Basic Concepts of Service Tax Presented by CA. Aamir Khan SEPTEMBER 2015
Unfortunately there is no definition in the provision of Service tax law for the word service, only incidences of taxes is defined under the Act. As per Black Black’ss Law Dictionary “means means an intangible Commodity in the form of human effort such as use of labour, skill or knowledge for the benefit of another.” As per Webster’s dictionary “performance of any duties or work for another, helpful or professional activity”. Service tax is destination based consumption tax in the form of Value Added Tax. This is collected as per the service tax provisions.
TAX REVENUE (ALL INDIA 2014-15)
Rs. In Crores
Service Tax Concepts
Tax Who Can Levy Tax
Central Govt.
State Govt.
Service Tax, Central Excise, Customs, Income Tax
VAT, State Excise, Property p y Tax, Entry y Tax, Octroi
N t No Note: N state t t can levy l S Service i Tax. T O l Central Only C t l Govt. G t has h the th power to t levy l service i tax t
Service Tax Concepts
Types of Taxes Taxes
Di t Direct •Paid directly by tax payer to Govt. •E.g. income tax, wealth tax, gift tax •Administrated Administrated by CBDT under Ministry of Finance, GOI
Indirect •Person paying the tax and person are different •E.g. service tax, excise, customs etc. •Administrated by CBEC under Ministry of Finance, GOI
Note: No state can levy Service Tax. Only Central Govt. has the power to levy service tax
Service Tax Concepts
Service Tax Introduction of concept of Service Tax • Introduced d d by b F.A. 1994 199 by b Dr. Manmohan h Singh Si h (Former Union i Finance i Minister) i i based on recommendation by tax reform committee headed by Dr. Raja Chelliah in 1990 • Fi First IIntroduced d d w.e.f.f 01.07.1994 01 07 1994 taxing i 3 category off services: i • General Insurance • Stock Broking • Telephone Service • At present almost 119 category of taxable service • Any amendments/clarification in Service Tax through Notification, Circulars etc. i issued db by Board B d (CBEC) (CBEC). Application of Service Tax • Only on Services specified under Sec 65(105) of Chapter V of Finance Act 1994 • Such services commonly known as taxable service
Service Tax Concepts Levy of Service Tax: To attract service tax three conditions must be satisfied: 1 1. 2. 3.
There mustt be Th b a service i provider( id ( the th person who h provides id service) Service receiver and(the person who receives service) ( )) Taxable service ( which is defined under section 65(105))
All the above conditions must be satisfied to attract the service tax liability. For Example Mr. Mr A is a chartered Accountant maintains the accounts of his client M/s P & Co. and charges the fees of 10000 every month. Now we will examine this case in the light of service tax. As per section 65(105)(s) any service provided or to be provided to any person, by practicing chartered accountant in his professional capacity, in any manner, is taxable service.
Service Tax Concepts
: Illustration In the above example Mr. A is service provider providing taxable service of accounting g to the service receiver ((M/s. / P & Co.). ) All the three conditions are satisfied as per definition. So, Mr. A is liable to pay service on the fees received by him. If “A” is maintaining his own accounts in this case service provider and service is the same person, so the basic conditions of service tax is not satisfied. To attract service tax liability all the three conditions must be satisfied. satisfied Even if one condition is not satisfied then that service is not a taxable service. Generally service provider is liable to pay service tax but as per Section 68(2) the government to notify the services with regard to which service receiver would be held liable to pay service tax.
Service Tax Concepts
Statutory Provisions Relating to Service Tax Finance Act, Act 1994 contains provisions and procedure relating to service tax: • • • • •
Levy and collection of service tax Registration Appeal pp Revision Search etc.
