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Taxable Event under Service Tax [Submitted by Chandrashekara R., July 21, 2008 There is no service tax Act till date and service tax has been levied under Chapter V of the Finance act 1994 as amended. It also to be taken in to consideration that in Service tax most of the concepts are borrowed from Central Excise,, hence impact of the same should also to be taken in to consideration. The government derives its powers to levy taxes from constitution of India, Entry 92C of the union list of the seventh schedule to the constitution of India enables the union to levy "taxes on services" Service tax is charged at the specified rate under section 66 of the chapter V of the finance act, and the same would be payable under section 68 of the act. It is interesting to note that section 68 prescribes; every person providing taxable service to any person shall pay service tax at the rate specified in section 66. It means that Taxable event for payment of service tax is provision of service. However liability is deferred to receipt of consideration under Rule 6 of service tax rules. For Ex: if a service provider provides works contract service and he has billed Rs.2,00,000. Amount received for the same is 1,50,000 and balance amount is yet to be received in such case service provider has liability to pay service service tax only on such portion of consideration which had been received by service provider, i.e. liability arises only on receipt of consideration, this provision is provided because, to lessen the pain of service provider. Who cannot be compelled to pay service tax for which consideration has not been received or not likely to be received, just on the base of provision of service. It also can be said that this concept had been borrowed from central excise case Wallace Flour Mills Company Ltd. v CCE 1989(44) ELT 598 where it has been decided that, for excise taxable event is manufacture but duty can be levied and collected at a later stage for convenience of administration - Recovery of duty according to "date of removal" does not make removal to be the taxable event for Central Excise. In Matsushita TV and Audio Pvt Ltd v, CCE 2006(1) STR 162, Noida where it was held that providing of service is relevant factor, date of payment is not relevant. But if we refer to the definition of taxable service under section 65(105) which stipulates that "taxable service" means any service provided or to be provided. The amended definition of taxable service in 16th June 2005 focuses light on the aspect of advance receipt received by the service provider for which service is yet to be provided, i.e., even though tax is paid on advance receipt against which service is yet to be provided, provision of the service is being deferred. Here I would like to mention a case, which is very interesting, in prachar communications Ltd v.CCE 2006(2) STR 492 where it was held that, taxable event is not time of rendering of services but same is realization of payment for services so rendered - Tax liability has nexus with realization of payments for such services and value of such payments. Really, which is against the provision set out in section 65(105). Service tax rules 1994 provides certain exceptions under rule 2(1)(d) by which persons liable for payment of service tax shall be the persons specified under this rule, i.e. shown below except import of service as per section 66A, which is discussed in detail later para.
Under Section 66A of Finance Act, where services are received by person in India from outside India, is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided in a country other than India and received by a person who has his place of business, fixed establishment in India. Such taxable service received by a person in India shall be treated as if recipient himself had provided the service, since in such case receipt of service would be the taxable event. When the service is provided prior to the date on which that service became taxable, and consideration has been received after such service covered under service tax net, no service tax shall be payable on such case. In the case of CCE v Siemens Ltd.2006 (3) STR 488, it was held that the management consultancy services covered under service tax net w.e.f. 16-10-98. Therefore, any service provided before that date is not chargeable to service tax. The similar view was expressed earlier even under Central excise in case of Vazir Sultan Tobacco Company Ltd. v, CCE 1996(83) ELT.3 where it was held that Dutiability of goods manufactured prior to levy of duty but cleared thereafter are not liable to excise duty as the Collection of duty at the stage of removal is only for the sake of convenience. In a scenario wherein, service tax rate has been increased subsequently to the date of providing the service, service tax shall be payable at the rate which was existing on the date of provision of service. This view is supported by the view taken in case of CCE, Rajkot v, Reliance Industries Ltd 2008(10) STR 243, where it was held that Service Tax has to be demanded at the rate prevailing at the time of rendering of services and not the one prevailing at the time of collection. If the service provider is in the process of providing
continues services such as construction service, works contract etc. and
part of the services were provided prior to introduction of levy on such
services and other part were provided after such services became taxable
in such case, liability arises only on that part of service which were
provided after such introduction.
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