What is Service Tax?• It is a type of indirect duty levied on particular services that arecategorized as taxable services. The responsibility of paying this kindof levy lies on the service provider. This duty cant be levied onservices that are not included in the specified list. Over last one or twoyears, the domain of service tax been broadened to include newservices.• The goal behind imposing service tax in India is to lower the extent ofconcentration of taxation on business and industry without compellingthe government to find the middle ground on the revenuerequirements
Why service tax?• Services constitute a very good spectrum ofeconomic activities.• The share of the services sector in the realGDP s higher than agriculture and industrialsector.
Why service tax needed?• With the increasing role of service sector and itscontribution to GDP, the government felt that thissector should not be untaxed• This decision also make tremendous revenuepotential to the government• It is expected that in due course, service tax would bereduce the tax burden on international trade anddomestic manufacturing sector• So a planned growth of service tax would becommensurate with the goals of economic utilizationand globalization
Beginning• Service tax in India made a humblebeginning from 1stJuly, 1994 with only threeservices being covered in the organizedsector like telephone, general insurance andstock broking.
Different approaches to Service tax• There are two approaches to service tax Comprehensive approach: All services are taxable and anegative list is specified for services, which are not taxable Selective approach: Only selective services are subjected toservice tax. India follows the selective approach of taxing selectedservice only.• Service tax is levied on the specified service and is paid by theservice provider except in a few cases when the service receiverpays it• The liability to pay service tax is there even if it is not collectedfrom customer• Central board of excise & Customs (CBEC) regulates service taxmatter
What is nature of Service Tax?• Service tax is a tax on service.• Service means value addition to a product that is intangible• If there is no service, there is no tax.• There is no service tax act; service tax is imposed by amendingchapter V of finance act 1994 from time to time.• There is also no provision of deduction of tax at source fromservice tax• For charge of service tax, one has to know– What is taxable service and,– Value of service.• Service tax is payable only and only on taxable service.
Different features of service tax• Indirect tax• No separate act– Central govt. has power to make rules to carry out ST act• Administrated by CBEC• Uniform rate– 12% Service tax + 2% EC + 1% SHEC = 12.36% actually• No double taxation– Service falling under two or more sub clauses can’t taxed twice• Not applicable in Jammu & Kashmir• Chargeable on taxable service• Small service provider excluded– A threshold limit of ` 10 lakh has been provided• Taxable service/value– Taxable service and value have been specially defined• Tax is generally payable by service provider• Self assessment• Exemption by notification– Power have been given to government to exempt from service tax in appropriate cases by special notification• Voluntary compliance– There is reliance on collection of tax primarily through voluntary
How to define extent & application(Sec. 64)• Service tax introduced by virtue of chapter V of the finance act 1994,extends to the whole of India except to the state of Jammu and Kashmir• Service provided in the state of Jammu and Kashmir from any otherstate are not subject to service tax. However service provided fromJammu and Kashmir to other state are subject to service tax• Service provided beyond the territorial waters of India were not liable toservice tax provision but under a notification issued in 2002, the servicetax provisions have been extended to designated areas in thecontinental shelf and exclusive economic zones of India. The exclusiveeconomic zone extends up to 200 nautical miles inside the sea frombase line.• Service provided within the territorial water of India are subject toservice tax in the same way as services provided in India are taxable.• India includes territorial waters extended up to 12 nautical miles fromthe Indian land and mass
What is basis of charge of service tax?• The rate of service tax is applied on the valueof taxable services provided or to beprovided• There is a uniform rate of service tax on allservices currently it is 12.36% (12 + 3% of 12)• The cess paid on input services is allowed ascredit for payment of cess on outputservices.
How to find out valuation of taxable service?• The consideration for a taxable service shall bethe gross amount charged by service providerfor the service provided or to be provided.• Consideration in terms of money: gross amt.charged by service provider• Consideration is not in terms of money: thevalue of taxable service shall be the amount ofmoney as with addition of service tax charged, isequivalent to consideration
How to find out valuation of taxable service?(Cont…)
Computation of service tax• Find out value of taxable service• 12.36% value of taxable service is thequantum of service tax• Again the tax liability calculated & step no. 2,one can claim credit for service tax paid oninput service subject to a few condition.
