Service Tax

Service Tax is a indirect tax imposed on specified services (taxable services)

provided by a service provider (Company, Individual, Firm etc.).
Service Tax was first brought into force with effect from 1 July 1994. All
service providers in India, except those in the state of Jammu and Kashmir,
are required to pay a Service Tax in India.
Initially only three services were brought under the net of Service Tax and the
tax rate was 5%. Gradually more services came under the ambit of Service
Tax.
In accordance with the Annual Budget 2012-13, the current Service Tax rate
has been increased from 10% to 12%.
Scope and Applicability
Scope
Initially, Service Tax was chargeable on Realisation basis i.e. receipt of the
consideration for the services provided/to be provided (in case of advance
receipts). With effect from 1 April 2011, the Point of Taxation Rule was
introduced for effective collection of Service Tax.
Point of Taxation refers to the point of time when a service shall be deemed
as provided.
According to this Rule, Point of Taxation shall be the

Date of Issue of Invoice, or

Date of receipt of Payment, whichever is earlier

The liability of paying tax to the Government is on the service provider i.e.
the person providing service, and in some cases, on the service receiver.
Example: Royal Agency provided advertising services of Rs. 1,00,000 to
SysImage. On the service amount of Rs.1,00,000, Royal Agency is liable to
pay the tax of Rs. 12,360 @ 12.36% (12% of Service Tax, 2% of Education
Cess, 1% of Secondary Education Cess).
Applicability
Service tax is applicable on taxable services
1. Provided and taxable in the hands of service provider
2. Received and taxable in the hands of service receiver : Generally it is
the service provider who is liable to collect Service Tax from his
customer/client and pay the same to the Government. But Section

68(2) empowers the Government to notify the services with regard to

which the service receiver would be held liable to pay Service Tax to
the Government. For the services mentioned below, the service
receiver is liable to pay Service Tax (as per Notification 36/2004 ST
dated 31.12.2004 as amended from time to time)

Goods Transport Agency service

Business auxiliary service of distribution of mutual fund by a mutual

fund distributor or agent

Sponsorship service provided to any body corporate/firm

Taxable services received by any person in India from abroad

Insurance auxiliary service by an insurance agent

With effect from 1 July, 2012, Negative List-based System of Tax on Services
was introduced

Negative List is a list of services which are not subject to Service Tax
All services other than those featuring in the Negative List fall under
the purview of Taxable Services

The definition of Taxable Service is different for each class of services, e.g. in
case of Stock Broker Agency, any service provided to a investor by buying or
selling securities listed on a recognised Stock Exchange will be a Taxable
Service.
Registration
As per section 69 of the Finance Act 1994, every person liable for paying
Service Tax has to register as set out in the Rules.
According to Rule 4 of the Service Tax Rules, 1994 following is the manner
and time for registration

Application for registration to the superintendent concerned in form ST

-1 with in 30 days from the date on which Service Tax is levied or 30
days from the commencement of business providing a taxable service,
whichever is later.
Assessee providing Service from more than one Premises or Office, has
to make separate applications for each of such premises or Offices.
If the assessee has Centralised Billing System or Centralised
Accounting System, a Centralised Registration covering all the
premises or offices can be obtained.

In case of transfer of business from Registered Assessee to a new

person, Transferee has to obtain a fresh Registration Certificate.

Note: For every Registered Assessee there is a provision under Service Tax
Rules to Surrender Registration Certificate to Superintendent of Central
Excise when he ceases to provide taxable services for which he is registered.

Registration requirement for Small Service Provider (SSP)

A person who is eligible for availing exemption under Notification
No. 6/2005 is required to apply for Service Tax registration within
30 days from the date when his turnover of services exceeds
rupees 3 lakhs.

Input Service Distributor (ISD) Registration

Service Provider having multiple offices other than from where the
services are provided and wants to distribute the input services
and CENVAT Credit thereon to another location which is liable for
payment of Service Tax, a separate Registration (in the manner as
that of service provider) will be required for each such office.

Service Tax Assessee Code

Service Tax Registration number is a PAN based 15 digit alpha numeric
numbers e.g. ASDCE1588ST001.
The first part denotes (10 characters alpha numeric) Permanent Account
Number issued by Income tax authorities to the concerned person to whom
the Service Tax Registration Number is to be allotted. Second part comprises
of a fixed 2 character alpha code ST (Service Tax). This is followed by 3Character numeric code representing the registered Premises or Office of the
service provider
The Service Tax Registration Number has to be quoted on GAR7 Challans
covering deposit of Service Tax, Cess and other dues to the Government.
Valuation of Taxable Service
Valuation of the services provides the methodology of arriving at the service
amount on which the applicable Service Taxto be charged.
Value of the taxable service is determined as under

Consideration fully in Money: The gross amount charged by the service

provider for such services provided/to be provided
Consideration not in Money: The Equivalent Value of the Non monetary
consideration.

