This files is equipped with basics of Service Tax

1. 1

2. 2
Service Tax , and its imporance
Service Tax revenue, from a mere Rs 407 crore in 1994-95, the service tax
revenue has increased to Rs 2,10,000 crore in 2015-16, an increase of more
than 500 times.

3. 3
INDEX - Service Tax
1) Introduction
a) Service Tax - History
b) Negative List Regime
c) Reverse Charge Mechanism
d) Due Dates
e) Basic Interest & Penalties
f) Payment of Service Tax
2) CENVAT Credit
a) Introduction
b) Flow Pattern of CENVAT Credit
c) Journal Entries to record
CENVAT Credit
d) Eligible items for CENVAT Credit
3
3) Services Described
A) RCM [Reverse Charge Mechanism]
a) Goods Transport
Agency/Transport Exp
b) Legal Charges
c) Services Provided by Directors
d) Security Services
e) Work Contract Expenses
B) Service Tax on Sales/Turnover
a) ST on Turnover
(see (4)(A)(e) slide)
a) ST on Rent Income

4. 4

5. 5
Extracts of Speech by then Finance Minister Dr. Manmohan Singh

6. 6
3 Services (Telephone Bills, Non-life Insurance & Stock Brokers)
5% Service Tax
Service Tax~ The Beginning ~

7. 7

8. 8

9. 9

10. 10

11. 11
Rates of Service Tax - till date
5
15

12. 12
Service Tax Profiles - till date
3
119
-ve list

13. 13
Selective Approach vs. Negative List Approach
Service Tax Approach
Post 2012
With some Exceptions
Service Sector Service Sector

14. 14
Service means:
(i) any activity for consideration
(ii) carried out by a person for another and
(iii) includes a declared service.
II. Exclusions:
However, a service shall not include:-
(a) an activity which constitutes merely,—
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any
other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within
the meaning of clause (29A) of article 366 of the
Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation
to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in
force.
“and Explanation continues..”
Service Defined – Section 65B(44)

15. 15
Service
Provider
Service
Recipient
Service
Who did the service
Where he is located
Who received the service
Where he received
What kind of Service &
Where it is done
Who, What, When and Where – decides taxability and liability

16. 16
• Service Tax Rules, 1994
• CENVAT Credit Rules,1994
• Point of Taxation Rules, 2011
• Place of Provision Rules, 2012
• Service Tax (Determination of Value Rules, 2006
• Notifications / Circulars / Rules
• Chapter V and Chapter VA of the Finance Act
Which provision should I need to aware of ?

17. 17
On Services We provide
(Ex. ST on Turnover of Electrical
works) is on :
On Services We Receive
(Ex. ST on Consultants, Legal,
Auditors & services) is on :
Which fall under RCM
(Ex. Legal Fee, security exp etc)
For all other Services
(Ex. Auditors, Consultants etc)
Service Tax
Liability
A. About Service Tax: Service Tax is levied on services that we provide, however, in some
cases Service Tax is payable by us on services we receive from others under Reverse
Charge basis (under Reverse Charge Mechanism (RCM)).
Service Tax Overview
We have to pay
Service Tax
We need to pay Service
Tax Fully/Partly(as
applicable)
Service provider has to
pay Service Tax
Fully in case of :
 Services by Directors
 GTA/Freight Exp.
 Legal Expenses…..
Partly in case of :
 Works Contract Exp
 Security Services
 Renting of Motor Vehicle
NOTE: No Service Tax if services are provided within the State of Jammu & Kashmir 17
N.no.. 30/2012;

18. 18
Reverse Charge
Mechanism
Partial RCMFull RCM
Company need to
pay the Full ST
Company need to pay
the Specified % of ST
Ex. ST on Advocate Fee Ex. ST on Security Services
Service Tax Overview Continued…
B) Negative List Regime: Unlike earlier, with the introduction of Negative list approach, all
services (which satisfies the definition of Service) are chargeable to service tax other than
those mentioned in the Negative List (unless exempted otherwise).
C) Reverse Charge Mechanism (RCM): Generally Service Tax is paid on the services we render,
however in few cases liability to pay service tax is on recipient of service under Reverse Charge
basis under RCM.
Ex. Work Contract Service (Irrigation project) is a taxable service but,
however, as per Notification No. 25/2012 when such services are provided to
Government, they are exempted from payment of Service Tax.
Negative List under
Service Tax
Ex. Freight Charges – on which we (Service Recipient) need to pay the Service
Tax and not the Transporter (Service Provider).
18

