Prof.

Bali
Prof. (Dr.) G.S. POPLI
Executive Director
Delhi School of Professional Studies and Research
Classification of Taxes
Components of Direct and Indirect Taxes
Direct Taxes Indirect Taxes

Corporation
Excise duty
Tax

Income Tax Custom duty

Service tax
Wealth Tax
VAT
Others
CST
 UNIT I: SERVICE TAX
Unfortunately there is no definition in the provision law for the word
service, only an incidence of taxes is defined.

As per Black’s Law Dictionary “means an intangible Cumulative

form of human effort such as use of labour, skill or knowledge for
benefit of another.”

As per Webster’s dictionary “performance of any duty for another,

helpful or professional activity”.

Service tax is destination based consumption tax in Value Added Tax. This
is collected as per the service tax provisions.
However, Service has been explained in clause
(44) of the New Section 65B and means :
• Any Activity
• For Consideration
• Carried out by a person for another
• And includes a declared service
 Service Tax Law
There is no separate service tax statute and following are the various
legislatures to cover service tax:
 Service Tax Rules, 1994
 Service Tax (Registration of Special Category of Persons)
Rules, 2005 Export of Services Rules, 2005
 Cenvat Credit Rules 2004
 Service Tax (Advance Rulings) Rules, 2003
 Taxation of Services (provided from outside India and Received in India)
Rules, 2006
 Service Tax (Determination of Value) Rules, 2006
 Authority for Advance Rulings (Customs, Central Excise and Service Tax
Procedure Regulation, 2005
 Central Excise (Appeals) Rules 2001
 Customs, Excise and Service Tax Appellate Tribunal (Procedure)
Rules, 1982 Service Tax Circulars, notifications and case laws.
 Service liable to Service Tax
All services are liable to service tax except –
a) Activities specifically excluded in definition of service.

b) Services covered under the negative list

c) Services covered under Mega Exemption notification.
d) Services provided outside the taxable territory.
e) Services received by a unit located in SEZ (subject to conditions).
 Background
• The provisions relating to Service Tax were
brought into force with effect from 1st July 1994.
 The first year collection was Rs 407 crore.
 Rs 3,302 crore in 2001-02.
 Rs 60,941 crore in 2008-09.
 Rs 70,896 crore in 2010-11.
 Rs 97, 444 crore in 2011-12
 Rs. 132,601 crore in 2012-13
 Background
• It extends to the whole of India except the
state of Jammu & Kashmir.
• In 1994 three services were brought under
Service Tax :
• Telephone,
• Stock Broker, and
• General Insurance
• And the tax rate was 5%
 Background
• From 2003 rates were increased to 8 percent
• From 2004 service tax rates 10 percent plus
2 percent education cess
• From 2009 – 10 plus 3 percent
• From 2012 , rates were 12 plus 3 percent
cess
• Budget 2015, service tax rate increased from 12.36% to 14%.
• This new rate of Service Tax @ 14% was applicable from 1st June
2015.
• From m 15th Nov 2015, Swachh Bharat Cess @ 0.5% also got
applicable.
• From 1st June 2016 – Service Tax Rate is 15 percent as per details
below :
• Service tax – 14%
Swachh Bharat Cess @ 0.5 %
Krishi Kalyan Cess @ 0.5%
 At present almost 119 category of taxable service
 Any amendments/clarification in Service Tax through Notification issued by Board
(CBEC).
Application of Service Tax

 Only on Services specified under Sec 65(105) of Chapter V of

 Such services commonly known as taxable service

Current Tax collection of Central Govt.
2014-15 2015-16 2016-2017
Tax Head Actual Revised Estimate Budget
(crore) (crore) (crore)

Corporate tax 4,28,925 4,52,970 4,93,923

Income tax 2,65,733 2,99,051 3,53,174
Customs 1,88,016 2,09,500 2,30,000
Union excise 1,89,952 2,84,142 3,18,670

Service tax 1,67,969 2,10,000 2,31,000

Total 12,40,595 14,55,663 16,26,767
 The Administration of the Act:

