SERVICE TAX

1. GENERAL

Service tax is an indirect tax.

Chapter V of the Finance Act, 1994 (Sections 64 to 96) and Chapter VA of the
Finance Act, 1994 (Sections 96A to 96I) both the Chapters together, provide for the
levy of service tax and constitute the law governing service tax. There are many
other notified rules connected with the Act. To mention a few which are as under: -

Service Tax Rules, 1994 , Cenvat Credit Rules, 2004, Export of Services Rules, 2005,
Taxation of Services (provided from outside India and received in India) Rules, 2006

The Act is administered by the Excise department. The rate of service tax is 10%.
Further, an education cess @ 2% on the amount of the service tax is levied and an
additional "secondary and higher education cess" @ 1% on the amount of service
tax. Thus, the effective rate of Service Tax is 10.3%.

In respect of each type of service it is necessary to determine two things namely

A) Taxable service B) Value of Taxable service.

Excise duty and service tax are independent taxes. Though excise and service tax
are administered by the same department both are independent taxes. Payment of
excise is not the same thing as paying the service tax.

No service tax if transaction is sale of goods. In other words service tax is not
leviable on a transaction treated as a sale of goods and subject to levy of sales tax /
VAT. Similarly in the normal course VAT cannot be imposed on value of services.

For example an advertising agency creating original concept and design advertising
materials for clients and design brochures, annual reports etc. Sales Tax / VAT
cannot be levied on the entire contract if a) design and art work charges b)
preparing positives for printing and c) offset printing on paper are charged
separately. Service Tax in such cases can be levied only on designing and art work
charges.

Service tax is a tax on services. The word service is not defined in the Act. But the
dictionary meaning of service which means a “useful result or product of labour
which is not a tangible commodity”. Basically services is economic activity resulting
in value addition which can be perceived but cannot be seen as it is intangible. One
of the features of service is that it is perishable instantly and it cannot be stored. For
eg: - Service of Hotel Room or Seat in an aircraft if not utilized today perishes
tomorrow. Today’s hotel room or seat in an aircraft cannot be used tomorrow.
Benefit of some other services may last longer. For eg: - Consultancy, Audit. But the
service itself perishes and cannot be stored.

Another feature is Service once availed cannot be returned to service provider or

transferred to other person while goods can be returned or transferred.

Service implies existence of two parties. One cannot give service to one self.
Sharing of expenses is not a provision of service.

For eg: - the offices of a group companies are located in one place. A parent
company incurs common expenses like rent electricity etc. and the total amount is
shared by various group companies for which debit notes are issued. This may not
result in providing services.

2) EXTENT OF TAXATION

By section 64(1), the Act extends to the whole of India except the State of Jammu
and Kashmir, and by section 64(3), the levy applies to "taxable services provided".
As per reading of section 64, taxation falls on taxable services provided in India. In
this context India includes designated areas in the Continental Shelf and Exclusive
Economic Zone of India. Hence service provided beyond the territorial waters of
India but in the designated areas in the Continental Shelf would also be liable for
service tax.

3) LEVY AND COLLECTION OF SERVICE TAX

In accordance with section 66 service tax is levied on the value of taxable services
and taxable service is defined in section 65(105) of the Act. Section 65(105) defines
"taxable service" as "any service provided or to be provided" to a client, customer,
etc. Thus, services "provided" and "to be provided" would be covered within the
ambit of service tax. The intention is to collect tax when advance payments are
received for services to be provided. Thus, service tax would be payable even on
advances received.

As per Sec 66 tax of Finance Act Service Tax is payable on taxable service. Various
clauses of Sec 65 define each type of taxable service. The definition is different for
each type of service. For example any service provided or to be provided by a stock
broker to any person in connection with sale or purchase of securities listed on a
recognized stock exchange will be ‘taxable service’.

4) PLACE OF PROVISION OF SERVICE

Service Tax falls on "taxable services" provided or to be provided in India. As regards

cross-border transactions to determine the place of provision of services the law has
introduced the concept of "import of services" and "export of services" along with
relevant rules to determine where a service is supplied popularly known as the Place
of Supply Rules which are explained hereinafter.

No Service Tax payable even if payment received after service become taxable - if
services were provided before service become taxable. For example, it may happen
that a person may provide a service prior to imposition of service tax but payment
may come after the service become taxable. In such a case he is not required to pay
service tax on such payment received in respect of earlier period as the taxable
event had occurred before the service was brought in the service net.
5) APPLICABILITY

The law governing service tax may affect a person in the following ways:

a. As a service provider : An assessee may be liable for service tax as a provider

of any of the 106 categories of services. In general it is a service provider who is
liable to pay service tax except under certain circumstances.

b. As a service receiver : The following are the cases where the availer of services
is liable to pay service tax :
i. Services received from persons based outside India – service receiver to pay
ii. Insurance companies to pay service tax in respect of services provided by
insurance agents
iii. Mutual fund/asset management companies to pay service tax on mutual fund
distribution services
iv. Sponsor of the event to pay service tax in case of sponsorship services.

