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Service Tax for PCC AND IPCC
[Submitted by CA. Rajendra Kumar P.
Chennai, Tamil Nadu]
May 16, 2009
- Service Tax is an Indirect Tax. There is no separate act called
Service Tax Act. The provisions to levy tax on services are contained in
the Financial Act, 1994.
- Based on the recommendation of the Tax Reforms Committee headed by
Dr. Raja J. Chelliah, Service Tax was introduced for the first time in
1994 by the 10th Finance Minister Dr. Manmohan Singh.
- The levy on taxable service was notified on 1st July 1994. Initially
three services were identified and taxed. They were telephone, Stock
Broking and General Insurance. The Government of India is following the
selective approach while taxing services. It means all services are not
taxed and services that are to be taxed are identified separately and
brought to tax.
- The Central Government is empowered to levy tax under Entry No: 82
to 92C. Accordingly Entry No: 92C deals with taxes on services. Article
268A of the constitution contains that taxes on services shall be levied
by the Government of India and such tax shall be collected and
appropriated by the Government of India and the state in India. Hence
the Central Government alone is empowered to levy tax on services in
India.
- The legislations relating to service tax are the
- Finance Act, 1994
- The Service Tax Rules, 1994
- Notifications issued by CBEC
- Circulars issued by CBEC
- CENVAT Credit Rules, 2004.
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The Service Tax Law is administrated by the CBEC. To assist and
Co-ordinate in the administration, a separate Directorate by name
Director General of Service Tax has been formed with Head Quarters at
Mumbai. The Directorate of Service Tax coordinates between the CBEC and
the Central Excise Commissionerates. It also monitors the collection and
assessment of Service Tax. The Service Tax reports received from various
commissionerates are combined by the Directorate to monitor the
performance.
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Service Tax is levied to the whole of India except the state of Jammu & Kashmir. Thus services provided in the state of Jammu & Kashmir are
not liable to tax.
-
Every person whether Individual or Sole Proprietor or Partnership or
Company or Charitable Trust or AOP or Government Organisation like
Corporation of Chennai are liable to pay service tax if they provide any
taxable services.
-
Sec 66 of the Finance Act, 1994 is the charging section. This section
contains the details of levy, the rate of tax and also empowers the
authorities to collect the tax. The levy of tax is on taxable service
provided or to be provided. The rate of tax is 12% from 18.04.2006 to
23.02.2009. From 24.02.2009 the rate of tax is 10%. The manner in which
service tax shall be collected is contained in the Service Tax Rules,
1994. Thus, not only service that is provided but also the service that
will be provided in future is taxable.
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Apart from tax, Education Cess is also levied on tax amount from
10.09.2004. The rate of Education Cess is 2%.
-
Apart from the Tax and Education Cess, Secondary and Higher
Education Cess is also levied from 11.05.2007. The rate of Secondary and
Higher Education Cess is 1%. Thus the total tax along with cess that
would be payable on or before 23th February 2009 is 12.36% and from 24th
February 2009 it is 10.3%
-
Sec 93 of the Finance Act empowers the Central Government to grant
exemptions from payment of Tax either in whole or part. Accordingly
certain exemptions are granted by issuing notifications.
-
All taxable services that are provided by any person to The United
Nations or an International Organisation is fully exempted from payment
of Service Tax. International Organisation means an International
Organisation declared by the Central Government in pursuance of Sec 3 of
the United Nations (Privileges and Immunities) Act, of 1947 to which the
provisions of the schedule the said act apply.
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When a taxable service is provided like maintenance or repair, or
Photocopy etc., it is usual that goods and materials may also be
transferred or sold or used. When any goods or materials are sold by the
service provider to the service receiver, the value of the goods and
materials sold is exempted from payment of service tax provided that
there is documentary evidence indicating the value of such goods or
materials. However, the exemption will not be applicable if credit of
duty paid on such goods or materials is taken by the service provider
under CENVAT Credit Rules, 2004 or where Credit has already been taken
the service provider pays the amount equal to the credit taken before
the sale of goods or materials.
-
Reserve Bank of India is exempted from levy of service tax when it
provides services to any person. Where any person provides services to
RBI, the said person is also exempted from payment of service tax. When
RBI receives a services from outside India the tax on said service is
exempted.
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Services provided by Technology Business Incubators or Science &
Technology Entrepreneurship recognized by National Science & Technology
Entrepreneurship Board of the Department of Science & Technology have
been exempted from service tax. The exemption shall be available only if TBI or STEP furnishes the details of the incubator along with
information received from incubatee to the Deputy or Assistant
Commissioner of Central Excise before availing the exemption. The STEP
or TBI shall also furnish information in required format before 30th
June of the Financial Year.
