Updated – June 2013
CA Madhukar N Hiregange
CA Rajesh Kumar T R
CA Sudhir VS
PREFACE
Service tax is a subject which has been posing quite a few problems to assessees since its introduction in the year 1994 through Chapter V of Finance Act 1994. Over Rs.131,000 Crores has been collected last year on this count. The service tax law like other tax laws prevalent in the country is not simple, not equitable, not certain and tax administration not fair. Over the years there have been number of instances where assessees have had to face litigations with the department at various levels mainly due to lack of clarity in the subject matter.It has been observed that though the Tribunals and Court provide the clarity, the demands from the revenue for the past periods are raised. Now with the Negative List slated to augment revenues to at least Rs. 1,80,000 crores, the earlier understanding of the provisions have substantially changed. The professional advisor would also face difficulties while advising the clients in this area which is in a developing stage.
Though an attempt has been made to remove confusion by appropriate clarifications [education guide] where ever applicable, the assessee’swoes and the advisors problems are far from over. One of the main reasons for this has been the fact that the subject has not yet developed to the fullest extent and we continue to see changes every year by way of amendments, exemptions, clarifications being given even after 1.7.2012. The comprehensive approach to cover the taxes has not been correspondingly found seamless cenvat credit with most major restriction still remaining. Invariably it is seen that the changes have been primarily been aimed at increasing the revenue to the government even if it means arming the tax administrators unduly.
It is not uncommon to find entrepreneurs / business advisors/ chartered accountants new to service tax who are doubtful/ unclear about the legal provisions pertaining to the same.This briefonline book is aimed at such Chartered Accountants in employment as well as practice / assessees who are new to service taxpractice and are interested in understanding the basic concepts of the subject so that they can take steps to ensure effective compliance with the law. The attesting auditor may also like to have a handily easy to refer book for ensuring compliance under laws he certifies when he signs off the financials for corporate. Keeping this fact in mind and as well as the constraints as to space, this book deals with concepts of service tax to guide the assessee/professional rather than an in-depth discussion of the legal provisions, especially the taxable services individually.
This book has attained its present form partly due to the efforts of the partners of Hiregange & Associates, Chartered Accountants namely - CA Madhukar N Hiregange, CA Rajesh Kumar TR, CA Sudhir V S and also the efforts ofqualified staff who have contributed especially CA Roopa Nayak.. We acknowledge their efforts.
The book contains an overview of service tax initially which would provide the reader with a bird’s eye view of service tax. The reader is advised to go through the same before proceeding onto the subsequent chapters. This book also contains some of the important procedures which would be useful to the assessee in complying with the legal provisions of service tax.
The authors have tried their best to make this online book as complete as possible but where the readers have any doubt regarding the subject matter are advised to refer a more comprehensive publication regarding the same or seek expert opinion.
The chapters in this book have been arranged in such a way as to give the reader a fairly good idea as to the provisions of law. The authors would also welcome valuable suggestions from the readers, which would help us in ensuring a better offering next time around. For any comments or feedback please write to , or For your queries on the subject you may also host your queries on pdicai.org under Service Tax segment.
Finally, we wish the reader all the best in their career/ practice.
Team Hiregange
02.7.2013
Bangalore
Table of Contents
OVERVIEW OF SERVICE TAX
Constitutional validity and concepts
Levy and collection
Concept of Classification
Registration
Concept of consideration and valuation
Payment of service tax
Payment of Interest
CENVAT Credit scheme
Export of Services
Filing of returns
Assessment
Provisions as to recovery
Provisions pertaining to penalty
Collecting amounts representing service tax
Provisions pertaining to Appeals
SERVICE TAX - LEVY
Levy and charge of service tax
What is Service?
