This document discusses various service tax issues and recent developments. It summarizes key points around exemption for small service providers, valuation and payment of service tax, export of services, and liability of service tax payment. It also touches on topics like advertisements, air travel services, and practicing company secretary services versus consulting services.

1. This presentation will probably involve audience discussion, which will create action items. Use PowerPoint to keep track of these action items during your presentation In Slide Show, click on the right mouse button Select “Meeting Minder” Select the “Action Items” tab Type in action items as they come up Click OK to dismiss this box This will automatically create an Action Item slide at the end of your presentation with your points entered. Saturday, 12 th November 2005 Service Tax Some important issues

2. Aggregate value of taxable services does not exceed Rs. 4 Lakhs in the preceding financial year. Exempted taxable services of aggregate value not exceeding Rs. 4 Lakhs. No exemption for taxable services provided under brand name or trade name of another person. No exemption for such value on which service tax is payable by recipient 5. FM said in Budget speech “80% of the present taxpayer will gain from the exemption” Exemption to small service providers – Notification 6/2005, dated 1-3-2005

3. Whether turnover for exempted portion of taxable service or value of taxable service will be excluded for the purpose for gross turnover of Rs. 4 Lakhs. Whether turnover of exempted granted by way of abatement will be excluded for gross turnover of Rs. 4 Lakhs. “ The exemption is related to first payments received in a financial year irrespective of the actual date of provision of services. Thus, the payments received after 1.4.2005 even if they relate to taxable services provided prior to 1.4.2005, will be taken into account for the purpose of computation of the threshold limit” – Clarification dated 27July2005 Exemption to small service providers…issues

4. w.e.f. 1-4-2005, invoice/bill is required to be issued within 14 days ( w.e.f. 16.6.2005, service provider providing services on continuous basis is allowed to issue bill/invoice within 14 days from date when the value for taxable services is determined) W.e.f. 13-5-2005, Section 67 – Explanation 3 “ For the removal of doubts, it is hereby declared that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service”. w.e.f. 16-6-2005 ,Section 65 (105) – Taxable service means any service provided or to be provided,- Invoice and tax on advance payments

5. Rule 6, w.e.f. 1-4-2005, prescribe that due date for service tax payment by all service tax assessees would be 5th of the following month or quarter, as the case may be However, tax for the month or the quarter ending is required to be paid by 31 st March w.e.f. 16.6.2005, provisions to provide self adjustment of excess payment of service tax by the assessee having centralized registration [Rule 4A]. Payment of Service tax………

6. Sections 71 w.e.f. 10.09.2004 is omitted Power was given to Superintendent of Central Excise to verify return, and to call accounts, documents or other evidence Specified monetary limit for adjudication of cases under section 83A of the Finance Act, 1994 [vide Notification No. 30/2005-ST, dated 10-8-2005 Finance (No. 2) Act, 2004… section 71 omitted

7. Registration issues… * Single registration can be obtained, where assessee has centralize billing system or centralize accounting system, with the permission Rule4(2). W.e.f. 1-4-2005, power vested with the Chief Commissioner or Commission but In case offices are in the jurisdiction of more than one Chief Commissioner than DG (Service Tax) has been empowered to grand centralize registration – Letter No. F. No. 341/20/2005-TRU, dated 12 th May 2002]. [Rule4(3)(a)(b)] .

8. Audit of Service Tax Assessee The Central Board of Excise and Customs has issued a Circular No. 775/8/2004-CX, dated 17-2-2004 and extended the scope of service tax audit to all services which are subject to levy of service tax. As per para 5.1.2 of the ‘Service Tax Audit Manual-2003’ “taxpayers whose annual service tax payment (in case and input service credit taken together) was Rs. 10 Lakhs or more in the preceding financial year should be subjected to mandatory audit each year”

9. Recent Development/ changes maintenance or repair of goods (i.e. software), is taxable service- Circular No.81, 7.10.2005 Advertising services – Draft Circular, service tax would be levied on the gross amount including the amount paid for procuring the space in print media. New ST-1, ST-2 and ST-3 have been issued vide Notification No. 31 and 32 dated 20-10-2005 .

