WHY SERVICE TAX
• International Trend
• Services catching attention
• Indian GDP has 54% coming from
services
• Commodities groaning under tax burden
• Milking services yields large Revenue
SERVICE TAX & CONSTITUTION
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Service not defined
Article 246 read with Union List
Residual entry no 97
New entry no 92 – C covers taxes on
services
• Constitution amendment in 2003
SOME UNIQUE ASPECTS OF
SERVICE TAX
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Tax payable only on payments received
Self adjustment of excess tax
Centralized Registration
Cenvat Credit across goods and services
Bi – Annual Returns
SERVICE TAX LEGAL
FRAMEWORK
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Finance Act 1994 as amended
Service Tax Rules 1994
Service Tax Valuation Rules 2006
Cenvat Credit Rules 2004
Export of Services Rules 2005
CONTD.
• Import of Services Rules 2006
• Service Tax Advance Rulings Rules 2003
• Registration of special category of persons
Rules 2005
• The Works Contract Rules 2007
REGISTRATION
• Threshold limit of Rs 10 lacs
• Tax not payable till payments received
cross 9 lacs , with reference to previous
year
• Single Registration for all services
• Centralized Registration
IMPORTANT FORMS
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ST – I application for Regn
ST – 2 Regn certificate
ST – 3 Return
ST-3A Provisional assessment
ST – 4 Appeal to commissioner ( Appeals)
CONTD.
• ST 5 Appeal to CESTAT
• ST 6 Memorandum of Cross Objection
RULES OF CLASSIFICATION
• Specific definition preferred
• Test of essential character for composite
services
• Service brought into the tax net earlier
than the other
VALUATION
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New section 67
Value should be fullest consideration
Otherwise Valuation Rules to apply
Comparison with similar service
Finding out cost of provision of service
CONTD.
• Provision for rejection of value by
Departmental Officers
• SCN & PH necessary
• Speaking order
• Rule 5 and the concept of pure agent
• Expenditure of pure agent excluded
CONDITIONS FOR PURE AGENT
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Service provider as the pure agent
Of the recipient of the service
Payments to third party by agent
Recipient to receive and use the goods
and services procured by the agent
• Recipient to be liable to pay third party
CONTD.
• Recipient authorizes service provider to
make payment to third party
• Recipient has knowledge of transactions
with third party – supply and payment
• Agent’s payments to be invoiced
separately on recipient
CONTD.
• Invoicing of recipient in this should be at
actual
• Service provided as agent should be in
addition to own services being provided
• Agency contract essential
• Agent not to use the goods and services
procured and provided
CONTD.
• Agent should not hold any title to the
goods and services so provided
• Should receive only actual payments to
the extent of costs incurred
Problem areas in service tax
valuation
• Deduction of cost of reimbursable
expenses
• Exclusion of the cost of value of materials
consumed in providing service
• Interpretation of the notification no
12/2003 dated 20-6-2003
• Case studies :
• Photography service and Tyre retreading
Continued----• Cum – Tax Value
• Commissioner of service tax, Bangalore
Vs Prompt and Smart security – 2008 ( 9 )
STR ( Tribunal- Bangalore )
• Malabar Management services Vs
Commissioner of service tax, chennai 2008 ( 9 ) STR ( Tri- Chennai )
Continued---• Excludability of the cost of materials in the
assessable value in the operation of power
plants
• CMS ( India ) Operations & Maintenance
co pvt ltd Vs Commissioner – 2007 ( 7 )
STR 369 ( TRI)
• Covanta Samalpatti operating co pvt Ltd2008 ( 10 ) STR 133 ( Tri )
Case studies on certain problem
services
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Consulting Engineer service :
Technology transfer and royalty payments
Indivisible contracts
Ratio of the Daelim case
Goods Transport Agency service
Works contract service
Continued----• Management , maintenance and repair
service:
• Maintenance of computer software
• Renting out of immovable property service
• Residential construction service
Service tax credit
• Capital goods used for providing output
service
• It includes motor vehicles registered in the
name of service provider, namely:
• Courier agency
• Tour operator
• Rent a Cab scheme operator
• Cargo handling agency
continued
• Goods transport agency
• Outdoor caterer
• Pandal and shamiyana contractor ( caterer
)
continued
• INPUTS:
• All goods except light diesel oil, HSD and
petrol, used for providing output service
• Or used in or in relation to the
manufacture of final products or any other
purpose, within the factory of production
continued
• INPUT SERVICE
• Any service -------• Used by a provider of taxable service for
providing an output service, or
• Used by a manufacturer, whether directly
or indirectly, in or in relation to the
manufacture of final products and
clearance of final products upto the place
of removal
continued
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And includes services used in relation to--Setting up
Modernization
Renovation
Repairs --Of a factory,
Premises of service provider
continued
• Or an office relating to such factory or
premises,
• Advertisement
• Sales promotion
• Market research
• Storage upto the place of removal
• Procurement of inputs
continued
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Activities relating to business such as ---Accounting
Auditing
Financing
Recruitment and quality control
Coaching and training
Computer networking
continued
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Credit rating
Share registry
Security
Inward transportation of inputs or capital
goods
• Outward transportation upto the place of
removal
Export of services
• Exempt , subject to conditions
• Services in relation to immovable property
• Services partly performed in India and
partly abroad
• Services in relation to business or
commerce abroad, where the recipient of
the services is located abroad and in case
continued
• Such recipient has commercial
establishment or an office in India, the
order for such service is made from any of
his office or commercial establishment
abroad.
• All services are to be provided from India
and used outside India
• Payment in convertible foreign exchange
Import of services
• Services criteria same as for export of
services
• Reverse charge
• Imported services not to be treated as
output services
• Implications of the above
Service tax refund/ rebate
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Self adjustment
Section 11B cash refund
Refund under Rule 5 of CCR 2004
Rebate under form ASTR 1
Rebate under form ASTR 2
Bar of unjust enrichment
continued
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Refund claim through credit notes
Case laws:
Mafatlal Industries Vs union of India
L&T sargeant Lundy Ltd vs CCE,
Vadodara
Important procedures in service tax
law
• Provisional assessment and interest
liability
• Input service distributor
• Advance payment and self adjustment
• Payment of amount in lieu of service tax in
works contract service