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Few questions on Service Tax and Vat

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Dear Student,

These are important questions for revising again in last days.

Please do complete course and then refer these Q & A.

Dont take this as a short-cut.

Although I promise you, these questions are picked after much research and thought. These would be of great assistance.

SERVICE TAX

Question

In October 09, Mr. C, a practicing Chartered Accountant, received25%of the agreed professional consideration as advance from his client against a particular service which was to be rendered in the month of November 2009. Such service became taxable with effect from 1st February, 2010. He received the balance amount @75% in the month of Feb, 2010. The value of his bill is Rs. 4,00,000.

(a) What is the value on which service tax is payable?

(b)Will the answers change if the service was a taxable service with effect from January 2009?

Answer

(a) 25%of Rs.4,00,000 is not taxable because it is the value of services received as advance for a service which was not taxable at that time. The balance 75% of Rs. 4,00,000 has been received after the services became taxable. However, the taxable event not attracted at the time of rendering the services [i.e. Nov 09].

Hence, the entire amount of Rs. 4.00,000 is not taxable.

(b) Yes. The value of taxable service for the month of October, 2009 on advance is Rs. 1,00,000. Service taxable is Rs.10,300 [Rs. 1,00,000 x 10.30%]

Due date of payment of service tax is 5th January. 2010

The taxable service for the month of February 2010 is Rs. 3,00,000. Service tax payable is Rs. 30,900. Due date of payment of service tax is 31st March, 2010.

Question

Amazon Ltd, provider of a specific service, rendered the service in the month of August, 2010 when such service was not taxable. Payment for such services was received in the month of November, 2010. Such specified service became taxable with effect from 16th October, 2010.

(a) Is Amazon Ltd. liable to pay service tax

(b) If so, on what value

(c) If not, why not

Answer

(a) No. Amazon Ltd is not liable to pay service tax.

(b) Value of taxable service is Nil.

(c) Taxable event means the time of rendering the service. Such specified service is not taxable service at the time of service rendered i.e. in August, 2010.

Question

For certain taxable services rendered by Nidhi, VAT as well as service tax is leviable. The following bill was raised by Nidhi on Akanksha (service receiver) on 10-3-2010:

Particulars

Rs.

Amount of bill

50,000

VAT

400

Total

50,400

On 31-3-2010, Nidhi receives a sum of Rs. 40,000 in full settlement. What is the service tax payable You are informed that Akanksha has incurred hotel bills of Rs. 5,150 on behalf of Nidhi. ly indicate the provisions considered in arriving at the service tax payable.

Answer

The value of taxable services is Rs. 50,000 plus consideration received in kind as per the valuation rules.

Service tax payable = Rs. 5,150

[Rs. (50,000 + 5,150) = Rs. 55,150 x 10.3/110.30

Question

Calculate the net service tax payable under the provision of rule 2A of the Service tax (Determination of Value) Rules, 2006 relating to determination of value of services in the execution of a works contract from the following particulars:

(i) Gross amount for the works contract (excluding VAT) Rs. 3,00,000

(ii) Value of goods and materials sold in the execution of works contract Rs. 50,000

(iii)CENVAT credit on (ii) above Rs. 5,000

(iv)Service tax paid on input services Rs. 5,000

(v) CENVAT credit on capital goods issued in the provision Rs. 6,000 of works contract service

(vi)Service tax rate 10.30%

Make suitable assumptions and provide explanations where required.

Answer

Particulars

Rs.

Gross amount charges (excluding VAT)

3,00,000

Less: Value of goods

50,000

Net amount subject to service tax

2,50,000

Service tax @ 10.30% on Rs. 2,50,000 =

25,750

Less: CENVAT credit

On input service =

Rs. 5,000

On Capital Goods Rs. 6,000 x 50% =

Rs. 3,000

8,000

Net service tax payable

17,750

Notes:CENVAT credit of Rs. 5,000 on value of goods sold in the execution of works contract shall not be available.