In case of sponsorship services the recipient of service namely the body corporate or
firm who sponsors the event would be liable to pay service tax. This rule has been
amended to provide that the recipient of service viz., the body corporate or firm is
required to pay service tax only if the body corporate or firm is located in India.

c) As a payer of service – Services provided by a goods transport operator

In the case of services provided by a goods transporting agency, where the

Consignor or Consignee of goods is a specified entity viz., a factory, a company, a
statutory corporation, a society, a co-operative society, a dealer of excisable goods,
a body corporate or a partnership firm "the person liable to pay service tax " is the
person who is liable to pay the freight either himself or through his agent for the
transportation of goods.

It is to be noted that where neither the consignor nor the consignee is any of the
specified entities mentioned above it would be the goods transport agency which
would be liable to pay service tax in such cases.

6) CLASSIFICATION OF SERVICES

In case a service is prima facie taxable under two or more categories, the basic
principles of classification would be as follows:

a. The category which provides most specific description shall be preferred to a

category providing a more general description;
b. Composite services, consisting of a combination of different services, which
cannot be classified in a manner specified in clause (a), shall be classified
under the category which gives them their essential character;
c. Where the first two methods [(a) and (b) above] fail, the classification will be
under the category which occurs first in the statute amongst those categories
which merit equal consideration.
7) VALUATION OF TAXABLE SERVICES

1. The significant features of value are as follows:

i. Where the "consideration" for provision of the service is in money, the gross
amount charged by the service provider for such services provided by him
shall be the value of taxable service;
ii. Where the "consideration" for provision of the service is not wholly or partly in
money, then the value of taxable service shall be such amount in money as
with the addition of service tax charged, be equivalent to the consideration;
iii. Where the "consideration" for provision of the service is not ascertainable the
value of taxable service shall be determined in a manner laid down by the
Rules which the Central Government has notified.

Amount may be charged to any one not necessarily the service receiver. The
words used in section 67 are “Charged for such services provided or to be
provided by him”. It does not say the amount should be charged to the service
receiver. The charge may be to any one. It is not necessary that charge should
be only to the receiver of the service. For example, service during warranty when
manufacturer reimburses amount to service provider. Take the case of services
to motor car vehicles. Though the service is termed as free service actually the
amount is paid to service provider automobile dealer who actually provides
services by the manufacturer. Here the customer gets service free. It is not free
service and would be taxable.

Amount need not be charged by the service provider. Money paid to the third
party also may be included. For example, travelling and hotel expenses of the
service provider (like maintenance, engineer, auditor etc.) are paid by service
receiver directly to hotel or travel agency. It will be the part of the value of
taxable services since though the expenses are incurred for availing the service.

a) Determination of value where consideration received is not wholly or

partly consisting of money

1. Where the consideration received is not wholly or partly consisting of money,

the value of taxable service shall be determined by the application of the
following rules.

Rule 1 : The value shall be equivalent to the gross amount charged by the service
provider to provide similar services to any other person in the ordinary course of
trade and the gross amount charged is the sole consideration.

Rule 2 : Where the value cannot be determined in accordance with rule 1 above,
value shall be the equivalent money value of the consideration as determined by the
service provider. Such value however, shall not be less than the cost of provision of
such taxable service.

b) Reimbursement of expenditure

Recovery of reimbursements would also be included in the taxable value unless

the recovery by the service provider is as a "pure agent" of the client and certain
other conditions are satisfied to name a few.
 • the service provider acts as a pure agent of the recipient of service when he
makes payment to third party for the goods or services procured;
• the service provider recovers from the recipient of service only such amount
as has been paid by him to the third party; and

No Service Tax on amounts not related to taxable services.

For example, expenses incurred by clearing and forwarding agents and reimbursed
by principal. Expenses like freight, loading and unloading charges, godown charges
etc.

Similarly transaction charges is collected and paid over to stock exchange are not
part of taxable service in case of stock brokers.

Specific inclusions and exclusions

The Valuation Rules provides for inclusions and exclusions in case of certain
services.

Inclusions

a. the aggregate of commission or brokerage charged by a broker on the sale or

purchase of securities including the commission or brokerage paid by the
stock-broker to any sub-broker;
b. the adjustments made by the telegraph authority from any deposits made by
the subscriber at the time of application for telephone connection or pager or
facsimile or telegraph or telex or for leased circuit;
c. the amount of premium charged by the insurer from the policy holder;
d. the commission received by the air travel agent from the airline;
e. the commission, fee or any other sum received by an actuary, or intermediary
or insurance intermediary or insurance agent from the insurer;
f. the reimbursement received by the authorised service station from
manufacturer for carrying out any service of any motor car, light motor
vehicle or two wheeled motor vehicle manufactured by such manufacturer.
g. the commission or any amount received by the rail travel agent from the
Railways or the customer.
h. the remuneration or commission, by whatever name called, paid to such
agent by the client engaging such agent for the services provided by a
clearing and forwarding agent to a client rendering services of clearing and
forwarding operations in any manner; and
i. the commission, fee or any other sum, by whatever name called, paid to such
agent by the insurer appointing such agent in relation to insurance auxiliary
services provided by an insurance agent

Exclusions
 i. initial deposit made by the subscriber at the time of application for telephone
connection or pager or facsimile or telegraph or telex or for leased circuit;
ii. the airfare collected by air travel agent in respect of service provided by him;
iii. the rail fare collected by rail travel agent in respect of service provided by
him.
iv. interest on loans.