Partial abatement of service taxService Who can takebenefitRate Is it optionalAir travel agent Person liable forpaying service taxin relation toservice provided byan air travel agent0.6% - domesticbooking1.25% -internationalbookingIf ones this potionselect than, Itcharged for awhole FY and for allbookings.Life insurance Policy holder 1% of grossamount ofpremiumOnly for risk coverpremiumPurchase or sale offoreign currency,money changerAuthorized moneychanger or foreignexchange broker0.25 % of grossamount of currencyexchanged Works contract Person liable to payservice tax4 % gross amountcharged for workcontractIf one exercise itshall be applied forentire contract.Partial abatement available vides notification no. 1/2006:- 1stmarch, 2006 service tax abatement is availablein some cases. However service tax provider cannot take CENVET credit of such duty/tax on inputs. Inputservice & Capital goods used for providing such taxable service
IllustrationIn Particular service 70% gross amount is chargeable for service taxParticular A Ltd. B Ltd.Gross amount charged (a) 18,00,000 25,00,000Value of Capital goods used (b) 15,00,000 4,00,000Balance (a) - (b) = (c) 3,00,000 21,00,000Normal Service tax (c) x 12.36% 37,080 2,59,560Service available on abetment (a) x 70% x 12.36% 1,55,736 2,16,300Service tax available whichever Is lower 37,080 2,16,300
How service tax is paid• Service tax is payable on receipt basis. As is an indirecttax, it s payable by the service provider but it is recoveredfrom recipient of service• Credit for Input Service– Output and input service fall within the same category• Registration– Person liable to pay service tax is required to register.– In case of non-resident, who do not have office in India butliable to pay service tax in India, this burden of shifted torecipient of service• Payment Schedules of service tax– Every person providing taxable service is liable to pay servicetax to the central government
ExceptionsNotified service Person liable to payingTelecommunication Director general of post & TelegraphMTNL chairmenAny person who granted license by Govt.for serviceGeneral Insurance business Insurer or reinsurance providing suchserviceInsurance auxiliary service provider by aninsurance agentPerson who carrying general insurancebusiness or life insurance businessService provided by any person from acountry other than indiaRecipient of such serviceService I relation to transport of goods byroad in a goods carriageAny person who pays or liable to payfreight either himself or through hisagent.Sponsorship Service Who receive such sponsorship service
Registration Requirements• The following person must– Person liable to pay service tax– Input service distributor :- head office– Every provider of taxable service whoseaggregate value of taxable service in a FYexceeds ` 9.00 Lakh
Form of ApplicationThe application for registration is required to be made in duplicateform ST-1 with•A copy of PAN•Proof of address•Constitution of applicant (Partnership Deed, AOA, MOA)Time limit for making applicationParticular TimePerson who liable to pay service tax Within 30 days from the date on whichcharge of service tax is bought into forceInput Service distributor Within a period of 30 days of thecommencement of business or 16th June2005 whichever is laterSmall Service Provider Within a period of 30 days of the date inFY on which the aggregate value ofservice exceeds Rs. 9 Lakh
Time limit for granting registration• The department is required to issuethe registration certificate in formST-2, within 7 days of the receipt ofthe application• In case failure to issue certificateassessee can carry his activities witha “deemed” registration.Centralized registration ProcessCentral office or premises registered if accountingis centralized.Particular SituationWhen more than oneservice is providedSingle application issufficientWhen information is tobe change or addedWriting an application toassistant of CBSE within30 days of such changeWhen assessee stop toprovide taxable serviceSurrender theregistration certificateimmediatelyTax to be pain on amountsactually received• Service provider charges service tax on the amount ofbill raised on his client, service tax is payable to thegovernment on the amount actually received towardsvalue of taxable service.• It is thus, not payable on amount charged in theBills/Invoice but on the amount actually receivedNo Service tax on freeservice– If service is given free of chargethan service tax is not payable.
Payment of service tax if notcollected from the clientService tax on paymentsreceived in advance Service tax is payable as soon as advance is received evenif service I provided later If when service is not taxable at the time of receipt ofadvance but become taxable at the time of providingservice than advance received is apportioned betweentwo periods (When Service was not taxable and becometaxable) and tax is paid on the part of service which isprovided on or after the service becomes taxable If advance is received but no service provided thanService tax paid in advance shall be refunded. Payment of service tax collected in excess to be paid tothe central government.Due date for payment of Service taxIndividual Proprietary, PartnershipFirmAny Other (Corporate Assessee)Quarter E-payment Due Due Date Month E-payment due Due date1st Apr. to 30th Jun 6th July 5th July April 6th May 5th May1st July to 30th Sep 6th Oct 5th oct May 6th Jun 5th Jun1st Oct to 31st Dec 6th Jan 5th JanService Tax = Gross Amount Charged x 12.36100 + 12.36Valuation of Service Tax = Gross Amount Charged x 100100 + 12.36
Manner of Payment fo Service tax• Assesses has to pay service tax in the bank designated by CBEC in formTR-6, or any other manner is prescribed by CBEC.• Form TR-6 is yellow in colour.• Multiple service providers can use a single TR Challan.• E – Payment of Service Tax– GR – 7 challan used instead of TR-6 Challan– From 1stJanuary 2006. In case of assesses who paid service tax of Rs. 50 Lakhor more in the preceding FY have already paid during current year mustmake payment through E-payment• Payment By Cheque– The cheque should be deposited with the designated bank on or before thedue date• Rounding off– Includes 50 paisa or more rounded off to Rs.1– Less than 50 paisa ignored
Adjustment of Service Tax• When no service is provided– Service provider can adjust the excess service tax paid by hm against his service tax liability for thesubsequent period if the following two condition are satisfied• Assesses has no rendered service wholly or partly• Value of taxable service along with service tax has been refunded by the service provider• When excess amount of service tax is paid for other reason– A assesses is allowed to adjust the excess service tax paid by him for the subsequent period. Witeffect from 1stmarch 2007.– Self adjustment facility has been extended to all assesses subject to following condition• If adjustment are other than interpretation of law, taxability, classification, valuation on applicability of anyexemption notifications• Adjusted amount should be made only in succeeding month/Quarter.• Adjustment amount should not exceed Rs. 1,00,000 for the relevant month/Quarter• The detail of self-adjustment should be intimated to officer within a 15 days from the date of adjustment.– Centralized registration can adjust the excess service tax paid without any monetary limit
Provisional Payment of Service tax• If assesses is unable to correctly estimate the amount of taxpayable by him, he can request in writing to the commissioner ofCBSE for payment of service tax on provisional basis• In such cases, the assesses has to submit a memorandum in formST-3A giving detail of difference between service taxes depositedand service tax to be paid for each month/Quarter.Interest on Late payment of service tax(Sec.75)• If the service tax is paid after the due date, simple interest is paid at13% for late payment• Interest is paid for the period of delay not for the whole month.• Period of delay is counted from the first day after the due date till theactual payment of service tax is made.• If delay s for 10 days than interest is paid for 1 days only.
