Service tax was introduced in India in 1994 and is a tax levied on the transaction of certain specified services. Initially only three services were taxable, but over time the scope has expanded significantly. Services now constitute over 60% of India's GDP. The rate of service tax has increased over time from 10% to the current 12% plus applicable cess. A key change in 2012 was the introduction of a "negative list" approach where all services are taxable unless specifically exempted, as opposed to the previous inclusive approach. Certain services are covered under "reverse charge" where the liability to pay the tax is on the service recipient rather than provider.

1. Introduction
• Service tax was introduced in the year 1994 through
Chapter V of Finance Act 1994 by then Finance minister
of India, Dr. Manmohan Singh.
• Service tax , as the name suggests, is a tax on Services.
It is a tax levied on the transaction of certain services
specified by the Central Government under the Finance
Act, 1994.
• Till 30.06.2012, 119 services were taxable.
• There is nothing called Service tax Act.

2. Introduction
•
Service sector has been growing phenomenally all over the world,
though it may very in degree & magnitude among the various
countries.
•
The service tax when introduced in 1994, taxed only three services,
namely stock brokers, general insurer and telephone services.
•
When introduced, even the policy maker would have never thought
that one day it will be the major revenue earner for the Govt. kitty.
•
In today’s context, the growth of an economy is evaluated in terms
of the growth & spread of the service tax too.
•
Services constitutes more than 60% of India’s GDP at present.
•
During the F.Y 1994-95, only Rs.410 crores were collected, which
has been grown to over Rs.80,000/- crores during F.Y 2011-12.

3. Authority to levy service tax
Vide Entry 97 of Schedule VII of the Constitution of India, the
Central Government levies Service tax through Chapter V of
the Finance Act, 1994.
Administration & Collection of service tax is done by Central
Excise Department.

4. Rate of Service tax
The effective rate of Service Tax at present ( w.e.f
01.04.2012 ) is 12.36% on the value of the taxable
service. It comprises of Service Tax @12% payable
on the “Gross value of taxable service”, Education
Cess @ 2% on the service tax amount, and
Secondary and Higher Education Cess @ 1% on
the service tax amount.

5. Who is liable to pay Service tax
• Normally, the ‘person’ who provides the taxable service
on receipt of service charges is responsible for paying
the Service Tax to the Government (Sec.68 (1) of the
Act).
• However in respect of services covered under reverse
charge category, the service recipient is required to pay
service tax.
• With the introduction of Point of taxation Rule 2011,
service tax liability arises if service is provided & invoice
is raised , though the amount is paid latter.

6. What is Reverse Charge
• Service tax being an Indirect tax akin to Excise duty or VAT it
is payable by the Service providers who in turn collect the
same from recipient.
• But Govt. has notified certain services where in service
recipient is required to deposit the service tax. This is what
called reverse charge.
• The burden to DEPOSIT service tax shifted from service
provider to recipient.
• Liability to pay service tax is both on service provider as well
as on recipient ( PARTIAL REVERSE CHARGE)
• Liabilities of both the service provider and service receiver are
independent of each other.
• Small scale benefit available only to the service provider, if
entitled.
• Service tax liability on the part of service recipient arises even
if a very nominal amount is paid.

7. Services covered under reverse
charge category
• Transportation of Goods by Road
• Hiring of any motor vehicle designed to carry
passenger
• Supply of manpower for any purpose including
security/detective agency service
• Works contract service
• Service provided by Advocate
• Service provided by arbitral tribunal
• Support service provided by Govt or local
authorities

8. Taxability
• Service tax is levied @12.36% on the
value of all services, other than those
services specified in the negative list ,
provided or agreed to be provided in the
taxable territories.
• Taxable Territories = India – J & K

9. Major Changes in Service Tax law
by Finance Act 2012
• Rate change from 10% to 12%
• Introduction of Negative list concept in
service tax (Exempted service).
• Scope of Reverse charge category
services widened.
• Introduction of Partial reverse charge

10. Consequence of Changes in service tax law
• Mandatory registration under service tax for
Service recipient.
• Service recipient is now required to deposit
service tax FOR REVERSE CHARGE
CATEGORY SERVICES.
• Additional financial burden on service recipient.
• Additional statutory compliance for service
recipient.
• Huge revenue for Govt.

11. Service tax liability under reverse
charge category
Sl.
No.
Description of services
Liability of
service
provider (%)
Liability of
service
recipient
(%)
01 Transportation of goods by road
Nil
100
02 Hiring of any motor vehicle designed
to carry passenger
(on abated value)
Nil
100
03 Hiring of any motor vehicle designed
to carry passenger
(on Full value)
60
40
25
75
04 Supply of Manpower for any purpose
including security services.

