This PPT will help you in understanding the Negative List approach in Taxation of Services and the amended provisions & rules therein.

1. SERVICE TAX - BASED ON
NEGATIVE LIST APPROACH

2. CONTENTS
Service Tax - Introduction
Meaning of Service
Declared Services
What Services are Taxable
Negative List of Services
Place of Provision of Service
Point of Taxation
Interpretation Rules
Reverse Charge Mechanism
CENVAT Credit Rules
Service Tax – Compliance

3. SERVICE TAX – INTRODUCTION
Service Tax was first introduced vide Finance Act, 1994 and is levied by the Central
Government which applies to whole of India except the State of Jammu & Kashmir.
At the inception, only three services were taxable which gradually rose to 119 taxable
services by Finance Act, 2011. Government had earned the revenue of Rs.410 crores in FY
- 1994-95 which was increased to Rs.95,000 crores (approx) by FY - 2011-12.
In 2012 Service Tax Law attains majority, not only by its age of 18 years but also by its
scope which has been enlarged w.e.f. 01-07-12 by way of introduction of Negative List
approach for taxing services.
SALIENT FEATURES OF RECENT AMENDMENTS VIDE FINANCE ACT 2012
Tax which was levied on positive list of 119 services shall now be levied on all services
except those listed in Negative list and provided in Exemption Notifications.
Significance of Classification of Services is washed away but Interpretation Rules were
introduced in its place.
Provisions of Reverse Charge Mechanism has been widened by bringing more services
under its net.
Export of Service Rules & Import of Service Rules are no more relevant against which Place
of Provisions Rules were introduced.

4. MEANING OF ‘SERVICE’
First time in the history of this law the term “Service” has been defined u/s 65B(44) of the
Act inserted w.e.f. 01-07-2012.
By virtue of this section, Service means any ACTIVITY* carried out by a person for another
for CONSIDERATION** and includes declared services but shall not include:
An activity which constitutes merely transfer of title in Goods or Immovable Property;
A transaction in money or actionable claims;
Service provided by an employee to the employer under employment;
Fees taken in any Court / Tribunal.
IMPORTANT INGREDIENTS
Activity to be performed by one person to another.
Activity to be performed for Consideration since No Consideration No Tax.
It includes Declared Services and Excludes certain activities.
*Activity means any act or work undertaken or performed or provision of a facility.
** Consideration means anything is done or abstained from doing for anything in return.

5. DECLARED SERVICES
Section 66E of the Act provides certain activities which have been deemed to be service
and service tax shall be levied thereon. Following are such activities:
Renting of Immovable Property;
Construction* of a Complex, building, civil structure or part thereof, including complex
intended for sale except where whole consideration is received after issuance of
completion certificate;
Temporary transfer or permitting the use or enjoyment of any intellectual rights;
Development, Designing, Programming, Up-
gradation, Customizing, Adaption, Implementation, Enhancement of Information
Technology Software;
Agreeing for not doing any act or tolerate any act, or to do an act;
Transfer of Goods by way of hiring, licensing without transfer of right to use such goods;
Activities in relation to delivery of goods on hire purchase;
Service portion in Works Contract; and
Service portion in an activity where food or any article for human consumption or any
drink is supplied in any manner as part of such activity.
* Construction includes additions, alterations, replacements or remodeling of any existing civil
structure.

6. WHAT SERVICES ARE TAXABLE
Prior to July, 2012 Service Tax was charged on specified list of services. But now
chargeability of service tax has been shifted from Positive List to Negative List of approach.
W.e.f. 01-07-2012, Service Tax shall be charged by virtue of Section 66B of the Act which
reads as under:
“There shall be levied a tax at the rate of 12% on the value of all services, other than those
services specified in the negative list, provided or agreed to be provided in the taxable
territory by one person to another and collected in such manner as may be prescribed”
TAX CAN BE LEVIED ON AN ACITIVITY WHEN:
Such Activity is a Service in terms of Section 65B(44) of the Act.
Such service is not mentioned in Negative List.
Such service is provided or agreed to be provided in Taxable Territory.
Such service is provided by one person to another.
Additionally, Thirty Nine types of services have been exempted from service tax vide
Notification No. 25/2012 dated 20.06.2012.