General exemption from service tax(Sec. 93)• The central government can grant total or partial exemptions to taxable services following are general exemptions……..• Services provided by united nation or an in international organizations• Service provided to developer or units of special economic zone– The central government has granted full exemption to the service provider who provided taxable service to a developer of SEZ– He exemption is granted subject to the following condition The developer has been approved by the board The unit of SEZ has been approved by the development commission of SEZ The developer or unit of SEZ shall maintain proper account of receipt & utilization of the said taxable services• Goods & materials sold by service provider to recipient of service– If provider sold goods than that amount is not included in the taxable service amount– The sale value of goods and material sold as a part of service must be shown separately in the bills raised on the recipients.• Exemption for small service provider– The service provider whose turnover is less than 10 lakh in the previous year will be exempt from service tax up to ` 10 lakh in next FY• Service provided by reserve bank of India• Exemption to technology business Incubator, Science and Technology Entrepreneurship park (STEP) and Incubates– STEP – Software developer Company– Incubates - Who help for development of IT– Exemption is granted to incubates subject to following condition Incubates should be located within the premises of the incubator Total business turnover of incubates entrepreneurship does not exceed ` 50 Lakh during the preceding financial year. The exemption is avail to incubate for a period of 3 year.• Services provided by a digital cinema service provider. If service rendered by satellite, microwave or global communication line that’s only exempt but physical means including CD/DVD that’s notexempt.• Service provided by Residential welfare association– Monthly contribution does not exceed Rs. 3000/Month• Drug & Medicine Produces
What is Provisions Pertaining to returnsFurnishing of returns: Who paid tax are must file the returnForm of Return: ST-3Periodicity for filing return: Half year basis – April to SeptemberOctober to MarchDue dated for filing return•1stApril to 30thSep. – 25thOct is Due Date•1stOct. to 31stMar. – 25thApril is Due Date•If the 25thApril or 25thOct. is a public holiday, than filled on the immediately succeeding working day.Contents of Return•Half Year Period detail•Name of the Assesses, Registration No.•Category of Taxable ServiceDocuments submitted along with return•Copies of TR-6 challan indicate payment of service tax for Month/Quarter•Memorandum in form ST-3A (in case of Provisional Assessment)First Return: At first time furnish all the accounts which maintained by assesses are inform to the officerReturn when no service provided: Must file a NIL returnReturn in case of multiple service: Service wise detail should be given in the return instead of Single figureRevised Return: According to Rule 7B of Service tax rules it allows to assesses to rectify mistakes and file a revised return in form ST-3, in triplicate within90 days from the date of filing the original returnE-Filing of return: Assesses should have a 15 digit STP code for e-filingPenalty for late filing of return: Overall maximum limit is Rs. 2000Delay PenaltyUp to 15 Days `. 50015 to 30 Days ` 100031 Days and On ` 1000 to ` 100/day from 31st day onwards but the total penaltycan not exceed ` 2000
When Person is liable for penalty underService TaxParticular PenaltyFor non-Payment or Late Payment ` 200/Day during which failure contains Interest s charge 2%/Month which thefailure containsWhichever is higher is selected but the penaltycannot exceed the amount of service taxwhich was payable. penalty can be waivedor reduced if proper cause is shownPenalty for non-Obtain RegistrationFor not furnishing required information ` 5000 or ` 200/Day whichever is higherFor non maintenance of books of account anddocuments. For Failure to pay tax electronicallywhen required. Penalty for issuing incorrectinvoice.Liable to penalty which may extent to ` 5000Other Points:•Interest and penalty paid within 30 days from the date of communication of order of thecentral excise officer. The amount of above penalty shall be 25%•If this penalty is payable, penalty for non-payment or late payment service tax can not beimposed.
