4. Indian Taxation. Service Tax
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4. Indian Taxation. Service Tax

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4. Indian Taxation. Service Tax 4. Indian Taxation. Service Tax Document Transcript

  • INDIAN TAXATION 4. SERVICE TAX (ST) (AN ENGINEER’S PERSPECTIVE) I. INTRODUCTION Service Tax is an Indirect Tax imposed on specified services (refer to the list of specified services in Section VII of this note). Service Tax is imposed on all States and Union Territories of India except State of Jammu and Kashmir. With effect from 1 st April, 2011 Service Tax is levied as per the ‘Point of Taxation Rule’ i.e. on date of issue of invoice or date of receipt of payment whichever is earlier. Moreover, if the invoice is not issued within 14 days after completion of the services, date of completion shall be the point of taxation. As per the Budget 2012-2013 Service Tax is declared as 12% plus Education Cess of 2% on Service Tax and Secondary and Higher Education Cess of 1% on Service Tax making total as 12.36%. II. REGISTRATION The modalities of levying the Service Tax are by the Central Govt. of India and collection of the proceeds thereof is by the Central Govt. and the State. Under section 69 of Finance Act 1994, all service providers liable to pay Service Tax have to register with the Service Tax Department. If the turnover of service provider exceeds the stipulated limited of ` 10.0 Lacs in the previous or the given financial year, then there is liability towards registration with the Service Tax Department and payment of Service Tax. III. INVOICING BY THE SERVICE PROVIDER  Invoice means invoice referred to in Rule 4(A) of the Service Tax Rules, 1994 and shall include any document as referred.  Every service provider offering taxable services is required to issue invoice within a period of 30 days (in case of banking companies, 45 days) of such taxable services or on receipt of payments towards such taxable services.  Invoice should contain the following:  Name, Address and the Registration Number of the service provider  Name and Address of the receiver of service  Service tax payable thereon  Signed by authorized person  Serially numbered However, the format of invoice may vary a bit as per the category of service provider which is elaborated in Rule 4(A) of Service Tax, Rule 1994. IV. RECORDS TO BE MAINTAINED UNDER SERVICE TAX Records maintained shall be acceptable to Central Excise Officer. Every assessee is required to furnish to Central Excise Officer at the time of filing his return a list in duplicate of the following:  Providing of Services  Receipt of Input Services  Payment of Input Services  Receipt/ Purchase/ Manufacture/ Storage/ Sale or Delivery as the case may be, in regard to inputs and capital goods  Manufacture or sale of goods  All other financial records maintained in course of business All such records shall be preserved at least for 5 years. V. VALUATION OF TAXABLE SERVICE Summary of Service Tax (Determination of Value) Rules, 2006 (Source: http://www.servicetax.gov.in/value-rules.htm) Refer to section VI Cenvat Credit on Works Contract Service for a more simplified explanation after completing this section. Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of Works Contract Service shall be determined by the service provider in the following manner:  Value of Works Contract Service determined shall be equivalent to the gross amount charged for the Works Contract Service less the value of transfer of property in goods involved in the execution of the said Works Contract Service.  Explanation  Gross amount charged for the Works Contract Service shall not include Value Added Tax (VAT) or Sales Tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said Works Contract Service.  Value of Works Contract Service shall include the following: 1. Labour charges for execution of the works 2. Amount paid to a sub contractor for labour and services 3. Charges for planning, designing and architect’s fees 4. Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the Works Contract Service 5. Cost of consumables such as water, electricity, fuel, used in the execution of the Works Contract Service 6. Cost of establishment of the contractor relatable to supply of labour and services 7. Other similar expenses relatable to supply of labour and services 8. Profit earned by the service provider relatable to supply of labour and services  Where Value Added Tax (VAT) or Sales Tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in the execution of the Works Contract Service, then such value adopted for the purposes of payment of Value Added Tax (VAT) or Sales Tax, as the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of Works Contract Service.  