Value of taxable service in case of reverse charge – Import of services

In the case of reverse charge mechanism due to import of services, service tax is
payable on the actual amount charged by the overseas service provider.

c) WORKS CONTRACT SERVICE – VALUATION/COMPOSITION SCHEME

Service tax is now leviable in the services involved in the execution of a "works
contract". "Works contract" has been defined to mean a contract where –

a. transfer of property in goods involved in the execution of such contract is leviable

to VAT/sales tax;

and

b. the contract is of the following nature –

i. erection, commissioning or installation of plant, machinery, equipment or

structures etc. or
ii. construction of a new building or a civil structure or a part thereof, or of a
pipeline or conduit, primarily for the purposes of commerce or industry; or
iii. construction of a new residential complex or a part thereof; or
iv. completion and finishing services, repair, alteration, renovation or restoration
of, or similar services, in relation to (ii) and (iii); or
v. turnkey projects including engineering, procurement and construction or
commissioning projects;

Thus, in order to attract service tax the works contract should be liable for VAT /
sales tax and must be one of the five categories mentioned above failing which it
would not be liable for service tax. However, works contract in respect of roads,
airports, railways, transport terminals, bridges, tunnels and dams shall be excluded.

Alternative 1 : Payment by valuation of services involved in a Works

Contract

Service tax is required to be paid on the gross amount charged for the works
contract less the value of transfer of property in goods involved in the execution of
the said works contract. The gross amount charged would, however, not include VAT
or sales tax paid on transfer of property in goods involved in the execution of the
said works contract.
 Thus, two components are required to be ascertained :
(a) the gross amount charged for the works contract; and
(b) the value of the goods involved in the execution of works contracts;

The value of goods would be deducted from the gross amount charged to arrive at
the value of services in a works contract on which service tax at the applicable rates
would be payable.

The value of goods involved in the execution of a works contract shall be arrived at
as follows :

(i) where VAT /sales tax has been paid on the actual value of transfer of property in
goods then such value shall be adopted.

(ii) In other cases [say, where the VAT/sales tax has been paid under a composition
scheme under the relevant state law] the value of the goods may have to be arrived
at by actual records.

It has been provided that the value of works contract service shall include,–
a. labour charges for execution of the works;
b. amount paid to a sub-contractor for labour and services;
c. charges for planning, designing and architect’s fees;
d. charges for obtaining on hire or otherwise, machinery and tools used for the
execution of the works contract;
e. cost of consumables such as water, electricity, fuel, used in the execution of
the works contract;
f. cost of establishment of the contractor relatable to supply of labour and
services;
g. other similar expenses relatable to supply of labour and services; and
h. profit earned by the service provider relatable to supply of labour and
services.

Thus, the above would have to be excluded in determining the value of goods
involved in the execution of works contract.

Alternative 2 : Payment by Composition Scheme

A service provider instead of valuing the works contract service as explained in

alternative 1 above and paying the service tax thereon, also has the option to avail
of the composition scheme and pay service tax @ 4% of the gross amount charged
for the works contract (excluding VAT / sales tax paid on transfer of property in
goods involved in execution of works contract).

d) BOOK ENTRIES IN RESPECT OF TRANSACTIONS BETWEEN ASSOCIATED

ENTERPRISES – DEEMED CHARGE AND PAYMENT

Section 67 of Act has been amended to provide that as regards transactions between
"Associated Enterprises" as defined in section 92A of the Income-tax Act, 1961, the
"gross amount charged" by one enterprise on the other shall include any amount
credited or debited, as the case may be, to any account, whether called "Suspense
account" or by any other name, in the books of account of the person liable to pay
service tax. Simultaneously rule 6(1) of the Service Tax Rules, 1994 has also been
amended by inserting an Explanation to consider such credit / debit as value of
taxable service "received".

The term ‘associated enterprise’ has the same meaning as assigned to it in section
92A of the Income-tax Act, 1961.

e) OTHER PROVISIONS

Valuation of taxable services to include advance payments

Payments received before, during or after the provision of taxable service would
form part of gross amount charged. Thus, the payments received even before the
provision of taxable service would form part of the gross amount for charging
service tax. Further the definition of "taxable service" also covers "services to be
provided". Thus, service tax would be payable even on advances received.

Concept of deemed service non-existent

The new valuation rules only deal with a case where the consideration is wholly
or partly in money or where the consideration is not ascertainable. It does not
deal with a case where no consideration is payable for services rendered. Thus,
service tax is not payable on free services as the concept of deeming provision
for valuation of taxable services is non-existent.

