Implications of Service Tax

Post Union Budget -2012

( effective from 01.07.2012 )

By

CA Uday W. Prabhupatkar
B.Com., LLB(Gen.), DTL., DCEXSRC, MFM., ACA.
General Manager ( Indirect Tax)
Tecnimont ICB Pvt. Ltd.,
&
Visiting Faculty for Management Institutes
affiliated to
University of Mumbai.

Basic Frame Work of Service Tax

Overview of service tax

Basic concepts
Legal framework
Definition of service
Charging section
Negative list of services
Declared services

Overview
It is a Central Government Levy
Introduced & governed by Finance Act, 1994
Humble beginning by Taxing 3 services from July 94
gathering revenue of Rs. 407 crores
Progressed to Tax 119 Services & whopping collection
of Rs. 97,444 crores revenue for the year 2011-12
Till date No Separate Fiscal Legislation
Changes are managed by circulars & notifications
Certain provisions of Central Excise Act, 1944 are
made applicable to Service Tax
Administered by Central Excise Department

Basic Concepts
Rendition/provision of service is the subject
matter of Taxation
There has to be two entities called service
provider & service recipient
Taxable event for provision of service is
prescribed by Point of Taxation Rules, 2011
Tax levied on Gross consideration for service
Reimbursement of expenses forms part of Gross
consideration, except in case of a pure agent
Service Tax is destination based consumption tax

Basic Concepts
Obligation to collect & pay the service tax is on Service
Provider
Generally charged on the face of Invoice
If not charged separately, Invoice value is presumed to
be inclusive of Service Tax
If the contract is silent or does not specifically provide for
Service Tax it is service providers obligation to pay
service tax in his hands irrespective of the fact whether
he collects or not from service recipient
For recovery of Tax, authorities have recourse only to
service provider & not to Service recipient, except in the
cases specifically provided for u/s 68(2) read with Rule
2(1)(d)

Legal Framework
Relevant Act & Rules

Prescribes / Determines/
Deals with

Finance Act, 1994 Chapter VI

(Governing Legislation i.e. Act)

Act and Statutory Provisions

Service Tax Rules, 1994

(Deligated Legislation i.e. Rules)

Rules and Procedures

Place of Provision of Service

Rules, 2012

Place of Provision of service

Situs

Point of Taxation Rules, 2011

Point at which service is deemed

to have been provided & is held
liable to be taxed

Service Tax (determination of

value) Rules, 2006

Rules for ascertaining taxable

value of the Service & associate
exclusions / inclusions

CENVAT Credit Rules, 2004

Regulations, Procedures &

Documents for entitlement,
availing and utilisation of in-put
tax credit & associate restrictions

Legal Framework
Government is empowered to issue :
a) U/s 93 Notification granting Exemptions
b) U/s 94 Notification framing Rules
Notifications & Rules are binding on the Assessee
Notifications cannot enhance liability/obligations created
by law
Notifications & Rules cannot be in conflict with Act, if
made they are bad in Law
) CBEC is empowered to issue Circulars, Clarifications,
Guidance Notes they are binding on the Authorities
) Jurisdictional Commissionerates issue Trade Notices
) Decisions pronounced by jurisdictional High Courts &
Supreme Court are Law of the land

Basis of Charge for Service Tax

Sec. 66B For levy & collection of service tax.
There shall be levied;
a service tax at the rate of twelve percent,
on the value of all services,
other than the services specified in the negative
list u/s 66D,
provided or agreed to be provided in the taxable
territory,
by one person to another &
collected in such manner as may be prescribed.

Prerequisites of Taxing Provision

is fully satisfied by the charging
provision
Prerequisite of a Taxing
provision

Relevant component of Sec.

66B

1. Subject matter of Tax &

Taxable event

All services provided or agreed to

be provided in Taxable Territory,
other than the services specified
in negative list.

