SERVICE TAX
We are taking following portion of the syllabus regarding Service tax
3. VALUATION OF TAXABLE SERVICES
After identifying the taxable service, one has to determine their value to pay service tax as
section 66, the charging section, provides that service tax is chargeable on the value of taxable
service. Section 67 provides for the valuation of taxable services.
3.1 VALUATION OF TAXABLE SERVICES FOR CHARGING SERVICE TAX [SECTION 67]
Prior to 18.04.2006,section 67 only provided that service tax shall be payable on gross amount
charged by the service provider for the taxable services provided or to be provided.
However, with effect from 18.04.2006 Finance Act, 2006 has introduced detailed provisions for
valuation. New section 67 enables valuation in cases where the consideration for the service
provided is not in terms of money. Further, Service Tax (Determination of Value) Rules, 2006
have also been notified with effect from 19.04.2006.
The provisions of section 67 are discussed below:
(1) If the consideration for a taxable service is in terms of money, the value of such service shall
be the gross amount charged by the service provider for such service provided or to be provided
by him.
Example: If a chartered accountant charges Rs.50,000 as audit fee from its client, the value of
the taxable service rendered by the chartered accountant will be Rs.50,000 and service tax shall
be payable on this amount.
(2) If the consideration for a taxable service is not wholly or partly in terms of money, then the
value of such service shall be such amount in money, with the addition of service tax charged, is
equivalent to the consideration.
In other words, where the service rendered is for a consideration not wholly or partly consisting
of money, the value of the taxable service is equivalent to the total value of the consideration.
However, the total of such money and non-money value of the consideration has to be treated
as inclusive the service tax payable thereon.
Example: Mr. X, a company secretary provides taxable professional services to one of its
clients. In lieu of rendering such services, Mr. X charges Rs.10,000 in lump sum from its client
and also asks its client to give him a Law book worth Rs.2,360. The total consideration in this
case will be Rs.12,360 and the value of the taxable service shall be Rs.11,000 (12366 x 100 /
100 + 12.36) and Rs.1,360 shall be the service tax payable.
(3) If the consideration for a taxable service is not ascertainable, the value of such service shall
be the amount as may be determined in the prescribed manner.
(4) Consideration includes any amount that is payable for the taxable services provided or to be
provided. Thus, an advance received for providing any taxable service shall also form part of the
consideration.
Example: Mr. A, an architect receives an advance of Rs.1,000 for providing architectural
services. He gets Rs.6,000 on completion of provision of such services. The consideration in this
case would be Rs.7000, i.e. it would include the amount that is payable for the taxable service to
be provided and taxable service provided.
(5) Where the gross amount charged by a service provider, for the service provided or to be
provided is inclusive of service tax payable, the value of such taxable service shall be such
amount as, with the addition of tax payable, is equal to the gross amount charged.
Example : Mr. B, a management consultant charges a lump sum amount of Rs.12,360 as
professional fee for rendering taxable services (i.e., he does not charge service tax separately).
The value of taxable service in this case would not be Rs.12,360 but Rs.11,000 and Rs.1,360
shall be the service tax payable.
(6) The gross amount charged for the taxable service shall include any amount received towards
the taxable service before, during or after the provision of such service. Thus, not even advance
but any other amount recovered after the completion of provision of service shall form part of
the gross amount charged for the taxable service.
For example, ABC Co., a security agency receives Rs.10,000 as advance while signing a contact
for providing taxable service. It receives Rs.50,000 while providing the service and another
Rs.20,000 after completion of service. Thus, value of taxable service shall be Rs.80,000 and
service tax shall be payable on it.
(7) Subject to the provisions mentioned in points (1), (2), (3), (5) and (6) above, the value of a
taxable service shall be determined in such manner as may be prescribed.
(8) Money includes any currency, cheque, promissory note, letter of credit, draft, pay order,
travellers cheque, money order, postal remittance and other similar instruments but does not
include currency that is held for its numismatic value.
(9) .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. “Associated
enterprise” has the meaning assigned to it in section 92A of the Income tax Act, 1961..
END
Self-examination questions
1. Which section governs the valuation of taxable services?
(a) section 65 of the Finance Act, 1994
(b) section 67 of the Service Tax Act, 1994
(c) section 67 of the Finance Act, 1994
(d) none of the above
2. Money for the purpose of valuation of taxable service includes:
(a) promissory note
(b) cheque
(c) postal remittance
(d) all of the above
3. Gross amount charged for the taxable service includes:
(a) only the amount received before the provision of taxable service
(b) any amount received before, during or after the provision of taxable service
(c) only the amount received during the provision of taxable service
(d) only the amount received after the provision of taxable service
4. How will a taxable service be valued when the consideration thereof is not in wholly or partly
in terms of money?
5. How will a taxable service be valued when the gross amount charged for it includes service
tax payable?
Answers
1.(c); 2.(d); 3.(b)