Computation of service tax where bill is inclusive of service tax

The law provides that in cases where the total amount charged is inclusive of
service tax the value of taxable service is to be computed by the following
methodology –

If Service Tax is 10.3%

Value of Taxable Service = 100 x Total amount charged

110.3

8) EXEMPTIONS FROM SERVICE TAX

a) Services provided to UN or International Organization exempt

All taxable services, provided by any person to the UN or International Organization

are exempt.

b) Services, provided to a developer or units of Special Economic Zone

exempt

All taxable services provided to a developer or unit (including a unit under

construction) of a Special Economic Zone (SEZ) for consumption of the services
within the SEZ is exempt subject to certain conditions.
 c) Exemption in respect of value of goods and materials from the value
of taxable service

Value of goods and materials sold by a service provider to the recipient of service is
exempt from service tax subject to documentary proof specifically indicating the
value of the said goods and materials. This exemption is subject to the following
conditions–

i. that no credit of duty paid on such goods/materials is taken; or

ii. where such credit has been taken, an amount equal to the amount of credit
availed is paid before the sale of such goods/materials.

d) Exemption to Reserve Bank of India from payment of service tax

All Taxable Services provided by Reserve Bank of India are exempt. Further, the
Reserve Bank is also not liable to pay service tax as recipient of the services or as a
payer of freight.

e) Exemption scheme for small service providers – Minimum / threshold

limit of Rs. 10 lakhs provided subject to conditions

Earlier the exemption limit was Rs.4,00,000/-. This limit of Rs. 4 lakhs was increased
to Rs. 8 lakhs which is further increased to Rs. 10 lakhs w.e.f. 1.4.2008. The
conditions to be satisfied are as follows:

• Aggregate value of all taxable services rendered by a service provider from

one or more premises, in the preceding financial year does not exceed Rs. 10
lakhs.

Calculation of monetary limits

The provisions regarding monetary limits can be summarized as under:

i. where the previous year’s value of taxable service provided exceeds Rs. 10
lakhs, service tax would be payable even if the current year’s turnover is less
than Rs. 10 lakhs.
ii. where the previous year’s turnover is Rs. 10 lakhs or below and the current
year’s turnover exceeds Rs. 10 lakhs, no service tax is payable up to Rs. 10
lakhs if the specified conditions are complied with.

Further, the sum total of first consecutive payments ‘received’ during the financial
year towards the taxable services up to Rs. 10 lakhs would be exempt. The
payments received towards wholly exempt services are to be excluded for
determining the amount of Rs. 10 lakhs.

f) Services provided to foreign diplomatic mission or consular post in

India is exempt.
Taxable services provided by any person for the official use of a foreign diplomatic
mission or consular post in India is exempt from service tax subject to compliance of
certain conditions and procedures.

g) Services provided to family members of foreign diplomatic agents or

career consular officers is exempt from service tax

The services provided by any person for the personal use or for the use of family
members of diplomatic agents or career consular officers posted in foreign diplomatic
mission or consular post in India is exempt from service tax subject to compliance of
certain conditions and procedures.

9) ABATEMENTS

The Central Government has consolidated several exemptions granting abatements /

rebates into one new notification No. A few are as under.

Sr. Nature of service Rebate Taxable Rate of tax

No. allowed value after
abatement
(i) Mandap keepers

. Mandap keepers providing catering 40% 60% 6.18%

services; i.e., supply of food

. Hotels providing mandap keeper 40% 60% 6.18%

services including catering services;
i.e., supply of food
(ii) Outdoor catering [involving supply 50% 50% 5.15%
of food]
(iii) Pandal and Shamiana Services 30% 70% 7.21%
including catering services
(iv) Construction of complex 67% 33% 3.339%
(v) Erection, commissioning or 67% 33% 3.399%
installation

Notes:

1. The abatements would be available only if:

a. no input credit in respect of duties paid on input goods or capital goods or
input services has been taken; and
b. exemption providing for value of goods and materials sold from the value of
taxable service is not availed.
10) IMPORT OF SERVICES – Reverse charge mechanism codified - section 66A
and Place of Supply Rules for "reverse charge".

Section 66A brings certain cross-border transactions involving overseas service

providers within the ambit of service tax. In other words it brought certain services
provided by overseas service providers within the purview of service tax. In such
cases the recipient of the services in India would be liable to register and pay service
tax. This is known as the "reverse charge mechanism". This is more popularly known
as the "Place of Supply Rules".

Section 66A provides for the reverse charge mechanism as follows :

The basics of the section is as below:

i. The effect of the provision is that if a person who is based outside India
provides services to a person based in India the recipient is treated as a
"provider of service" and accordingly all the provisions of the Act as they
apply in relation to a provider of taxable service would apply to him. Thus, he
would have to register, make payment, and file returns as a service provider
would do.

ii. Where the recipient is an individual and such service is received by him
otherwise than for the purpose of use in any business or commerce (say, for
personal use), the provisions of the reverse charge mechanism shall not apply
i.e. the individual would not be treated as a provider of service.

iii. Where the provider of the service has his business establishment in several
countries, the country where the establishment of the service provider
directly concerned with the provision of service is located, shall be treated as
the country from which the service is provided. Thus, where a provider who
has his headquarters in the US and a branch in India provides services
directly from his headquarters (without intervention of the branch in India) to
an Indian company, the provider shall be treated as providing services from
US although he has an establishment in India. In such cases, the reverse
charge mechanism would be triggered. However, where the Indian branch
provided services to the Indian company, the reverse charge mechanism
would not be triggered.

