services Rules, 2012

Rule Nature of Determination of Types of Services / remarksNo. Services place of provision

4. Performance based service

Place of performance (i) Services provided in respect of goods that are required to be made physically available by the service receiver to the service provider, in order to provide the service

(ii) When such services are provided from a remote location by way of electronic

5.1 Place Of Provision Of Services Rules, 2012

ØAs per charging section, section 66B of the Act, only those services which are deemed to be provided in the taxable territory, by one person to another are liable to service tax.

ØPlace of Provision of Services Rules, 2012 (PPSR, 2012) have been notified under section 66C of the Act to determine the place where the services are deemed to be provided.

ØRule 14 of the PPSR, 2012 provides that notwithstanding anything stated in any rule, where the provision of service is “prima facie” determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.

lGeneral Rule: The place of provision of a service shall be the location of the service receiver. In case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the service provider. (Rule 3 of PPSR)

lSpecific Rules:

Chapter 5: Place of Provision Of Services Rules, 2012



means, the place of provision shall be the location where goods are situated at the time of provision of service

This sub rule is not applicable in case of services in respect of goods temporarily imported in to Ind ia fo r repa i rs , r e c o n d i t i o n i n g o r reengineering for re-exports.

(iii) S e r v i c e s p r o v i d e d t o an individual, represented either as the recipient of service or a person acting on behalf of the recipient, which requires the physical presence of the receiver or the person acting on behalf of the receiver, with the provider for the provision of the service.

5. Related to immovable property

P l a c e w h e r e t h e immovable property is located or intended to be located

Services provided by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or coordination of construction work, including architects or interior decorators.



6. Related to events

The place where the event is actually held

Services provided by way of admission to, or organization of, a cultural , art ist ic , sporting, sc ient i f i c , educat iona l , or entertainment event, or a celebration, conference, fair, exhibition, or similar events, and of services anci l lary to such admission.

7. Services referred to in Rule 4,5 or 6 and provided at more than one location

The location in the taxable terr i tory where the greatest portion of the service is provided

Any service referred to in rules 4, 5, or 6 is provided at more than one location, including a location in the taxable territory.

8. Service provider and receiver both are located in Taxable Territory

Locat ion of serv ice receiver

Any service other than listed in negative list or specifically excluded.

9. Specified services listed in column 4 of the table.

Locat ion of serv ice provider

(a) Services provided by a banking company, or a f inancial institution, or a non-banking financial company, to account holders;

(b) O n l i n e i n fo r m a t i o n a n d database access or retrieval services;



(c) Intermediary services;

(d) Service consisting of hiring of means of transport, upto a period of one month.

10. Goods transport services other than by way of mail or courier

Place of destination of goods

The place of provision of services of goods transportation agency shall be the location of the person liable to pay tax.

11. Passenger transportation services

P l a c e w h e r e t h e passenger embarks on the conveyance for a continuous journey

12. Services provided on board a conveyance

the first scheduled point of departure of that conveyance for the journey

Services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board.

5.2 Export Of Services

ØAs per Rule 6A of the Service Tax Rules, 1994, the provision of any service shall be treated as export of service when:

(a) the service provider is located in the taxable territory,

(b) the service receiver is located outside India,

(c) the service is not a service specified in the negative list,

(d) the place of provision of the service is outside India,


(e) the payment for such service has been received by the service provider in convertible foreign exchange, and

(f) the service provider and service receiver are not merely establishments of a distinct person in accordance with Explanation 3(b) to section 65B(44) of the Act.

ØCentral Government vide notification no. 39/2012-ST dated 20 June 2012 has granted rebate of excise paid on Inputs or service tax paid on Input Services used in providing export of Services in terms of Rule 6A to any country, other than Nepal and Bhutan. The detailed conditions and limitations are specified in the said notification.


Chapter 6: Point Of Taxation Rules, 2011

Point Of Taxation

Point of Taxation Rules, 2011 (POTR) are notified to determine the Point of Taxation (POT) of service. Point of Taxation means the point in time when a service shall be deemed to have been provided.

Determining point of taxation of any service is essential as relevant exemption notifications, rules, etc. as applicable on that date will be made applicable. Further, the due date for payment of service tax is also aligned to the point of taxation rules.

Chapter 6: Point Of Taxation Rules, 2011

Figure 4: Overview of Point of Taxation Rules, 2011

6.1 General Rule

The general rule of point of taxation is provided in Rule 3 of POTR. The same is depicted below.

(Figure 5: Point of taxation)

Point of Taxation

In case of liability under

Reverse Charge

Mechanism (Rule 7)

In case of services taxed for first time (Rule 5)

In case of change in

effective rate of Service

Tax (Rule 4)

GeneralRule

(Rule 3)

Copyright Services (Rule 8)

YES

YES

NO

NO

Advance receipt

POT will be date of receipt of advance

POT will be date of issuance of Invoice

Invoice raised within time prescribed

in Rule 4A of STR, 1994

POT will be Completion of Service


In case of continuous supply of services, (i.e. any service which is provided continuously or on recurrent basis, under a contract for a period exceeding 3 months with the obligation for payment periodically, or from time to time.) the date of completion of each event which requires the service receiver to make any payment to service provider, shall be deemed to be the date of completion of service.

In case the service provider receives advance payment upto Rs. 1,000 in excess of the amount indicated in the invoice, the service provider has an option to determine point of taxation to the extent of such excess amount as and when the invoice is raised within the time prescribed or completion of service, as the case may be.

In case of change in effective rate of tax in between the date of provision of service, issuance of invoice or receipt of payment, point of taxation is required to be determined as per Rule 4 of POTR, 2011.

Change in effective rate of tax also includes a change in the portion of value on which tax is payable in terms of a notification. The summary of rule 4 is given here below:

6.2 Change In Effective Rate Of Tax

Provision Issue of Payment Point of Taxationof Service Invoice

After change of rate

Before change of rate

After change of rate Date of invoice or payment, whichever is earlier (New Rate)

Before change of rate After change of rate Date of invoice (Old Rate)

After change of rate Before change of rate Date of payment (Old Rate)

Before change of rateAfter change of rate

After change of rate Date of payment (New Rate)

Before change of rate Before change of rate Date of invoice or payment, whichever is earlier (Old Rate)

After change of rate Before change of rate Date of invoice (New Rate)


6.3 Services Taxed For The First Time

6.4 Liability Under Reverse Charge Mechanism

6.5 Copyright Services

When a service is taxed for the first time, point of taxation is required to be determined as per Rule 5 of POTR, 2011. However, no tax is required to be charged/paid in case of following scenarios:

ØWhere invoice as well as payment is received against such invoice before such service became taxable.