Payment of Service Tax on Works Contract Service under composition scheme   Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006, makes provision for valuation of Works Contract Service under composition scheme. Under Composition Scheme, Service Tax is payable at a specified percentage of ‘total amount’ .i.e. total value of Works Contract Service including value of free material supplied by customer either under same contract or under different contract. The percentages on which the Service Tax shall be charged under composite scheme w.e.f. 08/05/2013 are as follows: 1 Original works (i.e. new construction, erection, commissioning, installation) 40% 2 Maintenance or repair or reconditioning or restoration or servicing of any goods 70% 3 Other Works Contracts (other than 1 and 2 including 60% maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings) of an immovable property 4 If Construction Contract is for residential complex (need not be Works Contract Service) includes value of land plus (a) the carpet area of residential unit is less than 2,000 Sq. Ft and (b) the amount charged for residential unit is less than Rs one crore (Abatement scheme under Sr No. 12(i) of Notification No. 26/2012-St dated 20-6-2012 as amended on 1-3-2013). Note that 25% rate applies when both conditions are fulfilled 25% 5 If Construction Contract (need not be Works Contract Service) includes value of land and (a) the carpet area is 2,000 Sq. Ft or more or (b) where the amount charged is Rs one crore or more (Abatement scheme under Sr No. 12(ii) of Notification No. 26/2012-St dated 20-6-2012 as amended on 8-5-2013). Note that 30% rate applies even if one of the conditions is satisfied 30% 6 If Construction Contract (need not be Works Contract) is for industrial or commercial construction and includes value of land (Abatement scheme under Sr No. 12(ii) of Notification No. 26/2012-St dated 20-6-2012 as amended on 1-3-2013) 30% Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • VI. CENVAT CREDIT ON WORKS CONTRACT SERVICE Background of Service Tax on Works Contract Services (A more simplified explanation to section V Valuation of Taxable Services)  Works Contract Service is composite contract of goods and services. Sales Tax (VAT) is imposed on value of goods involved in Works Contract and Service Tax is imposed on value of services. In this regards:  Service portion in the execution of a Works Contract Service is ‘declared service’. Tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a Works Contract Service is ‘deemed sale of goods’. Such ‘deemed sale of goods’ has been excluded from definition of ‘service’.  For the purpose of Service Tax, the term ‘Works Contract Service’ has been defined as follows:  ‘Works contract’ means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. Cenvat Credit  The assessee can avail Cenvat Credit of Input Services and Capital Goods.  Pay Service Tax under rule 2A(ii) ‘Composition Scheme’ on 40%, 60%, 70% of total value of Works Contract Service. The assessee can avail Cenvat Credit of Input Services and Capital Goods. The 25%, 30%, 40%, 60%, 70% of value is value of service. The balance amount (on which Service Tax is not paid) shall be deemed to be value of ‘Exempted Goods’. In effect, the assessee can avail only 25%, 30%, 40%, 60%, 70% of Cenvat Credit of common Input Services and balance Cenvat Credit is required to be reversed. VII. RESTRICTIONS ON AVAILING CENVAT CREDIT ON WORKS CONTRACT SERVICE  In case of Works Contract Service (and also service of construction of residential/commercial flats and buildings), Cenvat Credit of Service Tax paid on Input Services and Excise Duty paid on Capital Goods will be available. However, Cenvat credit of input goods is not available in respect of construction of residential complex or commercial/industrial building where land price is included, whether or not transaction is covered under Works Contract Service. It is made clear that Cenvat Credit cannot be availed of Excise Duty paid on goods say building material like cement, steel, tiles, fittings etc., the property of which is transferred to customer.  Value of Works Contract Service not of composite nature is exclusive of VAT/Sales Tax payable by service provider (which is deemed as sales of goods), hence there is no question of Cenvat Credit in case of VAT/Sales Tax on value of services. However, the Cenvat Credit can be availed under Input Tax Credit.  Value in case of trading - As per Explanation I(c) to rule 6(3D) of Cenvat Credit Rules, in case of trading, ‘Value’ for purpose of rule 6(3) and 6(3A) of Cenvat Credit Rules shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted accounting principles without including the expenses incurred towards their purchase) or 10% of cost of goods sold, whichever is more.  The provider of taxable service shall not take Cenvat credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of Cenvat Credit Rules. Summary of Cenvat Credit  100% Cenvat Credit can be availed in case of Excise Duty paid on capital goods.  100% Cenvat credit can be availed in case of Service Tax paid on Input Services used exclusively for providing output (taxable) services.  In case of common Input Services covered under ‘Composite or Abetment Scheme’, on the basis of constitutional deeming provision, it can be argued that only difference between sale price and purchase price should be taken as value of exempted services and then rule 6 should apply. VIII. GENERAL EXPEMTION FROM SERVICE TAX  Export of Services  Services to United Nation Agencies  Service providers within Special Economic Zone (SEZ)  Service provided to Foreign Diplomatic Missions, family members of the Diplomatic Missions  Services provided by the Reserve Bank of India  Service providers with turnover less than ` 10.0 Lacs in the last or a given financial year Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • IX. LIST OF TAXABLE SERVICES (Source http://tax-india.com/service-tax/list-of-taxable-services-in-india/) Service Tax Profiles (in alphabetical order) S.No Service Category 1 Advertising Agency Service 2 Advertisement- sale of space or time services 3 Air travel agent’s services 4. Airport services 5. Architect’s