basic concepts of tax - tic.ac.in1).pdf · unfortunately there is no definition in the provision of...

BasicConceptsofServiceTaxPresentedbyCA.Aamir Khan

SEPTEMBER2015

Unfortunately there is no definition in the provision of Service taxUnfortunately there is no definition in the provision of Service taxlaw for the word service, only incidences of taxes is defined under the Act.

As per Blacks Law Dictionary means an intangible Commodity in theAs per Black s Law Dictionary means an intangible Commodity in theform of human effort such as use of labour, skill or knowledge for thebenefit of another.

As per Websters dictionary performance of any duties or workfor another, helpful or professional activity.

Service tax is destination based consumption tax in the form ofValue Added Tax. This is collected as per the service tax provisions.

TAX REVENUE (ALL INDIA 2014-15)Rs. In Crores

Service Tax Concepts

Tax

Who Can Levy Tax

Central Govt. State Govt.Service Tax, Central

Excise, Customs, VAT, State Excise,

Property Tax, Entry Income Tax

p y yTax, Octroi

N t N t t l S i T O l C t l G t h th t l i tNote: No state can levy Service Tax. Only Central Govt. has the power to levy service tax


Types of Taxes

Taxes

Di tDirect Indirect

Paid directly by tax payer to Govt. E.g. income tax, wealth tax, gift taxAdministrated by CBDT under Ministry of

Person paying the tax and person are differentE.g. service tax, excise, customs etc. Administrated by CBDT under Ministry of

Finance, GOI Administrated by CBEC under Ministry of Finance, GOI

Note: No state can levy Service Tax. Only Central Govt. has the power to levyservice tax

Service Tax


Service TaxIntroduction of concept of Service Tax

d d b 199 b h Si h i i i i Introduced by F.A. 1994 by Dr. Manmohan Singh (Former Union Finance Minister) based on recommendation by tax reform committee headed by Dr. Raja Chelliah in 1990

Fi I d d f 01 07 1994 i 3 f i First Introduced w.e.f. 01.07.1994 taxing 3 category of services: General Insurance Stock Broking Telephone Service

At present almost 119 category of taxable service

Any amendments/clarification in Service Tax through Notification, Circulars etc. i d b B d (CBEC)issued by Board (CBEC).

Application of Service Tax

Only on Services specified under Sec 65(105) of Chapter V of Finance Act 1994Only on Services specified under Sec 65(105) of Chapter V of Finance Act 1994

Such services commonly known as taxable service


Levy of Service Tax:Levy of Service Tax:

To attract service tax three conditions must be satisfied:

1 Th t b i id ( th h id1. There must be a service provider( the person who providesservice)

2. Service receiver and(the person who receives service)3. Taxable service ( which is defined under section 65(105))( ( ))

All the above conditions must be satisfied to attract the service tax liability.

For Example Mr A is a chartered Accountant maintains the accounts of hisFor Example Mr. A is a chartered Accountant maintains the accounts of hisclient M/s P & Co. and charges the fees of 10000 every month.

Now we will examine this case in the light of service tax. As per section65(105)(s) any service provided or to be provided to any person, by practicingchartered accountant in his professional capacity, in any manner, is taxableservice.

: Illustration


: IllustrationIn the above example Mr. A is service provider providing taxable service ofaccounting to the service receiver (M/s. P & Co.). All the three conditions are satisfiedg ( / )as per definition. So, Mr. A is liable to pay service on the fees received by him. If A ismaintaining his own accounts in this case service provider and service is the sameperson, so the basic conditions of service tax is not satisfied. To attract service taxliability all the three conditions must be satisfied Even if one condition is not satisfiedliability all the three conditions must be satisfied. Even if one condition is not satisfiedthen that service is not a taxable service.

Generally service provider is liable to pay service tax but as per Section 68(2) thegovernment to notify the services with regard to which service receiver would be heldliable to pay service tax.


Statutory Provisions Relating to Service TaxFinance Act 1994 contains provisions and procedure relating to service tax:Finance Act, 1994 contains provisions and procedure relating to service tax:

Levy and collection of service tax Registration Appealpp Revision Search etc.

