Service Tax

Introduction

Service Tax was introduced in 1994 vide Finance Act, 1994 with 3 SERVICES namely, Brokerage charged by stockbroker, Telephone services & premium on General Insurance Services.

Applicable to whole of India except Jammu & Kashmir.

2

Contd…

What is Service Tax?

It is a tax levied on the transaction of certain Specified Services, by the Central Government under the Finance Act, 1994.

It is an Indirect Tax, which means that normally the service provider pays the tax and recovers the amount from the recipient of taxable service.

3

Who is liable to pay Service Tax?

Generally, the ‘Person’ who provides the taxable service (on receipt of service charges) is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act), except the following:

i.The recipient of services in India is liable to pay Service Tax, where taxable services are provided by Foreign Service providers with no

establishment in India;

4

Contd…

ii. The Service Tax is to be paid by the Insurance Company for the services in relation to Insurance Auxiliary Service by an Insurance Agent.

iii. The person who pays or is liable to pay freight for the taxable services provided by a Goods Transport Agency for transport of goods by road, is liable to pay Service Tax, if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a

corporation (d) a society (e) a co- operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm.

5

Contd…

iv. The taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund. In this regard, Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service.

Refer: Sec. 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.

6

Contd…

v. In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received subject to the eligible abatements, if any.

Service tax is payable on Gross Amount charged for taxable service provided or to be provided [Section 67]. If consideration is partly not in money, valuation is required to be done as per Valuation Rules. Tax is payable even when advance is received.

7

Assessee

Who is an ‘Assessee’ in relation to Service Tax?

‘Assessee’ means a person liable to pay Service Tax and includes his agent.

8

REGISTRATION REQUIREMENTS

9

As per Section 69, every person liable to pay service tax has to get themselves registered with service tax department.

An Input Service Distributor and any provider of taxable services whose aggregate value of taxable service in a financial year exceeds Rs. 9 lacs, has to get themselves registered.

Application for registration in Form ST-1 to be made to concerned Superintendent of Central Excise.

The application for registration shall be made within 30 days, from the date on which the levy of service tax is brought into force in respect of the relevant services or of the commencement of

business where services has already been levied .

10

Contd…

Contd…

Registration Certificate is granted in Form ST-2 within 7 days from the date of receipt of intimation, if not, then deemed to be granted. In case the registration certificate is not issued within seven days, the registration applied for is deemed to have been granted. (Rule 4(5) of the STR, 1994)

CBEC vide Circular no. 35/3/2003 has made it compulsory for every assessee to obtain the Service

Tax Code number which is a 15 digit alphanumeric no. based on the PAN

11

Assessee providing more than one taxable service should mention in single application, all the taxable services provided by him. Rule 4(4), Service Tax Rule,1994.

12

Contd…

Provision for Centralized Registration

Service providers having centralised accounting or centralised billing system, at their option, can have Centralised registration at one or more places. Commissioner of Central Excise / Service Tax in whose jurisdiction centralised account or billing office of the assesses exists, is empowered to grant centralised registration.

13

Exemption Scheme for Small Service Providers

Central Government, provides the basic exemption to the service providers whose aggregate value of taxable services provided in last financial year is less than Rs. 10 Lacs.

Assessee should not charge the Service Tax if he/she is claiming the benefit of exemption. If charged by mistake the same should be refunded to the service receiver.

14

Taxable services provided by a person under Brand Name or Trade Name, whether registered or not, of any other person are not eligible for the threshold limit exemption of Rs. 10 Lacs. [Notification No. 6/2005]

15

Contd…

Exception

Other Exemptions

Services provided to United Nations & International Organizations.

Services provided to developer of SEZs or units of SEZs

Services provided to Diplomatic Missions.

Services exported in terms of Export of Service Rules,2005.

Services provided by RBI

16

Contd…

Services provided by Incubators (used to maintain a constant temperature) are exempt from service tax.

Services provided by digital cinema service provider to producer/ distributor in relation to delivery of content of Cinema in Digital Form are exempt from service tax.

Value of goods and materials sold by service provider are exempt.

17

Abatement

In case of certain services, the benefit of abatement (rebate) is allowed to the service provides. In such cases, the service providers charges tax from the client after taking into account the abatement available or on net amount (net of abatement).

Example: if invoice for servicing is to be raised for Rs. 1000/- and abatement of 75% is available (as in case of Goods Transport Agency), then service tax

will be imposed only on Rs. 250/- [1000 – 75% of 1000].

