Q. What is Service Tax?
A. It is a tax levied on the transaction of certain specified services by the Central Government under the Finance Act, 1994. It is an indirect tax, which means that normally the service provider pays the tax and recovers the amount from the recipient of taxable service
Q. Can recipient of service be also asked to pay service tax
A. In certain cases Government may shift the liability of payment of service tax to the receiver of service as a measure of administrative convenience. It is often referred to as ‘reverse charge’ in common language. [Refer Question 1.8]
Q. Under which authority service tax is levied?
A. 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. The taxable services are defined in section 65 of the Finance Act, 1994. Section 66 is the charging section of the said Act.
Q. What are the taxable services?
A. The list of the services is available at home page of this web site www.servicetaxinda.co.in . The Accounting Heads are also mentioned in the list, which need to be mentioned on the tax payment documents (GAR-7 or TR-6), while depositing the Service Tax and other related dues in the banks.
Q. How to decide whether Service Tax is payable by a person?
A. A.) If you are engaged in providing service to your customer, please check:—
i. Whether the service rendered by you is falling under the scope of any of the taxable services .
ii. Whether there is a general or specific exemption available for the category of service provided under any notification.
iii. Whether you are entitled to the value based exemption of Rs. 10 Lakhs available for small service
iv. Whether the service charges were received for the services provided or to be provided.
In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received subject to the eligible abatements.(if any)
B.) If you are availing the services of the service provider, please check:—
a. Whether the service received by you is falling under the scope of any of the services where the recipient of the service is liable to pay Service Tax in terms of Section 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.
b. In case the service received by recipients of such service is falling under the scope of any of the taxable services defined under section 65 of the Finance Act, 1994, the recipients of the service shall pay Service Tax having regard to the exemptions/abatements admissible, if any.
c. Please note that the value based exemption for small scale service providers under Notification No. 6/2005-ST, dated 01.03.2005 effective from 01.04.2005 is not admissible to such recipients of taxable services.
Q. What is the rate of Service Tax?
A. At present, the rate of Service Tax is 12%, payable on the “gross value of taxable
service”. In addition to this, Education Cess is payable at the rate of 3% on the Service Tax amount.
(Total: 12.36% on the value of the taxable service). – Refer section 66 of the Finance Act, 1994 (12% Service Tax), Section 85 of the Finance Act, 2004 (2% Education Cess) and Section 126 of the Finance Act, 2007(1% Secondary and Higher Education Cess). The rate of tax may change during Annual Budget by a Finance Act.
History of Service Tax Rates:
The table below shows the service tax rates from time to time .
Secondary & Higher Edu. Cess
|2.||14.05.2003 to to 9.09.2004||8%||Nil||–|
|3.||10.09.2004||10%||2% of the S.T.||–|
|4.||18.04.2006||12%||2% of the S.T.||–|
|5.||12 .05. 2007. to 23.2.2009||12%||2% of the S.T||1% of the S.T.|
Q. What is meant by “value of taxable service”?
A. i. Normally, the “value of taxable service” means, the gross amount received by the service provider for the taxable service provided or to be provided by him. Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006, has to be followed to arrive at the taxable value.
ii. For certain services, a specified percentage of abatement is allowed from the gross amount collected for rendering the services, subject to the conditions, inter alia, that CENVAT Credit has not been availed by the service provider and cost of goods sold in the process of providing the subject service is not deducted in terms of Notification No. 12/2003-ST, dated 20.6.2003.
iii. There is also a composition scheme for ‘works contract service’, where the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4% of the gross amount charged for the works contract..
Q. Who is liable to pay Service Tax?
A. Generally, the ‘person’ who provides the taxable service on receipt of service
charges is responsible for paying the Service Tax to the Government (Section 68
(1) of the Act), except the following:
1. the recipient of such services in India is liable to pay Service Tax, where taxable services are provided by foreign service providers with no establishment in India;
2. the Service Tax is to be paid by the Insurance Company for the services in relation to Insurance Auxiliary Service by an Insurance Agent.
3. the person who pays or is liable to pay freight for the taxable services provided by a Goods Transport Agency for transport of goods by road, is liable to pay Service Tax, if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a corporation (d) a society (e) a co-operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm
4. the taxable services provided by Mutual Fund Distributors in relation to
distribution of Mutual Fund. In this regard, Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service. Refer: Sec. 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.
Q. Is there any exemption from payment of service tax to Diplomatic Missions for official use and individuals and their family members posted in a Diplomatic Mission?
A. Yes, exemption from payment of service tax relating to all taxable services is available to Diplomatic Missions for official use of services as well as for the personal use or for the use of the family members of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consular post in India, by notifications 33/2007- ST dated 23rd May, 2007 and 34/2007-ST dated 23rd May, 2007 respectively, but subject to procedures specified under those notifications.
Q. If yes, what procedure is required to be followed for exemption from payment of service tax to Diplomatic Missions for official use of services?