Central Govt. frames rules governing service tax: • • • • • • • • • •
Service Tax Rules, 1994 Service Tax (Registration of Special Category of Person) Rules, 2005 Service Tax (Determination of Value) Rules, 2006 (commonly known as Service Tax Valuation Rules) CENVAT Credit Rules, 2004. Export of Service Rules, 2005. Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Commonly termed as ‘Import of Services’ Rules) Service Tax (Advance Rulings) Rules, Rules 2003 Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Service Tax (Provisional Attachment of Property) Rules, 2008 Dispute Resolution Scheme Rules, 2008
Service Tax Concepts
Statutory Provisions Relating to Service Tax Central Govt also issues the following: • Notification •Exempting certain services (fully/partially) •Operationalizing any provision of law • Circulars/instructions •Explaining scope of law •Explaining procedure to be followed
Service Tax Concepts
Sources of Relevant Information Some important and useful sites for updates and information about service tax are as follows: 1 1.
www.cbec.gov.in www cbec gov in Good site of Central Board of Excise and Customs (CBEC), (CBEC) giving notifications and circulars and general information on excise, customs law and service tax and more over it is a free website.
2.
www.judis.nic.in j di i i judgments.
3.
www.aces.gov.in It is a good site for recent updates and Circulars and notifications.
4.
www.servicetaxonline.com This website covers all service tax matters.
5 5.
www.taxmann.com www taxmann com It gives information on changes in corporate laws and taxation but it is a paid site.
6.
www.taxindiaonline.com We can information regarding service tax and customs and excise duty and other indirect tax matters from this site. site
It is i a good d site i for f various i case laws l li lists and d Supreme Court
Service Tax Concepts
C Coverage off S Service i T Tax Levy of service tax extends to: •
Whole of India except Jammu & Kashmir
•
Territorial waters i.e. upto 12 nautical miles from land mass
•
Designated areas of continental shelf
•
Exclusive Economic Zone of India extending upto 200 nautical miles i id th inside the sea ffrom b base liline
N Note: S i tax iis payable Service bl if a service i iis iimported d and not if it is exported.
12 nautical miles from the land mass
R i Registration of Tax Payer i fT P
Registration
Who is to be Registered Registration must be taken by: • Person liable to pay service tax •
Service provider
•
Exceptions: • Service receiver (under Reverse Charge) • Input service distributor • Taxable service provider whose value of taxable service > Rs. 9,00,000
Registration
Cases for Service Recipient to Pay Service Tax Case
Liability
Service provider providing a taxable service from outside India to a recipient in India
Service Recipient
Insurance agent providing service to insurance company (General Insurance and Life Insurance)
Insurance company appointing the agent
Transport of goods by road
Person paying the freight
Distribution of mutual funds by distributor/agent
Mutual fund/asset management company receiving service
Body corporate or firm located in India receiving sponsorship service
Body corporate/firm
Registration
Categories of Taxpayer Taxpayers are classified in following categories: • Individual/Proprietor • Partnership • Registered public limited Company • Registered private limited Company • Registered Trust • Society/co-operative society • Others
Registration
Which Premise to Register For Service provider may take registration for the premise from where he is: • Providing a taxable service, or • Issuing bills and maintaining records S i receiver Service i may take k registration i i ffor the h premise i ffrom where h h he iis: • Receiving a taxable service, or • Receiving bills and maintaining records Service tax payer providing/receiving service from/in multiple premises and using single/multiple premises for maintaining centralised accounts may take registration for: • Each premise premise, or • Single registration for premises used for centralized billing/accounting (Centralized registration)
Registration
Centralized Registration The service provider must consider following points while taking registration: • Separate registration for each premises if there is no centralised billing or accounting • Authority to grant centralised registration: Commissioner in whose jurisdiction the premises or offices, from where centralised billing or accounting is done, done are located • Procedure for centralized registration: • Fill out application in Form ST-1 • Submit details of branches/offices for which centralised registration is being sought •
Single registration for multiple taxable services
• Period for filing application - 30 days from the date when: •
