BasicConceptsofServiceTax

PresentedbyCA.Aamir Khan

SEPTEMBER2015
 Unfortunately there is no definition in the provision of Service tax
law for the word service, only incidences of taxes is defined under the Act.

As per Black
Blackss Law Dictionary means
means an intangible Commodity in the
form of human effort such as use of labour, skill or knowledge for the
benefit of another.

As per Websters dictionary performance of any duties or work

for another, helpful or professional activity.

Service tax is destination based consumption tax in the form of

Value Added Tax. This is collected as per the service tax provisions.
TAX REVENUE (ALL INDIA 2014-15)
Rs. In Crores
 Service Tax Concepts

Tax

Who Can Levy Tax

Central Govt. State Govt.

Service Tax, Central VAT, State Excise,
Excise, Customs, Property
p y Tax, Entry y
Income Tax Tax, Octroi

N t No
Note: N state
t t can levy
l S
Service
i Tax.
T O l Central
Only C t l Govt.
G t has
h the
th power to
t levy
l service
i tax
t
 Service Tax Concepts

Types of Taxes

Taxes

Di t
Direct Indirect
Paid directly by tax payer to Govt. Person paying the tax and person are
E.g. income tax, wealth tax, gift tax different
Administrated
Administrated by CBDT under Ministry of E.g. service tax, excise, customs etc.
Finance, GOI Administrated by CBEC under Ministry of
Finance, GOI

Note: No state can levy Service Tax. Only Central Govt. has the power to levy
service tax
 Service Tax Concepts

Service Tax
Introduction of concept of Service Tax

Introduced
d d by
b F.A. 1994
199 by
b Dr. Manmohan
h Singh
Si h (Former Union
i Finance
i Minister)
i i
based on recommendation by tax reform committee headed by Dr. Raja Chelliah in
1990

Fi
First IIntroduced
d d w.e.f.f 01.07.1994
01 07 1994 taxing
i 3 category off services:
i
General Insurance
Stock Broking
Telephone Service

At present almost 119 category of taxable service

Any amendments/clarification in Service Tax through Notification, Circulars etc.

i
issued
dbby Board
B d (CBEC)
(CBEC).
Application of Service Tax

Only on Services specified under Sec 65(105) of Chapter V of Finance Act 1994

Such services commonly known as taxable service

 Service Tax Concepts

Levy of Service Tax:

To attract service tax three conditions must be satisfied:

1
1. There mustt be
Th b a service i provider(
id ( the
th person who h provides
id
service)
2. Service receiver and(the person who receives service)
3. Taxable service ( which is defined under section 65(105))
( ))

All the above conditions must be satisfied to attract the service tax liability.

For Example Mr.

Mr A is a chartered Accountant maintains the accounts of his
client M/s P & Co. and charges the fees of 10000 every month.

Now we will examine this case in the light of service tax. As per section
65(105)(s) any service provided or to be provided to any person, by practicing
chartered accountant in his professional capacity, in any manner, is taxable
service.
 Service Tax Concepts

: Illustration
In the above example Mr. A is service provider providing taxable service of
accounting g to the service receiver ((M/s.
/ P & Co.). ) All the three conditions are satisfied
as per definition. So, Mr. A is liable to pay service on the fees received by him. If A is
maintaining his own accounts in this case service provider and service is the same
person, so the basic conditions of service tax is not satisfied. To attract service tax
liability all the three conditions must be satisfied.
satisfied Even if one condition is not satisfied
then that service is not a taxable service.

Generally service provider is liable to pay service tax but as per Section 68(2) the
government to notify the services with regard to which service receiver would be held
liable to pay service tax.
 Service Tax Concepts

Statutory Provisions Relating to Service Tax

Finance Act,
Act 1994 contains provisions and procedure relating to service tax:

Levy and collection of service tax

Registration
Appeal
pp
Revision
Search etc.

