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CONTENTS
Service Tax - Introduction Meaning of Service Declared Services What Services are Taxable Negative List of Services Place of Provision of Service Point of Taxation Interpretation Rules Reverse Charge Mechanism CENVAT Credit Rules Service Tax Compliance
MEANING OF SERVICE
First time in the history of this law the term Service has been defined u/s 65B(44) of the Act inserted w.e.f. 01-07-2012. By virtue of this section, Service means any ACTIVITY* carried out by a person for another for CONSIDERATION** and includes declared services but shall not include:
An activity which constitutes merely transfer of title in Goods or Immovable Property; A transaction in money or actionable claims; Service provided by an employee to the employer under employment; Fees taken in any Court / Tribunal.
IMPORTANT INGREDIENTS Activity to be performed by one person to another. Activity to be performed for Consideration since No Consideration No Tax. It includes Declared Services and Excludes certain activities.
*Activity means any act or work undertaken or performed or provision of a facility. ** Consideration means anything is done or abstained from doing for anything in return.
DECLARED SERVICES
Section 66E of the Act provides certain activities which have been deemed to be service and service tax shall be levied thereon. Following are such activities:
Renting of Immovable Property;
Construction* of a Complex, building, civil structure or part thereof, including complex intended for sale except where whole consideration is received after issuance of completion certificate;
Temporary transfer or permitting the use or enjoyment of any intellectual rights;
Development, Designing, Programming, Up-gradation, Customizing, Implementation, Enhancement of Information Technology Software;
Agreeing for not doing any act or tolerate any act, or to do an act;
Adaption,
Transfer of Goods by way of hiring, licensing without transfer of right to use such goods; Activities in relation to delivery of goods on hire purchase; Service portion in Works Contract; and Service portion in an activity where food or any article for human consumption or any drink is supplied in any manner as part of such activity.
* Construction includes additions, alterations, replacements or remodeling of any existing civil structure.
TAX CAN BE LEVIED ON AN ACITIVITY WHEN: Such Activity is a Service in terms of Section 65B(44) of the Act.
Specific Rule
Place of Provision Location of Service Provider Location Property of Immovable
Location of such Event or Fair Location of actual performance of such service Destination of such Goods Location from where Journey Embarks
YES
Location of SR shall be the premises for which registration, centralized or otherwise, has been obtained.
NO
Location of SR shall be (in chronological order): 1. The Location of his Business Establishment*; 2. Location of an Establishment where services are being used; 3. If services are used at more than one places, then location of establishment which is most directly connected with usage of services; 4. Usual Place of residence of service receiver.
*Business Establishment is the place where the essential decisions concerning the general management of the business are adopted. It can be HO, Factory or workshop.
POINT OF TAXATION.
Until March, 2011 service tax liability arose only after receipt of payment from service receiver but since April, 2011 it has been shifted from cash basis to accrual basis. Point of Taxation Rules, 2011 were introduced w.e.f. 01-04-2011 so as to determine the point at which any service shall be deemed to have been provided and the service tax thereon becomes due. Three important dates relevant for determining the point of taxation are:
Date of Invoice Date of Payment Date of Credit to Bank A/c or in Books, whichever is earlier. Date of Completion of Service*
Generally, Point of Taxation (POT) shall be the date of invoice if the same is raised within 30 days of completion of service, otherwise the date of completion of service shall be POT.
However, cases where payment is received in advance against any service then the date of receipt of payment shall be the POT irrespective of the date of invoice.
*In case of continuous supply of service, date of completion of service shall be replaced by date of completion of an event which requires service receiver to make payment.
.POINT OF TAXATION
POT under specified events:
Events:
Change in Rate of Tax or Introduction of New Service
Two out of three dates, occurring either before or after any of such event, shall be considered for determining POT and the date which occurs first shall be the point at which service tax liability arises.
It means the date which occurs first among the two dates falling after/before an event shall be taken as point of taxation and service tax shall be levied accordingly. For Example:XYZ Ltd has rendered taxable services to ABC Ltd in March 2012 for which invoice has been raised on 15-04-2012 and the payment is received on 05-05-2012. In this case, point of taxation shall be 15-04-12 and the effective rate of tax at such point shall be applied i.e. 12%. Had the payment is received on 31-03-12 then POT shall be 3103-12 and so service tax shall be charged at the rate of 10% only.
