Service tax training jan 2015

SERVICE TAX
Updated till 01/10/2014
Sshailesh L. Prajapati

Service Tax - Basics
 Chapter V of the Finance Act, 1994 (Sections 64 to 96) and Chapter
VA of the Finance Act, 1994 (Sections 96A to 96I) both the Chapters
together are hereinafter referred to as the “Act”, as amended from
time to time, provide for the levy of service tax and constitute the
law governing service tax.
 The Act is administered by the Excise department. The rate of
service tax is 12% w.e.f. 1-4-2012.
 Further, the Finance (No.2) Act, 2004 has also levied an education
cess @ 2% on the amount of the service tax w.e.f. 10-9-2004 and
 Finance Act, 2007 has levied an additional “secondary and higher
education cess” @ 1% on the amount of service tax w.e.f. 11-5-
2007. Sshailesh L. Prajapati

Service Tax- Basics
 Thus, the effective rate of Service Tax(including Cess) is
12.36%.
 The Finance Act, 2012 w.e.f. 1-7-2012 made a paradigm shift
in the law governing service tax.
 Taxation of services is now based on what is popularly known
as ‘Negative List of Services’’.
 By section 64(1), the Act extends to the whole of India except
the state of Jammu and Kashmir, and by section 64(3), the
levy applies to “taxable services provided”.

Charging of Service Tax Sec: 66B
 The charging section 66B provides that there shall be
levied a tax @12% of ‘the value of all services other
than those specified in the negative list provided or
agreed to be provided in the taxable territory, by one
person to another…’. Thus, the features of the charging
section are :
 the charge is othe service provided is not specified in
the ‘negative list’;
 the ‘service’ provided or agreed to provided by one
person to another; Sshailesh L. Prajapati

Charging of Service Tax Sec: 66B
 the service is provided in the ‘taxable territory’;
 the rate of tax i d. s 12% on value of all services.
 What is Service?
 Definition [Section 65B(44)] ‘Service’ means –
 any activity
 for consideration
 carried out by a person for another
 and includes a ‘declared service’
 but excludes ‘specified transactions’

Negative List of Services : Section
66D
 There are many Services which are covered under
negative list of services.
 For details, go thru the Service Tax Act and Rules.

Place of Provision of Service
 The service must be provided in the ‘Taxable Territory’ –
Place of provision of service
 Section 66B clearly provides that the taxable event i.e. the
‘service’ must happen in the ‘taxable territory’.
 The term ‘taxable territory’ has been defined in section
65B(52) as ‘the territory to which the provisions of this
Chapter apply’. By section 64(1) Chapter V of the Finance
Act, 1994 (i.e. the law governing service tax) extends to the
whole of ‘India’ except the State of Jammu & Kashmir.

POP Rules
 The Place of Provision of Services Rules, 2012 [“PoP
Rules”] is notified vide Notification No. 28/2012-ST
dated 20-6-2012 which is effective from 1-7-2012.
 The PoP Rules would be effective for the first time in
India. Prior to 1-7-2012, there were separate rules for
determining ‘import of services’ [Taxation of Services
(Provided from Outside and Received in India) Rules,
2006] and ‘export of services’ [Export of Services Rules,
2005] but no rules to determine theplace of provision of
services.

POP Rules
 However, w.e.f. 1-7-2012, the PoP Rules has been enacted to
determine when the services would be considered as
provided in the taxable territory and when it would not.
 Thus, the present PoP Rules is neutral to Imports and
Exports.
 With the introduction of the PoP Rules, the import and export
rules1 have been rescinded. The only requirement would be
whether a service is provided in the taxable territory
(pursuant to place of provision of service rules).
 If yes – liable, if no – not liable.

POP Rules
 The Place of Provision of Service Rules is basically to
determine the place of provision of a service.
 The essence of the rules is that service is to be taxed in the
jurisdiction of the place of consumption of service.
 The basic rule is that the place of provision of service shall be
the location of the service receiver.
 However, exceptions have been provided in case of
performance based services, immovable property based
services, certain specified services and transportation
service.

