A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013

Tax Bar Association, Kota Dr. Sanjiv Agarwal
6th July, 2013 FCA, FCS
© Dr. Sanjiv Agarwal
1

This Presentation Covers
• Economy and Service Tax – Overview
• Major Changes in 2012 -2013 and 2013-14
• What is Service
• Bundled Services
• Negative List and Exempted Services
• Reverse Charge
• Abatements
• New Penal provisions
• VCES
2

3
Indian Economy – An Overview
 Indian economy is the 11th largest economy in the world
and the third fastest growing even in today’s recession,
after China and Indonesia (Present growth rate around
5.5%)
 World is presently facing recession-II but Indian economy
is still a growth economy
 Inflation –food, lifestyle
 Agriculture, services and industry are the major sectors of
Indian economy. Contribution of different sectors in
March, 2012 was :
 Agriculture 19%
 Services 59%
 Industry 22%
(likely to be @ 64% in March, 2013)

 Indian GDP to grow about 5 percent in 2012-13 and growth expected at
6.1-6.7 percent in 2013-14
 Tax Policy – clarity in tax Laws, stable tax regime, non-adversarial tax
administration, fair mechanism for dispute resolution, independent
judiciary
 Need to raise tax – GDP ratio which is presently around 6-7 percent.
 Service Tax contributes 11.50 percent of the gross tax revenue
 Service sector growth @ 9%, much higher than the GDP growth itself.
 Contribution of services sector in GDP at 64% including construction
sector.
 No change in Service Tax rates.
 No change in peak rates of customs and excise duties also.
4

Year No of new
services
Total No of
services
Total collection
(Rs. in crore)
1994 3 3 407
2001 - 26 2612
2005 13 72 14199
2008 7 103 51301
2010 3 112 58000
2012 0 120 97509
2013 - All 132697 (RE)
131884 (A)
2014 - All 180141 (BE)

 Introduced in India in 1994 as a simple, modest tax with just three
services.
 Service tax – an indirect tax.
 Approach to Service Tax – Selective as against comprehensive one.
 Desirable from revenue, equity and economic view point.
 Governed by Finance Act, 1994 and a dozen of rules.
 Legislative dependence on over 25 other laws.
 Scattered and heterogeneous large mass of service providers as well as
wide spectrum of services.
 Jurisdictional application.
6

Shift to Comprehensive Approach
 W.e.f. 1st July, 2012
 Finance Act, 2012 – A land mark Act to shift from selective
positive approach to negative approach.
 It took 18 years to shift from selective approach (positive) to
comprehensive approach (negative ) to tax services
 All services to be taxed other than services specified in the
negative list and exempted services – Section 66B.
7

8
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
Exemptions
Taxable Services
(-)
Present Taxation of Services
(=)

New Provisions in Service Tax under
Negative List
 Section 66 B deals with charge of service tax
on or after Finance Act, 2012
 Section 66 C provides for determination of
place of provision of service.
 Section 66 D comprises of negative list of
services
 Section 66 E comprises of the services which
constitute declared services
 Section 66 F provide principles of interpretation
of specified description of services
or bundled services
9

 Definition of ‘service’ finds place in statutory provisions
 Place of provision of service rules determine the location of
service and become be basis of taxation.
 Concept of taxable territory and non- taxable territory introduced
 Classification of service criteria replaced by new section 66F on
interpretation principles of specified description of services or
bundled services.
10

 Under new reverse charge mechanism, onus of paying Service Tax
will be shared by service provider and service receiver in case of
specified services.
 Payment of Service Tax on receipt basis for all service providers
being individuals / firms / LLPs, if aggregate value of taxable
services in previous year does not exceed Rs. 50 lakh.
 Time limit for appeal by assessees to Commissioner (Appeals)
reduced from 3 months to 2 months
 Special Audit of Service tax assesses by CAs /CWAs
11

Service Tax Returns
July to September, 2012
N. No. 1/2013-ST, dated 22.02.2013
Circular No. 137 dated 22.02.2013 / Order No. 1
 Last date 25th March, 2013; extended to 15th April, 2013;
further extended upto 30th April 2013 vide Order No. 2/2013-
ST, dated 12.4.2013
October 2012 to March, 2013
Vide Order No. 3/2013 dated 23.04.2013 , last date extended
upto 31st August , 2013
12

Changes in Budget / Finance Act, 2013
 Vocational courses offered by institutes affiliated to the State Council of
Vocational Training and testing activities in relation to agriculture and
agriculture produce to be in the negative list.
 Definition of "process amounting to manufacture" will also include
processes under Medicinal and toilet preparations (Excise Duties) Act,
1955.
 Service Tax to be levied on all restaurants which are air conditioned. The
condition of liquor license done away with (held unconstitutional by
Kerala High Court recently)
 Benefit of exemption to copyright on cinematography to be limited to
films exhibited in cinema halls / theatres.
13