Question

XYZ service was made taxable w.e.f. 12-05-2010. Contract for providing Service was entered into prior to the effective date i.e., 12-05-2010. Bill has been raised and the value in full received from the customer prior to 12-05-2010. However, services were rendered after 12-05-2010. Are the services taxable

Answer

Taxable event is the rendering of services. Receipt of advance money is not a taxable event. Therefore, these services are taxable at the time of rendering. However, taxable event in this case is entering into contract or rendering the actual services whichever is earlier. Hence, no service tax liability exists in this case.

Question

Mr. Rishabh, a proprietor rendered the services for which he received Rs. 6,00,000 by an account payee cheque as advance while signing a contract for providing taxable service. He received Rs. 3,00,000 by credit card while providing the service and another Rs. 5,00,000 by a pay order after completion of service on 28thFebruary, 2010. All three transactions took place during financial year 2010-11. Give him advice about his liability towards value of taxable service and the service tax payable by him.

Answer

Computation of taxable service of Mr. Rishabh for financial year 2010-11

Particulars

Rs.

Advance received by an account payee cheque

6,00,000

Amount received through credit card

3,00,000

Amount received by a pay order

5,00,000

Value of taxable service

14,00,000

Calculation of service tax liability:

Service tax=Rs. 14,00,000 x 10.30%

1,44,200

Notes:

1. Money includes any cheque, pay order, currency, promissory note, letter of credit, draft, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is heldfor itsnumismaticvalue.

2. Gross amount charged includes payment by credit card, cheque, deduction from account and any form of payment by issue of credit notes/debit notes and book adjustment.

Question

Siddhartha Ltd. gives the following particulars relating to the services provided to various clients by them for the half-year ended on 30-9-2010:

(i) Total bills raised were for Rs. 15,00,000. A bill worth Rs. 1,00,000 was raised on an approved International Organization. Bill payments for Rs. 3,00,000 relating to current year were not received till 30-9-2010.

A sum of Rs. 4,50,000 relating to last year was received in September 2010.

(ii) Amount of Rs. 2,70,000 was received as an advance from Omega Ltd. on 25-9-2010 to whom the services were to be provided in October10.

You are required to work out the:

(a) Taxable value of services

(b) Amount of service tax payable

Answer


(a) Taxable value of services

Particulars

Rs.

Total bills raised

15,00,000

Less: Services not taxable

Services provided to International organization

1,00,000

Payment not received

3,00,000

Balance

11,00,000

Add: Advance received

2,70,000

Add: Payment received during the current period

4,50,000

Taxable value of services

18,20,000

(b)Amount of service tax payable

Particulars

Rs.

Service tax (Rs. 18,20,000 x 10%)

1,82,000

Education cess(Rs. 1,82,000 x 2%)

3,640

SHEC (Rs. 1,82,000 x 1%)

1,820

Taxable value of services

1,87,460

Question

State briefly whether the following service under the Finance Act, 1994 relating to service tax arc taxable service

a)Service provided in the State of Punjab by a person having a place of business in the State of Jammu and Kashmir.

b)Service provided from India for use outside India.

c)Service provided from outside India and received in India by Individual otherwise than for the purpose of use in business or commerce.

d) Service provided to an Export Oriented Unit.

Answer

a)Services rendered within India (except in the State of Jammu and Kashmir) come under the service tax net, provided these services are taxable services. Therefore, services provided in the state of Rajasthan are taxable services.

b)Services provided from India to outside India can be considered as export of services, which are exempt from service tax.

c)Services in the nature of import are taxable if these are imported for the purpose of business or commerce but if such services are imported for the purpose of personal use, then such services are not taxable services. Therefore, no service tax liability occurs in this case.

d) Services provided to export oriented undertaking is liable to service tax. Service rendered to EOU or supplies of services by EOU in domestic market is not presently exempt from service tax.

Question

Answer the following with reference to the Finance Act, 1994 as amended relating to applicability of service tax:-

(i) Sale of lottery ticket

(ii) Depository service and Electronic Access to Securities Information Service (EASI) provided by the Central Depository Service India Ltd

(iii)Service provided by educational institutions like IIMs by charging a fee from prospective employers like corporate houses regarding recruiting candidates through campus interviews.