POP Rules ( Summed up )
 All services (except if specifically covered below)
 Location of service recipient. If location of service recipient
not available in ordinary course, location of service
provider.
 Specified ‘performance based’ services- (a) Work upon
goods (b) Work upon individuals.
 Location of performance of service Exceptions: (1) Remote
access to goods through electronic means. (2) Goods
imported for repairs and re-exported without use.

 Services relating to ‘immovable property’
 Where the immovable property is located or intended to be
located.
 Services relating to ‘events’
 Where the event is actually held
 Where the service provider and receiver are located in
the taxable territory
 Location of service recipient notwithstanding the location of
performance, immovable property or event.

 Performance based / immovable property based / event
based services provided at more than one location
including a location in the taxable territory.
 Location in the taxable territory where the greatest
proportion of service is provided.
 Goods transport (other than by a goods transportation
agency or by way of mail or courier).
 Location of destination of goods

 Specified services viz; services provided to account
holders by banks, etc.; online information and
database access or retrieval services; services by
intermediaries of goods / services; and hiring of
means of transport (other than aircraft and vessels
except yachts) up to a month.
 Location of service provider
 Passenger transportation services
 Place of embarkation for ‘continuous journey’Sshailesh L. Prajapati

 Goods Transport Agency services (i.e. transport by road
in a goods carriage)
 Location of the person liable to pay service tax
 Services on-board a conveyance
 First scheduled point of departure
 Services prima facie fitting into two or more of the above
rules – tie-breaker
 Later rule to apply.

Export of Services
 Following Conditions are required to satisfied:
 Service provider is
 located in taxable territory;
 Service recipient is located outside India;
 The service is not a service specified in the negative list;
 The place of provision of service is outside India;
 Payment of service is received in convertible foreign exchange;
and
 Service provider and service recipient are not merely
establishments of same persons

Point of Taxation Rules 2011
 It is to decide the point of time when a service is
deemed to have been provided for the purpose of
collection of service tax and determination of rate of
service tax.
 Basic Rules:
 earlier of
 (i) date of issue of invoice / date of completion of
provision of service; or
 (ii) date of receipt of payment

 Where the invoice is issued within 30/45 days (as the
case maybe refer para 9.4.5 of Chapter 9 hereinafter) of
the date of completion of provision of services,
 the earliest of the following dates:
 1. Date of issue of invoice
 2. Date of receipt of payment

 Where the invoice is not issued within 30/45 days (as
the case maybe refer para 9.4.5 of Chapter 9
hereinafter) of the date of completion of provision of
services,
 the earliest of the following dates:
 i. Date of completion of provision of services
 ii. Date of receipt of payment.

 Thus it is important that the invoice is issued within
30/45 days (as the case maybe refer para 9.4.5 of
Chapter 9 hereinafter) from the date of completion of
service failing which the due date may be advanced
resulting in interest and penalty.
 In any case, Rule 4A of the Service Tax Rules, 1994
mandates the issue of invoice within 30/45 days (as the
case maybe refer para 9.4.5 of Chapter 9 hereinafter) of
completion of provision of service

POT in certain Cases
 PoT in case of excess payments received upto
1,000/-
 In case where service provider receives excess
payments not exceeding 1000/- in respect of an invoice,
the point of taxation for such excess amount at the
service provider’s option, be the date of issue of invoice
or date of completion of service if invoice is not issued
within prescribed time.

 The point of taxation in case of payment of tax under reverse
charge shall be the date on which payment is made.
 Presently, if the payment is not made to the service provider within
6 months from the invoice date the due date for payment would
automatically relate back i.e. the PoT date would be the date of
issue of invoice by the service provider or the date of completion of
service by the service provider instead of the date of disbursement
of payment.
 Thus, this would result in a case where post six months, a service
recipient may have to pay interest.
 However, in order to avoid the above difficulty, it has been provided
that w.e.f. 1-10-2014 where the payment is not made to the service
provider within three months from the invoice date, the POT would
be the date immediately following the said period of three months.