Central Govt. frames rules governing service tax:

Service Tax Rules, 1994

Service Tax (Registration of Special Category of Person) Rules, 2005
Service Tax (Determination of Value) Rules, 2006 (commonly known as Service Tax
Valuation Rules)
CENVAT Credit Rules, 2004.
Export of Service Rules, 2005.
Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
(Commonly termed as Import of Services Rules)
Service Tax (Advance Rulings) Rules,
Rules 2003
Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007
Service Tax (Provisional Attachment of Property) Rules, 2008
Dispute Resolution Scheme Rules, 2008
 Service Tax Concepts

Statutory Provisions Relating to Service Tax

Central Govt also issues the following:

Notification

Exempting certain services (fully/partially)

Operationalizing any provision of law

Circulars/instructions

Explaining scope of law

Explaining procedure to be followed

 Service Tax Concepts
Sources of Relevant Information
Some important and useful sites for updates and information about service tax are
as follows:
1
1. www.cbec.gov.in
www cbec gov in Good site of Central Board of Excise and Customs (CBEC),
(CBEC) giving
notifications and circulars and general information on excise, customs law and
service tax and more over it is a free website.

2. www.judis.nic.in
j di i i It is
i a good
d site
i for
f various
i case laws
l li
lists and
d Supreme Court
judgments.
3. www.aces.gov.in It is a good site for recent updates and Circulars and notifications.

4. www.servicetaxonline.com This website covers all service tax matters.

5
5. www.taxmann.com
www taxmann com It gives information on changes in corporate laws and taxation
but it is a paid site.
6. www.taxindiaonline.com We can information regarding service tax and customs
and excise duty and other indirect tax matters from this site.
site
 Service Tax Concepts

C
Coverage off S
Service
i T Tax
Levy of service tax extends to:

Whole of India except Jammu & Kashmir

Territorial waters i.e. upto 12 nautical miles from land mass

Designated areas of continental shelf

Exclusive Economic Zone of India extending upto 200 nautical miles

i id th
inside the sea ffrom b
base liline

N
Note: S i tax iis payable
Service bl if a service
i iis iimported
d
and not if it is exported.

12 nautical miles
from the land mass
R i
RegistrationofTaxPayer
i fT P
 Registration

Who is to be Registered
Registration must be taken by:

Person liable to pay service tax

Service provider

Exceptions:
Service receiver (under Reverse Charge)
Input service distributor
Taxable service provider whose value of taxable service > Rs.
9,00,000
 Registration

Cases for Service Recipient to Pay Service Tax

Case Liability
Service provider providing a taxable Service Recipient
service from outside India to a recipient
in India
Insurance agent providing service to Insurance company appointing
insurance company (General Insurance the agent
and Life Insurance)
Transport of goods by road Person paying the freight

Distribution of mutual funds by Mutual fund/asset management

distributor/agent company receiving service

Body corporate or firm located in India Body corporate/firm

receiving
sponsorship service
 Registration

Categories of Taxpayer
Taxpayers are classified in following categories:

Individual/Proprietor

Partnership

Registered public limited Company

Registered private limited Company

Registered Trust

Society/co-operative society

Others
 Registration

Which Premise to Register For

Service provider may take registration for the premise from where he is:

Providing a taxable service, or

Issuing bills and maintaining records

S i receiver
Service i may take
k registration
i i ffor the
h premise
i ffrom where
h h
he iis:

Receiving a taxable service, or

Receiving bills and maintaining records

Service tax payer providing/receiving service from/in multiple premises and

using single/multiple premises for maintaining centralised accounts may take
registration for:

Each premise
premise, or
Single registration for premises used for centralized billing/accounting
(Centralized registration)
 Registration

Centralized Registration
The service provider must consider following points while taking registration:

Separate registration for each premises if there is no centralised billing or

accounting
Authority to grant centralised registration: Commissioner in whose
jurisdiction the premises or offices, from where centralised billing or
accounting is done,
done are located
Procedure for centralized registration:
Fill out application in Form ST-1
Submit details of branches/offices for which centralised registration
is being sought
Single registration for multiple taxable services

Period for filing application - 30 days from the date when:

A person commences providing taxable service, or
S i ttax iis iimposed
Service d on th
the ttaxable
bl service,
i whichever
hi h iis llater.
t
ST-1