 Certain exemptions curtailed / withdrawn in relation to auxiliary
education services and renting by educational institutes,
transportation of goods by railway / vessel, vehicle parking to general
public, repair or maintenance of government aircrafts, charitable
activities etc. (w.e.f. 1.4.2013)
 Where it is held that extended period of limitation u/s 73 is not
sustainable for making demands, Department's demand for normal
period of 18 months shall be sustainable.
 Stay orders of CESTAT to have a maximum period of 365 days (180+185)
upto which stay granted will be operational even when assessee is not
at fault.; Stay to get vacated after 365 days (Section 37C of Central
Excise)
14

 Penalty u/s 77(a) (in case of non-registration) shall be restricted to a
maximum of Rs. 10,000.
 Abatement reduced w.e.f. 1.3.2013 from 75% to 70% in case of luxury
apartments / residential complexes and others (with carpet area of
2000 sq. ft. or more and value of Rs. 1 crore or more).
 New provisions for revised punishments for offences u/s 89, makes
certain offences cognizable and others non cognizable and bailable.
 New Section 78A inserted to impose penalty on directors and officials
of company for specified willful actions / offences.
 Power to arrest provided u/s 91 where Service Tax contravention /
default is more than Rs. 50 lakhs.
15

 In Cestat appeals, single member bench can hear and dispose off
appeals upto a monetary limit of Rs. 50 lakhs (previously Rs. 10 lakh).
 Mode of delivery of letters, orders etc will also include speed post and
approved courier agency.
 Voluntary Compliance Encouragement Scheme, 2013 (VCES)
introduced as a one time amnesty measure to effect compliance and
recovery and provide amnesty from interest and penalties (last date
31.12.2013).
 Service Tax appeal forms ST – 5,6,7 amended w..e.f. 1.6.2013
16

‘Service' has been defined in clause (44) of the section 65B
and means –
 any activity
 For a consideration
 carried out by a person for another
 and includes a declared service (66E)
17

18
The New Taxability Concept
Taxable
3.
Exemptions
(39)
1. Non -
Taxable
territory
(POPS)
2. Negative
list (17)
SERVICE FOR A CONSIDERATION
E - MAGIC TEST
E: Employee
M: Money
A: Actionable claim
G: Goods
I: Immovable property
C: Court Fee
9DECLAREDSERVICES

 Activity must be for a consideration (nexus / reciprocity)
 Activity – includes both activity as well as non-activity
 Consideration – includes both monetary and non
monetary consideration.
 Two persons are involved –
Service provider
Service receiver
 Only services provided by one person to another are
taxable
 Person – natural as well as artificial
19

Activity
 Not defined in the Act
 In common understanding, activity includes –
 An act done
 A work done
 A deed done
 An operation carried out
 Execution of an act
 Provision of a facility etc.
 Activity could be active or passive and forbearance to act
 Agreeing to an obligation to refrain from an act or to tolerate an
act or a situation - listed as a declared service u/s 66E
20

Consideration
 Means everything received or recoverable in return for a
provision of service which includes -
 Monetary payment
 Non-monetary payment
 Deferred consideration
 Under Indian Contract Act, 1872, Consideration means -
“When, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the promise”
21

Activity for a Consideration
 Activity should be carried out by a person for a
consideration
 Activity without consideration like-
 Donation
 Gifts
 Free charities
outside the ambit of service
 Charity for consideration would be service and
taxable unless otherwise exempted
22

Person-65B(37)
"person" includes,––
• an individual,
• a Hindu undivided family,
• a company,
• a society,
• a limited liability partnership,
• a firm,
• an association of persons or body of individuals, whether incorporated
or not,
• Government,
• a local authority, or
• every artificial juridical person, not falling within any of the above
23

'Service' does not include -
 any activity that constitutes only a transfer in title of goods or immovable
property by way of sale, gift or in any other manner.
Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI
2013 (29)STR 3 (SC)
 a transfer, delivery or supply of goods which is deemed to be a sale of goods
within the meaning of clause (29A) of article 366 of the Constitution
 a transaction only in money or actionable claim
 a service provided by an employee to an employer in the course of the
employment.
 fees payable to a court or a tribunal set up under a law for the time being in
force
24

This scope shall not apply to –
a) functions performed by M.P., M.L.A., Members of
Panchayats / Municipalities who receive any consideration
in performing the functions of that office as such member;
or
b) duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that
capacity; or
c) duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or State Government or local authority and
who is not deemed as an employee before the
commencement of this section.
25