 Determination of point of taxation in case of associated
enterprises;
 In case where –
 a. The transaction is with an associated enterprise as defined
in section 92A of the Income-tax Act, 1961; and
 b. The service provider is located outside India
 the point of taxation shall be the earliest of the following dates
–
 i. date on which debit is made in the books of account of the
service recipient; or
 ii. date on which payment has been made.Sshailesh L. Prajapati

Valuation of Taxable Services. Sec
67
 Section 67 deals with valuation of taxable services.
 Where the “consideration” for provision of the service
is in money, the gross amount charged by the service
provider for such services provided by him shall be
the value of taxable service;
 Where the “consideration” for provision of the service
is not wholly or partly in money, then the value of
taxable service shall be such amount in money as
with the addition of service tax charged, be equivalent
to the consideration; Sshailesh L. Prajapati

67
 Where the “consideration” for provision of the service is
not ascertainable the value of taxable service shall be
determined in a manner laid down by the Rules which
the Central Government has notified.
 Reimbursement of expenditure
 Recovery of reimbursements would also be included in
the taxable value unless the recovery by the service
provider is as a “pure agent” of the client.

67
 Valuation of taxable services to include advance
payments:
 Payments received before, during or after the provision
of taxable service would form part of gross amount
charged. Thus, the payments received even before the
provision of taxable service would form part of the gross
amount for charging service tax.
 Further the charging section viz., section 66B of the Act
also covers “services agreed to be provided”. Thus,
service tax would be payable even onadvances
received.

67
 Computation of service tax where bill is inclusive of
service tax :
 Value of Taxable Service = 100 x Total amount charge
100+R
 where, R is the rate of tax.
 Thus, the amount of service tax would be:
 Amount of service tax = R x Total amount charged
100+R
 where, R is the rate of tax.

67
 Valuation of service portion in execution of Works
Contract:
 Service tax is leviable on the services portion in the
execution of a “works contract”.
 “Works Contract” would also include construction,
repairs, maintenance etc. of ‘movable property’. Thus a
contract to construct a ship or aircraft or a bus-body or
railway-coach, etc. or repair and maintenance of air-
conditioners, computers, etc. would be considered as
“works contracts” for the purpose of service tax.Sshailesh L. Prajapati

67
 Methods of Valuation in case of works contract:
 Service tax is required to be paid on the gross amount charged for
the works contract less the value of transfer of property in goods
involved in the execution of the said works contract.
 The gross amount charged would, however, not include VAT or
sales tax paid on transfer of property in goods involved in the
execution of the said works contract.
 Thus, two components are required to be ascertained :
 a. the gross amount charged for the works contract; and
 b. the value of the goods involved in the execution of works
contracts; Sshailesh L. Prajapati

67
 The value of goods would be deducted from the gross
amount charged to arrive at the value of the services
portion in the works contract on which service tax at the
applicable rates would be payable.
 For determining the value of goods involved in the
execution of a works contract where VAT / sales tax has
been paid on the actual value of transfer of property in
goods then such value shall be adopted.

67
 However, if the value of services under the method
mentioned above has not been determined the value of
services shall be determined as under: WEF 01/10/2014.
 Works Contract for original works
 40% of total amount
 Works Contract for maintenance/ repair /reconditioning
/restoration /servicing of any goods
 70% of total amount

67
 For other contracts including maintenance, repair,
completion & finishing services in respect of an
immovable property:
 70% of total amount.
 Original works means all new construction, all types of
additions and alterations to abandoned or damaged
structures to make them workable, and erection/
commissioning/ installation of plant, machinery or
equipment or structures whether pre-fabricated/Sshailesh L. Prajapati

Taxable Person and Reverse Charge S-
68.
 Section 68(2) the Central Government can notify –
 The services where a person other than a service provider
(e.g. the service recipient) can be made liable to pay
service tax; and
 The extent to which service tax would be payable by such
person and the service provider.
 The Central Government has issued Notification No.
30/2012-ST dated 20-6-2012 under section 68(2) of the Act
which is effective from1-7-2012.