Central Govt. frames rules governing service tax:

Service Tax Rules, 1994 Service Tax (Registration of Special Category of Person) Rules, 2005 Service Tax (Determination of Value) Rules, 2006 (commonly known as Service Tax

Valuation Rules) CENVAT Credit Rules, 2004. Export of Service Rules, 2005. Taxation of Services (Provided from Outside India and Received in India) Rules, 2006

(Commonly termed as Import of Services Rules) Service Tax (Advance Rulings) Rules 2003 Service Tax (Advance Rulings) Rules, 2003 Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Service Tax (Provisional Attachment of Property) Rules, 2008 Dispute Resolution Scheme Rules, 2008


Statutory Provisions Relating to Service TaxCentral Govt also issues the following:Central Govt also issues the following:

Notification

Exempting certain services (fully/partially)

Operationalizing any provision of law

Circulars/instructions

Explaining scope of law

Explaining procedure to be followed


Sources of Relevant Information

Some important and useful sites for updates and information about service tax areas follows:

1 www cbec gov in Good site of Central Board of Excise and Customs (CBEC) giving1. www.cbec.gov.in Good site of Central Board of Excise and Customs (CBEC), givingnotifications and circulars and general information on excise, customs law andservice tax and more over it is a free website.

j di i i i d i f i l li d2. www.judis.nic.in It is a good site for various case laws lists and Supreme Courtjudgments.

3. www.aces.gov.in It is a good site for recent updates and Circulars and notifications.

4. www.servicetaxonline.com This website covers all service tax matters.

5 www taxmann com It gives information on changes in corporate laws and taxation5. www.taxmann.com It gives information on changes in corporate laws and taxationbut it is a paid site.

6. www.taxindiaonline.com We can information regarding service tax and customsand excise duty and other indirect tax matters from this siteand excise duty and other indirect tax matters from this site.


C f S i TCoverage of Service TaxLevy of service tax extends to:

Whole of India except Jammu & Kashmir

Territorial waters i.e. upto 12 nautical miles from land mass

Designated areas of continental shelf

Exclusive Economic Zone of India extending upto 200 nautical miles i id th f b liinside the sea from base line

N S i i bl if i i i dNote: Service tax is payable if a service is imported and not if it is exported.

12 nautical miles from the land mass

R i i f T PRegistrationofTaxPayer

Registration

Who is to be RegisteredRegistration must be taken by:Registration must be taken by:

Person liable to pay service tax

Service provider

Exceptions: Service receiver (under Reverse Charge) Service receiver (under Reverse Charge) Input service distributor Taxable service provider whose value of taxable service > Rs.

9,00,000

Registration

Cases for Service Recipient to Pay Service Tax

Case Liability

Service provider providing a taxable service from outside India to a recipient

Service Recipientservice from outside India to a recipient in IndiaInsurance agent providing service to insurance company (General Insurance

Insurance company appointing the agent

and Life Insurance)Transport of goods by road Person paying the freight

Distribution of mutual funds by distributor/agent

Mutual fund/asset management company receiving service

Body corporate or firm located in India Body corporate/firmBody corporate or firm located in India receivingsponsorship service

Body corporate/firm

Registration

Categories of TaxpayerTaxpayers are classified in following categories:Taxpayers are classified in following categories:

Individual/Proprietor

Partnership

Registered public limited Company

Registered private limited Company

Registered Trust

Society/co-operative society

OthersOthers

Registration

Which Premise to Register For

Service provider may take registration for the premise from where he is:

Providing a taxable service, or Issuing bills and maintaining records

S i i k i i f h i f h h iService receiver may take registration for the premise from where he is:

Receiving a taxable service, or Receiving bills and maintaining records

Service tax payer providing/receiving service from/in multiple premises and using single/multiple premises for maintaining centralised accounts may takeusing single/multiple premises for maintaining centralised accounts may take registration for:

Each premise or Each premise, or Single registration for premises used for centralized billing/accounting

(Centralized registration)

Registration

Centralized RegistrationThe service provider must consider following points while taking registration:

Separate registration for each premises if there is no centralised billing or accounting

Authority to grant centralised registration: Commissioner in whose jurisdiction the premises or offices, from where centralised billing or accounting is done are locatedaccounting is done, are located

Procedure for centralized registration: Fill out application in Form ST-1 Submit details of branches/offices for which centralised registrationSubmit details of branches/offices for which centralised registration

is being sought Single registration for multiple taxable services

Period for filing application - 30 days from the date when: A person commences providing taxable service, or

S i t i i d th t bl i hi h i l t Service tax is imposed on the taxable service, whichever is later.

