Service Tax – Part III
V S DATEY
Description of Service
Description of service has been provided at various places in service tax
provisions –
(a) Negative list of services
(b) Declared list of services
(c) Services exempted by a notification
(d) Place of Provision of Service Rules to determine where the service is
provided
(e) In Service Tax Rules, Cenvat Credit Rules, Service Tax Valuation Rules etc.
Bundled Services
In some cases, a composite service may consist of two or more
different services, termed as ‘bundled services’.
Naturally Bundled service – description on basis of essential
character
Cargo handling versus goods transport service
Airlines providing food, video facility
Boarding schools, tunrkey projects
Air transport service provider providing door delivery
Valuation of Service
Gross amount charged by service provider for service provided or
to be provided – section 67
Value of taxable service + service tax = Gross amount charged
Amount may be received before, during or after provision of service
Bharat Sanchar Nigam Ltd. v. UOI (2006) (SC 3 member bench) price of goods cannot be included in value of services.
Valuation Rules
oValuation Rules apply subject to section 67 and 66B
oGross amount charged for similar services [rule 3(a)]
oEquivalent money value of consideration which shall not be
less than cost [rule 3(b)]
oDistinction between cost and value
Gross amount charged for service
Service tax not payable on any other amount charged
and/or recovered from service receiver if it is not part of
value of taxable service
Examples – Advertisement Agent, Air Travel Agent,
Customs House Agent
Parking fees, toll naka charges by rent-a-cab operator
Cost and Expenditure relating to service
includible
oTravelling Expenses, hotel expenses
oOut of pocket expenses includible.
oReimbursement of expenses incurred by service receiver
oSpecific provision made in rules w.e.f. 1-6-2015
oConcept of ‘pure agent’
Illustration of Pure Agent
oEntry tax, transport charges paid by Agent
oCustoms duty, transport, warehousing charges paid by CHA
oParking fees, toll naka charges by rent-a-cab operator
oAir fare/rail fare paid by Agent
oRent, telephones, transport expenses incurred by C&F
Agent
Illustration when not ‘Pure Agent’
Travelling expenses of Auditor, Consulting Engineer,
Maintenance Engineer, Management Consultant –
provision held invalid by Delhi HC – but rule amended
Out of pocket expenses
Charges of salary of labour by Labour Contractor
(Issue debatable)
Other Provisions relating to valuation
Service tax is payable on net amount excluding Vat, if
payable on that transaction
Vat really not payable on service tax – but States taking
different views
No service tax on free services, if they are really free
Service tax, excise duty and customs duty are independent
duties.
Point of Taxation
‘Point of taxation’ means the point in time when a
service shall be ‘deemed to have been provided’
[Rule 2(e) of Point of Taxation Rules, 2011]. This point
will determine due date of payment of service tax.
Rate of tax as per section 67A and not as per POT
Rules.
General Rule of Taxation
oThe general rule is that the time of provision of service will
be Date of invoice if issued within 30/45 days [rule 3(a)]
oIf invoice not issued within 30/45 days, date of completion
of provision of service is Point of Taxation
oIf advance is received, that date is Point of Taxation even if
invoice is not issued
Continuous Supply of Services
Construction, telecom, works contract, renting, insurance, security
are continuous service where service continues for more than 3
months
Completion of each event as specified in contract will be POT (e.g.
plinth, first slab, second slab, plaster etc.)
or monthly/quarterly as per agreement
Event complete only when measurement, quality testing is
completed, as per CBE&C circular
Point of Taxation when service tax
payable under reverse charge
Date of payment is POT if payment is made to service provider
within 3 months
If payment not made to service provider within three months,
service tax becomes due
In case of Associated Enterprises (group companies), when service
provider is outside India, date of credit in books of account of person
receiving the service or date of payment whichever earlier is Point of
Taxation [second proviso to rule 7]
Point of Taxation in case of small service
providers
In case of individuals, partnership firms and LLP (but
not HUF), POT is date of receipt of payment, if value
of services in previous year was less than Rs 50 lakhs
 (on optional basis. He can pay on accrual basis)
Issue of Credit Note
Service provider can refund the payment received to service provider, or issue
credit note in following situations –
(a) if service is not provided partly or fully or
(b) amount of invoice is re-negotiated due to deficient provision of service or
any terms contained in the contract.
After such refund or credit note, assessee can take self credit of excess service
tax paid by him when he had issued the invoice/Bill/Challan [Rule 6(3)].