19. 19
Background:
As per Section 66B , a service is taxable only when it is " Provided or Agreed
to be provided in the taxable territory".
Thus, taxability of a service will be determined based on the place of its
provision. Hence, to determine Place of Provision of Service, “Place of
Provision of Services Rules, 2012” were framed.
Place of Provision of Service Rules, 2012
Rule 3: General Rule
The Place of provision of service shall be the Location of the Recipient of
Service
Rule 5: PPS in case of Services relating to Immovable property
The Place of provision of service shall be the Location of such immovable
property
Rule 8: PPS in case of were Services provided in Not-taxable territory BUT
SP & SR both are in Taxable Territory
Then PPS is the Location of Recipient of Service

20. 20
Background:
As per Section 67A , Date for determination of Rate of Tax/ Value/Exchange
Rate – Shall be the date when such taxable service has been provided or
agreed to be provided.
Point of Taxation Rules, 2011
Rule 2(e): Point of Taxation
Point of taxation means the point in time when such a service is deemed to
have been provided
Rule 3: Determination of Point of Taxation
a) Date of Invoice (Provided invoice is issued < 30 days of service)* (or)
b) Date of payment (to the extent of payment)
* If invoice is not issued < 30 days of service, the POT s the Date of Completion of
Service
Rule 7: Point of Taxation in case of Reverse Charge
a) The payment date (or)
b) First day after end of 3 moths from Invoice date (if payment not done)
Ex. Advocate fee

21. 21
Rule 4: Determination of Point of Taxation in case of Change in
Effective rate of Tax
1st Then; Which date to consider?
I & P Which ever is earlier
I P Date of Invoice
P I Date of Payment
1st Then; Which date to consider?
I P Date of Payment
I&P Which ever is earlier
P I Date of Invoice
Service Completed Before Change in
Rate of Service Tax
Service Completed After Change in
Rate of Service Tax
Note:
I = Date of Invoice
P = Date of Payment
= Change in Service Tax Rate
Point of Taxation Rules, 2011

22. 22
• Rate at which services are chargeable is provided in section 66 B of the Finance Act. Present
rate of Service Tax is 14%
Rate of Service Tax
22
Section 66 B
Note: However, effective rate of service tax is 15%, by adding 0.5% each for Krishi Kalyan Cess
and Swachh Bharat Cess

23. A) Due Dates for Payment of Service Tax: Service Tax liability of every Month shall be
discharged/paid within 5th of the following Month except for the Month of March (where it
should be discharged/paid within 31st
B) Due Dates for Filing of Service Tax Returns: Service Tax Returns shall be filed Half Yearly.
ST for the Months of: Due Date of Payment
1. Apr through Feb 6th of following Month
2. March’s 31st of March itself
Return for the Periods Due Date of Payment
1. Apr to Sep Oct 25th
2. Oct to Mar Apr 25th
Due Dates under Service Tax
23
Note: As per Rules 7B(1), Return so filed can be revised within 90 days from the date of
filing such reutrn.

24. S. no. Period of delay Rate of Simple Interest “Per Annum”
1 Up to first six months a) 18 % p.a.
2
More than six months and up
to one year
a) 18 % p.a. for the first six months of delay;
b) 24 % p.a. for delay beyond six months.
3 More than one year
a) 18 % p.a. for the first six months of delay;
b) 24 % p.a. for period beyond six months up to one year;
c) 30 % p.a. for any delay beyond one year.
A) Interest for delay in payment of Service Tax
S. no. Period of delay “Penalty”
1 For delay up to 15 days a) Rs. 500 (Fixed)
2
For delay beyond 15 days but
up to 30 days
a) Rs. 1,000 (Fixed)
3 For delay beyond 30 days
a) Rs. 1,000 (Fixed) + Rs. 100 per day (from 31st
day)
[Subject to Maximum of Rs. 20,000]
B) Penalty for late filing of Service Tax Return [Rule 7C(1) of Service Tax Rules
Basic Interest & Penalties under Service Tax
24

