Rajeev Kumar Gupta

Service Tax –Key Points

Introduction

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994.

The service provider pays the tax and recovers it from the customer with certain exceptions. Service Tax was earlier levied on a specified list of services, but in the 2012 budget, its scope was increased. Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns, etc. were also included in the list of services.

It is charged to the individual service providers on cash basis, and to companies on accrual basis. This tax is payable only when the value of services provided in a financial year is more than Rs 10 lakh. This tax is not applicable in the state of Jammu & Kashmir. 

Reverse Charge

   Q. What is Reverse Charge?

  • Generally, Service tax is payable by person providing the service who actually collect the tax and  pays to government.
  • But Section 68(2) introduced and makes provision for reverse charge i.e. making person receiving the service, liable to pay tax. Provision can be made that part of tax will be paid by service receiver and part by service provider or entire by Service Receiver.

Q. How to book Cenvat Credit on Service Tax paid on reverse charge basis?

  • In case of an input service where service tax is paid on reverse charge by the recipient of the  service, the CENVAT credit in respect of such input service shall allowed on or after the day on which:

– payment is made on the value of input service and

– Service tax paid or payable as indicated in invoice referred in Rule 9.

  • Even if Service Provider is liable for payment of service tax in certain portion ie partial reverse charge then Cenvat Credit can be availed on entire input w.r.t.334/1/2012
  • Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR-7 challan.

Q     What are the services under reverse charge?

♣ Under Partial Reverse Charge (Proportional / Joint)

  1. Renting of motor vehicles
  2. Manpower supply & security services
  3. Works contracts

♣ Under Full Reverse Charge (100%)

  1. Insurance related services by agents
  2. Goods Transportation By Road
  3. Sponsorship
  4. Arbitral tribunals
  5. Legal services
  6. Company director’s services
  7. Services provided by Government / local authority excluding specified services
  8. Services provided by persons located in non-taxable territory to persons located in taxable territory.

Abatement

Q      What is abatement?

  • Abatement means that service tax is paid on specified % of amount mentioned on the invoice.
  • Input credit cannot availed.

Q       What are the rates of Abatement?

TaxableService Partial abatement / Composition Scheme Conditions Relevant Notification/Rule
Accommodation booking service by tour operator 10% of amount charged (Abatement Scheme, though really it is composition scheme) No Cenvat Credit. Invoice should be inclusive of cost of accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012.
Air Travel Agent Option to pay service tax at flat rate on ‘basic fare’ @ 0.6% in case of domestic booking and 1.2% in case of international booking – plus education cess (Composition Scheme) No restriction on availment of Cenvat credit Rule 6(7) of Service Tax Rules
Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Tax on 70% of amount charged including fair value of goods and services supplied by service receiver (to service provider) under same or different contract(Composition Scheme) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Sr. No. 4 of Notification No. 26/2012-ST dated 20-6-2012
Chit related services Tax on 70% of amount charged (Abatement Scheme) No Cenvat Credit allowed Sr. No. 8 of Notification No. 26/2012-ST dated 20-6-2012.
Financial leasing and hire purchase Tax on lease management fee, processing fee, documentation charges and administrative fee plus 10% of interest No restriction on availment of Cenvat Credit Sr. No. 1 of Notification No. 26/2012-ST dated 20-6-2012
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, if value of land is included in the amount charged from the service receiver Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) Cenvat credit of input services and capital goods can be taken but not of input goods Sr No. 12 of Notification No. 26/2012-ST dated 20-6-2012
Foreign Currency – sale and purchase At slab rates prescribed under rule 6(7B)on total gross amount of currency exchanged (Optional Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7B) of Service Tax Rules
Foreign Currency – sale and purchase Value is difference between  buying or selling rate and RBI reference rate (Normal Scheme of valuation) No restriction on availment of Cenvat Credit Rule 2B of Service Tax (Determination of Value)  Rules
Life Insurance 3% of net premium (excluding investment or savings part, if such amount is informed to policy holder)  – If not so informed, 3% in first year and 1.5% in subsequent years(Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7A) of Service Tax Rules
Lottery ticket promotion Rs. 7,000 or Rs. 11,000 per Rs. 10 lakhs of tickets printed by State lottery  (Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7C) of Service Tax Rules
Outdoor caterer Tax on 60% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 50%) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of motor vehicle designed to carry passengers Tax payable on 40% of amount charged  (Abatement Scheme) No Cenvat credit available Sr. No. 9 of Notification No. 26/2012-ST dated 20-6-2012
Restaurant service Tax on 40% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 30%) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes Tax payable on 60% of amount charged (Abatement Scheme) (Till 1-7-2012, the tax payable was on 50% amount). Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 6 of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Package tours (“package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour). Tax is payable on 25% of gross amount charged (Abatement Scheme) No Cenvat credit available.Bill to be inclusive of all charges for the tour. Sr. No. 11(i) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour (If Bill includes cost of accommodation) Tax is payable on 10% of  amount charged (Abatement Scheme) No Cenvat credit available.Bill to be inclusive of charges for such accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Other than package tours and other than service of booking accommodation where Bill includes cost of accommodation Tax is payable on 40% of amount charged (Abatement Scheme) No Cenvat credit available.Bill to be inclusive of all charges for the tour Sr. No. 11(iii) of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 2 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by road by Goods Transport Agency (GTA) Tax payable on 25% of amount charged (Abatement Scheme) No Cenvat Credit available (Certificate should be taken from the GTA that he has not availed Cenvat credit, as tax is payable by service receiver under reverse charge – this headache was not there earlier) Sr. No. 7 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  in a vessel from one port in India to another Tax payable on 50% of amount charged (Abatement Scheme) No Cenvat Credit available) Sr. No. 10 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers by air Tax payable on 40% of amount charged (Abatement Scheme) Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 5 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 3 of Notification No. 26/2012-ST dated 20-6-2012
Works Contract Service Tax on value of service calculated as per rule 2A(i) or Tax on 25%/40%/60% of gross amount charged as specified in rule 2A(ii) (Composition Scheme)Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available Rule 2A of Service Tax (Determination of Value) Rules

