Service Tax

Service tax is a tax levied on services rendered by a person and the responsibility of
payment of the tax is cast on the service provider. It is an indirect tax as it can be
recovered from the service receiver by the service provider in course of his business
transactions. Service Tax was introduced in India in 1994 by Chapter V of the
Finance Act, 1994. It was imposed on a initial set of three services in 1994 and the
scope of the service tax has since been expanded continuously by subsequent
Finance Acts. The Finance Act, extends the levy of service tax to the whole of India,
except the State of Jammu & Kashmir.

The Central Board of Excise & Customs (CBEC) under Department of Revenue in the
Ministry of Finance, deals with the task of formulation of policy concerning levy and
collection of Service Tax. In exercise of the powers conferred, the Central
Government makes service tax rules for the purpose of the assessment and
collection of service tax. The Service Tax is being administered by various Central
Excise Commissionerates, working under the Central Board of Excise & Customs.
There are six Commissionerates located at metropolitan cities of Delhi, Mumbai,
Kolkata, Chennai, Ahmedabad and Bangalore which deal exclusively with work
related to Service Tax. Directorate of Service Tax at Mumbai over sees the activities
at the field level for technical and policy level coordination.

Registration
A person liable to pay service tax should file an application for registration within
thirty days from the date on which the service tax on particular taxable service
comes into effect or within thirty days from the commencement of his activity.

Every service provider of a taxable service is required to take registration by filing

the Form ST-1 in duplicate with the jurisdictional Central Excise Office.

A ‘registered' service provider is referred to as an ‘assessee'.

A single registration is sufficient even when an assessee is providing more than one
taxable services. However, he has to mention all the services being provided by him
in the application for registration and the field office shall make suitable
entries/endorsements in the registration certificate.

A fresh registration is required to be obtained in case of transfer of business to

another person.

Any registered assessee when ceases to provide the taxable service shall surrender
the registration certificate immediately.

In case a registered assessee starts providing any new service from the same
premises, he need not apply for a fresh registration. He can simply fill in the Form
S.T.1 for necessary amendments he desires to make in his existing information. The
new form may be submitted to the jurisdictional Superintendent for necessary
endorsement of the new service category in his Registration certificate.

In case of Individuals or Proprietary Concerns and Partnership Firm, service tax is to

be paid on quarterly basis. The due date for payment of service tax is the 5th of the
month immediately following the respective quarter. (Quarters are : April to June,
July to September, October to December and January to March). However, payment
for the last quarter i.e. January to March is required to be made by 31st of March
itself. In case of any other category of service provider than specified above, service
tax is to be paid on a monthly basis, by the 5th of the following month. However,
payment for the month of March is required to be made by 31st of March itself.
Service tax is to be paid on the amount realized / received by the assessee during
the relevant period ( i.e. a month or a quarter as the case may be).

The unique feature of Service Tax is reliance on collection of tax, primarily through
voluntary compliance. System of self-assessment of Service Tax Returns by service
tax assesses was introduced w.e.f. 01.04.2001. The jurisdictional Superintendent of
Central Excise is authorized to cross verify the correctness of self assessed returns.
Tax returns are expected to be filed half yearly. Central Excise officers are
authorized to conduct surveys to bring the prospective service tax assesses under
the tax net.
Service tax is payable @ 12% of the ‘gross amount' charged by the service provider
for providing such taxable service. The Education Cess is payable @ 2% of the
service tax payable.

Service Tax Exemptions

The Central Government can grant partial or total exemption by issuing an

exemption notification. But it cannot be granted by the Government with
retrospective effect. The general exemptions are :-
Small service providers whose turnover is less than Rs 4 lakhs per annum are
exempt from service tax.

There is no service tax on export of services.

Services provided to UN and International Agencies and supplies to SEZ(Special

Economic Zones) are exempt from service tax.

Service tax is not payable on value of goods and material supplied while providing
services. Such exclusion is permissible only if Cenvat credit on such goods and
material is not taken.