A person commences providing taxable service, or
•
S i ttax iis iimposed Service d on th the ttaxable bl service, i whichever hi h iis llater. t
ST-1
• Fees for Registration: Nil
Registration
Centralized Registration: Documents Required Tax payer must submit the following documents at the time of registration along with the application form: • Copy of PAN card • Proof of residence • Proof P f off constitution i i off applicant li ((e.g. partnership hi d deed) d) • Copy of memorandum and articles of association • Details of partner/directors/proprietor/HUF/key person
Registration
Grant of Registration Certificate Steps for granting registration certificate: i. Acceptance of application in Form ST-1 by Jurisdictional Superintendent p of Central Excise ii. Review of the application iii Grant of registration in Form ST-2 within 2 days of filing of online iii. application
Registration
Components of Registration Certificate Registration certificate includes: •
Name of the assessee
•
Address of premises
•
Registration g number, which is: • Also known as Service Tax Code (STC) • 15 digit PAN based number • First 10 digits - Same as the PAN • Next 2 digits - ‘ST’ ST • Next 3 digits - Serial numbers indicating the number of registrations taken by the taxpayer against a common PAN
•
Name of services for which registration granted
•
Premises code: • Used for easy identification of location of registration of taxpayer • Represents Commissionerate , Division, Range and Serial Number
Registration
Amendments to Registration Certificate A Amendment d t to t registration i t ti certificate: tifi t • Required in following cases : • Change in the information supplied in Form ST-1, e.g., name or address of the applicant • Addition of new taxable service provided Note: Obtaining fresh registration certificate is not required in these cases. Procedure for amendment to registration certificate: i. Intimation to jurisdictional AC/DC within 30 days of change ii Submission of self ii. self-certified certified copy of the registration certificate, certificate necessary proffs and not the earlier registration certificate iii. Cancellation of the original registration certificate issued earlier by p the department iv. Issuance of an amended registration certificate
Registration
Cancellation/Surrender of Registration Certificate Cancellation/surrender of registration certificate must be applied for if: • Assessee ceases to carry on the activity for which he is registered i t d • Assessee opts to avail benefit of Threshold limit • Any other reason Procedure for cancellation/surrender of registration certificate • File all the up-to-date returns • Pay all the dues (i.e. tax, interest, penalty, etc.) payable to Central Government • Application to Superintendent of Central Excise in any format accompanied with ST-2 • Undertaking for no due pending to be filed • No fee required
Registration
Cancellation/Surrender of Registration Certificate – S Special i l Situations Sit ti Transfer of Business: • Transferor has to cancel his service tax registration • Transferee is required to obtain fresh registration Procedure in case of Re-start of Business: • Pay ay obtain obta a fresh es registration eg st at o if the t e assessee ceases to provide p o de earlier ea e service and cancels registration Change in particulars: • No need to cancel the old registration and to obtain the fresh registration • Required to intimate change to the department
Registration
Penalty for Late Registration If there is delay in obtaining registration: • Penalty up to Rs. 10,000, or Rs. 200 per day of delay (whichever higher) • Additional applicable penalties + interest for the delay in payment of service tax
Due date for payment of Service Tax: The h service i tax collected ll d must be b credited di d to account off Central C l Government G within the prescribed due dates. The due dates of payment of service tax summarized below: Status
Basis
Due Date for normal payment
Due Date for e-payment
Non-corporate Non corporate entities like Quarterly payment individual, proprietorship, (Apr-Jun, Jul-sep, partnership firm Oct-Dec, Jan-Mar)
5th of the month succeeding the relevant quarter in which the service was performed. For example for the 1stquarter (Apr Jun)due date is 5th of July. (Apr-Jun)due July
6th of the month succeeding the relevant quarter in which the service was performed. For example for the 1stquarter (Apr-Jun)due th date is 6 of July.
Corporate entities
5th of the next month in which the service was performed. For example for April month service tax is need to pay by 5th of may. may
6th of the next month in which the service was performed. For example for April month service tax is need to pay by 6th of may.