2. The person on whom Tax is

imposed & who is liable to pay
Tax

Service provider / service

recipient as may be specified

3. Rate of Tax

12 %

4. Quantification / measure of
Tax

Value of service

Territorial Jurisdiction of Service Tax

Sec.64(1) of Finance Act, 1994 states
This chapter extends to the whole of India except
the state of Jammu & Kashmir.
Sec.65B(35) non taxable territory means the
territory which is outside the taxable territory.
Sec.65B(52) taxable territory means the
territory to which the provisions of this chapter
apply.

Territorial Jurisdiction of Service Tax

Sec. 65B(27) India means,
a) The territory of the Union as referred to in the Constitution Article 1 clause 2 & 3;
b) Its territorial waters, continental shelf, exclusive economic
zone or any other maritime zone as defined in the Territorial
Waters, Continental Shelf, Exclusive Economic Zone, & Other
Maritime Zones Act, 1976;
c) The seabed & the subsoil underlying the territorial waters;
d) The air space above its territory & territorial waters; &
e) The installations, structures & vessels located in the
continental shelf of India & the exclusive economic zone of
India, for the purpose of prospecting or extraction or
production of mineral oil & natural gas & supply thereof;

Definition of Service
Sec. 65B (44) service means,
any activity
carried out by a person for another
for consideration
and includes declared service (u/s 66E),
But shall not include
a) an activity which constitutes merelyi. a transfer of title in goods or immovable property by way of sale, gift or in
any other manner; or
ii. Transfer, delivery or supply of any goods, which is a deemed sale under
Article 366(29A) of Constitution of India; and
iii. a transaction in money or actionable claim;
b) a provision of service by an employee to an employer in the course of or
in relation to his employment;
c) Fees taken in any court or tribunal established under any law for the time
being in force.

Place of Provision of Service

Sec.66C Empowers Central Govt. to make Rules to determine the Place of
Provision of Service having regard to the nature and description of various
services, w.e.f. 01.07.2012.

Rule 3 - General Rule Location of Service Recipient.

Rule 4 - Performance based service location where the services are actually
performed.

Rule 5 - Immovable Property related service location of immovable property.

Rule 6 - Event related service where the event is actually held.

Rule 7 - Where services are provided at more than one location

Rule 8 - When provider and receiver are located in Taxable Territory provision of
service shall be location of Recipient.

Place of Provision of Service

Rule 9 - Place of provision of Specified Services shall be place of service

provider.
(Presently 4 services are covered Banking Co/Fin. Institution/NBFC to its
customers, Online information and data base access or retrieval services,
Intermediary services, hiring of means of transport up-to a period of one
month.)

Rule 10 Goods transportation service (other than GTA) shall be place of

destination of goods.

Rule 11 Passenger Transportation service place of embarkation for

continuous journey.

Rule 12 Provision of services provided on board a conveyance.

Rule 13 Powers to Notify description of Service or circumstances for

certain purpose.

Rule 14 Tie-Breaker Test Later Rule to apply.

Negative List of Services

Sec. 66D Negative List shall comprise the following
services:a) Services by Government or Local Authority excluding - i)specified
postal services, ii) services in relation to aircraft or vessel inside or
outside the precincts of a port or an airport, iii) transport of goods or
passengers, support services other than the above provided to business
entities.
b) Services by Reserve Bank of India
c) Services by Foreign Diplomatic Mission located in India
d) Services relating to Agriculture or agricultural produce
e) Trading of goods
f) any process amounting to manufacture or production of goods
g) Selling of space or time slots for advertisements other than
advertisement broadcast by radio or television
h) Service by way of access to a road or bridge on payment of toll charges

