Service tax training jan 2015

SERVICE TAX

Updated till 01/10/2014

Sshailesh L. Prajapati

Service Tax - Basics

Chapter V of the Finance Act, 1994 (Sections 64 to 96) and ChapterVA of the Finance Act, 1994 (Sections 96A to 96I) both the Chapterstogether are hereinafter referred to as the “Act”, as amended fromtime to time, provide for the levy of service tax and constitute thelaw governing service tax.

The Act is administered by the Excise department. The rate ofservice tax is 12% w.e.f. 1-4-2012.

Further, the Finance (No.2) Act, 2004 has also levied an educationcess @ 2% on the amount of the service tax w.e.f. 10-9-2004 and

Finance Act, 2007 has levied an additional “secondary and highereducation cess” @ 1% on the amount of service tax w.e.f. 11-5-2007. Sshailesh L. Prajapati

Service Tax- Basics

Thus, the effective rate of Service Tax(including Cess) is

12.36%.

The Finance Act, 2012 w.e.f. 1-7-2012 made a paradigm shift

in the law governing service tax.

Taxation of services is now based on what is popularly known

as ‘Negative List of Services’’.

By section 64(1), the Act extends to the whole of India except

the state of Jammu and Kashmir, and by section 64(3), the

levy applies to “taxable services provided”.Sshailesh L. Prajapati

Charging of Service Tax Sec: 66B

The charging section 66B provides that there shall belevied a tax @12% of ‘the value of all services otherthan those specified in the negative list provided oragreed to be provided in the taxable territory, by oneperson to another…’. Thus, the features of the chargingsection are :

the charge is othe service provided is not specified inthe ‘negative list’;

the ‘service’ provided or agreed to provided by oneperson to another;


Charging of Service Tax Sec: 66B

the service is provided in the ‘taxable territory’;

the rate of tax i d. s 12% on value of all services.

What is Service?

Definition [Section 65B(44)] ‘Service’ means –

any activity

for consideration

carried out by a person for another

and includes a ‘declared service’

but excludes ‘specified transactions’


Negative List of Services : Section

66D

There are many Services which are covered under

negative list of services.

For details, go thru the Service Tax Act and Rules.


Place of Provision of Service

The service must be provided in the ‘Taxable Territory’ –Place of provision of service

Section 66B clearly provides that the taxable event i.e. the‘service’ must happen in the ‘taxable territory’.

The term ‘taxable territory’ has been defined in section65B(52) as ‘the territory to which the provisions of thisChapter apply’. By section 64(1) Chapter V of the FinanceAct, 1994 (i.e. the law governing service tax) extends to thewhole of ‘India’ except the State of Jammu & Kashmir.


POP Rules

The Place of Provision of Services Rules, 2012 [“PoPRules”] is notified vide Notification No. 28/2012-STdated 20-6-2012 which is effective from 1-7-2012.

The PoP Rules would be effective for the first time inIndia. Prior to 1-7-2012, there were separate rules fordetermining ‘import of services’ [Taxation of Services(Provided from Outside and Received in India) Rules,2006] and ‘export of services’ [Export of Services Rules,2005] but no rules to determine theplace of provision ofservices.


POP Rules

However, w.e.f. 1-7-2012, the PoP Rules has been enacted todetermine when the services would be considered asprovided in the taxable territory and when it would not.

Thus, the present PoP Rules is neutral to Imports andExports.

With the introduction of the PoP Rules, the import and exportrules1 have been rescinded. The only requirement would bewhether a service is provided in the taxable territory(pursuant to place of provision of service rules).

If yes – liable, if no – not liable.Sshailesh L. Prajapati

POP Rules

The Place of Provision of Service Rules is basically todetermine the place of provision of a service.

The essence of the rules is that service is to be taxed in thejurisdiction of the place of consumption of service.

The basic rule is that the place of provision of service shall bethe location of the service receiver.

However, exceptions have been provided in case ofperformance based services, immovable property basedservices, certain specified services and transportationservice.


POP Rules ( Summed up )

All services (except if specifically covered below)

Location of service recipient. If location of service recipient

not available in ordinary course, location of service

provider.

Specified ‘performance based’ services- (a) Work upon

goods (b) Work upon individuals.

