Q: What is Service tax?
A: Service tax is an indirect tax levied under the Finance Act, 1994, as amended from time to time, on specified services. At present, there are approximately 96 categories (including 15 new services introduced by Budget 2006) of services taxable under the service tax net.
Q: What is the rate of service tax and are there different rates for different categories or a common rate across all categories?
A: Service tax is levied at a uniform rate of 12.24 percent (including education cess of 2 percent) from the date of enactment of Finance Bill, 2006
Q: List of new services that have been brought under this tax net in Budget 2006-07?
A: The new services made taxable include services provided by share transfer agents and registrar to issues, recovery agents, maintenance and management of Automatic Teller Machines, sale of advertising space or time (except for print media), sponsorship of events by companies (except for sports), public relations management services, ship management services, international air travel (excluding economy class), rail container handling services (excluding haulage charges), cruise ship travel, Internet telephony services, business support services, auctioneers’ service (excluding auction of property under directions or orders of a court of law or auction by the government) and credit card, debit card and other payment card-related services.
Q: What is the value of service liable to service tax?
A: The value of service generally liable to service tax is the gross amount charged by the service provider for service rendered. Out of pocket expenses such as (travel, lodging, etc) paid on behalf of the client and recovered on actual basis (supported by documentary evidence) have been clarified for certain services as not being liable to service tax.
However, the Finance Act, 2006 substitutes a new section 67 in the place of the existing one for valuation of the taxable service under different circumstances such as, consideration for service rendered was partly in money or partly for consideration other than money.
Further, pursuant to the Finance Act, 2006, 'Service Tax (Determination of Value) Rules, 2006' ('Valuation Rules') have been introduced which specifies different principles for valuation depending upon the nature of consideration. The Valuation Rules have also prescribed certain conditions which have to be fulfilled by a service provider to claim a deduction on account of expenditure/ cost incurred by him in provision of a service.
As a result, various costs which are charged to the client as 'out of pocket' expenses (on which reimbursement is claimed) would be subject to service tax if the specified conditions are not satisfied.
Q: Who is liable to deposit Service tax?
A: Generally, the liability to deposit service tax is on the service provider. However, in case service is provided by a person based (ie having a business/ fixed establishment from where service is provided/ permanent address/ place of residence) outside India and such service provider does not have an office in India, then the person liable to deposit service tax is the service recipient based in India.
Further, with respect to 'goods transport agency services', if the consignee or consignor is a company, corporation, body corporate, factory, etc the service tax is required to be paid by the person liable to pay freight instead of the goods transport agency.
Q: Are export of services liable to service tax?
A: No, as per the Export of Services Rules, 2005 (effective from March 15, 2005), export of services is not liable to service tax. Further, vide notification no. 11/ 2005 -ST, rebate of service tax paid on exported services has been granted subject to certain conditions. Further, vide notification 12/ 2005 - ST, rebate of excise duty on inputs and service tax paid on input services used in providing the exported service has been granted subject to certain conditions.
Q: Is service tax leviable on services received from outside India?
A: Prior to introduction of Finance Act, 2006, explanation to Section 65(105) of the Finance Act, 1994 (inserted vide Finance Act, 2005) levied service tax on taxable services rendered by a service provider residing outside India (ie having a business/ fixed establishment from where service is provided/ permanent address/ place of residence outside India) to a person based in India.
Under the Finance Act, 2006 a new Section 66A has been introduced. This Section provides for levy of service tax on the services rendered by a service provider residing outside India to a person based in India. Further, in such cases, it is deemed that the service recipient in India has himself provided the taxable service in India and, accordingly, service tax is payable by the service recipient.
In addition to Section 66A, Taxation of Services (Provided from Outside India and received in India) Rules, 2006 have been notified which lay down the criteria (similar to Export of Services Rules) based on which a service would be treated as ‘imports’ and thus be liable to service tax.
Q: Who is authorized to administer Service tax in the country?
A: The different jurisdictional Commissionerates of Central Excise and Director General of Service tax are authorized to administer service tax in India.
Q: What is the procedure for obtaining a Service tax registration?
A: A prospective Service tax assessee seeking registration should file an application in Form ST-1 (in duplicate) with the jurisdictional Central Excise officer/ Service Tax officer within 30 days from the date on which the service becomes taxable or from the commencement of the provision of a taxable service, as may be applicable.