Services (http://www.servicetax.gov.in/st-profiles/architet-sevice.htm) 6. Asset Management Services By Individuals 7. ATM operation, maintenance or management services 8. Auction Service 9. Authorised Service Stations for motor vehicles servicing or repairs 10. Banking and other financial services 11. Beauty treatment Services 12. Brand Promotion Services 13. Broadcasting Services 14. Business Auxiliary Service 15. Business Exhibition Service 16. Business Support Service 17. Cable Operator’s services 18. Cargo handling Services (http://www.servicetax.gov.in/st-profiles/cargo-handling.htm) 19. Chartered Accountant’s (practising) services 20. Cleaning Services 21. Clearing and forwarding agent’s services (http://www.servicetax.gov.in/st-profiles/clearingfwding-agent.htm) 22. Clearing & processing house services 23. Club’s or Association’s membership services 24 Commercial training or coaching services 25. Commercial use or exploitation of any event service 26. Commodity exchange service (http://www.servicetax.gov.in/st-profiles/commdtyexchange.htm) Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • 27. Company secretary’s (practicing) services 28. Construction of residential complex service (http://www.servicetax.gov.in/stprofiles/constructn-res.complex.htm) 29. Construction or renovation of commercial / industrial buildings / pipelines / conduits services (http://www.servicetax.gov.in/st-profiles/constructn-comml-indus.htm) 30. Construction Services – Preferential Location and Development (http://www.servicetax.gov.in/st-profiles/constructn-pref-loctn-dev.htm) 31. Consulting engineer’s service (http://www.servicetax.gov.in/st-profiles/consulting- enggr.htm) 32. Convention services 33. Copyright Services 34. Cosmetic or Plastic Surgery Service 35. Cost accountant’s (practicing) services 36. Courier Services 37. Credit card, debit card, charge card or other payment cards related services 38. Credit rating agency’s services 39. Custom house agent’s services (http://www.servicetax.gov.in/st-profiles/cus-hse-agent.htm) 40. Design services (http://www.servicetax.gov.in/st-profiles/design-services.htm 41. Development & supply of content for telecommunication, advertising and on-line information services 42. Dredging services (http://www.servicetax.gov.in/st-profiles/dredging-services.htm) 43. Dry cleaning services 44. Electricity Exchange services 45. Erection, commissioning or installation service 46. Event management Service 47. Fashion Designer Service 48. Foreign Exchange broking services 49. Forward Contract Service 50. Franchise Services 51. Health club and fitness centre services 52. Health Services Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • 53. Information Technology software services 54. Insurance auxiliary services concerning general insurance business 55. Insurance auxiliary services concerning Life Insurance business 56. Insurance business services (General Insurance) 57. Insurance business services (Life Insurance) 58. Intellectual property services 59. Interior decorator’s services 60. Internet café’s services 61. Internet telecommunication services 62. Investment management service under ULIP 63. Legal consultancy services 64. Lottery and other Games of Chance Services 65. Mailing list compilation and mailing services 66. Management or business consultant’s services 67. Management, maintenance or repair services for goods, equipments or properties 68. Mandap keeper’s services 69. Manpower recruitment or supply agency’s services 70. Market research agency’s services 71. Medical records maintenance service 72. Mining service 73. On-line information and database access and/or retrieval services 74. Opinion poll service 75. Outdoor caterer 76. Packaging services 77. Pandal or shamiana services 78. Photography services 79. Port services by major ports 80. Port services by other ports (minor ports) 81. Programme (T. V. or Radio) services 82. Public Relation Service Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • 83. Rail travel agent’s services 84. Real estate agent’s services 85. Recovery agent’s services 86. Registrar to an issue services 87. Rent-a-cab services 88. Renting of immovable property services 89. Scientific or Technical Consultancy Services 90. Security agency’s services 91. Share transfer agent service 92. Ship management services 93. Site formation and clearance, excavation and earthmoving and demolition services 94. Sound recording services 95. Sponsorship service 96. Steamer agent’s services 97. Stock broking services 98. Stock exchange service 99. Storage and warehousing services 100. Supply of tangible goods services 101. Survey and exploration of mineral services 102. Survey and map making services 103. Technical inspection and certification services 104. Technical testing and analysis services 105. Telecommunication services 106. Tour operator’s services 107. Transport of coastal goods and transport of goods through national water way/inland water service 108. Transport of goods by air services 109. Transport of goods by road 110. Transport of goods by rail service 111. Transport of goods through pipeline / conduit services Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com
  • 112. Travel agent’s (other than air or rail) services 113. Travel by air services 114. Travel by cruise ship service 115. Underwriters services 116. Video tape production services 117. Works contract Services Prepared by Divyanshu Dayal. Information for Purchase Manager. dayal1005@gmail.com