Fees for Registration: Nil

ST-1

Registration

Centralized Registration: Documents RequiredTax payer must submit the following documents at the time of registration alongTax payer must submit the following documents at the time of registration along with the application form:

Copy of PAN cardCopy of PAN card

Proof of residence

P f f i i f li ( hi d d) Proof of constitution of applicant (e.g. partnership deed)

Copy of memorandum and articles of association

Details of partner/directors/proprietor/HUF/key person

Registration

Grant of Registration CertificateSteps for granting registration certificate:Steps for granting registration certificate:

i. Acceptance of application in Form ST-1 by Jurisdictional Superintendent of Central Excise p

ii. Review of the application

iii Grant of registration in Form ST-2 within 2 days of filing of onlineiii. Grant of registration in Form ST-2 within 2 days of filing of online application

Registration

Components of Registration CertificateRegistration certificate includes:

Name of the assessee

Address of premises

Registration number, which is: g Also known as Service Tax Code (STC) 15 digit PAN based number

First 10 digits - Same as the PAN Next 2 digits ST Next 2 digits - ST Next 3 digits - Serial numbers indicating the number of

registrations taken by the taxpayer against a common PAN

Name of services for which registration granted

Premises code: Used for easy identification of location of registration of taxpayerUsed for easy identification of location of registration of taxpayer Represents Commissionerate , Division, Range and Serial Number

Registration

Amendments to Registration CertificateA d t t i t ti tifi tAmendment to registration certificate:

Required in following cases : Change in the information supplied in Form ST-1, e.g., name or

address of the applicant Addition of new taxable service provided

Note: Obtaining fresh registration certificate is not required in these cases.

Procedure for amendment to registration certificate:i. Intimation to jurisdictional AC/DC within 30 days of changeii Submission of self-certified copy of the registration certificateii. Submission of self certified copy of the registration certificate,

necessary proffs and not the earlier registration certificateiii. Cancellation of the original registration certificate issued earlier by

the departmentpiv. Issuance of an amended registration certificate

Registration

Cancellation/Surrender of Registration CertificateCancellation/surrender of registration certificate must be applied for if:

Assessee ceases to carry on the activity for which he is i t dregistered

Assessee opts to avail benefit of Threshold limit

Any other reason

Procedure for cancellation/surrender of registration certificate File all the up-to-date returns Pay all the dues (i.e. tax, interest, penalty, etc.) payable to

Central Government Application to Superintendent of Central Excise in any format

accompanied with ST-2 Undertaking for no due pending to be filed No fee required

Registration

Cancellation/Surrender of Registration Certificate S i l Sit tiSpecial Situations

Transfer of Business:

Transferor has to cancel his service tax registration

Transferee is required to obtain fresh registration

Procedure in case of Re-start of Business:

Pay obtain a fresh registration if the assessee ceases to provide earlier ay obta a es eg st at o t e assessee ceases to p o de ea eservice and cancels registration

Change in particulars:

No need to cancel the old registration and to obtain the fresh registration

Required to intimate change to the department

Registration

Penalty for Late Registration

If there is delay in obtaining registration:If there is delay in obtaining registration:

Penalty up to Rs. 10,000, or Rs. 200 per day of delay (whichever higher)

Additional applicable penalties + interest for the delay in payment of service tax

Due date for payment of Service Tax:h i ll d b di d f C l GThe service tax collected must be credited to account of Central Governmentwithin the prescribed due dates.

The due dates of payment of service tax summarized below:The due dates of payment of service tax summarized below:

Status Basis Due Date for normal payment Due Date for e-paymentNon corporate entities like Quarterly payment 5th of the month succeeding the 6th of the monthNon-corporate entities likeindividual, proprietorship,partnership firm

Quarterly payment(Apr-Jun, Jul-sep,Oct-Dec, Jan-Mar)

5th of the month succeeding therelevant quarter in which theservice was performed.For example for the 1stquarter(Apr Jun)due date is 5th of July

6th of the monthsucceeding the relevantquarter in which theservice was performed.For example for the(Apr-Jun)due date is 5th of July. For example for the1stquarter (Apr-Jun)duedate is 6th of July.

Corporate entities Monthly payment 5th of the next month in which 6th of the next month inCorporate entities Monthly payment 5th of the next month in whichthe service was performed.For example for April monthservice tax is need to pay by5th of may

6th of the next month inwhich the service wasperformed.For example for Aprilmonth service tax is need5th of may. month service tax is needto pay by 6th of may.