26
For the purpose of scope of service -
(a) an unincorporated association or a AOP and a member thereof shall be
treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of
distinct persons.
(c) A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having an
establishment in that territory

27
 Clause 44 of section 65B defines service – it includes a declared service.
 There are 9 categories of services or activities as declared services implying that
on all such nine declared services, Service Tax shall be payable
 Does not include any such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of Article 366(29A) of the Constitution of
India.
 What is declared services is defined in section 65B(22) to mean any activity
carried out by a person for another person for a consideration and declared as
such under section 66E of the Act.
 They are amply covered by the definition of service but have been declared with a
view to remove any ambiguity for the purpose of uniform application of law all
over the country

28
Following constitute Declared Services (Section 66E)
 Renting of immovable property;
 Construction of a complex, building, civil structure or a part thereof, including a
complex or building intended for sale to a buyer, wholly or partly, except where
the entire consideration is received after issuance of certificate of completion by
a competent authority;
 Temporary transfer or permitting the use or enjoyment of any intellectual
property right;
 Development, design, programming, customization, adaptation, up gradation,
enhancement, implementation of information technology software;

29
 Agreeing to an obligation to refrain from an act, or to tolerate an act or
a situation, or to do an act;
 Transfer of goods by way of hiring, leasing, licensing or any such
manner without transfer of right to use such goods;
 Activities in relation to delivery of goods on hire purchase or any
system of payment by installments ;
 Service portion in execution of a works contract;
 Service portion in an activity wherein goods, being food or any other
article of human consumption or any drink (whether or not
intoxicating) is supplied in any manner as part of the activity.

Agreeing to an obligation to refrain from an Act / to tolerate Act or situation
/ to do an Act [section 66E(e)]
Following activities if carried out by a person for another for
consideration would be treated as provision of service -
 Agreeing to an obligation to refrain from an act.
 Agreeing to an obligation to tolerate an act or a situation.
 Agreeing to an obligation to do an act.
30
Declared Services

Obligations / Actions
Examples of Taxable Obligations / Actions
 Non-compete fees for agreeing not to compete
 compensation on termination of business agreements
 advance forfeited for cancellation of agreement to provide a
service.
 forfeiture of security deposit for damages done by service receiver
in course of receiving of services.
 cancellation charges being charged by airlines, hotels etc.
 consideration for non-appearance in a court of law or withdrawal
of suit.
 demurrage charges or detention charges
31
Declared Services

32
Works Contract [65B(54)]
 “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.

33
Alternative valuation model (Rule 2A of Valuation Rules)
Where works contract is for… Value of the service portion shall be…
(A) execution of original works forty percent of the total amount charged
for the works contract
(B) maintenance or repair or
reconditioning or restoration or servicing
of any goods
seventy per cent of the total amount
charged including such gross amount
(C) in case of other works contracts, not
included in serial nos. (A) and (B) above,
including contracts for maintenance,
repair, completion and finishing services
such as glazing, plastering, floor and wall
tiling, installation of electrical fittings.
sixty percent of the total amount charged
for the works contract

34
Principles of Interpretation of specific description of services [section 66F]
 Section 65A dealing with classification of taxable services omitted w.e.f.
1.7.2012
 useful in deciding whether a service falls in negative list / exemptions /
declared services
 composite v bundled service
 bundled service –
 collection of services / tied up services
 more than one service
 element of one service combined with element of provision of other
service (s).
 Examples - Mailing done by RTI, Air traveling and catering therein
 Earlier issue – which taxable service
 Now – whether any activity is a ‘service’ or not a ‘service’.

35
Rule 1
Reference to main service can not be used for services used for providing
the main service
 If some service is provided with reference to provision of main service,
it does not be come main service,
 Related services do not take the colour of main service.
 Examples
 Provision of access to any road or bridge on payment of toll
 Security services
 IT related services
 Contract commission
 Transportation of passengers by rail
 Air travel agency
 Tour operators

36
Rule 2
Most specific description to be preferred over more general
description for services capable of differential treatment for
any purpose based on its description
 Examples
 Real estate agent for immovable property
• If taxed as intermediary, his location is important
• If taxed as immovable property, location of property is important
 Outdoor catering by pandal & shamiana / convention to be taxed as
specific combined entry exist for abatement and not as individual
services

37
Rule 3
Taxability of naturally bundled services in ordinary course
of business
If various elements of a bundled service are naturally bundled
in the ordinary course of business, it shall be treated as
provision of a single service which gives such bundle its
essential character
 Perception of service provider / service receiver
 Trade practice
 Example
• Packaged hotel accommodation for convention delegates
may include
 Hotel room accommodation
 Breakfast
 Tea / coffee during conference
 to be contd…