The application is required to be filed, generally, along with the following documents-
- A copy of the PAN of the service provider;
- The memorandum and articles of association of the establishment providing the services;
- An address proof of the establishment from which it functions; AND
- A power of attorney of the authorized signatory for the purposes of the said registration.
The requirement for filing the above stated documents (other than Form ST-1) is not prescribed in statute and may vary from one jurisdiction to another.
Department is required to issue the registration certificate to the assessee within 7 days of the receipt of the application. In case of failure to issue registration certificate within 7 days, the registration applied for is deemed to have been granted and the assessee can carry on its activities. The registration certificate contains a service tax registration number.
Q: Is separate registration certificate number required for, if the service provider is providing more than one taxable service?
A: A single registration certificate number can be obtained for all services. However, the applicant should mention all taxable service categories on the registration application.
Q: In case of a registered service provider, providing a new taxable service, is he required to obtain a fresh registration?
A: Service tax registration needs to be obtained for each taxable service category. In case a service provider already has a service tax registration certificate, the service provider would need to get the service tax registration certificate amended for the addition of the new taxable service category in the certificate.
Q: Is there any prescribed period for intimation of change in information at the time of registration?
A: The service provider is required to intimate any change in information submitted to the Central Excise Officer at the time of registration within 30 days of the said change.
Q: If an assessee is providing services from more than one premise, does he have to obtain registration for each premise?
A: To answer the above question, three situations are contemplated and discussed below:
- Where the assessee is providing the service from more than one premises and has centralized billing system: When an assessee is providing taxable service from more than one premise or office and has a centralized billing system in respect of such service rendered to clients in one or more such premises or offices, he may opt for registering such premises or offices from where such centralized billing is done.
- Where the assessee is providing the services from more than one premises and has centralized accounting system: Where an assessee is providing services from more than one premise or office but has a centralized accounting system in one or more such premises or offices, he may opt for registration of such premises or offices from where centralized accounting is done.
- Where the assessee is providing service from more than one premises but does not have centralized billing system or centralized accounting system: Where an assessee is providing a taxable service from more than one premise or office, but does not have any centralized billing system or centralized accounting system, he would be required to obtain registration in respect of each of such premises or offices from where the services are rendered.
Q: What is the procedure for obtaining the service tax code ('STC') number?
A: An application in the prescribed format (in duplicate), as provided in Annexure II of CBEC Service tax Circular No. 35/3/2001 dated 27 August 2001, along with a certified copy of the PAN card, has to be submitted to the Superintendent of Central Excise.
Q: What are the consequences for failure to obtain registration?
A: There is no specific penalty for failure to obtain registration. However, as per residuary penalty clause (ie penalty for contravention where no specific penalty is provided), penalty which may extend to Rs 1000/- may be leviable.
Payment of tax, filing of return and maintenance of records
Q: What is the basis for the deposit of service tax by an assessee and at what intervals? Is service tax to be deposited by the assessee, even in cases where his client does not pay for the services rendered or only pays a part of the bill raised in this regard?
A: The service tax is required to be paid only on the value of taxable services received for a particular month or quarter, as the case may be, and not on the gross amount charged or billed to the client. Ordinarily service tax should be deposited on a monthly basis. However, individual proprietary firms or partnership firms are required to deposit tax quarterly. In both the cases, whether monthly or quarterly, the tax is to be deposited by the 5th of the month following the said month or the said quarter. However, tax for the month of March is required to be deposited by March 31. Service tax is required to be deposited through TR 6 challans.
Please note that in all cases where the amount received is less than the gross amount charged/ billed to the client, the service tax assessees are required to amend the bills, either by rectifying the existing bill or issuing a revised bill and by properly endorsing such change in the billed amount.
In case payments have been made in advance for services which have not been provided as yet, service tax is required to be deposited on such advance amounts also.
Q: What is the consequence of delay of deposit of tax?
A: Any service provider not depositing tax within the time stipulated for the same, has to pay simple interest at the rate of 13 percent per annum.
In addition, the assessee may required to pay penalty ranging between Rs 100/- and Rs 200/- for every day of delay up to a maximum penalty which is equivalent to the service tax which has not been deposited. The actual levy of penalty is at the discretion of the authorities.
However, as per the amendment introduced by the Finance Act, 2006, the assessee is required to pay penalty not less than Rs. 200/day of delay or 2% of the tax per month of delay, whichever is higher up to a maximum penalty which is equivalent to the service tax which has not been deposited. The actual levy of penalty is at the discretion of the authorities.
