gdp(2009 – 2010 ) service tax background service tax was introduced for first time in 1994. only 3...

GDP(2009 – 2010 )

SERVICE TAX BACKGROUND

Service Tax was introduced for first time in 1994 .

only 3 services with 3,943 Assessees .tax collection was about Rs. 410 Crores.now covers about 117 services.

Finance Act, 1994.

Service Tax Rules.

Determina-tion of Value

Rules.Export of Services Rules.

Import of Services Rules.

Cenvat Rules.

SERVICE TAX CYCLE WHEEL

SERVICE TAX

Finance Act, 1994.Service Tax Rules.Determination of Value Rules.Export of Services Rules.Import of Services Rules.Cenvat.

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CONSTITUTION

Constitutional Authority:

CONSTITUTION OF

INDIA

LIST I LIST IICENTRAL

GOVERNMENTSTATE

GOVERNMENT

LIST - I

ENTRY NO 82 – Tax on Income other than Agriculture.

ENTRY NO 83 – Duty of Customs including export duties.

ENTRY NO 84 – Duties on Excise. ENTRY NO 85 – Corporation Tax. ENTRY NO 92C – Taxes on Services [NOT MADE

EFFECTIVE]. ENTRY NO 97 – Residual Entry.(COVERS SERVICE

TAX). Residual Entry applies to the matter not

enumerated in List II and List III.

CONSTITUTIONAL VALIDITY

(State Of West Bengal Vs Kesoram Industries)

Residual Entry applies to the matter not enumerated in List II and List III.

Same transaction may involve two or more taxable events in its different aspects.

Such Overlapping should not be considered. Two aspects of the same Transaction can be

utilized by two legislatures for two levies which may be taxes or fees.

Is Retrospective Amendment Valid?

Is Retrospective Amendment Valid?

YES, If it is Reasonable.

No, if it is Arbitrary.

Extent and Scope of Service Tax• extends to the Whole of India Except Jammu and Kashmir.

• India means:• Territorial Waters of India (i.e., up to 12 Nautical Miles

from the Coastal Land).• Continental Shelf and Exclusive Economic Zone of India, if

the service provided for the purpose of construction of installations, structures and vessels for the purpose of extracting or prospecting or production of mineral oil and natural gas and supply thereof.

• It also covers all the services provided by such installations or vessels or structures with the said activities.

SERVICE TAX APPLICABLE

SERVICE TAX

APPLICABLE

SERVICE TAX RATE Sec 66 (charging section) 12%

From 24.02.2009 the rate of tax is 10%.

Education Cess is 2%.

Secondary and Higher Education Cess is 1%

Therefore Effective Rate is 10.3%

Service means • a useful result or product of labour.

• If a thing is not capable of being transferred, delivered , stored and possessed , it is a service.

SERVICES• THERE MUST BE ATLEAST TWO PARTIES

Performances of Statutory Duties are not Service.

Sharing of expenses is not a provision of service

Concept of Mutuality

Service And Liable To Service Tax

Free Services taxable?

WHY FREE SERVICES NOT TAXABLE ? VALUE OF FREE SERVICE = 0

TAX @10.3% ON 0 = 0TOTAL SERVICE TAX = 0

Is There Any Service In The Joint Venture?

Accounting Standard 27– three types Jointly Controlled Operations. Jointly Controlled Assets. Jointly Controlled Entities.

Sale Or Services?

SINGLE CONTRACT

SALES OF GOODS

VAT

PROVISION OF SERVICES

SERVICE TAX

Composite Contract

Divisible

Value of Goods.

Value of Services

Indivisible

Dominant Nature Test

Services or Sales

Dominant Nature Test

EXAMPLES OF INDIVISIBLE CONTRACTS

• Works Contract Service.• hire purchase/lease contract.• catering contracts.• A supply of goods by any unincorporated

association or body of persons to a member

But These Contracts Have Been Declared As Divisible

By Amending The Articles.

The Scheme Of Service Tax

SP

SE

RV

IC

E

SRSE

RV

IC

E

SP

SE

RV

IC

E

GOVT

SE

RV

IC

E

AGREEMENT

SP Can Collect Tax From SR

SP Cannot CollectTax From SR

Can Service Provider Recover Tax from Service Receiver ?