Classification of Service
DECLARED SERVICE
1. Renting of Immovable Property
2. Construction of Complex
3. Temporary transfer or permitting the use or enjoyment of any intellectual property right
4. Development etc of IT software
5. Non Compete Fee
6. Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods
7. Delivery of goods on hire-purchase or any system of payment by installments
8. Service portion in execution of Works Contracts
9. Supply of Food or other articles of Human Consumption
NEGATIVE LIST
1. Services provided by Government or Local authority:
2. Services provided by Reserve Bank of India
3. Services by a Foreign Diplomatic Mission Located in India
4. Services relating to agriculture
5. Trading of Goods
6. Processes amounting to Manufacture or Production of Goods
7. Selling of Space or Time Slots for Advertisements other than Advertisements Broadcast by Radio or Television
8. Access to a Road or a Bridge on Payment of Toll Charges
9. Betting, Gambling or Lottery
10. Entry to Entertainment Events and access to Amusement Facilities
11.Transmission or Distribution of Electricity
12. Specified services relating to Education
13. Services by way of Renting of residential dwelling for use as residence
14. Financial Sector
15. Service relating to Transportation of Passengers
16. Service relating to Transportation of Goods
17. Funeral, Burial, Crematorium or Mortuary services including transportation of the deceased
Break of Cenvat Chain
CLASSIFICATION OF SERVICE
Relevance of the concept of classification
Possible ramifications where the assessee gets the classification wrong
Pointers for practice
EXEMPTIONS INCLUDING MEGA EXEMPTION
Mega Exemption Notification
Small Service Provider Exemption
Abatements
Pointers for practice
Other exemptions
PLACE OF PROVISION OF SERVICE RULES, 2012
Rule 14: Order of application of rules
Rule 13: Powers to notify description of services or circumstances for certain purposes
Rule 12: Place of Provision of services provided on board a conveyance
Rule 10: Place of Provision of goods transportation services
Rule 9: Place of Provision of Specified services
Rule 8: Place of Provision of services where provider and receiver are located in taxable territory
Rule 7- Part performance of a service at different locations
Rule 6: Place of Provision of Services relating to events
Rule 5: Place of provision of services relating to immovable property
Rule 4: Place of provision of performance based services
Rule 3: General Residuary rule
Conclusion:
REVERSE CHARGE & JOINT CHARGE MECHANISM
Introduction
No Charging section w.e.f.1.7.12 on reverse charge
What is reverse charge?
What is Joint Charge Mechanism?
What is covered under Reverse Charge?
What is covered under Joint Charge?
Other relevant aspects
Important point to be considered
Conclusion
CENVAT CREDITS AND PAYMENTS
Introduction
Concept of Input
Concept of Output service
Concept of Capital goods
Concept of Input Service
Exempted Service means
Duties/taxes which can be considered for set off or availing credits
Utilization of the credits
When inputs/capital goods are removed outside the premises
When inputs/capital goods are written off fully
Restriction in case of capital goods
Cenvat Credits – Refund for exporter of service
Rule 6 – Reversal of Cenvat Credit
Documentation work to be done
Concept of input service distributor
Payment of service tax
Recovery of cenvat credit wrongly taken or erroneously refunded
Confiscation and penalty in case of wrong availment of Cenvat Credits
Pointers for Practice
VALUATION UNDER SERVICE TAX
What is the main basis for valuation?
Can the Central Excise Officer question the valuation?
Whether the gross amount charged for the service would include charges reimbursed by the service receiver?
Are there any other specific inclusions and exclusions with regard to amount charged for specific services?
Where during the course of providing service, there is transfer of property in goods, what would be the value?
Value of service portion in the execution of works contract
Determination of value of the service in relation to money changing
Pointers for practice
IMPORT AND EXPORT OF SERVICES
Import of Services
Pointers for practice
DEMAND, APPEALS, RECOVERY AND PENALTIES
Demand & Adjudication:
Appeals
Penalties
REFUNDS AND REBATES
Introduction:
Refund under Section 11B of Central Excise Act, 1944:
Refund of Cenvat Credit under Rule 5 of CCR 2004.
Procedure for filing the refund claim
Procedure for refund of credits u/r 5 of CCR 2004 prior to the 01.04.2012
Refund Under Notification No 41/2012-ST dated 29.06.2012 w.e.f 1.7.2012
Procedure for claiming Rebate
How does the scheme of rebate work?