Q: At what intervals do service tax assesses have to file service tax returns? What are the documents that have to be filed along with service tax returns Statement?
A: The service tax assesses are required to file a half yearly return in Form ST 3 or ST-3A, in triplicate, to the Superintendent Central Excise dealing with service tax. The returns have to be filed within 25 days from the last day of the particular half-year. Thus, the returns for half year ending September 30, and March 31, have to be filed by October 25, and April 25, respectively. The returns should be accompanied by copies of all TR 6 challans, evidencing payment of service tax.
Further, an assessee filing service tax returns for the first time should also furnish to the Department the list of all the accounts maintained by them relating to service tax.
Q: What are the consequences for failure to submit returns?
A: There is no specific penalty for failure to obtain registration. However, as per residuary penalty clause (ie penalty for contravention where no specific penalty is provided), penalty which may extend to an amount not exceeding Rs 1000/- may be leviable.
Q: What are the records required to be maintained by an assessee?
A: No specific records are required to be maintained by a service tax assessee. Records required to be maintained under any other law in force (sales tax, income tax etc) are acceptable for the purpose of service tax.
Service tax credit
Q: Is service tax credit available for services utilized by a service provider?
A: Yes, an output service provider is allowed to avail credit of the service tax/ excise duty paid on input services/ input goods received and consumed, which are in relation to rendering of output services.
Q: What are the documents needed to avail service tax credit?
A: Service tax credit can be availed on the basis of the following documents:
1. Credit of service tax paid on input services can be availed on the basis of invoice, bill or challan issued by an input service provider which should contain the following details:
- Date of invoice
- Serial number of document
- Name, address and registration number of the input service provider
- Name and address of the service recipient
- Description, classification and value of input service
- Service tax paid/ payable.
2. Credit of service tax paid on input services received by an input service distributor can be availed on the basis of invoice, bill or challan issued by an input service distributor which should contain the following details:
- Date of invoice
- Serial number of the document
- Name, address and registration number of the person providing input services and the serial number and date of the invoice, bill or challan (as provided hereinabove)
- Name and address of the input service distributor
- Name and address of the recipient of the credit distributed
- Amount of credit distributed.
3. Credit of excise duty paid on inputs/ capital goods can be availed of on the basis of an invoice issued by:
- A manufacturer for clearance of inputs or capital goods; or
- An importer; or
- A first stage dealer or second stage dealer; or
- Supplementary invoice issued by a manufacturer or importer of inputs or capital goods; or Bill of entry; or
- Certificate issued by an appraiser of customs in respect of goods imported through a foreign post office.
Q: What records need to be maintained to avail service tax credit?
A: The manufacturer/ output service provider should maintain proper records for receipt, disposal, consumption and inventory of input and capital goods. There is no specified format in which the records need to be maintained. However, the manufacturer/ output service provider needs to maintain records containing information regarding the value, tax/ duty paid, cenvat credit availed and credit utilized, person from whom inputs/ capital goods/ services are procured.
Q:Whether a service tax credit return needs to be filed?
A: Yes, an output service provider is obliged to file a return, on half yearly- basis, in the prescribed form (III) indicating details of input service provider, input service tax credit available, credit utilized and the balance available, if any, along with the return to be filed in Form ST-3. The returns for half year ending September 30, and March 31, have to be filed by October 25, and April 25, respectively.
Q: What are the general exemptions available from service tax across all taxable service categories?
A: Exemptions from service tax available across all taxable service categories are:
- All taxable services provided by any person to the United Nations or any International agency, as defined, shall be exempt from paying service tax related to those services. [Notification no. 16/2002/ST dated August 2, 2002]
- All taxable services provided to a developer or units of SEZ for the development, operation and maintenance of a SEZ or for setting up SEZ unit or for manufacture of goods buy the SEZ unit have been exempted from service tax, subject to satisfaction of the prescribed procedural requirements. [Notification No.17/2002/ST dated November 21, 2002]
- The value of goods and materials that are sold by the service provider to the recipient of service provided there is documentary proof specifically indicating the value of the goods and materials. [Notification no 12/2003/ST effective July 1, 2003]
- All taxable services rendered by the RBI have been exempted from service tax w.e.f. March 1, 2006.