ØWhere payment is received before such service became taxable and the service provider has issued invoice within the period of 14 days from the date when the service is taxed for the first time.

ØIn view of Rule 7 of POTR, 2011, in respect of services on which person is required to pay tax as recipient of service (Reverse Charge Mechanism), point of taxation shall be the date on which payment is made by service receiver to service provider.

ØIf such payment is not made within 6 months of the date of invoice, the point of taxation shall be determined as per rule 3, 4, 5 or 8 as applicable.

ØIn case of “Associated Enterprises”, where the service provider is located outside India, the point of taxation shall be the date of debit in the books of accounts of service receiver or date of making payment, whichever is earlier.

Ø“Associated Enterprises” shall have the meaning as assigned to it in section 92A of the Income Tax Act, 1961.

In respect of royalties and payments pertaining to copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the service shall be treated as having been provided each time when a payment in respect of such use or the benefit is received by the provider in respect thereof, or an invoice is issued by the provider, whichever is earlier. (Rule 8 of POTR, 2011)


Chapter 7: Person Liable To Pay Tax

7.1 General Provisions

7.2 Reverse Charge Mechanism

Generally, the person who provides the taxable service (service provider) is responsible for paying the service tax to the Government. Service provider has an option of charging and collecting service tax from the service receiver.

However, in respect of certain notified taxable services, service tax is required to be paid to the Government, by such person as may be notified. In general parlance, the said services are said to be services liable under Reverse Charge Mechanism (RCM).

Notification No. 30/2012-ST dated 20 June, 2012, as amended from time to time, provides for the portion of tax obligation on service provider and service recipient on a percentage basis for the following services:

Chapter 7: Person Liable To Pay Tax

Sr. Description of Service % payable % payable No. by Service by Service

Provider Receiver

1. By an insurance agent to any person carrying on the insurance business

NIL 100%

2. Good Transport Agency Services in respect of transportation of goods by road, where the person liable to pay freight is notified person

NIL 100%

3. Sponsorship Services to anybody corporate or partnership firm located in the taxable territory

NIL 100%

4. By director of the company to the said company NIL 100%

5. Services provided to any business entity:

5.1 By an arbitral tribunal NIL 100%

5.2 Legal Services by an advocate or firm of advocates NIL 100%

5.3 Support Services by Government except renting of immovable property and services specified in 66D(a)(i) to (iii)

NIL 100%


Sr. Description of Service % payable % payable No. by Service by Service

Provider Receiver

6. Services provided by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory:

6.1 Renting of motor vehicle designed to carry passengers to any person who is not in similar line of business

At Abated value: NIL

At Abated value: 100%

At Non Abated

value: 60%

At Non Abated

value:40%

6.2 Supply of Manpower for any purpose 25% 75%

6.3 Security Services 25% 75%

6.4 Service Portion in execution of Works Contract 50% 50%

7. Services provided by any person located outside the taxable territory to any person located in the taxable territory

NIL 100%

Ø“Business Entity” is defined under section 65B(17) of the Act to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.

Ø“Legal Services” is defined under rule 2(cca) of the Service Tax Rules, 1994 to mean any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.

Ø“Supply of Manpower” is defined under rule 2(1)(g) of Service Tax Rules to mean supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

Ø“Security Services” is defined under rule 2(1)(d)(FA) of Service Tax Rules, to mean services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity.


Ø"Works Contract" is defined under section 65B(54) of the Act to mean a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.


Chapter 8: Valuation

8.1 Value Of Taxable Service

Service tax is payable on the value of all services (i.e. taxable services). The ’value of taxable service’ means, the gross amount charged by the service provider for the taxable service provided or to be provided by him. Taxable value has to be determined as per the provisions under Section 67 of the Act, read with Service Tax (Determination of Value) Rules, 2006 (Valuation Rules). The valuation provisions can be summarized as follows:

Value of Taxable Service

Chapter 8: Valuation

When the gross amount is inclusive of service tax payable,

Value of taxable service =

The term “consideration”, “money” and “gross amount charged” are defined for the purpose of valuation of taxable services.

Gross Amount Charged X 100

100 + rate of Service Tax

Where consideration for

service is

Wholly inmoney

Not Wholly / Parly

in money

Notascertainable

GrossAmountCharged

SuchAmountin Money

PlusService Tax

Charged

Gross amount chargedto provde similar

service to any person

If cannot be determinedin accordance with

above, then, equivalentmoney value of suchconsideration which

shall, be at least equal tothe cost of provision ofsuch taxable service.


8.2 Inclusion / Exclusion Of Certain Expenditure Or Cost

8.3 Abatements

ØWhen certain expenditure or costs are incurred by the service provider in the course of providing taxable services, all such expenditure or costs shall be treated as consideration for taxable service provided.

ØAs per Rule 5 (2) of Valuation Rules, expenditure or cost that a service provider incurs, as “pure agent” of client shall be excluded from value, if service provider satisfies certain specified conditions. The term “pure agent” is defined in explanation 1 to rule 5(2) of Valuation Rules.

ØRule 6 of Valuation Rules provides for certain specific items for inclusion and exclusion in the value of taxable services.

For certain services, a specified percentage of abatement is allowed from the gross amount charged for providing the services. The said abatements and conditions thereto are provided under notification no. 26/2012-ST dated 20 June 2012. The gist of the same is given here below:

Sr. No.

Conditions Abate-ment (%)

1. Financial leasing services including equipment leasing and hire purchase

10

Tax-able (%)

(1) Consideration received for the purpose of computing the gross amount charged is an amount, forming or representing as interest, i.e. the difference between the installment paid towards repayment of the lease amount and the principal amount contained in such installment paid.

(2)Abatement not available to an amount, other than an amount forming or representing as interest, charged by the service p rov i d e r s u c h a s l e a s e

Description of Taxable Service

90


Sr. No.