Reverse Charge Mechanism
Sr. Description of Taxable Service
Service Provider Service Receiver
1 Insurance agent’s services to Insurers Nil
2
Goods Transport Agency (GTA) services for specified persons liable to pay
freight (See Note 1) Nil
3
Sponsorship services to Corporates/Firms/LLPs located in the taxable
territory Nil
4
Advocate’s/Legal firm’s/Arbitral Tribunal’s services to business entities
located in taxable territory Nil
5
Support services (except renting of immovable property) by Government
or local authority to business Entity Nil
6
Services provided to corporate business entities located in taxable
territory by Individuals/HUF/ Firm/LLP/AOP located in taxable territory
(a) Motor Vehicle renting services to corporates not in similar line of
business • Abatement claimed • Abatement not claimed – Up to 30-9-
2014 – From 1-10-2014 (b) Supply of Manpower (c) Security Services (d)
Works Contract Services(See Note 2)
Nil 60% 50%
25% 25%
50%
100% 40%
50% 75%
75% 50%
7
Services provided by any person located in non taxable territory and
received by any person located in taxable territory Nil 100%
% of Service Tax Payable

Bundled Services
 Section 66F also provides for rules to determine the
nature of a “bundled service” for the purpose of taxation.
 “Bundled service” means a bundle of provision of
various services wherein an element of provision of one
service is combined with an element or elements of
provision of any other service or services.
 Example, air transport services provided by airlines
wherein an element of transportation of passenger by air
is combined with an element of provision of catering
service on board. Sshailesh L. Prajapati

Bundled Services
 The nature of such a “bundled service” is determined by the
following rules:
 If various elements of such service are naturally bundled in
the ordinary course of business, it shall be treated as
provision of the single service which gives such bundle its
essential character;
 If various elements of such service are not naturally
bundled in the ordinary course of business, it shall be
treated as provision of the single service which results in
highest liability of service taxSshailesh L. Prajapati

Bundled Services
 The TRU has clarified that some of the indicators to determine
whether the services are bundled in the ordinary course of business
are:
 The perception or expectation of the consumer/i. recipient of the
service;
 The general practice of service providers in a particular area of
business;
 The nature of various services in the bundle of 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;Sshailesh L. Prajapati

Procedures of Registration
 Application for registration is to be made by every person liable for
paying the service tax in Form ST-1 within 30 days from the date on
which service tax is levied or within 30 days from the date of
commencement of business, whichever is later, to the concerned
Superintendent of Central Excise having jurisdiction. Within 15 days
of making the application the service provider is required to submit
the following
 i. Copy of Permanent Account number (PAN)
 ii. Proof of Residence
 iii. Constitution of the Applicant
 iv. Power of Attorney in respect of authorised person (s)
 For procedure of application electronically, see website:
www.aces.gov.in Sshailesh L. Prajapati

Procedures of Registration
 Every service provider whose “aggregate value of all taxable
services” in a financial year from one or more premises exceeds 9
lakhs shall make application to the Jurisdictional Superintendent of
Central Excise in the form ST-1 within 30 days of exceeding the
aggregate value of 9 lakhs. The “aggregate value” is to be
reckoned on the basis of sum total of first consecutive payments
‘received’ during the financial year towards taxable services. The
payments received towards wholly exempt services are to be
excluded.
 Every input service distributor (see definition in CENVAT Credit
Rules, 2004) shall make an application for registration in form
 ST-1 to the Jurisdictional Superintendent of Central Excise within 30
days of commencement of business.

Premises to be registered
 General Rule –
 If taxable services are provided from more than one premises,
separate application for registration are to be made in respect of
each
 such premises or office.
 Centralised registration –
 Where a person, liable to pay service tax on a taxable service,–
 I Provides such service from more i. than one premises or offices;
 ii. Receives such service in more than one premises or offices;
 iii. Is having more than one premises or offices, which are engaged in
relation to such service in any manner making such person liable for
paying service tax

Premises to be registered
 and has a centralised billing or centralised accounting
systems in respect of such service, located in one or
more offices or premises, he may, at his option, register
such premises or offices from where such centralized
billing or centralised accounting systems are located
with the previous permission of the Commissioner in
whose jurisdiction the premises or offices from where
centralised billing or centralised accounting is done, are
located.

Certificate of Registration
 The Superintendent of Central Excise shall after due
verification of the Form ST-1, grant a certificate of
registration in Form ST-2 within 7 days from the date of
receipt of the application. If registration certificate is not
granted within 7 days, the registration applied for shall
be deemed to have been granted.