A. The following procedure is specified:
i. the foreign diplomatic mission or consular post in India, is issued with a certificate by the Protocol Division of the Ministry of External Affairs that it is entitled to exemption from service tax, as stipulated in the certificate, based on the principle of reciprocity;
ii. the head of such foreign diplomatic mission or consular post, or any person of such mission or post authorized by him, shall furnish to the provider of taxable service, a copy of such certificate duly authenticated by him or such authorized person, along with an undertaking in original, signed by him or such authorized person, bearing running serial number commencing from a financial year and stating that the services received are for official purpose of the said foreign diplomatic mission or consular post;
iii. the head of such foreign diplomatic mission or consular post or such authorized person shall maintain an account of such undertakings issued during a financial year and such account shall contain:—
(a) the serial number and date of issue of such undertakings;
(b) the name and the registration number of the provider of taxable service; and
(c) the description of taxable service and invoice number.
iv. the invoice or bill or as the case may be, the challan issued under the provision contained in rule 4A of the Service Tax Rules, 1994 shall, in addition to the information required to be furnished under the said rule, contain the serial number and the date of the undertaking furnished by the said head of foreign diplomatic mission or consular post; and
v. The provider of taxable service shall retain the documents referred to in point number (i) above along with a duplicate copy of invoice issued, for the purposes of verification.
Service Tax Registration
Q. What is meant by registration? Who should apply for registration under Service Tax law?
A. • Every person providing a taxable service of value exceeding Rs. 9 lakhs, is required to register with the central excise or service tax office having jurisdiction over the office of such service provider.
• In case a recipient is liable to pay service tax, registration is required by him.
• There is also provision for centralised registration
• The ‘Input Service Distributors’ also require registering themselves.
Q. Why registration is necessary?
A. Registration is identification of an assessee. Identification is necessary to deposit service tax, file returns and undertake various processes ordained by law relating to service tax.
Q. What is the meaning of an ‘assessee’ in relation to Service Tax?
A. ‘Assessee’ means a person liable to pay Service Tax and includes his agent.
Q. When can a prospective assessee obtain registration?
A. i. When a person commences business of providing an existing taxable service, he is required to register himself within 30 days of such commencement.
ii. In case a new taxable service is introduced, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.
Q. What does the word “person” appearing in the definition of taxable service mean?
A. The word “Person” shall include any company or association or body of individuals, whether incorporated or not. Thus this expression includes any individual, HUF, proprietary firm or partnership firm, company, trust, institution, society etc.
Q. What is the procedure for Registration? Who should be approached for Service Tax Registration?
A. An application in Form ST-1 (in duplicate) has to be filed before the jurisdictional Central Excise/Service Tax officer. Certain documents to verify the correctness of declaration in the said form as may be required by the registering authority, such as copy of PAN card, proof of address of business premise(s), constitution of the business [proprietorship, firm, company, trust, institute etc.] etc. The copies may be self-certified by the applicant. In case of doubts in select cases, original documents may have to be presented for across the counter verification and return.
Q. Is there any provision for centralized registration?
A. Service providers having centralised accounting or centralised billing system, at their option, can have Centralised registration at one or more places. Commissioner of Central Excise/Service Tax in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration.
Q. Does one require registration certificates for each service separately?
A. Only one Registration certificate is to be taken even if the person provides more than one service from the same premises for which registration is sought. If there is centralised registration, only one registration certificate is required for services provided from different premises, declared in the application for centralized registration.
Q. What is to be done when the existing assessee commences providing of a service not mentioned in the registration certificate?
A. An application has to be made in ST-1 for amendment (endorsement) in the Registration certificate indicating only the amendment/rectification required to be made in the registration certificate, along with a copy of the original registration certificate. No fresh documents are required for verification by the officer unless there is change in the details given in original or earlier application(s).
Q. Is PAN allotted by the Income Tax Department a must for obtaining Service Tax Registration?
A. Having PAN is essential because the Service Tax Registration number is generated based on the PAN issued by the Income Tax Department. However, in the absence of PAN, a temporary Service Tax registration number would be issued for assessees who are not having PAN at the time of filing the application (ST-1) for Service Tax registration till such time they obtain PAN. Once the PAN is obtained, the Service Tax assessee should obtain the PAN – based Service Tax Registration number.
Q. Cessation of business of providing taxable service -what is to be done with the Service Tax Registration?
A. The Service Tax Registration certificate (ST-2) should be surrendered to the concerned Central Excise/Service Tax authorities.
Q. A taxpayer transfers his business to another person – what is to be done with the Registration?
A. In the event of transfer of the business, the transferee should obtain a fresh certificate of Service Tax registration. The transferee will have his own PAN.
Q. Whether a service provider can make payment of Service Tax and file returns before the grant of registration by the proper officer?