7. NEGATIVE LIST OF SERVICES
Section 66D of the Act specifies 17 categories of services on which no tax shall be levied.
Following are such categories listed in negative list:
Services by RBI, Foreign Diplomatic Mission in India, Government or Local Authority;
Trading or Manufacture of Goods;
Betting, gambling or lottery & Transmission or distribution of Electricity;
Funeral, burial, crematorium or mortuary services including conveyance of deceased;
Selling of space or time slots for advertisements other than broadcasted by radio or television;
Admission to entertainment events or amusement facilities;
Services relating to agriculture or agricultural produce like supply of farm
labour, loading, unloading, storage or warehousing of agricultural produce;
Services by way of:
Pre-school education upto higher secondary, education as part of approved vocational course;
Transportation of passengers by state carriage, metro, monorail, metered cabs, radio taxis, inland waterways etc;
Transportation of goods by road except by GTA or Courier agency, inland waterways and railways in coach other
than first class or air-conditioned coach;
Extending loans or deposits where consideration is interest or discount, sale/purchase of foreign currency;
Inter se sale or purchase of foreign currency amongst banks or authorized dealers;
Renting of residential dwelling for use of residence & Access to a road or bridge by payment of toll tax.

8. PLACE OF PROVISION OF SERVICES….
By virtue of Section 66B of the Act, service tax shall be levied on value of services which are
“Provided or agreed to be provided in Taxable Territory”.
Place of Provision of Service Rules applies w.e.f. 01-07-2012 and it provides the
circumstances based on which the place where any service has been provided shall be
determined.
General Rule
In terms of Rule 3, generally the place of provision
Specific Rule
of any service is the location of Service Receiver.
Services Place of Provision
Services by Banks & Financial Institution, Intermediary services, Hiring Location of Service Provider
of means of transport and Online information or database access
Services directly in relation to Immovable Property Location of Immovable
Property
Services by way of organization of an event, fair or exhibition Location of such Event or Fair
Services which requires presence of any Person or Goods at place of Location of actual performance
performance of such service
Transportation of Goods except GTA Services Destination of such Goods
Transportation of Passengers Location from where Journey
Embarks

9. ….PLACE OF PROVISION OF SERVICES
Location of Service Receiver (SR) shall be determined in following manner:
Whether Service Receiver has obtained Single Registration under
service tax provisions:
YES NO
Location of SR shall be (in
Location of SR shall be chronological order):
the premises for which 1. The Location of his Business
registration, centralized Establishment*;
2. Location of an Establishment where
or otherwise, has been
services are being used;
obtained. 3. If services are used at more than one
places, then location of
establishment which is most directly
connected with usage of services;
4. Usual Place of residence of service
receiver.
*Business Establishment is the place where the essential decisions concerning the general
management of the business are adopted. It can be HO, Factory or workshop.

10. POINT OF TAXATION….
Until March, 2011 service tax liability arose only after receipt of payment from service
receiver but since April, 2011 it has been shifted from cash basis to accrual basis.
Point of Taxation Rules, 2011 were introduced w.e.f. 01-04-2011 so as to determine the
point at which any service shall be deemed to have been provided and the service tax
thereon becomes due.
Three important dates relevant for determining the point of taxation are:
Date of Invoice
Date of Payment – Date of Credit to Bank A/c or in Books, whichever is earlier.
Date of Completion of Service*
Generally, Point of Taxation (POT) shall be the date of invoice if the same is raised within
30 days of completion of service, otherwise the date of completion of service shall be
POT.
However, cases where payment is received in advance against any service then the date
of receipt of payment shall be the POT irrespective of the date of invoice.
*In case of continuous supply of service, date of completion of service shall be replaced by date of
completion of an event which requires service receiver to make payment.

11. ….POINT OF TAXATION
POT under specified events:
Two out of three dates, occurring either before
Events: or after any of such event, shall be considered
Change in Rate of Tax or for determining POT and the date which occurs
Introduction of New Service first shall be the point at which service tax
liability arises.
It means the date which occurs first among the two dates falling after/before an
event shall be taken as point of taxation and service tax shall be levied accordingly.
For Example:-
XYZ Ltd has rendered taxable services to ABC Ltd in March 2012 for which invoice has
been raised on 15-04-2012 and the payment is received on 05-05-2012.
In this case, point of taxation shall be 15-04-12 and the effective rate of tax at such point
shall be applied i.e. 12%. Had the payment is received on 31-03-12 then POT shall be 31-
03-12 and so service tax shall be charged at the rate of 10% only.