Fees for Registration: Nil

 Registration

Centralized Registration: Documents Required

Tax payer must submit the following documents at the time of registration along
with the application form:

Copy of PAN card

Proof of residence

Proof
P f off constitution
i i off applicant
li ((e.g. partnership
hi ddeed)
d)

Copy of memorandum and articles of association

Details of partner/directors/proprietor/HUF/key person

 Registration

Grant of Registration Certificate

Steps for granting registration certificate:

i. Acceptance of application in Form ST-1 by Jurisdictional

Superintendent
p of Central Excise

ii. Review of the application

iii Grant of registration in Form ST-2 within 2 days of filing of online

iii.
application
 Registration

Components of Registration Certificate

Registration certificate includes:

Name of the assessee

Address of premises

Registration
g number, which is:
Also known as Service Tax Code (STC)
15 digit PAN based number
First 10 digits - Same as the PAN
Next 2 digits - ST
ST
Next 3 digits - Serial numbers indicating the number of
registrations taken by the taxpayer against a common PAN

Name of services for which registration granted

Premises code:
Used for easy identification of location of registration of taxpayer
Represents Commissionerate , Division, Range and Serial Number
 Registration
Amendments to Registration Certificate
A
Amendment
d t to
t registration
i t ti certificate:
tifi t

Required in following cases :

Change in the information supplied in Form ST-1, e.g., name or
address of the applicant
Addition of new taxable service provided

Note: Obtaining fresh registration certificate is not required in these cases.

Procedure for amendment to registration certificate:

i. Intimation to jurisdictional AC/DC within 30 days of change
ii Submission of self
ii. self-certified
certified copy of the registration certificate,
certificate
necessary proffs and not the earlier registration certificate
iii. Cancellation of the original registration certificate issued earlier by
p
the department
iv. Issuance of an amended registration certificate
 Registration

Cancellation/Surrender of Registration Certificate

Cancellation/surrender of registration certificate must be applied for
if:
Assessee ceases to carry on the activity for which he is
registered
i t d

Assessee opts to avail benefit of Threshold limit

Any other reason

Procedure for cancellation/surrender of registration certificate

File all the up-to-date returns
Pay all the dues (i.e. tax, interest, penalty, etc.) payable to
Central Government
Application to Superintendent of Central Excise in any format
accompanied with ST-2
Undertaking for no due pending to be filed
No fee required
 Registration

Cancellation/Surrender of Registration Certificate

S
Special
i l Situations
Sit ti
Transfer of Business:

Transferor has to cancel his service tax registration

Transferee is required to obtain fresh registration

Procedure in case of Re-start of Business:

Pay
ay obtain
obta a fresh
es registration
eg st at o if the
t e assessee ceases to provide
p o de earlier
ea e
service and cancels registration
Change in particulars:

No need to cancel the old registration and to obtain the fresh

registration

Required to intimate change to the department

 Registration

Penalty for Late Registration

If there is delay in obtaining registration:

Penalty up to Rs. 10,000, or Rs. 200 per day of delay (whichever higher)

Additional applicable penalties + interest for the delay in payment of

service tax
 Due date for payment of Service Tax:
The
h service
i tax collected
ll d must beb credited
di d to account off Central
C l Government
G
within the prescribed due dates.

The due dates of payment of service tax summarized below:

Status Basis Due Date for normal payment Due Date for e-payment
Non-corporate
Non corporate entities like Quarterly payment 5th of the month succeeding the 6th of the month
individual, proprietorship, (Apr-Jun, Jul-sep, relevant quarter in which the succeeding the relevant
partnership firm Oct-Dec, Jan-Mar) service was performed. quarter in which the
For example for the 1stquarter service was performed.
(Apr Jun)due date is 5th of July.
(Apr-Jun)due July For example for the
1stquarter (Apr-Jun)due
date is 6 of July.
th

Corporate entities Monthly payment 5th of the next month in which
the service was performed.
For example for April month
service tax is need to pay by
5th of may.
may
6th of the next month in
which the service was
performed.
For example for April
month service tax is need
to pay by 6th of may.
But for the month of March due date for payment of service tax
is 31st March

