Basic Concepts - Service Tax and Open Issues
Professional Opportunities
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Chairman of IDT Committee of PHD Chamber of Commerce
Chairman of Corporate Advisory Committee of IPEM Institution
Member of IDT Committee of Assocham/ FICCI
Member of IDT Committee of ICAI
Member of Indirect tax faculties of ICAI/ICSI/ICMA
Authored Book- "Goods and Services Tax –
Introduction and Way forward"
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Constitutional
ConstitutionalStructure
Structureof
ofIndirect
IndirectTax
TaxInInIndia
India
Constitution
Union List
Excise Duty
84
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Service Tax
97
State List
Sales/
Purchase of
Goods
54
Excise Duty
on Liquor
51
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Concurrent List
Octroi
Duty
52
Entertainment
Tax
62
2
Stamp
Duty
63
TAXATION OF SERVICES – NEGATIVE LIST
Services
Taxable under
Negative List
Existing
Taxable
Services
Restoration of Service Specific Accounting codes
for Registration & Payment of Service Tax
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Taxable Event - Service Tax

S. 66 of Finance Act  There shall be levied a tax on the Value of
taxable services referred to in various sub-clauses of (105) of S.65
and collected in such manner as may be prescribed
 S. 65(105) Any Service provided or to be provided (16-6-2005)
 S. 65B (51)  Taxable service means any service on which service
tax is leviable under section 66B;
 S. 66B  There shall be levied a tax at the rate of 14% on the
value of all services, other than those services specified in the
negative list, provided or agreed to be provided in the taxable
territory by one person to another and collected in such manner
as may be prescribed
 Association of Leasing & Financial Service Companies vs. UOI 2010
(20) STR 417 SC  Taxable Event  Rendering of Service
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Definition of Service

S. 65B (44)  “Service" means Any Activity carried out by a Person for
another for Consideration, and includes a Declared service, but shall not
include—
(a) an activity which constitutes merely,(i) 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
sale within Article 366 (29A) of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of
or in relation to his employment; - Employer-Employee / Secondment/ Jt
Employment/ Director
(c) fees taken in any Court or Tribunal established under any law for the
time being in force.
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Declared Services –S 66E
9 Activities declared to be Service:
•
Renting of Immovable Property (Entry 49 – List II)
b. Construction of a complex, building, civil structure for which consideration received
before issuance of completion certificate (Entry 49)
•
Temporary Transfer/Permitting Use or Enjoyment of Intellectual Property Rights {IPR 10/9/2004}
•
Development, Design, Implementation etc. of Information Technology Software {IT
Software Services – 16/5/2008}
•
Agreeing to the obligation or to refrain from an act, or to tolerate an act or a situation,
or to do an act;
•
Transfer of goods by way of hiring/ leasing/ licensing without transfer of right to use
such goods {16/5/2008}
•
Activity in relation to delivery of goods on hire purchase/ any system of payment by
instalments
h. Service portion in the execution of a works contract {A -366 (29A)}
•
Service portion in an activity involving supply of food/drinks/article of human
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consumption {A -366 (29A)}
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Definition of Service




Explanation 1.— Nothing contained in this clause shall apply to functions
performed by MP, MLA, Other Govt. Officers or Govt. Bodies…
Explanation 2.- For the purposes of this clause, transaction in money shall
not include any activity relating to the use of money or its conversion by
cash or by any other mode, from one form, currency or denomination, to
another form, currency or denomination for which a separate consideration
is charged….
Explanation 3.- For the purposes of this Chapter,(a) an unincorporated association or a body of persons, as the case may be,
and a member thereof shall be treated as distinct persons;
(b) 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;
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TAXATION OF SERVICES – NEGATIVE LIST
Service
Services Under Negative List
Services under Exempted List
Other Exemptions/Abatements
All remaining Services to be taxable under
the Negative List Approach
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Obligation & POT
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POT - General Rule 3

POT, the earliest of the following:
- Date of Receipt of Money (Advance)
- When Invoice is issued within 30 days from Date of Completion
of Service Date of Invoice
- When Invoice is not issued within 30 days from Date of
Completion of Service Date of Completion of Service

Rule 4A of STR – Invoice to be issued within 30 or 45 days in case of
banks and FIs, (14) days from the Date of completion of service or
Date of Receipt of payments towards the value of such taxable
service, whichever is earlier
Rule 4A of STR - proviso inserted - Invoice not required to be issued
if amount received is upto Rs. 1,000 in excess o f the amount
indicated in the Invoice.

