CA Amit Lath
1. Introduction
Budget of successive years introduces amendment in various tax laws with the aim of rationalization in the tax regime of the country. Budget 2012 in the same row came out with various amendments in direct and indirect laws.
Government has celebrated the attainment of majority (18 years) of Service tax laws introduced in the year 1994 by bringing drastic changes. The changes have tried to justify the “Major” status of service tax laws. GST is supposed to be roll out next year. Smooth introduction of GST requires changes in the current tax regime and these changes are much in that direction.
What is service?
Clause (44) of newly introduced Sec 65(B) defines service as:-
- Any activity
- carried out by a person to another
- for consideration
- and includes declared services.
The said definition also provides that ‘service’ doesn’t include –
- any activity that constitutes merely a transfer in title of i) goods or ii) immovable property, by way of sale, gift or in any other manner
- a transaction only in (iii) money or (iv) actionable claim
- service by an employee to the employer in the course of or in relation to his employment.
- fees payable to a court or a tribunal set up under a law for the time being in force
- a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
Explanation 2 further adds that following shall be considered as distinct person:-
a) an unincorporated association or a body of persons and a member thereof.
b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory.
2. Charging section (Sec 66B)
Service tax to be levied at 12% on the value of all services, other than those specified in the negative list, provided or agreed to be provided in a taxable territory by one person to another.
3. Declared services
With the aim of bringing clarity a list of declared services has been introduced. Definition of “Service” includes these declared services within its ambit. These services have been deemed as service.
4. Negative List
Approach for taxation has shifted from positive list to negative list. Earlier services specified in section 65(105) were subject to taxation. Many of the services had specific exemptions, abatement’s etc. Classification played a crucial role in taxability of services. Many times these classification led to litigation. Now this entire approach has changed and every services not specified in the negative list is subject to service tax.
5. Exemptions
A mega exemption notification (Notification No. 25/2012) dated 20.06.2012 superseding notification number 12/2012 dated the 17th March, 2012 has been issued by the department. This list primarily covers services provided to govt. or for public welfare. For e.g. – Health care services by a clinical establishment, an authorized medical practitioner or Para-medics, Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India, Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent.
6. Abatement
Abatement have been provided at specified rates on various services. These services are primarily related to transportation of goods, passenger & construction services. (Notification 26/2012)
7. Reverse charge mechanism (Notification 30/2012,36/2012)
Usually service provider is liable to pay service tax for the services provided except for the few services covered under reverse charge, under which service receiver is liable to pay service tax.
This mechanism has not been altogether a new mechanism. This mechanism was prevalent in the earlier service tax law as well. However scope of this mechanism has been enlarged in a greater way. Furthermore a new concept of “partial reverse charge” has been introduced where service provider as well as service receiver is made liable to pay service tax in specified percentage for a particular service. Introduction of this mechanism brings many questions in the mind of assesse. Following could be few of the questions:-
1) When a service receiver is not providing any service whether he is required to get himself registered?
Sec 69 provides that every person liable to pay service tax is required to get himself registered. Accordingly service receiver is also required to get himself registered. Furthermore service receiver will have to file periodical returns as well.
2) Whether there is any liability on service receiver if service provider is small service provider and not liable for taxation?
Yes, service receiver has to pay service tax liability on his account.
3) Whether service receiver can pay service tax by availing cenvat credit?
No, service receiver cannot utilize cenvat credit for payment of service tax.
4) Whether a service receiver is liable to determine his liability and pay accordingly or he is liable to pay according to service tax shown in the invoice of service provider?
CBEC has clarified that the liability of Service receiver and service provider are different and independent of each other.
5) What will be point of taxation for service receiver and service provider?
Point of taxation for service provider is date of payment or invoice issued whichever is earlier(provided invoice issued within 30 days) whereas point of taxation for service receiver is date of payment However if the payment is not made within 6 month from the date of invoice, POT shall be deemed to have occurred on the date of invoice.
6) Whether Invoice issued by service provider will show the entire amount of service tax payable or only the tax payable on his account?