25. SERVICE TAX Liability on
Taxable
Turnover
Reverse Charge
(RCM)
Partial Full“We CAN set-off CENVAT Credit(Input
Tax Credit) from payment of Service
Tax liability on Turnover”
Payment of Service Tax
AA BB
AA
Particulars
Service Tax on
Turnover/ Sales
Service Tax Payable on Turnover 100,000
Less: CENVAT Credit (CC)
(available Rs. 5,00,000)
(100,000)
'.' Net Payable NIL
Example BB
Particulars
Service Tax on
RCM Cases
Service Tax Payable on Advocate fee (RCM) 100,000
Less: CENVAT Credit (CC)
(available Rs. 5,00,000)
Though CC is
available we cannot
use it for RCM
'.' Net Payable 1,00,000
Example
“We CANNOT set-off CENVAT Credit(Input
Tax Credit) from payment of Service Tax
liability on Turnover”.(Should be paid through Bank)
25

26. Applicable only for “Taxable” Projects:
Service Tax Input-RCM
Service Tax Input
Excise Duty on P&M
Excise Duty on RM
Service Tax Payable
Excise Duty Payable
CENVAT
Credit
(This CC can be
adjusted to pay our
ST/ED payable)
CENVAT Credit – flow pattern Continued…
NOTE:
1. As shown above Service Tax Input & Excise Duty Input can be used to pay either Service Tax payable on Sales or Excise
duty payable.
2. RCM = Reverse Charge Mechanism; P&M = Plant & Machinery; RM = Raw Materials; CC = CENVAT credit.
3. For Exempted Projects: ST on Turnover exempted, accordingly we are not allowed to take CC.
4. NO CENVAT credit available on 0.5% SBC paid 26

27. 1) CENVAT refers to Central Value Added Tax (i.e., Input Tax Credit)
2) CENVAT Credit is an accumulation of Input taxes under Central Excise and Service Tax
Law, as mentioned below:
 Excise Duty on Inputs (Raw Material)
 Excise Duty on Capital Goods (Plant & Machinery, Tools & Equipments etc) and
 Service Tax Input (Ex. Consultancy Services received and RCM cases)
3) This CENVAT Credit can be used to Pay or Set-Off from :
 Excise Duty payable on Goods Manufactured
 Service Tax Payable on Services Provided
4) However, CENVAT Credit can be taken only on Inputs/Input Services pertaining to
Taxable Projects. (i.e., If Inputs/Input services are used in service tax exempted
projects (ex. Irrigation Projects), then CENVAT Credit/Input tax benefit is not allowed)
CENVAT Credit - Introduction
Excise Duty Input
Service Tax Input
CENVAT
Credit
Excise Duty Input
Service Tax Input
i.e., NO CENVAT
Credit on
Exempted Projects
Taxable Projects
(Ex. Electrical Works)
Exempted Projects
(Ex. Irrigation Works)
27

28. Taxable Projects
[Ex. ELECTRICAL]
Exempted Projects
[Ex. CANAL & LIFT IRRIGATION Projects ]
1. For Service Tax Input
Consultancy Exp A/c ----------- Dr
Service Tax Input A/c ----------- Dr
To “Service Provider” A/c
4. No Service Tax Input
Consultancy Exp A/c ----------- Dr
To “Service Provider” A/c
2. For Service Tax RCM cases
Service Tax Input –RCM A/c ---------Dr
To Service Tax Payable –RCM
5. For Service Tax RCM cases
Service Tax Expense-RCM A/c - --Dr
To Service Tax Payable –RCM
3. For Excise Duty on Plant & Machinery (Note 1)
Plant & Machinery A/c ---------------Dr
Excise Duty – CG – 2014-15 A/c -Dr (with 50%)
Excise Duty – CG – 2015-16 A/c -Dr (with bal 50%)
To “Manufacturer A/c”
6. For Excise Duty on Plant & Machinery
Plant & Machinery A/c -----------Dr
To “Manufacturer A/c”
Accounting Entries / Journal Entries
Avail CENVAT
Credit
NO CENVAT
Credit
28
SBC & KKC need not be shown separately