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Rule 7 of POT Rules
• Rule 7 starts with non-obstante clause:
“Notwithstanding anything contained in rules 3, 4,
or 8”
• POT under Reverse Charge (Except Associated
Enterprises located outside India):
Payment made within 3 months from date of
invoice – Date of payment;
Payment not made within 3 months from date of
invoice - Date immediately following the end of 3
months
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Rule 7 of POT Rules – Contd….
• In case of Associated enterprises, where the person
providing the service is located outside India:
• POT shall be earlier of the following:
Date of debit in the books of account of SR;
Date of Payment
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SR liability Paid by SP -?

Service Tax - Reverse Charge liability paid by Service Provider,
should be demanded again from Service Recipient?

Umasons Auto Compo Pvt. Ltd. Vs. Commissioner of Central Excise
& Customs, Aurangabad [2014 - TIOL – 126 – CESTAT - MUM]

Once the amount of Service Tax is accepted by the Revenue from
the provider of GTA service, it cannot be demanded again from
the recipient of the GTA service
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Service – Service Tax
 Activity – Economic
 Person – 65B (37)  Service Provider – Service Recipient
 Consideration – S. 67/ Reimbursement of Expenses
• Monetary – Free Gift/ Charities/ Grant
• Non-Monetary: Kind
• Barter
• Advance – Services / Goods
• Deposit - Refundable/ Non- refundable
• Demurrage/ Accidental Damage – Penalty
• Late Payment - Interest
• Short received – Deficiency of Services
• Bad Debts
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Interest on delayed payment of ST, Excise & Customs
Tax/Duty
Service tax
(S 75 of FA,
1994)
Excise Duty
(S 11AA of
CEA, 1944)
Customs
(S 28AA of CA,
1962)
Rate of Interest on delayed
payment (Per Annum)
a. Any
amount 24%
collected as Service
Tax
but
not
deposited
15%
b. Others
15%
15%
Notification No.
Effective
from
Notification No.
13/2016-ST dated
01.03.2016
Enactment of
FB, 2016
Notification No.
15/2016-CE(NT) dated
01.03.2016
01.04.2016
Notification No.
01.04.2016
33/2016-Cus(NT) dated
01.03.2016
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Open Queries…..
 Rate of Interest on delayed payment of ST for the period prior to
enactment of Finance Bill, 2016 – JS TRU Letter. D.O.F. No.
334/15/2014-TRU, dated July 10, 2014
E.G. Assessee pays the dues of 6th July, 2015 on 6th December,
2016.
 When 15%/ 24% would be applicable
 What is meaning of amount collected as ST but not deposited –
Cum Tax Value S. 67(2) of Finance Act, 1994
 What rate of Interest applicable for part collection of
consideration along with ST but not received full payment and
liability to be paid on accrual basis
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Penalty
 Penalty for Delayed Payment of Service Tax [Non-Fraud Cases] –
S. 76 : a Penalty not exceeding 10% of Service Tax provided
-
No Penalty if ST + Interest paid within 30days from SCN
2.5% of ST Amount if ST+ Interest paid within 30 days from
OIO
 Penalty for Contravention of Provisions & Rules there of – S. 77 Maximum Rs. 10K
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Penalty
 Penalty for Fraud cases: Equal to ST amount Subject to:
-
Where True & Complete details recorded in books from
8/4/2011 to 14/5/2015 – Penalty of 50% of ST Amount
15% Penalty if ST + Interest paid within 30 Days of SCN
25% Penalty if ST + Interest paid within 30 days of OIO
o Penalty U/S 76 & 78 are mutually exclusive
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Proviso inserted in Rule 7
• Notification No. 21/2016-ST dated 30.03.2016
• Where there is change in the liability or extent of
liability of ST to be paid under Reverse Charge –
 Service has been provided and the invoice issued
before the date of such change, but payment has not
been made as on such date, the POT shall be  the
date of issuance of invoice.
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Practical Illustrations
 New levy ‘Krishi Kalyan Cess’ (“KKC”) applicable
