Knowledge Base - Service 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.
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 :
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.
Taxable Services have been specified under Section 65(105) of the Finance Act, 1994.
Click here for a detailed list of taxable services.
If you are engaged in providing a service to your customer:
(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 issued under section 93 of the Finance Act, 1994.
At present, the effective rate of Service Tax is 10.30% 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.
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.
The Central Excise Officer is empowered to verify the accuracy of any information furnished or document presented for valuation.
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.
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 respectivel
There are no specific statutory 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).
Yes. If it is felt necessary, the Department can call for additional information/ documents for scrutiny, as per Rule 6(6) of the STR, 1994 and Sec. 14 of the Central Excise Act, 1944 which is made applicable to Service Tax matters, as per Sec. 83 of the Finance Act, 1994.
As provided under Rule 5A of STR, 1994, an officer authorized by the Commissioner can have access to an assessee’s registered premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.
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.
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.
All records and documents concerning any taxable service, CENVAT transactions etc. must be preserved for a minimum period of 5 years immediately after the financial year to which such records pertain (Rule 5(3) of Service Tax Rules 1994.)
Service Tax is required to be paid at the rate in force (at present 10.3%) only on the value/amount of taxable service received in a particular month or quarter as the case may be, and not on the gross amount billed to the client. [Refer to sub-section (2) of Section 67 of Finance Act,1994/Rule 6(1) of Service Tax Rule 1994].
Service Tax is payable on amount realized. In given situation, the amount so realized from the client would be treated as gross amount inclusive of Service Tax and accordingly the value of taxable service and the Service Tax liability are worked out as follows:
For example :
Value of taxable service (AV) = Rs. 10000
The Penal provisions for various contraventions of the Service Tax Law are as follows:-
The penal provisions under Service Tax are provided under Sections 76, 77 and 78 of Finance Act, 1994.
When any amount is demanded as Service Tax or other dues from any person under the Finance Act, 1994 and rules made thereunder towards recovery of service tax or other dues which is not levied or paid or short levied or short paid by any person, or erroneously refunded to any person, and/or any person is liable to penalty under the said Act/Rules, notices are issued in the interest of natural just
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/Service Tax Officer before servic
- 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.
The Central Board of Excise and Customs has issued notification no. 30/2005-ST dated 10th August, 2005, as amended by Not.No. 16/2008, dated 11.03.2008, specifying power of adjudication of cases under section 83A of the Finance Act, 1994 which is as follows:
No. The noticees can defend their case themselves. However, they may also engage any person, duly authorized to defend their case before an adjudicating officer.
The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty leviable under section 3 of the Customs Tariff Act, equivalent to the duties of excise.
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 such 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.
These terms have been defined in the CENVAT Credit Rules, 2004. (Refer Rule 2).
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. (Refer Rule 9 of CENVAT Credit Rules, 2004.)
The documents on which CENVAT credit can be availed are as follows:-
Yes. 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. [Rule 4(7) of the CENVAT Credit Rules, 2004].
An office of the manufacturer or provider of output service who receives invoices for the procure ment 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”. [Refer Rule 2(m) of CENVAT Credit 2004].
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. [Refer rule 3 of Service Tax (Registration of Special Category of Persons) Rules, 2005].
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.
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. (Ref. Rule 6 of Cenvat Credit Rules, 2004)
Refund of accumulated credit is admissible only in case of exports of finished goods or output service.
What constitute export of service is defined in the Export of Service Rules, 2005. The Export of taxable services is exempted from Service Tax.
The Export of Services, Rules, 2005 specifies 3 categories of cross border transaction of services and conditions that will be construed as export of services in cases of:
If export proceeds are received in Indian currency, no export benefits shall be available.
If services are rendered in India, it shall not be treated as export, even if it is rendered to any foreign national and he pays in convertible foreign currency.
- Taxable services may be exported without payment of service tax, provided the conditions specified in Export of Service Rules, 2005 are fulfilled.
- Where service tax has already been paid on export of services to countries (other than Nepal and Bhutan), rebate/refund of such service tax, can be availed under notification no. 11/2005-ST dated 19.4.2005;
Service tax paid on the input services used in export of goods is refundable to exporter by way of rebate/refund in terms of notification No. 41/2001-Central Excise (N.T.), dated the 26th June, 2001. Further CENVAT Credit accumulated on such input services is also refundable under rule 5 of the CENVAT Credit Rules, 2004, subject to the observance of procedure prescribed in notification No.
The rebate claims or refund of utilized CENVAT Credit application has to be filed in the Central Excise or Service Tax Division/Group where the assessee is registered.
The manufacturer-exporter has to file the claim for refund to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture or warehouse.
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 hi
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).
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.
Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted. (Ref.: Explanation 2 to sub-section 2 of Section 66A of the Finance Act,1994.)
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, -
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 service proposed to be provided, by the applicant. Activity means service to be provided. (See Section 96A of the Finance Act, 1994)
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.
- A non-resident setting up a joint venture in India in collaboration with a nonresident or a resident; or
- A resident setting up a joint venture in India in collaboration with a non-resident; or
- A wholly owned subsidiary Indian company, of which the holding company is a foreign company, which proposes to undertake any business activity in India;
Advance rulings, concerning service tax matters, can be sought in respect of –
Office of the Authority for Advance Rulings (Central Excise, Customs & Service Tax), 4th Floor (Room No. 445 to 465, 467 & 469), Hotel Samrat, Kautilya Marg, Chanakyapuri, New Delhi – 110 021, Phone 91-11-26876402/26876406, Fax No. 91-11-26876410, Email : [email protected],
- An assessee aggrieved by an order/decision of the Adjudicating authority subordinate to the Commissioner of Central Excise in respect of Service Tax 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.
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.
Yes. The procedure is as follows:-
Section 73 of Chapter V of Finance Act 1994 as amended from time to time deals with such a scenario where there is case of short payment of service tax or short levy or erroneous refund of tax.
Section 73A deals with such a scenario and the service provider would have to pay the amounts so collected to the Central Government. Where not paid, a SCN can be issued with regard to recovery of such amounts. This provision would apply in all such cases where the service provider has collected in any manner from the service receiver, amounts representing service tax.
Section 73C makes provisional attachment of property possible during pendency of proceedings u/s 73 or 73A. This can be done to protect the interests of revenue but with the permission of Commissioner of Central Excise. The attachment shall be by an order in writing and of property belonging to the person on whom the SCN is served.