10. Recent Development/ changes Recipient of taxable services even if they discharge their service tax liability under Section 68(2) are not entitled to avail credit of the service tax paid on taxable services received by them under CENVAT Credit Rules, 2004 - TRU on 03.10.2005 (F. No. 345/4/2005-TRU, DATED 3.10.2005) the services provided by money changers in relation to foreign exchange is covered under Banking and financial services as defined under 65(12) of the Finance Act and leviable to service tax under section 65(105)(zm) or section 65(105)(zzk) of the Finance Act, 1994 - F.No. 341/44/2005-TRU , 6-10-2005.

11. Valuation of taxable service Reimbursement of Expenses “ there is conceptual difference between “expenses” and “reimbursement”.- Collector Of Central Excise v. Bajaj Tempo Ltd. 2005 (180) ELT 289 (SC) . GDA Security Private Limited v Union of India (2002) 140 ELT 332 (Mad) it was challenged that in the matter of calculation of tax, the actual expenses/reimbursable expenses were not excluded and the tax was charged on the gross amount charged by the security agencies

12. Valuation of taxable service Reimbursement of Expenses statutory levies of the kind mentioned above, such as EPF, ESI, contribution towards labour welfare fund, etc. are required to be borne by all types of employers and not only security agencies and no abatements in respect of such statutory levies are admissible for the purposes of computing the service tax liability - Circular F. No. B-11/3/98-TRU, dated 7-10-1998 Value of Taxable service for supply of Manpower - Clarification issued on 27 th July 2005 – para 22.4 “ Service tax is to be charged on the full amount of consideration for the supply of manpower , whether full-time or part-time. The value includes recovery of staff costs from the recipient e.g. salary and other contributions”

13. Valuation of taxable service conflicting clarifications General exemption from service tax for part of value of taxable service which represent cost of goods and materials sold by the service provider to the recipient of service - Notification No. 12/2003, dated 20.06.2003 the value of paper and chemical used in the photo is reflected separately then such value shall be exempted from the service tax in terms of Notification No. 12/2003-ST, dated 20.06.2003 - Board in a letter dated 7 th April 2004 [File No. 233/2/2003.CX. 4] to Punjab Photo Colour Lab Association no other cost (other than the cost of unexposed photography film) such as photographic paper, chemicals, etc. is excluded from the taxable value - Circular F. No. B. 11/1/2001-TRU, dated 9th July, 2001

14. Valuation of taxable service Supreme Court Case C K JIDHEESH Vs UNION OF INDIA 2005-TIOL-135-SC-ST Decided on 27.10.2005 It was held by that a photographer does not sell the goods but provide only services thus, Board letter is incorrect that value of material consumed is deductible for value of taxable service. The Supreme Court held that the question of bifurcation "the receipt into an element of goods and the element of service cannot and does not arise". and upheld the KERALA COLOUR LAB. ASSOCIATION 2003 (156) E.L.T. 17 (Ker.) .

15. Exemption leave no doubt Law Crossing Indian Territory Exemption for any taxable service provided to an individual, who receive and consume such services outside India for personal consumption vide Notification No. 25/2005-ST, dated 7-6-2005 As per Memorandum Explaining the Provisions in the Finance Bill, 2005 “ The Finance Act, 1994 is being amended to …clarify that taxable services would include such services provided from outside India to a recipient in India ” Explanation, - clause (105) of section 65 These provisions are intended to take care of taxable services where the service provider is located outside India and the recipient of service is located in India - TRU’s letter F.No.B1/ 6 /2005-TRU dated 27th July 2005

16. Who is liable to pay service tax “ every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed” [Section 68(1)] for the notified services, service tax shall be paid by the person as prescribed by the Government, which may be recipient of taxable service and in such case, all the provisions shall apply to such person as if he is the person liable for paying the service tax in relation to such notified services [section 68(2)]. Rule 2(1)(d)(iv)- since 16-8-2002, person from outside India then recipient is liable to pay tax

17. Export of Services w.e.f. 15-3-2005 Export of taxable service (9 services) means, when services are in relation to immovable property, which is situated outside India [Rule 3(1)]. 48 taxable services are treated as export of services when such services are performed (partly or wholly) outside India [Rule 3(2)]. w.e.f. 16-6-2005, such services is treated as export of service only if delivered and used in business or for any other purpose outside India and payments is received by service provider in convertible foreign exchange .