• The Act is administered by the Central Excise

Department.
 The Act does not extend to
Jammu & Kashmir
The service tax has not been levied in J&K till now to help
the State’s economy to recover from the aftermath of
terrorism.
1. The services provided by a person, having his
business premises in the State of Jammu & Kashmir
and providing taxable service to the clients in other
parts of the country would be liable for payment of
service tax.
2. A person, having his business premises in any of the
Indian States other than the State of Jammu &
Kashmir who provides the services to the persons in
the State of J & K, would not be liable to pay service
tax.
 Registration
• Persons who must Mandatorily obtain
registration
• Turnover Limit
• Application for registration
• Online submission of Application for Registration
• Centralised Registration
• Registration Certificate
• Penalty for late Registration,
 FURNISHING OF RETURN
• Form of Return
• Periodicity for Filing of Return
• Due Date for Filing of Return,
• Delay in Filing of Return(fees for late filing
of return)
• Filing of Revised Return,
• e- filing of Return,
 PAYMENT OF SERVICE TAX
• Monthly/Quarterly Payment of Service Tax
• Due Dates for Payment of Service Tax
• E-payment of Service Tax
• Penalty for Failure to pay Service Tax
• Interest for Late payment of Service Tax
 Nagetive list
• From 01.07.2012, there is a paradigm shift in
the levy of Service Tax.
• Service tax has been imposed on all services
other than those specified in the negative list.
• There are 17 such services specified in the
negative list.
 Negative list
1. Services provided by Government or Local Authority
2. Services provided by Reserve Bank of India
3. Services by a Foreign Diplomatic Mission located in
India
4. Services relating to Agriculture or Agricultural
Produce
5. Trading of goods
6. Processes amounting to Manufacture or Production
of goods
7. Selling of space or time slots for advertisements other
than advertisements broadcast by Radio or Television
8. Service by way of access to a road or a
bridge on payment of toll charges.
9. Betting, Gambling or Lottery.
10.Admission to entertainment events or access
to amusement facilities.
11.Transmission or distribution of Electricity by
an electricity transmission or distribution
utility.
12. Services by way of –
(i) Pre-school education and education up to
Higher Secondary School or equivalent;
(ii) Education as a part of a curriculum for
obtaining a qualification recognized by law;
(iii) Education as a part of an approved
vocational education course.
13. Services by way of renting of
residential dwelling for use as residence.
14. Services by way of –
(i) Extending deposits, loans or advances in so
far as the consideration is represented by way of
interest or discount;
(ii) Inter-se sale or purchase of foreign currency
amongst banks or authorized dealers of foreign
exchange or amongst banks and such dealers;
15. Service of transportation of passengers, with or without
accompanied belongings, by
(i) A State Carriage;
(ii) Railways in a class other than –
(A) First class; or
(B) An Air Conditioned coach;
(iii) Metro, Monorail or Tramway;
(iv) Inland Waterways;
(v) Public Transport, other than predominantly for tourism
purpose, in a vessel between places located in India; and
(vi) Metered cabs, radio taxis or auto rickshaws;
16. Services by way of transportation of goods –
(i) by road except the services of –
(a) a goods transportation agency; or
(b) a courier agency;
(ii) by an aircraft or a vessel from a place
outside India up to the customs station of
• clearance in India; or
• (iii) by inland waterways;
17. Funeral, burial, crematorium or mortuary
services including transportation of the deceased
 Exemptions from Service Tax–Mega
Notifications – Notification No. 12/2012-S.T.
1. Services provided to U.N.O.
2. Health Care Services
3. Services by a veterinary clinic
4. Services by Charitable Trust
5. Religious Services
6. Legal or Arbitral Service
7. Technical testing of drugs etc.
8. Coaching in recreational activities
9. Educational institution
10. Services provided to a recognized sports body
11. Sponsorship of sporting events
12. Construction service to Government
13. Construction of road, bridge etc.
14. Other construction service – airport, single residential units, low-
cost houses up to a carpet area of 60 sqmt etc.