Adjustment not permissible for bad debts
Place of Provision of Service Rules
As per section 65B, service tax is payable when service is provided in taxable
territory. Taxable territory is whole of India plus 200 nautical miles inside the sea
minus J&K
Place of Provision of Service relevant for export and import of service, services
provided to and from SEZ and J&K
It is also relevant when assessee does not have centralised registration
Location of service provider or service receiver is where he is registered under
service tax
If not registered, then his place of business or fixed establishment will be his
location
POPS Rules
oSubsequent specific Rules would prevail over earlier rules [Rule 14] – Latter the
better
oServices provided on board a conveyance – first point of departure is POPS
[Rule 12]
oTransport of passengers – POPS where journey starts [Rule 11]
oTransport of goods – POPS where goods destined [Rule 10]
oServices of Banks to account holders, Online Information and Data Access or
Retrieval, intermediary, hiring of means of transport upto one month - location
of service provider is POPS [Rules 9 ]
Intermediary Services
Services of intermediary covered under rule 9(c) of Place of Provision of Service
Rules
“Intermediary” means a broker, an agent or any other person, by whatever
name called, who arranges or facilitates a provision of service or a supply of
goods between two or more persons
Services of Commission Agent in India taxable w.e.f. 1-10-2014. Services of
foreign Commission Agent not taxable w.e.f. 1-10-2014
Sequence of Rules in reverse direction
Taxable territory (India) is place of provision if both service provider
and receiver in taxable territory rule 8] (even if service is provided
outside the taxable territory)
Taxable territory is place of provision of service, if even partly it is in
taxable territory as per rules 4,5 or 6 [Rule 7]
Services relating to admission or organisation of events – where the
event takes place [rule 6]
POPS Rules in sequence
Services relating to immovable property – where immovable
property is situated [Rule 5]
Performance on goods supplied by service receiver or performance
where physical presence of service receiver is required – place of
performance of service [Rule 4]
Location of service receiver is place of provision of service if no
other rule applies[Rule 3]. This is residual rule
Basic Procedures
PAN based registration
Invoice
Payment of service tax – monthly by companies, LLP and HUF – quarterly by proprietary and
partnership firms
Return – half yearly by 25th April and 25th October in form ST-3
Adjudication and appeals
Demand within 18 months but within five years if there is suppression of facts, wilful
misstatement or fraud
Adjudication by excise authority (mostly farce)
Appeal before Commissioner (Appeals) and then finally before CESTAT
Appeal before High Court and Supreme Court
Cenvat Credit
•Cenvat is to avoid cascading effect of taxes
•Vat was introduced in France in 1954
•Vat got momentum when European Union (EU) [that time
European Common Market] made Vat compulsory
•In Indis, Modvat introduced in 1985 and State Vat in 2005
Conventional Tax System
Detail
B
C
-
110
165
Value Added
100
40
35
Sub-Total
100
150
200
10
15
20
110
165
220
Purchases
Add Tax 10%
Total
A
Tax credit System under Vat
Transaction without VAT
Details
A
Purchases
-
B
110
Value
Added
100
Subtotal
Transaction With VAT
A
-
B
100
40
100
40
Add Tax
100
10
150
15
100
10
140
14
Total
110
165
110
154
Highlights
Instant Credit
Credit of (a) excise duty on inputs (b) Excise duty on capital
goods and (c) service tax on input services
Credit of excise duty and service tax inter-changeable
One to one co-relation not required in Vat/Cenvat
Eligible duty paying documents
oOriginal or Duplicate Invoice, Dealer’s Invoice, Bill of Entry,
Supplementary Invoice
oXerox not permitted. Endorsed Invoice/Bill of Entry
permissible
oDefect in document – Permission of AC/DC required to
avail Cenvat Credit
Ineligible Input Services
•Rent-a-cab services, insurance of motor vehicles, repair of motor
vehicles not eligible, except where motor vehicle is eligible as ‘capital
goods’
•Architect and Construction services for building, civil structure,
laying of foundation or structures for capital goods – except when
used for construction itself
•Canteen, club membership of employees, insurance of employees,
LTA of employees – not eligible
Capital Goods
Capital goods (machinery, plant, spare parts of machinery, tools,
dies, etc. ) as defined in rule 2(a),eligible.
Capital goods should be used in the factory. Sending to job worker
permissible
Motor vehicles and office equipment – mostly not eligible
50% credit is available in current year and balance in subsequent
financial year or years, except in case of SSI
Capital Goods
Assessee should not claim depreciation on duty portion
on which he has availed Cenvat credit
Only those defined as capital goods eligible – check
chapter heads
Steel, cement for construction not eligible
Spare parts, components, tools covered under the
definition though normally not capitalised in books of
account
Zero rated and exempt transactions
Basic principle is that Cenvat credit available only when tax payable
on final product or output services
In zero rated transaction, tax not payable on final product, but
Credit of input taxes is available (e.g. exports)
In ‘exempted transaction’, tax is not payable on final product and
input credit is not available
Rule 6 of Cenvat Credit Rules
Rule 6 applies where both exempted goods and taxable goods are
manufactured or exempted and taxable services provided
Options are available to assessee – (a) Maintain setarate records for
exempted and taxable (b) Pay 6% amount on exempted goods and
services (c) Proportionate reversal
Option once availed cannot be changed during financial year
No reversal in case of zero rated transactions
Export of goods and export of services
Supplies to SEZ, EOU
Goods supplied against international competitive bidding,
goods supplied to UN organisations, foreign diplomats
Provision of services to SEZ (where exemption is available)
Input Service Distributor – Rule 7
HO or Branch or Depot can pass on credit to factories.
They have to register, file returns etc.
Monthly Invoice
No credit where input service exclusively for exempted goods or
exempted service
Distribution on turnover basis
On basis of turnover of previous month/quarter
Refund of Cenvat Credit – Rule 5
Refund of Cenvat credit on proportionate basis of exports of
goods and services.
General Experience is bad – some excuse is found to reject
the refund claim
Advisable to avail Cenvat credit wherever possible
Thanks
Thank you
Wish you safe journey of tough road of service tax
Website – www.dateyvs.com