2. Transport of goods by rail

30

Tax-able (%)

NIL


70

3. T r a n s p o r t o f passengers, with or w i t h o u t a c c o m p a n i e d belongings by rail

30NIL 70

4. 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 p l a c e s p e c i a l l y a r r a n g e d f o r o r g a n i z i n g a function

70(1) No CENVAT Credit on any goods classifiable under Chapter 1 to 22 of CETA, 1985 to be availed.

(2)Consideration received for the purpose of computing the gross amount charged is the sum total of the gross amount and the value of all goods, excluding the value added tax, if any, levied on goods or services supplied free of cost for use in or in relation to the supply of food or any other article of human consumption or any drink, under the same contract or any other contract.

(3)Where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance.

30

management fee, processing fee, documentation charges and administrative fee.


5. T r a n s p o r t o f passengers by air, with or without a c c o m p a n i e d belongings

40No CENVAT credit on inputs and capital goods to be availed.

60

Sr. No.


6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for r e s i d e n t i a l o r lodging purposes

60

Tax-able (%)

No CENVAT credit on inputs and capital goods to be availed.


40

7. Services of goods transport agency in r e l a t i o n t o transportation of goods

25No CENVAT credit on inputs, capital goods or input services to be availed.

75

8. Services provided in relation to chit


30

9. Re n t i n g o f a ny m o t o r v e h i c l e designed to carry passengers


60

10. Transport of goods in a vessel


50

11. Services by a tour operator in relation to-

No CENVAT credit on inputs, capital goods or input services to be availed.

“tour operator” means any person engaged in the business of


Sr. No.


(i) a package tour 25

Tax-able (%)

The bill issued for this purpose indicates that it is inclusive of charges for such a tour.

“package tour" means a tour w h e r e i n t r a n s p o r t a t i o n , 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.


75

(ii) a tour, if the tour o p e r a t o r i s providing services solely of arranging o r b o o k i n g accommodation for a n y p e r s o n i n relation to a tour

10(i)The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.

(ii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.

90

planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours.


Sr. No.


25

Tax-able (%)

(i) No CENVAT credit on inputs to be availed.

(ii) The value of land is included in the amount charged from the service receiver.

(iii) The amount charged shall be the sum total of the amount charged for the service including the fair market value of all goods and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract, after deducting-

(a) the amount charged for such goods or services supplied to the service provider, if any; and

(b) the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.


75

(ii) for other than (i) above

3070

(i) for residential unit having carpet area up to 2000 square feet and where the amount charged is less than rupees one crore;

12. Construction of a complex, building, civil structure or a p a r t t h e r e o f , intended for a sale to a buyer, wholly or partly except where entire consideration is received after i s s u a n c e o f c o m p l e t i o n certificate by the c o m p e t e n t a u t h o r i t y , -

(iii) any services other than specified at (i) and (ii) above

The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.

4060


Nature of Works Contract % of contract as “service portion”

Execution of:

1. All new constructions

2. All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable

3. Erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise

40

Maintenance or repair or reconditioning or restoration or servicing of any goods

70

In case of other works contract not covered above including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of immovable property

60

ØNo CENVAT credit on inputs is eligible. However CENVAT credit on Input Services and Capital Goods can be availed.

ØIn view of Rule 2B of Valuation Rules, the value of taxable service provided

8.5 Valuation In The Case Of Services Relating To Money Changing

8.4 Valuation In The Case Of Works Contract Service

ØIn view of Rule 2A of Valuation Rules, the value of service portion in execution of works contract services is required to be ascertained as follows:

lIt shall be gross amount charged less value of property in goods. (the value of property in goods adopted for payment of VAT shall be taken as value of property in goods)

lIn case the value has not been determined as above then the service portion in works contract to be calculated as given below:


For amount of currency exchanged up to Rs. 1 Lakh

0.12% of the gross amount charged of currency exchanged or Rs. 30, whichever is higher.

For amount of currency exchanged exceeding Rs. 1 Lakh and up to 10 Lakhs

Rs. 120 + 0.06% of the gross amount charged of currency exchanged.

For amount of currency exchanged exceeding Rs. 10 Lakhs

Rs. 660 + 0.012% of the gross amount charged of currency exchanged subject to maximum of Rs. 5,000

The person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year.

ØIn view of Rule 2C of Valuation Rules, the value of service portion, involved in supply of food and drinks in a restaurant or as outdoor catering shall be as follows:

8.6 Valuation In The Case Of Restaurant And Outdoor Catering Services

for the services as far it pertains to purchase or sale of foreign currency, including money changing, shall be determined as follows:

lFor a currency, when exchanged from, or to, Indian Rupees, the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI reference rate for that currency for that time, multiplied by the total units of currency. Where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money.

lIn case where neither of the currencies exchanged is Indian rupee, the value shall be equal to 1% of the lower of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference Rate provided by RBI.

ØSuch service provider also has an option to pay service tax as under rule 6(7B) of STR:


ØThe term “total amount” is defined to mean the sum total of gross amount and the value of all goods, excluding the VAT, if any, levied on goods or services supplied free of cost for use in or in relation to the supply of food or any other article of human consumption or any drink under the same contract or any other contract.

ØWhere the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of fair market value of the goods or services that have closely available resemblance.

ØAny goods classifiable under Chapter 1 to 22 of the CETA, 1985 (for e.g. edible oil, soft drinks, meat products, etc.) meant for human consumption shall not be considered as “inputs” for the service portion in an activity wherein goods, being food or any other article of human consumption or drink is supplied in any manner as part of the activity.

ØService provider is entitled to avail CENVAT Credit in respect of input services, capital goods and on inputs (other than those specified above.)

ØOption is available to the Air Travel Agents under Rule 6(7) of Service Tax Rules, 1994 wherein they can pay service tax as under:

lOn Domestic Bookings: 0.6% of Basic Fare

lOn International Bookings: 1.2% of Basic Fare

8.7 Other Composition Options

8.7.1 Air Travel Agents

Sr. No.

Tax payable on the % of total amount

1. Service portion in the supply of goods or any other article of human consumption or any drink at a restaurant


40

2. Service portion in the supply of goods or any other article of human consumption or any drink as outdoor catering service

60


ØIn case of online lottery, the aggregate face value of lottery tickets shall be taken as the aggregate value of tickets sold.

