Service tax is an indirect tax levied on services in India. There is no separate Service Tax Act - it is imposed annually through amendments to the Finance Act of 1994. Service tax applies to the entire country except Jammu and Kashmir. The current rate of service tax is 12% plus applicable cess. Certain services are exempt from service tax under various notifications. The valuation of a service for calculating tax payable is based on the gross amount charged or the monetary value of consideration received. Various rules have been introduced to determine the scope of taxable services and calculate service tax payable for different services and situations.

1. Module
SERVICE TAX

2. Introduction
Service Tax is an indirect tax levied on services. It
was imposed by Chapter V of Finance Act, 1994,
which was introduced by the then Finance Minister
Dr. Manmohan Singh.
There is no separate “Service Tax Act”. It is imposed
every year by making amendments to the Finance
Act, 1994.
Service tax is not a tax on profession, trade or
employment but is in respect of services rendered. If
there is no service, there is no tax.
2

3. Service Tax Law
There is no separate service tax statute and following are the various
legislatures to cover service tax:











Service Tax Rules, 1994
Service Tax (Registration of Special Category of Persons) Rules, 2005
Export of Services Rules, 2005
Cenvat Credit Rules 2004
Service Tax (Advance Rulings) Rules, 2003
Taxation of Services (provided from outside India and Received in India) Rules,
2006
Service Tax (Determination of Value) Rules, 2006
Authority for Advance Rulings (Customs, Central Excise and Service Tax
Procedure Regulation, 2005
Central Excise (Appeals) Rules 2001
Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982
Service Tax Circulars, notifications and case laws.
-
3

4. Applicability of Service Tax
Service Tax is applicable to the whole of India except Jammu and
Kashmir.
If a service provider provides taxable services in Jammu and Kashmir,
then it is not liable to Service tax. However, if a service provider
provides taxable services from Jammu and Kashmir to the client any
where else in the country, he shall be liable to service tax.
Rate of Tax
Rate of Service tax is 12% for all services, plus Education Cess 2% and
Secondary and Higher Secondary Education Cess @ 1%, effectively
the tax rate shall be 12.36%
-
4

5. Service liable to Service Tax
All services are liable to service tax except –
a) Activities specifically excluded in definition of service.
b) Services covered under the negative list
c)
d)
e)
Services covered under Mega Exemption notification.
Services provided outside the taxable territory.
Services received by a unit located in SEZ (subject to conditions).
Negative List of Services
There are 17 categories of services which are not chargeable to service tax ––
1. Services provided by Government or local authority. [Except (a) services by Dept
of post by way of speed post, express parcel post, life insurance, and agency
services, (b) services in relation to an aircraft or a vessel, inside or outside the
precincts of a port or an airport, (c) transport of goods or passengers, (d) support
services]
2. Services provided by RBI
-
5

6. Service liable to Service Tax
Negative List of Services
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Contd….
Services provided by a Foreign diplomatic mission located in India
Services relating to agriculture
Trading of goods (commission agent or clearing agent)
Any process amounting to manufacture or production of goods.
Selling of space or time slots for advertisement other than advertisements
broadcast by radio or television.
On payment of toll charges
Betting, gambling or lottery
Admission to entertainment events or access to amusement facilities.
Transmission or distribution of electricity by an electricity transmission or
distribution utility
A few of services relating to education.
Services by way of renting of residential dwelling for use as residence
-
6

7. Service liable to Service Tax
Negative List of Services
14.
15.
16.
17.
Contd….
A few financial services like deposits, loans advance, foreign currency sale or
purchase by banks or authorised dealers etc)
Service of transportation of passengers, with or without accompanied belongings.
Services by way of transportation of goods
Funeral services
Exemptions from Service Tax–Mega Notifications –
Notification No. 12/2012-S.T.
1.
2.
3.
4.
Services provided to UNO
Health care services
Services by a veterinary clinic
Services by charitable trust
-
7