Consideration partly in money and partly in other form: Amount

charged monetarily and the Equivalent value of the Non monetary
consideration

Consideration not Ascertained: Valuation based on the Valuation Rules

(as per section 67, Service Tax (Determination of value) rules, 2006

Consideration Inclusive of Tax: Value of taxable service will be such

amount, in addition of Service Taxpayable is equal to Gross amount
charged.

Example: Royal Agency provides taxable service for Rs. 1,32,360 inclusive of
Service Tax@ 10.30%. The taxable service value shall be computed as shown
Taxable Service Value (1,20,000) = 1,32,360 X
(100/110.30)
Charge of Service Tax
As per Section 66 of Finance Act, 1994 tax (Service Tax) @ 12% of the value
of taxable service, in addition, 2% Education Cess and 1% Higher Education
Cess is payable on taxable services. Thus, total Service Taxis 12.36% and it
will be collected in such manner as prescribed.
Exemption from Service Tax
In some cases Central Government can grant exemption on the Service Tax,
by issuing an notification u/s 93 of Finance Act, 1944. The Service Tax
exemption provided may

Partial or Total Service Tax

Conditional or Unconditional

Following are the general exemptions from Service Tax

Small Service Providers (whose turnover is less than Eight Lakhs)

Export of Services

Service to UN Agencies

Services provided within Special Economic Zone (SEZ)

Services provided to foreign diplomatic missions, family members of

diplomatic missions etc.

Services provided by RBI

Goods and materials supplied while provided services

Taxable Percentage
As per the recent Service Tax Amendments, w.e.f July 1, 2012, Abatement has
been replaced by Taxable Percentage.
Taxable Percentage refers to a certain percentage of the value of Service on
which Service Tax can be levied. Whereas, Abatement is a deduction allowed
(by the Government) on the value considered for Service Tax.
Example: Taaza Caterers received services - Transportation of goods by rail
worth Rs.1,00,000 and the Taxable Percentage is 30%. So, only 30% of the
Service Amount is applicable for charging Service Tax i.e. Rs.30,000 (30% of
Rs.1,00,000).
Pure Agent
Pure agent means a person who

Enters into a contract with the recipient of service to act only as his
agent to incur expenditure or costs in the course of providing taxable
services
Has no intention to hold the title to goods or services provided (to
service recipient) as pure agent

Does not use the procured goods or services

Receives only the actual amount incurred to procure the services or

goods.

Example: Royal Agency entered with an agreement with Isac Computers to

procure advertising services by acting as a Pure Agent. Royal Agency
procured the advertising services from ADMAG.
In the above example

Royal Agency is a pure agent

Isac Computers is the recipient of service

ADMAG is the service provider

Expenses or cost incurred by the service provider acting as a pure agent can
be deducted from the total service charge to get the taxable amount.
Adjusting Credit
While you pay Service Taxon sale of services that come under the Service
Taxcategory, you can adjust Service Taxcredit availed on purchase of
services. This deduction is called adjusting credit against service tax. The
difference between the Service Taxthat you have to pay for selling services

and the Service Taxcredit on purchases that can be adjusted is the payable
service tax.
Service tax (sales) that is adjustable against Service Taxcredit (purchases) is
also called availing input credit.

Time and Mode of Payment

1. By Individuals, Proprietary Firms and Partnership Firms

Payable on the Amount received

during the Quarter

Payable By

1st April to 30th June

5th July

1st July to 30th September

5th October

1st October to 31st December

5th January

1st January to 31st March

31st March

2. By Others

Payable on the Amount received

during the Month

Payable By

On amount received during each

month except March

5th of following
month

on amount received during March

31st March

Returns & Timelines

The Service Tax returns are to be filed half yearly in the prescribed Form ST-3
or Form ST - 3A
1. Form ST-3 - For all the registered assessee, including Input Service
Distributors,
The returns have to be submitted, along with copies of all TR-6
challans within 25 days of the expiry of the fiscal half-year

For half year 1st April to 30th September by 25th October

For half year 1st October to 31st March by 25th April.

2. Form ST-3A -The assessee who is making provisional assessment for

any month/quarter submit the memorandum in from ST-3A by
providing the details of difference between the provisional amount of
Service Taxdeposited and actual amount of Service Taxpayable for
each month along with the half yearly return in Form ST - 3.