1. What is Service Tax and who pays this tax?
Service tax is, as the name suggests, a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994.
It is an indirect tax (akin to Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.
2. Who is liable to pay service tax?
Normally, the „person? who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax :
(i) Where taxable services are provided by foreign service providers with no establishment in India , the recipient of such services in India is liable to pay Service Tax,
(ii) For the services in relation to Insurance Auxiliary Service by an Insurance Agent, the Service Tax is to be paid by the Insurance Company
(iii) For the taxable services provided by a Goods Transport Agency for transport of goods by road, the person who pays or is liable to pay freight 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
(iv) For the taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund the 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.]
3. Under what authority service tax is levied?
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.
4. What are the taxable services?
Taxable Services have been specified under Section 65(105) of the Finance Act, 1994. All the taxable services as on 01 .07.2010 are listed in Appendix-1. The list also shows the relevant Accounting Heads required to be mentioned on the tax payment documents (GAR-7), while depositing the Service Tax and other related dues in the banks.
5. How to decide whether Service Tax is payable by a person?
A. If you are engaged in providing a service to any person, please check:-
(i) Whether the service rendered by you is falling under the scope of any of the taxable services listed in the Appendix-1.; and
(ii) Whether there is a general or specific exemption available for the category of service provided under any notification issued under section 93 of the Finance Act, 1994.
(iii) Whether you are entitled to the value based exemption available for small service providers under notification No.6/2005-ST dated 1.3.05 as amended from time to time. Details are explained in para 8.1 of this Booklet.
(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 (as discussed at para 1.7 of this Booklet).
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 (Please also see Para 1.2 of this Booklet).
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 after considering specific 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 as amended is not admissible to such recipients of taxable services. (For further details, please see para 7.1 of this Booklet).
6. What is the rate of Service Tax?
At present, the effective rate of Service Tax is 10.3% on the value of the taxable service. The above effective rate comprises of Service Tax @10% payable on the “gross value of taxable service” Education Cess @ 2% on the service tax amount, and Secondary and Higher Education Cess @ 1% on the service tax amount.
7. What is meant by ?value of taxable service”?
i. 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. Taxable value has to be determined as per the provisions of the Section 67 of the Finance Act, 1994, read with Service Tax (Determination of Value) Rules, 2006.
ii. For certain services, a specified percentage of abatement is allowed from the gross amount collected for rendering the services (see Appendix – 2) subject to the conditions, inter alia, that CENVAT Credit has not been availed by the service provider and the benefit under the Notification No.12/2003-ST dt. 20.6.2003 as amended has also not been availed.
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. The gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, paid on transfer of property in goods involved in the execution of the said works contract.
8. Can the Department modify the value determined by the service provider?
(i) The Central Excise Officer is empowered to verify the accuracy of any information furnished or document presented for valuation.
(ii) If the value adopted by the Service Tax assessee is not acceptable in accordance with the statute, the officer shall issue a show cause notice (SCN) proposing to determine the value as per the law.
(iii) The SCN would be decided after providing reasonable opportunity of being heard to the assessee.
(Rule 4 of the Service Tax (Determination of Value) Rules, 2006 read with Section 67 of the Act)
9. What are the statutes governing the taxation relating to Service Tax?
The Statutes governing the levy of Service Tax are as follows:
(i) The Finance Act, 1994 – Chapter V – Section 64 to 96 I. (Also referred to as Act? in this book). This chapter extends to the whole of India except the State of Jammu and Kashmir.
(ii) The Finance Act, 2004 Chapter VI – for levy of Education Cess @ 2% on the Service Tax.
(iii) The Finance Act, 2007 – for levy of Secondary and Higher Education Cess of 1% on Service tax.
(iv) The Service Tax Rules1994 (Also referred to as „Rues? or „STR,1994? in this book).
(v) The CENVAT Credit Rules, 2004.
(vi) The Export of Service Rules, 2005.
(vii) The Service Tax (Registration of Special categories of persons) Rules, 2005.
(viii) The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (with effect from 19th April, 2006) – Notification No. 11/2006-ST dated 19.4.2006 as amended vide Notfn.No.31/2007 – ST dated 22.05.2007.
(ix) The Service Tax (Determination of Value) Rules, 2006 (with effect from 19th April, 2006) -Notification No. 12/2006-ST dated 19.4.2006 as amended vide Notfn.No.24/2006 -ST dated 27.06.2006 and Notfn .No.29/2007-ST, dated 22.05.2007.
(x) Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007-Notification No. 32/2007-Service Tax dated 22nd May, 2007, as amended by Notification No. 07/2008-St dated 1st March, 2008.
(xi) Service Tax (Removal of Difficulty) Order, 2010 effective from 22.6.2010.
10. 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?
Yes, any taxable service provided to Diplomatic Missions for official use of such Mission 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 is exempt in terms of the notifications numbers 33/2007-ST dated 23rd May, 2007 and 34/2007-ST dated 23rd May, 2007 respectively.