Rule4 A of service tax rules provides for issuance of invoice by service provider. Further as per clause (IV) of Sub rule (1) “service tax payable thereon” shall be indicated on the invoice. Accordingly entire amount of service tax shall be shown on the invoice.
7) If a person has been registered as service provider and now he is also liable to pay service tax as service receiver, whether any amendment in service tax registration is required?
With the introduction of “Negative list” concept, registration for specific services has been withdrawn; ST-1 has accordingly been modified. However a person liable to pay service tax as service receiver has to get certificate amended and include service receiver in the registration certificate.
8) Is the reverse charge applicable on services provided and complete before 1.7.2012 though payments were made after 1.7.2012?
For any service whose point of taxation has been determined and whole liability affixed before 1.7.2012 the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in respect of such services
Few services on which service tax is payable under reverse charge. (Work contract has been covered under the respective section).
| Description of services | Provided by | Provided to | Liability to pay |
| Manpower supply | Any individual ,HUF, Proprietary firm, Partnership Firm, Association of person located in the taxable territory | Any Company registered under companies ACT.Business entity registered as body corporate located in taxable territory. | SR-75% SP-25% |
| Renting or hiring of motor vehicle to carry passenger on aabated value i.e. 40%Non abated value | Same as above | Same as above | SR-100%
SR-40% SP-60% |
| Support services | Government or local authority | SP – NIL SR -100% | |
| Legal service | An advocate or A firm of advocate | Business entity whose turnover exceeds Rs. 10lakhs | SR-100% |
| Arbitral services | SR 100% | ||
| Import of taxable services | Any person | Any person | SR 100% |
| Goods transport agency*** |
*** Earlier if the consignor or consignee was a specified person then the person liable to pay freight was liable to pay service tax. For e.g. in earlier regime say a consignment was sent to ABC ltd. by Mr. A and as per agreement freight was to be paid by A. The consignee ABC Ltd. was a specified person then MR. A, being liable to pay freight was also liable to pay service tax.
Recent changes provides that if the person liable for making payment of freight is a specified person then he is liable to pay taxes otherwise GTA is liable to pay taxes. Under current regime MR. A, liable to pay freight is not a specified person so GTA has to pay service tax.
8. Construction Activities
Service tax laws with respect to construction have been amended in a greater way. All new concepts, mechanism introduced in the new regime can be understood by understanding this particular service. None of the construction related activities has found space in Negative list.
a) List of declared services contain following activities related to construction.
i) Construction (including additions, alterations, replacements or remodeling of existing civil structure) of a complex, building, civil structure or a part thereof, intended for sale wholly or partly to a buyer However it will exclude in case where the entire consideration is received after issuance of a Completion Certificate..
ii) Service portion in the execution of work Contract.
b) Construction (including maintenance, repair, alteration, renovation or restoration) of road, bridges, tunnel, pipeline, electric crematorium etc. for the public use has been exempted from the service tax. specified Services provided to govt. or local authority for non- commercial use, sub-contractor providing works contract service to another contractor who is providing exempted works contract services, Service by way of erection or construction pertaining to airport, port or railways has also been exempted. (Entry 12/13/14/29 of notification no. 25/2012)
Service related to construction of single residential unit otherwise as a part of a residential complex has been exempted. Residential complex has been defined as “residential complex means any complex comprising of a building or buildings having more than one single residential unit. Hitherto, residential complex means only a complex comprising of more than 12 residential units. Hereafter, any complex having more than one residential unit would attract the levy of service tax.
c) Work Contract
i) Introduction
Scope of work contract has been extended under the new definition. The definition has covered movable property as well in its scope; earlier only immovable properties were covered. This new definition will cover many services such as authorized service stations, repairs & maintenance etc. provided the goods supplied in execution of such activities are subject to VAT/Sales tax
New Definition:-
“Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.”
ii) Valuation under work contract(Rule 2A of the Service Tax (Determination of Value Rules, 2006)
a) Where service portion is determinable, Value of work contract shall be gross amount charged for the work contract less the value of transfer of property involved. Sales tax or vat is not included in gross value. Furthermore where value added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods.
