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Service Tax Concepts

Service Tax Concepts: 

Service Tax Concepts Vision Group CREATED BY [ CA-Final Students] gohelnishit@gmail.com

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Service Tax Concepts Who Can Levy Tax Central Govt. State Govt. Service Tax, Central Excise, Customs, Income Tax VAT, State Excise, Property Tax, Entry Tax, Octroi Note : No state can levy Service Tax. Only Central Govt. has the power to levy service tax Tax

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Service Tax Concepts Taxes Direct Indirect Paid directly by tax payer to Govt. E.g. income tax, wealth tax, gift tax Administrated by CBDT under Ministry of Finance, GOI Person paying the tax and person are different E.g. service tax, excise, customs etc. Administrated by CBEC under Ministry of Finance, GOI Note : No state can levy Service Tax. Only Central Govt. has the power to levy service tax Types of Taxes

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X is an interior decorator. He got an assignment from Y to design his bungalow at a total consideration of Rs. 1,00,000. As interior decoration service attracts service tax, ‘X’ will charge and collect following amount from ‘Y’: Direct vs. Indirect Tax: Illustration Particulars (Rs.) Value of service 1,00,000 Service tax @ 12.36% of Gross Value of service 12,360 Total amount to be collected by X from Y 1,12,360 Service Tax Concepts

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Service Tax Introduction of concept of Service Tax 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 First Introduced w.e.f. 01.07.1994 taxing 3 category of services: General Insurance Stock Broking Telephone Service At present almost 106 category of taxable service Any amendments/clarification in Service Tax through Notification, Circulars etc. issued by Board (CBEC). Application of Service Tax Only on Services specified under Sec 65(105) of Chapter V of Finance Act 1994 Such services commonly known as taxable service Service Tax Concepts

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Rate of Service Tax Three rate of service tax: Service Tax @ 12% Education Cess @ 2% Secondary & Higher Education Cess @1% Example : Calculation of total tax Value of service = Rs. 100 Service tax (12% of Rs. 100) = Rs. 12.00 (A) Education cess (2% of Rs. 12) = Rs. 0.24 (B) SAH EC (1% of Rs. 12) = Rs. 0.12 (C) Total service tax = (A)+(B)+(C) = Rs. 12.36 Total service tax payable is @ 12.36% (including EC and SAH EC) on the value of taxable service. Service Tax Concepts

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Rate of Service Tax: Illustration Mr A provides taxable service to Mr B for which consideration agreed between them is Rs. 50,000 (assume Rs. 50,000 as taxable value). Compute the amount of tax. Taxable value = Rs. 50,000 Service Tax @ 12% = Rs. 6000 EC @ 2% = Rs. 120 (6000* 2%) S&HEC @ 1% = Rs. 60 (6000 * 1%) Total ST = Rs. 6,180 Service Tax Concepts

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Statutory Provisions Relating to Service Tax Finance Act, 1994 contains provisions and procedure relating to service tax: Levy and collection of service tax Registration Appeal 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 Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Service Tax (Provisional Attachment of Property) Rules, 2008 Dispute Resolution Scheme Rules, 2008 Service Tax Concepts

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Service Tax Concepts Statutory Provisions Relating to Service Tax 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

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Service Tax Concepts Sources of Relevant Information Important Websites: Powers of CCE www.cbec.gov.in – Information on Act, Rules, Notifications, Circulars, instructions, etc. www.trpscheme.com – Website for STR Other sources of information Journals- for various judgments of court, Tribunal, etc.

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Service Tax Concepts Administrative Set up for Service Tax

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CBE&C or Board is the a pex body with: Headquarter: New Delhi Power: Administer Excise, Customs, and Service tax laws Members: Six senior members headed by Chairman Service Tax Concepts Central Board of Excise and Customs (CBE&C)

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Role: Coordinating work relating to service tax Office: 9th Floor, Piamal Chambers, Jijibhoy Lane, lalbaug, Parel, Mumbai - 400012 Service Tax Concepts Director General of Service Tax (DGST)

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Service Tax Concepts Chief Commissioner of Central Excise (Chief CCE) Under the direct control of CBEC Overall incharge of Zone (at present 23 zones in Central Excise/Service Tax) Has administrative control over Commissioner/Commissioner (Appeals)

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Service Tax Concepts Commissioner of Central Excise (CCE) Each Zone covers various Commissionerate: Powers of CCE In charge of the Zone Administrative In-charge of the ‘ Commissionerate At present 92 Commissioner and 71 Commissioner (A) in India Separate Commissioner of Service Tax for Delhi, Mumbai, Kolkata, Chennai, Ahmadabad & Bangalore (i.e. Metropolitan) Other places – Commissioner of Central Excise (looks after work relating to Service Tax)