 Access to gym / health club / pool
 Internet
 Business centre
 Sight seeing
 Could be considered as naturally bundled convention services as each
activity is taxable but does not provide essential character and taxed
accordingly
 Indicators of naturally bundled services
 There is a single price or the customer pays the same amount, no matter how
much of the package they actually receive or use
 The elements are normally advertised as a package.
 The different elements are not available separately.
 The different elements are integral to one overall supply – if one or more is
removed, the nature of the supply would be affected.
 Each case to be individually examined
Bundled Services
38

Rule 4
Taxability of services not naturally bundled in ordinary course
of business
 If various elements of a bundled service are not naturally
bundled in the ordinary course of business, it shall be
treated as provision of a service which attracts the highest
amount of service tax.
 Examples
 Renting of two floors or two portions of building by a common
agreement (treated as commercial use)
 Management of event covering advertisement, promotion, space
booking, photography, videography, public relation etc.
39

40
What is Negative List
• Defined in new section 66D
• Section 66D specifies seventeen 17 broad categories of services.
• Effective from 1-7-2012
• If an activity meets the characteristics of ‘ service ‘, it is taxable unless
specified in Negative List.
 Based on socio-economic–tax criterion drawn from seven sectors, viz.
financial sector, transportation , construction & real estate, education,
health care, Government services

• Service by way of -
i. Pre-school education and education up to higher
secondary school or equivalent
ii. Education as a part of a prescribed curriculum for
obtaining a qualification recognized by law
iii. Education as a part of an approved vocational education
course
• Conduct of degree courses by colleges, universities or
institutions which lead to grant of qualifications
recognized by law

Approved vocational education course
 a course run by an industrial training institute or an industrial training
centre affiliated to the National / State Council for Vocational Training,
offering courses in designated trades as notified under the Apprentices Act,
1961 , or
 a Modular Employable Skill Course, approved by the National Council of
Vocational Training, run by a person registered with the Directorate
General of Employment and Training, Ministry of Labour and
Employment, Government of India, or
 a course run by an institute affiliated to the National Skill Development
Corporation set up by the Government of India
42

(Vide mega Exemption Notification No. 25/2012-ST
dated 20.6.2012)
 W.e.f. 1.7.2012
 Covers 39 specific exemptions
 Negative List services – not taxable at all ; can be
amended only by Parliament
 Exempted services – taxable but exempt under
notification; can be modified by notification.
43

• Education upto higher secondary school or equivalent are
in negative list.
• Services provided to or by an educational institution for
Auxiliary educational services and renting of immovable
property – exempted under mega notification
Negative list will not include –
• Private tuitions
• Education as a part of prescribed curriculum for
obtaining qualification recognized by law of a foreign
country
• Services provided to educational institutions
• Placement services
contd …….
44

 Education related services not in negative list but exempt
from tax under Notification No. 25/2012-ST dated
20.06.2012
 Auxiliary education services if provided to educational
institutions
• Transportation of students to / from institutions
• Provision of mid-day meal in schools
• Admission related services to educational institutes where
education services are exempt.
 Coaching / training in recreational activities of arts,
culture or sports.
45

Exemption upto 31.03.2013 –
Service Provider Service Receiver Taxability
Educational Institution Educational Institution Exempt
Educational Institution Non Educational Institution Exempt
Non Educational Institution Educational Institution Exempt
Non Educational Institution Non Educational Institution Taxable
46
Exemption w.e.f. 01.04.2013 -
Educational Institution Educational Institution Exempt
Educational Institution Non Educational Institution Taxable
Non Educational Institution Educational Institution Exempt
Non Educational Institution Non Educational Institution Taxable

Services provided to or by an educational institution in
respect of education exempted from service tax,
by way of -
 auxiliary educational services or
 renting of immovable property
47

Auxiliary education services shall cover the services in relation to
educational activities only and include –
i. any service relating to imparting any
 skill
 knowledge
 education
 development of course conduct
 other knowledge enhancement activity
ii. whether for students or faculty
iii. out sourced activities ordinarily carried out by educational
institutions
iv. services in relation to –
 admission
 conduct of examination
 catering of students under any mid day meal scheme sponsored
by Government
 Transportation of students or faculty
v. Services in relation to catering under mid day scheme and transportation
were hitherto exempt under different notifications under outdoor catering
services and tour operator’s services
48

Under Partial Reverse Charge (Proportional)
 Renting of motor vehicles
 Manpower supply & security services
 Works contracts
Under Full Reverse Charge (100%)
 Insurance related services by agents
 goods transportation by road
 sponsorship
 arbitral tribunals
 legal services
 company director's services
 services provided by Government / local authority excluding
specified services
 services provided by persons located in non-taxable territory to
persons located in taxable territory.
49