A. No. However, service provider should apply well in advance to obtain registration, which is normally granted within 7 days of filing of application. Since service tax is payable once in a month or quarter, an assessee gets sufficient time for registration.
Q. Is there any penal provision for non-registration?
A. A person, who fails to take registration within the time stipulated shall be liable to pay penalty which may extend to Rs. 5,000/- or Rs. 200/- per day after the due date, which ever is higher. The provisions says, a person fails to “take” registration, whereas it should have been fail to “apply” registration, as some time the Department take it own time to grant the registration as recognized by the Board in its instruction Dy. No.294/Com(ST)/2007 dated 03.09.2007.
Q. If a registration certificate issued by the Department is lost, can duplicate be issued? What is the procedure in this regard?.
A. The assessee is required to make written request for ‘duplicate’ registration certificate. The same will be issued by the Department after suitable entry in the registers/ records of the Office.
PAYMENT OF SERVICE TAX
Q. How to pay Service Tax?
A. You may pay service tax by G.A.R.7 (previously known as TR6 Challan which was yellow in colour) in the specified branches of the designated banks. The details of such Banks and branches may be obtained from the nearest Central Excise Office/Service Tax Office. Service Tax can also be paid electronically, called e-payment facility.
Q. When is Service Tax required to be paid? For individual or a proprietary or partnership firm.
A. —Quarterly -by the 5th day of the month following each quarter and by the 6th day of the month following each quarter if the duty is deposited electronically through internet banking. For example, Service Tax for the quarter ending 30th of June is to be paid by 5th or 6th of July as the case may be.
For all other categories (Company, Society, Trust etc.).—Monthly – by the 5th day of the succeeding month and by the 6th day of the succeeding month if the duty is deposited electronically through internet banking;
Exception: For the month of March or quarter ending March, all assessees have to pay by 31st of March of the Calendar year (Rule 6(1) of the STR, 1994
Q. If full details are not available to assess correct service tax, how can service be paid by due date?
A. You may seek in writing, provisional assessment, giving reasons, from the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax under rule 6 (4) of the STR, 1994. He may allow payment of Service Tax on provisional basis, on such value of taxable service as may be specified by him.
Q. Can excess payment be adjusted while paying tax for the next month or quarter?
A. i. Yes. Where an assessee has paid to the credit of the Government in respect of a taxable service, which is not so provided by him, either wholly or partially for any reason, the assessee may adjust the excess Service Tax so paid by him (calculated on a pro-rata basis) against his Service Tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the Service Tax thereon to the person from whom it was received (Rule 6(3) of the STR, 1994).
ii. Further, assesses having centralised registration who paid excess amount of Service Tax, on account of non-receipt of details regarding the receipt of gross amount for the services at his other premises or offices, may adjust such excess amount against the Service Tax liability for the subsequent period and furnish the details of such adjustment to the Jurisdictional Superintendent of Central Excise/Service Tax within 15 days from the date of such adjustment (Rule 6(4A) of the STR, 1994).
iii. In all other cases of excess payment, refund claims have to be filed with the Department. The refund claims would be dealt as per the provisions of Section 11B of the Central Excise Act, 1944, which is made applicable to Service Tax under Section 83 of the Finance Act 1994.
iv. It is important to note that any amount of Service Tax paid in excess of the actual liability, is refundable, only if it is proved that the claimant of refund had already refunded such amount to the person from whom it was received or had not collected at all (Section 11 B of the Central Excise Act, 1944 which is applicable to Service Tax matters under Section 83 of the Act).
Q. What is the head of account into which the Service Tax amount is to be paid in respect of various services?
A. Separate “Head of account ” has been specified for each taxable service. This must be mentioned on G.A.R. 7 (previously known as TR-6) challans for proper accounting. ( See List of Service tax Code Visit Home Page)
Q. What is GAR-7 challan? Where is it available?
A. GAR-7 is the document for payment of service tax.
GAR-7 or TR-6 challan is also available in any stationary shop selling government forms. You can download this challan from www.servicetaxindia.co.in . Click Home page and then FORMS
Q. Can the Service Tax be deposited in Non-designated banks?
A. No. For payment of Service Tax, specific bank has been nominated for every Central Excise/Service Tax Commissionerate. If Service Tax is deposited in a Branch/Bank other than the nominated Bank/Branch, it amounts to non-payment of Service Tax (Rule 6(2) of the STR, 1994). In any case, a nondesignated bank will not accept service tax challans.
Q. Whether the payment of Service Tax is to be made for the billed amount or for the value received?
A. The Service Tax for a particular period is payable on the amount/value of taxable service received during that period and not on the gross amount billed to the client.
If the charges for the taxable service have been received in advance prior to rendering of the services, the Service Tax is payable even if the services are yet to be provided by them (Section 67 and Rule 6(1) of the STR, 1994).
