Baroda Branch of WIRC of ICAI

Baroda Branch of WIRC of ICAI How to File Service Tax Returns and its Challenges CA. Manilal Parsiya

How to File Service Tax Returns • How to fill Service Tax Return • How to file Service Tax Return

Challenges in filing of ST3 • Complexity is due to complex Service Tax Law and badly structured Service Tax return. • Partial reverse charges always requires registration for specific service covered by reverse charge mechanism (for “Works Contract Service”). • Difficult to cross verify the data due to bad structure of ST3. Hence ST3 is the most error prone return. • Poor structure in terms of link of one cell to another in the ST3. Same amount in subsequent cells has to be entered manually. • Some fields in the ST3 are seemed not relevant. • ST3 Return Excel Utility for the period July-Sept. 2012 was issued on 29.04.2013. Whereas ST3 Return Excel Utility for the period Oct-12 to March-13 has been issued on 31.07.2013. • Govt. has taken almost 3 months to add one line in ST3 in PART K – Self Assessment Memorandum “I/We have filed this return within specified time limit and incase of delay, I/we have deposited the amount towards late filing as prescribed under rule 7C of ST Rules”. • Whereas Govt. has given to the assessee less than one Month to file the ST3. • ST3 demands lot of patience to go through entire lengthy and complex ST3. • Many debugging problems have been encountered in case of software for Service Tax.

Structure of Service Tax Return PART A – General Information PART B – Value of Taxable Service and Service Tax Payable PART C – Service Tax Paid in Advance PART D, E, F – Service Tax, EC, HSEC Paid in Cash and through CENVAT Credit PART G – Arrears, Interest, Penalty and any other amount etc. paid

Structure of Service Tax Return • PART H1-Details of Challans • PART H2-Source Documents for details of payment made in advance and adjustment • PART I – Details of CENVAT • PART J – Credit details for Input Service Distributor • PART K – Self Assessment Memorandum

PART A – General Information • Field with * (red asterisk) is compulsory to be filed for validate the sheet • Some field like Name of the Assessee, premises code shall come automatically while uploading the return • Most of fields except fields having amount to be filled are having drop down selection • Most of grey fields are having pre-fixed selection options

PART A – General Information • Add all services for which registration has been taken. • Separate sheets shall be available for each services we have added. • Service after added cannot be edited; it can be deleted by “delete service” option keeping cursor on red colored cell. • Majority time assessee is either a service provider or a service receiver for a particular category of service except few exceptions. • After selecting option in green cells“Yes”, grey cells shall be turned in to green and data can be entered in that cell.

PART A – General Information • Data is to be filled in respective sheet either as a service receiver or as a service provider or for both. • More than one exemptions and/or abatement notifications and serial nos. can be selected by “add notification” menu. • Case of partial reverse charge is being treated as an exemption and we have to select ‘Yes’ in exemption menu. • Rebate on service tax on export of services under notification can be shown in Point B1.12 – Any other amount claimed as deduction, please specify • Serial No. appears after selection of exemption notification

Exemption Notifications listed in Drop Down List

Abatement Notifications listed in Drop Down List

Abatement to specified services – w.e.f. 1.7.2012(26/2012-ST)

PART B – Value of Taxable Service and Service Tax Payable – Service Provider • Quarter/month wise gross amount(excluding ST) for which bills/invoices/challans are issued less amount on which Service Tax has already charged on advance receipt basis in earlier quarter/month and bills/invoices/challans on which Service Tax charged on partial reverse charge basis is to be shown against Sl. No. B1.1. • Gross amount is the value of all services, other than those services specified in the negative list provided any where except in the State of Jammu and Kashmir(B1.1). • Gross amount shall include amount charged towards export service, exempt service, amount charged as pure agent, amount includible in terms of rule 5(1) (reimbursement of expenses ) and rule 6(1) of ST(Determination of Value Rule), 2006 etc. • Post POTR, tax obligation generally arises on accrual or realization of consideration, whichever is earlier (subject to few exceptions). Amount received in advance for service whether taxable or exempt is to be shown against S. No. B1.2.

PART B – Value of Taxable Service and Service Tax Payable – Service Provider • As per third proviso to Rule 6(1) of Service Tax Rules, 1994, in case of individual and partnership firms whose aggregate value of taxable services is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax up to a total of rupees fifty lakhs in the current financial year on receipt basis. • If assessee has opted to pay Service Tax on receipt basis as above than such amount taxable on receipt basis is to be shown against Sl. No. B1.3. • Amount taxable for service provided for which no bills, invoices, challans or any other documents have been issued (Rule 4A(1) of ST Rules) is to be shown against Sl. No. B1.4 • The value of consideration charged other than in money, is to be estimated in equivalent money value of such consideration in terms of the Service Tax (Determination of Value) Rules, 2006 is to be shown against Sl. No. B1.5. • Gross amount on which Service Tax is payable on partial reverse charge whether on accrual or advance basis is to be shown against Sl. No. B1.6.

