SERVICE TAX -
VALUATION, ABATEMENT
COMPOSITION SCHEME,
TAXABLE TERROTORY, PLACE
OF PROVSION OF SERVICE
By
Advocate Bharat Raichandani
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS
NEW REGIME
NEED FOR CHANGE?
 Facilitate launch of GST in a more familiar environment
 Simplicity and certainty in tax processes
 Neutrality of tax to business
 Encouraging exports
 Optimizing compliances
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PARADIGM SHIFT IN
REGIME
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NEW LEVY
 Section 66B:
There shall be levied a tax at the rate of twelve per
cent 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.
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SERVICE-DEFINED
 Explanation 2:
• Unincorporated association or a body of persons and a
member thereof, to be treated as distinct persons
• Establishment of a person in a taxable territory and a nontaxable territory to be treated as distinct persons
 Explanation 3:
• A person carrying business through a branch or agency in
any territory shall be treated as having an establishment in
that territory.
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IMPORTANT ELEMENTS
 Tax levied on all services,
 Except those specified in negative list,
 Provided or agreed to be provided,
 In the taxable territory, and
 By a person to another
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PHRASE – AGREED TO BE PROVIDED
 Not defined in the Act
 Guidance Note:
• Services taxable on agreement even before
actual provisioning
• Advances retained on cancellation of contract
taxable
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TAXABLE TERRITORY
 Defined as “the territory to which the Act
applies”.
 Section 64 : The Act extends to whole of India
except State of Jammu & Kashmir
 Jammu & Kashmir considered as non-taxable
territory
 ‘India’ defined.
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SERVICE-DEFINED
 Section 65B(44) defines ‘Service’ as:
• any activity carried out by a person for another for
consideration
 And includes Declared Services
 Not to include:
• Mere Transfer of title in:
o Goods or Immovable property
By way of sale/gift or in any other manner
• "such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of clause (29A) of
article 366 of the Constitution.“
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SERVICE-DEFINED
Not to include Continued…
• Mere transaction in Money or Actionable claim
• Services in the course of employment provided by an
employee to employer
• Fees payable in a court/ tribunal
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ACTIVITY
 Not defined in the Act
 Guidance Note:
• Meaning as understood in common parlance
should be given
• Activity could be active or passive so to include
act of forbearance etc
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CONSIDERATION
 Not defined in the Act
 Guidance Note:
• Definition of consideration from Indian Contract Act,
1872 could be borrowed
• Anything which the receiver does or abstain from
doing for receiving the service
• Would include both monetary as well as nonmonetary
• Section 67 to determine value of non-monetary
consideration
 Whether direct nexus with activity required?
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WHETHER – CONSIDERATION ?
 Advance forfeited for cancellation of
agreement to provide service
 Excess payment made by mistake
 Security
deposit
forfeited
damages/faulty action of receiver
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VALUATION
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VALUATION : RULE 2A
 W.e.f. July 1, 2012
 Works Contract Service
• Rule 2A substituted
o Value of service = Gross amount charged less
actual value of goods transferred in execution
• Actual value of goods for VAT purposes to be
considered for determining material value
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VALUATION: RULE 2A
 Where value is not determined then:
• Service value shall be computed as :
o Original work – 40% of total amount charged
o Contract for maintenance or repair, renovation or restoration of
any goods – 70%
o Other works – 60%
 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
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VALUATION: RULE 2A
 ‘Total amount’ means:
Gross amount charged
Plus
FMV of all goods and services supplied in or in relation to the contract
whether or not supplied under the same contract
Less
The amount charged for such goods and services, and
Less
VAT or sales tax levied thereon
 Specific bar inserted for availing excise duty
credit in respect of inputs used in works contract
services
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VALUATION : RULE 2C
• W.e.f. July 1, 2012
DESCRIPTION
EARLIER
TAXABLE
VALUE
CURRENT
TAXABLE
VALUE W.E.F.
01.07.2012
Supply of food
and beverages
at restaurant
30%
40%
Outdoor
Catering
50%
60%
• Value to be determined in the manner as discussed in Rule 2A
• Credit of inputs allowed except those specified in Chapter 1 to
22.
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VALUATION : RULE 6
• Value to include:
• Amount realized as demurrage or by any other name for
provision of service beyond originally contracted period in any
manner relatable to service
• Value to exclude:
• Interest on deposits and delayed payment of any
consideration for the provision of service or sale of goods
• Accidental damages due to unforeseen actions not relatable to
provision of service
• Subsidies/grant by Govt. not effecting the value of service
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NOTABLE ABATEMENTS
DESCRIPTION
TAXABLE
%
Services
in
relation
to
financial leasing including
hire purchase
10
Nil.
Transport of goods by rail
30
Nil.
Transport of passengers, with
or without accompanied
belongings by rail
30
Nil.
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CONDITIONS
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NOTABLE ABATEMENTS
DESCRIPTION
TAXABLE
%
Bundled service by way of supply
of food or any other article of
human consumption or any drink,
in a premises, including hotel,
convention center, club, pandal,
shamiana or any place specially
arranged for function together
with renting of such premises
70
Cenvat credit on any goods
under Chapters 1 to 22 used for
providing output service has not
been taken in terms of Cenvat
Credit Rules, 2004.
Transport of passengers by air,
with or without accompanied
belongings
40
CENVAT credit on inputs and
capital goods, used for providing
the taxable service, has not been
taken
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CONDITIONS
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NOTABLE ABATEMENTS
DESCRIPTION
TAXABLE
%
Renting of hotels, inns, guest
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes.