12. ….POINT OF TAXATION
POT under Reverse Charge Provisions:
In terms of Rule 7 to POT Rules, where service receiver is liable to pay service tax, the
point of taxation shall be the date on which value of service has been paid to service
provider.
However, if payment is not made to service provider within six months from the date of
invoice then POT shall be deemed to be the date of invoice of input services.
Cases where services are received from an associated enterprises located outside
India, POT shall be the date of debit in books of accounts of service receiver or date of
payment whichever is earlier.
POT Rules doesn’t apply
in following cases:
Service provider (individual or partnership firms) having turnover of Rs.50 Lakhs in
preceding Financial Year has the option to pay service tax on cash/receipt basis upto the
value of services of Rs.50 Lakhs in current year.

13. INTERPRETATION RULES….
Prior to July, 2012 section 65A of the Act provides the principles for classification of
service based on which services are to be classified under 119 clauses of section 65(105)
of the Act.
Now w.e.f. 01-07-2012 section 66F of the Act laid down the principles for interpreting the
description of services and also the classification in case of bundled services.
Rule: 1
Input services used for providing main service shall not infer its taxability from the main
service. Thus, services used for providing exempted service may not necessarily be
exempted.
Eg. Services like security services provided in relation to collection of Toll Tax for access of any
road, a non-taxable service, shall not be considered as Non-taxable.
Rule: 2
Cases where differential treatment is possible based on the descriptions of services then
services with Specific description shall be preferred over general description.
Eg. Services of a real estate agent in relation to an immovable property located outside India shall
not be considered as non-taxable service since the more specific description for such service is
intermediary services and place of provision of such service is place of its performance and not the
location of the property and thus services are taxable.

14. ….INTERPRETATION RULES
Cases where bundle of services are provided then tax on services shall be dealt in given
manner:
*It has been clarified that the service which provides economic value to the service
recipient will be considered as essential service for the purpose of classification.

15. REVERSE CHARGE MECHANISM
Section 68(2) of the Act provides that any person other than the service provider may
be liable to pay service tax on such services in such manner as may be prescribed.
The Scope of such section has been widened w.e.f. 01-07-2012 by way of introducing
more services under Reverse Charge Provisions through Notification No. 30/2012.
SALIENT FEATURES
Liability to pay service tax has been shifted, wholly or partly, from service provider to
service receiver.
Business Entities are now made liable to pay service tax, consequently, the burden of
individual service providers to comply with the provisions of Service Tax Regime have
been reduced. In some cases partnership firms have also been relieved from this
burden.
Service receiver shall remain be liable to pay tax even if service provider has not
charged service tax on its invoices since threshold limit of Rs.10 Lacs does not apply
under Reverse Charge Provisions.

16. REVERSE CHARGE MECHANISM
Extent of service tax payable by Service Provider and Service Receiver
Liability on Liability on
S. Services Service Provided Service Service
No Provided By Description of Service To Provider (%) Receiver (%)
1 Body Corporate or
Any person Sponsorship Service Partnership Firm Nil 100%
2 Goods
Transport Consignor or
Agency Transport of Goods by Road Service Consignee Nil 100%
3 Director of a
Company Any Taxable Service (w.e.f. 07-08-12) Company Nil 100%
4 Renting or hiring of motor vehicle to
carry passenger on abated value i.e. 40% Nil 100%
5 Renting or hiring of motor vehicle to
Individual, carry passenger on non abated value 60% 40%
Body Corporate or
HUF, Firm,
Company
6 AOP Supply of Manpower Service 25% 75%
7 Security Services (w.e.f. 07-08-12) 25% 75%
8 Works Contract Service 50% 50%

17. REVERSE CHARGE MECHANISM
Extent of service tax payable by Service Provider and Service Receiver
Liability on Liability on
S. Services Provided Service Service
No By Description of Service Service Provided To Provider (%) Receiver (%)
9 Person carrying
Insurance Agent Insurance Auxiliary Service Insurance Business Nil 100%
10 Any person in non Any person in
taxable territory Any Taxable Service taxable territory Nil 100%
11 Arbitral Tribunal Legal Service Nil 100%
12 Individual or
Firms of Advocate Legal Service Nil 100%
Business Entity*
13 Support services by
Government** or Government or local
Local Authority authority Nil 100%
*Business Entity: It includes an association of persons, body of individuals, company or firm but
does not include an individual
** Government: It means both Central & State Govt. and includes its departments but does not
include the corporations/regulatory bodies formed under Central or State Acts or institute set up
by State/Central Acts.