Location of performance of service Exceptions: (1) Remote

access to goods through electronic means. (2) Goods

imported for repairs and re-exported without use.Sshailesh L. Prajapati


Services relating to ‘immovable property’

Where the immovable property is located or intended to belocated.

Services relating to ‘events’

Where the event is actually held

Where the service provider and receiver are located inthe taxable territory

Location of service recipient notwithstanding the location ofperformance, immovable property or event.



Performance based / immovable property based / event

based services provided at more than one location

including a location in the taxable territory.

Location in the taxable territory where the greatest

proportion of service is provided.

Goods transport (other than by a goods transportation

agency or by way of mail or courier).

Location of destination of goods



Specified services viz; services provided to account

holders by banks, etc.; online information and

database access or retrieval services; services by

intermediaries of goods / services; and hiring of

means of transport (other than aircraft and vessels

except yachts) up to a month.

Location of service provider

Passenger transportation services

Place of embarkation for ‘continuous journey’Sshailesh L. Prajapati


Goods Transport Agency services (i.e. transport by roadin a goods carriage)

Location of the person liable to pay service tax

Services on-board a conveyance

First scheduled point of departure

Services prima facie fitting into two or more of the aboverules – tie-breaker

Later rule to apply.


Export of Services

Following Conditions are required to satisfied:

Service provider is

located in taxable territory;

Service recipient is located outside India;

The service is not a service specified in the negative list;

The place of provision of service is outside India;

Payment of service is received in convertible foreign exchange;and

Service provider and service recipient are not merelyestablishments of same persons


Point of Taxation Rules 2011

It is to decide the point of time when a service isdeemed to have been provided for the purpose ofcollection of service tax and determination of rate ofservice tax.

Basic Rules:

earlier of

(i) date of issue of invoice / date of completion ofprovision of service; or

(ii) date of receipt of paymentSshailesh L. Prajapati


Where the invoice is issued within 30/45 days (as the

case maybe refer para 9.4.5 of Chapter 9 hereinafter) of

the date of completion of provision of services,

the earliest of the following dates:

1. Date of issue of invoice

2. Date of receipt of payment



Where the invoice is not issued within 30/45 days (as

the case maybe refer para 9.4.5 of Chapter 9

hereinafter) of the date of completion of provision of

services,

the earliest of the following dates:

i. Date of completion of provision of services

ii. Date of receipt of payment.



Thus it is important that the invoice is issued within

30/45 days (as the case maybe refer para 9.4.5 of

Chapter 9 hereinafter) from the date of completion of

service failing which the due date may be advanced

resulting in interest and penalty.

In any case, Rule 4A of the Service Tax Rules, 1994

mandates the issue of invoice within 30/45 days (as the

case maybe refer para 9.4.5 of Chapter 9 hereinafter) of

completion of provision of serviceSshailesh L. Prajapati

POT in certain Cases

PoT in case of excess payments received upto

1,000/-

In case where service provider receives excess

payments not exceeding 1000/- in respect of an invoice,

the point of taxation for such excess amount at the

service provider’s option, be the date of issue of invoice

or date of completion of service if invoice is not issued

within prescribed time.



The point of taxation in case of payment of tax under reversecharge shall be the date on which payment is made.

Presently, if the payment is not made to the service provider within6 months from the invoice date the due date for payment wouldautomatically relate back i.e. the PoT date would be the date ofissue of invoice by the service provider or the date of completion ofservice by the service provider instead of the date of disbursementof payment.

Thus, this would result in a case where post six months, a servicerecipient may have to pay interest.

However, in order to avoid the above difficulty, it has been providedthat w.e.f. 1-10-2014 where the payment is not made to the serviceprovider within three months from the invoice date, the POT wouldbe the date immediately following the said period of three months.



Determination of point of taxation in case of associatedenterprises;

In case where –

a. The transaction is with an associated enterprise as definedin section 92A of the Income-tax Act, 1961; and

b. The service provider is located outside India

the point of taxation shall be the earliest of the following dates–

i. date on which debit is made in the books of account of theservice recipient; or

ii. date on which payment has been made.Sshailesh L. Prajapati

Valuation of Taxable Services. Sec

67

Section 67 deals with valuation of taxable services.