Negative List of Services

i) betting, gambling or lottery
j) admission to entertainment events or access to amusement
facilities
k) Transmission or distribution of electricity by the utility
l) pre-school education, approved vocation course, or
education as per the
curriculum for obtaining
qualification recognized by any law for the time being in
force.
m) Renting of residential dwelling for use as residence
n) Extending of deposits, loans or advance for consideration
by way of interest or discount & inter-say sale or purchase
of foreign currency amongst banks or amongst authorized
dealers for foreign exchange or amongst banks & such
dealers.
o) Service of transportation of passengers by specified modes
p) Services by way of transportation of goods by road except

Declared Services
Sec. 66E The following shall constitute Declared Services, namely:-

a)Renting of immovable property;

b)Construction of a complex, building, civil structure or a part
thereof, wholly or partly, except where the entire
consideration is received after issuance of completion
certificate by the competent authority;
c)Temporary transfer or permitting the use
d)or enjoyment of any intellectual property right;
e)Development, design, programming, customization,
adaptation, up-gradation, enhancement, implementation of
information technology software;
f)Agreeing to the obligation or refrain from an act, or to
tolerate an act or a situation, or to do an act;

Declared Services
f) Transfer of goods by way of hiring, leasing,
licensing, or in any such manner without transfer
of right to use such goods;
g) Activities in relation to delivery of goods on hire
purchase or any system of payment by
installments;
h) Service portion in the execution of a works
contract;
i) Service portion in an activity wherein goods,
being food or any other article of human
consumption (whether or not intoxicating) is
supplied in any manner as a part of the activity.

Interpretation of Specified description of

Service or Bundled services

1.

2.

3.

Sec 66 F deals with the principles of interpretation

Unless otherwise specified, reference to a service (herein
referred to as main service) shall not include reference to
a service which is used for providing main service.
Where service is capable of differential treatment for any
purpose based on its description, the most specific
description shall be preferred over a more general
description.
Subject to the provisions of sub-section (2) the taxability
of a bundled service shall be determined in the following
manner, namely:-

Interpretation of Specified description

of Service or Bundled services
a) If various elements of such service are naturally bundled
in the ordinary course of business, it shall be treated as
provision of the single service which gives such bundle its
essential character
b) If various elements of such service are not naturally
bundled in the ordinary course of business, it shall be
treated as provision of single service which results in
highest liability of service tax.
Explanation for the purpose of sub-section (3), the
expression 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.

Valuation of taxable services for

charging service tax
Sec 67 deals with valuation of taxable services
1. (i) where provision of service is for a consideration in money the
gross amount charged by service provider for such service
provided or to be provided by him;
(ii) where provision of service is for a consideration not wholly or
partly consisting of money, be such amount in money as, with the
addition of service tax charged, is equivalent to the consideration;
(iii) where provision of service is for a consideration which is not
ascertainable, be the amount as may be determined in the
prescribed manner
2. Where gross amount charged by service provider is inclusive of
service tax payable, value shall be such amount as, with the
addition of tax payable, is equal to the gross amount charged.

Valuation of taxable services for

charging service tax
3.

4.

The gross amount charged for the taxable service shall include any amount
received towards the taxable service before, during or after provision of such
service.
Subject to sub-section (1), (2) and (3), the value shall be determined in such
manner as may be prescribed

Explanation for the purpose of this section:a) consideration includes any amount that is payable for the taxable services
provided or to be provided;
b) money deleted w.e.f.01.07.2012
c)

gross amount charged includes payment by cheque , credit card, deduction

from account and any form of payment by issue of credit notes or debit notes and
book adjustment, and 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 a person liable to pay service tax, where the transaction of
taxable service is with any associated enterprise.

Date of determination of rate of tax, value of taxable service and rate of

exchange

Sec 67A states

The rate of service tax, value of taxable service
and rate of exchange, if any, shall be the rate of
service tax or value of taxable service or rate of
exchange, as the case may be, in force or as
applicable at the time when the taxable service
has been provided or agreed to be provided.
Explanation for the purpose of this section, rate
of exchange means rate of exchange referred
to in Explanation to Sec 14 of the Customs Act,
1962.