What is a role of CharteredAccountant?• Advising Clients• Procedural Requirements• Personal representation– Appear before the assessment authority forappeal• Certification and Audit• Constant updating of Law and Provisions
Challenges before the Service taxadministration in India• Service tax is said to be the tax of 21stcentury because of its potential to raiserevenue for the government it is open for a number of challenges.• A few of them are related to the nature and growth while others to proceduralaspects of the service tax collection.• In order to speed up and smoothen the service tax administration in India, it isrequired that exists a separate legislation along with distinct mechanism thatexclusively looks after collection of Service tax• A separate legislation would bring greater clarity in service tax procedure andpromote govt. revenue from tax collection along with tax environment• The twin goal of revenue maximization introduction of the culture of voluntarytax compliance also throw up major challenge before the service taxadministration in the country.• Services are by nature, intangible & Spread across the nation in both organizedand unorganized sector.• Service provides in all sectors cannot easily identified & Brought under the TaxNet• Some services are provided by people with low education level who can noteasily follow the tax administration provision.
Taxable ServicesCommercial training and coaching services• Shall mean any service provided orto be provided• To any person,• By any institute or establishmentproviding commercial training orcoaching• For imparting skill or knowledge orlessons• On any subject or field,• Whether with or without issuance ofa certificate, and• But it includes1. Coaching or tutorial classes2. Computer training institute1. Commercial trainingand coaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineer services5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibition services8. Mandap keeper’s services
Commercial training and coachingServicesTaxable:√Not Taxable: ×Sports coaching ×Preschool coaching (Nursery or Play group) ×Certificate course by recognised institute ×Degree course by recognised institute ×Coaching at residence of service recipient ×Training to employee ×Vocational trainingProvided by central affiliated to NCVT ×Other than above √Not for profit organisation √Postal coaching √
Taxable ServicesPracticing Chartered Accountancy ServicesAny service provided (or to beprovided) to person, by a practicingchartered accountant in hisprofessional capacity in any manner, istaxable service. Individual/ Proprietor/Firms providing this service shallcontinue to pay tax on receipt basis.1. Commercial training andcoaching services2. Practicing CA’sservices3. Information Technologyservices4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Practicing Chartered AccountancyValue of Taxable Services:Service tax is payable on the amount received for theaforesaid services (excluding exempt services).However, service tax is not payable on charges whichrepresent cost of goods sold by service provider.Moreover, expenses (which are a liability of the servicereceiver) incurred by the practicing charteredaccountant and later on recovered from the servicereceiver, are not subject to service tax.
Taxable ServicesInformation Technology ServicesInformation technology softwaremeans any representation ofinstructions, data, sound or image,including source code and objectcode, recorded in a machine readableform, and capable of beingmanipulated or providing interactivityto a user, by means of a computer oran automatic data processing machineor any other device or equipment.1. Commercial training andcoaching services2. Practicing CA’s services3. InformationTechnology services4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Information TechnologyServicesImportant points:• Only customized software is covered. Packaged software sold off the shelf is leviableto excise duty. However in some cases here is an exemption granted from excise /customs duty for part of the value of the packaged software. Such value which isexempt from excise would be liable for service tax.• Packaged or Canned software intended for single use and packed accordingly is notliable to service tax if following conditions are satisfied Document providing the right to use is packed along with software Importer has paid appropriate customs duties The manufacturer/ duplicator/ the person holding the copyright to software haspaid the excise duty on the entire amount received from the buyer.• Services provided in relation to Information Technology (IT) software, such asdevelopment, designing, programming, up-gradation, providing advice, consultancyand assistance on the mattes of IT software and providing right to use IT software,whether supplied on a media or electronically, were brought in the ambit of Servicetax. However, taxable only when the receiver of service exploits them for commercialor business purposes.
Taxable ServicesConsulting Engineering ServicesAny service provided (or to be provided) toany person, by a consulting engineer inrelation to advice, consultancy or technicalassistance in any manner (in one or morediscipline of engineering including thediscipline of computer hardware engineering)is a taxable service. Services provided by aconsulting engineer in relation to advice,consultancy or technical assistance in thedisciplines of both computer hardwareengineering and computer softwareengineering shall also be classifiable under“consulting engineer’s services”.1. Commercial training andcoaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Consulting Engineer ServicesDiscipline of Engineering• Industrial engineering• Mechanical engineering• Aerospace engineering• Computer engineering• Electrical engineering• Metallurgical engineering• Chemical engineering• Civil/environmental engineering• Agricultural engineering• Aquaculture engineering• Architecture engineering• Automobile engineering• Aviation engineering• Electronics engineering• Environmental engineering• Fabrication engineering• Geotechnical engineering• Hydraulic engineering• Marine engineering• Mining engineering• Telecommunication engineering• Biotechnology engineeringValue of ServicesService tax is payable on the amount received for the aforesaid service. However, service tax is not payable on charges whichrepresent cost of goods sold by service provider. Moreover, expenses (which are the liability of the service receiver) incurred bythe service provider and later on recovered from service receiver, are not subject to service tax.Important Points• Service provided by unqualified engineers cannot be taxed under “consulting engineer’s services.• Service provided by a person who is holder of certificate from an industrial training institute run by Ministry of Labour andRehabilitation, cannot be taken as service provided by consulting engineer.• It is not necessary that the concern rendering service should be a commercial concern.• Research & Development Cess (Cess payable on import of technology) is allowed as deduction from value of taxableService provided.