 Governed by Notification No. 30/2012-ST dated 20.06.2012 w.e.f.
1.7.2012
 Liabilities of both the service provider and service receiver are
independent of each other
 Reverse charge will not apply where the service receiver is
located in non-taxable territory
 For three specified services provided by business entities being
company, society, cooperative society, trust etc, reverse charge
will not apply.
 Reverse charge will also not apply where the service recipient is
any person or business entity not being a body corporate in case
of three specified services
 Small scale benefit is available only to service provider (not to
service receiver), if entitled
50

 Service receiver under reverse charge cannot avail
exemption of Rs. 10 lakh under Notification No. 33/2012-ST
dated 20.06.2012
 Valuation of services by services provider and service
receiver can be on different principles, if permitted by law
(e.g. works contract - Refer Notification No. 30/2012-ST,
explanation II)
 Liability to pay Service Tax for ongoing contracts will be as
per Point of Taxation Rules, 2011
 Reverse charge shall not be applicable if provider of service
was liable before 1.7.2012
 Service Tax will not be payable by service receiver under
reverse charge, if service was provided prior to 1.7.2012,
even if payment is made after 30.06.2012
51

Service Provider Service Receiver
Individual Advocate / Firm / LLP **Business entity with turnover > Rs 10
lakhs in preceding financial year
Arbitral Tribunal **Business entity with turnover > Rs 10
lakh in previous financial year
** Business entity may be an individual also
52

S. No. Description of Service Service provider Service receiver
1. Services provided by an insurance
agent to any person carrying on
insurance business
Nil 100%
2. Services provided by a goods
transport agency in respect
of transportation of goods by road
Nil 100%
3. Services provided by way of
sponsorship
Nil 100%
53

4. Services provided by an arbitral tribunal Nil 100%
5. Services provided by individual advocate or
a firm of advocates by way of legal services
Nil 100%
5A. in respect of services provided or agreed
to be provided by a director of a company
to the said company ( w.e.f 7.08.2012)
Nil 100%
6. Services provided by Government or local
authority by way of support services
excluding,-
(1) renting of immovable property,
(2) postal services
(3) transport of goods / passengers
(4) air craft or vessel
Nil 100%
54

7. Hiring of Motor Vehicle
(a) renting of a motor vehicle
designed to carry passengers on
abated value to any person not
engaged in the similar line of
business
(b) renting of a motor vehicle
designed to carry passengers on non
abated value to any person who is
not engaged in the similar line of
business
Nil
60%
100 %
40%
8. Services provided by way of supply
of manpower for any purpose or
security services ( w.e.f 07.08.2012)
25% 75 %
55

Sr.No Description of Service Service provider Service receiver
9. Services provided in service portion
in execution of works contract 50% 50%
10. Services provided by any person who
is located in a non-taxable territory
and received by any person located in
the taxable territory
Nil 100%
56

Service Provider Service Receiver Service Tax Payable by
Individual /HUF/
Partnership firm
/AOP
Business entity –
body corporate
Joint
Individual /HUF/
Partnership firm
/AOP
Individual /HUF/
partnership firm
/AOP
100 % by service
provider
Business entity –
Body Corporate /
Company
Individual /HUF/
Partnership firm
/AOP
100 % by service
provider
Business entity –
Body Corporate
Business entity –
Body Corporate
100 % by service
provider
57

58
• Over and above full exemption to 39 categories of services vide
Notification No. 25/2012-ST dated 20.06.2012
• Earlier there were a number of exemption notifications that
prescribed the abatements for various categories of services
(including 1/2006)
• Abatements merged into a single Notification No 26/2012 - ST
dated 20/6/12
• Valuation rules contain abatement for Works Contract and Supply
of Food Services

Sl. No. Description of taxable service Taxable
value(%)
Conditions
1 Financial leasing services including
equipment leasing and hire purchase
10 Nil
2 Transport of goods by rail (exempted upto
30.9.2012)
30 Nil
3 Transport of passengers, with or without
accompanied belongings by rail ( exempted
upto 30.9.2012)
30 Nil
4 Supply of food or any other article of
human consumption or any drink, in a
premises, including hotel, convention
center, club, pandal, shamiana or any place
specially arranged for organizing a function
70 CENVAT credit on any
goods classifiable under
chapter 1 to 22 of the
Central Excise Tariff Act,
1985 has not been taken
under the provisions of the
CENVAT Credit Rules, 2004.59

60
Sl.
No
Description of taxable service Taxable
value(%)
Conditions
5 Transport of passengers by air, with
or without accompanied belongings
40 CENVAT credit on inputs or capital goods,
used for providing the taxable service, has
not been taken under the provisions of the
CENVAT Credit Rules, 2004.
6 Renting of hotels, inns, guest
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes
60 Same as above.
7 Transport of goods by road by
Goods Transport Agency
25 CENVAT credit on inputs, capital goods
and input services, used for providing the
taxable service, has not been taken under
the provisions of the CENVAT Credit
Rules, 2004.
8 Services provided in relation to chit 70 Same as above.