1. What is meant by ?Registration? Who should apply for registration under Service Tax law?
In terms of Section 69 of the Finance Act, 1994 (Chapter V) read with rule 4 of the Service Tax Rules,1994 –
2. Why registration is necessary?
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. Failure to obtain registration would attract penalty in terms of section 77 of the Finance Act, 1994, read with rule 4 of Service Tax Rules 1994. (Please also refer para 2.15 of this Booklet)
3. What is the meaning of an ?assessee‘ in relation to Service Tax?
As per the sub-section (7) of Section 65 of the Finance Act, 1994 (Chapter V),„assessee? means a person liable to pay Service Tax and includes his agent.
4. When should a prospective assessee obtain registration?
i. When a person commences business of providing a taxable service, he is required to register himself within 30 days of such commencement of business [sub-rule (1) of Rule 4 of Service Tax Rules, 1994].
ii. In case service tax is extended to a new service, 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 [sub-rule 5A of Rule 4 of the Service Tax Rules, 1994].
5. What does the word ?person appearing in the definition of taxable service mean?
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.
6. What is the procedure for Registration? Who should be approached for Service Tax Registration?
A prospective Service Tax assessee (service provider or service receiver) or „Input Service Distributor? seeking registration should file an application in Form ST-1 (in duplicate) [prescribed vide Notfn.No. 32/2005 dated 20.10.2005 as amended Notfn. No. 11/2008 dated 1.3.2008] before the jurisdictional Central Excise/Service Tax officer. To verify the correctness of declaration in the said form, certain documents such as copy of PAN card, proof of address of business premise(s), constitution of the business [proprietorship, firm, company, trust, institute etc.] etc. may be required by the registering authority. The copies may be self-certified by the applicant. In case of doubts in select cases, original documents may have to be presented for verification.
7. How much time is taken for the issuance of the Registration Certificate?
The Registration certificate should be issued within a period of seven days from the date of submission of application ST-1 along with all relevant details/documents. In case the registration certificate is not issued within seven days, the registration applied for is deemed to have been granted. [Rule 4(5) of the STR, 1994].
8. Is there any provision for centralized registration?
Service providers having centralized accounting or centralized billing system who are located in one or more premises, at their option, may register such premises or office from where centralized billing or centralized accounting systems are located and thus have centralized registration.
Commissioner of Central Excise/Service Tax in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration in terms of Service Tax 4(2) and (3) of Service Tax Rules,1994.
9. In case of multiple services provided by an assessee, is separate registration certificate required for each service?
As per sub-rule (4) of rule 4 of the Finance Act, 1994, 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. However, while making application for registration, all taxable services provided by the person should be mentioned.
If there is centralized registration, only one registration certificate is required for services provided from different premises, declared in the application for centralized registration.
10. What is to be done when the existing assessee starts providing a taxable service not mentioned in the registration certificate?
He should intimate the jurisdictional Central Excise officer in writing, furnishing the name of taxable service he starts providing. No fresh documents are required for verification by the officer unless there is change in any other details given in the original or earlier application(s).
In case the changes relates to deletion of any premises or taxable service, the assessee may file intimation on plain paper along with the copy of the registration certificate. (As per Rule 4(5A) of Service Tax Rules, 1994).
11. Is PAN allotted by the Income Tax Department a must for obtaining Service Tax Registration?
Having PAN is essential because the Service Tax Code/Registration number is generated based on the PAN issued by the Income Tax Department. The PAN based Service Tax Code/Registration number is a must for payment of service tax using the G.A.R. 7 Form..
12. What should be done with the Service Tax Registration on cessation of business of providing taxable service -?
The Service Tax Registration certificate (ST-2) should be surrendered to the respective Central Excise / Service Tax authorities [Rule 4(7) of the STR, 1994].
13. What should be done with the Registration in case of transfer business to another person?
In the event of transfer of the business, the transferee should obtain a fresh certificate of Service Tax registration based on his own PAN [Rule 4(6) of the STR, 1994]. The transferor should surrender his registration certificate, as mentioned at para 2.12 of this Booklet.
14. Whether a service provider can make payment of Service Tax and file returns before the grant of registration by the proper officer?
A person liable to pay service tax must apply for registration before he starts paying service tax and filing return. Service provider should apply well in advance to obtain registration, which is normally granted within 7 days of filing of application. If registration is not granted within seven days, it deems to have been granted.
15. Is there any penal provision for non-registration?
Failure of registration may attract a penalty upto Rs.5000/- or Rs. 200/- for every day during which such failure continues, whichever is higher [Section 77(1)(a) of the Finance Act, 1994].
However, such penalty may be waived in case the assessee proves that there was reasonable cause for such failure [Section 80 of the Act].
16. What should be done in case of change in the office/place of business?
Any change in premises/office, as mentioned in Form ST-1, should be intimated to jurisdictional Central Excise/Service Tax Officer.
17. If a registration certificate issued by the Department is lost, can duplicate be issued? What is the procedure in this regard?
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.