Cancellation of Registration
certificate
 Every registered assessee who ceases to provide
taxable service shall surrender his registration certificate
immediately to the Superintendent of Central Excise.
Where an assessee makes an application for
cancellation or surrenders his certificate, the concerned
Superintendent of Central Excise shall cancel the
registration certificate after verifying that the assessee
has paid all the dues under the service tax law.

Payment of Service Tax [Section 68 &
Rules 2(1) (d) and 6]
 Service tax on the value of taxable services which is
deemed to be provided as per the Point of Taxation
Rules, 2011 during any calendar month (except March)
is payable by the
 6th of the month immediately following the said
calendar month in case of assessee’s depositing tax
electronically through internet banking.
 5th of the month immediately following the said
calendar month in other cases.Sshailesh L. Prajapati

 However, where the assessee is an individual or a proprietary
firm or a partnership firm (including Limited Liabilities
Partnerships) service tax on the value of taxable services
which is deemed to be provided as per the Point of Taxation
Rules, 2011 during any quarter (except quarter ended March)
is payable by the
 6th of the month immediately following the said quarter in
case of assessee’s depositing tax electronically through
internet banking.
 5th of the month immediately following the said quarter in
other cases. Sshailesh L. Prajapati

 Further, the facility of paying service tax on payment
basis is available to individuals and partnership firms
(including limited liability partnership) up to a turnover of
50 lakh in a financial year provided the taxable turnover
did not exceed this limit in the previous financial year.
 For computing the above limits, the turnover of the
whole entity is required to be summed up and not any
single registration.

Payment of Service Tax in Advance
 An assessee has an option to pay an amount as service
tax in advance. The amount so paid in advance is
allowed to be adjusted against any subsequent period’s
tax liability provided:
 The details of the advance paid tax is intimated to the
Jurisdictional Superintendent of Central Excise within
15 days from the date of payment; and
 ii. The details of payment and adjustment of a tax paid
in advance is disclosed in the returns

Manner of Payment
 The service tax shall be paid in Form GAR-7 challan into
the designated bank. The said Form GAR-7 challan for
each month/quarter is to be submitted with the half-
yearly return.
 Presently, any assessee who has paid service tax of
rupees One lakh or more (either in cash or through
cenvat credit) in the preceding financial year shall be
liable to discharge his service tax liability for the
immediate succeeding financial year electronically
through internet banking.

Manner of Payment
 For procedure for e-payment, refer website:
www.aces.gov.in. However w.e.f 1-10-2014 all the
assessees are liable to pay service tax electronically
through internet banking irrespective of the amount of
service tax payable.
 However, the Assistant Commissioner/Deputy
Commissioner of Central Excise has been empowered
(for reasons to be recorded in writing) to allow the
assessee to deposit Service Tax by any mode other than
internet banking.

Interest on delayed Payment of Tax
 Failure to pay service tax on time attracts simple interest
u/s. 75 at a rate not below 10% p.a. but not exceeding
36% p.a. as may be
 notified by the Central Government. The prescribed
interest rate is 18% p.a. w.e.f. 1-3-2011. The
Government has vide Notification No. 12/2014–ST dated
11-7-2014 w.e.f 1-10-2014 provided a slab system of
interest rate ranging from 18%-30% as mentioned in
next slide.

Interest on delayed Payment of Tax
 Delayed period involved
 Up to 6 months : 18% p.a.
 From 6 months to 1 year : 24% p.a.
 Above 1 year : 30% p.a.
 The rate of interest would be 15% (i.e. 18% less ii. 3% of
concession) for tax-payers –
 Whose turnover, in any of the financial years covered by a show
cause notice issued under section 73 does not exceed 60 lakhs;
or
 Whose turnover in the immediately preceding financial year does
not exceed 60 lakhs.

Returns
 The assessee must himself assess the service tax due
on the services provided by him and thereafter furnish
the returns.
 The returns are to be filed electronically in Form ST-3 on
half-yearly basis by the 25th of the month following the
particular half year.
 For procedure for filing returns electronically see
website: www.aces.gov.in
 A ‘Nil’ return also has to be filed.

Thanks.. Compiled from various notes
Disclaimer : These are prepared for
guidance and for training and not to
relied upon for any specific consultation
or specific area

Service tax training jan 2015

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