 Negative List

Q     What is negative list?

  • List of services on which service tax is specifically exempted under section 66D

Q     What is the services covered in negative list?

A– Advertisement (except on radio & T.V.)

B– Bridges

C– Cabs (means transportation of passengers)

D– Diplomatic mission

E– Electricity

F– Funeral (includes transportation of deceased)

G– Goods Transportation

H– House Residential

I– Interest

J– Jhule (Rides)

K– Kheti (agriculture)

L– Lottery

M– Manufacture

Q– Qualification (education)

R– RBI

S– Sarkar (government)

T– Trading of Goods

Place of Provision of service (POPOS)

Q    What is place of provision of service?

  • It is to seen that service is provided in Taxable Territory or Non Taxable Territory. For this place of provision of service is to be identified
  • There are 13 Rules to identify POPOS

Q   What are the rules for identifying POPOS?

Rule Basis POPOS
3 General Shall be place of service receiver
4 Performance based service Shall be place where service is performed
5 Immovable Property related service Shall be place where immovable property islocated
6 Event based service Shall be the place where event is performed
7 Services provided at more than one location (overrides Rules 4,5 & 6) Shall be the taxable territory where the greatest proportion of the service is provided
8 Situations where place of provision of service outside the taxable territory, however service provider and recipient located in taxable territory Shall be Taxable Territory
9 Specified services such as:

  • Intermediary services
  • Online information & database access or retrieval services
  • Banking
  • Hiring of means of transport (up to 1   month)
Shall be the place of service provider
10 Transportation of goods- By road i.e. GTA- By other modes except mail or    courier Shall be the place of destination of goods
11 Passenger transportation servicesRule 14 Where a service falls under more than one rule then the rule which appears later shall be applicable Place where the passenger embarks on the conveyance for a continuous journey
12 Services provided on board a conveyance First scheduled point of departure of that conveyance of a journey
14 Where a service falls under more than one rule then the rule which appears later shall be applicable

(Author is associated with Rajeev Gupta & Co and can be contacted at Mobile No: 9810644840 or via email on rkg_delhica@yahoo.co.in)

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Category : Service Tax (3393)
Type : Articles (17587) Featured (4025)
Tags : CBEC (400) Reverse Charge Mechanism (112)

0 responses to “FAQ on Reverse Charge, Abatement, Negative List, Place of Provision of service”

  1. rajvajja says:

    Dear sir,

    We working in airports for Wraping and we have paid service tax as per abatement, and we have claim cenvat credit or not, please answer to me

  2. Manoj Kumar says:

    Respected Sir,

    I want to know that abatement circular no and serial no for filing of service tax return under service of Transport of goods by road/goods transport agency service.
    We have charges Service tax @ 3.09% and I also know what is procedure for get refund through filing of Return.

    Manoj Kumar

  3. Rukmini says:

    Dear Sir,

    For security charges we have paid 12.36% full service tax and taken credit instead of 3.09% and they also paid to service tax dept. But now we got excise audit they are insisting us to reverse the 75% of service tax which we have paid to service provider.

    If service tax is paid fully to dept. still we have to reverse 75% ? kindly guide me.

    Our company is Partnership firm.

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