Rebate of the service tax on taxable services exported
Rebate of the service tax on input services or duty on inputs
PROCEDURES WITH REGARD TO REGISTRATION
When does the service provider require registration under Service Tax?
What is the procedure for registration?
How is centralized registration different?
How to make amendments with regard to changes in particulars?
Service Tax Registration Number
Premise code
PROCEDURE WITH REGARD TO INVOICING
How to raise a proper invoice?
RECORD KEEPING
PAYMENT OF SERVICE TAX
Determination of Point of Taxation
How to pay service tax?
SERVICE TAX RETURNS
How to file the service tax return?
What is the procedure to file the returns online?
SERVICE TAX AUDITS BY PROFESSIONALS
What is required of the auditor?
Pointers for practice
FREQUENT ERRORS COMMITTED IN SERVICE TAX
OTHER MISCELLANEOUS ASPECTS IN SERVICE TAX
Interest and penalty calculations
Provisions as to penalty
Searching of premises by authorized officers
Other recovery provisions
Liability under Act to be First Charge
Offence and penalties
Application of the provisions of the Central Excise Act 1944
SOME OF THE IMPORTANT COMMON SERVICES
Renting of Immovable Property Services
Management, Maintenance or Repair Services
Information Technology Software Services
Goods Transport Agency Services
Works contract service
Supply of tangible goods for use service
Construction of complexes
Business Auxiliary Service
Support services of business or commerce
Sale of goods
Interior decorator
Renting of cabs
Tour operator’s service
Commercial training or coaching
Management or business consultant’s services
Composite services
Health Service
Legal Consultancy service
Brand Promotion service
BIBLIOGRAPHY/REFERENCES/ ACKNOWLEDGEMENTS
APPENDIX
OVERVIEW OF SERVICE TAX
Tax on services has been in vogue in India since 1994 when it was introduced for the first time. When it was introduced initially, there were three services which were liable but over the years various other services have been added to take it to 119 in 2011. This year with the negative list the number of services could be guesstimated to be in excess of 300…
One of the main reasons for the services to be taxed is that the manufacturing sector can be taxed only to a certain extent if we are to ensure the competitiveness of our industry, since ours is no longer a closed economy; all activities are to bear the burden. Services presently forming more than 57 % of the GDP are expected to reach 70% this decade, which should also bear the burden of tax. This tax would be subsumed into the Goods and Service Tax which maybe in place in the next few years.
The levy of service tax was initially under the residuary powers conferred to the Union by entry 97 of List I to the Seventh Schedule to the Constitution of India. Later entry 92C was introduced specifically to cover ‘Taxes on Services’, though not put into effect till date. Unlikely with GST in the horizon.
Constitutional validity and concepts
Whether tax on services is constitutionally valid?
In a number of cases, the constitutional validity of service tax has been questioned and the decisions of the High Courts/ Supreme Court have been in favour of revenue. In Tamil Nadu Kalyana Mandapam Assn Vs UOI((2004) (167) ELT 3) S C,, the levy of service tax on mandap keepers and outdoor caterers was upheld by the Supreme Court as a tax on services and not a tax on sale of goods or hire purchase activities.The levy of service tax on professional services of Chartered Accountant, Cost Accountant and Architect was also upheld by the Supreme Court in All India Federation of Tax Practitioners Vs UOI (2007 (07) STR 625-SC).
In GDA Security Private Ltd., Vs. UOI(2006(02)STR542) it was held by the Madras High Court that the tax on profession was levied in order to allow professionals to carry on a particular profession, trade or calling or employment in a particular state. The aspect of providing a service was held to be different and independent of the aspect of profession and the levy of service tax on security agency was upheld.
This has been the case for the chartered accountants, architects and advertisers also. The question of constitutionality would favour the revenue. As on date, the validity of service tax levy on rental of immovable property is an issue to be decided by the Supreme Court though the Delhi High Court has admitted a writ petition in Home Solution Retail India Ltd Vs UOI (2009-TIOL-196-DEL-HC-ST) challenging the levy of service tax on pure renting of immovable property without there being a service associated with the renting.
