Workshop for Accountants Overview of Service Tax

Workshop for Accountants Overview of Service Tax Baroda Baroda Branch of WIRC of ICAI - By CA. Manilal Parsiya

Charge of Service Tax – Sec.66B & Meaning of Service – Sec. 66B(44) Service Tax rate is twelve per cent plus education cess (12.36%). On the value of all services, except specified in the negative list. Provided or agreed to be provided in the taxable territory. By one person to another. It includes declared services. Collected in such manner as may be prescribed.

Definition of Service - Sec. 65B(44) The definition provides that “service“ does not include— (i) any activity that constitute only a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale as per clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (iv) a provision of service by an employee to the employer in the course of or in relation to his employment; (v) fees taken in any Court or tribunal established under any law for the time being in force.

Definition of Service (Sec. 65B(44)) • Explanation 3.— For the purposes of this Chapter,— • an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; • an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. • Explanation 4.— A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;

Summary of Exemptions Notifications

Who is liable to pay Service Tax ? • Usually, service provider is liable to Service tax. • In certain cases, service recipient is obliged to discharge service tax liability. This is popularly known as ‘Reverse Charge Mechanism’ • Reverse Charge mechanism – Applicability will depend on: • Nature and description of Service • Status of Service Provider • Status of Service Recipient • Government derives power to collect Service tax from recipient under: • Section 68(2) of the Finance Act, 1994 • Rule 2(1)(d) of Service Tax Rules, 1994

Reverse Charge Mechanism – Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 01.07.2012

Reverse Charge Mechanism – Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 01.07.2012 • Explanation-I. - The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. • Explanation-II. - In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service.

Valuation of Taxable Services (Sec 67) • Value of Taxable Services: • Where consideration is money – Gross amount charged by the service provider • Where consideration is not wholly or partly consisting money – amount with addition to service tax charged, is equivalent to the consideration • Where consideration is not ascertainable – amount may be determined in the prescribed manner • Where gross amount charged inclusive of ST – value shall be such amount as, with addition of tax payable, is equal to the gross amount. • Gross amount of taxable service shall include amount received before, during and after provision of such service • Subject to the provisions sub-sections 1, 2 and 3 of Sec. 67 value shall be determined in such a manner as may be prescribed

Valuation of Works Contract(new system effective from 1-7-2012) • "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

Valuation of Works Contract(new system effective from 1-7-2012) • New Rule 2A of Service Tax (Determination of Value) Rule, determine the value in case of the works contract as under: • The first determination will be the value of service being the total amount charged for the contract reduced by the value of property transferred in goods for State VAT purpose; [Clause (i)]. Even if value of goods is not intimated to State VAT, the assessee can still calculated the actual value of goods and the same will be relevant to deduce the value of the service involved in the works contract. • Where the value is not determinable under Clause (i), it shall be determined on the basis of statutorily prescribed percentage.

Valuation of Works Contract(new system effective from 1-7-2012) • Valuation of service portion of a works contract on the basis of statutorily prescribed percentage:

Valuation of Works Contract(new system effective from 1-7-2012) • Explanation 1: "original works" means— • all new constructions; • all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; • erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise; • "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting— • the amount charged for such goods or services, if any; and • the value added tax or sales tax, if any, levied thereon. • Explanation 2: • CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, shall not be available

Valuation of service portion in supply of food, beverages, etc. by restaurant or outdoor caterers • Rule 2C provides for Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering • At restaurant Value of Service 40% • As Outdoor Catering Value of Service 60% • CENVAT will not be available on goods classifiable under Chapter 1 to 22 of Central Excise tariff (live animals, animal products, vegetable products, prepared food stuffs, beverages, spirits and vinegar or animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes)

Service Tax (Determination of Value) Rules, 2006 • Rule 3 – where such value is not ascertainable shall be determine by service provider – • Value of similar service • if it cannot be determined as (a) the equivalent money, which shall in no case be less than cost of provision of service • Rule 5 • Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration. • Except the expenditure or cost s incurred as pure agent

Service Tax (Determination of Value) Rules, 2006 • Rule 6 • New Inclusions added – The amount realized as demurrage for the provision of service beyond the period originally contracted • Exclusions – • Initial deposit made by the subscriber of telephone/mobile • Air fair collected by air travel agent • Rail fair collected by rail travel agent • Interest on delayed payment of any consideration for the provision of services etc. • Taxes levied by any Govt. on air travelling and shown separately. • Accidental damages due to unforeseen actions not relatable to provision of services • Subsidy and grants disbursed by Govt.