8. Service liable to Service Tax
Exemptions from Service Tax–Mega Notifications –
Notification No. 12/2012-S.T. Contd…
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Religious services
Legal or arbitral service
Technical testing of drugs etc.
Coaching in recreational activities
Educational institution
Services provided to a recognized sports body
Sponsorship of sporting events
Construction service to Government
Construction of road, bridge etc.
Other construction service – airport, single residential units, low-cost houses up to
a carpet area of 60 sqmt etc.
Copyright service
-
8

9. Service liable to Service Tax
Exemptions from Service Tax–Mega Notifications –
Notification No. 12/2012-S.T. Contd…
17.
18.
19.
20.
21.
22.
23.
24.
25.
Services in folk or classical art forms
Services of collecting or providing news
Services of renting of a hotel etc for residence
Services of providing food or beverages
Services of transportation by rail or a vessel of specified goods – petroleum, relief
materials,
defence
equipment,
postal
mail,
household
effects,
newspaper/magazines, railway equipment, agricultural produce, chemical
fertilizers
Goods transport agency for fruits etc.
Hiring motor vehicle for transport of more than 12 passengers
Transport of passengers
Vehicle parking to general public
-
9

10. Service liable to Service Tax
Exemptions from Service Tax–Mega Notifications –
Notification No. 12/2012-S.T. Contd…
26.
27.
28.
29.
30.
31.
Specific services to government – water supply, public health, sanitation, solid
waste management, slum improvement repair & maintenance of vessel/aircraft
Specific general insurance service – hut insurance scheme, cattle insurance,
insurance of tribal, Janata Personal Accident Policy, Group Personal Accident
Policy, Agricultural Pumpset & Failed Well Insurance, Export credit insurance,
National Agricultural Insurance etc.
Services provided by an incubate – provided turnover is below 50 lakh & within
three years from date of the agreement.
Services by an unimcorporated body to its members
Financial services – sub-broker to broker, mutual fund agent to MF, distributor to a
M.F. Selling agent of lottery to a distributor, selling agent or distributor of a sim
card etc.
Specific job work services – agriculture, printing, cutting & polishing of diamond
etc.
-
10

11. Service liable to Service Tax
Exemptions from Service Tax–Mega Notifications –
Notification No. 12/2012-S.T. Contd…
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
Business exhibition service outside India
Specific telephone service – departmentally run public telephones, free calls at
airport, hospital where no bills are being issued.
Slaughtering service
Services provided from non-taxable territory
Public library service
Services by Employees’ State Insurance Corporation
Transfer of a going concern
Public conveniences
Municipality services by government
Services provided outside taxable territory.
-
11

12. Service Tax Valuation u/s 67
Highlights of Service tax valuation rules
In exercise of powers under section 67, Service Tax (Determination of value) Rules,
2006 have been issued w.e.f. 19-4-2006. The Service Tax Valuation Rules
provide as follows –

Where the value is not ascertainable, value will be determined by service provider
in terms of rule 3.

As per rule 3(a) of Service Tax Valuation Rules, valuation shall be on basis of
gross amount charged by service provided for similar services.

If value cannot be determined on basis of rule 3(a), valuation shall be on basis of
equivalent money value of such consideration, which shall not be less than cost
of provision of such services.



Central Excise Officer can reject ’value’ determined by service provider and determine
‘value’ for purpose of service tax payment. (rule 4).
Rules 5 and 6 make provisions for certain specific inclusions and exclusions for valuation.
Payments made by service provider as agent of service receiver and recovered from
service receiver are excluded for the purpose of valuation.
12

13. Service Tax Valuation u/s 67
Highlights of Service tax valuation rules
In exercise of powers under section 67, Service Tax (Determination of value) Rules,
2006 have been issued w.e.f. 19-4-2006. The Service Tax Valuation Rules
provide as follows –

Where the value is not ascertainable, value will be determined by service provider
in terms of rule 3.

As per rule 3(a) of Service Tax Valuation Rules, valuation shall be on basis of
gross amount charged by service provided for similar services.

If value cannot be determined on basis of rule 3(a), valuation shall be on basis of
equivalent money value of such consideration, which shall not be less than cost
of provision of such services.