PART B – Value of Taxable Service and Service Tax Payable – Service Receiver • Quarter/month wise gross amount(excluding ST) for which bills/invoices/challans are received less amount on which Service Tax already charged on advance payment in earlier quarter/month and bills/invoices/ challans on which Service Tax charged on partial reverse charge basis is to be shown against Sl. No. B2.1. • Amount paid in advance for service whether taxable or exempt is to be shown against S. No. B2.2. • Sl. No. B2.3 is not relevant in case of service receiver since third proviso to rule 6(1) of Service Tax Rules, 1994 is applicable only to service provider • The value of consideration paid other than in money, is to be estimated in equivalent money value of such consideration in terms of the Service Tax (Determination of Value) Rules, 2006 is to be shown against Sl. No. B2.4. • Amount paid for service received from non-taxable territory – imports is to be shown against Sl. No. B2.5. • Amount paid for service received from non-taxable territory – other than imports is to be shown against Sl. No. B2.6. • Amount on which Service Tax is payable on partial reverse charge whether on accrual or advance basis is to be shown against Sl. No. B2.7.

PART B – Value of Taxable Service and Service Tax Payable – Exemption and Deductions • Amount of service exported is to be shown against Sl. No. B1.8. • Amount charged for exempted service other than export (and amount paid in case of service receiver) including non-taxable portion of value of service included under partial reverse charge is to be shown against Sl. No. B1.9 and B2.9 respectively. • Against Sl. No. B1.10 and B2.10 amount received/paid as pure agent (for example Taxes, Duties, Fees etc paid on behalf of service receiver and claim reimbursement through bills/invoices). • Abatement on specified services under Notification such as 26/2012-ST dated 20.06.2012 (details as per earlier slides) is to be shown against Sl. No. B1.11 and B2.11 • Sl. No. B1.12 and B2.12 covers any deductions which is not mentioned in any other clause. (For example, deduction of property tax paid in respect of the taxable service of renting of immovable property in terms of 6(4C) of Service Tax Rules, 1994 read with Notification No. 29/2012-ST. or exemption in case of taxable service involving import of technology under Notification No. 14/2012-ST dated 17.07.2012)

PART B – Value of Taxable Service and Service Tax Payable – Service Tax Rate wise Break up • Different rate of Service Tax like 12%, 10%, 8%, 5% can be entered by adding row and quarter/month wise Net Taxable Value is to be entered for advalorem rate and specific rate (Rule 6 of ST Rules provides for specific rate in case of air travel agent service, foreign exchange broker service and service of promotion, marketing, organizing lottery). • Taxable amount is to be converted into taxable unit in case of specific rate(For ex. In case of the services of booking of tickets for travel by air provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.6% of the basic fare in the case of domestic bookings, and at the rate of 1.2% of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter.) • Aggregate quarter/month wise total of service tax rate wise break up value must match with Net Taxable Value at B1.14 & B2.14. • Amount can only be entered against R & D Cess cell, if exemption Notification No. 36/2010-ST has been selected at exemption menu.

PART C – Service Tax Paid in Advance Rule 6(1A) provides that every person liable to pay service tax, may, on his own volition, pay an amount as service tax in advance and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period : Provided that the assessee shall,— • intimate the details of the amount of service tax paid in advance, to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such payment; and • indicate the details of the advance payment made, and its adjustment, if any in the subsequent return to be filed under section 70 of the Act.]

PART D, E, F – Service Tax, EC, HSEC Paid in Cash and through CENVAT Credit • Amount paid by challan • Amount paid by CENVAT (not applicable in case of service receiver) • Amount of Service Tax paid in Advance adjusted in terms of Rule 6(1A) of ST Rules. • Rule 6(3) of ST Rules allows adjustment of Service Tax amount which was paid earlier in respect of taxable service not provided wholly or partially by the service provider or where the amount of invoice is re-negotiated. Such adjustment is to be shown here. • Rule 6(4A) of ST Rules allows adjustment of Service Tax amount paid in preceding months or quarter, which is in excess of the Service Tax liability for such month or quarter. Such adjustment is to be shown here. • Rule 6(4C) of ST Rules allows adjustment of Service Tax amount paid in preceding months or quarter, which is in excess of the amount required to be paid towards Service Tax liability for such month or quarter on account of non-availment of deduction of property tax paid in terms of Notification No. 29/2012-ST from the gross amount of rent charged for the immovable property. Such adjustment is to be shown here. • Details of Source Documents relating to Sl. No. D,E&F(3,4,5,6&7) are to be provided in Part H2 of the return.