Please also refer to the Service Tax (Determination of Value) Rules, 2006
Q. Can service tax be paid by cheque?
A. Yes, you can pay service tax be paid by cheque.
Q. When paid by cheque, which date will be treated as date of payment?
A. The date of deposit of cheque is the date of payment of Service Tax. If the cheque is dishonoured, it would mean as if the Service Tax has not been paid and the relevant penal consequences would follow. (Rule 6(2) of the STR, 1994).
Q. When payment is made by a client to an assessee after deducting his Income Tax liability under the Tax deduction at source (TDS) provision, whether the Service Tax liability of the assessee is only towards the amount actually received from that client or tax is to be paid on the amount including the Income Tax deducted at source also?
A. Service Tax is to be paid on the gross value of taxable service which is charged by a Service Tax assessee for providing a taxable service. Income tax deducted at source is includible in the charged amount. Therefore, service Tax is payable on the gross amount including the amount of Income Tax deducted at source also.
Q. What is the interest rate applicable on delayed payment of Service Tax?
A. Every person, liable to pay the service tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest @13% per annum. Interest is payable for the period from the first day after the due date till the date of payment of any defaulted service Tax amount. Refer to Section 75 of the Finance Act, 1994.
Q. Can interest be waived, and by whom?
A. Interest payments are mandatory in nature and cannot be waived in ordinary jurisdiction.
Q. What are the penal consequences if the Service Tax is not paid or paid late?
A. A mandatory penalty, not less than Rs. 200 per day or @2% of such tax per month, whichever is higher, shall be imposed by the adjudicating authority. However, the penalty amount payable shall not exceed the amount of service tax payable. – (Refer to section 76 of the Finance Act, 1994).
Q. Whether Service Tax is payable after providing the service or after the receipt of the service charges?
A. Service Tax is payable on the amount received towards provision of a taxable service including any amount received in advance.
SERVICE TAX RETURN
Q. What are the Returns a service tax assessee has to file?
A. ST-3 Return – For all the registered assessee, including Input Service Distributors,
ST-3A Return – The assessee who is making provisional assessment under rule 6(4) of the Service Tax Rules, 1994.
Q. When to file returns?
A. ST-3 Return is required to be filed twice in a financial year – half yearly. Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.
Q. How to file Service Tax Returns?
A. The details in respect of each month of the period for which the return is filed, should be furnished in the Form ST-3, separately. The instructions for filing return are mentioned in the Form itself. It should be accompanied by copies of all the GAR-7 (TR- 6) Challans for payment of Service Tax during the relevant period.
Q. Where to file return?
A. ST-3 or ST-3A is filed in triplicate to the Superintendent of Central Excise/Service Tax with whom the assessee has registered himself.
Q. Is filing of return compulsory even if no taxable service provided or received or no payments received during a period (a particular half year)?
A. Filing of return is compulsory, even if it may be a nil return, within the prescribed time limit, failing which penal action is attracted.
Q. Whether a single Return is sufficient when an assessee provides more than one service?
A. A single return is sufficient because the ST-3 Return is designed to capture details of each service.
Q. Is there any penalty for non-filing or delayed filing of the Returns?
A. If a person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to an amount not exceeding Rs 2000/- depending upon Period of Delay.
SERVICE TAX RECORDS
Q. Is there any statutory documents prescribed by the Government such as specified invoice proforma, specified registers etc. for use by the service providers?
A. There are no specific records which have to be maintained by a Service Tax assessee. The records including computerized data, if any, which are being maintained by an assessee on his own or as required under any other law in force, such as Income Tax, Sales Tax etc. are acceptable for the purpose of Service Tax – (Rule 5(1) of the STR, 1994). However, it is important to note that a list of all such accounts maintained by an assessee including the memorandum received from the branch offices shall be furnished to the Superintendent of Central Excise at the time of filing the Return (ST-3) for the first time (Rule 5(2) of the STR, 1994).
Q. Whether issue of Invoice/Bill/Challan is mandatory? When should the same be issued?
A. Issue of Invoice/Bill/Challan by a Service Tax assessee is mandatory as per Rule 4A of the STR, 1994. The same should be issued within 14 days from the date of completion of taxable service or receipt of payment towards the service, whichever is earlier. However, if the service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, the Invoice/Bill/ Challan shall be issued within 14 days from the last day of the said period (Proviso to Rule 4A (1) of the STR 1994).
Q. Is there any prescribed format for the Invoice/Bill?
A. There is no prescribed format for issue of Invoice. However, the invoice/bill/challan should contain the following information (Rule 4A of the STR, 1994):
1. Serial number.
2. Name, address and registration no. of the service provider.
3. Name and address of the service receiver.
4. Description, classification and value of taxable service being rendered.
5. The amount of Service Tax payable (Service Tax and Education cess should be shown separately)
Note: If the service provider is a Banking company, the details at Sl. No (i) and (iii)
are not necessary. In respect of the taxable services relating to the transport of goods by road, provided by the Goods Transport Agency, the service provider should issue a consignment note containing the following information (Rule 4B of the STR, 1994):—<
o Serial Number
o Name of the consignor and consignee
o Registration no. of the vehicle
o Details of the goods transported
o Details of the place of origin & destination
o Person liable for payment of Service Tax (consignor/consignee/GTA)
Q. Is the amount of Service Tax charged from the client compulsorily to be indicated separately in the Bills/Invoices/Challans raised on him?