Answer

(i) Since, lottery tickets are actionable claims and not goods[Sunrise AssociatesvGovernment ofNCT of Delhi](2006)5SSC 603, hence sale of lottery tickets is not liable to service tax.

(ii) Definition of banking and other financial servicesinter aliaspecifically includes depository services [Section 65(12)(a)(v)] and provision and transfer of information and data processing [Section 65(12)(a)(vii)]. EASI services provided by the Central Depository Services India Ltd. (CDSL) fall within the scope of provision and transfer of information and data processing. Therefore, the depository services provided by CDSL, including EASI services, for a fee are liable to service tax under banking and other financial services.

(iii)Manpower recruitment or supply agency is defined as any person engaged inproviding any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client [Section 65(68)].

Educational institutes like IlTs, lIMs, etc. fall within the above definition. Thus, service tax is liable to be paid on services provided by such institutes in relation to campus recruitment under section 65(105)(k) of the Finance Act, 1994

Question

Mr. Patil of Gujarat rendered taxable services to a client. A bill of Rs. 50,000 was raised on 30-6-2010. Rs. 25,000 was received from the client on 10-7-2010 and the balance on 23-7-2010. No service tax was separately charged in the bill.

(a) Is Mr. Patil, liable to pay service tax, even though the same has not been charged by him

(b) If so, what is the value of taxable services and the service tax

Answer

(a) Mr. Patil is liable to pay service tax even though he has not collected the service tax from his client, by considering that service tax is already inclusive in the value of the bill.

(b) Service tax liability is as follows:

Value of taxable services = 50,000x 100/110.30 = Rs. 45,331

Service tax liability = 50,000 x 10.30/110.30= Rs. 4,669

Question

A legal entity consists of Ram and Rahim are practicing Advocates in the Bombay High Court. The firm provided the following legal consultancy services in the month of September 2009.

(a) Fee collected by vetting the documents Rs. 12,00,000 from Z Ltd and from an individual Rs. 1,00,000

(b) Fee for appearing before the CBEC Rs. 15,00,000

(c) Fee collected from P Ltd by providing the Tax Planning services Rs. 14,00,000

(d)Fee received from B Ltd for drafting the legal documents like Memorandum of Understanding and other legal documents Rs. 5,00,000.Calculate the service tax liability.

Answer

Particulars

Rs.

Vetting the documents

12,00,000

Tax Planning

14,00,000

Drafting legal documents (MOUs)

5,00,000

Total

31,00,000

Less: Exemption limit

10,00,000

Taxable turnover

21,00,000

Service tax liability @ 10.30% on Rs. 21.00,000 = Rs. 2,16,300

Question

[Adapted from RTP]

Kushal is a Cost Accountant. He has furnished the following information for the month of July, 2010:-

(a) A bill for annual professional service was raised to Lifeline Ltd. for Rs. 8,50,000 on 22ndJune, 2010. However, he received Rs. 8,30,000 in full and final settlement of the above bill on 23rdJuly, 2010.

(b) Advance of Rs. 3,50,000 was received from Aarogya Ltd. for the services to be provided in the months of August and September.

(c) Services were provided to a friend gratuitously for whom Kushal normally charges Rs. 1,00,000 from other clients.

Compute the service tax liability of Kushal provided he furnishes the following additional information:-

1.In all the aforesaid cases, he has not charged the service tax separately.

2.He is not eligible for the exemption available to the small service provider.

Answer:

Computation of service tax payable by Kushal for the month of July, 2010:-

Particulars

Amount(Rs.)

Service tax on services provided to Lifeline Ltd.

=8,30,000x 10.30

110.30

(Note-1 & 2)

77,506.80

Service tax on advance received =3,50,000x 10.30(Note-2)

110.30

32,683.60

Total service tax payable (rounded off)

1,10,190.00

Notes:

1.Service tax is payable on the amount actually received i.e. Rs. 8,30,000 and not Rs. 8,50,000.

2.Where the gross amount charged by a service provider for the service provided or to be provided is inclusive of service tax payable, the valueof such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charges.

3.If the value of taxable service is zero, tax will also be zero, even though the service may be taxable. Therefore, service tax is not payable on services provided to a friend gratuitously.