Advertising Agency

2
Air Travel Agents
3
Architect
4
ATM Operations, Management or Maintenance
5
Auctioneers' service
6
Authorised Service Station
7
Auxiliary to General Insurance / Life Insurance
8
Banking & Other Financial Services
9
Beauty Parlour
10
Broadcasting Service
11
Business Auxiliary Service
12
Business Support Service
13
Cable Operator
14
Cargo Handling Service
15
Practising Chartered Accountant, Practising Cost Accountant and Practising
Company Secretary
16
Cleaning Service
17
Clearing & Forwarding Agents
18
Clubs and Associations
19
Commercial Training or Coaching Centre
20 Commissioning and Installation Service
21
Residential Complex Construction
22
Consulting Engineers
23
Convention Services
24
Courier Services
25
Credit Card, Debit Card, Charge Card or other payment card related services
26
Credit Rating Agencies
27
Custom House Agent
28
Dredging
29
Dry Cleaning
30
Event Management
31
Facsimile Service
32
Fashion Designer
33
Franchise Services
34
General Insurance
35
Health Club & Fitness Centre
36
Interior Decorator
37
Internet Café
38
Internet Telephony Service
39
Leased Circuit
40
Mailing List Compilation and Mailing
41
Management Consultant
42
Maintenance or Repair Service
43
Mandap Keepers
44
Manpower Recruitment Agency
45
Market Research Agency
46
On-line Information & Database Access or Retrieval Service
47
Packaging Service
48
Pager Services
49
Photography Service
50
Port Services
51
Public Relations Service
52
Rail Travel Agent
53
Real Estate Agent
54
Recovery Agent
55
Registrar to an Issue
56
Rent - a - Cab Scheme Operators
57
Sale of space or time for Advertisement
58
Scientific and Technical Consultancy
59
Security Agencies
60
Share Transfer Agent
61
Ship Management
62
Site Preparation
63
Sound Recording Service
64
Sponsorship service
65
Steamer Agent
66
Stock Broker
67
Storage & Warehousing
68
Survey and Map Making
69
Technical Testing & Analysis Agency / Technical Inspection & Certification Agency
70
Telephone
71
Telex Service
72
Telegraph Service
73
Tour Operator
74
Transport of goods by Road
75
Transport of goods in containers by rail (other than Indian railway)
76
Transport of goods through Pipeline or other conduit
77
Transport of passengers embarking on international journey by air, other than
economy class passengers
78
Transport of persons by cruise ship
79
Underwriting Service
80
Video Tape Production Service

68. Payment of service tax. –

(1) Every person providing taxable service to any person shall pay service tax at
the rate specified in section 66 in such manner and within such period as may be
prescribed.

(2) Notwithstanding anything contained in sub-section (1), in respect of any

taxable service notified by the Central Government in the Official Gazette, the
service tax thereon shall be paid by such person and in such manner as may be
prescribed at the rate specified in section 66 and all the provisions of this chapter
shall apply to such person as if he is the person liable for paying the service tax in
relation to such service.

69. Registration -

(1) Every person liable to pay the service tax under this chapter or the rules made
there under shall, within such time and in such manner and in such form as may be
prescribed, make an application for registration to the Superintendent of Central
Excise.

(2) The Central Government may, by notification in the Official Gazette, specify such
other person or class of persons, who shall make an application for registration
within such time and in such manner and in such form as may be prescribed.

70. Furnishing of Returns. –

(1) Every person liable to pay the service tax shall himself

assess the tax due on the services provided by him and shall furnish to the
Superintendent of Central Excise, a return in such form and in such manner and at
such frequency [and with such late fee not exceeding two thousand rupees, for
delayed furnishing of return, as may be prescribed”]*

(2) The person or class of persons notified under sub-section (2) of section 69, shall
furnish to the Superintendent of Central Excise, a return in such form and in such
manner and at such frequency as may be prescribed.

71. Scheme for Submission of Returns through Service Tax Preparers

(1) Without prejudice to the provisions of section 70, the Board may, by notification
in the Official Gazette, frame a Scheme for the purposes of enabling any person or
class of persons to prepare and furnish a return under section 70, and authorise a
Service Tax Return Preparer to act as such under the Scheme.
(2) A Service Tax Return Preparer shall assist the person or class of persons to
prepare and furnish the return in such manner as may be specified in the Scheme
framed under this section.