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Service Tax Concepts Additional and Joint Commissioner (AC/JC) Under the control of Commissioner in each Commissionerate Deputy Commissioner and Assistant Commissioner (DC/AC) Four to five divisions under each Commissionerate Each division under administrative control of DC/AC

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Service Tax Concepts Superintendent Four to five ranges under each division Each range under the control of Superintendent Rank of Gazetted Officer Inspectors Officers designated under Superintendent

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Service Tax Concepts Appeallate Authority Officer who hears the appeal In any matter decided by an officer below the rank of Commissioner (AC/JC or/and DC/AC) Custom, Excise and Service Tax Appellate Tribunal (CESTAT) or Tribunal Hears appeal against the order of: Comm. (as Adjudicating Authority), or Commissioner (Appeals) (as Appellate Authority) Has benches at Delhi, Mumbai, Kolkota, Chennai, Bangaluru and Ahmedabad

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Service Tax Concepts Coverage of Service Tax Levy 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 inside the sea from base line Note : Service tax is payable if a service is imported and not if it is exported. 12 nautical miles from the land mass

Registration of Tax Payer: 

Registration of Tax Payer

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Registration Who is to be Registered Registration must be taken by: Person liable to pay service tax Service provider Exceptions: Service receiver (under Reverse Charge) Input service distributor Taxable service provider whose value of taxable service > Rs. 9,00,000

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Registration Cases for Service Recipient to Pay Service Tax Case Liability Service provider providing a taxable service from outside India to a recipient in India Service Recipient Insurance agent providing service to insurance company (General Insurance and Life Insurance) Insurance company appointing the agent 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 receiving sponsorship service Body corporate/firm

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Registration Categories of Taxpayer Taxpayers are classified in following categories: Individual/Proprietor Partnership Registered public limited Company Registered private limited Company Registered Trust Society/co-operative society Others

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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 Service 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 take registration for: Each premise, or Single registration for premises used for centralized billing/accounting (Centralized registration)

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Registration Centralized Registration The 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 located Procedure for centralized registration: Fill out application in Form ST-1 Submit 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 Service tax is imposed on the taxable service, whichever is later. Fees for Registration: Nil

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Registration Centralized Registration: Documents Required Tax payer must submit the following documents at the time of registration along with the application form: Copy of PAN card Proof of residence Proof of constitution of applicant (e.g. partnership deed) Copy of memorandum and articles of association Details of partner/directors/proprietor/HUF/key person

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Registration Grant of Registration Certificate Steps for granting registration certificate: Acceptance of application in Form ST-1 by Jurisdictional Superintendent of Central Excise Review of the application Grant of registration in Form ST-2 within 7 days of filing of application

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Registration Components of Registration Certificate Registration certificate includes: Name of the assessee Address of premises Registration number, which is: Also known as Service Tax Code (STC) 15 digit PAN based number First 10 digits - Same as the PAN 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 taxpayer Represents Commissionerate , Division, Range and Serial Number

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Registration Amendments to Registration Certificate Amendment 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: Intimation to jurisdictional AC/DC within 30 days of change Submission of self-certified copy of the registration certificate, necessary proffs and not the earlier registration certificate Cancellation of the original registration certificate issued earlier by the department Issuance of an amended registration certificate

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Registration Cancellation/Surrender of Registration Certificate Cancellation/surrender of registration certificate must be applied for if: Assessee ceases to carry on the activity for which he is registered Assessee opts to avail benefit of Threshold limit Any other reason Procedure for ca ncellation/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

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Registration Cancellation/Surrender of Registration Certificate – Special 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 service 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

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Registration Penalty for Late Registration If there is delay in obtaining registration: Penalty up to Rs. 5,000, or Rs. 200 per day of delay (whichever higher) Additional applicable penalties + interest for the delay in payment of service tax

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Registration Case Study: Mr. X, an interior decorator, started his business of interior decoration in the name of Sweet Home Decorators. Prepare form No. ST-1 using the following details: Constitution of the business : Proprietorship Name of Proprietor : Mr. X Name in which business is carried on : Sweet Home Decorators Address : Parliament Street, New Delhi - 110001 Date of starting the business : 1st April, 2008 Permanent Account No. of Mr. X : AFUPC3842F Date of applying for service tax registration : 1st April, 2008 E-mail ID : x@xyzmail.com Telephone No. : 12345678

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Overview of Taxable Services

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Taxable Services are: Liable to service tax Defined under sub clauses of Section 65(105) Presently, 106 services are taxable. What are Taxable Services Taxable Services

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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 : 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) Classification of Taxable Services Taxable Services

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If a service is exported: There is no service tax liability if it meets the conditions of Export of Service Rules, 2005 CENVAT Credit for such services is not required to be reversed Utilize credit for payment of Service Tax on other services or Claim refund of CENVAT credit Export of Services Export of Services