iv. Where a person is carrying on a business through a permanent establishment

in India and through another permanent establishment in a country other
than India, such permanent establishments shall be treated as separate
persons for the purposes of this section. In this context Circular F. No.
B1/4/2006 – TRU dated 19.04.2006 issued by the Ministry of Finance clarifies
that services provided by the latter permanent establishment to the former
permanent establishment shall be treated as provision of services by one
person to another. However, it is to be noted that the term "permanent
establishment" has not been defined.

v. A "branch" or an "agency" is treated as a "business establishment".

vi. The "usual place of residence" of a company is the place of incorporation or

constitution.
A service "provided from outside India and received in India" can be broadly,
categorized the services in three categories as per import rules and then have
defined when a service can be treated as "provided from outside India and received
in India". The categories are:
• Immovable Property category
• Performance based category
• Location of service recipient category

The categories are explained below.

Immovable Property Category

In case of 13 services, which are provided in relation to immovable property, the

services shall be considered as provided from outside India and received in India
(imported) if the immovable property is situated in India.

Performance Based Category

In case of 53 services, the services shall be considered as provided from outside

India and received in India (imported) if the services are wholly or partly performed
in India. However, in case of 3 services viz., ‘management, maintenance and repair’,
‘technical testing and analysis’, and ‘technical inspection and certification’ services–

i. where the said services are provided through internet / computer/electronic

network or any other means; and
ii. the goods, material or immovable property in respect of which the said
services are provided are situated in India at the time of provision of service

then such services shall be considered as performed in India, whether or not the said
services are actually performed in India.

Location of Service Recipient Category

In case of 41 services, the services shall be considered as provided from outside

India and received in India (imported) in case the recipient of service is located in
India and the services are used in relation to commerce or industry (i.e., commercial
use). Further, in case of services falling within the category "supply of tangible goods
for use", the services would be considered as imported only if the goods are located
in India during the period of use by the recipient.

Services not subject to the reverse charge

Two services are not subject to reverse charge :

i. Air transport of passengers embarking in India for international journey;

ii. Transport of persons by a cruise ship embarking in any port in India.

The two services have not been mentioned in the said categorization of services,
since "service tax in such cases is charged from the service provider in India."
11) EXPORT OF SERVICES RULES, 2005

Accordingly the Central Government had notified the Export of Services Rules, 2005
which inter alia set out the criteria to decide when a service is deemed to have been
exported, keeping in view the nature of the different taxable services. The significant
features of the Rules (as amended) are as under:

No service tax payable on taxable services exported

Taxable services may be exported without payment of service tax.

What is export of services?

Broadly, the rules have categorized the services in three categories and then defined
what would constitute "export" of services for each category. The categories are:

• Immovable property category

• Performance based category

• Location of service recipient category

The above criteria are virtually on the same lines as import rules elucidated in the
previous section. In fact export is a mirror image of import.

Immovable Property Category

In case of 13 services which are provided in relation to immovable property, the

services shall be considered as exported if the immovable property is situated
outside India.

Performance based category

In case of 53 services, the services shall be considered as exported if the services

are wholly or partly performed outside India. However, in case of 3 services viz.,
‘management, maintenance and repair’, ‘technical testing and analysis’, and
‘technical inspection and certification’ services –

i. where the said services are provided through internet / computer/electronic

network or any other means; and

ii. the goods, material or immovable property in respect of which the said
services are provided are situated outside India at the time of provision of
service

then such services shall be considered as performed outside India, whether or not
the said services are actually performed outside India.

Location of service recipient criterion

In case of 41 services, the services shall be considered as exported

 i. If the recipient of service is located outside India in a case where the services
are provided and used in or in relation to business or commerce (i.e.
commercial use). However, if such a recipient of service has any commercial
establishment or office in India, the services shall be considered to be
exported only if the order for provision of such services is made by the
recipient of the service from any of his commercial establishment or any office
located outside India

ii. If the recipient of the service is located outside India at the time of provision
of such services in a case where the services are not provided and used in or
in relation to business or commerce (such as for personal use).

Further, in case of services falling within the category "supply of tangible goods for
use", the services would be considered as exported only if the goods are located
outside India during the period of use by the recipient.

Conditions applicable to all categories for services to be considered as

exported

The following conditions apply for services to be considered as exported

(i) payment for such service provided outside India is received by the service
provider in convertible foreign exchange; and

(ii) the service is –

(a) "Provided from India" (prior to 1.3.2007 – "delivered outside India"); and

(b) "used outside India";

Services not subject to Export Rules

Two services do not form part of the categorization for the purpose of Export Rules.
They are:

(i) Air transport of passengers embarking in India for international journey;

(ii) Transport of persons by a cruise ship embarking in any port in India.

The "two services have not been mentioned in the said categorization of services, as
they are services provided in India."

The Government has also notified conditions for granting rebate of tax paid, on
services exported and rebate of tax paid on input services consumed, or duties paid
on goods used, for providing taxable services which are exported.
"66A. Charge of service tax on services received from outside India. – (1)
Where any service specified in clause (105) of section 65 is –

a. 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, as the case
may be, 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 the provisions of this Chapter shall apply :

Provided that where the recipient of the service is an individual and such service
received by him is otherwise than for the purpose of use in any business or
commerce, the provisions of this sub-section shall not apply:

Provided further that where the provider of the service has his business
establishment both in that country and elsewhere, the country, where the
establishment of the provider of service directly concerned with the provision of
service is located, shall be treated as the country from which the service is provided
or to be provided.

