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SERVICE TAX

SERVICE TAX. ACT, Rules and Procedures. What is Service Tax?. Service tax is an indirect tax levied on services provided Extends to whole of India, except the State of J & K Covered by the Finance Act, 1994. Statutory Provisions. Finance Act, 1994 [ Sections 64 to 96]

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SERVICE TAX

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  1. SERVICE TAX ACT, Rules and Procedures

  2. What is Service Tax? • Service tax is an indirect tax levied on services provided • Extends to whole of India, • except the State of J & K • Covered by the Finance Act, 1994

  3. Statutory Provisions • Finance Act, 1994 [ Sections 64 to 96] • Service Tax Rules, 1994 • Service Tax (Registration of Special Category of Persons) Rules, 2005. • Export of Services Rules, 2005. • Cenvat Credit Rules 2004 • Service Tax (Advance Rulings) Rules,2003

  4. Statutory Provisions • Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 • Service Tax (Determination of Value) Rules, 2006. • Authority for Advance Rulings( Customs, Central Excise and Service Tax) Procedure Regulations,2005 • Central Excise (Appeals) Rules 2001 • Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982

  5. Service Tax-Penal Provisions

  6. Service Tax-Penal Provisions

  7. Service Tax-Penal Provisions

  8. Service Tax-Penal Provisions

  9. New Deterrents • Voluntary deposit or recovery of any excess amount of ST collected (u/s 73A) • Voluntary deposit or recovery of any amount collected as ST (u/s 73A) • Power to collect interest on above (u/s 73 B) • Provisional attachment of any property upon issue of SCN (u/s 73 C) • Recovery of any amount due to Govt. (u/s 87)

  10. Exemption - Rs. 4 lacsNotification no. 6/2005-ST dated 01.03.2005 • Yearly option to pay and take Cenvat • In stock credit – Pay/lapse • Cenvat after crossing 4 lacs limit • Aggregate value • For all premises & all taxable services • First consecutive payments • not to be included • Wholly exempted services • Exemption not available for • Specified persons (u/s 68(2)) made liable to pay tax • Services with a brand name of another person

  11. General Exemptions • Payment received in FE • From 16.10.1998 to 28.02.2003 – Exempted • From 01.03.2003 to 19.11.2003 – Not exempt • From 20.11.2003 – 14.03.2005 Exempted • Services provided to UN or an International organization (16/2002-ST dated 2.8.2002) • Specified services provided by a non-resident in the course of sailing of a ship (22/2005-ST dated 16.6.2005)

  12. General Exemptions • Services provided to SEZ and units in SEZ (4/2004-ST dated 31.3.2004) • Conditions • The developer – approved by BOA to develop, operate and maintain the SEZ. • The unit is Approved by DC or BOA to establish unit in SEZ • Proper maintenance of receipt and utilisation of services

  13. Exemptions • Equipment leasing and hire-purchase companies • 90% Interest • Government run laboratories • Water quality testing • Reserve Bank of India • All services

  14. Withdrawal of Exemptions (FB 2006) – effect

  15. Withdrawal of Exemptions (FB 2006) – effect

  16. Withdrawal of Exemptions (FB 2006) – effect

  17. What is the rate of Service Tax? • Service tax @ 12% • Education Cess @ 2% on service tax • CENVAT credit of service tax available • Credit availed can be offset against payment of Central Excise duty as well as service tax • Credit of Education cess to be utilised for payment of Education cess

  18. Who has to get registered? • All persons liable to pay service tax • Service Providers • Service Recipients • Specified Persons • Input Service Distributors • Small service providers upon crossing Rs. 3 lacs limit

  19. Person Liable to Pay Service TaxRule 2 (d) of Service Tax Rules, 994 • The duty of paying Service Tax is on the person providing taxable services except • Telephone, Pager, Telegraph etc. • General Insurance Business • Insurance Auxiliary Service by an Insurance Agent • Goods transport Agency • Any taxable service provided by a person who is a non-resident or is outside India and does not have an office in India • Mutual Funds agents/distributors

  20. Registration Rule 4 of Service Tax Rules, 1994 • Centralised Billing or Centralised Accounting • Option to register the Centralised Billing or Centralised Accounting office • Commissioner/Chief Commissioner/DGST to grant registration • Registrations granted prior to 1.3.2005 to stay • Separate applications in other cases for each premises by Range Supdt. • Single Registration for more than one service – indicate all the services • Transferee to get fresh registration • Surrender in case of cessation of taxable service • To Superintendent (FB 2006) • Sudt. To cancel if all dues paid

  21. How to get registered? • Within 30 days from the commencement of business or • 30 days from the levy of service tax • whichever later • Application form in ST-1 to Range Supdt. • Registration Certificate in form ST2 within seven days

  22. Registration • Intimate any change in the details furnished in ST1 to AC/DC • Within 30 days of such change (FB 2006)

  23. Issue of Invoice/Challan/Bill • Within 14 days of • completion of the service or receipt of payment • Whichever is earlier • Last day of the period (if billing is done periodically)

  24. Issue of Invoice/Challan/Bill • To be signed by authorised person • To be serially numbered • To contain • the name, address and the registration number of such person • the name and address of the person receiving taxable service • description, classification and value of taxable service provided or to be provided • the service tax payable thereon • Special dispensation – Banks, GTA

  25. Issue of Invoice/Challan/Bill • Input Service Distributor Invoice/Bill/Challan to contain : • the name, address and registration number of the person providing input services and • his serial number and date of invoice, bill, or challan • the name, and address of the said input services distributor • the name and address of the recipient of the credit distributed • the amount of the credit distributed • Special Dispensation – Banks

  26. Issue of Consignment Note • GTA to issue consignment note • Not necessary for wholly exempted service

  27. Consignment Note means a document issued by a GTA • against the receipt of goods • for the purpose of transport of goods by road in a goods carriage, • serially numbered, • contains • the names of the consignor and consignee, • registration number of the goods carriage in which the goods are transported, • details of the goods transported, • details of the place of origin and destination, • person liable for paying service tax whether consignor, consignee or the goods transport agency

  28. Rules of Classification • When a taxable service is prima facie, classifiable under two or more sub-clauses of (105) of Section 65 • More specific description • To prevail over general description • Composite/ combination of services • shall be classified under the service which gives essential character • When not classifiable under a & b, • will be classified under sub-clause which occurs first among sub clauses merit consideration.