from 01.06.2016 @ 0.5% on value of all taxable
service (i.e. from 14.5% to 15%).
 Let us understand applicability of KKC in the light
of amendment made in Rule 7 of the POT Rules
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Erstwhile Rule 7 Vs. Amended Rule 7
Date of
service
Date of invoice
Date of
Applicability of KKC
(DOI)
payment (DOP)
As per
erstwhile
Rule 7
20.05.2016
25.05.2016
04.06.2016
POT shall be DOP:
KKC applicable
As per
amended
Rule 7
20.05.2016
25.05.2016
04.06.2016
POT shall be DOI:
KKC not applicable
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Service Provider Vs. Service Receiver
Date of
service
Date of
invoice (DOI)
Date of
payment
(DOP)
Applicable Applicability of
Rule
KKC
Liability of SP
under forward
charge
20.05.2016
25.05.2016
04.06.2016
Rule 5(a) of KKC applicable
POT Rules
Liability of SR
under reverse
charge
20.05.2016
25.05.2016
04.06.2016
Rule 7 of
POT Rules
POT shall be
DOI: KKC not
applicable
No changes made in Rule 3 or Rule 5 of POT Rules: Liability is more in the hands of SP as
compared to SR
Taxable event under Service tax is the rendition of service - Association of Leasing &
Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)]
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Imprisonment & Power to Arrest
Imprisonment Provisions [S.89] - Threshold Monetary
Limit increased from Rs. 50 Lakh to Rs. 2 Crore
Power to Arrest – Non Bailable Offence – Service Tax
collected but not deposited - Threshold Monetary Limit
increased from Rs. 50 Lakh to Rs. 2 Crore
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Period of Limitation for Non-Fraud Cases
ST, Excise & Customs
Tax/Duty
Service Tax
(S. 73 of FA, 1994)
Relevant
Period for issuing SCN
Proposed Clause of
Prescribed time
time period FB, 2016
period
30 mths
Cl. 149
18 mths (w.e.f
28.05.2012)
Excise Duty
(S. 11A of CEA,
1944)
1 Yr
2 Yr
Cl. 140
Customs
(S. 28 of CA, 1962)
1 Yr
2 Yr
Cl. 117
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Effective from
Enactment of FB,
2016
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Whether it is justified…..
 Automation and compulsory e-filing of returns – CE/ ST
 Revamp in the Service Tax Commissionerates and also more
positions have been created
 Detrimental to Ease of doing business initiative
 Giving unwanted contradictory message of lethargic system to
the start up entrepreneurs and outside World
 Citizen Charter - Transparent – Accountability & Responsibility of
Govt. Dept.
 Period before/ after enactment of FB, 2016
 Period of Refund – S. 11B – 1 Yr
 Restriction on Availment of Cenvat credit on Inputs/ Input
Services – Now, on CG used exclusively for 2 Yrs for exempted
goods and exempted Services
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Changes with respect to ‘Education Sector’
• Omission from Negative List of Services (Section 66D)
• (l) services by way of(i) pre-school education and education up to higher
secondary school or equivalent;
(ii) education as a part of a curriculum for obtaining a
qualification recognised by any law for the time being in
force;
(iii) education as a part of an approved vocational
education course;
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Entry 9 of Mega Exemption...
9. Services provided,(a) by an educational institution to its students, faculty and
staff;
(b)to an educational institution, by way of,(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme
sponsored by the Government;
(iii) security or cleaning or house-keeping services
performed in such educational institution;
(iv) services relating to admission to, or conduct of
examination by, such institution;
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Services relating to Stage Carriage – S. 66D(O)(i)
(o)
service of transportation of passengers, with or
without accompanied belongings, by(i) a stage carriage;
(ii) to (vi)……
• Services by a non air-conditioned stage carriages would still
not entail the levy of Service Tax, as the same has been
exempted by amending Entry 23(bb) of Mega Exemption
Notification No. 25/2012-ST.
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Contd…