A. Yes. It is mandatory to separately indicate the amount of Service Tax charged in the Bills/Invoices/Challans raised on the clients. as per Section 12A of the Central Excise Act, 1944 which is made applicable to Service Tax, under Sec.83 of the Finance Act, 1994. Such mention of the Service Tax amount in the Invoice/Bill/Challans, would also facilitate the service receiver to avail the CENVAT credit of the Service Tax paid on the input services.
Q. What is the preservation period for service tax records and documents?
A. All records and documents concerning any taxable service, CENVAT, transactions etc. must be preserved for a minimum period of 5 preceding financial years.
SERVICE TAX REFUND
Q. What is the procedure for claiming refund?
A. i. Application in the prescribed form (Form – R) is to be filed in triplicate with the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax.
ii. The application should be filed within one year from the relevant date as prescribed in Section 11B of the Central Excise Act, 1944 which has been made applicable to Service Tax refund matters also.
iii. Application should be accompanied by documentary evidence to the effect that the amount claimed as refund is the amount actually paid by him in excess of the Service Tax due and the incidence of such tax claimed as refund has not been passed on to any other person.
SERVICE TAX EXEMPTIONS
Q. What are the exemptions available for small service providers?
A. Service Tax is fully exempted in respect of the taxable services of aggregate value not exceeding Ten lakh rupees in any financial year. w.e.f 1-4-2008
The above mentioned exemption based on the turnover is not available to the persons who are liable to pay Service Tax but are not the service providers. For example:
1. The recipient of services from an overseas service provider who has no registered office in India
2. A company incurring the Transportation charges for availing the services from Goods Transport Agencies, for transportation of goods by Road.
This exemption was introduced with effect from 01.04.2005. (Notification No. 6/2005-ST, dated 01.03.2005).
Q. What are the conditions for availment of the exemption from Service Tax by the small scale service providers?
A. Some of the important conditions for availment of the exemption are as follows:
• If the aggregate value of taxable services rendered by the service provider from one or more premises exceeds rupees eight lakhs in the preceding financial year, the service provider is not eligible for the exemption for the current year.
• The exemption shall apply to the aggregate value of all taxable services and from all premises and not separately for each premise or each service.
• The benefit of the exemption shall not apply to taxable services rendered by a person under a brand name or trade name whether registered or not, of another person.
• The exemption shall not apply to persons who are other than the service providers, but liable to pay Service Tax under section 68 (2) of the Act.
• The provider of the taxable service shall avail the CENVAT credit only on such inputs or input services received, on or after the date on which the service provider starts paying Service Tax, and used for the provision of taxable services for which Service Tax is payable.
• CENVAT Credit of Service Tax paid on any input services, under Rule (3) or Rule (13) of the CENVAT Credit Rules 2004, used for providing the services under the above exemption, is not admissible for persons availing the above exemption.
• CENVAT Credit under Rule (3) of the said Rules, is not admissible on the capital goods which are received in the premises of the service provider during the exemption period.
• An amount equivalent to the CENVAT Credit taken, if any, in respect of the inputs lying in stock or in process as on the date on which the provider of taxable service starts availing the exemption should be paid; the balance credit amount, if any, shall lapse.
Q. Are there any other General exemptions?
A. The following general exemptions from payment of whole of the amount of Service Tax are available for the Service Providers:
• Services provided to the United Nations or International Organisations (Notification No. 16/2002-ST, dated 02.08.2002).
• Services provided to a developer of Special Economic Zone or a unit of Special Economic Zone (Notification No.04/2004-ST, dated 31.03.2004).
• The value of the goods and materials sold by the service provider to the recipient of the service is exempted from payment of the Service Tax, if there is a documentary proof specifically indicating the value of the goods and materials and,—
o no credit of duty paid on such goods and material sold, has been taken under the provisions of CENVAT Credit rules, OR
o where such credit has been taken by the service provider on such goods and materials, but such service provider has paid the amount equal to such credit availed before the sale of such good and materials. (Notifn.12/2003-ST dated 20.06.2003).
• Exemptions to Diplomatic Missions for official use of taxable services and also to the officers and their families of a Diplomatic Mission for personal use of taxable services-Refer Notification Nos. 33/2007-ST and 34/2007-ST, both dated 23.5.2007-See Question No. 1.13, 1.14 and 1.15, ante.