18

Service Tax Rate

PeriodPeriod RateRate

From 1.7.1994 to 13.05.2003From 1.7.1994 to 13.05.2003 5%5%

From 14.5.2003 to 09.09.2004From 14.5.2003 to 09.09.2004 8%8%

From 10.9.2004 to 17.04.2006From 10.9.2004 to 17.04.2006 10%10%

From 18.4.2006 to 10.05.2007From 18.4.2006 to 10.05.2007 12.24%12.24%**

From 11.05.2007 to 24.02.2009From 11.05.2007 to 24.02.2009 12.36%12.36%**

From 25.02.2009From 25.02.2009 10.3%10.3%**

19

*Inclusive of cess

Payment of Service Tax

20

Payment of Service Tax through G.A.R. 7Payment of Service Tax through G.A.R. 7

Individual/FirmIndividual/Firm Other than Other than Individual/FirmIndividual/Firm

Quarterly Quarterly PaymentPayment

I, II & III I, II & III QuarterQuarter

IV Quarter EndingIV Quarter Endingon 31on 31stst March March

Monthly PaymentMonthly Payment

Months Months Apr - FebApr - Feb

Month of Month of MarchMarch

55thth of the of the MonthMonth

following following QuarterQuarter

Up to 31Up to 31stst MarchMarch

55thth of the of the Next MonthNext Month

Up to 31Up to 31stst MarchMarch

e-Payment of Service Tax

21

E – Payment E – Payment

Optional Optional E - PaymentE - Payment

Less than Rs. 50 Less than Rs. 50 LakhsLakhs

(Cash+CENVAT)(Cash+CENVAT)

MandatoryMandatoryE - PaymentE - Payment

Rs. 50 Lakhs or MoreRs. 50 Lakhs or More (Cash+CENVAT) (Cash+CENVAT)

Other than LTUOther than LTUIn case of LargeIn case of Large Taxpayer Unit Taxpayer Unit

Check the LimitCheck the LimitIndividually for Every Individually for Every Registered PremisesRegistered Premises

Check CumulativeCheck Cumulative Limit for All Limit for All

Registered PremisesRegistered Premises

Due Date of e-Payment of Service Tax

Individual/ Firm

6th of the Month following the Quarter End

Other than Individual/ Firm

6th of the following Month

Note: 1. e-payment can be made up to 8 p.m.2. due date of payment will 31st March for the last quarter or month of march as the case maybe

22

Failure to Pay Service Tax

Interest(sec. 75) :- Interest @13% p.a. is payable on the short-fall or unpaid tax for delayed period.

Penalty(sec. 76) :- Rs.200 for every day during which failure

continues, or2% of tax per month, whichever is higher.

23

Service Tax Return

Form No. ST-3, Half-YearlyForm No. ST-3, Half-Yearly

Half-YearHalf-Year Due DateDue Date

April – SeptemberApril – September 2525thth October October

October – MarchOctober – March 2525thth April April

24

How to file Service Tax Returns?

• The details in respect of each month of the period for which the half-yearly return is filed, should be furnished in the Form ST-3, separately. The instructions for filing return are mentioned in the Form itself. It should be accompanied by copies of all the GAR-7 (TR-6) Challan for payment of Service Tax during the relevant period.

• Filing of return is compulsory, even if it may be a nil return, within the prescribed time limit, failing which penal action is attracted.

25

Service Tax Return

26

Input Service DistributorInput Service Distributor

Half-YearHalf-Year Due DateDue Date

April – SeptemberApril – September 3030thth October October

October – MarchOctober – March 3030thth April April

Delay in Filing Return

PeriodPeriod Fine/PenaltyFine/Penalty

Up to 15 daysUp to 15 days Rs.500/-Rs.500/-

1616 to 30 daysto 30 days Rs.1000/-Rs.1000/-

Beyond 30 daysBeyond 30 daysRs1000/- Rs1000/- plusplus Rs.100/- per Rs.100/- per day from the 30day from the 30thth day till day till date of furnishing returndate of furnishing return

27

Input Service Distributor

An office (of the output service provider) which receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such provider of output service is an “Input Service Distributor”.

The credit of the tax amount so distributed to various places shall not exceed the total Service

Tax amount contained in the original invoice / bill.

28

Large Tax Payer Unit (LTU)

A tax-payer means a service provider who has paid service tax of Rs. 5 Crores or more during the year.

LTU has Submit Return for each registered premises.

However, Consolidated Return shall be submitted, if he has obtained

centralized registration.

29

Refunds

Where an assessee has paid to the credit of the Government in respect of a taxable service, which is not so provided by him, either wholly or partially for any reason, the assessee may adjust the excess Service Tax so paid by him (calculated on a pro-rata basis) against his Service Tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the Service Tax thereon

to the person from whom it was received (Rule 6(3) of the STR, 1994).