8.7.2 Insurer Carrying On Life Insurance Business

8.7.3 Promotion, Marketing or Organizing of Games of Chance, Including Lottery

ØOption is available to the insurer carrying on life insurance business under Rule 6(7A) of Service Tax Rules to pay service tax as under:

lOn the gross amount charged from a policy holder, reduced by the amount allocated for investment, or savings on behalf of policy holder, if such amount is intimated to the policy holder at the time of providing of service; or

l1.5% of the gross amount of premium charged from a policy holder.

ØProvided that such option shall not be available in cases where the entire premium is paid by the policy holder is only towards risk cover in life

insurance.

ØOption is available to the distributor or selling agents under Rule 6(7C) of Service Tax Rules wherein they can pay service tax as under:

Sr. No.

Condition

1. Rs. 6,000 on every Rs. 10 lakhs (or part thereof) of aggregate face value of lottery tickets printed by organizing state for a draw

Rate

If the lottery or lottery scheme is one where the guaranteed prize payout is more than 80%

2. Rs. 9,000 on every Rs. 10 lakhs (or part thereof) of aggregate face value of lottery tickets printed by organizing state for a draw

If the lottery or lottery scheme is one where the guaranteed prize payout is less than 80%


Chapter 9: Procedural Aspects

9.1 Registration

Every person liable to pay Service Tax must mandatorily obtain registration within prescribed time and manner. Central Government has notified following persons for the purpose of obtaining mandatory registration:

ØEvery person who has provided a taxable service of value exceeding Rs. 9 lakhs, i.e. Small Scale Service providers, whose aggregate value of taxable services does not exceed Rs. 9 lakhs initially, are not liable to obtain Service Tax Registration.

ØRecipient of service (In case a recipient is liable to pay service tax.)

Ø'Input Service Distributors'.

ØWhen a person commences business of providing a taxable service, he is required to register himself within 30 days from commencement of business.

ØIn case service tax levy is extended to a new service, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.

ØSmall Scale Service providers whose aggregate value of taxable services is less than or equal to Rs. 10 lakhs during the previous financial year, must make an application for registration within a period of 30 days of the date of the financial year in which the aggregate value of taxable service has exceeded Rs. 9 lakhs.

ØRecipient of the taxable services shall obtain registration within 30 days from the date of becoming liable to pay service tax.

ØA prospective assessee (service provider or service receiver) or 'Input Service Distributor' should file an application in Form ST-1 electronically at

9.1.1 Time limit for registration

9.1.2 Procedure for registration

Chapter 9: Procedural Aspects

| Service Tax Regulations In India – An Insight 65RSM Astute Consulting

website (Automation of Central Excise and Service Tax, “ACES”) wherein registration number is obtained immediately online. However, registration certificate in Form ST-2 can be obtained after submitting certified / attested copies of the following documents to the jurisdictional Central Excise / Service Tax officer:

lForm ST-1 as e-filed lPermanent Account Number (PAN) of the person / company.lProof of residencelConstitution of the applicantlPower of Attorney in respect of authorised persons

The registration certificate is issued within a period of 7 days from the date of submission of application in Form ST-1 along with all relevant details / documents. In case the registration certificate is not issued within 7 days, the registration applied for is deemed to have been granted.

Service providers and service receivers having centralized accounting or centralized billing system and located in one or more premises, may at their option, register such premises or office from where centralized billing takes place or centralized accounting systems are located and thus have centralized registration.

The Service Tax Registration certificate (Form ST-2) should be surrendered electronically to the respective Central Excise / Service Tax authorities immediately on cessation of business.

In the event of transfer of the business, the transferee should obtain a fresh certificate of Service Tax registration based on his own PAN.

ØRule 4A(1) requires every taxable service provider to issue, not later than 30

www.aces.gov.in

9.1.3 Issuance of registration certificate

9.1.4 Centralised registration

9.1.5 Cessation of business of providing taxable service

9.1.6 Transfer of business to another person

9.2 Issuance Of Invoice

66 | Service Tax Regulations In India – An Insight RSM Astute Consulting

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:

(i) name, address and registration number of service provider; (ii) name and address of service receiver; (iii) description and value of taxable service; (iv) service tax.

ØIn case of the service provider is a banking company, or a financial institution including a non-banking financial company providing service to any company, the invoice to be issued within 45 days.

ØIn case of “continuous supply of service”, invoice/bill/challan is to be issued within 30 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed.

ØIn 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.

ØIn case of service provider of Air Transport of Passenger Service, ticket in any form will be considered as invoice/bill/challan and such ticket need not contain registration no. of service provider, classification of the service and address of service receiver.

ØBesides issuing invoice or bill or challan containing prescribed particulars, rule 4A(1) requires Goods Transport Agency to issue serially numbered consignment note containing:

(i) name of consignor and consignee; (ii) registration number of goods carriage in which goods are

transported; (iii) details of goods transported; (iv) details of place of origin and destination; (v) person liable for paying service tax whether consignor, consignee

or Goods Transport Agency.


ØRule 4A(2) requires, every 'input service distributor' to issue serially numbered invoice or bill or challan duly signed by him or person authorized by him containing following details:

(i) name, address, registration number, serial number and date of invoice or bill or challan of input service provider;

(ii) name and address of input service distributor; (iii) name and address of recipient of credit; (iv) 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.

ØBy individuals, proprietary firms and partnership firms:

9.3 Payment Of Service Tax

Due Date

st th1 April to 30 June

In respect of service deemed to have been provided as per Point of Taxation Rules, 2011 during the quarter

th5 Julyst th1 July to 30 September th5 Octoberst st1 October to 31 December th5 Januaryst st1 January to 31 March st31 March

ØIndividuals and partnership firms whose aggregate value of taxable services provided from all the registered premises is Rs. 50 lakhs or less in the previous financial year are granted an option to pay service tax on receipt basis in respect of value of taxable services provided or to be provided upto Rs.50 lakhs in current financial year.

ØFor others:

Due Date

In respect of services deemed to have been provided as per Point of Taxation Rules, 2011 during each month except March

Particularsth5 day of

following month

In respect of services deemed to have been provided as per Point of Taxation Rules, 2011 during the month of March

st31 March


ØIf service tax is paid electronically through internet banking, the due date

for payment shall be 6 day of month following month/quarter except for the month/quarter ending on March.

ØThe date of deposit of cheque is the date of payment of service tax. If the cheque is dishonored, it would mean as if the Service Tax has not been paid and the relevant penal consequences would follow.

ØE-payment is 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.