15. Services in folk or classical art forms

16. Services of collecting or providing news
17. Services of renting of a hotel etc for residence
18. Services of providing food or beverages
19. Services of transportation by rail or a vessel of specified goods –
petroleum, relief materials, defence equipment, postal mail,
household effects, newspaper/magazines, railway equipment,
agricultural produce, chemical fertilizers
20. Goods transport agency for fruits etc.
21. Hiring motor vehicle for transport of more than 12 passengers
22. Transport of passengers
23. Vehicle parking to general public
24. Specific services to Government – water supply, public health,
sanitation, solid waste management, slum improvement repair &
maintenance of vessel/aircraft
25. Specific General Insurance Service – hut insurance scheme, cattle
insurance, insurance of tribal, Janata Personal Accident Policy,
Group Personal Accident Policy, Agricultural Pumpset & Failed
Well Insurance, Export credit insurance, National Agricultural
Insurance etc.
26. Services provided by an incubate – provided turnover is below 50
lakh & within three years from date of the agreement.
27. Services by an unincorporated body to its members.
28. Financial services – sub-broker to broker, mutual fund agent to MF,
Distributor to a M.F. Selling agent of lottery to a distributor, selling
agent or distributor of a sim card etc.
29.Specific job work services – agriculture, printing, cutting & polishing
of diamond etc.
30. Services by an unincorporated

Composite Services
ABATEMENT
(Partial exemption available to certain services )
Exemption from the gross amount charged in
respect of different categories of taxable services
such as-
• Transport of passengers by air with or without
accompanied belongings where abatement of
60% of gross amount charged has been granted
to the service provider
• Abatement of 70% of gross amount charged has
been granted in case of service of transport of
goods by road.
• Abatement of 70% of gross amount charged has
been granted in case of service of transport of
passengers by first class and air conditioned coach of
rail;
• In case of renting of hotel, inn, guest-house etc.
abatement of 40% of gross amount charged to the
customer has been granted to the service provider