Central Excise Officer can reject ’value’ determined by service provider and determine
‘value’ for purpose of service tax payment. (rule 4).
Rules 5 and 6 make provisions for certain specific inclusions and exclusions for valuation.
Payments made by service provider as agent of service receiver and recovered from
service receiver are excluded for the purpose of valuation.
-
13

14. Service Tax Valuation u/s 67
Valuation
Situation
Value
Where total consideration is monetary Taxable value = Gross Amount charged exclusive
consideration
of Service Tax.
Where consideration is in kind (ie.,
non-monetary consideration)
Taxable value = Monetary Equivalent of “nonmonetary consideration”.
• Wholly in kind
Rule 3 of Service Tax Valuation Rules 2006
Method -1 Taxable Value = GAC by service
provider for similar service provided to third party.
•Partly in Kind
Where consideration is “notquantifiable”
Method-2:
Taxable Value = [Monetary
consideration + Mkt Value of Non-monetary
consideration]
{but it shall not be less than the cost of provisioning
of service.
Taxable Value = Value determined in prescribed
manner. Nor manner is prescribed so far – but is
practically best judgment assessment.
-
14

15. Service Tax Provisions Relating to –––
ADVERTISEMENT
Service tax is payable only on advertisements on radio or Television.
Advertisement means – any form of presentation for promotion of or bringing
awareness about any event, idea, immovable property, person, service, goods or
actionable claim through newspaper, television, radio or any other means but
does not include any presentation made in person.
Sale of space in print media, bill boards, public places, buildings, conveyances, cell
phones, ATM, internet is not taxable.
Advertisement Agents, Designers are subject to Service Tax – The exemption is
only to advertisement and not to other services like designs, advertisement
agents etc.
Advertising Agency is liable to pay service tax on its commission, and other
services like designing, preparation of advertisement material, advertisement films
etc.
Service Tax – Prof. Ajaz Ahmed Khan– 2013
-
15

16. Service Tax Provisions Relating to –––
CONSULTING ENGINEERING SERVICES
This service is taxable under service tax. If Research and Development Cess is paid,
service tax exemption is available to the extent of R&D Cess paid.
SOFTWARE RELATED SERVICES
Development, design, programming, customisation, adaptation, upgradation,
enchance, implementation of information technology software is a ‘declared
service’under section 66E(d) of Finance Act, 1994.
Ïnformation technology software”means any represenation of instruction, data, sound
or image, including source code and object code, recorded in a machine readable
form, and capable of being manipulated or providing interactivity to a user, by
means of a computer or an automatic data processing machine or any other
device or equipment –
The provision has been specifically included as “declared service”, since really
software is goods and whether and when service tax can be imposed is a matter
of argument and even litigation.
Service Tax – Prof. Ajaz Ahmed Khan– 2013
-
16

17. Service Tax Provisions Relating to –––
TRANSPORT OF GOODS BY AIR
Transport of goods by air from a place outside India upto the customs station of
clearance in India is in Negative List of Services.
Service tax is payable incase of transport of goods by air within India.
SERVICES OF AIR TRAVEL AGENT
Air Travel Agents are subject to service tax only on the commission and not on entire
air ticket.
Simple method for calculation of service tax payable by Air Travel Agents –
Service Tax @ 0.60% of basic fare incase of domestic booking and @ 1.20% of
the basic fare in case of international bookings, of passage for travel by air,
instead of the rate as prescribed in section 66.
-
17

18. Highlight the service tax valuation rules.




(12)
Discuss the provisions relating to the service tax in the following cases :
Air Travel agents services
Consulting engineers
Practicing Chartered Accountants. (12)
Discuss the service tax provisions relating to information technology software service.
(10)
Briefly discuss the provisions of the Finance Act 1994 as amended, relating to service
tax with respect to the following taxable services :

Consulting Engineer

Practicing Chartered Accountant. (10)
-
18

19. THANK YOU
To be Continued in next session
2013
Prof. Ajaz Ahmed Khan
19