ØAssessee also has an option of paying an amount of service tax in advance and adjusting the same against his liability for subsequent period. Such advance payment can be made subject to condition that:

lIntimation to be made to jurisdictional superintendent of Central Excise within 15 days from the date of such payment; and

lIndicate the details of the advance payment made, and its adjustment in the returns.

ØWhere an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract, he may take credit of the excess service tax so paid, provided:

lhe has refunded the payment or part thereof to the person from whom it was received; or

lhe has issued a credit note for the value of the service not so provided to the person to whom such invoice had been issued. (Rule 6(3) of STR)

ØThe assessee is also entitled to adjust excess payment of service tax against his service tax liability for succeeding period subject to conditions as laid down in Rule 6(4A) and Rule 6(4B) of the Service Tax Rules.

th

9.4 Excess Payment Of Service Tax


ØAll the assessees are mandatorily required to file the returns electronically on the website

ØAn assessee may submit a revised return in Form ST-3 to rectify a mistake or omission, within a period of 90 days from the date of submission of the original return.

Assessee is required to provide to the jurisdictional Superintendent of Central Excise / Service Tax at the time of filing the first return a list, in duplicate, of all the records maintained by the assessee for

ØTransactions in regard to providing of any service, whether taxable or exempted

ØReceipt or procurement of input services and payment for such input services

ØReceipt, purchase, manufacture, storage, sale, or delivery, other activities, such as manufacture and sale of goods

ØAll other financial records maintained by him in the normal course of business.

www.aces.gov.in

9.6 Maintenance Of Records

9.5 Filing Of Returns

ØThe service tax return (Form ST – 3) is required to be filed by person liable to pay service tax.

Due Datest thFor half year 1 April to 30 September

Period th25 October

st stFor half year 1 October to 31 March th25 April

Input Service Distributor is required to file half yearly Service Tax returns by last day of the month following the half year period


Chapter 10: CENVAT Credit

10.1 CENVAT Credit Eligibility

10.2 CENVAT Credit: Availment And Utilisation

ØCENVAT Credit is available on “Capital goods”, “Inputs” and “Input Services” used for providing any output service. Hence to understand the scheme for the service providers, the definition of “Output Service” is of utmost importance.

Ø“Output Service” has been defined in rule 2(p) the CENVAT Credit Rules, 2004 (CCR, 2004) to mean any service provided by a service provider located in the taxable territory but shall not include :-

lService specified in negative list; or

lService where the whole of the service tax is liable to be paid by the recipient of service.

ØSimilarly the definition of “Capital Goods”, “Inputs” and “Input Services” are defined extensively under the CCR, 2004.

ØProvider of output service shall be allowed to avail credit of the following duty/tax/cess paid on any “input”, “capital goods” or “input service”:

lBasic excise duty except goods exempt under notification no. 1/2011-CE dated 1/3/11 and goods specified under sr no 67 and 128 of notification no. 12/2012-CE dated 17/312

lService Tax paid under section 66, 66A and 66B of the Finance Act, 1994

lSpecial excise duty

lEducation Cess; and Secondary and higher education Cess on excisable goods

lEducation Cess; and Secondary and higher education Cess on Service Tax

lNational calamity contingent duty

Chapter 10: CENVAT Credit


lAdditional duty on textile and textile articles; goods of special importance; of excise on tea; of excise on pan masala and tobacco products

lAdditional duty U/s. 3 of the Customs Tariff Act, 1975 (CVD)

ØCENVAT Credit can be utilised for payment of the following:

a. Service Tax on any output service.

b. Any excise duty on final product;

c. CENVAT Credit taken on input if such inputs are removed as such;

d. CENVAT Credit taken on capital goods if such capital goods are removed as such;

e. Amount under Rule 16(2) of the Central Excise Rules, 2002.

ØWhile paying duty/tax, the CENVAT Credit shall be utilized only to the extent of such credit available on the last day of month or quarter as the case may be for payment of duty/tax relating to the month or quarter.

ØCENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.

ØThe utilisation of duty, tax, Education Cess (EC) and Secondary and Higher Education Cess (SHEC) can be summarized as follows :

Nature of CENVAT Credit

Can be utilized against liability of

Excise Duty

Service Tax

EC on Excise Duty/Service Tax

SHEC on Excise Duty/ Service Tax

Interest / Penalty

Excise Duty

Service Tax

EC on Excise Duty/Service

SHEC on Excise

ü

ûû

ûû û û

û

û

ûüü ü

üüü ü

ûü

ü

10.3 Definition Of “Input Service” And Conditions For Availment Of CENVAT Credit

Ø“Input Service” has been defined in Rule 2(l) of CCR, 2004. Input Service


means any service used by the provider of output service for providing any output service.

ØInput Service includes the following

lModernization, renovation or repairs of the premises of provider of output service or an office relating to such premises

lAdvertisement or sales promotion

lMarket research

lAccounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, business exhibition, legal services

lInward transportation of inputs or capital goods

lProcurement of inputs

lOutward transportation upto the place of removal

lStorage up to the place of removal

lService portion in execution of works contract and construction services specified in 66E(b) of the Finance Act, 1994, used for

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods

Except when used for provision of service portion in the execution of works contract or construction service as listed under 66E(b) of the Finance Act, 1994.

lRenting of motor vehicle which is not capital goods

lGeneral Insurance business, servicing, repair and maintenance of a motor vehicle which is not capital goods

Except when used by


(a) manufacturer of a motor vehicle in respect of motor vehicle manufactured by such person; or

(b) an insurance company in respect of a motor vehicle insured or re-insured.

lSuch as in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefit extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.

ØCENVAT Credit Rules provides following conditions for availment of credit on input services:

lCENVAT Credit in respect of input service shall be allowed on or after the day when invoice, bill or challan as the case may be is received.

lProvided in case the liability of service tax is discharged under reverse charge mechanism, CENVAT Credit in respect of such input service is allowed on or after the day on which payment for value of input service & service tax thereon is made.

lProvided further that in case the payment for value of input service and service tax thereon is not made within 3 months from the date of invoice/bill/challan, the manufacturer/service provider to pay an amount equal to CENVAT Credit availed on such input service. Manufacturer/service provider is entitled to take such CENVAT Credit on payment of value of input service and service tax thereon.

lProvided also that in case where any payment towards an input service is refunded or credit note is received, manufacturer/service provider to pay an amount equal to the CENVAT Credit availed in respect of the amount refunded/credited. Such amount to be paid on or before due date for payment of excise duty/service tax.

lProvided also that CENVAT Credit in respect of input services, for which invoice/bill/challan is issued before 01/04/2011, is allowed on


or after the day on which payment for value of input service and service tax thereon is made.

lSuch amount is to be paid by manufacturer/service provider on or before due date for payment of excise duty/service tax. In case manufacturer/service provider fails to pay such amount, the same is liable to be recovered along with interest and penalty as provided in Rule 14.

lInputs Service should not be used for wholly exempted services or goods.