But for the month of March due date for payment of service taxis 31st Marchis 31 March

If the assessee is failed to pay tax within the due date he needs to pay taxalong with interest 18% p.a. until the date of payment of tax.g p p y

Filing of returns:

Every service provider or service receiver who liable to pay tax is required tosubmit half yearly returns in Form ST-3 or Form ST-3A with relevant copiesof GAR 7 in the triplicateof GAR-7 in the triplicate.

1.

The returns are to be filed for the half year ending 30th September by25th October.

2.

The returns are to be filed for the half year ending 31st March by25th April.

Late filling of returns will attract penalty Rule 7C of service Tax RulesLate filling of returns will attract penalty .Rule 7C of service Tax Rulesmentioned about penalty

1 Rs. 500 for delay of 15 days from the prescribed date

2 Rs. 1000 where the delay is between 15 and 30 days from the prescribeddate.

3 Rs 1000 + Rs 100 per day of delay where the delay is beyond 30 days from3 Rs. 1000 + Rs. 100 per day of delay where the delay is beyond 30 days fromthe prescribed date but not exceeding Rs.20,000 in terms of Section 70.

CENVAT Credit:

Cenvat credit is a concept introduced to overcome cascading effect ofindirect taxes. Because of the cascading effect assessee is paying tax morethan one time for the same goods and services. Cenvat Credit is nothingb dj i h l d id hi h i l d d i hbut adjusting the tax already paid which included in the current tax.

The service provider providing taxable services is entitled to avail CENVATcredit of the service tax paid oncredit of the service tax paid on

1. Inputs1. Inputs2. Capital goods and3 Input services3. Input services

Th t b d f idi t bl iThose must be used for providing taxable services.

Inputs means:All d t li ht di l il hi h d di l il dAll goods, except light diesel oil, high speed diesel oil andmotor spirit, commonly known as petrol and motor vehicles,used for proving any output service.p g y p

Input services means:Any service used by a provider of taxable service for providingAny service used by a provider of taxable service for providingan output service.

Capital goods:Capital goods:Capital goods which are used for providing output taxableservices.

ili i f C C di h li bili f h illBy utilization of CENVAT Credit the liability of the tax willbe reduced. The outflow of funds will be less.

For example we need to pay service tax of Rs.1,00,000, if hehas credit of inputs and input services of Rs.10,000 then hecan adjust that amount with tax payable Instead of tax Rs 1can adjust that amount with tax payable. Instead of tax Rs. 1Lakh, now he can pay Rs. 90,000/- (1,00,000 (Tax)-10,000(input credit)). The burden of tax will be reduced with theCENVAT C diCENVAT Credit.

Overview of Taxable Services

Taxable Services

What are Taxable Services

Taxable Services are:

Liable to service tax

D fi d d b l f S i 65(105) Defined under sub clauses of Section 65(105)

Services which are not listed in Negative List Regime.

Presently, 119 services are taxable.

Taxable Services

Classification of Taxable Services

Classification of services is made according to the scope of taxable services

specified in sub-clauses of Section 65 (105). If a taxable service appears to

be classifiable under two or more sub clauses :be classifiable under two or more sub clauses :

Specific description is preferred over general description

Classification is done on the basis of essential characteristics in case of

composite services (more than one service in a single agreement

Classification is done according to the order of sub clause which

appears earlier in Section 65 (105)

Effective Rate of Service Tax

Rate of Service tax

Effective Rate of Service Tax

The rates of service tax will change time to time. The rate of service tax will summarized below :Period Service

TaxEducationCess

S.H.Edu.Cess

TotalRate

summarized below :

16.08.2002 to 31.05.2003 5% - - 5%14.05.2003 to 09.09.2004 8% - - 8%10.09.2004 to 18.04.2006 10% 2% - 10.2%19.04.2006 to 10.05.2007 12% 2% - 12.24%11.05.2007 to 23.02.2009 12% 2% 1% 12.36%24 02 2009 to 31 03 2012 10% 2% 1% 10 3%24.02.2009 to 31.03.2012 10% 2% 1% 10.3%01.04.2012 to 31.05.2015 12% 2% 1% 12.36%01.06.2015 onwards 14% - - 14%

Payment of service tax must be through GAR-7 challan and through designatedbranches.GAR-7 Challan and list of designated branches will be available in the CBECweb site.www.cbec.gov.in or www.aces.gov.in