-
Where an incubatee is located within the TBI or STEP such incubatee
is exempted from payment of service tax subject to the following
conditions:-
a) The incubatee enters into an agreement with TBI or STEP to enable
himself to produce and develop hi-tech and innovative products and the
total business of incubatee does not exceed Rs.50Lakhs during previous
financial year. This exemption shall apply for a period of 3 years from
the date on which the incubatee or entrepreneur enters into an agreement
with TBI or STEP.
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When a cinematography film is exhibited such exhibition of film is
exempted from payment of tax provided the service is in relation to the
delivery of the content of film and such content is in digitized form
and after encryption it is transmitted directly to the cinema theatre
through the use of satellite, microwave or terrestrial communication
line and not by any physical means including CD or DVD.
-
In the case of Small Service Providers service tax is exempted
provided the value of taxable service does not exceed Rs.10Lakhs in the
previous financial year.
-
Public Authorities like Regional Transport Officer [RTO] which
issues fitness certificate for vehicles or Registrar of Companies which
accepts or registers charges from companies or the Department of
Explosives which issues certificate for fitness of foils etc are
exempted from payment of service tax as they are statutory bodies and
the fee collected goes directly to the Government Account.
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The rate of service tax as on date is 10%. The tax is calculated on
the value. The following provisions relating to value:-
a) Where the consideration is charged in money then the amount charged
is the value.
For Example: If a Chartered Accountant charges Rs.50000 to his client
then Rs.50000 is value on which tax shall be calculated.
b) If the consideration charged is either wholly or partly not in money
then value shall be equal to that part which is not in money also
calculated in money value which shall be deemed to be service tax.
For Example: A Chartered Accountant provides a service to Ford India and
instead of raising a bill for his service & receiving money he is
receiving one Ford Icon car as a consideration for value of service
provided. The value of Ford Icon will be calculated say Rs.5Lakhs which
will be deemed to include service tax also. Tax in this case will be
including cess will be 500000*(100/110.3)=Rs.46690.
c) A consideration is not ascertainable then the value on which the tax
has to be charged shall be the amount as prescribed under Service Tax
(Determination of Value) Rules 2006.
d) Where the amount charged by the service provider is inclusive of
service tax then the values will be treated as inclusive of tax.
For Example: If Rs.5Lakhs is charged as value and tax is not separately
marked by the service provider the tax shall be calculated as
500000*(100/110.3) = Rs.46690.
e) The gross amount charged shall include any amount received towards
the taxable service either before or during or after providing such
service. Thus service tax shall be payable on amounts received in
advance before service is actually provided if the service provider
receives any advance payment from the service receiver or any other
person towards the said service.
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Who is the person liable to pay service tax?
As per Sec 68(1) every person who is providing a taxable service to
another person is liable to pay service tax to the Government. However
Sub Section 2 of Section 68 empowers the Central Government to notify
any other class of person or persons who shall be liable to pay service
tax. The Central Government has notified such class of persons in rule
2(1d) of the Service Tax Rules 1994. These notified persons are
“Receivers of Taxable Services”.
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Who are those class of persons other than service providers notified
by Central Government to pay service tax?
In respect of the following services, which are provided by a person the
receiver of such service is made liable to pay service tax. In short in
respect of the following services the receiver is “Deemed Service
Provider.
a) General Insurance Business
b) Insurance Auxiliary Service
c) Transportation of goods by road
d) Distribution of mutual fund in business auxiliary service
e) Sponsorship Service
f) Services provided from outside India and received in India
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In respect of transportation of goods by road service the following
is applicable where the consignor or consignee of goods is
a) Any factory registered under or governed by the Factories Act 1948
b) Any Company formed or registered under the Companies Act 1956
c) Any Corporation established by or under any law
d) Any Society registered under the Societies Registration Act 1860 or
under any law corresponding to that Act in force in any part of India.
e) Any Cooperative Society established by or under any law
f) Any dealer of exciseable goods who is registered under the Central
Excise Act 1944 or the rules made there under or
g) Any body corporate established or a partnership firm registered by or
under any law,
the person liable for payment of freight either by himself or through
his agent he will be the person liable for the payment of service tax.
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Service tax has to be paid only when the value of taxable service is
realized by the service provider.
For Example: X Ltd invoiced Rs.10000 in Jan 2009 to Y Ltd. Y Ltd makes
payment in April 2009. When should X Ltd pay service tax?
X Ltd has to pay service tax only in April 2009, as he is realized money
only in April 2009.
In the given Situation let us assume that X Ltd has not received service
tax from Y Ltd but received only Rs.10000. Whether X Ltd will be liable
to pay service tax?