PART G – Arrears, Interest, Penalty and any other amount etc. paid • Arrears of revenue includes- • Amount that was payable earlier but not paid; • Amount pending recovery on finalization of adjudication or appellant stage, as the case may be; • Amount pending in appeals without having any stay for recovery; or • Amount arising on finalization of provisional assessment etc.

PART G – Arrears, Interest, Penalty and any other amount etc. paid G7Any amount collected in excess of the service tax assessed or determined and paid on any taxable service from the recipient of taxable service in any manner, has to be paid as per the provisions of Section 73A of the Finance Act, 1994. Assesseemay furnish such amount here. G8 Interest paid (in cash only) G9 Penalty paid (in cash only) G10 Amount of late fee paid for any delayed filing of return has to be entered here as prescribed under Rule 7C of ST Rules. G11 Any other amount paid may be specified. (It may include amount paid in terms of any adjudication order, any appellate order, etc.)

PART H Details of Challans and Source Documents • Source document details for payment made in advance or adjustment, for entries made at Sl. No. D, E & F (3, 4, 5, 6 & 7) and G1 to G11. • Enter relevant Sl. No. D, E & F (3, 4, 5, 6 & 7) or G1 to G11 for adjustment or payment of ST at source document detail sheet. • Enter month/quarter in which adjustment or payment is shown at Sl. No. D, E & F (3, 4, 5, 6 & 7) or G1 to G11. • Against source documents, following details may be furnished,- i) For adjustment under rule 6(3) of Service Tax Rules, 1994, furnish details of earlier return, from where excess amount is derived (ii) For adjustment under rule 6(4A), furnish details of acknowledgement No. of intimation to Superintendent as required to be furnished in the rules;

PART H Details of Challans and Source Documents (iii) For arrears, interest and penalty, the source document/period is as follows,- (a) in case these are paid suomoto by the assessee, the period for which such amount is paid may be furnished (b) if paid consequent to a show cause notice (SCN) or order, the source document is relevant SCN No./Demand Notice No., Order-in-Original No. or Order-in-Appeal No., or any other order , etc.; (iv) For adjustment of excess amount of service tax paid on the service of ‘Renting of Immovable Property’ in case the taxpayer has not availed the deduction of property tax paid in terms of Rule 6(4C) of the Service Tax Rules, 1994 read with Notification No. 29/2012-ST, dated 20th June, 2012 and he opts to avail such deduction against his service tax liability within 1 year from the date of payment of such property tax, the source document is original receipt issued by the concerned department of State Government showing the payment of such property tax.

PART I – Details of CENVAT • Details at Sl. No. I1 is to be given only in case of assessee provides exempted and non-taxable service or manufacturing exempted excisable goods. • Rules 6(2) of CENVAT Rules, 2004 provides where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts including receipt and consumption of input service and input goods…

PART I – Details of CENVAT • Rule 3 of CENVAT Rules, 2004 provides if the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, then he shall follow any one of the following options, as applicable to him, namely:— • pay an amount equal to six per cent of value of the exempted goods and exempted services; or • pay an amount as determined under sub-rule (3A); or • maintain separate accounts for the receipt, consumption and inventory of inputs and pay an amount as determined under sub-rule (3A) in respect of input services; (Note: Rule 3A prescribed method of deriving CENVAT reversal amount on the basis of formulae and procedure to be followed including advance intimation to Superintendent of Central Excise)

PART I – Details of CENVAT • Details at Sl. No. I2 is only to be provided if separate books are not maintained. • Always check last return for opening CENVAT balance available. • CENVAT Credit can be carried forward without time limit. • Service Tax paid under reverse charge by challan, if CENVATable, can be claim as CENVAT in the same month/quarter.

How to file Service Tax Return • Fill up the return data • Validating sheets • Validate return and generate XML • Upload XML file in to ACES Application • Status can be Uploaded, Filed or Rejected • If rejected, it needs to be corrected and uploaded again.

New user-friendly features in the Oct. 2012 - Mar. 2013 ST-3 Return: • Previously, the assessees were able to view the filed returns using the option, 'View Original ST3'. This facility has been enhanced with a new feature by displaying in the return, the list of error codes (with corresponding error messages). This will help the assessees to know about the errors so that they can exercise the option of filing Revised return by rectifying the errors. This facility will be made available shortly and the exact date will be intimated on ACES website. • As soon as the return uploaded by the assessee is accepted or rejected by the system, a system-generated message will be e-mailed to the assessee. The assessee can rectify the errors and file the corrected return.

Thank you

Baroda Branch of WIRC of ICAI