18. LIABILITYAS SERVICE RECEIVER
Points to Remember:
Cases where contract price of any service is inclusive of service tax then service receiver
should make a deduction of service tax (payable by SR) from the payments made to its
service providers.
Liability to pay service tax under Reverse Charge shall arise in the month following the
month in which value of service has been paid to service provider. In case payment is
not made in six moths then such liability shall be discharged from date of invoice.
Service Receiver shall remain be liable to pay service tax on any advance payments
made to Service provider before availing any of the Specified service.
For example:-
Mr. A has supplied manpower to XYZ Ltd in June 2012 for which invoice dated 10-07-2012 for
Rs.10,000 without charging service tax and payment to Mr. A is made on 15-08-2012.
In this case, point of taxation shall be 15-08-12 and service tax of Rs.927 (10000*12.36%*75%)
shall be payable by XYZ Ltd and Mr. A is not required to pay any service tax.

19. CENVAT CREDIT RULES
Point at which CEVNAT Credit can be availed:
• CENVAT Credit on inputs can be availed immediately after the receipt of goods in the
Inputs
premises of Service Receiver (SR).
• CENVAT Credit of 50% of the duty paid on Capital Goods can be availed in the financial
Capital
year in which such goods are received by SR. The remaining Credit can be availed in
Goods subsequent years subject to possession of such goods.
• CENVAT Credit on input services can be availed on or after the receipt of invoice of input
Input
service. In case payment of value of service & service tax is not made to service provider
Services with in 3 months from the date of invoice then CENVAT so claimed shall be reversed.
Negative List of Input Services:
No CENVAT Credit can be availed on following input services:
Works Contract Service & Construction services so far as the same are used for construction of civil
structure or laying of foundation or structures for support of capital goods. It means CENVAT Credit
can be availed on other works contract services like repair & maintenance of equipments etc.
Services by way of Renting, General Insurance and Repair & Maintenance of a Motor Vehicle except
where motor vehicle is a capital good.
Services used primarily for personal use or consumption of any employee like membership of a
club, health / life insurance, outdoor catering, beauty treatment and others.

20. CENVAT CREDIT RULES
Reversal of CENVAT Credit:
In terms of Rule 6 of CCR, if an assessee is providing taxable as well exempted service then
CENVAT Credit shall not be allowed on such quantity of input services which are used in
relation to provision of exempted services.
Rule 6 of CCR, 2004 provides following three options to reverse such CENVAT credit:
Pay duty @ 6% on the value of exempted goods or services or
Maintain separate accounts of CENVAT utilized for exempted & taxable services and take credit of
CENVAT utilized for taxable services or
Reverse proportionate amount of CENVAT Credit which is attributed to exempted service.
CENVAT Credit of service tax paid under Reverse Charge:
In such cases, Service receiver can avail CENVAT Credit in two following parts.
I: II:
At the time of booking of At the time of making payment of
Invoice (To the extent tax Service Tax (To the extent tax is
is charged in Invoice) paid as Service Recipient)
In terms of Rule 9(e) of CCR, a challan evidencing the payment of service tax by the service
recipient is a valid document for claiming the CENVAT Credit.

21. SERVICE TAX COMPLIANCE
Every person providing taxable service shall issue an Invoice or bill with in 30 days from
the date of completion of service or receipt of any payment whichever is earlier.
Payment of Service Tax shall be made by 5th / 6th of the month following the month or
quarter, as the case may be, in which liability to pay tax arises but service tax liability for
the month of March shall be paid by 31st March only. Delayed payment shall be made
along with interest @ 18% p.a.
Every assessee* has to furnish Half - Yearly Service Tax Returns by 25th of October / April
electronically. It was proposed in the Finance Act, 2012 that the Service Tax Returns are to
be filled Monthly / Quarterly instead of Half Yearly. However, such provisions have not
been inserted in the Act un-till now.
Every assessee* has to maintain the records for five years immediately after the financial
year to which such records pertain.
* Assessee means a person liable to pay service tax and includes his agent.

22. PREPARED BY:-
CA ASHISH GUPTA
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(M) +91-9891670570
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Disclaimer: This presentation is provided purely for your
information and knowledge. Information provided in this
presentation do not purport or should not be treated as
legal opinion in the fact specific situations that may effect
you and your business.