• Specified taxable services, namely, port service, other port service, goods transport service and containerised transport service, received by an exporter and used for export of goods (Notification No. 40/2007-ST dated 17.9.2007).
Under this notifcation, the service tax paid by an exporter on these services is refunded to the exporter on complinace of conditions mentioned in the notification.
Q. Is there any exemption from payment of Service Tax if the receiver/provider of the service is the Central/State Government organization and Public Sector Undertakings?
A. • No. There is no such exemption. All service providers, including the Central/State Government Organisations and the Public sector undertakings rendering the specified taxable service, are liable to pay Service Tax.
• If a Government Department (sovereign)/public authorities performs any mandatory or statutory function under the provisions of any law and collect any fees, such activity shall be treated as activity purely in public interest and will not be taxable.
• If such authority performs a service, which is not in the nature of statutory activity, for a consideration, the same shall be taxable.
i. However, the taxable services provided by a Banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, to the Government of India or the Government of a State, in relation to collection of any duties or taxes levied by the Government of India or the Government of a State, are exempted from the payment of Service Tax. (Notification No. 13/2004-ST, dated 10.09.2004).
Q. What are the penal provisions for various contraventions of the Service Tax Law?
A. The Penal provisions for various contraventions of the Service Tax Law are as follows:—
• A person, who fails to take registration within the time stipulated shall be liable to pay penalty which may extend to Rs. 5,000/- or Rs. 200/- per day after the due date, which ever is higher. The provisions says, a person fails to “take” registration, whereas it should have been fail to “apply” registration, as some time the Department take it own time to grant the registration as recognized by the Board in its instruction Dy. No.294/Com(ST)/2007 dated 03.09.2007.
• A person Non payment or delayed payment of service tax – A mandatory penalty, not less than Rs. 200 per day or @2% of such tax per month, whichever is higher, shall be imposed by the adjudicating authority. However, the penalty amount payable shall not exceed the amount of service tax payable.
• A person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to an amount not exceeding Rs 2000/- depending upon Period of Delay
• A person, who fails to keep, maintain or retain books of account and other documents as required in accordance with service tax law, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• A person, who fails to furnish information, produced documents, when called by an officer or fails to appear before the Central Excise Officer when issued summon, shall be liable to a penalty which may extend to Rs. 5000/- or Rs. 200/- per day after the due date, which ever is higher.
• A person, who fails to pay tax electronically, through internet banking, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• A person, who issues invoice incorrect or with incomplete details for fails to account for an invoice in his books of account, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• Suppression of the value of taxable services: Penalty to an extent ranging from 100% to 200% of the Service Tax which was not levied or paid or erroneously refunded, can be imposed on any person, if such short levy or short payment or erroneous refund is by reason of fraud collusion, willful mis-statement, suppression of facts; or contravention of the Act or the rules made thereunder with an intent to evade payment of Service Tax. Such liability towards penalty would be in addition to the Service Tax amount evaded or erroneously refunded and the interest thereon .
Q. Is there any provision to waive the penalty under Service Tax law?
A. The penal provisions under Service Tax are provided under Sections 76, 77 and 78 of Finance Act, 1994. Although the penalty is liable to be imposed for the circumstances covered under the said provisions, the Section 80 of the Finance Act, 1994, provides provisions not to impose penalty, for any failure referred to in the said provisions, if the Service Tax assessee proves that there was sufficient cause for such failure. Lack of funds or time is not construed as ‘sufficient cause’
Q. Why show cause notices are issued by the Department?
A. When any amount is demanded as service tax or other dues from any person under the Finance Act, 1994 and rules made thereunder and/or any person is liable to penalty under the said Act/Rules, notices are issued in the interest of natural justice to enable such person to understand the charges and defend his case before an adjudicating officer.
Q. Can show cause notice be waived?
A. Where any service tax has not been levied or paid or has been short-levied or short paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him and inform the Central Excise Officer of such payment in writing. In such a case show cause notice will not be issued.
Adjudication and determination of tax
Q. Adjudication and determination of tax?
A. i. When show cause notices are issued under provisions of the Finance Act, 1994 charging any person for contravention of any provisions of the said Act and rules and/or notifications issued thereunder and penal action is proposed the competent officers of the Department adjudge the case and issue orders. This process is called adjudication.
ii. Often notices are issued under section 73 of the Finance Act, 1994 for determination of tax, and the matter is decided by a competent officer. This is also referred to adjudication in common parlance.
Q. Is the presence of a Chartered Accountant necessary for adjudication?
A. No. The Noticees can defend their case themselves. They may engage a lawyer , duly authorised to defend their case before an adjudicating officer.
Q. Who should be approached when an assessee is aggrieved by an order/decision of the Adjudicating authority subordinate to the Commissioner of Central Excise in respect of Service Tax? What is the procedure for filing the Appeal?
A. • An assessee aggrieved by such order/decision may file an Appeal to the Commissioner (Appeals) in Form ST-4, in duplicate.