61
Sl.
No
Description of taxable service Taxable
value(%)
Conditions
9 Renting of any motor vehicle
designed to carry passengers
40 Same as above.
10 Transport of goods in a vessel from
one port to another
50 Same as above.
11 Tour operator services
(i) provided by a tour operator in relation
to a package tour
25 (i) CENVAT credit on inputs, capital
goods and input services, used for
providing the taxable service, has not
been taken under the provisions of the
(ii) The bill issued for this purpose
indicates that it is inclusive of charges
for such a tour.

Sl. No Description of taxable
service
Taxable
value(%)
Conditions
(ii) provided by a tour operator in
relation to a tour, solely arranging
or booking accommodation
10 (i) CENVAT credit on inputs, capital goods
and input services, used for providing the
taxable service, has not been taken under
the provisions of the CENVAT Credit Rules,
2004.
(ii) The invoice, bill or challan issued
indicates that it is towards the charges for
such accommodation.
(iii) This exemption shall not apply in such
cases where the invoice, bill or challan
issued by the tour operator, in relation to a
tour, only includes the service charges for
arranging or booking accommodation for
any person and does not include the cost
of such accommodation.
62

Sl. No Description of taxable service Taxable
value(%)
Conditions
(iii) Services, other than
services specified above in (i)
or (ii)
40 (i) CENVAT credit on inputs, capital
goods and input services, used for
providing the taxable service, has not
been taken under the provisions of the
(ii) The bill issued indicates that the
amount charged in the bill is the gross
amount charged for such a tour.
63

Sl. No Description of taxable service Taxable
value(%)
Conditions
12. Construction of a complex,
building, civil structure or a
part thereof, intended for a
sale to a buyer, wholly or
partly except where entire
consideration is received after
issuance of completion
certificate by the competent
authority -
(i) For residential unit having
carpet area upto 2000 sq.
ft. or (and w.e.f. 8.05.2013)
where the amount charged
is less than rupees one
crore;
(ii) For other than the (i)
above
25 (upto
28.02.2013)
25 ( w.e.f.
1.03.2013)
30 ( w.e.f.
1.03.2013)
(i) CENVAT credit on inputs
used for providing the taxable
service has not been taken
under the provisions of the
(ii) The value of land is
included in the amount
charged from the
service recipient.
64

 Gross amount charged by the service provider for such
services provided or to be provided (Section 67)
 Service Tax (Determination of Value) Rules, 2006, Rule
5 – Inclusions in or exclusion from value of
expenditure / costs
 Expenditure / costs incurred in course of providing
services – treated as consideration
 Expenditure / costs incurred as pure agent of recipient
of service – excluded conditionally
 RE arises where person paying is under no obligation
to pay but pays on behalf of other
65

Intercontinental Consultants and Technorats Pvt. Ltd. v U.O.I.
2012 (12)TMI 150 (Delhi HC- DB)
 Earlier stayed (2008)12 STR 689 (Delhi)
 Petitioner providing consulting engineering services in respect of highway
projects to NHAI
 Receives payment not only for its service but also reimbursed (out of
pocket) expenses incurred on hotel, travel etc.
 Held not to pay service tax on reimbursed expenses
 Rule 5(1) of the Service Tax (Determination of Value) Rule, 2006 is ultra
vires the provisions of the Finance Act, 1994.
 Rule 5(1) is against the charging provision and has been struck down.
 Even if rules are laid before both the houses of the Parliament, such an act
cannot confer validity to the rules.
 Section 94(4) of the Finance Act, 1994 does not add any greater force to the
rules. They continue to be a piece of sub ordinate legislation.
Contd……….
66

Intercontinental Consultants and Technorats Pvt. Ltd. v U.O.I. 2012 (12)TMI 150
(Delhi HC- DB)
 Service Tax is levied at a particular rate (presently 12%) on the value of taxable services in
terms of charging section.
 Value of taxable service for levy of Service Tax has to be in consonance with the charging
section.
 Service Tax can be levied on the taxable service and nothing more or nothing less.
 It is only the taxable service which needs to be evaluated for the purpose of valuation u/s
67 as it talks of ‘such service’.
 Thus, value of taxable service shall be the gross amount charged by the service provider
‘for such service’. It has to be essentially for ‘such service’ and nothing else.
 The charging section (erstwhile section 66) and valuation provisions (section 67) of the
Finance Act, 1994 have to be read together and harmoniously.
 If read in consonance, only the consideration paid as quid pro quo for the taxable service
can be brought to charge of Service Tax.
Contd…..
67