(3) For the purposes of this section,—

(a) “Service Tax Return Preparer” means any individual, who has been authorised to
act as a Service Tax Return Preparer under the Scheme framed under this section;

(b) “person or class of persons” means such person, as may be specified in the
Scheme, who is required to furnish a return required to be filed under section 70.

(4) The Scheme framed by the Board under this section may provide for the
following, namely:—

(a) the manner in which and the period for which the Service Tax Return Preparer
shall be authorised under sub-section (1);

(b) the educational and other qualifications to be possessed, and the training and
other conditions required to be fulfilled, by a person to act as a Service Tax Return
Preparer;

(c) the code of conduct for the Service Tax Return Preparer;

(d) the duties and obligations of the Service Tax Return Preparer;

(e) the circumstances under which the authorisation given to a Service Tax Return
Preparer may be withdrawn;

(f) any other matter which is required to be, or may be, specified by the Scheme for
the purposes of this section.

[ Section (71) Inserted vide Finance Bill 2008, w.e.f. 16th May, 2008 ]
71A. Filing of return by certain customers –

Notwithstanding any thing contained in the provisions of Sections 69 and 70, the
provisions there of shall not apply to a person referred to in the proviso to sub-
section (1) of Section 68 for the filing of return in respect of Service Tax for the
respective period and service specified therein and such person shall furnish return
to the Central Excise officer within six months from the day on which the Finance
Bill, 2003 receives the assent of the President in the prescribed manner on the basis
of the self assessment of the Service Tax and the provisions of Section 71 shall
apply accordingly. [inserted for the period 16.7.97 to 16.10.98 by Section 158 of
Finance Act,2003 and shall have effect and be deemed always to have had effect
from 16.7.97.]

72. Best Judgment Assessment—

(a) fails to furnish the return under section 70;

(b) having made a return, fails to assess the tax in accordance with the provisions
of this Chapter or rules made thereunder, the Central Excise Officer, may require
the person to produce such accounts, documents or other evidence as he may
deem necessary and after taking into account all the relevant material which is
available or which he has gathered, shall by an order in writing, after giving the
person an opportunity of being heard, make the assessment of the value of taxable
service to the best of his judgment and determine the sum payable by the assessee
or refundable to the assessee on the basis of such assessment.

[ Section (72) Inserted vide Finance Bill 2008, w.e.f. 16th May, 2008 ]
73. Recovery of Service tax not levied or paid or short levied or short paid or
erroneously refunded –

(1) Where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, the Central Excise Officer may, within one year
from the relevant date, serve notice on the person chargeable with the service tax
which has not been levied or paid or which has been short-levied or short-paid or
the person to whom such tax refund has erroneously been made, requiring him to
show cause why he should not pay the amount specified in the notice :

Provided that where any service tax has not been levied or paid or has been short-
levied or short-paid or erroneously refunded by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made there
under with intent to evade payment of service tax, by the person chargeable with
the service tax or his agent, the provisions of this sub-section shall have effect, as
if, for the words “one year”, the words “five years” had been substituted.

Explanation. — Where the service of the notice is stayed by an order of a court, the
period of such stay shall be excluded in computing the aforesaid period of one year
or five years, as the case may be.
(1A) Where any service tax has not been levied or paid or has been short-levied or
shortpaid or erroneously refunded, by reason of fraud, collusion or any wilful mis-
statement or suppression of facts, or contravention of any of the provisions of this
Chapter or the rules made thereunder, with intent to evade payment of service tax,
by such person or his agent, to whom a notice is served under the proviso to sub-
section (1) by the Central Excise Officer, such person or agent may pay service tax
in full or in part as may be accepted by him, and the interest payable thereon under
section 75 and penalty equal to twenty-five per cent. of the service tax specified in
the notice or the service tax so accepted by such person within thirty days of the
receipt of the notice.”;

(2) The Central Excise Officer shall, after considering the representation, if any,
made by the person on whom notice is served under sub-section (1), determine the
amount of service tax due from, or erroneously refunded to, such person (not being
in excess of the amount specified in the notice) and thereupon such person shall
pay the amount so determined.