Question

[Adapted from RTP]

Shivam Consultants Ltd. started providing the legal consultancy services in Rajasthan on 01.09.2010. For the financial year 2010-11, details of the transactions are as follows:-

Particulars

Amount

(Rs.)

Amount received for appearance before any court, tribunal or authority

4,00,000

Amount received for services provided to sole proprietorship concerns

2,20,000

Amount received for tax consultancy to private companies

16,50,000

Shivam Consultants Ltd. has not collected any service tax from its clients because it is of the view that legal consultancy services are not subject to service tax. Shivam Consultants Ltd. has approached you for advice. Examine whether Shivam Consultants Ltd. is liable to pay service tax and if so, what shall be the amount of service tax payable by it

Note: Assume that exemption available to small service providers is not available to Shivam Consultants Ltd.

Answer:

Service provided to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner has been brought into the service tax net with effect from 1stSeptember, 2009. Therefore, services provided by Shivam Consultants Ltd. are subject to service tax. Further, the statutory liability does not get extinguished if the service provider fails to realize or charge service tax from the service receiver. In these cases, the amount recovered from the client, in lieu of rendering the services will be taken to be inclusive of service tax and accordingly tax payable will be calculated by making back calculations.

Hence, the amount of service tax payable by Shivam Consultants Ltd. for the financial year 2010-11 would be computed as follows:-

Particulars

Amount(Rs.)

Gross amount received for tax consultancy to private companies =16,50,000 x 100

110.30

14,95,920.21

Value of taxable services

14,95,920.21

Service tax @ 10% (Rs. 14,95,920.21 x 10%) (i)

1,49,592.02

Add: Education cess @ 2% (Rs. 1,49,592.02x 2%) (ii)

2,991.84

Add: Secondary and higher education cess @ 1% (Rs. 1,49,592.02x 1%) (iii)

1,495.92

Service tax payable (rounded off) (i) + (ii) + (iii)

1,54,079.78

Note:

1.Legal consultancy services provided by way of appearance before any court, tribunal or authority are not taxable. Hence, the amount of Rs. 4,00,000 is not liable to service tax.

2.Legal consultancy services provided to a service recipient who is an individual (including sole proprietorship) are not taxable. Hence, the amount of Rs. 2,20,000 is not liable to service tax.

Question

[Adapted from RTP]

Claytronics Software Systems (CSS) is an information technology software company. The receipts during financial year 2010-11 are as under:-

Particulars

Amount(Rs.)

Receipts for development of information technology software

3,20,000

Receipts for providing the right to use information technology

8,50,000

Receipts for programming of information technology software

5,00,000

Receipts for providing right to use the packaged software on which the amount ofthe excise duty has been paid and benefit under Notification No. 17/2010 CE dated 27.02.2010 has not been availed

6,00,000

Determine the value of taxable services and amount of service tax payable by CSS for the financial year 2010-11.

CSS has a good track record. In financial year 2009-10, it has provided the taxable services of value of Rs. 15 lakh. The amount of service tax has been charged separately.

Answer:

Computation of the value of taxable services and amount of service tax payable by CSS for the financial year 2010-11:-

Particulars

Amount(Rs.)

Receipts for development of information technology software

3,20,000

Receipts for providing the right to used information technology software supplied electronically

8,50,000

Receipt for programming of information technology software

5,00,000

Total value of taxable services

16,70,000

Service tax @ 10% (Rs. 16,70,000 x 10%)

1,67,000

Add: Education cess @ 2% (Rs. 1,67,000 x 2%)

3,340

Add: Secondary and higher education cess @ 1% (Rs. 1,67,000 x 1%)

1,670

Service tax payable

1,72,010

Note:

Receipts for providing the right to use the packaged software on which the excise duty has been paid and benefit under Notification No. 17/2010 CE dated 27.02.2010 has not been availed are exempt from service tax vide Notification No. 02/2010 dated 27.02.2010. Therefore, receipts of Rs. 6,00,000 are not liable to service tax.

Question

Rosy Tours Co. has arranged three package tours during F.Y. The particulars of the services and charges are as under:

(i) Tour 1: April, F.Y. Charges received Rs.3.5 Lacs.