• A copy of the order/decision appealed against should be enclosed.
• The Appeal should be filed within 3 months from the date of receipt of the order/decision.
• There is no fee for filing an Appeal before the Commissioner of Central Excise (Appeals) (Section 85 of the Act and Rule 8 of the STR, 1994).
Q. Can the time limit of three months for filing the appeal to the Commissioner (Appeals) be extended? If yes, under what circumstances?
A. Yes. If the Commissioner (Appeals) is satisfied that the appellant was prevented by sufficient cause from presenting the Appeal within the statutory period of three months, he may allow the Appeal to be presented within a further period of three months. The law does not provide for further extension of time .
Q. Can an Appeal be filed against the order/decision of the Commissioner of Central Excise or Commissioner (Appeals)? If so, what is the procedure for that?
A. Yes. The procedure is as follows:—
• The Appeal against the order of the Commissioner of Central Excise or Commissioner (Appeals) can be filed before the Customs, Excise and Service Tax Appellate Tribunal (In short, CESTAT). The Appeal should be filed within three months of the date of receipt of the order sought to be appealed against.
• It should be filed in the prescribed Form (ST-5) in quadruplicate.
• It should be accompanied by a certified copy of the order appealed against.
• The Appeal should be accompanied by the prescribed fee based on the amount of Service Tax and interest demanded and penalty levied. Rs. 1000/- if the amount involved is Rs. 5 lakhs or less, Rs. 5000/- if the amount involved is more than Rs. 5 lakhs but not exceeding Rs. 50 lakhs and Rs. 10,000/- if the amount involved is more than Rs. 50 lakhs. (Section 86 of the Act and Rule 9 of the STR, 1994).
CENVAT Credit Scheme
Q. What is CENVAT Credit Scheme with reference to Service Tax assessees?
A. The CENVAT credit Rules, 2004 which was introduced with effect from 10.9.2004 provides for availment of the credit of the Service Tax/Central Excise duties paid on the input services/inputs/ capital goods. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services.
In fact, such credit availed by a manufacturer can also be utilised for discharging their liability towards Service Tax and/or Central Excise duties.
Q. What are the duties/taxes that can be availed as credit?
A. Duties paid on the inputs, capital goods and the Service Tax paid on the ‘input’ services can be taken as credit. Education Cess paid on the Excise duty and Service Tax can also be taken as credit. However, the credit of Education Cess availed can be utilized only for payment of Education cess relating to output service. The interest and penalty amounts cannot be taken as credit.
Q. What is meant by ‘input’, ‘input service’ and ‘capital goods’ for a service provider?
A. These terms have been defined in the CENVAT Credit Rules, 2004.
Is it compulsory that the inputs/capital goods are to be purchased only from the manufacturers for the purpose of availment of credit?
A. No. The inputs/capital goods can be procured from the First stage and Second stage dealers also. Those dealers should have registered themselves with the Central Excise Department. The invoices issued by them should contain proper details about the payment of duty on those goods.
Q. What are the documents prescribed for availment of the CENVAT Credit?
A. The documents on which CENVAT credit can be availed are as follows:—
i. Invoice issued by the manufacturers and his depot/consignment agents
ii. Invoice issued by the Importer and his depot/consignment agents
iii. First stage and Second stage dealer registered with the Central Excise Department
iv. Bill of Entry
v. Invoice/Bill/Challan issued by the provider of input Services
vi. Invoice/Bill/Challan issued by the Input Service distributor.
vii. Certificate issued by the Appraiser of Customs in respect of the goods imported through Foreign Post Office.
viii. A Challan evidencing payment of service tax by a person liable to pay service tax in the service category of auxiliary insurance, goods transport, recipient of service from a foreign country and sponsorship [Refer sub-clauses (iii), (iv), (v) and (vii) of rule 2(1)(d) of STR, 1994].
Q. Whether it is necessary to avail credit only after making payment against the bill/invoice/challan in respect of input services?
A. Credit of Service Tax on the input services can be availed, only after making payment of the amount indicated in the invoice/bill/challans. This is necessary because, the input service provider will be paying the Service Tax to the Govt. only after he realizes the payment, as the payment of Service Tax is only upon realization.
The above requirement is not applicable in respect of credit of duties paid on inputs and capital goods.
Q. Who is an “Input Service Distributor”?
A. An office of the manufacturer or provider of output service who receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such manufacturer or provider of output service is an “Input Service Distributor”.
The credit of the tax amount so distributed to various places shall not exceed the total Service Tax amount contained in the original invoice/bill.
Q. What is the format of the invoice/bill/challan to be issued by the input service distributor?
A. No specific format has been prescribed. However, the same should contain the following information:—
i. Name, address and Registration No. of the service provider.
ii. Sl. No and date.
iii. Name and address of the input service distributor.
iv. The name and address of the recipient to whom the Service Tax credit is distributed.
v. The amount of credit being distributed.