18. Advertisements and Air Travel Services – recovery of service tax No service tax if the value of taxable service is zero – Circular No. 62, dated 21.08.2003. Service provider does not charge any amount for providing services rather gives discount – can service tax be recovered from customers to whom services are provided?

19. Practising Company Secretary service versus Management Consultant service – conflict between statutory provisions and Notification No. 59/98 Classification … CS & Management Service

20. Taxable service means any service provided or to be provided, “ to a client, by a practising company secretary in his professional capacity, in any manner .” [section 65(105)(u)]. Notification No. 59/98, 16.10.98 exempts the taxable services provided by a practising company secretary in his professional capacity to a client, other than the taxable services relating to - accounting, auditing, certifications etc.. Classification… CS & Management Service

21. Notification 59/98 was amended w.e.f. 16-8-2002 Explanation .— Nothing contained in this notification shall apply to the services provided by a practising company secretary which may fall in any other taxable services as defined in clause (105) of section 65 of the said Act. Illustration – services provided by practising CA/CS …in connection with management of any organization “shall deemed to be taxable services provided under category of management consultant” Classification… CS/CA & Management Service

22. Goods Transport Agency Services Puzzling law- all pains but Govt. Gains As per sub-clause (v) of clause (d) of sub-rule (1) of Rule 2, person liable to pay service tax means - in relation to taxable service provided by a goods transport agency- any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage, where the consignor or consignee of goods is,- Factory, company, corporation, society, co-operative society, excise registered dealer, body corporate and registered partnership firm, Where consignor or consignee is no falling under above categories then goods transport agency is liable to pay service tax.

23. Goods Transport Agency Services Puzzling law- all pains but Govt. Gains The Government, w.e.f. 01.01.2005, has provided an abatement of 75% of the gross amount charged from customer by goods transport agency for providing service in relation to transport of goods by road in a goods carriage. In other words, in this case, service tax would be leviable on 25% of the gross amount charged for providing this taxable service ( vide Notification No. 32/2004-ST, dated 3-12-2004 Provided that this exemption shall not apply in such cases where- (i) the credit of duty paid on inputs or capital goods used for providing such taxable service has been taken under the provisions of the Cenvat Credit Rules, 2004; or (ii) the goods transport agency has availed the benefit under the notification No. 12/2003-Service Tax, dated the 20th June, 2003

24. Goods Transport Agency Services Puzzling law- all pains but Govt. Gains Notification No. 32/2004-ST, dated 3-12-2004 –DG (Service Tax) letter No. V/DGST/43-GTO/02/2005/19879, dated 30.03.2005 The benefit under said Notification is available only in cases where goods transport agency is liable to pay service tax. Business Line, New Delhi, dated 22-4-2005 ‘DGST to withdraw controversial letter on scope of abatement’ How consignor or consignee will verify that the good transport agency has not taken credit? Clarification issued on 27 th July 2005

25. Goods Transport Agency Services *exempted taxable service provided by a goods transport agency to a customer, in relation to transport of fruits, vegetables, eggs or milk by road in a goods carriage, from the whole of service tax ( vide Notification No. 33/2004-ST, dated 3-12-2004 Exemption for smaller amount: (i) the gross amount charged on consignments transported in a goods carriage does not exceed Rs. 1500/-; or (ii) the gross amount charged on an individual consignment transported in a goods carriage does not exceed Rs. 750/-. vide Notification No. 34/2004-ST, dated 3-12-2004 –

26. In the words of Mahatma Gandhi “ You must not worry whether the desired result follows from your action or not, so long as your motive is pure, your means correct”

27. ……… Thank you………..