Taxable Services1. Commercial training andcoaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineerservices5. Scientific andTechnicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Scientific or Technical ConsultancyClarification/Explanation• Consultation may be in nature of an expert opinion/advice.• Service tax will be payable by public funded research institutions likeCSIR, ICAR, DRDO, IIT, IISc, Regional Engineering Colleges, etc.• Service tax will be payable even if consultancy is provided toGovernment Department for which consultation fee is received.• In case of Scientific or Technical Consultancy Services, Point of TaxationRules, 2011 provides that services shall be deemed to be provided onthe date of receipt of amount (i.e. service tax shall be deposited onreceipt basis and not on accrual basis).ExemptionsBy doctors, medical colleges, nursing homes, hospitals,diagnostic and pathological labs, etc. as in common parlancethey are not known as scientists, technocrats, etc.
Taxable Services1. Commercial training andcoaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Technical testing and analysisClarification/ExplanationIncludes testing and analysis undertaken for the purpose of clinical testing of drugsand formulations; but does not include testing or analysis for the purpose ofdetermination of the nature of diseased condition, identification of a disease,prevention of any disease or disorder in human beings or animals. (i.e. medicaltesting & diagnosis has been excluded from service tax)Exemptions• Clinical testing of newly developed drugs• Testing & analysis services provided in relation to water quality testing byGovernment owned State & District level laboratories• Testing & analysis of seed done by Central or State Laboratory and Central orState Certifying Agency.• Any testing or analysis services provided in relation to human beings or animals
Taxable Services1. Commercial training andcoaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’s services
Business exhibition servicesClarification/ExplanationBusiness exhibition service is a service rendered to an exhibitor by an organizer of a business exhibition that intends to market,promote, advertise or show case products or services for growth services. Thus, organizers of events such as trade fairs, roadshows, fashion shows, display showcases kept in airports, railway stations, hotels etc. would be covered under this new levy. Adisplay of consumer goods in shops or shopping centres for customers to select and purchase would normally not attract anyService Tax, as normally no separate charges are collected by the shop-keepers for displaying such goods. However, in case anamount is collectzed for merely displaying an item, the same would be chargeable to Service Tax.Exhibition Service vs Event Management ServiceOrganizers of Trade Fairs and Exhibitions solicit participation from the trade and industry and provide space and otherfacilities, including furniture, cabins, security, electricity, etc., to display products and provision of services. Whether servicesprovided by the organizers of trade fairs/exhibitions are covered within the scope of event management service? Trade fairsand exhibitions are organised by persons. Such organisers of trade fairs and exhibitions provide services to exhibitors inrelation to business exhibition. Services provided by an organizer of trade fairs and exhibitions to an exhibitor in relation tobusiness exhibition is liable to Service Tax under “Business Exhibition Service” In addition, an organiser of the trade fair orbusiness exhibition may engage an event manager to provide service to the organizer in relation to organising trade fairs andexhibitions. In such cases, the event manager renders the service of “Event Management” to the organisers and is liable to payService Tax under “Event Management Service”. The two services, namely “Business Exhibition Service” and “EventManagement Service”, and the two service providers of the respective services are distinct.ExemptionsServices provided by an organiser of business exhibition for holding a businessexhibition outside India.
Taxable Services1. Commercial training andcoaching services2. Practicing CA’s services3. Information Technologyservices4. Consulting Engineerservices5. Scientific and Technicalconsultancy services6. Technical testing andanalysis services7. Business exhibitionservices8. Mandap keeper’sservices
Mandap Keeper’s servicesClarification/Explanation Dance, drama or music programme or competitions are social functions and allowingtemporary occupation of a hall for a consideration for organizing such functions are liableto service tax under Mandap Keeper Service. Halls, rooms etc. let out by hotels/restaurants for a consideration for organising social,official or business functions are covered within the scope of “mandap”, and such hotelsand restaurants are covered within the scope of “mandap keeper”. Accordingly, service tax is leviable on services provided by hotels and restaurants in relationto letting out of halls, rooms, etc. for organizing any official, social or business functionunder mandap keeper service. Political meetings, film shooting are not social function and hence not taxable. Renting of art gallery will get covered under Business Exhibition Service. It also includes the following:• Kalyana mandap or marriage halls• Banquet halls, Barat Ghar• Conference halls etc• Hotels and restaurants providing any such service for organising any social, official orbusiness function (mere reservation of seats not taxable)
Mandap Keeper’s servicesClarification/Explanation (Cont…) Services of letting out of boats for organizing boat parties or events would not be liable toservice tax being boat is not an immovable property. Any sports stadium or Gymkhana let out their premises for a consideration for holdingofficial, social or business functions would fall within the purview of Mandap. The renting of Banquet halls for conducting the Seminars/conferences would fall within theambit of the definition of the taxable service provided by a Mandap Keeper as suchseminars/conferences are considered as official/business function. Mandap let out for stay of “Barratis” for a consideration would attract Service Tax, as“Barratis” is a part of marriage, which is a social function. Letting out of school/college building or open land for marriage function, which is also asocial function, would attract Service Tax. Open land /ground is to be treated as an “immovable property” as per the definition givenin section 3 of Transfer of Property Act, 1882 and hence the above premises let out forconsideration will fall under the category “Mandap” for the levy of Service Tax. Screening of feature films in cinema theatres is not an official, social or business functionand, therefore, no service tax would be leviable under the category of "Mandap Keeper”for giving the theatre on rent for showing premier shows of movies which is a part of theentire process of making and relating the feature films in cinema theatres.