2. Where a person is carrying on a business through a permanent establishment

in India and through another permanent establishment in a country other
than India, such permanent establishments shall be treated as separate
persons for the purposes of this section.

Explanation 1.— A person carrying on a business through a branch or agency in any

country shall be treated as having a business establishment in that country.

Explanation 2.—Usual place of residence, in relation to a body corporate, means the

place where it is incorporated or otherwise legally constituted."

12) PROCEDURAL INFORMATION

REGISTRATION

Application for registration

• Application for registration is to be made by every person liable for paying the
service tax in Form ST-1 within 30 days from the date on which service tax is
levied or within 30 days from the date of commencement of business,
whichever is later, to the concerned Superintendent of Central Excise having
jurisdiction.
 • Every service provider whose "aggregate value of all taxable services" in a
financial year from one or more premises exceeds Rs. 9 lakhs shall make
application to the Jurisdictional Superintendent of Central Excise in the Form
ST-1 within 30 days of exceeding the aggregate value of Rs. 9 lakhs. The
"aggregate value" is to be reckoned on the basis of sum total of first
consecutive payments ‘received’ during the financial year towards taxable
services. The payments received towards wholly exempt services are to be
excluded.

• Every input service distributor shall make an application for registration in

Form ST-1 to the Jurisdictional Superintendent of Central Excise within 30
days of commencement of business.

Intimation of any information or details or any change.

• The assessee shall intimate to the Jurisdictional Assistant

Commissioner/Deputy Commissioner of Central Excise:
i. any change in the information or details furnished by an assessee in the Form
ST-1 at the time of obtaining registration, or
ii. any additional information or details the assessee intends to furnish within a
period of 30 days of such change.
• W.e.f 1.3.2007 Rule 4, Forms ST-1 and ST-2 have been amended to –
i. dispense with the requirement of furnishing the original registration certificate
at the time of intimation of changes and instead furnish a self-certified
photocopy of the registration certificate.
ii. provide for issuance of a fresh registration certificate after incorporating
changes intimated by the assessee and accordingly the previous registration
certificate shall stand cancelled.

Premises to be registered

General Rule

• If taxable services are provided from more than one premises, separate
application for registration are to be made in respect of each such premises or
office.

Centralised registration

• Where a person, liable to pay service tax on a taxable service,–

i. provides such service from more than one premises or offices;
ii. receives such service from more than one premises or offices;
iii. is having more than one premises or offices, which are engaged in relation to
such service in any manner making such person liable for paying service tax

has a centralized billing or centralized accounting systems in respect of such service,

located in one or more offices or premises, he may, at his option, register such
premises or offices from where such centralized billing or centralized accounting
systems are located with the previous permission of the Commissioner in whose
jurisdiction the premises or offices from where centralized billing or centralized
accounting is done, are located.
Multiple taxable Services

• Where an assessee is providing more than one taxable service, he may make
a single application mentioning therein all the taxable services provided by
him. In case the assessee is already registered for one service but
subsequently becomes liable for another category of service, then he has to
get his certificate endorsed for the other category of service.

Certificate of registration

• The Superintendent of Central Excise shall after due verification of the Form
ST-1, grant a certificate of registration in Form ST-2 within 7 days from the
date of receipt of the application.

Cancellation of Registration certificate

• Every registered assessee who ceases to provide taxable service shall

surrender his registration certificate immediately to the Superintendent of
Central Excise. Where an assessee makes an application for cancellation or
surrenders his certificate, the concerned Superintendent of Central Excise
shall cancel the registration certificate after verifying that the assessee has
paid all the dues under the service tax law.

Time limit for payment

• Service tax on the value of taxable services received during any calendar
month (except March) is payable by the

– 6th of the month immediately following the said calendar month in case of
assessee’s depositing tax electronically through internet banking.

– 5th of the month immediately following the said calendar month in other cases.

However, where the assessee is an individual or a proprietary firm or a partnership

firm service tax on the value of taxable services received during any quarter
(except quarter ended March) is payable by the

– 6th of the month immediately following the said quarter in case of assessee’s
depositing tax electronically through internet banking.

– 5th of the month immediately following the said quarter in other cases.

The service tax on the value of taxable services received for the month /
quarter ended March should be paid by 31st of March.

N.B.: In case of payment by cheque the date of payment is the date on which the
cheque is tendered to the designated bank, provided the cheque is not dishonoured
in the course of clearing.

Payment of service tax in advance

 • A new Rule 6(1A) has been introduced w.e.f. 1.3.2008 to provide the
assessee an option to pay an amount as service tax in advance. The amount
so paid in advance is allowed to be adjusted against any subsequent period’s
tax liability provided:
i. The details of the advance tax paid is intimated to the Jurisdictional
Superintendent of Central Excise within 15 days from the date of payment;
and
ii. The details of payment and adjustment of advance tax is disclosed in the
returns.