b) Where service portion is not determinable:-
| Work pertaining to | Value of services |
| Original works |
40% of the total amount charged |
| Maintenance, repair,reconditioning orrestoration, or servicing of any goods. |
70% of the total amount charged |
| In case of other contractsnot included above |
60% of the total amount charged |
Original works includes additions and alterations to abandoned or damaged structures on land that are required to make them workable
“total amount” means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract:
where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance
| Gross Amount | – |
| (+) Goods and services supplied free of cost | – |
| (-) Value added Tax | – |
| TOTAL AMOUNT | – |
Duty of excise paid on any goods, property which is transferred (whether as goods or in some other form) in the execution of works contract, shall not be availed as CENVAT credit.
iii) work contract under Reverse charge
Applicability of reverse charge mechanism is not dependent only on the nature of services but to ”Who” and by “whom” also .In case of work contract services provided by any individual,HUF,Proprietary Firm, Association of person located in the taxable territory.
| Description of services |
Provided by |
Provided to | Liability to pay |
| Work contract |
Any individual HUF Proprietary firm Partnership Firm Association of person located in the taxable territory | Any Company registered under companies ACT.Business entity registered as body corporate located in taxable territory. | SR-50%SP-50% |
iv) Abatement
Abatement of 75% on Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority has provided on satisfaction of two conditions:-
a) Value of Land is Included.
b) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004
Conclusion
Finance minister while introducing the changes said :-
“More than as a revenue garnering measure, negative list is expected to make the administration of the tax simple, both for the department as well as the taxpayers, reduce litigation and usher a regime much closer to our eventual goal of Goods and Services Tax”
These changes in the long run may prove the confidence of finance minister true but currently lack of clarity in many of the provisions, lack of understanding of the taxpayers is going to lead towards more litigation, making the administration of tax complex.
Author can be reached at amitkumar20@ntpc.co.in
sir, please tell me .,., I am workind in real estate firm as as ACCOUNTANT ===== My Question Is = How was Collect the Servic Tax on Flat Holders Recipt Basis or Work Complet Basis. Thank sir,
service tax on commercial area 2000 carpet area value 1 crore and extra charges of rs.200000/- how to service tax rate calculate?
Dear Sir,
Suppose i sale my property of amounting more than one crores then what is the service tax rate.
Dear Sir
Please tell me about the case of Fabrication work, we (Manufacturing Company)hire party for fabrication work only he charged 12.36% please suggest me is this correct?
A firm was received goods from transport (single truck owner) firm was paid to rent there is no bill or bilty from transporter my questions is single truck owner or there is no bill or builty, recipients is not liable or liable for service tax?
Hi,
You are requested to clarify whether service tax can be charged by the Builder for Covered Car Parking? If yes, at what rate?
sir i have bought a shop on a complex and mall i have no aggrement sign with him i purchased a shop of 9 lac rs ,now builoder has demandinG A SERVICE TAX 3.95 AND 5% VAT OF THE SHOP AMOUNT THE COMPLEX AND MALL IS UNDERCONSTRUCTED . IT IS LEGAL
@ sabin:-
Regarding service tax calculation, correct treatment has been done.St is to be paid on the entire value.
(Point8(iv) of this article talks about abatement of 75% i.e tax is payable of 25% of the value.This budget has introduced a category where Residential properties having
carpet area of above 2000 sq ft and where amount charged is equal to or more than Rs. 1 crore
or commercial property,
Abatement has been provided at the rate of 70% i.e tax is payable on 30% value
Sir,
I am planning to purchase an under construction Flat in Bangalore. I got the draft copy of the sales agreement (Dual agreement). As per the agreement base price (price / sqft * super built up) is 33Lakhs (the UDS of Land value is 8 Lakh and the cost of construction is 25 Lakhs).As per the Builder sales tax (VAT) @ 9.5% of 70% Basic and Car Park Value [9.5%*(70%*(3304800+150000)) = 229744] and service tax 12.36% of 30% of Basic and Car Park and other charges [12.36%*(30%*(3304800+150000)) = 128104].
Could you please tell me whether the formula to find the service tax and VAT is true? I understand the builders are not suppose to calculated the Service Tax on the base price and it should be on the cost of construction.