Intercontinental Consultants and Technorats Pvt. Ltd. v U.O.I. 2012
(12)TMI 150 (Delhi HC- DB)
 The valuation rules, i.e., Service Tax (Determination of Value) Rules, 2006 are
expressly made subject to the provisions of section 67(1) and as such, it cannot
go beyond what is intended to be in section 67.
 The common thread running through the provisions of section 66, 67 and 94
of the Finance Act, 1994 is manifest and leads to only conclusion that ‘only the
services actually provided by the service provider can be valued and assessed to
Service Tax’.
 What has to be valued is only the output service and nothing else, i.e., not the
input services or other expenses which go into rendering of such services.
 If it is not held so, the rule 5(1) of valuation rule seeks to extract more as Service
Tax than stipulated in section 67(1) by including in the value of service, the
other costs and expenditure which are incurred by the service provider in the
course of providing the taxable service.
 What can be taxed as Service Tax is only the consideration which is further
qualified by ‘for the taxable service’.
68

Section 78A Penalty for offences by director etc.
of a company
Section 89 Offences & penalties
Section 90 Cognizance of offences
Section 91 Power to arrest
Goes against non- adversarial tax policy of Government
69

Penalty for Non- registration
Penalty for failure to take registration (Section 77(1)(a)]
Earlier
 Penalty which may extend upto Rs. 10000 or Rs. 200 per day
during which default continues, whichever is higher, starting
from first day after due date till the date of actual compliance
Now (w.e.f. 10.5.2013)
 Penalty which may extend upto Rs. 10000
 Penalty not to exceed Rs. 10000 in any case
 For non payment, there are already strict penalties u/s 76 and 78
70

Penalty for Offences by Company Officials (Section 78A)
 To impose penalty for contraventions / violations by
Company
 Penalty may extend up to Rs. one lakh per official
 Penalty on any director, manager, secretary or officer
of Company
 Incharge / responsible to Company for conduct of
business of Company
 If knowingly involved in specified contraventions
 Penalty may be levied on more than one person for
single contravention / offences
71

Specified Contraventions
 Evasion of Service Tax
 Issuance of bill / Invoice / challan without provision of
service in violation of rules.
 Availment and utilization of credit of taxes /duties
without actual receipt of services /goods either fully or
partially.
 Failure to pay amount collected as service tax to the
credit of Central Government beyond 6 months of the
due date
72

Who is Punishable
Any person who is
• director
• manager
• secretary
• other officer
and who at the time of contravention was in charge of /
was responsible to company
 for conduct of business, and
 was knowingly concerned with such contravention.
73

Personal Penalty
 Till now, there was no provision in the Finance Act,
1994 to levy personal penalty for contraventions by
Companies (also legally held)
 There can be no penalty on directors /officers /
manager / secretary of non-company assessees
74

Offences & Penalties (Section 89)
Punishment to whoever commits any offence :
a) Knowingly evades payment of Service Tax
b) Wrongly avails / utilizes credit of taxes
c) Maintains false books of accounts/ supplies false information
d) Collects tax but fails to pay within 6 months of due date
• In such cases, prosecution to be initiated
• Cases of no intent to defraud also covered
• ‘Knowingly’ is very subjective; to be proved
Contd…..
75

Offences & Penalties (Section 89)
 For (a), (b) &(c) and amount > Rs. 50 lakhs –
imprisonment from 6 months to 3 years
 For (d), if amount > Rs. 50 lakh –
imprisonment from 6 months to 7 years
 For any other offence– imprisonment upto 1 year
 For second or subsequent conviction
 For (a), (b), (c), other offences – imprisonment upto 3
years
 For (d) – imprisonment upto 7 years
76

Cognizance of Offences (Section 90)
 Cognizable Offence
Failure to deposit to the credit of Central Government
service tax collected where amount exceeds Rs. 50 lakhs
 Non-Cognizable and Bailable Offences
All offences except cognizable offence as above
 Detailed Instructions to be issued
77

Power to Arrest (Section 91)
 Similar provisions existed earlier but withdrawn in 1998
 Provides power to arrest (where evasion exceeds Rs. 50 lakhs)
 Covers all classes of assessees
 Empowers Commissioner of Central Excise
 He may authorize any officer not below the rank of
Superintendent to arrest
 Who can be arrested – any person as per Section 89
 Trigger for arrest – offences – as per Section 89(1) (Reasons to
believe that offence has been committed to exist )
 Arrests to be made in terms of Code of Criminal Procedure,
1973 (CCP)
78