Where the “consideration” for provision of the serviceis in money, the gross amount charged by the serviceprovider for such services provided by him shall bethe value of taxable service;

Where the “consideration” for provision of the serviceis not wholly or partly in money, then the value oftaxable service shall be such amount in money aswith the addition of service tax charged, be equivalentto the consideration;



67

Where the “consideration” for provision of the service is

not ascertainable the value of taxable service shall be

determined in a manner laid down by the Rules which

the Central Government has notified.

Reimbursement of expenditure

Recovery of reimbursements would also be included in

the taxable value unless the recovery by the service

provider is as a “pure agent” of the client.



67

Valuation of taxable services to include advancepayments:

Payments received before, during or after the provisionof taxable service would form part of gross amountcharged. Thus, the payments received even before theprovision of taxable service would form part of the grossamount for charging service tax.

Further the charging section viz., section 66B of the Actalso covers “services agreed to be provided”. Thus,service tax would be payable even onadvancesreceived.



67

Computation of service tax where bill is inclusive ofservice tax :

Value of Taxable Service = 100 x Total amount charge100+R

where, R is the rate of tax.

Thus, the amount of service tax would be:

Amount of service tax = R x Total amount charged100+R

where, R is the rate of tax.Sshailesh L. Prajapati


67

Valuation of service portion in execution of WorksContract:

Service tax is leviable on the services portion in theexecution of a “works contract”.

“Works Contract” would also include construction,repairs, maintenance etc. of ‘movable property’. Thus acontract to construct a ship or aircraft or a bus-body orrailway-coach, etc. or repair and maintenance of air-conditioners, computers, etc. would be considered as“works contracts” for the purpose of service tax.



67

Methods of Valuation in case of works contract:

Service tax is required to be paid on the gross amount charged forthe works contract less the value of transfer of property in goodsinvolved in the execution of the said works contract.

The gross amount charged would, however, not include VAT orsales tax paid on transfer of property in goods involved in theexecution of the said works contract.

Thus, two components are required to be ascertained :

a. the gross amount charged for the works contract; and

b. the value of the goods involved in the execution of workscontracts;



67


The value of goods would be deducted from the grossamount charged to arrive at the value of the servicesportion in the works contract on which service tax at theapplicable rates would be payable.

For determining the value of goods involved in theexecution of a works contract where VAT / sales tax hasbeen paid on the actual value of transfer of property ingoods then such value shall be adopted.



67


However, if the value of services under the methodmentioned above has not been determined the value ofservices shall be determined as under: WEF 01/10/2014.

Works Contract for original works

40% of total amount

Works Contract for maintenance/ repair /reconditioning/restoration /servicing of any goods

70% of total amount



67


For other contracts including maintenance, repair,completion & finishing services in respect of animmovable property:

70% of total amount.

Original works means all new construction, all types ofadditions and alterations to abandoned or damagedstructures to make them workable, and erection/commissioning/ installation of plant, machinery orequipment or structures whether pre-fabricated/otherwise.


Taxable Person and Reverse Charge S-

68.

Section 68(2) the Central Government can notify –

The services where a person other than a service provider

(e.g. the service recipient) can be made liable to pay

service tax; and

The extent to which service tax would be payable by such

person and the service provider.

The Central Government has issued Notification No.

30/2012-ST dated 20-6-2012 under section 68(2) of the Act

which is effective from1-7-2012.Sshailesh L. Prajapati

Reverse Charge Mechanism

Sr. Description of Taxable Service

Service Provider Service Receiver

1 Insurance agent’s services to Insurers Nil

2Goods Transport Agency (GTA) services for specified persons liable to pay

freight (See Note 1) Nil

3Sponsorship services to Corporates/Firms/LLPs located in the taxable

territory Nil

4Advocate’s/Legal firm’s/Arbitral Tribunal’s services to business entities

located in taxable territory Nil

5Support services (except renting of immovable property) by Government

or local authority to business Entity Nil

6

Services provided to corporate business entities located in taxable

territory by Individuals/HUF/ Firm/LLP/AOP located in taxable territory

(a) Motor Vehicle renting services to corporates not in similar line of

business • Abatement claimed • Abatement not claimed – Up to 30-9-

2014 – From 1-10-2014 (b) Supply of Manpower (c) Security Services (d)

Works Contract Services(See Note 2)

Nil 60% 50%

25% 25%

50%

100% 40%

50% 75%

75% 50%

7Services provided by any person located in non taxable territory and

received by any person located in taxable territory Nil 100%

% of Service Tax Payable


Bundled Services

Section 66F also provides for rules to determine thenature of a “bundled service” for the purpose of taxation.