Ø“Exempted Service” has been defined in rule 2(e) of CCR, 2004 to mean

lTaxable service which is exempt from the whole of the service tax leviable thereon (i.e exempt by way of notification); or

lService, on which no service tax is leviable under section 66B of the Finance Act (i.e services specified in negative list and services not provided in the taxable territory); or

lTaxable service whose part of value is exempted on the condition that no credit of inputs and input services used for providing such taxable service, shall be taken; but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.

ØThe provisions for service provider who renders taxable services as well as exempted services are summarized below:

lCENVAT credit shall not be allowed on such quantity of input or input services which is used in manufacture of exempted goods or for provision of exempted service except in the circumstances mentioned in Rule 6(2) of CCR, 2004.

lRule 6(2) of the CCR, 2004 provides that a manufacturer/provider of output service availing CENVAT Credit manufactures/provide dutiable and exempted goods or services, then such person shall maintain separate account of receipt, consumption and inventory

10.4 Exempted Services And Obligation Of Service Provider Providing Taxable And Exempted Services


of input/input service meant for use in manufacturing dutiable goods and providing output service. In such case, CENVAT credit of duty/tax shall be allowed only on that input/input service which is used for manufacturing dutiable goods/providing taxable output service.

lRule 6(3) provides that, manufacturer of dutiable as well as exempted goods or provider of output service as well as exempted service opts not to maintain separate account as per rule 6(2), shall follow any one of the following options:

(i) Pay an amount equal to 6% of value of exempted goods and exempted service; or

(if any excise duty is paid on exempted goods, the same shall be reduced from amount payable)

(If any abatement in respect of taxable services is granted with a condition for non availment of CENVAT Credit, the amount to be paid shall be 6% of the value so exempted.)

(In case of transport of goods/passenger by rail, the amount to be paid shall be 2% of the value so exempted.)

(ii) Pay an amount as determined under Rule 6(3A) (provides for mechanism, procedure and provision for proportionate reversal); or

(iii) Maintain separate accounts for receipt, consumption and inventory of inputs as provided in Rule 6(2)(a), take CENVAT only on inputs used in or in relation to manufacture of dutiable goods or for provision of output services and pay an amount as determined under Rule 6(3A) in respect of input services. Consequently, the provisions of Rule 6(3A)(b)(i) and (ii) and Rule 6(3A)(c)(i) and (ii) in respect of inputs shall not apply to such payment.

ØAny option under Rule 6(3) exercised by manufacturer/service provider, shall not withdraw the same during the remaining part of the financial year.

ØA banking company and a financial institution including NBFC engaged in


providing services by way of extending deposits, loans or advances to pay an amount equal to 50% of CENVAT credit availed on inputs and input services every month. Such entity will not have option to follow any of the option provided in rule 6(3).

ØIn case of taxable services where option to pay tax is availed under composition scheme under:

lRule 6 (7) (i.e. Air Travel Agents);lRule 6 (7A) (i.e Insurer carrying LIC business);lRule 6 (7B) (i.e. forex brokers and money changers);lRule 6 (7C) (i.e. distributors of lotteries)

the value for the purposes of Rule 6(3) and Rule 6(3A) shall be the value on which the rate of service tax when applied for calculation results in the same amount of tax as calculated under the option availed.

ØThe value for the purposes of Rule 6(3) and Rule 6(3A) shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including expenses incurred towards their purchases) or 10% of cost of goods sold, whichever is more.

ØIn case of trading of securities, value shall be difference sale price and purchase price of the securities traded or 1% of the purchase price, whichever is more.

ØValue shall not include value of service by way of extending deposits, loans or advances if the consideration is represented by way of interest or discount.

ØThe provision of Rule 6(1) to Rule 6(4) are not applicable in case the taxable services are provided without payment of service tax to a developer/unit of SEZ for their authorised operations or when a service is exported.

ØFurther a service shall not be treated as exempted service for the purpose of rule 6, in case :

lThe service satisfies the conditions specified under Rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and


lSuch payment has not been received for a period of six months or such extended period as may be allowed by RBI, from the date of provision.

Ø“Input Service Distributor” means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be.

ØThe input service distributor may distribute the CENVAT Credit in respect of service tax paid on the input service to its manufacturing unit or unit providing output service subject to following conditions namely:

lThe credit distributed against a document referred to in Rule 9 does not exceed the amount of service tax paid thereon.

lCredit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed.

lCredit of service tax attributable to service used wholly in a unit shall be distributed to that unit only.

lCredit of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover during the relevant period of the concerned unit to the sum total turnover of all the units to which the service relates during the same period.

lThe relevant period shall be the month/quarter previous to the month/quarter during the CENVAT credit is distributed.

lTotal turnover shall be as determined in the manner prescribed in Rule 5 of The CCR, 2004.

lIn case of assessee does not have any total turnover in the said period, the Input Service Distributor shall distribute credit only after the end of such period wherein the total turnover of its unit is available.

10.5 Input Service Distributor


Chapter 11: Assessment Proceedings, Settlement Commission And Advance Rulings

Chapter 11: Assessment Proceedings, Settlement Commission And Advance Rulings

11.1 Self Assessment

11.2 Provisional Assessment

11.3 Best Judgement Assessment

11.4 Special Audits

Generally, under service tax regulations the service taxpayer himself has to assess his tax liabilities on the service provided and file service tax return accordingly in the prescribed manner.

If an assessee is unable to correctly estimate the actual amount payable as service tax for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant / Deputy Commissioner of Service Tax / Central Excise as provided under Service Tax Rules, 1994, giving reasons for seeking payment of service tax on provisional basis. On receipt of such request for provisional assessment, the authority may allow payment of service tax on provisional basis on such value of taxable service and subject to conditions as may be specified by him. Upon finalization of such assessment, if a liability of service tax arises, the differential amount along with interest has to be paid by the assessee. If he has paid excess amount he may claim refund.