@ pradip ji
service tax in case of maintenance work contract is payable on 70% value or we can say at the rate of 12.36*70%=8.652. further reverse charge @50% is applicable.
i hope this suffice
hai sir i have one doubt. how to caluclate to 3.71% in service charge of maintain or repair service in bill. why we have not calculate to 12.36%. pls guide me
vinay hegde ji,
whether u are providing just the repair services or AMC in which the parts say key board is supplied by you as part of the agreement?
please give a brief nature of services that u are providing?
dear sir ,,
how the service tax will apply to our computer service firm . can we pay for service tax for computer service ?? we already had a VAT registration , then also i made serviec Tax registration . now i done a service tax registration . that means we have to pay service Tax ?
Krishna ji,
For GTA , Earlier if the consignor or conginee was specified person then the person liable to pay freight was liable to pay ST however in the new changes if person liable to pay freight is specified person then Only he is liable to pay ST.
Sir,
Please provide the some details about transport of goods by road and business auxiliary service, may be any changes in these services.
Thanks!
KRISHNA KUMAR
@ sandip- Rule 2A gives two option – 1st you can segregate the amount of service and supply . You pay service tax on service portion and VAT on supply portion.
2nd option is for the situation where no segregation is possible.In the 2nd situation you have pay taxes on 40% of entire value (including supply+Free of cost) material in case of original work
@ rajesh kumar –
Sir,
There is no such change. It was payable earlier as well.But yes the valuation method has changed . Further earlier there was no ST in case of less than 12 residential units which has become applicable now.
Please let me know the exact dates of booking ,payment dates furthermore the argument forwarded by your builder.
You can leave these details on my given mail ID in article . Due to other engagement i am not in a position to vist this forum daily. Taxguru doesn’t send the email whenever any comment is dropped.
@ V. Dekate
Your query is not clear ..
what i have understood is that you are Input service distributor.Making payment to service provider. these service provider are not charging service tax on their invoice as they are covered in Reverse charge mechanism. You are depositing tax as RC makes u liable.
Now you want to ask whether these services are to be added in ST-1.
If your query is the same the answer is yes . you have to get it added as service receiver in ST-1.
Please let me know your actual query
Sir
we are service recipient and having ISD registration. we are making payment Advocates, transporter from which we are collecting Service Tax and deposited to the govt.
we like to know whether these services is to be added in our taxable services (Form No. ST-1)
The builder is demanding for the service tax on covered car parking. Looks like there are some changes in the service tax norms which are impacting the buyers with retrospective affect. there is no seperate agreement for parking space. it’s part of the same contract for flat.
This new demand from the builder I have already purchased the unit about 1 or 2 years in advance.
Logically it should not be applicable to those buyers at all.
sandip Chamola ji,
Please give your detailed query. You may mail me your query with all the facts of the case
Sandeep Chamola
Sir if an individual is a contractor and providing service of construction with material and labour. is he can charge service tax if yes then on which part service tax is to be charges.
Sir,
Can you please clarify if Service Tax 12.36% is applicable for export service also?
A couple of questions::
Is service tax leviable on Subsidized transport facility provided to employees?
Is service tax applicable on Notice Period waived for an employee? What is the treatment if it is adjusted against Earned leave credit?
Thanks
Gowri Shankar
Dear Sir,
In the recent service tax notification, commercial establishments (portions given on rent lease) like shopping complexes, mall etc. are coming under service tax of 12% + 2% Edu.Cess +1% Hr.Edu.Cess. Apart from the rent retail and CAM charges will this tax applicable for the utilities like Water and treatment, EB, HVAC and power generated by own DG sets of the establishment? Request your kind reply pl.
Thanks and regards.
RAJASEKARAN
Dear CA. Amit Lath
sir i want to start a computers rental business so what kind of taxes i have to pay what will be the % of tax, as i have to give the hardware support to the computer i have to hire a person on salary basis for that what tax i have to pay please show me the right path.
THANKS IN ADVANCE SORRY FOR TAKING YOUR VALUABLE TIME.
What is rate of service tax currently applicable for business auxiliary services.
can u please let me know the value for charging service tax in case of works contract where service potion and goods portion can be separated. whether any abutment will available or the 100% service portion will be subject to service tax.