30

Contd…

In all other cases of excess payment, refund claims have to be filed with the Department. It is important to note that any amount of Service Tax paid in excess of the actual liability, is refundable, only if it is proved that the claimant of refund had already refunded such amount to the person from whom it was received or had not collected at all.

31

SERVICE TAXSERVICE TAXCENVAT CENVAT CREDITCREDIT

32

What is CENVAT Credit Scheme ?

The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services / Central Excise Duties paid on inputs / capital goods / Additional Customs Duty leviable under the Customs Tariff Act, equivalent to the duties of excise.

Such credit amount can be utilized towards payment of Service Tax by an assessee on their Output

Services. (Refer to Rule 3 of CENVAT Credit

Rules, 2004).

33

Duties paid on the inputs, capital goods and the Service Tax paid on the 'input' services can be taken as credit. Education Cess paid on the Excise duty and Service Tax can also be taken as credit only for payment of Education Cess relating to output service.

The interest and penalty amounts cannot be taken as credit.

34

Contd…

Inputs

All goods except Light Diesel Oil, High Speed Diesel Oil and Motor Spirit, commonly known as petrol, whether used for providing service, irrespective whether used directly or indirectly and whether contained in the final product or not.

35

Input Service

Any service availed by a provider of taxable service for providing output service.

Services availed in relation to;i. setting up, modernization, renovation or repairs of

a factory premises of provider of output service or an office relating to such factory or premises;

ii. advertisement or sales promotion, market research, storage up to the place of removal,

procurement of inputs,

36

Contd…

iii. activities relating to business such as accounting, auditing, financing,

iv. recruitment and quality control, training, computer networking,

v. credit rating, share registry and security,

vi. inward transportation of inputs or capital goods and outward transportation up to the place of removal are also input services

Refer:[clause (1) of rule 2].

37

Capital Goods

38

Contd…

39

When Credit is Available: Preconditions

The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the premises of the provider of Output Services.

Credit of Service Tax on the input services can be availed, only after making payment of the amount indicated in the invoice / bill / challans. Thus, Payment of Input Service is a Pre-condition.

The above requirement is not applicable in respect of credit of duties paid on inputs and capital goods.

40

Utilization / Application of Credit

41

Utilizing CENVAT Credit - Conditions

Where both exempted as well as taxable services are rendered & Separate Accounts are maintained, then CENVAT Credit is allowed only on inputs / input services utilized for rendering taxable services. (Ref. Rule 6 (2) of CENVAT Credit Rules, 2004).

42

Contd…

Example: Ram Associates provides Accounting as well as Legal services & maintain separate accounts for both services rendered. It paid Rs. 15,000 as fees & Rs. 1545 as service tax to chartered accountant (input service) for providing accounting services (output service) to its clients with a mark-up of Rs. 5000 i.e. for fees of Rs. 20000 + 2060 as service tax. As it maintained separate accounts it can claim CENVAT Credit Rs. 1545 against

its liability of Rs. 2060. Thus, it needs to pay Rs. 515 in cash and balance Rs. 1545 will adjusted against CENVAT Credit available.

43

Utilizing CENVAT Credit - Conditions

Where both exempted as well as taxable services are rendered & No Separate Accounts are maintained, then provider of output services shall utilize credit only to extent of an amount not exceeding 20% of the amount of service tax payable, on taxable output service. (Ref. Rule 6 (3) of CENVAT Credit Rules, 2004).

44

Contd…

Example:Service tax liability for a specific period is Rs. 1000/-

and there is a credit of Rs. 500/- available, the credit can be utilized only to the extent of Rs. 200/- and the balance Service Tax liability (i.e Rs. 1000-200 = 800) has to be paid in cash / cheque. The remaining credit can be carried forward and used for the subsequent period in a similar manner.

45

Contd…

W.e.f. 1.4.2008, following additional options are available to Service Provider (not having separate accounts) instead of utilizing CENVAT credit to the extent of 20% of their liability.

(1)pay an amount equal to 8% of value of exempted services or

(2)an amount equivalent to the CENVAT credit attributable to input / input services used in, or in

relation to exempted services. [Not.No.10/2008CE (NT) dt. 01.03.2008.)]

46

Contd…

However, in terms of Rule 6(5) of CENVAT Credit Rules 2004, even though no separate accounts are maintained in respect of Services listed in Appendix 5, CENVAT credit shall be allowed unless such services are exclusively used in or in relation to the manufacture of exempted goods or providing exempted services.

47