The package includes transportation, accommodation, food, and tourist guide and entry fees for monuments.

(ii) Tour 2: October, F.Y. Charges received Rs.6.5 Lacs.

The package includes transportation and accommodation for stay.

(iii)Tour 3: December, F.Y. Charges received Rs.4 Lacs.

The charges are solely for arranging accommodation for stay. However, the bills issued to the clients do not mention it ly that the charges are solely for arranging the accommodation for stay.

All the charges are excluding service tax. Compute the value of taxable service and service tax payable thereon.

Assumptions.

(i) Tour 1 is eligible for abatement @ 75%..

(ii) Tour 2 is eligible for abatement @ 65%..

(iii)Tour 2 is eligible for abatement @ 0%..

Answer

(a) Computation of total value of taxable services provided by Rosy Tours Co. for F.Y.

Particulars

Value of Services

Abatement

Taxable value in % age

Value of taxable services

Rs.

%

Rs.

Tour 1 April, 2008

3,50,000

75

25

87,500

Tour 1 April, 2008

6,50,000

60

40

2,60,000

Tour 1 April, 2008

4,00,000

Nil

100

4,00,000

Total

14,00,000

7,47,500

Particulars

Rs.

Value of taxable services

7,47,500

Service tax @ 10%

74750

Add: Education cess @2%

1495

Add: Secondary and higher education cess @1%

747.50

Invoice Amount

76992.50

Assumptions

Abatement would be available subject to following conditions:

No CENVAT credit of duty paid on inputs or capital goods or the CENVAT credit of service tax on input services, used for providing such taxable service, has been taken under the provisions of CENVAT Credit Rules, 2004; orthe service provider has not availed the benefit under the Notification No. 12/2003 ST, dated 20.06.2003.

Question

Ajay Ltd. has agreed to render services to Mr. Guru. The following are the chronological events:

Particulars

Rs.

Contract for services entered into on 31.08.20x1

Advance received in September, 20x1 towards all services

60,000

Total Value of services, billed in February, 20x2.

(Above includes non-taxable services of Rs. 70000)

2,10,000

Balance amount is received in March, 20x2

150000

Service tax is charged over and above payments.

(a) When does the liability to pay service tax arise and for what amount

(b) What is the value of total bill raised in February, 20x2 and show the amounts separately

(c) Compute the total amount raised in

Answer

(a) The liability to pay service tax arises at the time of receipt of advance. So liability to pay service tax would arise on 2 occasions in this question i.e. in September, 20x1 and in March, 20x2.

Service tax is payable as soon as any advance is received as the taxable service includes service provided or to be provided. Liability to pay service tax arises only upon the receipt of the value of taxable services and not when the bill is raised.

(b)

INVOICE

Ajay Ltd.

Service receiver: Mr. Guru.

Tax free services rendered (No service tax)

60000

Taxable services rendered

150000

Total value of Services rendered

210000

Service tax @ 10% (150000 x 10%)

15000

Add: Education cess @2%( 15000 x 2%)

300

Add: Secondary and higher education cess @1%(15000 x 1%)

150

Total amount payable by Mr. Guru

225450

(c) Receipt ofadvance-Advance received towards all services in September, 20x1

Particulars

Rs.

Rs.

Total amount billed

210000

Amount billed for non-taxable services

70,000

Amount billed for taxable services( Rs. 2,10,000 Rs. 70,000)

1,40,000

Total advance received for all services

(We are not being told that this advance is received for taxable services or for non-taxable services. Thereby we assume that this advance is received against total services billed of Rs. 210000.)

60000

Advance receivedtowards taxable service60,000 x 1,40,000

2,10,000

(Service tax is to be paid only on portion which is received for taxable services; thereby we undertake unitary method to find the same.)

40,000

Service tax @ 10%(since, service tax is charged separately)

40,000 x 10%

4,000

Education Cess @ 3%

120

Total service tax liability

4,120

In this case, Ajay Ltd would pay Rs. 4120 to credit of central government. Due date for payment of this service tax will be 5thOctober, 20x1.