  29. Rules of Classification • Example: • Management Consultants (16/10/1998) • Scientific or Technical Consultancy (16/07/2001) • Business Auxiliary Service (01/07/2003) • While applying Rule 2, the services would be “Management Consultants” since it first occurs under section 65(105) of the Act

  30. Valuation of Services Section 67 • Consideration in Money • gross amount charged by the service provider of such service provided or to be provided by him • Consideration, not partly or wholly, consisting of Money • Such amount in money, with the addition of service tax charged, is equivalent to the consideration • Consideration, not ascertainable • Amount as may be determined in the prescribed manner

  31. Valuation of Services • Gross amount charged for similar service to any other person in the ordinary course of trade • Basis ->normal transaction value between two independent persons at arm’s length price • If value of similar services not available: • Service provider to determine equivalent money value of consideration • Should not be less than the cost of providing the service • Verification of records : • With AC/DC approval • Show Cause Notice • With Commissioner’s approval

  32. Re-imbursement of expenses • Allowed only if incurred as a ‘pure agent’ • Agent does not hold any title to the goods or services • Agent never uses such goods or services so procured • Recipient is liable to make payment • Recipient aware about procurement from third party • Contract specifies third party procurement • Agent shows the amount separately in invoice • Agent recovers only the actual expenditure • No deduction, if ‘agency undisclosed’

  33. Valuation of ServicesInclusions • Commission or brokerage • Adjustments from deposits • Premium charged by insurer • Commission from airline/railways • Commission received by actuary • Commission to agent for C&F services • Commission to agent for insurance service

  34. Valuation of ServicesExclusions • Deposit to phone company • Airfare collected by agent • Rail fare collected by agent • Interest on loans

  35. Valuation of ServicesInclusions in value • Stock Broker’s service • Commission or brokerage paid in sale/purchase of securities • Including any commission/brokerage paid to any sub-broker • Telephone, Pager, Facsimile or Telegraph Service • Adjustments made by the telegraph authority from any deposits made • Insurer • Amount of premium charged from policy holder

  36. Valuation of ServicesInclusions in value • Air Travel Service • Commission received from the airline • Rail Travel Agents’ service • Commission or any amount received from Railways or customer • Insurance Auxiliary Services • Fees received by an actuary, or intermediary or insurance intermediary or an insurance agent from the insurer. • Authorised service Station • Reimbursement received from manufacturer for carrying out any service for any vehicles manufactured by him

  37. Valuation of ServicesDeductions from Gross amount received • Telephone, Pager, Facsimile or Telegraph Service • Initial deposit made by the subscriber • Air Travel Agent’ Service • Airfare collected • Rail Travel Agent’s Service • Rail fare collected • Banking Service- Interest on Loans • Interest on loans

  38. Valuation of ServicesCost of goods sold to be excluded • Cost of goods or material • sold by the service provider • to the recipient of service • are exempted • Against document proof indicating value of said goods (Notification .No. 2/2003 dated 26/06/2003 w.e.f 1/07/2003)

  39. Valuation of Services Cost of goods sold to be excluded • Conditions to be satisfied • No credit of duty paid on such goods and materials sold • had been availed under CENVAT Credit Rules 2004 • Where such credit is taken, • the amount of such credit availed is paid • before the sale of such goods (Notification No. 12/2004 dated 10/09/2004)

  40. Abatements

  41. Abatements

  42. Abatements

  43. Abatement Conditions • No Cenvat credit of duty on inputs or capital goods, used for providing taxable service, taken under Cenvat Credit Rules, 2004 • Service provider has not availed the benefit under notification no. 12/2003-ST dated 20th June 2003.

  44. Calculation of service tax • Where the gross amount charged by a service provider is inclusive of service tax payable, • The value of taxable service shall be such amount as • with the addition of tax payable,Is equal • to the gross amount charged

  45. Calculation of service tax • Amount charged towards service inclusive of service tax • Example

  46. Payment of Service Tax - Due Date – Rule 6(1)On payments received

  47. Payment of Service Tax • The service tax on the value of taxable services received during the month of March or the Quarter ending March • Shall be paid by the 31st of March of the calendar year

  48. Payment of Service Tax • Amount of Service Tax payable • On the value of taxable services received in a particular month or quarter • Not on the gross amount billed to the client

  49. Payment of Service Tax • Payment received in installments • As and when when payment is received • Payment received in Advance • As and when payment is received • Mode of payment of service tax to Govt. • TR6 challan (yellow) • Date of Payment • Date of Cheque deposit, subject to realisation • Excess service tax paid • Adjust against tax payable in the subsequent period or • Claim refund

  50. Payment of Service Tax • Provisional payment • AC/DC to allow • Statement to be filed – Memorandum to ST3A • AC/DC to finalise after receiving all details • Air Travel Agent • Option (to pay at 0.6%/1.2%) once exercised to continue during FY

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