Abatement to Specified Services – w.e.f. 1.7.2012(Notification No. 26/2012-ST) as Amended by Notification. No. 3/2013 –ST w.e.f. 01.03.2013)

Abatement to specified services – w.e.f. 1.7.2012(26/2012-ST) as amended by Notification. No. 3/2013 –ST w.e.f. 01.03.2013)

Abatement to Specified Services – w.e.f. 1.7.2012(Notification No. 26/2012-ST) as Amended by Notification. No. 3/2013 –ST w.e.f. 01.03.2013)

POTR – Basics • “Point of Taxation Rules” (‘POTR’) prescribes the point of taxation • “Point of Taxation” (‘POT’) means the point of time when service shall be deemed to have been provided (occurrence of taxable event) [Rule 2(e)] • Due date for tax payment linked with POT (Rule 6(1) of Service Tax Rules) • Pre POTR, tax obligation was on realization of consideration (Cash basis) • Post POTR, tax obligation generally arises on accrual or realization of consideration, whichever is earlier (subject to few exceptions) • POT under reverse charge mechanism U/s 68(2) / Rule 2(1)(d) shall be the date of payment and where payment for service is not made within period of 6 months of date of invoice, POT shall be determined as per General Rule - 3 (Rule 7)

POT–Transaction with Associated Enterprises (Rule 7) • In case where service provider is located outside India and is an associated enterprise of service recipient, POT will be earlier of (Proviso to Rule 7): • Date of payment • Date of debit in books of account of person liable to pay tax • This Proviso does not apply to an Indian service provider providing service to associated enterprise located in or outside India • ‘Associated Enterprise’ has the same meaning assigned to it in Section 92A of Income Tax Act, 1961 (Section 65(7b) of Act)

POT – General Rule (Rule 3) • In general, POT would be earlier of [Rule 3]: • Date of issue of invoice – where invoice is issued within 30 days from completion of service • Date of completion of service – where invoice is not issued within 30 days from completion of service • Date of receipt of consideration (including receipt of advance) • Continuous supply of service falls under General Rule w.e.f. 01.04.2012

POT – General Rule (Rule 3) • Where service provider receives a payment up to Rs. 1,000/- in excess of the amount indicated in the invoice, POT for such excess amount, at the option of the service provider, shall be earlier of: • date of issue of invoice, or • date of completion of service, where invoice not issued within 30 days • Amendment vide Notification No 37/2012-ST dated 20.06.2012 • Where service provider opting receipt as POTR in respect of an amount of Rs. 1,000/- in excess of the amount indicated in the invoice, no invoice is required to be issued to such an extent

Meaning of Continuous Supply of Service • Continuous supply of service would mean [Rule 2(c) of POTR]: • Services provided/agreed to be provided continuously, or recurrent basis, • Under a contract • for a period exceeding 3 months • With the obligation for payment periodically or from time to time • Any service notified as continuous supply of service • Notification No. 38/2012-ST dated 20.06.2012 notifies following services as “continuous service”: • Telecommunication Service • Service portion of Works Contract • Date of completion of continuous service would be completion of an event which requires service receiver to make payment as per contract.