Presumably, the new return format would be providing for disclosures of opening
balance, payments made, adjusted, closing balance in respect of the advance service
tax. In certain cases the assessees are already paying service tax in advance e.g.
paying service tax when invoice is raised without waiting for realisation of taxable
value; i.e., on accrual basis since capturing data on collection basis is difficult due to
lack of system support. It would now be imperative even in such cases to comply
with the above conditions thus necessitating capturing data on collection basis.

Manner of payment

• The service tax shall be paid in Form GAR – 7 challan [(yellow colour) in
quadruplicate] into the designated bank. The said Form GAR – 7 challan for
each month/quarter is to be submitted with the half-yearly return.

• It is mandatory for all persons who have paid more than Rs. 50 lakhs service
tax in the preceding financial year or exceeded Rs. 50 lakhs during the
current financial year to pay service tax electronically through internet
banking. The procedure for payment is explained in detail in a circular which
is available at the following website : www.service tax.gov.in/service tax/e-
payment-st.htm. For computing the limit of Rs. 50 lakhs :

i. Each registered premises would be treated as a separate assessee. Thus,

where the assessee is providing taxable service from more than one premises
or offices the criterion of Rs. 50 Lakhs would apply qua each registered
premises / offices individually.

ii. In case of a person who has opted to be a large tax payer unit (LTU) the
aggregate payments from all the registered premises would have to be
considered.

iii. the aggregate of payments made as a provider of taxable services as well as

a recipient of taxable services would have to be considered.

• the aggregate amount of tax paid in cash plus CENVAT credit would have to
be considered

Interest on delayed payment of tax

• Failure to pay service tax on time attracts simple interest u/s. 75 at a rate not
below 10% p.a. but not exceeding 36% p.a. as may be notified by the Central
Government. The rate of interest notified is 13% p.a.

RETURNS [SECTION 70 AND RULES 5(2), 7, 7B]

 • The assessee must himself assess the service tax due on the services
provided by him and thereafter furnish the returns.
• The returns are to be filed in triplicate in Form ST-3 on half-yearly basis by
the 25th of the month following the particular half year.
• In the case of new assessees who have not yet filed their returns, such
assessees shall at the time of filing their returns for the first time furnish in
duplicate to the Superintendent of Central Excise a "list of all accounts
maintained in relation to service tax" of –
i. all the records prepared or maintained by the assessee for accounting of
transactions in regard to,-
a. providing of any service, whether taxable or exempted;
b. receipt or procurement of input services and payment for such input services;
c. receipt, purchase, manufacture, storage, sale, or delivery, as the case may
be, in regard of inputs and capital goods;
d. other activities, such as manufacture and sale of goods, if any.
ii. all other financial records maintained by him in the normal course of business.
• A ‘Nil’ return also has to be filed.

• Assessees have been given an option to file their returns electronically

• Rule 7B provides that an assessee may revise his returns to correct a mistake
or omission, within 90 days from the date of submission of the original return.
Further it is also provided that the limitation period [1 year / 5 years] for
issue of a show cause notice u/s. 73 for the purpose of recovery of service tax
will be reckoned from the date of submission of such revised return.

RECORDS [RULES 4A AND 5]

General

• Records (including computerized data) as maintained by an assessee in

accordance with various laws in force from time to time shall be acceptable
for service tax. It is obligatory for an assessee to preserve records at least for
a period of 5 years immediately after the financial year to which such records
pertain.

Requirements of an invoice

• Every service provider is required to issue an invoice/bill/ challan containing

the following:
o Serial number;
o Name, address and registration number of the service provider;
o Name and address of the service receiver;
o Description, classification and value of taxable service.
o Service tax payable thereon;
o Signature of the service provider or his authorised person

N.B. (i) In case of service providers providing banking and financial services the
requirement of mentioning serial number and the address of the service receiver has
been dispensed with. (Notification No. 30/2004 dated 22.9.2004).
(ii) In case of goods transport agency, in addition to the above the following details
are also to be shown:

o Details of Consignment note number and date.

o Gross weight of the Consignment.

Time limit for issue of invoice

• The invoice / bill / challan has to be issued within a period of 14 days from
the date of completion of provision of services or receipt of payment towards
value of such taxable services, whichever is earlier. However, if –
i. taxable services are provided continuously for successive periods of time;
ii. payment towards value of taxable services is not received; and
iii. the value is determined and payable periodically,

an invoice / bill / challan may be issued within 14 days from the end of such period.

Requirements of a consignment note to be issued by a goods transport

operator

• All Goods Transport Agencies shall issue a "Consignment note" to a customer

except where the services are wholly exempt from Service Tax. A
"Consignment note" is defined as a document issued by a Goods Transport
Agency against the receipt of goods for the purpose of transport of goods by
road in a goods carriage which contains the following information:
o Serial number
o Name of the Consignor and Consignee.
o Registration number of the Goods Carriage.
o Details of goods transported.
o Details of place of origin and destination.
o Person liable to pay Service Tax viz., whether Consignor or Consignee or
Goods Transport Agency.