• Further, changes are also made in Sl. No. 9A of the abatement
notification no. 26/2012-ST to provide abatement on services
provided by stage carriage (w.e.f. 01.06.2016)
Sl.
No.
9A
Description of Taxable Service
Transport of passengers, with or
without accompanied belongings, bya. a contract carriage other than
motorcab.
b. a radio taxi.
c. a stage carriage
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Percent
age
40
Conditions
CENVAT credit on inputs, capital
goods and input services, used
for providing the taxable service,
has not been taken under the
provisionsof the CENVAT Credit
Rules, 2004
29
Service of transportation of goods by Aircraft /
Vessel
• Omission from Negative List of Services (Section 66D)
(p) services by way of transportation of goods
(i)….
(ii) by an aircraft or a vessel from a place outside India up to the customs
station of clearance; or
(iii)….
However, the services by an air-craft would still not entail the levy of Service
Tax, as the same has been exempted by inserting a new entry 53 under the
Mega Exemption Notification which reads as under:
• New Entry 53 inserted in Mega Exemption Notification No. 25/2012-ST
(w.e.f. 1st June 2016)
• 53. Services by way of transportation of goods by an aircraft from a place
outside India upto the customs station of clearance in India.
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Retrospective Amendment
S. 101 of FB, 2016  Entry 12(d) of ME NN. 25/2012-ST:
Exemption allowed for Services provided by way of
Construction, etc. of canal, dam or other irrigation
works to Governmental Authority for the period 1-72012 to 29-01-2014
Change in definition of Governmental Authority
Refund of ST, if paid during the period, to be filed within
6 months from enactment of FB, 2016
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Retrospective Amendment
 S. 102 of FB, 2016  Entry 12 of ME NN. 25/2012-ST: Exemption
withdrawn is restored w.e.f 1-4-2015 for Services (Construction,
Erection, etc.) provided to Govt./ Local Authority/ Governmental
Authority
- Civil Structure/ Original Works for use other than Business
- Structure meant for Education, clinical, Art or Cultural
- Residential complex for self use or use of employees
 Contract entered prior to 01-03-2015 and Stamp Duty, as
applicable, paid prior to 01-03-2015
 Continue to be exempted till 31-03-2020 and Refund of ST, if paid
during the period, to be filed within 6 months from enactment of
FB, 2016
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Retrospective Amendment
 S. 103 of FB, 2016  Entry 14 of ME NN. 25/2012-ST: Exemption
withdrawn is restored w.e.f 1-4-2015 for Services provided by
way of construction, erection, commissioning, installation of
- Original Works for Airport/ Port
 Contract entered prior to 01-03-2015 and Stamp Duty, as
applicable, paid prior to 01-03-2015, subject to production of
Certificate by Ministry of Civil Aviation or Shipping
 Continue to be exempted till 31-03-2020 and Refund of ST, if paid
during the period, to be filed within 6 months from enactment of
FB, 2016
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Section 66D - Any services provided by Government
or Local Authority to a Business Entity
“66D. The negative list shall comprise of following services,:–
(a) Services by Government or a Local authority excluding the
following services to the extent they are not covered elsewhere(i) Services by the Department of Posts by way of speed post,
express parcel post, life insurance and agency services provided
to a person other than Government;
(ii) Services in relation to an aircraft or a vessel, inside or outside the
precincts of a port or an airport;
(iii) Transport of goods or passengers; or
(iv) Any Service other than services covered under clauses (i) to (iii)
above, provided to business entities;”
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Amendment in the Mega Exemption Notification to exempt
certain Governmental services
Entry No.
Particulars of Exemption
Exemption Amended
Services by Government, a Local authority or Governmental authority by way of
any activity in relation to any function entrusted to a municipality under article