Mandap Keeper’s servicesClarification/Explanation (Cont…)• Meeting of Board of directors of a company is an example of business function,opening ceremony of a shop is also a type of business function and birthday,marriage function, etc. are instances of social function, when a company holds aseminar for their staff/officers, it would be an official function of the company.• Services rendered by mandap keepers is taxable service only when he has let outsome room, halls, etc. and essentially hand over the temporary possession to theperson to whom it is let out. In other words, there is a certain exclusivity, whichhas been afforded to the person to whom it has been let out. The activity ofmere reservation of seats in a restaurant, hence, shall not attract service tax.• Letting out furniture or any other items will not be called as mandap keeperservices because no immovable property is involved.• Mandap keeper may not be owner of the premises.• If it is temporary structure, service will be taxed under Pandal or ShamianaContractor’s Service.• No tax on general donations received.
Mandap Keeper’s servicesClarification/Explanation (Cont…)• Service charge (even if later on distributed as tips to employees) and amenitiescharge shall be included in value of taxable service being charge is on grossamount charged.• Sales Tax, Expenditure Tax are statutory levies, they cannot be included in thevalue of the taxable services. Any calculation of the Service Tax has to be on thevalue of service excluding the statutory taxes.• Car parking charges collected from client who availed mandap keeper servicealso includible in the taxable value and liable to be taxed.• The charges of vessels, furniture, decoration etc, provided by the third partyother than the mandap keepers are not includible in the taxable value if themandap keeper is not associated with such supply in any way since the saidfacility is not provided by the mandap keeper.• If the mandap keeper raise separate bill for the charges for other facilities likefurniture, fixtures, lighting, vessels, crockery, cutlery, etc. all these charges areincludible in the value of taxable service for levy of service tax.
Mandap Keeper’s servicesExemptions/Abatements• The taxable services provided to any person by a mandap keeper for the use of the precincts of areligious place as a mandap are exempt from service tax leviable thereon. Religious place means a placewhich is meant for conduct of prayers or worship pertaining to a religion• 40% abatement is available if, value of taxable service includes use of mandap, facilities provided to theclient in relation to such use and also for the catering charges where the mandap keeper also providescatering services, that is, supply of food and the invoice, bill or challan issued indicates that it is inclusiveof the charges for catering service. Effective rate of duty would be 60% of normal rate in such cases.• 40% abatement is available if, taxable service provided by a hotel as Mandap keeper in such caseswhere services provided include catering services, that is, supply of food alongwith any service inrelation to use of a Mandap. The invoice, bill or challan issued indicates that it is inclusive of charges forcatering services. Effective rate of duty would be 60% of normal rate in such cases. Here, the expression“hotel” means a place that provides boarding and lodging facilities to public on commercial basis. Theexpression "food” means a substantial and satisfying meal. High tea or unlimited breakfast is asubstantial meal.• Notification 12/2003 shall not apply in case of Mandap Keeper Services if catering services are alsobeing provided. Notification 12/2003 applies only in case contract is divisible and further sale of goodsis not covered by definition of service. In case of mandap keeper services, supply of food & drinks hasbeen made integral part of services and even practically supply of food & drinks is indivisible part ofmandap keeper services. (controversial matter)
Justification of VAT• The VAT not only provides full set-off for input tax as well as taxon previous purchases, but it also abolishes the burden of severalother taxes, such as turnover tax, surcharge on sales tax,additional surcharge, special addition tax etc.• In addition central sales tax is also going to be phased out.VAT is tax on value addition• The Method consists of levying a tax on value added to product at each satge ofts production & distribution. For this purpose value added is taken as thedifference between the sales and purchase of intermediate product or goods forresale of a business.• On the face of if the simplest way to levy a VAT is to tax the value assed in abusiness process embodied in the difference between q business’s sales andpurchase
What is the need forintroducing VAT• VAT is more equitable way of taxing aswell as all dealers share the tax burden• VAT is more transparent as easyprocedures exist under it and only tworates are there• Simpler – easy communication and easycompliance• Credit for input taxation leading to costefficiency• Better compliance through self policing• Prevents cascading effect by providinginpur rebate• Avoids distortions in trade and economydue to uniform tax rates.What are the benefits ofVAT in brief?• Set-off will be given for input taxas well as tax paid on previouspurchase• Other taxes, such as turnover tax,surcharge, additional surchargeetc. will be abolished• Overall tax burden will berationalized• Prices will in general fall• There will be self-assessment bydealers• Transparency will increase• There will be higher revenuegrowth.