Monthly payment
But for the month of March due date for payment of service tax is 31st March If the assessee is failed to pay tax within the due date he needs to pay tax along g with interest 18% p p.a. until the date of p payment y of tax.
Filing of returns: Every service provider or service receiver who liable to pay tax is required to submit half yearly returns in Form ST-3 or Form ST-3A with relevant copies of GAR-7 GAR 7 in the triplicate. triplicate
1 The returns are to be filed for the half year ending 30th September by . 25th October. 2 The returns are to be filed for the half year ending 31st March by . 25th April. Late filling of returns will attract penalty .Rule Rule 7C of service Tax Rules mentioned about penalty 1
Rs. 500 for delay of 15 days from the prescribed date
2
Rs. 1000 where the delay is between 15 and 30 days from the prescribed date.
3
Rs. 1000 + Rs. Rs Rs 100 per day of delay where the delay is beyond 30 days from the prescribed date but not exceeding Rs.20,000 in terms of Section 70.
CENVAT Credit: Cenvat credit is a concept introduced to overcome cascading effect of indirect taxes. Because of the cascading effect assessee is paying tax more than one time for the same goods and services. Cenvat Credit is nothing b adjusting but dj i the h tax already l d paid id which hi h included i l d d in i the h current tax. The service provider providing taxable services is entitled to avail CENVAT credit of the service tax paid on
1. Inputs 2. Capital goods and 3 Input services 3. Th Those mustt be b used d for f providing idi taxable t bl services. i
Inputs means:
All goods, d exceptt light li ht diesel di l oil, il high hi h speed d diesel di l oilil and d motor spirit, commonly known as petrol and motor vehicles, used for p proving g anyy output p service.
Input services means:
Any service used by a provider of taxable service for providing an output service.
Capital goods:
Capital goods which are used for providing output taxable services.
By utilization ili i off CENVAT C C di the Credit h liability li bili off the h tax will ill be reduced. The outflow of funds will be less. For example we need to pay service tax of Rs.1,00,000, if he has credit of inputs and input services of Rs.10,000 then he can adjust that amount with tax payable. payable Instead of tax Rs. Rs 1 Lakh, now he can pay Rs. 90,000/- (1,00,000 (Tax)-10,000 (input credit)). The burden of tax will be reduced with the CENVAT Credit. C di
Overview of Taxable Services
Taxable Services
What are Taxable Services Taxable Services are: • Liable to service tax • Defined D fi d under d sub b clauses l off Section S i 65(105) • Services which are not listed in Negative List Regime.
Presently, 119 services are taxable.
Taxable Services
Classification of Taxable Services Classification of services is made according to the scope of taxable services specified in sub-clauses of Section 65 (105). If a taxable service appears to be classifiable under two or more sub clauses : • Specific description is preferred over general description • Classification is done on the basis of essential characteristics in case of composite services (more than one service in a single agreement • Classification is done according to the order of sub clause which appears earlier in Section 65 (105)
Rate of Service tax
Effective Rate of Service Tax The rates of service tax will change time to time. The rate of service tax will summarized below : Period
Service Tax
Education Cess
S.H.Edu.Ce Total ss Rate
16.08.2002 to 31.05.2003
5%
-
-
5%
14.05.2003 to 09.09.2004
8%
-
-
8%
10.09.2004 to 18.04.2006
10%
2%
-
10.2%
19.04.2006 to 10.05.2007
12%
2%
-
12.24%
11.05.2007 to 23.02.2009
12%
2%
1%
12.36%
24 02 2009 to 31.03.2012 24.02.2009 31 03 2012
10%
2%
1%
10 3% 10.3%
01.04.2012 to 31.05.2015
12%
2%
1%
12.36%
01.06.2015 onwards
14%
-
-
14%
Payment of service tax must be through GAR-7 challan and through designated branches.GAR-7 Challan and list of designated branches will be available in the CBEC web site.www.cbec.gov.in or www.aces.gov.in