60
CENVAT credit on inputs and
capital goods not taken
Services of goods transport
agency
in
relation
to
transportation of goods
25
CENVAT credit on inputs, capital
goods and input services not
taken
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CONDITIONS
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NOTABLE ABATEMENTS
DESCRIPTION
TAXABLE
%
Services provided in relation to
chit
70
CENVAT credit on inputs, capital
goods and input services, not
taken
Renting of any motor vehicle
designed to carry passengers
40
Same as above
Transport of goods in a vessel
50
Same as above
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CONDITIONS
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NOTABLE ABATEMENTS
DESCRIPTION
Services by a tour operator in relation to,-
TAXABLE %
25
(i) a package tour
CONDITIONS
(i) CENVAT credit on inputs, capital goods
and input services, not taken
(ii) The bill issued for this purpose indicates
that it is inclusive of charges for such a tour.
(ii) a tour, if the tour operator is providing
services solely of arranging or booking
accommodation for any person in relation to
a tour
10
i)
CENVAT credit on inputs, capital
goods and input services, not taken
(ii) The invoice, bill or challan issued
indicates that it is towards the
charges for such accommodation.
(iiI) When invoice includes only service
charges?
(iii) In any other case
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(i) CENVAT credit on inputs, capital goods
and input services, not taken
(ii) The bill issued indicates that the amount
charged in the bill is the gross
amount charged for such a tour.
25
NOTABLE ABATEMENTS
DESCRIPTION
TAXABLE
%
CONDITIONS
Construction of a complex,
building, civil structure or a part
thereof, intended for sale to a
buyer, wholly or partly except
where entire consideration is
received
after
issuance
of
completion certificate by the
competent authority.
25
(i)Cenvat credit on inputs used
for providing the taxable services
has not been taken
(ii)The value of land is included in
the amount charged from the
service receiver.
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COMPOSITION SCHMES
 Life insurance :-3% first year premiums,
1.5 % for subsequent (full cenvat credit
restored)
 Money Changing :- existing rates raised
proportionally by 20 %.
 Distributor or selling agents of lotteries:Rs. 7,000/- and Rs.11,000/-
 Works Contract Service:- 4% to 4.8%
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COMPOSITION SCHMES
 The Dual tax Structure for air
transportation partly specific , partly ad
valorem is being replaced with a uniform
ad-valorem levy at standard rate with an
abatement of 60% on all sectors and all
classes.
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PLACE OF PROVISION OF
SERVICE
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PLACE OF PROVISION OF SERVICE
RULES
• Intent :
• To determine the place where service is deemed to be
provided
• To deal with cross border services
• To deal with supplier and customer based in J & K
• Replaces Export of Services Rules, 2005 and Import of
Services Rules, 2006
• Pre-cursor for roll-out of nation-wide GST
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 3 : General Rule/ Default Rule
• Place of provision of service shall be location of
service receiver
• Proviso : Where location of receiver not available
then the place of provision of service shall be
location of service provider
• Default rule shall apply where no other specific rule is
applicable
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 4 : Performance based services
• Place of provision of following services shall be the place
where such services are performed:
• Services to be performed physically on goods made
available by the service receiver.
 Service provided on goods from remote location by
electronic means place of provision shall be the
location of goods
 Not to include repair or re-engineering services on
goods imported for re-export purposes
• Service provided entirely or pre-dominantly in the
physical presence of an individual (Photography,
cosmetic surgery etc)
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 5 : Services in relation to immovable property
• Place of provision of such service is where the immovable
property is located or intended to be located.
• Instances :
 Construction, repairs, maintenance, renting of
immovable property, civil engineering, etc
Real estate agent, auctioneers, architects, engineers, etc
Services connected with mining, exploration of
oil/minerals/gas relating to specific site/sea bed
Hotel accommodation, warehouse space
Legal services relating to land such as planning
permissions
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 6 : Services in relation to events
• Place of provision of such service is where the
event is actually held.
• Instances :
 Services in relation to admission,
organization of event, celebration,
conference, fair, exhibition, etc
Services ancillary to such admission.
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 7 : Part performance of services at different
location
• Rule applies to services mentioned in Rule 4, 5
or 6
• Provided at more than one location including
taxable territory
• Place of provision of such service is a location
in taxable territory where the greatest
proportion of services is provided.
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 8 : Services where both provider and receiver
are located in a taxable territory
• Place of provision of such service is the
location of recipient.
• Instance :
 Repair of aircraft belonging to Air India
outside India by an Indian service provider
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 9 : Specified Services
• Place of provision of such service is the location of the
provider.
• Services by Banking company, financial company, or
a NBFC to account holders
• Online information and database access and retrieval
services
• Intermediary services
• Services of hiring of means of transport vehicle upto
one month
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 10 : Place of provision of service of
transportation of goods
• Place of provision of such service is the
destination of goods
• Except in case of GTA where place of service
is location of the person liable for payment
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 11 : Place of provision of service of transportation of
passenger
• Place of provision of such service is where the
passenger embarks for a continuous journey
• Term continuous journey defined :
• a single ticket has been issued for entire journey
• More than one ticket has been issued for journey by
one service provider, or by agent on behalf of more
than one service provider, at the same time and there
is no scheduled stopover in the journey.
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PLACE OF PROVISION OF SERVICE
RULES
• Rule 12 : Place of provision of service provided on
board conveyance
• Place of provision of service provided on-board
during the course of transportation is the first
scheduled point of departure of the
conveyance
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Contact Details b_raichandani@yahoo.com
Thank you
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