• The abatement is available for restaurant service @

60%
 GENERAL EXEMPTIONS
In addition to services covered by negative list, there is a huge
list of services which have been exempt from payment of
service tax.
1. Services provided to the United Nations or specified
International Organisations ,
2. Health Care services by a clinical establishment or an
authorized medical practitioner
3. Services by a veterinary clinic
4. Services provided to or by an Educational institution in
respect of education
5. Services provided to a Recognised Sports Body
6. Services provided to SEZ etc.
 Some of the organizations notified as International
Organisations are as follows
1. International Civil Aviation Organisation.
2. World Bank
3. World Health Organisation (WHO).
4. International Labour Organisation (ILO).
5. U.N. International Children's Emergency Fund (UNICEF).
6. The Joint Enterprise Aid in Mass Vaccination against T.B. in India.
7. Food and Agriculture Organisation of the United Nations.
8. U.N. Educational, Scientific and Cultural Organisation (UNESCO).
9. International Monetary Fund (IMF).
10. International Bank for Reconstruction and Development ((IBRD).
11. Universal Postal Union.
12. International Telecommunications Union.
13. World Meteorological Organisation.
14. U.N.T.A. Board. (United Nations Transitional Administration Board)
15. International Atomic Energy Agency.
16. World Tourism Organisation.
17. Asian Development Bank.
18. South Asian Association for Regional Co-operation (SAARC).
 Bundled Service
 Means a bundle of provision of various services wherein an element of
provision of one service is combined with an element or elements of
provision of any other service or services.
 For example transportation services provided by airlines alongwith
catering services on board.
 Rules for calculation of Service Tax : On the basis of two rules :
 Rule No. 1 : If various elements of a bundled service are naturally
bundled in the ordinary course of business, it shall be treated as
provision of a single service which gives such bundle its essential
package. For example : Package by hotels with breakfast.
 Rule No. 2 : If various elements of a bundled service are not naturally
bundled in the ordinary course of business, it shall be treated as
provision of a service which attracts the highest amt of service tax.
Example : Renting of property for residence and business purposes.
 THRESHOLD EXEMPTION
• Exemption to Small Service Providers
• Threshold exemption up to Rs. 10 lakhs
• Option available to the service provider to avail exemption
from tax leviable on taxable services of aggregate value not
exceeding the prescribed limit (original limit prescribed was 4
lakhs) in any financial year subject to the fulfilment of the
conditions specified in the said notification.
• Threshold exemption is raised to Rs. 10 lakhs w.e.f. 1-4-2008.
Persons excluded from exemption benefit
Two categories of persons have been excluded
from the benefits of this exemption:
i) Persons using brand name/trade name of
another person
ii)Where service tax is payable by certain
specified persons other than service providers.
( insurance agents , goods transport agency,
mutual fund agent, recovery agent of Bank)
 Registration
• No registration if turnover is less than Rs. 9 lakhs
• Section 69(1) - every person liable to pay service
tax must mandatorily make an application for
registration to the Superintendent of Central
Excise.
• In cases liability to pay service tax has been
shifted to the service receiver or other specified
person, in terms of section 68(2) of the Act, who
shall make application for registration.
 Persons Who Must Mandatorily
Obtain Registration
i) Every person liable to pay Service Tax.
ii) An input service distributor ( service tax paid on
input service and need to take output tax
credit)
iii) Every provider of taxable service whose
aggregate value of taxable service in a financial
year exceeds Rs. 9 lakhs.
 When to apply for Registration
• Within 30 days of commencement of business
of providing taxable service
• once reaches turnover of Rs 900000
• Online registration at
https://www.aces.gov.in/STASE/ui/jsp/commo
n/registerWithACES.do
• Automation of Central Excise and Service Tax
 Service Tax Valuation u/s 67
Valuation
Situation
Where total consideration is
monetary consideration
Where consideration is in kind
(ie., non-monetary consideration)
• Wholly in kind
•Partly in Kind
Value
Taxable value = Gross Amount charged
exclusive of Service Tax.
Taxable value = Monetary Equivalent of
“non-monetary consideration”.
Rule 3 of Service Tax Valuation Rules 2006
Method -1 Taxable Value = GAC by service
provider for similar service provided to third party.
Method-2: Taxable Value = [Monetary
consideration + Mkt Value of Non-monetary
consideration]
{but it shall not be less than the cost of provisioning
of service.
Where consideration is “not- Taxable Value = Value determined in
prescribed
quantifiable” manner. Nor manner is prescribed so
far – but is
practically best judgment assessment.
 Computation of Service Tax Liability
Service Tax is applicable if the following conditions are satisfied :
 Service is provided or agreed to be provided.
 It does not come in the negative list.
 It does not fall in the Mega Exemption Notification.
 It is provided in a taxable territory.
Procedure of Calculation:
 Step 1 : Find out Value of Taxable Service (Para 145)
 Step 2 : 14% of value of taxable service is the quantum of service tax. In some cases, the
effective tax rate is less than 14% because of “partial abatement” or “compounding
schemes”. Compounding schemes and partial abatement” are discussed in Paras 146 and
147 respectively.
 Step 3 : Against the tax liability calculated under Step 2, one can claim credit for service
tax paid on input service (including credit on inputs and capital goods) subject to a few
conditions (See Paras 319 to 330).
 Example
M/S. Rajkumar & Sons (Contractor) has constructed a building for M/S.
Mohan Lal & Sons for a consideration amount of Rs. 1.80 Crore. M/S.
Mohan Lal & Sons has supplied cement for the entire project, fair market
value of the same is Rs. 40.00 lacs (without VAT). However, for this supply,
they have recovered Rs. 34.00 lacs (plus VAT @ 4%) from Rajkumar & Sons.
M/S. Rajkumar & Sons has Cenvat credit of Excise duty (Rs. 8,000/-) and
Cenvat credit of Service tax (Rs. 10,000/-) on inputs used in relation to
construction of building. Value of taxable portion of the contract and
service tax liability shall be calculated as follows :
1. Gross amount received excluding taxes : Rs. 1,80,00,000/-
2. Fair M.V of Cement supplied by M.L. & Sons : 40,00,000/-
3. Amt. Charged for cement + VAT : 35,36,000/-
4. Total Amt. Charged : 1,84,64,000/-
5. Value of Service portion (40% of 4) : 73,85,600/-
6. Service Tax (15% of 5) : 11,07,840/-
7. Less Input Service Cenvat Credit(Excise duty) : 10,000/-
8. Service Tax payable : Rs. 10,97,840/-
 Furnishing of Returns
• U/s 70(1) of the Act, every person liable to
pay service tax shall himself assess the tax
due on the services provided by him.
• furnish returns to the Superintendent of
Central Excise in the prescribed form at the
prescribed intervals.
 Periodicity for Filing Return
• Under Rule 7(1) This return is required to be
filed on a half yearly basis.
 Date for Filing Return