CLASSIFICATION OF SERVICES, WHY?Whether the service provided fall on the

category for which the exemption applies. Whether abatement applies for the

services provided.Wrong Classification leads to wrong

claim of exemption and leads to penalty.

Principles of classification: [Sec 65A]:

1. service is prima facie classifiable under one category of service, Classify as Such Category.

Eg:

Principle 2 (Classifiable Under Two Or More Categories )

• Most Specific Description.Eg:

Management Consultancy Service

Management or Business Consultant ?

Service Of Chartered Accountant ?

Eg:

Principle 3 (Classifiable Under Two Or More Categories )

ESSENTIAL CHARACTER

GOODS TRANSPORT AGENCY ?

Principle 4 ( Not Classifiable Using Other Principles )

the category which occurs first in Clause(105) of Section65.

123456

Section 65A Does not Apply to The Port. Other Port. The Airport Or Civil Enclave.Any Services Provided within the Port Falls

Under The Port Services and Not Under Other Services.

Exemption To Principles

Valuation of Services:[Section67]:• If Consideration is only money,

The Gross Amount Charged is the Value.

• If Consideration is not Wholly or Partly in Money.

Value + Service Tax = Fair Market Value

Valuation of Services:[Section67]:

Valuation of Services:[Section67]:

• If Value Not Ascertainable , “Determination of Value Rules”

AB

Value of Service ?

Value of Taxable Services (if not ascertainable)

Value of similar services in the market. Equivalent money value of consideration,

but should not less than cost of provision.

Consideration received is not wholly or Partly consisting of money:

Inclusion in or exclusion from value of certain expenditure or costs:Reimbursement of expenses is not

includible: - Entry tax paid by carriage and freight

forwarding agent on behalf of owner of goods. - Ticket charges paid y Travel Agent and recovered from his customer.

Expenditure incurred by service provider as “pure agent” of service receiver is also not includible.

Pure Agent

Contractual agreement with recipient of services.

Neither intends to hold nor holds any title.

Does not use such goods or services. Receives only the actual amount

incurred.

Exclude from the Value of Taxable Service

Conditions:Service provider act as pure agent when he

makes payment to third partyRecipient of services uses the goods or serviceThe recipient of service is liable to make payment

to the third party.The recipient of service authorizes the service

provider to make payment on his behalf.Payment made by the service provider on behalf

of the recipient of service has been separately indicated in the invoice issued .

The goods or services procurred by the service provider from third party.

The following commission, costs are included:

Charged by a broker on the purchase or sale of securities.

Premium charged by the insurer from the policy holder.

The commission received by the air travel agent from the airline.

The commission, fee or any sum received by an actuary or insurance agent.

The following commission, costs are excluded,

The airfare collected by air travel agent .

The railfare collected by rail travel agent.

Initial deposit made by the subscriber at the time of application for telephone connection or FAX.

Taxable Event

TAXABLE EVENT

It happens when a taxable service is rendered.

Tax liability is required to pay as per POT rules,

Point of Taxation

Determination of Point of Taxation

If No If YesInvoice is issued with in 14 days

from the Date of Completion of Service.

Date of Completion of

Service or Payment

Whichever is earlier

Date of Invoice Or Payment Which ever is

earlier

ExamplesS.No

.Date of

completion of

service

Date of Invoice

Date on which

payment

received

Point of Taxation

Remarks

1 December 10,2011

December 20, 2011

December 30,2011

December 20,2011

Invoice issued in 14days and before receipt of payment.

2 December 10,2011

December 26, 2011

December 30, 2011

December 10,2011

Invoice not issued within 14 days and payment received after completion of service.

Determination of POT in case of change in effective rate of tax: No change in rate of service tax till now.

Payment of tax in cases of new services:

In case of continuous Supply of Service:

Services provided continuously – exceeding 3 months,or

Central Government Notification

The following 5 Taxable services have been notified as CSS;

Telecommunication serviceCommercial or industrial constructionConstruction of residential complexInternet Telecommunication ServiceWorks contract service.