“Provided that where such person has paid the service tax in full together with
interest and penalty under sub-section (1A), the proceedings in respect of such
person and other persons to whom notices are served under sub-section (1) shall be
deemed to be concluded:

Provided further that where such person has paid service tax in part along with
interest and penalty under sub-section (1A), the Central Excise Officer shall
determine the amount of service tax or interest not being in excess of the amount
partly due from such person.”;

(3) Where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, the person chargeable with the service tax, or
the person to whom such tax refund has erroneously been made, may pay the
amount of such service tax, chargeable or erroneously refunded, on the basis of his
own ascertainment thereof, or on the basis of tax ascertained by a Central Excise
Officer before service of notice on him under sub-section (1) in respect of such
service tax, and inform the Central Excise Officer of such payment in writing, who,
on receipt of such information shall not serve any notice under sub-section (1) in
respect of the amount so paid :

Provided that the Central Excise Officer may determine the amount of short
payment of service tax or erroneously refunded service tax, if any, which in his
opinion has not been paid by such person and, then, the Central Excise Officer shall
proceed to recover such amount in the manner specified in this section, and the
period of “one year” referred to in sub-section (1) shall be counted from the date of
receipt of such information of payment.

Explanation. — For the removal of doubts, it is hereby declared that the interest
under section 75 shall be payable on the amount paid by the person under this sub-
section and also on the amount of short payment of service tax or erroneously
refunded service tax, if any, as may be determined by the Central Excise Officer,
but for this sub-section.
(4) Nothing contained in sub-section (3) shall apply to a case where any service tax
has not been levied or paid or has been short-levied or short-paid or erroneously
refunded by reason of—

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made
thereunder with intent to evade payment of service tax.

(5) The provisions of sub-section (3) shall not apply to any case where the service
tax had become payable or ought to have been paid before the 14th day of May,
2003.

(6) For the purposes of this section, “relevant date” means, —

(i) in the case of taxable service in respect of which service tax has not been levied
or paid or has been short-levied or short-paid —

(a) where under the rules made under this Chapter, a periodical return, showing
particulars of service tax paid during the period to which the said return relates, is
to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such
return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to be paid under this
Chapter or the rules made thereunder;

(ii) in a case where the service tax is provisionally assessed under this Chapter or
the rules made thereunder, the date of adjustment of the service tax after the final
assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been
refunded, the date of such refund.’;

73A. Service Tax collected from any person to be deposited with Central
Government:-

(1) Any person who is liable to pay service tax under the provisions of this Chapter
or the rules made thereunder, and has collected any amount in excess of the
service tax assessed or determined and paid on any taxable service under the
provisions of this Chapter or the rules made thereunder from the recipient of
taxable service in any manner as representing service tax, shall forthwith pay the
amount so collected to the credit of the Central Government.

(2) Where any person who has collected any amount, which is not required to be
collected, from any other person, in any manner as representing service tax, such
person shall forthwith pay the amount so collected to the credit of the Central
Government.

76. Penalty for failure to pay service tax

Any person, liable to pay service tax in accordance with the provisions of
section 68 or the rules made under this Chapter, who fails to pay such tax, shall
pay, in addition to such tax and the interest on that tax amount in accordance with
the provisions of section 75, a penalty which shall not be less than two hundred
rupees for every day during which such failure continues or at the rate of two per
cent. of such tax, per month, whichever is higher, starting with the first day after
the due date till the date of actual payment of the outstanding amount of service
tax:

Provided that the total amount of the penalty payable in terms of this section shall
not exceed the service tax payable.