The law specifies that service tax has to be paid when the value of
taxable service is realized. In the given situation the value is
Rs.10000 only. Tax is a charge on value and not value. Hence X Ltd will
have to pay service tax. Even though he has not realized the service tax
component from Y Ltd. However Rs.10000 will be treated as inclusive of
service tax & tax will will be calculated in the following manner:-
10000*(10.3/110.3) = Rs.933/-
The rate of service tax w.e.f. 24th Feb 2009 is 10% and with cess the
total rate will be 10.3%. Prior to this date the rate of tax was 12.36%
with cess.
Let us assume that Mr.X received only a part payment say Rs.5000. Should
he pay service tax?
Even though only part payment has been realized yet tax has to be paid,
as it is the value of taxable service, which is realized.
Let us assume that Y Ltd becomes bankrupt and X Ltd treats this Rs.10000
as bad debt. Should X Ltd Pay service tax?
No. X Ltd need not pay any service tax if he has not realized any money
as service tax is payable only when value of taxable service is
realized.
-
When services are provided free of cost i.e. without receiving any
consideration in cash or in kind no service tax is paid.
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A service provider has received a sum of Rs.10000 from a prospective
service receiver i.e. an advance payment has been made by the service
received to the service provider. Should the service provider pay
service tax on this advance realization of money?
Yes. The service provider should pay service tax on advances received
also. As the definition of taxable service includes “any service
provided or to be provided” and any payment received before, during and
after the provision of taxable service is liable for payment of service
tax as per the service tax rules.
-
X Ltd is providing a service. This service is taxable from 1st Jan
2009. X Ltd provided certain services to Y Ltd in October 2008. Y Ltd
made the payment in Feb 2009 say Rs.10000. Should X Ltd pay service tax?
In this situation the service is provided before the date it became
taxable. Money is realized on the date when the service is taxable. As
per Section 66 the levy of service tax is on taxable service provided or
to be provided and the collection of service is realized. Hence the
payment of service tax will depend on when the service was provided if
the service is provided when does not taxable but money for that service
is realized when the service becomes taxable as in the above case in the
given situation above no service tax will be payable.
-
Where any person has collected any amount as service tax which is
not suppose to collect or where a person has collected an amount which
is more than the tax that is charged then he should immediately pay the
amount so collected to the credit of the Central Government.
-
Service tax has to be paid within the due date. If the assessee is
an individual, proprietorship firm or partnership firm the due date for
payment of tax is 5th of the month succeeding the quarter in which the
value of taxable service is realized.
| Value Realized |
Due Date |
| April to June |
5th July |
| July to September |
5th October |
| October to December |
5th January |
However for the quarter ended 31st March i.e. for the values realized in
January, February and March tax has to be paid 31st March itself.
In all cases other than individual, Proprietorship firm or partnership
firm the service tax is payable by 5th of the month succeeding the month
in which the value of taxable service is realized.
However for the value realized in the month of March tax has to be paid
by 31st March itself.
| Value Realized |
Due Date |
| April |
5th May |
| May |
5th June |
| June |
5th July |
| July |
5th August |
| August |
5th September |
| September |
5th October |
| October |
5th November |
| November |
5th December |
| December |
5th January |
| January |
5th February |
| February |
5th March |
| March |
31st March |
Where it is compulsory for assessee to make electronic payment of tax
through Internet Banking the due date is 6th instead of 5th. However for
the month of March it continues to be 31st March only.
-
Service tax has to be paid to the Central Government. The tax has to
be deposited only in Designated Banks i.e. the banks which are
authorized by Central Board of Excise and Customs to collect service tax
dues. Tax has to be paid by using a challan GAR-7. While filling up the
challan apart from regular details like registration no., name of the
assessee, the service tax, education cess, and secondary & higher
education cess should be mentioned separately. The Government has
specified separate accounting code called head of account for each
taxable service, education cess, secondary & higher education cess,
interest, penalty and other receipts like late fee. The proper head
account should be mentioned in the challan so that the bank is able to
give credit to the tax payment. Taxes paid in Non-Designated Banks will
amount to non-payment of tax.
-
Where tax is not paid on or before due date the assessee shall be
liable to pay interest from the date after the due date till the actual
date of payment of tax. The rate of interest shall not be less than 10%
and cannot be more than 36%. The current rate of interest notified by
the Central Government is 13%.
For Example: A person pays service tax on 12th of the month. The due
date is 5th. How many days delay is there?
Interest has to be paid for 7 days delay at the rate of 13% per annum.
-
If the assessee has paid excess service tax should that excess be
refunded or can the
assessee adjust the excess against future liabilities. If the assessee
has paid excess amount as service tax than what is required to pay then
such excess can be adjusted only if the excess is due to return of the
service provided.