ØCentral Excise Officer (CEO) is empowered to call accounts, documents or other necessary evidence in case person liable to pay service tax:

(a) Fails to furnish the return under section 70

(b) Having filed return, fails to assess tax correctly

ØAfter giving opportunity of being heard to assessee, CEO makes assessment of value of taxable service and determine sum payable by/refundable to assessee on the basis of assessment.

ØCommissioner of Central Excise (CCE) is empowered to direct any person liable to pay service tax to get his accounts audited by a Chartered Accountant or Cost Accountant nominated. The situations in which


Circumstance Relevant date

A. In the case of taxable service for which service tax has not been levied or paid or has been short levied or short paid:

i) If the assessee is liable to file the return, and

a) Return is filed Date on which return filed

b) Return is not filed Last date on which the return is to be filed, is not filed

ii) In other cases Date on which tax is to be paid

B. Where service tax is provisionally assessed Date of adjustment of service tax after final assessment


Commissioner is empowered to issue such directions and the procedure thereof are listed out in section 72A of the Act.

ØCEO may serve show cause notice on a person chargeable with service tax within eighteen months from the ‘relevant date’, where any service tax:

(a) has not been levied or paid; or

(b) has been short levied or short paid; or

(c) has been erroneously refunded and

thereafter determine the amount of service tax due and payable.

ØThe 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 by reason of

(a) fraud; or

(b) collusion; or

(c) willful misstatement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of the Act or of the rules made there under with an intent to evade payment of service tax.

ØThe “relevant date” is to be determined as under:

11.5 Issuance Of Show Cause Notice

ØThe detailed provisions as regards to issuance of Show Cause Notice are listed out in section 73 of the Act.

Ø Any person aggrieved by any decision or order passed by adjudicating authority subordinate to the CCE may appeal to the CCE (Appeals). The provisions for filing an appeal are laid own in section 85 of the Act.

?Any person aggrieved by any decision or order passed by CCE or CCE (Appeals) may appeal to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The provisions for filing an appeal are laid down in section 86 of the Act.

11.6 Appeals


Circumstance Relevant date

C. Where any sum has been erroneously refunded

Date of refund

Chapter 12: Fine, Interest, PenaltiesAnd Prosecutions

Chapter 12: Fine, Interest, PenaltiesAnd Prosecutions

12.1 Summary Of Fine, Interest and Penalties Is Tabulated Below

Nature of default Section Quantum Whether quantum is

discretionary

Maximum limit, if any

Interest on amount collected in excess

73B1 Simple interest @ 18% 1Yes Not Applicable

Interest on delayed payment

751 Simple interest @ 18% No Not Applicable

Penalty for failure to pay service tax

762 Higher of Rs. 100 per day or 1% of service tax p.m.

Yes3 50% of the a m o u n t o f service tax

Late fees for delay in filing return

70(1) & Rule 7C

No Rs. 20,000

l

s e r v i c e t a x registration

lFailure to furnish information called

Failure to take 77 At discretion of CEO, up to Rs. 10,000

Yes3 Not Applicable

l

upto 15 days

lRs. 1,000 for delay beyond 15 days upto 30 days

lRs. 1,000 plus Rs. 100 per day for delay beyond 30 days

lCEO empowered to reduce or waive penalty (late fees) for delay in filing return where gross amount of service tax payable is NIL.

Rs. 500 for delay



discretionary


by CEO, produce document called by CEO or appear before CEO in r e s p o n s e t o S u m m o n s o r p r o d u c e documents in an inquiry

lF a i l u r e t o maintain/retain b o o k s o f accounts and other documents

lFailure to pay tax e lectronica l ly through internet banking when mandatory

lIncorrect and i n c o m p l e t e details on the invoice or failure t o a c c o u n t invoice in the b o o k s o f accounts.

lAny contravention of the provisions or rules for which n o s e p a r a t e

77 Upto Rs. 10,000 for each default

Yes3 Rs.10,000



discretionary


Penalty for service tax not levied/paid o r s h o r t levied/short paid or e r r o n e o u s l y refunded by reason of :

lfraud; or

lcollusion; or

lw i l l f u l m i s statement; or

lsuppression of facts; or

lcontravention of a n y o t h e r provisions of this chapter or rules m a d e t h e r e under with intent t o e v a d e p a y m e n t o f service tax

78 100% of the service tax sought to be evaded or erroneously refunded.

4 No3 Not Applicable

1. The rate of interest under section 73B and under section 75 for delay in payment of tax to be reduced by 3% in case the value of taxable services provided by service provider during the preceding financial year or during any of the financial years covered by the Show Cause Notice, as the case may be, does not exceed Rs. 60 Lakhs.

No interest is payable where the amount becomes payable consequent to issue of an order, instruction or direction by the Board under section 37B of the Central

p e n a l t y i s provided


Excise 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.

2. If penalty is levied under section 78, no penalty can be levied under section 76.

3. Section 80(1) provides that no penalty shall be imposed under section 76, 77 or 1st proviso to Section 78(1) if the assessee proves that there was reasonable cause for the relevant failure.

4. Where true and complete details of the transactions are available in the specified records, penalty shall be reduced to 50% of service tax. Such penalty is restricted 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. In case the value of taxable services provided by service provider during the preceding financial year or during any of the financial years covered by the Show Cause Notice, as the case may be, does not exceed Rs. 60 lakhs, the period of 30 days for such payment is extended to 90 days.

Under section 89 of the Act, whoever commits the specified offences may undergo imprisonment as tabulated below.

12.2 Prosecutions And Power To Arrest

Offence under section 89 Imprisonment on 1st default

Imprisonment on subsequent

defaults

Cognizable or non-cognizable

Knowingly evades payment of Service Tax

3 Years* 3 Years Non-Cognizable

Avails and utilizes credit of taxes without actual receipt of inputs/ services, whether partly or fully


Maintains false books or fails to supply any information or supplies false information


Collects any amount as service tax but fails to pay the same to government exchequer within 6 months of due date

7 Years* 7 Years Cognizable

Any other offence 1 Year 3 Years Non-Cognizable


* Provided that in the absence of special adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than 6 months.

* If amount exceeding Rs. 50 lakhs.