• The half yearly return should be filed in

triplicate, on or before the 25th of the month
following the particular half year as under:
• by 25th October for covering the half year from
1st April to 30th Sept.
• by 25th April for covering the half year from 1st Oct.
to 31st March.
• If 25th Oct. Or 25th April happens to be a public
holiday, the return can be filed on the
immediately succeeding working day.
 Payment of Service Tax
Service tax payable on accrual basis: w.e.f.
01.04.2011 service tax will be payable on the basis
of date of billing or receipt of advance, whichever is
earlier, and not on receipt basis.
Cash basis for small business with 50 lakh or less
turnover.
The service tax is required to be paid on monthly
basis by all service taxpayers, other than individuals
or proprietary /partnership concerns who are
required to pay service tax on quarterly basis.
• Service tax liability for a particular month or
quarter shall be paid to the credit of
th (e payment)
Government by the 5th or 6 day
of the month or quarter immediately
following the month or quarter.
• However, for the month/quarter ending
March, the payment is required to be made by
the 31st March itself by all taxpayers.
 Interest for late payment of
Service Tax
• In case of delayed payment /deposit of
service tax, there is mandatory payment of
simple interest u/s 75 (from 1/10/2014)
• Up to six months- 18 percent.
• More than six months and up to one year - 18
percent for the first six months of delay; 24
percent for delay beyond six months.
• More than one year- 18 percent for the first six
months of delay; 24 percent for period beyond
six months up to one year; 30 percent for any
delay beyond one year.
• Reduction of interest rate in case of small
service provider 1/10/2014)
• As per Sec.75, the rate of interest shall be
reduced by 3% in case of small service
provider whose turnover does not exceed Rs.
60 lakhs. Thus, the rate of interest shall be
15% 21 % and 27% for small service provider.
Penalty for Failure to pay Service Tax

• Sec. 76 of the Finance Act provides for levy of

penalty in addition to the tax/ interest.
• The person is required to pay such penalty in
addition to the tax and interest due.
 Amount of Penalty
Under the old provision, service tax late payment
penalties used to be Rs.100 per day or 1% per
month, whichever is higher.
As per the new provisions, late payment of service
tax attracts a non-discriminatory minimum penalty
of 10% of service tax liability.
The period of default will start with the first day
after the due date and will end with the date of
actual payment of the outstanding amount of
service tax.
Short Questions (5 Marks Each)
(4*5)

Short Notes

1. Declared service of renting of immovable property

2. Negative list agriculture
3. Features of service tax
4. Reverse charge mechanism
5. Input Tax Credit

Long Questions (10 Marks each)

1. What are the administrative procedures followed in VAT Act?
2. X ltd is a manufacturing co. It purchases raw materials from P and Q and sells manufactured goods to Y
ltd. Y ltd. Sells them to retailer Z and goods are finally sold to consumer by Z.
The details of transactions are as follows:
P to X Ltd (Vat 12.5%) Rs 1,000 ( excluding VAT)
Q to X ltd (Vat 4%) Rs 6,000( excluding VAT)
X to Y ltd (VAT 12.5%) Rs 10,000( excluding VAT)
Y to Z (12.5%) Rs 17,000( excluding VAT)
Z to consumer (12.5%) Rs 22,000 ( excluding VAT)

Compute the amount of total VAT collected by government and VAT liability on each stage.
Q 3 What are declared services? Explain 10 categories covered under the negative list.
Q.4 Explain the concept reverse charge mechanism. Explain one practical example of reverse charge
mechanism.
Q.5.Who is small service provider? Explain elaborately.
Q.6. Explain 10 categories under Mega Exemption Notification.