POT in case of CSSInvoice is issued with in 14 days

If yes,Date of Invoice If No,

Date of Completion

POT in case of CSSPayment is received

with in 14 days

If yes,Date of receipt

of Payment

EXPLANATION FOR THE PURPOSE OF CSS Provision of the whole or part of the service is determined periodically on the completion of event

Date of Completion of such event

POT IN CASE OF SPECIFIED SERVICES OR PERSONS In this case, POT shall be the Date on which

payment is received. Specified Services: Export of Services In case of Reverse Charge.

INDIVDUALS OR PROPRIETARY FIRMS OR PARTNERSHIP FIRMS PROVIDING FOLLOWING SERVICES:

Architect services Interior Decorator Services Practicing CA/CWA/CS Services Scientific and Technical Consulting Services Legal Consulting Services.

POT in case of Copyrights, trademarks

Consideration is not ascertainable

Date of invoice or receipt of payment Whichever is earlier

Export of Service

Export of Service

In relation to Immovable

Property

In relation to location of

the recipient of services.

In relation to Performance of Services

Recipient is Outside

India

Personal purpose & recipient is

located outside india

In relation to Business or Commerce

Recipient has any office in

India

In relation to location of the recipient of services

Supply of Tangilble goods for Use Services

Import of ServicesServices provided in India from a country

outside India.Taxable event is the date of actual import.Importer of services is liable to pay service

tax as such he is service provider.(Reverse charge)

Only when received in India.

Importer of service is liable to pay service tax only when the service provider is not having any:- Place of business in India, or- Establishment in India, or- Permanent address in India.

ST will not be attracted as service provider is abroad and renders service outside India,

USA PVT LTD,USA

S LTD OF USA Subsidiary of

H LTD

H LTD an Indian

Company

IMPORT OF SERVICES RULES

Services in relation to immovable property located in India.

Services partly performed in India. Services received by recipient located in

India. Services which will never be treated as

import of services.

FEATURES OF SSI EXEMPTION

The exemption of SSI does not apply to taxable services provided by a person under a brand name or trade name, whether registered or not, of another person.

This SSI exemption is optional to the Service Provider. Hence, the service provider has the optional not avail the exemption.

Exemption to apply service-provider wise,not for each taxable service or each premises.

SSI EXEMPTION

Eligibility Limit Service Provided in the Preceding Financial

Year is less than Rs.10 lakhs.Exemption Limit: First Consecutive Payment Received Exceeds

Rs. 10 lakhs.

If Exceeds Rs. 10lakhs in the Current Year

Service Provider will be liable to pay service tax only on turnover exceeding Rs.10 Lakh

:ABATEMENT:

• Abatement is an exemption granted in respect of the value of taxable service.

Name of ServiceAbatement / deduction

Taxable

(i) Mandap Keeper 40% 60%

:ABATEMENT:-:conditions :-

• The assessee has not availed CENVAT Credit. • the value of goods and materials sold by the

service provider to the recipient of service should not be deducted from the value of goods.

PROCEDURES

• The main procedure to be followed by the service provider are

• i) Registration • ii)Preparation of Invoice • iii)Maintenance of Records• iv)Payment of Service Tax and • v)Submission of Return.

"Person liable for paying service tax“Notified by Government (Examples)

Telecommunication Service •The Director General of Posts and Telegraphs

•The Chairman-cum-Managing Director, Mahanagar Telephone Nigam Ltd, Delhi,

•Any other person who has been granted a licence by the Central Government

General Insurance the insurer or re-insurerInsurance Auxiliary Service by an insurance agent

person carrying on the general insurance business or the life insurance business in India

Import of Service Service Receiver (Reverse Charge)

REGISTRATION

• The Person liable to pay service tax/• Input Service Distributor/• Whose value of Services exceeds Rs.9 Lakhs • – Apply in Form ST-1 to the Superintendent of

Central Excise.• Made within 30 Days from the date which the

Service provider becomes liable under Service Tax.

• A Single Application is enough for all taxable services.

Documents Required For the Registration

• A Copy of PAN.• Proof Of Address.• Constitution Of The Applicant.

• The Application Must Be Signed By The Applicant/ The Authorized Person OF Such Applicant.