Circular Explaining General Rule • TRU Circular No.F.No.341/34/2010-TRU dated 31.03.2011 explaining applicability of POTR in regular cases:

POT – New Services (Rule 5) • New services (other than continuous service), not liable to tax if (Rule 5): • Invoice raised and payment received before effective date; or • Payment received before effective date and invoice raised within 30 days from effective date • ‘Effective date’ would mean notified date on which Services become taxable • Consider following example: • Hotel Accommodation Service is taxable w.e.f. 01.05.2011. • Hotel opts for POT from inception (i.e. 01.05.2011) • A person stays in hotel from 16.04.2011 to 10.05.2011 • Hotel makes bill / guest makes payment on check out (i.e. 10.05.2011) • In terms of above Rule, service tax is payable on entire billing though the service was not taxable for the period 16.04.2011 to 30.04.2011

Payment of Service Tax – Sec 68 and Rule 6 • Service Tax shall be paid immediately after the end of month/quarter: • By the 6th of the subsequent month, if the same is deposited electronically through internet • By the 5th of the subsequent month, in any other case • For quarter ending in March service tax is to be deposited by the 31st day of March • 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. • Where an assessee has paid a total service tax of rupees 10 lakhs or more including utilization of CENVAT Credit, in preceding financial year, he shall deposit the service tax electronically, through internet.

Payment of Service Tax – Sec 68 and Rule 6 • The date of presentation of cheque to the bank shall be deemed to be the date of service tax payment. • Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract, the assessee may take the credit of such excess service tax paid by him, if the assessee,— • has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or • has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.

Payment of Service Tax – Sec 68 and Rule 6 • Asessee may adjust excess payment of service tax against his service tax liability for the succeeding month / quarter and the excess amount paid is on account of reasons not involving interpretation of law, taxability, valuation or applicability of any exemption notification. • In respect of service of renting of immovable property any excess payment of service tax for a month or quarter, on account of non-availment of deduction of property tax paid in terms of Notification No. 29/2012-Service Tax , the assessee may adjust such excess amount paid within one year from the date of payment of such property tax and the details of such adjustment shall be intimated to the Superintendent within a period of fifteen days from the date of such adjustment. • Assessee may pay service tax in advance against his liability for the subsequent period provided: • He intimates to Superintendent within 15 days from the date of payment • Indicate details of advance payment and its adjustment in the subsequent return

Rates of Interest

Penalty Failure to Pay ST and Suppressing Value of ST

Registration (Sec.69 and Rule 4) • Every person liable for paying the service tax shall make an application in Form ST-1 for registration within a period of 30 days from the date on which the service tax is levied. • Where a person commences the business after such service has been levied, he shall make an application for registration within a period of 30 days from the date of such commencement. • Every small scale service provider are required to obtain registration at the moment the aggregate value of taxable service in a financial year exceeds Rs. 9 Lakhs. • If the same assessee provides more than one category of taxable service, he may apply for single registration for all the taxable service. Single application mentioning therein all the taxable services provided shall be sufficient.

Multiple / Centralised Registration [Rule 4(2)] • Separate application has to be made for registration of each premises from which taxable services are rendered. • Even within single premises, if there are multiple firms, all of them have to be separately registered. • Also, if an individual carries on the activity in two different names under sole proprietorship, both the proprietary concerns have to get separately registered. • Where person liable to pay service tax from more than one premises and has a centralized billing systems or centralized accounting systems and such centralized billing systems or centralized accounting systems are located in one or more premises he may, at his option, register such premises or office where such centralized billing systems or centralized accounting systems are located.

Changes in Registration Certificate • Where there is a change in any information or details furnished by an assessee in form ST-1 at the time of obtaining registration or he intends to furnish any additional information or details than assessee has to mandatorily intimate such change to the Central Excise Officer within 30 days of the said change.[Rule 4(5A)] • The new registration is required when there is a change in the constitution of business as the Service Tax Registration Certificate is not transferable. • When a registered assessee transfers his business to another person than transferor shall surrender the registration certificate and the transferee shall obtain a fresh certificate of registration. [Rule 4(6)]

Procedure to be Followed for Online Service Tax Registration • After registering with Aces, Fill in the form ST-1 given on site. After filling the same, take a print out of ST-1 form and then submit the form and take the print out of E acknowledgement receipt. • Within 15 days of such, submit the print outs along with all other documents to the relevant department. • Failing to submit this within time lead to rejection of the application itself. • After department receives the documents, it processes the application and a new registration certificate (Form ST-2) is send via email. • Take the print out of form ST-2 and get the stamp and signature from the jurisdictional Superintendent.