“Bundled service” means a bundle of provision ofvarious services wherein an element of provision of oneservice is combined with an element or elements ofprovision of any other service or services.

Example, air transport services provided by airlineswherein an element of transportation of passenger by airis combined with an element of provision of cateringservice on board.


Bundled Services

The nature of such a “bundled service” is determined by the

following rules:

If various elements of such service are naturally bundled in

the ordinary course of business, it shall be treated as

provision of the single service which gives such bundle its

essential character;

If various elements of such service are not naturally

bundled in the ordinary course of business, it shall be

treated as provision of the single service which results in

highest liability of service taxSshailesh L. Prajapati

Bundled Services

The TRU has clarified that some of the indicators to determinewhether the services are bundled in the ordinary course of businessare:

The perception or expectation of the consumer/i. recipient of theservice;

The general practice of service providers in a particular area ofbusiness;

The nature of various services in the bundle of services;

There is a single price or the customer pays the same amount, nomatter how much of the package they actually receive or use;

The elements are normally advertised as a package;

vi. The different elements are not available separately;Sshailesh L. Prajapati

Procedures of Registration

Application for registration is to be made by every person liable forpaying the service tax in Form ST-1 within 30 days from the date onwhich service tax is levied or within 30 days from the date ofcommencement of business, whichever is later, to the concernedSuperintendent of Central Excise having jurisdiction. Within 15 daysof making the application the service provider is required to submitthe following

i. Copy of Permanent Account number (PAN)

ii. Proof of Residence

iii. Constitution of the Applicant

iv. Power of Attorney in respect of authorised person (s)

For procedure of application electronically, see website:www.aces.gov.in Sshailesh L. Prajapati

Procedures of Registration

Every service provider whose “aggregate value of all taxableservices” in a financial year from one or more premises exceeds 9lakhs shall make application to the Jurisdictional Superintendent ofCentral Excise in the form ST-1 within 30 days of exceeding theaggregate value of 9 lakhs. The “aggregate value” is to bereckoned on the basis of sum total of first consecutive payments‘received’ during the financial year towards taxable services. Thepayments received towards wholly exempt services are to beexcluded.

Every input service distributor (see definition in CENVAT CreditRules, 2004) shall make an application for registration in form

ST-1 to the Jurisdictional Superintendent of Central Excise within 30days of commencement of business.


Premises to be registered

General Rule –

If taxable services are provided from more than one premises,separate application for registration are to be made in respect ofeach

such premises or office.

Centralised registration –

Where a person, liable to pay service tax on a taxable service,–

I Provides such service from more i. than one premises or offices;

ii. Receives such service in more than one premises or offices;

iii. Is having more than one premises or offices, which are engaged inrelation to such service in any manner making such person liable forpaying service tax


Premises to be registered

and has a centralised billing or centralised accounting

systems in respect of such service, located in one or

more offices or premises, he may, at his option, register

such premises or offices from where such centralized

billing or centralised accounting systems are located

with the previous permission of the Commissioner in

whose jurisdiction the premises or offices from where

centralised billing or centralised accounting is done, are

located.Sshailesh L. Prajapati

Certificate of Registration

The Superintendent of Central Excise shall after due

verification of the Form ST-1, grant a certificate of

registration in Form ST-2 within 7 days from the date of

receipt of the application. If registration certificate is not

granted within 7 days, the registration applied for shall

be deemed to have been granted.


Cancellation of Registration

certificate

Every registered assessee who ceases to provide

taxable service shall surrender his registration certificate

immediately to the Superintendent of Central Excise.