REGISTRATION CERTIFICATE

• Is issued in ST – 2.• Granted within 7 Days.• STC(Service Tax Code) – 15 digit number• Eg : AIJPS8765B ST 002• Premises Code• Commissionerate + Division + Range + Serial

Number.

CENTRALIZED REGISTRATION

• the person provides/receives service from more than one premises or offices (and)

• has centralized billing system or centralized accounting system in respect of such service and

• such centralized billing system are located in one or more premises.

• ALL THE PROCEDURES ARE SAME• ST-2 IS ISSUED BY THE COMMISSIONER• 7 DAYS DEADLINE IS NOT APPLICABLE.

PENALTY FOR NON REGISTRATION

• RS. 10,000 OR• RS.200 PER DAY• WHICHEVER IS HIGHER.

PREPARATION OF INVOICE• Contents of the Invoice

In case of Service Provider In case of Service Distributora. the name, address and the registration

number of such person.b. The name and address of the person

receiving taxable service.*c. Description, classification and value of

taxable service provided or to be provided.

d. The service tax payable thereon.

a. The name, address and registration number of the person providing input services and the serial number and date of invoice by such provider of input service.

b. The name, and address of the said input services distributor.

c. The name and address of the recipient of the credit distributed.

d. The amount of the credit distributed.

a. The consignment note number, and date and gross weight of the consignment (if transported by road transport)

In case the provider of taxable service is aircraft operator providing service or air transport of passenger, the invoice shall include ticket in any form by whatever name called.

If the service provider is a Goods Transport Agency, then he should issue consignment note to the recipient of the service. However, where any taxable service is wholly exempted, the goods transport agency shall not be required to issue the consignment note.

III. MAINTENANCE OF RECORDS:[RULE 5]:

a list of duplicate of• all records prepared or maintained by the assessee for

accounting of transactions in regard to –– providing of any service, whther taxable or exempted;– receipt or procurement of input services and payment for such

input services;– receipt, purchase, manufacture, storage, sale, or delivery, as

the case may be, in regard of inputs and capital goods;– other activities, such as manufacture and sale of goods, if any.

• all other financial records maintained by him in the normal course of business.

PAYMENT OF SERVICE TAXAssessee Duration of

PaymentTime of Payment

Individual, Proprietary firm, or a Partnership firm

Quarterly 1.Electronic Payment - 6th of the month

2.Other Cases – 5th of the month immediately following the quarter in which the service is deemed to be provided(i.e., Point Of Taxation Rules)

Any Other Assessee

Monthly 1.Electronic Payment - 6th of the month

2.Other Cases – 5th of the month immediately following the month in which the service is deemed to be provided(i.e., Point Of Taxation Rules)

Services deemed to be provided in month/quarter ending on 31st March – Payable by 31st March itself.

Filing of Returns:[Section70 Of Finance Act,1994 and Rules 7, 7B and 7C of the Service Tax

Rules,1994]:Assessee Authority to

whom filedDuration of Return

Form No Of Copies

Time of Filing Return

All Assessees Superintendent Half-Yearly ST – 3 or ST – 3A

Triplicate By 25th of the month following the end of the said Half – Year.

Input Service Distributor

Superintendent Half - Yearly ST - 3 Single By the last day of the month following the Half – Year period.

When the due date for filing return of service tax is a public holiday, then, the return may be filed on the succeeding working day.

e-filing is mandatory if the gross service tax liability is Rs.10Lakhs or more including the amount paid by utilization of CENVAT credit, in the preceding financial year.

Documents to be submitted along with return:

• Copies of GAR – 7 challans .• full details of the difference between the

amount of provisional amount of tax deposited and the actual amount payable for each month;

• The return may be filed by hand delivery or by registered post.

• In case of multiple service providers, a single return is enough but should give all the details of services.

• Even if no service has been provided and no service tax is payable during a half year, the assessee has to furnish “ Nil “Return.

Fees for delayed furnishing of returns:: [Rule 7C]:

Period delay in furnishing return

Fees to be Paid

15 days from the due date Rs.500Beyond 15 days but upto 30 days from the due date

Rs.1,000.

Beyond 30 days from the due date

Rs.1,000 + Rs.100 for every day from the 31st day till the date of furnishing of return; subject to a maximum of Rs.2,000.

THANK YOU