If the assessee is failed to pay tax within the due date he needs to pay tax
alongg with interest 18% p p.a. until the date of p
payment
y of tax.
 Filing of returns:

Every service provider or service receiver who liable to pay tax is required to
submit half yearly returns in Form ST-3 or Form ST-3A with relevant copies
of GAR-7
GAR 7 in the triplicate.
triplicate
1 The returns are to be filed for the half year ending 30th September by
. 25th October.
2 The returns are to be filed for the half year ending 31st March by
. 25th April.
Late filling of returns will attract penalty .Rule
Rule 7C of service Tax Rules
mentioned about penalty
1 Rs. 500 for delay of 15 days from the prescribed date

2 Rs. 1000 where the delay is between 15 and 30 days from the prescribed
date.

3 Rs. 1000 + Rs.

Rs Rs 100 per day of delay where the delay is beyond 30 days from
the prescribed date but not exceeding Rs.20,000 in terms of Section 70.
 CENVAT Credit:

Cenvat credit is a concept introduced to overcome cascading effect of

indirect taxes. Because of the cascading effect assessee is paying tax more
than one time for the same goods and services. Cenvat Credit is nothing
b adjusting
but dj i the h tax already
l d paid id which
hi h included
i l d d in
i the
h current tax.

The service provider providing taxable services is entitled to avail CENVAT

credit of the service tax paid on

1. Inputs
2. Capital goods and
3 Input services
3.

Th
Those mustt be
b used
d for
f providing
idi taxable
t bl services.
i
Inputs means:
All goods,
d exceptt light
li ht diesel
di l oil,
il high
hi h speed
d diesel
di l oilil and
d
motor spirit, commonly known as petrol and motor vehicles,
used for p
proving
g anyy output
p service.

Input services means:

Any service used by a provider of taxable service for providing
an output service.

Capital goods:
Capital goods which are used for providing output taxable
services.
By utilization
ili i off CENVAT
C C di the
Credit h liability
li bili off the
h tax will
ill
be reduced. The outflow of funds will be less.

For example we need to pay service tax of Rs.1,00,000, if he

has credit of inputs and input services of Rs.10,000 then he
can adjust that amount with tax payable.
payable Instead of tax Rs.
Rs 1
Lakh, now he can pay Rs. 90,000/- (1,00,000 (Tax)-10,000
(input credit)). The burden of tax will be reduced with the
CENVAT Credit.
C di
Overview of Taxable Services
 Taxable Services

What are Taxable Services

Taxable Services are:

Liable to service tax

Defined
D fi d under
d sub
b clauses
l off Section
S i 65(105)

Services which are not listed in Negative List Regime.

Presently, 119 services are taxable.

 Taxable Services

Classification of Taxable Services

Classification of services is made according to the scope of taxable services
specified in sub-clauses of Section 65 (105). If a taxable service appears to
be classifiable under two or more sub clauses :

Specific description is preferred over general description

Classification is done on the basis of essential characteristics in case of

composite services (more than one service in a single agreement

Classification is done according to the order of sub clause which

appears earlier in Section 65 (105)
 Rate of Service tax

Effective Rate of Service Tax

The rates of service tax will change time to time. The rate of service tax will
summarized below :
Period Service Education S.H.Edu.Ce Total
Tax Cess ss Rate
16.08.2002 to 31.05.2003 5% - - 5%
14.05.2003 to 09.09.2004 8% - - 8%
10.09.2004 to 18.04.2006 10% 2% - 10.2%
19.04.2006 to 10.05.2007 12% 2% - 12.24%
11.05.2007 to 23.02.2009 12% 2% 1% 12.36%
24 02 2009 to 31.03.2012
24.02.2009 31 03 2012 10% 2% 1% 10 3%
10.3%
01.04.2012 to 31.05.2015 12% 2% 1% 12.36%
01.06.2015 onwards 14% - - 14%

Payment of service tax must be through GAR-7 challan and through designated
branches.GAR-7 Challan and list of designated branches will be available in the CBEC
web site.www.cbec.gov.in or www.aces.gov.in