.POINT OF TAXATION
POT under Reverse Charge Provisions: In terms of Rule 7 to POT Rules, where service receiver is liable to pay service tax, the point of taxation shall be the date on which value of service has been paid to service provider.
However, if payment is not made to service provider within six months from the date of invoice then POT shall be deemed to be the date of invoice of input services.
Cases where services are received from an associated enterprises located outside India, POT shall be the date of debit in books of accounts of service receiver or date of payment whichever is earlier.
INTERPRETATION RULES.
Prior to July, 2012 section 65A of the Act provides the principles for classification of service based on which services are to be classified under 119 clauses of section 65(105) of the Act. Now w.e.f. 01-07-2012 section 66F of the Act laid down the principles for interpreting the description of services and also the classification in case of bundled services.
Rule: 1
Input services used for providing main service shall not infer its taxability from the main service. Thus, services used for providing exempted service may not necessarily be exempted.
Eg. Services like security services provided in relation to collection of Toll Tax for access of any road, a non-taxable service, shall not be considered as Non-taxable.
Rule: 2
Cases where differential treatment is possible based on the descriptions of services then services with Specific description shall be preferred over general description.
Eg. Services of a real estate agent in relation to an immovable property located outside India shall not be considered as non-taxable service since the more specific description for such service is intermediary services and place of provision of such service is place of its performance and not the location of the property and thus services are taxable.
.INTERPRETATION RULES
Cases where bundle of services are provided then tax on services shall be dealt in given manner:
*It has been clarified that the service which provides economic value to the service recipient will be considered as essential service for the purpose of classification.
S. Services No Provided By 1
Description of Service
Nil
Nil Nil
100%
100% 100% 40% 75% 75% 50%
Director of a Company Any Taxable Service (w.e.f. 07-08-12) Renting or hiring of motor vehicle to carry passenger on abated value i.e. 40% Renting or hiring of motor vehicle to Individual, carry passenger on non abated value HUF, Firm, AOP Supply of Manpower Service Security Services (w.e.f. 07-08-12) Works Contract Service
4
5 6
7
8
S. Services Provided No By 9
Description of Service
Service Provided To
Person carrying Insurance Business Any person in taxable territory
Insurance Agent Insurance Auxiliary Service 10 Any person in non taxable territory Any Taxable Service 11 12 13 Arbitral Tribunal Legal Service
Nil
100%
*Business Entity: It includes an association of persons, body of individuals, company or firm but does not include an individual ** Government: It means both Central & State Govt. and includes its departments but does not include the corporations/regulatory bodies formed under Central or State Acts or institute set up by State/Central Acts.
Inputs
CENVAT Credit of 50% of the duty paid on Capital Goods can be availed in the financial year in which such goods are received by SR. The remaining Credit can be availed in Capital subsequent years subject to possession of such goods. Goods
CENVAT Credit on input services can be availed on or after the receipt of invoice of input service. In case payment of value of service & service tax is not made to service provider Input with in 3 months from the date of invoice then CENVAT so claimed shall be reversed. Services
CENVAT Credit of service tax paid under Reverse Charge: In such cases, Service receiver can avail CENVAT Credit in two following parts.
I: At the time of booking of Invoice (To the extent tax is charged in Invoice) II: At the time of making payment of Service Tax (To the extent tax is paid as Service Recipient)
In terms of Rule 9(e) of CCR, a challan evidencing the payment of service tax by the service recipient is a valid document for claiming the CENVAT Credit.
* Assessee means a person liable to pay service tax and includes his agent.
PREPARED BY:-
CA ASHISH GUPTA
B-116, Ist Floor, Amar Colony, Lajpat Nagar-IV, New Delhi (M) +91-9891670570 (E) info@ashishca.com (W) www.ashishca.com
Disclaimer: This presentation is provided purely for your information and knowledge. Information provided in this presentation do not purport or should not be treated as legal opinion in the fact specific situations that may effect you and your business.