Illustration

X, an assessee, fails to pay service tax of Rs. 10 lakhs payable by 5th March. X
pays the amount on 15th March. The default has continued for 10 days. The penalty
payable by X is computed as follows:—

2% of the amount of default for 10 days = 2 x 10, 00, 000 x 10/31= Rs.
6,451.61

Penalty calculated @ Rs. 200 per day for 10 days =Rs. 2,000

Penalty liable to be paid is Rs. 6,452.00.”;

77. Penalty for contravention of rules and provisions of Act for which no penalty is
specified elsewhere. —

(1) Any person,—

(a) who is liable to pay service tax, or required to take registration, fails to take
registration in accordance with the provisions of section 69 or rules made under this
Chapter shall be liable to pay a penalty which may extend to five thousand rupees
or two hundred rupees for every day during which such failure continues, whichever
is higher, starting with the first day after the due date, till the date of actual
compliance;

(b) who fails to keep, maintain or retain books of account and other documents as
required in accordance with the provisions of this Chapter or the rules made
thereunder, shall be liable to a penalty which may extend to five thousand rupees;

(c) who fails to—

(i) furnish information called by an officer in accordance with the provisions of this
Chapter or rules made thereunder; or

(ii) produce documents called for by a Central Excise Officer in accordance with the
provisions of this Chapter or rules made thereunder; or

(iii) appear before the Central Excise Officer, when issued with a summon for
appearance to give evidence or to produce a document in an inquiry, shall be liable
to a penalty which may extend to five thousand rupees or two hundred rupees for
every day during which such failure continues, whichever is higher, starting with the
first day after the due date, till the date of actual compliance;

(d) who is required to pay tax electronically, through internet banking, fails to pay
the tax electronically, shall be liable to a penalty which may extend to five thousand
rupees;
(e) who issues invoice in accordance with the provisions of the Act or rules made
thereunder, with incorrect or incomplete details or fails to account for an invoice in
his books of account, shall be liable to a penalty which may extend to five thousand
rupees.

(2) Any person, who contravenes any of the provisions of this Chapter or any rules
made thereunder for which no penalty is separately provided in this Chapter, shall
be liable to a penalty which may extend to five thousand rupees.”;

[ Section (77) substituted vide Finance Bill 2008, w.e.f. 16th May, 2008 ]

78. Penalty for suppressing value of taxable service. –

Where any service tax has not been levied or paid or has been short-levied or short-
paid or erroneously refunded, by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made
thereunder with intent to evade payment of service tax, the person, liable to pay
such service tax or erroneous refund, as determined under sub-section (2) of
section 73, shall also be liable to pay a penalty, in addition to such service tax and
interest thereon, if any, payable by him, which shall not be less than, but which
shall not exceed twice, the amount of service tax so not levied or paid or short-
levied or short-paid or erroneously refunded:”;
Provided that where such service tax as determined under sub-section (2) of section
73, and the interest payable thereon under section 75, is paid within thirty days
from the date of communication of order of the Central Excise Officer determining
such service tax, the amount of penalty liable to be paid by such person under this
section shall be twenty-five per cent. of the service tax so determined :

Provided further that the benefit of reduced penalty under the first proviso shall be
available only if the amount of penalty so determined has also been paid within the
period of thirty days referred to in that proviso :

Provided also that where the service tax determined to be payable is reduced or
increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case
may be, the court, then, for the purposes of this section, the service tax as reduced
or increased, as the case may be, shall be taken into account :

Provided also that in case where the service tax determined to be payable is
increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case
may be, the court, then, the benefit of reduced penalty under the first proviso shall
be available, if the amount of service tax so increased, the interest payable thereon
and twenty-five per cent. of the consequential increase of penalty have also been
paid within thirty days of communication of the order by which such increase in
service tax takes effect.

Provided also that if the penalty is payable under this section, the provisions of
section 76 shall not apply. [ Inserted vide Finance Bill 2008, w.e.f. 16th May, 2008 ]
Explanation. - For the removal of doubts, it is hereby declared that -

(1) the provisions of this section shall also apply to cases in which the order
determining the service tax under sub-section (2) of section 73 relates to notices
issued prior to the day on which the Finance Bill, 2003 receives the assent of the
President;

(2) any amount paid to the credit of the Central Government prior to the date of
communication of the order referred to in the first proviso or the fourth proviso shall
be adjusted against the total amount due from such person.”