Merits of VAT• Eliminates multiple Tax: Set off will be given for the input tax as well as tax paid on previous purchase• Simple It is based on simply on transaction and not on a base that required complicated definition like income or wealth VAT has the merit of certainty and is required ease to understand In most countries, the pre-VAT commodity tax systems are found to be very complicated, in fact all those countries that have gone in for VAT had a genuine need forsimplifying their tax systems.• Lowering of TAX burden: VAT reduces tax burden and helps in reduce price• Fairness VAT is a move towards more efficiency, equal competition and fairness in the tax system VAT helps common people, trade, industry & also the government.• Tax Evasion will be reduced There is a self assessment and therefore better tax compliance being less chances of tax eveson It has the merit of ‘self-policing’ in that it induces business to demand invoice from the supplier to enable them to obtain credit for the tax paid on their purchase againsttheir total tax liability.• Tax transparency The buyer knows, out of the total consideration paid for purchase of material, what is tax component. Thus, the system ensures transparent also. This transparency enables the state govt. to know as to what is the exact amount of tax coming at each stage. Thus, it is a great aid to the govt. which taking decisionsregard to rate of tax etc.• Higher Tax revenue: Higher revenue growth• Uniformity: Greater uniformity in this system• Simpler System: VAT system is comparatively simpler than the sales tax system of taxation as there would be no dispute regarding taxablestage of sale and classification of goods at a particular rate of tax and there would be minimum requirement of declaration form.• Neutral The greatest virtue of VAT lies in its neutrality that is, non-interference with the choices or decisions of economic agents in the matter of location of business, as well asbusiness organization Under VAT, the allocation of resources is left to be decided by the free play of market forces and competition and not driven by tax consideration• Stable source of revenue: In OECD countries t was found that every 1% point of VAT yields 0.4 percent of GDP in revenue.
Demerits of VATTo get maximum benefit of VAT should……•Extends through the production and distributionchain aright up to the retail stage.•Has its base as broad as possible•Permits registered firms to obtain full andimmediate credit for VAT paid on inputs•Limits the extent of rate differential and,•Follows the destination principle.
Demerits of VAT in Indian Context• It does not cover goods as well as service– VAT extends to the retail stage, its base is nor comprehensive enough to compare all goods and services that gointo final consumption• Exemptions– Under continuous pressure from various quarters the number of commodities, which are now being exemptedfrom VAT in various states.• Floor Rate– There are supposed to applied uniformity in all states and so although they are describe as “floor rates, the stateswill have no discretion to go below as above the prescribed rates, country to what a floor rate ordinary implies.– There is also an exempted category, which will bear no tax, but no rebate will be given for taxes paid on theirpurchase at the time of sale at a final consumer.• General rate of 12.5%– Unduly its high rate– A high rate became all the more necessary on revenue considerations because a large number of commoditiesand industrial inputs have been included in 4% categories.• Classification of capital goods– Classification of goods under different lists is, in many instance arbitrary and leaves wide room for doubts anddisputes as to whether a particular item comes within the lower rate category or not.• Another major flaw of the rate structure is the inclusion of capital goods and industrial inputs in the 4%list.
Input TaxIt is the tax paid orpayable in the courseof business onpurchase of anygoods made fromregistered dealer onthe state.Output TaxOutput tax means taxcharged orchargeable under theact, by a registeredoffice dealer for thesale of goods in thecourse of business
Coverage of Set-off input tax creditInput tax credit is generally given for the entire VAT paid within the state onpurchase of taxable goods meant for resale/manufacture of taxable goods.•However, generally no credit is available in respect of purchases given below•Goods purchased from unregistered dealer• Goods purchased form other states/countries•Purchase of goods used in manufacture of exempted goods•Purchase of capital goods (n some cases credit is avail in installments)•Purchase of goods used in fuel and power generation•Purchase of goods used in manufacture of goods to be dispatched outside anystate as branch transfer/consignments.•Purchase of goods in cases where the dealer does not have invoices showingamounts of tax charged separately by the selling dealer.•Purchase of non-creditable goods•Purchase from a dealer who has opted for composition scheme
Carrying over of Tax credit• If the tax credit exceeds the tax payable onsales in a tax period, it shall be carried over tothe next tax period. F there is any excessunadjusted input tax credit at the end of thefinancial year; it shall be eligible for refund.• VAT collected in a tax period is lower thaninput tax credit in respect of local purchasesand inter-state purchases, only the balancingamount is carried forward to the next periodand it will be adjusted in the next tax period onthe same basis.• However, unadjusted tax credit at the end ofthe financial year is generally refunded.• Tax credit on capital goods may be adjustedover a maximum of 36 equal monthlyinstallments.• There is a negative list for capital goods noteligible for input tax credit.Treatment of exports• For all exports made outof the country, VAT paidwithin the state will begenerally refunded in fullwithin stipulated periods(generally it is 3 months).• Units located in SEZ andEOU will be generallygranted either exemptionfrom payment of in puttax or refund of the inputtax paid within theaforesaid period.