29. 1. Grouping of relevant ledgers.
Accounting Entries / Journal Entries Continued…
NOTE 1: As per CENVAT Credit Rules, Excise Duty on Plant & Machinery(Capital Goods) should
be claimed (as shown in Journal entry no. 3 above):
 50% - in the year of Purchase and
 Balance 50 % - in subsequent Year.
Ex. Value of P&M purchased is Rs. 10,00,000 and Excise Duty on it is Rs. 2,50,000
_________________________________________________________________________________
Plant & Machinery A/c ---Dr Rs. 10,00,000
Excise Duty – CG – 2014-15 A/c -Dr (with 50% of 2,50,000) Rs. 1,25,000
Excise Duty – CG – 2015-16 A/c -Dr (with bal 50% of 2,50,000) Rs. 1,25,000
To “Manufacturer A/c” Rs. 12,50,000
_________________________________________________________________________________
Ledgers Grouping
Service Tax Input A/c
Service Tax Input - RCM A/c
Excise Duty - CG “Current Year” - A/c
Excise Duty - CG “Subsequent Year” - A/c
CENVAT Credit
(under Current ASSETS)
Service Tax Payable -RCM A/c under Current Liabilities
Service Tax Expense-RCM A/c Under Indirect Expenses
NOTE 2: Grouping of relevant ledgers
29

30.  Any amount paid to Non-Executive Director for their services are liable to Service Tax under
RCM basis.
 For this purpose the directors who does not receive any Remuneration/Salary from the
company can be considered as Non-Executive Directors.
 ST-RCM need to be paid @1.5% on 100% of Amount paid
Services by DirectorRCM
NOTE:
Service Tax is not applicable if those Services are rendered in his Professional
Capacity (like Payment made for his services as an Engineer)
Ex. Sitting Fee, Audit Committee Meeting Fee, ESOP and etc.
Non-Executive DirectorsExecutive Directors Directors
Who receive Salary
from the Company
Does not receive
any Salary from the
Company
ST - NOT Applicable ST - Applicable
30

31.  Irrespective of Taxable/ Exempted Projects Company need to pay Service Tax on
RCM basis on Goods Transport Agency(GTA) services @15% on 30% of Freight
Charges ONLY if following TWO conditions are satisfied:
1. Service Recipient being Co./Firm/Factory/Body corporate, and paying Freight
Charges (not being reimbursement) AND
2. GTA has issued bill/invoice/consignment note
 No Service Tax on RCM, in below cases:
 GTA/Transporter does not issue any Consignment note/Invoice (i.e., Local
freight) (or)
 Freight amount charged by GTA does not exceed Rs. 1,500/-
Goods Transport Services / Freight Charges
NOTE: Irrespective of the Status of GTA (Individual/Company) service tax is payable by Company
RCM
31

32.  Any amount paid towards Security Services/Manpower Supply Service is liable to Service Tax
under RCM provided the Service Provider is Individual/HUF/Firm/AOP.
 Service Tax Shall be paid at the rate of 15% on 100% of Invoice value by Company.
Security Service/Supply of Manpower
If Service Provider is:
CompanyIndividual/HUF/
Firm/AOP
RCM NO RCM
Partial - RCM
NOTE:
In case of Service Provider is Company, then Company is not liable to pay Service Tax on
RCM,
the service provider has to discharge the full amount of Service Tax. 32

33. Meaning:
Work Contract Service definition in simple terms:-
1). A contract where transfer of property in goods involved (on which VAT leviable). AND
2). Such contract is for carrying out certain specified activities in relation to Movable Or
Immovable property.
Partial-RCM:
1. Partial RCM is applicable when the SP/Sub-contractor is Individual/HUF/AOP (i.e., Other
than Company/Body Corporate).
2. Company (SR) and Sub-Contractor (SP) has to pay their share (50% each) of Service Tax
component as per the respective valuation adopted.
Works Contract – “Expenses”
Partial-RCM
Partial - RCM
33

34. If Contract is:
For Only
Supply of Material
Works Contract – “Expenses”
Partial-RCM
For Only
Work/Labour
Individual,
HUF, P.firm or AOP
Company
RCM
Applicable
“ O R ”
NO RCM
NO Service Tax Service Tax Applicable
But NO RCM
ST is payable by the
Service Provider/Labour
Contractor
1 2 3
Continued…
For
Supply of
Material
Work / Labour
Works Contract
SCOPE of Work in agreement;
Supply of Material only
SCOPE of Work in agreement;
Supply of Labour alone
SCOPE of Work in agreement;
Supply of Material
and
Supply of Labour 34