ØThe Commissioner of Central Excise may exercise the powers of arrest only when he has the reason to believe based on credible material which will stand judicial scrutiny.

ØBail: In case of a cognizable offence, the arrested person shall be presented before the Magistrate within 24 hours of arrest, for the purpose of bail. However, in case of non-cognizable and bailable offence, bail is bound to be granted by an Assistant / Deputy Commissioner against a bail bond.

ØAn audit memo shall also be prepared at time of arrest.


Chapter 13: Others

Chapter 13: Others

Sections of Excise Act, 1944 made applicable

9A(2)

9AA Offences by companies

9B Power of Court to publish name/ place of business, etc., of persons convicted under the Act.

9C Presumption of culpable state

9D Relevancy of statements under certain circumstances.

9E Application of section 562 of the Code of Criminal Procedure, 1898, and of the Probation of Offenders Act, 1958.

11B & 11BB Claim for refund of duty and interest, if any, paid on such duty.

11C & 12 Power not to recover duty of excise not-levied or short-levied as a result of general practice.

12A to 12D Transfer of refund to Consumer Welfare Fund

12E Powers of Central Excise Officers

14 Power to Summons

15 Officers required to assist Central Excise Officers

31 to 32P Settlement of Cases

33A Adjudication procedures

34A Confiscation or penalty not to interfere with other punishments.

35EE Revision of order by Central Governments

35F, 35FF to 35O Provisions for stay in case of appeal

Compounding provisions

13.1 Excise Provisions Applicable To Service Tax

Vide section 83 of the Act, various sections of Excise Act, 1944 have been made applicable in relation to Service Tax as they apply in relation to a duty of excise:

Particulars of provisions made applicable


Sections of Excise Act, 1944 made applicable

35Q

35R Appeal not to be filed in certain cases

36 Certain defined terms

36A & 36B Presumption as to documents

37A Delegation of powers

37B Instructions to Central Excise Officers

37C Service of orders, decisions, summons, etc.

37D Rounding off of duty, etc.

38A Effect of amendments, etc., of rules, notifications or orders

40 Protection of action taken against the Act

Appearance by authorized representative

13.2 Advance Rulings

ØAuthority for Advance Rulings for Excise and Customs is meant to provide binding ruling on important issues so that intending investors have a clear-cut indication of their duty / tax liability in advance. The following category of persons could seek for advance ruling:

lA non-resident setting up a joint venture in India in collaboration with a non- resident or a resident; or

lA resident setting up a joint venture in India in collaboration with a non- resident

lA wholly owned subsidiary Indian company, of which the holding company is a foreign company, which proposes to undertake any business activity in India;

lA joint venture in India,lThe resident Public Limited Company

ØThe detailed provisions of advance rulings are laid down in section 96A to 96F of the Act.

Particulars of provisions made applicable


13.3 Refund

Rule/Section/Notification

Rule 5 of CCR, 2004

Nature of refund

Refund of CENVAT credit to manufacturer exporter or exporter of output service

Rule 5B of CCR, 2004 Refund of CENVAT credit for service provider whose services are liable under partial reverse

Section 11B of CEA, 1944 Refund to service provider or service receiver in case of excess payment of tax.

Notification No.41/2012-ST dated 29 June 2012

Refund by way of rebate on export of goods

Rule 6A(2) of Service Tax Rules, 1994

Refund by way of rebate on export of services

Notification No. 12/2013-ST dated 1 July 2013

Refund in case of services provided to SEZ unit/developer


13.4 Service Tax Amnesty Scheme

Government of India has notified “Voluntary Compliance Encouragement Scheme” (VCES) which is one time amnesty scheme for non-filers or stop-filers or persons who have not made a truthful declaration in their return.

Under the said scheme, amnesty will be granted from late filing fees, interest and penalty chargeable under Service Tax Laws for undisclosed Service Tax. Further it will also grant amnesty from prosecution provisions.

ØThe declaration for the same must be filed on or before 31 December 2013.

ØPeriod covered: Amnesty scheme is applicable for undisclosed Service Tax dues arising for the period from 01 October 2007 to 31 December 2012, not paid till 1 March 2013.

ØEligibility for Amnesty: Any person fulfilling the following conditions are eligible for filing declaration for seeking amnesty:

a. No Notice or order has been issued for the period 1 October 2007 to 31 December 2012 in respect of Service Tax dues, for which declaration is filed, on or before 1 March 2013.

b. The period for which the return is been filed disclosing the true liability for the said period will be excluded from amnesty scheme.

c. Issue for which notice or order has been received earlier will be excluded from amnesty scheme.

d. Designated authority shall after recording the reasons in writing, reject the declaration, in case any inquiry or investigation in respect of non payment of Service Tax is pending as on 1 March 2013, which was initiated by way of :

i. search of premises

ii. issuing summons;

iii. requiring books of accounts/documents or an audit; or

iv. conduct of Audit

ØPayment of tax:

Sr. no.

a)

Quantum of Service Tax Due Date

50% of undisclosed Service Tax STOn or before 31 December 2013

b) Balance 50% of undisclosed Service Tax

THOn or before 30 June 2014

ØCENVAT credit shall not be utilized against payment of tax amnesty scheme.

ØFurther, option is provided to pay the amount till 31 December 2014 along with interest @ 18% per anum for the period from 30 June 2014 till the date of payment.

ØIf the assessee fails to pay the liability within the aforesaid time limit, the application may be rejected by the Department.

ØIn case, the application under amnesty scheme is rejected, such taxes paid under this scheme would be eligible to adjusted against any Service Tax liability as determined by Department.


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RSM Astute Consulting Group is a member of RSM network. Each member of the RSM network is an independent accounting and advisory firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. This publication is intended to provide a broad overview Service Tax Regulations prevalent in India and primary assistance to those transacting service business in India. Every effort has been made to ensure the contents are accurate and current. Notifications and circulars referred to in this publication are current till 15 September 2013. Information in this publication is in no way intended to replace or supersede independent or other professional advice. This publication should not be relied upon for taking actions or decisions without appropriate professional advice and it may be noted that nothing contained in this publication should be regarded as our opinion and facts of each case will need to be analyzed based on specific facts. While all reasonable care has been taken in preparation of this publication, we accept no responsibility for any liability arising from any statements or errors contained in this publication. © RSM Astute Consulting, 2013

RSM India - Service Tax Regulations In India-An Insight (2013)

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