(d) Balance portion Balance amount of Rs. 150000 was received in MarAdvance received towards all services in September, 20x2.

Particulars

Rs.

Rs.

Total amount billed

210000

Amount billed for non-taxable services

70,000

Amount billed for taxable services(Rs. 2,10,000 Rs. 70,000)

1,40,000

Balance amount received in March 2009(Rs. 2,10,000- Rs. 60,000)

(We are not being told that this amount of Rs. 150000 is received for taxable services or for non-taxable services. Thereby we assume that this amount of Rs. 150000 is received against total services billed of Rs. 210000.)

1,50,000

Amount received towards taxable services

(Service tax is to be paid only on portion which is received for taxable services; thereby we undertake unitary method to find the same.)

1,50,000 x1,40,000

2,10,000

= 1,00,000

Service tax @ 10% (Rs. 1,00,000 x 10%)

10,000

Education Cess @ 3%

300

Total service tax liability

10,300

In this case, Ajay Ltd would pay Rs. 10300 to credit of central government. Due date for payment of this service tax will be 31stMarch, 20x2.

Question

An unregistered service provider provides following details in respect of taxable services provided during the financial year 2009-10:

Date

Particulars

Amount

(Rs.)

30.06.2009

Advance received from a customer

1,00,000

30.09.2009

Part payment received against a bill of Rs. 9,50,000 raised on a customer

5,00,000

31.12.2009

Money received against taxable services provided during December, 09

3,00,000

31.01.2010

Taxable services rendered during January, 10

1,00,000

31.03.2010

Taxable services rendered during March, 10

2,00,000

The service tax provider complies with the provision of registration and collection of service tax as per service tax laws. He gets registered during the year. He received the money against the bills raised during the month of January and March 2010. Compute the service tax liability of service provider for the year 2009-10 considering service tax @ 10.30%.

Answer:

Date

Particulars

Receipt Amount (Rs.)

30/06/09

Advance received

1,00,000

30/09/09

Part Payment received

5,00,000

31/12/09

Receipt against taxable services

3,00,000

31/01/10

Receipt against taxable services

1,00,000

31/03/10

Receipt against taxable services

2,00,000

Total Receipt against taxable services

12,00,000

Less: Exemption for small service Providers

10,00,000

Receipts liable to service tax

2,00,000

Service tax payable @ 10.30%

24,720

Question

Dua and associates a partnership firm, is providing specified taxable services since 1 April 20x0.

This specified taxable service was non-taxable till 1 September, 20x1.

The table below furnishes the following information relating to the services rendered, bills raised, amounts received relating to this service, for the financial year 1 April 20x1 to 31 March, 20x2.

(i)

Free services rendered to poor people (Value of the services computed on comparative basis)

40,000

(ii)

Advances received from clients for which no taxable service has been rendered so far.

5,00,000

(iii)

Services billed to clients Gross amount (Service fax has been charged separately in all the bills).

12,00,000

(iv)

The firm has received thefollowing amounts during the year:

Relating to taxable services rendered in March. 20x1 (excluding service tax at applicable rates and TDS under section 194-J of the IT Act, 1961 to the tune of Rs. 45,320)

5,44,680

Relating to taxable services rendered in current year 20x1 20x2 (excluding service tax at applicable rates and TDS under section 194-Jof the IT Act, 1961 to the tune of Rs. 1,20,000)

(includes Rs. 50,000 as appearance fee before Labour Court received from another firm)

Service tax has been separately received for applicable items in (iv) above.

9,80,000

You are required to compute the value of taxable services for the year 20x1 20x2 and the service tax payable thereon.

Answer

Question like this where there are multiple time limits it is always recommended to make a time bar (either in beginning of answer or in working notes.).

TIME BAR

1 April, 20x031 March, 20x1 1 September, 20x1 31 March, 20x1

Not Taxable Taxable

(a) This specified taxable services were brought under service tax net only with effect from 01.09.20x1. Thus, service tax would be leviable only on the services rendered on or after 01.09.2009 for which payment is also received after 01.09.2009.

In other words, no service tax would be required to be paid:

For services which are rendered before 01.09.2009




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