243 W of the Constitution
39
New Exemptions provided for services provided by Government or a local authority
54
to another Government or local authority except services specified in subclauses (i),(ii) and (iii) of Section 66D(a) of FA, 1994
55
issuance of passport, visa, driving licence, birth certificate or death certificate
56
where the gross amount charged for such services does not exceed Rs. 5000/-,
except for services specified in sub-clauses (i), (ii) and (iii) of Section 66D(a) of
FA, 1994.
Continuous supply of service  gross amount charged should not exceed Rs.
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5000/- in a FY
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Amendment in the Mega Exemption Notification Cont….
Entry
No.
Particulars of Exemption
New Exemptions provided for services provided by Government or a local
authority
57
tolerating non-performance of a contract - consideration in form of fines/
liquidated damages is payable
58
(a) registration required under any law for the time being in force;
(b) testing, calibration, safety check or certification relating to protection
or safety of workers, consumers or public at large, required under any law
for the time being in force
59
assignment of right to use natural resources to an individual farmer for
the purposes of agriculture
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Amendment in the Mega Exemption Notification Cont….
Entry
No.
Particulars of Exemption
New Exemptions provided for services provided by Government or a local
authority
60
any activity in relation to any function entrusted to a Panchayat under
Article 243G of the Constitution
61
assignment of right to use any natural resource where such right was
assigned before 01.04.2016
62
to operate as a telecom service provider or use radio frequency
spectrum during FY 2015-16
63
deputing officers after office hours or on holidays for inspection or
container stuffing or such other duties in relation to import export cargo
on payment of MOT
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Issues in CCR, 2004
 Rule 2(k)
 All goods used for generation of electricity or steam or pumping
of water for captive use;
 All capital goods having value up to Rs. 10,000 per piece
 Full CC in Yr of Purchase and Depreciation
 Rule 3(4) - Proviso amended/ inserted:
 Cenvat credit not to be used for payment of Infrastructure Cess
[Motor Vehicles – 8703]
 What happen for motor vehicles returned to factory for remade,
refined and reconditioning U/R 16 of CER, 2002?
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Rule 6 of CCR, 2004
 Rule 6: Rationalized and Simplified
 Explanation 3 & 4  Exempted Service includes an
activity which is not Service U/S 65B(44) of Finance
Act – Alarming
 Rule 6(4): No CC on CG used exclusively for EG/ES for
2 Yrs from date of production or provision of service
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Rule 7 of CCR, 2004

Distribution of Cenvat Credit by Input Service
Distributor (“ISD”)
ISD can distribute Credit to it’s manufacturing units,
Units providing taxable output Services or Outsourced
manufacturing unit – means
• Job-worker paying duty under 10A of Central Excise
Valuation (Determination of Price of Excisable Goods)
Rules, 2000; or
• Contract manufacturer, paying under Section 4A of the
Central Excise Act, 1944;
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Professional Opportunities for CS

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4/19/2016
Advise and Consulting
Registration
Interactions with the Dept.
Hand Holding: Payment of Taxes/ Preparation of
Return
Return filing
Pre- Audit/ Diagnostic Review/ Health Check
Effect of Budgetary Changes – Business Model
Litigation
Audit Assistance – Internal/ External
Investigation & Enquiry
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Thank You!
A2Z Taxcorp LLP
Flat No. 34B, Ground Floor, Pocket -1,
Mayur Vihar, Phase–I,
Delhi – 110091 India
Desktel:+91-11-22757595/ 42427056
Mobile:+91 9810604563
bimaljain@a2ztaxcorp.com
www.a2ztaxcorp.com
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