For Example: A has provided service to B. A received Rs.40000 plus
service tax from B. The service tax so received by A is paid by him into
the Government Account within the due date. B returns a part of the
service to A. For the service returned in part A returns the money
amounting to Rs.10000 plus service tax to B. In this situation A will be
entered into adjust the service tax on Rs.10000, which he returned to B
as he already paid service tax on Rs.40000.
If there is a clerical mistake in calculation of service tax due to
which excess payment is made or if the assessee makes an excess payment
voluntarily he can adjust such excess in the next month or quarter as
the case may be. However he has to inform the Jurisdictional
Superintendent in writing within 15 days from the date of such
adjustment.
-
If the assessee is not able to correctly estimate the amount of tax
he has to pay for the month or the quarter then he may make the written
request to Deputy or the Assistant Commissioner of Central Excise for
making payment of service tax on provisional basis. The Concerned
Officer may allow the payment of tax on provisional basis on such value
as may be determined by him. At the time of filing of service tax return
the assessee who has paid tax on provisional basis shall file a
statement in Form ST-3A giving the details of the difference between the
tax provisionally paid and service tax liable to be paid for each month
or quarter. The concerned officer based on the Form ST-3A may complete
the assessment after verifying the necessary documents required.
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Special provision for payment of service tax in case of air travel
agents
Air travel agent is a taxable service. Instead of payment of service tax
at the regular rate the air travel agent have an option to pay tax at
the rate of 0.6% of the basic fare in case of domestic bookings and 1.2%
of the basic fare in the case of international bookings. The option
shall be exercised in the beginning of the financial year and once the
same is exercised it cannot be changed during the financial year. Basic
fare here means that fare on which commission is payable to the air
travel agent by the airline company.
-
Special provision for payment of service tax in the case of persons
carrying on life insurance business
Instead of paying service tax at the regular rate every person who is
carrying on life insurance business for example: LIC, Tata Life, etc.,
can pay service tax at the rate of 1% of the gross premium charged. This
option is available if the entire premium paid by the policy holder is
only towards the risk cover in the insurance or the part of the premium
payable towards the risk cover in life insurance is shown separately in
any of the documents issued by the insurer to the policy holder.
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Every person who is liable to pay service tax shall himself assess
such tax pay the same and file the return. The service tax return has to
be filed in form ST-3. The return has to be filed in duplicate with the
Superintendent. The return has to be filed for each half year, for the
period April to September the return has to be filed by 25th October and
for the period October to March the return has to be filed by 25th
April. If the last date i.e. due date for filing the return is holiday
the next working day will be treated as the due date.
-
While filing a return in form ST-3 the assessee has to enclose the
proof of payment of service tax i.e. form no. GAR-7. If the assessee is
filing the return for the first time then apart from GAR-7 the assessee
should also enclose a statement containing list of all accounts
maintained by him. If the assessee has numerous branches and return is
filed at what place a copy of memoranda received from the branch or
branches also be filed along with the return.
-
If the assessee is providing more than one taxable service one
return is sufficient for all taxable services. However the details of
value billed and value realized for each taxable service should be
stated separately in the return.
-
If the assessee has not provided any service during the period to
which the return relates or the assessee has not received any amount for
which tax has to be paid service tax return shall be filed i.e. filing
nil return is also a must.
-
Where the assessee has not filed the return on or before the due
date the return can be filed after paying late fee, which is prescribed
by the Government.
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Every return, which is filed, can be revised within 90 days from the
date of filing. Revised return cannot be filed if the revision is on
account of any classification, value or cenvat credit.
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E Filing of service tax returns for all assessees has been
introduced on a test basis for the first time at Chennai & Coimbatore
Commisionerates. Assessees in these Commissionerates can use the
facility of E Filing.
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Role of Chartered Accountants
A CA can render numerous services to his clients or the employer. The
nature of services that he can render are:-
a) A CA can be an advisor who can interpret the law, who can understand
the law and advice on applicability of service tax as since a selective
approach is adopted to collect tax by the Government it is necessary to
know which service tax is taxed and not taxed.
b) A CA can assist in registration, payment of tax, filing of returns
etc. A CA can does ensure procedural compliance of the law.
c) A CA is allowed to represent the assessee before the excise & service
tax authorities. A CA with experience & expertise can represent before
Commissioner Appeals & Tribunal successfully.
d) Service tax is a new tax imposed in 1994. A CA can assist in audit of
the books of accounts of the assessee with special reference to service
tax and can ensure that the assessee has followed all the provisions of
the act and the rules.
e) A CA with continuous reading skills can keep pace with latest
developments in service tax law like notifications, circulars, etc.,
which will add value to his clients or the employer.
ALL THE BEST
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