Power to Arrest (Section 91)
 For Cognizable offences
 Grounds of arrest to be informed to such person
 Produced before Magistrate with in 24 hours
 Asstt. / Deputy Commissioner empowered to release
an arrested person on bail in case of non -cognizable /
bailable offences
 To have same powers as Officer -in -charge of Police
Station in terms of Section 436 of CCP
79

Offence u/s 89 Imprisonment on
first default
Imprisonment on
subsequent
defaults
Cognizable or non-
cognizable
Knowingly evades payment of
Service tax
3 years ** 3 years Non- cognizable
Avails & utilizes credit of taxes
without actual receipt of inputs/
services, whether partly or fully
Maintains false books or fails to
supply any information or supplies
false information
Collects any amount as service tax
but fails to pay the same to
government exchequer within 6
months of due date
7 years ** 7 years Cognizable
Any other offence 1 year 3 years Non- cognizable
80

Impact of Power to Arrest (Section 91)
 Punitive punishments measures
 Possible harassment of small service providers (sole
proprietors etc.)
 But tax amount of Rs. 50 lakhs provides a breather
 May improve compliances
 Regressive; possible threat to otherwise bonafide cases
 May increase litigation
 Need to distinguish between willful and genuine defaults
 Arrest can be made at the beginning of proceedings itself,
investigation may follow
81
Power to Arrest

Possible Measures to avoid Arrest
 Suo moto compliance
 Independent due diligence
 Promptly attending to notices / summons
 Ensuring timely / full payment of Service Tax – Taxes not to
be used for working capital / funding other requirements
 Where delay is expected, get in touch with Department.
 Take aggressive tax positions with utmost care – Risk
Management
 Strengthen internal processes and controls to avoid
unintended failures
82

Voluntary Compliance Encouragement Scheme, 2013 (VCES)
 Chapter VI (Sections 100-110 of Finance Act, 2013)
 17 lakh assessees, 7 lakh returns filed
 Stop filers / non-filers
 Only a one time scheme
 To chase assessees not possible
 Hope to collect reasonable money / litigation to come down
 Action & consequences
 Truthful declaration of service tax dues since 1.10.2007 upto
31.12.2012 by defaulters as on 1.03.2013
 Payment of due tax in 1 or 2 installments
 Interest , penalties and other consequences waived
86

 Not applicable to period before 1.10.2007 or after 31.12.2012
 Not applicable to cases involving search, audit, investigation, SCN
or summon issued cases as on 1. 03. 2013
 Not eligible if return furnished u/s 70 but disclosed amount not
paid
 To be rejected if audit etc. initiated as on 1st March, 2013
 Pay at least half of tax before, 31st December, 2013
 Pay balance by
 30th June, 2014 without interest
 31st December 2014 with interest w.e.f. 1.07.2014
 Dues for period after 31st December, 2012 to be settled as per
present Law
87

 No refund of amount paid under VCES
 Tax dues declared but not paid – to be recovered as per Law
 Even in default, only Service Tax and interest is payable
 False declaration to be rejected - reason to believe, notice to be served
 Declaration to be final – no withdrawal / no revision
 Satisfaction of designated authority required where audit /
investigation / summons/ notice issued and pending as on 1.3.2013;
Declaration liable to be rejected by written reasoned order.
 No action can be taken after one year from date of declaration
 Acknowledgment is a must
 Once acknowledgement is issued - no re-opening permissible before
any authority
88

• Notification No 10/2013-ST dated 13.5.2013 - to give effect to VCES, 2013.
It prescribes rules and forms to implement the scheme.
 Following rules are relevant-
Rule 3 Registration
Rule 4 Form of declaration
Rule 5 Form of acknowledgement of declaration
Rule 6 Payment of tax dues
Rule 7 Form of acknowledgement of discharge
 Following forms have been prescribed-
Form VCES 1 Declaration u/r 4
Form VCES 2 Acknowledgement of declaration u/r 5
Form VCES-3 Acknowledgment of discharge u/r 7.
89

Form VCES 1
 Declaration under VCES-2013 shall be made by assessee in form VCES-1
 Declaration is in duplicate and is of tax dues
 VCES-1 is in two parts- declaration and verification duly signed and dated by
the declarant.
 VCES-1 declaration shall contain the following particulars/ information -
 Name & address of declarant
 Telephone No & email id
 Service Tax Code No.
 Details of tax dues (Service tax, education cess, secondary & higher
education cess, amount u/s 73A)
 Calculation sheet for tax dues should be furnished tax return period wise and
service wise.
 Declaration is alongwith a verification, inter alia, to the effect that -
 Information is correct and complete
 No inquiry, investigation or audit is pending as on 1 March, 2013.
 VCES-1 is to be submitted to the concerned Central Excise Officer
designated as the designated authority
 Declarant should obtain an acknowledgment from the designated authority in
Form VCES-2
90

THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com
91

A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013

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A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013