35. Service Tax =
Taxable Portion(Gross x %) x 15% x 50% share
Both SP & SR should pay 50%
of Total Service Tax Liability
“ OR ”
WC Received
Ex. APTRANSCO given
contract to Company
Individual,
HUF, P.firm or AOP
Company
RCM
Applicable
If Service Provider (or)
Sub-Contractor is
“ OR ”
Here;
SP is Company &
SR is APTRANSCO
Here;
SP is Company &
SR is APTRANSCO
Here;
SP is XYZ (sub-cont) &
SR is Company
Here;
SP is XYZ (sub-cont) &
SR is Company
WC Given
Ex. Company given
contract to XYZ (sub-
Contractor
NO RCM
“ OR ”
Option1: Option 2 (Composition Scheme):
Type of WC
Taxable
Portion
(on Gross)
a).Original Works 40%
b).Other Works 70%
Particulars Rs.
Gross Amount xxx
Less: Value of Material (xx)
Less: VAT/Sales Tax (xx)
'.' Taxable Portion xx
ST Calculation on
Turnover-Template
OR
OR
Service Tax = Taxable Portion x 15 %
SP – Service Provider
SR – Service Recipient
Work Contract
WC a) b) c)
definition
(Raw Material) (Labour)
35

36. Under this Mega Exemption Notification the following works contract services are exempt
from service tax. (relevant extracts)
Clause I2) Services provided to Government or local authority - Services provided to the
Government or local authority by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or alteration of –
(a) a civil structure or any other original works meant predominantly for a non-
industrial or non-commercial use;
(b) a historical monument, archaeological site or remains of national importance, archaeological
excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and
Remains Act, 1958;
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or
cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii)
sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other
persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act are exempt
from service tax.
Exemted Works Contract- per Notification No. 25/2012-ST, dated 20-6-2012
Notification No. 12/
2012-ST dt 20-6-2012
Relevant definitions
- Not.no. 25/2012
Continued…
36

37. Exempted Works Contract- per Notification No. 25/2012-ST, dated 20-6-2012
Clause I3) Services provided by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-
(a) a road, bridge, tunnel, or terminal for road transportation for use by general public;
(b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National
Urban Renewal Mission or Rajiv Awaas Yojana;
(c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of
1961) and meant predominantly for religious use by general public;
(d) a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant
for funeral, burial or cremation of deceased
Clause I4) Services by way of construction, erection, commissioning, or installation of
original works pertaining to,-
(a) an airport, port or railways, including monorail or metro;
(b) a single residential unit otherwise than as a part of a residential complex;
(c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by
competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the
Ministry of Housing and Urban Poverty Alleviation, Government of India;
(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or
(e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce
as food stuff excluding alcoholic beverages;
Continued…
37

38. Service Tax on Rental Income
Renting of Immovable Property: Rental Income on Immovable Property (Rent receivable on
Buildings) is taxed under the head “Renting of Immovable Property Services”. We need to
collect Service Tax on the Rent Amount from tenants.
Calculation of Service Tax: While calculating Service Tax on Rent Receipt, we need to exclude
Property Tax paid on the respective property from rental income as follows:
NOTE: As per Negative List NO service tax if the property is given for Residential Purpose.
38
Particulars Amount Amount
Rental for the Month 100,000
Add: Service Tax (see the working below) 12,750
Working - Calculation of service tax
a) Rental for the Month 100,000
b) Less: Property Tax for the Month -15,000
c) Taxable Value (for Service Tax Purpose) 85,000
d) ''.' Service Tax @ 15% on (c) above 12,750
'.' Total Amount to be Receivable 112,750

39. 39
Let’s recap
Check the Transaction in definition of SERVICE
Check Notifications/ Abatements/Exemptions/Provisions
Now check Place of Provision of Services Rules, 2012
Now check Point of Taxation Rules, 2011
Now pay tax within due dates
Now file the Service Tax returns within due dates.

40. 40
Thank you 
Jithender Simhadri