Service Tax

It is an indirect tax. Service tax is a tax on services provided .The
provisions of service tax are contained in chapter V of the Finance Act, 1994
and administered by the Central Excise Department. The word ‘Service’ is not
defined in Finance Act, 1994.

Applicability
of Service Tax:

The Act extends to whole of India except the state of Jammu and Kashmir. Service tax not applicable on Export of services, subject to Conditions given in Export of service rules, 2005.

Illustration: Mr. J of
Jammu and Kashmir is providing advertisement service in the state of Jammu and
Kashmir as well as in other parts of India. Service tax is not applicable for
services rendered in the state of Jammu and Kashmir. However, he is liable to
pay service tax on those services which are rendered outside the state of
Jammu and Kashmir. Service tax liability is based on the place where the
service has been rendered, but not the place from which the service is
provided.

Statutes
Governing The Levy Of Service Tax:

The following are the sources provide provisions relating to service tax.
Service tax is governed by

Finance Act, 1994. Rules Notifications Circulars/ Office letters Orders Trade notices

Various Rules in force

Service tax Rules (1994). Service tax (Advance rulings) Rules 2003. CENVAT Credit Rules (2004) Export of Service Rules, 2005. Service tax (registration of special category of persons) Rules, 2005. Service tax (Determination of Value) Rules 2006. Taxation of services (provided from outside India and received in India) Rules 2006 Works contract (Composition scheme for payment of Service Tax) Rules 2007

Rules are supplementary to carry out the provisions of the Act. Rules can
never override the Act and cannot be in conflict with the same.

Rate of Service
Tax:

At present, the effective rate of Service tax is 10.36 %. The above rate
comprises of Service tax @ 10 % on “Gross Value of taxable service”. Education
cess [EC] @ 2 % on service tax amount. Secondary and Higher Education cess
[SHE] @ 1 % on service tax amount.

Taxable
Service:

The Act provides the list of services to which the Act applies in section 65
(105) of the Act. At present there are 106 services covered under the service
tax net.

Taxable Value:

Valuation under service tax is only with reference to the valuation rules
namely “Service Tax
(Determination of Value) Rules, 2006”.

Taxable Event
In Service Tax:

When service provider receives the advance from service receiver against taxable services. When services are rendered by service provider. When Services are rendered in certain cases as defined in sec 68 (2) read with rule 2(1)(d)

Tax
Liability:

Taxable event happens when taxable services are rendered. Tax liability taxes
place as soon as payment for service is received. The payment may be received
in advance (ie) before the execution of the service or in arrears (ie) after
rendering the service. If service provider receives advance payment; tax
liability to pay service tax arises.

Persons Liable
To Service Tax:

Any provider of taxable service whose aggregate value of taxable service received in any financial year exceeds Rs.10,00,000/- An input service distributor. Service receivers as specified in sec 68 (2) of Finance Act.

*Where a provider of taxable service provides one or more taxable service
from one or more premises, the aggregate value of all such taxable services
and from all such premises and not separately for each services or each
premises shall be taken into account for computing “aggregate value of taxable
service.

*Input service distributor means on office managing the business of
manufacturer or producer of final products or provider of output services,
which receives credit towards purchase of input services and issues invoice,
bill or, challan for the purpose of distributing the credit of service tax
paid.

The Input service distributor shall distribute Cenvat credit in respect of service tax, among its manufacturing units or among those providing output services. The Input service distributor must ensure that such a distribution should not exceed the service tax paid. In case of an input service is attributable to service use in a unit exclusively engaged in manufacture of exempted goods or exempted services, the such credit of service tax shall not be distributed.

Illustration: X ltd has a
place of business at Chennai and is registered under Service tax in Chennai.
He has factories at Trichy, Coimbatore with separate registrations and a unit
in Hyderabad. X ltd make centralized purchases for its entire unit and
distribute the input goods and services. It decides to distributes available
tax on input services of Rs.20, 000/- in the suitable ratio (as the case may
be) in the ratio 20:30:20:30. Every input service distributor, distributing
credit of taxable services should issue an invoice, a bill or challan signed
by him or a person authorized by him for each of the recipient of credit
distributed. The invoice or bill must be serially numbered.

*Services covered under section 68 (2): [Deemed service providers]

Who Is Liable
To Register ?

Any provider of taxable service whose aggregate value of taxable service received in any financial year exceeds Rs.9,00,000/- An input service distributor is liable to register as per Notifn No: 26/2005 – ST dated 07/06/2005 as amended. Service receivers as specified in sec 68 (2) of Finance Act.

Registration
Procedures:

Any person liable to pay service tax has to register with the Superintendent
of Central Excise within 30 days from the date of commencement of the business
of taxable service. Invoice should be issued within 14 days from the date of
completion of taxable service or receipt of any payment towards value of
taxable service.

Registration
procedure under Service Tax:

Step 1: Apply for
registration in Form ST – 1 to the Superintendent of Central Excise. Online
application can also be made.

Step 2: Submit along with
Form ST – 1 the following documents

Permanent Account Number (PAN) Affidavit declaring the commencement of the services Copy of passport or ration card or any other document of residential proof. Passport size photograph of the assessee in case of individual and of partners in case of firm and of directors in case of a company. Partnership deed in case of firm. Memorandum and Articles of Association in case of company

Step 3: The
Superintendent of Central Excise will grant a certificate of Registration in
Form ST- 2 within 7 days of the date of receipt of application.

Step 4: Certificate of
Registration can be surrendered if the assessee ceases to provide the taxable
service for which he had been registered.

Where a service rendered from different location falling under different
Commissionerates, multiple registrations are required, however, even in this
case a single Registration is possible, with the permission from the
Department, if the assessee maintains centralized accounting for multiple
services provided from more than one premises. If the registration certificate
issued by the department is lost, the assessee can make written request for
duplicate registration certificate.

Payment Of
Service Tax:

Service tax is payable only of Actual receipt of consideration. Where the service provider receives only a part of the total service charges, Service tax shall be paid on proportionately only on such part and not on the entire consideration. The balance service tax will have to be paid on receipt of consideration. Therefore the service tax is payable only on realized value and not on bill value. Due dates for payment of service tax

In case of e- payment, due date shall be 6th of the respective month / quarter. If last date for paying tax is a public holiday, tax may be paid on the next working day. Tax is paid through GAR – 7 challan. Big assesses with a service tax liability of Rs.50 lakhs and above should pay tax electronically. Interest in case of delayed payment of service tax. Delay in payment of tax attracts interest at the rate of 13 % p.a. The interest shall be payable for the period by which payment of tax is delayed.

Filing Of
Returns:

Returns are filed half yearly in Form ST – 3 [ Form ST – 3A for PA]. If the
service provider is not able to estimate the tax amount properly, he may apply
for Provisional Assessment.

Due dates are as follows:

(a) 25th October for the
half year ending 30th September.

(b)25th April for the half year ending 31ST March.

Revised returns can be filed within 90 days from the date of filing of
original return.

Nil return has to be filed even there is no tax liability and no taxable
services rendered.

Records To Be
Maintained:

The records as maintained by the assessee in accordance with the various laws
in force shall be accepted. Every assessee is required to furnish to the
Superintendent of Central Excise a list of accounts maintained by him in
relation to service tax. This is to be submitted only once at the time of
filing the first ST- 3 return.

Sales register Purchase register Cash book General ledger.

Such records need to be preserved at least for a period of five (5) years
immediately after the financial year to which such records pertain.