Where an assessee makes an application for

cancellation or surrenders his certificate, the concerned

Superintendent of Central Excise shall cancel the

registration certificate after verifying that the assessee

has paid all the dues under the service tax law.


Payment of Service Tax [Section 68 &

Rules 2(1) (d) and 6]

Service tax on the value of taxable services which is

deemed to be provided as per the Point of Taxation

Rules, 2011 during any calendar month (except March)

is payable by the

6th of the month immediately following the said

calendar month in case of assessee’s depositing tax

electronically through internet banking.

5th of the month immediately following the said

calendar month in other cases.Sshailesh L. Prajapati



However, where the assessee is an individual or a proprietaryfirm or a partnership firm (including Limited LiabilitiesPartnerships) service tax on the value of taxable serviceswhich is deemed to be provided as per the Point of TaxationRules, 2011 during any quarter (except quarter ended March)is payable by the

6th of the month immediately following the said quarter incase of assessee’s depositing tax electronically throughinternet banking.

5th of the month immediately following the said quarter inother cases. Sshailesh L. Prajapati



Further, the facility of paying service tax on payment

basis is available to individuals and partnership firms

(including limited liability partnership) up to a turnover of

50 lakh in a financial year provided the taxable turnover

did not exceed this limit in the previous financial year.

For computing the above limits, the turnover of the

whole entity is required to be summed up and not any

single registration.


Payment of Service Tax in Advance

An assessee has an option to pay an amount as servicetax in advance. The amount so paid in advance isallowed to be adjusted against any subsequent period’stax liability provided:

The details of the advance paid tax is intimated to theJurisdictional Superintendent of Central Excise within15 days from the date of payment; and

ii. The details of payment and adjustment of a tax paidin advance is disclosed in the returns


Manner of Payment

The service tax shall be paid in Form GAR-7 challan into

the designated bank. The said Form GAR-7 challan for

each month/quarter is to be submitted with the half-

yearly return.

Presently, any assessee who has paid service tax of

rupees One lakh or more (either in cash or through

cenvat credit) in the preceding financial year shall be

liable to discharge his service tax liability for the

immediate succeeding financial year electronically

through internet banking.Sshailesh L. Prajapati

Manner of Payment

For procedure for e-payment, refer website:

www.aces.gov.in. However w.e.f 1-10-2014 all the

assessees are liable to pay service tax electronically

through internet banking irrespective of the amount of

service tax payable.

However, the Assistant Commissioner/Deputy

Commissioner of Central Excise has been empowered

(for reasons to be recorded in writing) to allow the

assessee to deposit Service Tax by any mode other than

internet banking.Sshailesh L. Prajapati

Interest on delayed Payment of Tax

Failure to pay service tax on time attracts simple interest

u/s. 75 at a rate not below 10% p.a. but not exceeding

36% p.a. as may be

notified by the Central Government. The prescribed

interest rate is 18% p.a. w.e.f. 1-3-2011. The

Government has vide Notification No. 12/2014–ST dated

11-7-2014 w.e.f 1-10-2014 provided a slab system of

interest rate ranging from 18%-30% as mentioned in

next slide.Sshailesh L. Prajapati

Interest on delayed Payment of Tax

Delayed period involved

Up to 6 months : 18% p.a.

From 6 months to 1 year : 24% p.a.

Above 1 year : 30% p.a.

The rate of interest would be 15% (i.e. 18% less ii. 3% ofconcession) for tax-payers –

Whose turnover, in any of the financial years covered by a showcause notice issued under section 73 does not exceed 60 lakhs;or

Whose turnover in the immediately preceding financial year doesnot exceed 60 lakhs.


Returns

The assessee must himself assess the service tax dueon the services provided by him and thereafter furnishthe returns.

The returns are to be filed electronically in Form ST-3 onhalf-yearly basis by the 25th of the month following theparticular half year.

For procedure for filing returns electronically seewebsite: www.aces.gov.in

A ‘Nil’ return also has to be filed.Sshailesh L. Prajapati

http://www.aces.gov.in/

Thanks.. Compiled from various notes

Disclaimer : These are prepared for

guidance and for training and not to

relied upon for any specific consultation

or specific area


Service tax training jan 2015

Education

Transcript of Service tax training jan 2015