Q. Whether the input service distributors should get themselves registered with the Department? Whether they have to file any returns with the Department?
A. Yes. They have to register themselves as per the provisions made under Service Tax (Registration of Special Category of Persons) Rules, 2005. They have to file half yearly returns by the end of the month following the half year.
Q. What are the records to be maintained by the persons availing credit?
A. There is no specific format of records to be maintained. However, they have to maintain adequate records showing the details such as receipt, disposal, consumption and inventory of inputs and capital goods, the amount of credit taken and utilized etc.
Q. What should be done, if an assessee is rendering both taxable services as well as exempted services, but the inputs and input services are common?
A. i. Separate accounts are to be maintained for the receipt, consumption and inventory of input and input service meant for providing taxable output service and for use in the exempted services. Credit should be taken only on that quantity of input/input services which are used for the service on which Service Tax is payable.
ii. If separate accounts are not maintained, the provider of output service shall utilize credit only to extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. For example, if Service Tax liability for a specific period is Rs. 1000/- and there is a credit of Rs. 500/- available with them, the credit can be utilized only to the extent of Rs. 200/- and the balanceService Tax liability (i.e. Rs.1000-200=800/-) has to be paid in cash/cheque. The remaining credit can be carried forward and used for the subsequent period in a similar manner.
iii. However, an option is available to general insurance service providers providing taxable as well as exempted insurance schemes and do not maintain separate input/input services credit accounts to utilise CENVAT credit proportionate to the inputs and input services used in providing taxable services. The scheme is optional and is effective from 1st April, 2007. Refer Rule 6(3) of CENVAT Credit Rules, 2004 for further details.
Service Tax on receipt of services from outside [Import of services]
Q. What is the statutory provision regarding taxing of services provided from outside India and received in India?
A. Section 66A of the Finance Act, 1994, inserted with effect from 18.4.2006, provides that where any taxable service 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 or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service.
Q. Is the recipient of service liable to pay tax for the services rendered from abroad?
A. The recipient of service shall be liable to pay tax if the provider of service do not have any established business or a fixed establishment in India. However, a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country (including India).
Q. Where provider of the service has his business establishments in more than one country, which country should be treated as the country from which service is provided?
A. If the provider of the service (from outside India) has his business establishments in more than one country, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.
Q. What will be ‘usual place of residence’ of a body corporate?
A. Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.
Q. What constitutes import of services?
A. The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 specifies 3 categories of cross border transaction of services and conditions that will be construed as import of services, namely,—
i. specified services which are provided in relation to immovable properties situated in India – [See list of services in Appendix-4 (Not reproduced here, already available in the book)]
ii. specified services which are provided partly in India – [ See list of services in Appendix -4 (Not reproduced here, already available in the book)]
iii. the remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [ See list of services in Appendix -4 (Not reproduced here, already available in the book)]
Thus, each transaction has to be seen individually to ascertain if it constitutes import of services, fulfilling the requisite parameters.
Q. Are individuals receiving service from outside India also liable to pay tax?
A. If the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, service tax will not be payable by him. If the services received are for the purpose of use in any business or commerce, then service tax will be leviable.
Q. What is meant by advance ruling?
A. Advance ruling means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay duty/service tax in relation to an activity which is proposed to be undertaken, by the applicant. Activity means service to be provided.
Q. What is the scheme of advance rulings?
A. Authority for Advance Rulings for Excise and Customs is meant to provide binding ruling on important issues so that intending investors will have a clear-cut indication of their duty/tax liability in advance. Since advance rulings are not appealable under the Finance Act, 1994, it assures the applicant of the finality of the tax liability and hence freedom from spending time, energy and money in legal battles which mostly become long-drawn.
Q. Who can apply for an advance ruling?
A. i. A non-resident setting up a joint venture in India in collaboration with a nonresident or a resident; or
ii. A resident setting up a joint venture in India in collaboration with a nonresident; or
iii. A wholly owned subsidiary Indian company, of which the holding company is a foreign company, which proposes to undertake any business activity in India;
iv. A joint venture in India,
v. A resident falling within any such class or category of persons, as the Central Government may, by notification in the official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 28H.
vi. A resident as an applicant who proposes to import any goods from the Republic of Singapore under Comprehensive Economic Co-operation Agreement (CECA). –Refer Notification No. 69/2005, dated 29.07.2005
Q. On which questions can an advance ruling be sought?
A. Advance rulings, concerning service tax matters, can be sought in respect of—
i. Classification of any service as a taxable service under Chapter V of the Finance Act, 1994;
ii. Principles to be adopted for the purposes of determination of value of taxable service under the said Act;
iii. Determination of the liability to pay service tax on a taxable service under the said Act;
iv. Valuation of taxable services for charging Service Tax; and
v. Applicability of notifications issued under said Act.