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Rule 3 of Export of Service Rules, 2005 classifies taxable services as services: Provided in relation to immovable property situated abroad Performed outside India Provided to recipients located outside India Not to be treated as ‘export of services’ under any situation In all the cases, the services should be provided ‘from’ India and ‘ used’ outside India and consideration for the same should be received in convertible foreign exchange Export of Services Meaning of Export of Taxable Services

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Conditions for Treating Service as ‘Export’ For services related to immovable property : The property is situated outside India The service is used in business or for any other purpose outside India Service is provided from India and used outside India Payment for such service is received in Convertible Foreign Exchange Export of Services

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For services performed outside India : Services is partly/fully performed outside India Service is provided from India and used outside India Service is used in business or for any other purpose outside India Payment for such service is received in convertible foreign exchange Conditions for Treating Service as ‘Export’ Export of Services

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Service Provided Through Internet Service provided through Internet, electronic network (including computer network or any other means) in relation to immovable property located outside India – treated as performed outside India. Examples: Management, repair & maintenance Technical testing and analyses Technical inspection and certification Export of Services

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For services provided to recipients outside India: Service is used in or in relation to business or commerce Service provided from India and used outside India Payment for such service is received in convertible foreign exchange Conditions for Treating Service as ‘Export’ Export of Services

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Services Never Treated as Export Air transport of passengers embarking for international travels Transport by cruise or ships Export of Services

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Rebate of Service Tax Paid on Exported Services Notifications making provisions for rebate: Notification No. 11/2005-ST dated 19.04.2005 – Rebate of service tax and cess paid on exported taxable service Notification No. 12/2005-ST dated 19.04.2005 – Rebate of excise duty paid on inputs and service tax paid on input services Export of Services

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Refund of Input Service Tax and Duty Refund u/r 5 of Cenvat Credit Rules, 2004 for service tax paid on input services and excise duty paid on inputs: Applicable only when output service is exported and adjustment of input tax credit is not possible Procedure for claiming refund is laid down in Notification No. 5/2006-CE(NT) dated 14.03.2006 Export of Services

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Import of Services - Section 66A (1) According to Section 66A (1 ): Where any service specified in clause (105) of Section 65 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 (b) Received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, Such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply Import of Services

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Import of Services Rules Import of services is governed by Section 66A read with Taxation of Services Rules, 2006. These rules: Are commonly known as “Import of Service Rules’ Define services provided from outside India and received in India Are divided into three categories Import of Services

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Rule 3 of Taxation of Services Rules, 2006 classifies taxable services into three categories: Services provided in relation to immovable property Services to be performed in India Services received by recipients located in India In all cases, the services should be provided ‘from’ outside India and ‘ received’ in India Import of Services - Classification Import of Services

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For services related to immovable property : The immovable property should be situated in India Services are provided from outside India Services are received in India Import of Services Conditions for Treating Service as ‘Import’

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For services performed in India : Services should be partly/fully performed in India Services are provided from outside India Services are received in India Import of Services Conditions for Treating Service as ‘Import’

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Service Provided Through Internet The following services related to immovable property provided through Internet or computer network from outside India are taxable in India: Management, repair and maintenance Technical testing Technical certification Import of Services

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For services received by recipients in India : Service is used in or in relation to business or commerce Services are provided from outside India Services are received in India Conditions for Treating Service as ‘Import’ Import of Services

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Import of Services – Payment of Tax The liability of service recipient to pay service tax is termed as ‘ reverse charge ’. Under reverse charge: Service receiver also acts as service provider for purpose of payment CENVAT credit cannot be utilized for payment of service tax The tax has to be paid in cash Import of Services

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Services Related to Immovable Property Important taxable services related to immovable property: Commercial or industrial construction Construction of a complex Erection, commissioning or installation Renting of immovable property Site formation and clearance Works Contract services Important Taxable Services

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Important taxable services related to business: Advertising Services Banking & Other Financial Services Business Auxiliary Services Business Support Services Management or business Consultant’s Services Manpower Recruitment or Supply Agency Services Practicing A/CS/CWA Services Services Related to Business Important Taxable Services

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Other Taxable Services Other important taxable services are: Commercial training or coaching services Courier Services Management, maintenance or repair services Mandap keeper services Outdoor caterer services Pandal or shamiana contractor’s services Photography services Rent-a- cab scheme operator’s services Security agency’s services Important Taxable Services

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Effective Rate of Service Tax Rate of Service tax The effective rate of service tax is 12.36% (inclusive of EC and SHEC) Small service providers with turnover of taxable services less than Rs.10 lakh are exempt from service tax.

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New Rate of Service Tax Rate of Service tax With effect from 1-4-2012, the rate of service tax has been Increase from 10.30% to 12.36% 12% as service tax 0.24% as education cess 0.12% as secondary and higher education cess

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Vision Group CREATED BY [CA-Final Students] gohelnishit@gmail.com