12. Service tax liability under reverse
charge category
Sl. No.
Description of services
Liability of
Liability of
service
service
provider (%) recipient
(%)
05
Works contract services
50
50
06
Services provided by
advocate
Nil
100
07
Service provided by
Govt. or local authority.
Nil
100
08
Support service provided
by arbitral tribunal
Nil
100

13. Abatement
Sl.
No.
Description of
Taxable service
Abatement Taxable
(%)
value (%)
01
Transportation of
Goods by Road
75
25
02
Hiring of motor
vehicle to carry
passenger
60
40
03
Renting of hotel,
guest house, club
or other commercial
place for residential
or lodging
40
60

14. Abatement
Sl. No. Description of
Taxable service
Abatement
(%)
Taxable value
(%)
04
Construction of
complex, building,
civil structure
intended for sale.
75
25
05
Works contractImmovable propertyOriginal works
60
40
06
Works contractImmovable propertyOther works
(finishing, repair etc)
40
60

15. Abatement
Sl. No. Description of
Taxable service
Abatement
(%)
Taxable value
(%)
07
Works contractMovable propertyRepair &
maintenance
30
70
08
Transport of
passenger by Air
60
40
09
Transport of goods
by Rail
70
30

16. What is Negative List
• Till 30.06.2012 , the definition of Service tax was
inclusive in nature.
• It means only those services were taxable which
are specified in Sec 65 of Finance Act 1994 as
amended from time to time.
• But with the introduction of concept of Negative
list, barring the 39 services, all other services
are now taxable w.e.f 01.07.2012.

17. Services covered under Negative list
•
Services provided for conduct of any religious
ceremony.
•
Services by way of technical testing or analysis
of newly developed drugs, vaccines etc.
•
Training or coaching relating to art, culture or
sports.
•
Sponsorship of sporting event organized by
approved board/federation.

18. Services covered under Negative list
• Services provided to the Govt, local authority or a govt.
authority by way of construction, erection,
commissioning, installation, completion, repair,
maintenance , renovation of civil works or any other
works meant predominantly for use other than for
commerce, industry or any other business or profession.
• Structure meant for use as (i) an educational (ii) clinical
(iii) art or (iv) cultural establishment.
• Canal, dam or other irrigation works
• Service provided to educational institute.

19. Services covered under Negative list
• Services provided by way of construction,
erection, commissioning, installation,
completion, repair, maintenance , renovation of
Road, bridge, tunnel or terminal for use by
general public.
• Structure meant for funeral, burial or cremation
of deceased.
• Services provided by way of construction,
erection, commissioning, installation,
completion, repair, maintenance , renovation of
Airport, port, railways or metro.

20. Services covered under Negative list
• Post harvest storage infrastructure for
agricultural produce such as cold storage etc.
• Services by way of collecting or providing news
by an independent journalist, PTI.
• Services by way of renting of a hotel, guest
house, club or commercial places for residential
or lodging purpose charging below Rs.1000 per
day.
• Services provide in relation to serving of food or
beverage by a restaurant or mess ( non air
-conditioned)

21. Services covered under Negative list
• Services provided by goods transport agency for
transportation of fruits, vegetables, egg, milk, food grain
or pulses.
• Amount charged for transportation by single goods
carriage is less than Rs.1500. (Multiple Rs.750).
• Transportation of passenger by air terminating at North
eastern region or by a contract carriage for
transportation of passenger excluding tourism and by
Rope way, tram way
• Vehicle parking for general public.

22. Hiring of Vehicle
• Prior to 01.07.2012, service tax on hiring of
vehicle was responsibility of vehicle owner.
• Now the same has been covered under reverse
charge category. As such liability to deposit
service tax is on service recipient .
• Service tax payable by service receipient comes
to Value*0.4*12.36 =Value*4.944%.

23. R & M Contract (Only labour)
• R & M contract such as R &M of office,
guest house etc. is management or
maintenance service and not covered
under Reverse charge category.
• Though R & M contract as R & M of Guest
house, office, hospital, electrical
installation involves only labour, it can not
be construed as Manpower Supply.
• Therefore service tax liability is on the part
of service provider.

24. R & M Contract/ Works contract
(Both labour & Material)
• The R & M may be either for movable assets or for
Immovable asset.
• Covered under partial reverse charge category.
• Service tax liability both for service provider as well as
service receipient.
• If the labour component can not be separated, it will be
treated as works contract.
• Abatement will apply.
• Immovable property : Original works 40% (taxable value)
•
: Other works 60% (taxable value)
• Movable property : 70% ( taxable value)

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