Variants of VATGross product variant Income Variant Consumption variant• This variant allows deductionsfor all purchases of rawmaterials and componentsbut no deduction is allowedfor capital inputs.• In this way, capital goods suchas plant and machinery arenot deductible from the taxbase in the year of purchaseand depreciation on the plantand machinery in notdeductible in the subsequentyears.• Capital goods carry a heaviertax burden as they are taxedtwice.• Modernization and upgradingof plant and machinery isdelayed due to this dual taxtreatment.• Deduction are allowedfor purchase of rawmaterials andcomponents as well asdepreciation on capitalgoods• In practice there aremany difficultiesconnected withspecification of anymethod measuringdepreciation, whichbasically depend on thelife of assets as well ason the rate of inflation• Under this variant,deduction is allowedfor purchase for allbusiness purchasesincluding capital assets.• In other words, theeconomic base of thetax is equivalent to totalprivate consumption.• It does not distinguishbetween capital andcurrent expenditure.
Different methods of computation of VATAddition method• This method is based on theidentification of value added,which can be estimated bysummation of all the elementsof value added.• This method is also known asthe income approach.• This method is that is doesnot require matching ofinvoices in order to check taxevasionTax credit method• The tax credit method, thetax on inputs is deductedfrom the tax on sales toarrive at the VAT payableby the dealer.• This method is also knownas the invoice method
Subtraction Method• The subtraction method estimates value-added by meansof difference between outputs and inputs• This is also known as the product approach• Subtraction method has further variants in the waysubtraction is attempted among– Direct subtraction method is equivalent to a businesstransfer tax whereby tax is levied on the deference betweenthe aggregate tax exclusive value of sales and aggregate taxexclusive value of purchase.– Intermediate subtraction method is based on deductionof the aggregate tax-inclusive value of purchase from theaggregate tax-inclusive value of sales and the taking deferencebetween them– Indirect subtraction method
What are administrative procedures whichare generally adopted by different cities?• Compulsory issue of tax invoice, cash memo or bill– Serially numbered tax invoice with prescribed particulars– Tax invoice will be signed & dated by the dealer or his employer with requiredparticular– The dealer keeps a duplicate of such tax invoice duly signed and dated– Failure to comply with the above will attract penalty• Registration, Small dealers & Composition Scheme– Registration of small dealer with gross annual turnover above a specified limit (Say RS.5 Lakh) is compulsory– All dealer under the old system of locals sales tax have been automatically registered– A new dealer is generally allowed 30 days time from the date of liability.– Small dealers with gross annual turnover not exceeding a specified amount, who areotherwise liable to pay VAT, shall however have the option for a composition schemewith payment of a tax at a small percentage of gross turnover.– The dealers who obtain composition scheme will not be entitled to input tax credit.
What are administrative procedures which aregenerally adopted by different cities? (Cont…)• Taxpayer’s identification No.– It consists of a 11 digit numerous throughout the country– First 2 character will be represented the state code by the govt. of India– Next 9 characters be different in different states.• Return– Files monthly/quarterly as specified in the state acts with payment Challan– Every return furnished by dealer will be scrutinized and if any technical mistakes are detected, the dealerwill be required to pay the deficit appropriately.• Procedures to self assessment of VAT liability– VAT liability will be self-assessed by the dealer themselves– Voluntary return will be submitted after setting off the tax credit.• Audit– Correctness of self assessment will be checked through a system of departmental audit.– However evolution detected on audit, they concerned dealer may be taken up for audit for previousperiod also.– The audit team will conduct its work as a time bound manner and audit will be completed within astipulated period.– The audit report will be transparently sent to the dealer also– Simultaneously, a cross checking computerized system is being worked out on the basis of co-ordinationbetween central excise & income tax authority.– This cross-checking system will help to reduce tax evasion and also lead to significantly growth of taxrevenue
What are administrative procedures which aregenerally adopted by different cities? (Cont…)• Declaration form– There will be no need for any provision for concessional sale under the VAT act, since theprovision for setoff makes the input zero rated, hence there will be no need for declaration• Other taxes– Other taxes like turnover, surcharge and additional surcharge have been abolished.• Penal provision– Penal provisions under the VAT are not more significant than in the sales tax system.• Coverage of goods under VAT– All the goods, including declared goods will be covered under VAT and will get the benefitof input tax credit.– Generally exempted category includes liquor, lottery ticket, petrol, diesel, aviation fuel andother motor spirit since there price are not fully market determined.• VAT rate and classification of commodities– Only two rate is exist one is 4% and other is 12.5%– Exempted categories generally include natural and unprocessed products in unorganizedsector, items which are legally barred from taxation and items which have socialimplications.– Included in this exempted category is set of commodities flexibly chosen by individualstates?
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