Thanks With Regards
What percent of service tax is applied in house keeping contract and who will pay that i.e. provider or contractor.? Please guide as soon as possible.
Thanks,
Akash Agrawal.
Pragati ji,
Exemption provided under exemption list is applicable when parking is used for general public . I am reproducing the text as in exemption list :-
“Services by way of vehicle parking to general public excluding leasing of space to
an entity for providing such parking facility”
so in your case the particular paragraph referred by you is not applicable.
Furthermore please let me know whether there is seperate agreement for parking space or part of the same contract for flat.
Hi Amit,
We have recently purchased a flat in Noida, for which the builder has demanded 2 Lacs as parking charges. He now says that the tax payable is Rs. 24,000.
Referring to clause 7.11.7 on page 104 of the Service tax guide from the Indian Govt : www. servicetax.gov.in/st-edu-guide.pdf , it says we are not liable to pay any tax. Will you please care to elaborate on this, if we need to pay the tax on this or not?
Thanks in advance, Pragati
Service tax is not applicable on any payment made under the employment contract.
all the payment included in appointment letter is salary
With the latest amendment in Service tax Rules, it is clear that for services provided by Directors to the Company service tax is payable by the Company, i.e. service recipient. My question in our company the Directors are paid salary every month. In addition they also get at the year end some commission. Here what will be service tax provision for payment by the service receiver, i..e the company. Please clarify.
Dear CA. Amit Lath
Yes its cover wide Notif. no. 45 resently issued by department.
Please advice Service Provided by Director to Company is new service Introduce.
In our co. Directors are geting salary, How to calculate Service Tax
New notification covers security services.
Dear Pankaj Sheth,
Security Service is not cover in “Manpower supply” because there is no control of Service Reveiver on Security Guard.
Pankaj J Sheth,
Please details your query for appropriate reply. in case you mean providing security guard then same is manpower supply.
Dear vravindrababu,
Your query can be replied only based on actual numbers.
1 in case all material is supplied by SR, then ST is payable on 100% of SP invoice amount
2 other situation -abated value
Dear KIRIT B SHAH,
You can take credit of 75% (paid by you) as well as remaining portion of service tax in invoice (if charged by RP)
Whether security services / watch & ward services provided by security agency will be covered under ‘Manpower supply’ to which partial reverse charge mechanism is applicable?
What are the amendment made for Bar and restaurant serving under A/C, previously 70:30, what is the abatement after amendment/ new finance act?.
thanking you
raghu
thank you very much.
i have query on the same.
i am providing comprehensive maintenance of computers to privite limitec comapany.
till now i was chaging 12.36% service tax on base amount.so please tell me is my service covered in work contract and how service tax is applied.
Ghasiram ji,
I m hereby sharing the relevant portion of notification 26/2012.
‘as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (3) of the said Table,’
Thank u vijay ji
service tax on construction of residential complex need to be discussed at various forums, because the price of a unit includes the price of undivided share of land,construction cost, other overhead charges, developers margin etc. since the service tax is to be levied only on the labour component involved in the construction ,abatement of 25 p.c. is inadequate. the price of undivided share of land be entirely deducted and the abatement should be effected.
abatment on construction services is 25% as per notification no. 26/2012 and not 75% as mentioned by you in sr no. iV above , please confirm.
If job is of fabrication and erection of piping,structures etc out of materials issued by service receiver,is service tax applicable on 60 % of work order value exclusive of value of free issue materials or on total value @12.36%.?
Good notes on changes. Thanks. One query I want to clerify from you. Notification No.26/12 showing percentage of S.Tax payment on 12 services and Notification No.30/12 shows percentage of S.Tax payable by provider and by recipient against 10 services. Now my question is that as a manufacturer and recipient of services like Man power, Works contract,
renting of motor vehicles, rent-a-cab service, etc. whether Cenvat Credit on Service tax payment made by service provider and recipint available as we are presently taking 75% S.Tax paid on inward freight amount on the basis of GAR-7 challan. I request you to please clerify this thing.
it is very help useful for taxpayre