The Supreme Court recently upheld the validity of service tax on financial leasing services including equipment leasing and hire purchasein Association of Leasing & Financial Service Company (2010-TIOL-87-SC) and observed that service tax would be payableas there is a rendition of service in financial transactions.
In addition to the above, the other relevant decisions are discussed below where the courts have upheld the validity:
- Addition Advertising Vs UOI 1998 (98) ELT 14: Service tax on advertising service is constitutional and not violative of article 14 and 19(1) of Constitution of India.
- Indian Institute of Architects Vs UOI 2002 (139) ELT 245: Service tax is a tax levied on services and it is not a tax on professionals. Parliament is competent under entry 97 to levy service tax on architects.
- Secretary, Federation of Bus Operators 2001 (134) ELT 618: Tax on service is distinct from tax on profession, trade or calling and not falls under entry 60 of list II. Different aspects are liable for tax.
- LV Sankeshwar 2006 (4) STR 257: Tour operator not to be termed as transferor of right to use vehicles as per article 366(29A) of the Constitution of India. Levy of service tax neither tax on passenger nor goods.
- Infotech Software Dealers Association(2010 (020) STR 0289 Mad): wherein an important decision in the context of taxation of software has been delivered. While holding that software (packaged or customized) is goods, the Court has also upheld the validity of levy of service tax on IT software services.
What is the concept of “service” as understood here?
Assessees should note that in order to attract the levy under service tax law, there should first of all be a service finding a mention in sec 65(105). The concept of “service” though has not been defined for this purpose and one would have to refer the meanings given by dictionary to understand the same or even the word as understood commercially can also be considered. This view has been followed in Bajaj Auto Ltd Vs CCE Pune [1997 (94) ELT 545 (Tri)].
Under the positive list based taxation, the term service was not defined. Under negative list based taxation, wef 1.7.2012, there is a specific definition of term service.
The concept has been explained in the chapter on levy.
What would be the position under law, where service involves goods?
Service tax is a tax on service and not a tax on sale of goods. The various decisions given by the Courts on the constitutional validity of service tax have also clarified his aspect. It has accordingly been held that service tax and VAT are mutually exclusive and the definition of service confirms this. There are notifications issued under service tax providing deduction/abatement in respect of the transfer of property in goods made during the provision of services and this deduction/abatement would be from the gross value charged for the service. The applicability of these notifications would depend on the nature of the services involved and the activities performed. Before opting for the benefit of these notifications, the assessee should ideally perform a cost-benefit analysis as there are associated conditions to be met to claim such deduction.
Governing provisions
The provisions pertaining to service tax are given in Chapter V and VA of Finance Act 1994 as amended from time to time. The Central Government has also been empowered to make rules to carry out the provisions of this Chapter, through section 94 of this chapter. This comes along with the power to grant exemptions from Service Tax u/s 93. The Government has consequently notified various sets of rules, the provisions of which have been explained as we proceed with this book. The rules which may be noted are as follows –
- Service Tax Rules 1994;
- Cenvat Credit Rules 2004;
- Export of Service Rules 2005;
- Service Tax (Registration of Special Category of Persons) Rules 2005;
- Service Tax (Determination of Value) Rules 2006;
- Point of Taxation Rules 2011
- Place of Provision of Services Rules
- Taxation of Services (Provided from outside India and received in India) Rules 2006;Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007;
- Service Tax (Advance Rulings) Rules 2003;
- Service Tax (Publication of Names) Rules 2008;
- Service Tax (Provisional attachment of property) Rules 2008
Levy and collection under earlier service tax law[upto 1.7.2012]
Thelevy of service tax extends to whole of India except that it does not extend to a service provider providing taxable services from the state of Jammu and Kashmir by virtue of section 64 of Chapter V of Finance Act. Under negative list based taxation, the service tax levy is applicable on the services provided in taxable territory of India.