Returns

1st April to 30th September to be filed with 25th October

1st October to 31st March to be filed with 25th April

CATEGORISATION OF SERVICES FOR IMPORTS AND EXPORTS

IMMOVEABLE PROPERTY CATEGORY
TABLE A
Sl. Sub-clause Nature of service
No. of clause
(105) of
section 65
1. D General Insurance Business (in relation to
immovable property)
2. P Architect
3. Q Interior Decorator
4. v Real estate agent
5. zzq Commercial and industrial Construction
Service
6. zzza Site formation and clearance, excavation and
earthmoving and demolition services
7. zzzb Dredging
8. zzzc Survey and map-making by a person other
than an agency under the control of, or
authorized by, the Government (in relation to
immovable property)
9. zzzh Construction of complex
10. zzzr Auctioneers’ service (in relation to immovable
property)
11. zzzy Services in relation to Mining
12. zzzz Renting of Immovable Property for
Commercial Purposes
13. zzzza Services provided in relation to execution of a
works contract

PERFORMANCE BASED CATEGOTY

TABLE B

Sl. Sub- Nature of service

No. clause of
clause
(105) of
section 65
1. a Stock –broker
2. f Courier agency
3. h Custom house agent
4. i Steamer agent
5. j Clearing and forwarding agent
6. l Air travel agent
7. m Mandap keeper
8. n Tour operator
9. o Rent-a-cab scheme operator
10. s Practicing Chartered Accountant
11. t Practicing Cost Accountant
12. u Practicing Company Secretary
13. w Security agency
14. x Credit rating agency
15. y Market research agency
16. z Underwriter
17. zb Photography
18. zc Convention services
19. zi Video tape production services
20. zj Sound recording
21. zn Port services (major ports)
22. zo Authorised service station (Motor car, two
wheeled motor vehicles and light motor
vehicles)
23. zq Beauty parlour
24. zr Cargo handling services
25. zt Dry cleaning
26. zu Event management
27. zv Fashion designer
28. zw Health club and fitness center
29. zza Storage and warehousing
30. zzc Commercial training or coaching
31. zzd Erection, commission and installation
32. zzf Internet café
33. zzg Maintenance or repair
34. zzh Technical testing and analysis
35. zzi Technical inspection and certification
36. zzl Port services (minor ports)
37. zzm Airport services
38. zzn Transport of goods by Aircraft
39. zzo Business exhibition services
40. zzp Goods transport agency services
41. zzs Opinion poll agency
42. zzt Outdoor caterer
43. zzv Survey and exploration of mineral
44. zzw Pandal or shamiana contractor
45. zzx Travel agent (other than rail and air travel
agent)
46. zzy Forward contract services
47. zzzd Cleaning services
48. zzze Services provided by clubs or associations
49. zzzf Packaging services
50. zzzp Transport of goods in containers by rail
provided by any person other than
Government Railway (Indian
Railway)
51. zzzzg Services provided by Stock Exchange
52. zzzzh Services provided by Commodity Exchange
53. zzzzi Services provided by Processing & Clearing
 House
LOCATION OF SERVICE RECIPIENT CATEGORY
TABLE C
Sl. Sub-clause NATURE OF SERVICE
No. of clause
(105) of
section 65
1. d General Insurance Business (other than
relating to immoveable property)
2. e Advertisement agency
3. g Consulting engineer
4. k Manpower recruitment and supply agency
5. r Management and Business Consultant
6. za Scientific and technical consultancy services
7. zh On-line information or database access or
retrieval services
8. zk Broadcasting services
9. zl Insurance auxiliary services in relation to
general insurance
10. zm Banking and other financial services – Banks,
Fis, NBFCs, other body corporates and
commercial concerns
11. zs Cable services
12. zx Life insurance business
13. zy Insurance auxiliary services relating to Life
insurance
14. zz Rail travel agent
15. zzb Business auxiliary services
16. zze Franchise services
17. zzk Foreign exchange broker [other than referred
in sub-clause (zm)]
18. zzr Intellectual property services
19. zzu Radio and television programme producer
20. zzz Transport of goods (other than water)
through pipeline or other conduit
21. zzzc Survey and map-making by a person other
than an agency under the control of, or
authorized by, the Government (other than
relating to immoveable property)
22. zzzg Mailing list compilation and mailing
23. zzzi Services provided by Registrar to an Issue
24. zzzj Services provided by Share Transfer Agent
25. zzzk Services in relation to Automated Teller
Machine operations, maintenance or
management
26. zzzl Recovery service
27. zzzm Sale of space or time for advertisement
28. zzzn Sponsorship services provided to a body
corporate or firm, excluding sponsorship in
relation to sports events
29. zzzq Business support services
30. zzzr Auctioneers’ service (other than relating to
immoveable property)
31. zzzs Public relations service
32. zzzt Ship management service
33. zzzu Internet telephony service
34. zzzw Credit card, debit card, charge card or other
payment card related service.
35. zzzx Telecommunication Services
36. zzzzb Development and supply of content
37. zzzzc Asset management including portfolio
management and all forms of fund
management provided by individuals, etc
38. zzzzd Design services
39. zzzze Information technology software service used
for business or commerce
40. zzzzf Management of investment under Unit Linked
Insurance Plan (ULIP) scheme
41. zzzzj Supply of tangible goods for use