Step vise Online Registration Procedure

Documents to be Attached All the following documents including ST-1 shall be Self certified. • Attested Copy of the PAN Card • Proof of Address of the premises, which is required to be registered • Copy of the Document governing the constitution of the organization (partnership deed in case of a partnership firm, Memorandum of Association in case of a company, Trust Deed in case of a trusts or associations, etc.) • Power of Attorney on stamp paper in case the documents are signed by an authorized representative/ Director of the company/ Partner of Firm.

Documents to be Attached • In respect of Centralised registration following additional documents or details are also require 5. Previous year’s audited balance sheet, if any. 6. Address proof of all the Directors of a company 7. Attested copy of TAN Nos. • In respect of registration of input service distributor, address of all the premises to which credit of input services is distributed or intended to be distributed along with attested copy of proof of address of all such premises to be attached.

Penal Liability for Failure to Obtain Service Tax Registration [Sec. 77(1)(a)]

Cancellation/Surrender of Registration Certificate [Rule 4(7) & 4(8)] • Every registered assessee, who ceases to provide the taxable service for which he is registered, shall surrender his registration certificate immediately with concerned Superintendent of Central Excise. Certificate has to be surrender online by filing the forms available at WWW.ACES.GOV.IN. Following is the process for surrender of ST2 a. Fill in the form given online for surrender of registration certificate. After filling in the same, take a print of the form and then submit form online. Along with print out of Surrender form ST2 E acknowledgement of successful submission of the same shall be submitted to jurisdictional Superintendent along with following further documents.

Cancellation/Surrender of Registration Certificate [Rule 4(7) & 4(8)] b. declaration form. c. Original ST-2 certificate d. Latest Income Tax return for three years e. Latest copy of ST-3 return • After receiving the aforesaid documents and after ensuring that assessee has paid all monies due to government, concerned Superintendent of Central Excise shall cancel the registration.

Issue Of Invoice/Bill/Challan/Consignment Note [rule 4A & 4B] • Service provider of taxable service shall issue Invoice within 30days from date of completion such taxable services or receipt of payment towards the value of such taxable service, whichever is earlier. • In case of continuous supply of service, every person providing such taxable service shall issue an invoice, bill or challan, as the case may be, within 30 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed. • The invoice, bill or, as the case may be, challan issued by service provider of taxable service shall be serially numbered and shall contain the following, namely:-

Issue Of Invoice/Bill/Challan/Consignment Note [rule 4A & 4B] • The name, address and the registration number of such person; • The name and address of the person receiving such taxable service; • Description and value of taxable service provided or to be provided; and • The service tax payable thereon. • The invoice issued shall be sign by authorised person. Service tax, Education cess and Secondary and higher education cess shall also be shown separately on the invoice. • BANKING & OTHER FINANCIAL SERVICES: Invoice, a bill or, as the case may be, should be issued within 45 days. Invoice/bill/challan issued by banking company, Financial institution including NBFC is not require to be serially numbered and address of the person receiving the taxable service, but it should contain other information.

Returns [Section 70 & Rule 7] Returns have to be filed in Form ST-3 in triplicate on half yearly basis by the 25th of the month following the particular half-year. • DUE DATES FOR FILING OF SERVICE TAX RETURN • DATES FOR FILING OF ISD RETURN • Every assessee shall submit the half-yearly return electronically.

Step Wise Online Return Submission Process Upload the XML file generated Logs in to the site using user Id an password

Revise Return [Rule 7B] • Assessee is allowed to rectify mistakes or omission and file revised return including CENVAT credit return within 90 days from the date of filing of the original return.

Workshop for Accountants Overview of Service Tax