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Statutory Compliance, Service Tax Refund and Service Tax Audit

Statutory Compliance, Service Tax Refund and Service Tax Audit. Baroda Baroda Branch of WIRC of ICAI - By CA. Manilal Parsiya. Registration under Service Tax.

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Statutory Compliance, Service Tax Refund and Service Tax Audit

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  1. Statutory Compliance, Service Tax Refund and Service Tax Audit Baroda Baroda Branch of WIRC of ICAI - By CA. Manilal Parsiya

  2. Registration under Service Tax • Section 69 of the Finance Act, 1994 read with rule 4 of Service Tax Rules, 1994 requires that every person liable to pay service tax must make an application for registration (in Form ST-1) to the Jurisdictional Superintendent of Central Excise / Service Tax. • Notification No. 33/2012-ST provides threshold exemption up to aggregate value of Rs. 10 lakhs of taxable service except in case of: a. Service provided under brand name or trade name of another person b. Service Tax payable on reverse charge basis u/s. 68(2) • As per explanation (B) to Notification No. 33/2012-ST "aggregate value" means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification."

  3. Registration under Service Tax • Service Tax (Registration of special category of persons) Rules, 2005 requires: • Input service distributor within 30 days of the commencement of business or 16.06.2005, whichever is later. • service providers to obtain registration at the moment the aggregate value of taxable service in a year crosses Rs. 9 lakhs within 30 days. • 9 Lakhs applicable from 1st April, 2008. Prior to that between 1st April, 2007 to 31st March, 2008 Value > 7 Lakhs and between 16th June, 2005 to 31st March, 2007 value > 3 Lakhs. • As per the Rules "aggregate value of taxable service" means the sum total of first consecutive payments received during a financial year towards the gross amount…. • It seems that Service Tax (Registration of Special Category of Persons) Rules, 2005 has not been amended.

  4. Person required to obtain registration & applicable time limits is summarised in the chart given below: Person required to obtain registration Liable to pay service tax [Sec. 69(1)] Other person or class of person [Sec. 69(2)] Service Provider Service Receiver Input Service Distributor Value > 9Lakhs New Business New Services 30 days 16.06.2005 30days

  5. Registration under Service Tax – Posers Whether registration under Service Tax is required or not in following cases? Why? • A builder has purchased a plot of land and started construction project. He has received booking amount of Rs. 25 lakhs in FY 2012-13. • Sunrise Industries LLP wants to start its manufacturing business. It has given erection and commissioning contract of plant and machinery with material and paid advance Rs. 1.50 crore during FY 2012-13. • A service provider has issued bills of taxable service of Rs. 15 lakhs but his receipt is Rs. 8 lakh during FY 2012-13. • Samir Auto Services has started authorised service center of Honda Motors and received Rs. 8.95 lakhs during FY 2012-13. • An architect has rendered architect service of Rs. 5 lakh in respect of property situated in India and of Rs. 25 lakh in respect of property situated outside India during the FY 2012-13.

  6. Multiple / Centralised Registration [Rule 4(2)] • Service tax registration is “qua premises” and not “qua assessee” unlike Income tax where single PAN is granted for all the premises. • Separate application has to be made for registration of each premises from which taxable services are rendered. • Even within single premises, if there are multiple firms, all of them have to be separately registered. • Also, if an individual carries on the activity in two different names under sole proprietorship, both the proprietary concerns have to get separately registered. • Single application mentioning all services is to be furnished, in case of more than one taxable service.

  7. Multiple / Centralised Registration [Rule 4(2)] • After due verification of the application form, registration in the Form ST2 is to be granted within 7 days from the date of receipt of the application. • If the registration certificate is not granted within the said period, the registration applied for shall be deemed to have been granted. • Where person liable to pay service tax (either provider or receiver of taxable service) from more than one premises and has a centralized billing systems or centralized accounting systems and such centralized billing systems or centralized accounting systems are located in one or more premises he may, at his option, register such premises or office where such centralized billing systems or centralized accounting systems are located.

  8. Step vise Online Registration Procedure

  9. Documents to be Attached All the following documents including ST-1 shall be Self certified. • Attested Copy of the PAN Card • Proof of Address of the premises, which is required to be registered • Copy of the Document governing the constitution of the organization (partnership deed in case of a partnership firm, Memorandum of Association in case of a company, Trust Deed in case of a trusts or associations, etc.) • Copy of PAN Card of directors/partners/proprietor • Name, address and proof of residence of directors/partners • Power of Attorney on stamp paper in case the documents are signed by an authorized representative/ Director of the company/ Partner of Firm. • In case of company resolution of board authorising signatory person

  10. Documents to be Attached In respect of Centralised registration following additional documents or details are also require 5. Previous year’s audited balance sheet, if any. 6. Address proof of all the branches to be covered by centralized registration . 7. Attested copy of TAN. • In respect of registration of input service distributor, address of all the premises to which credit of input services is distributed or intended to be distributed along with attested copy of proof of address of all such premises to be attached.

  11. Penal Liability for Failure to Obtain Service Tax Registration [Sec. 77(1)(a)]

  12. Changes in Registration Certificate • Where there is a change in any information or details furnished by an assessee in form ST-1 at the time of obtaining registration or he intends to furnish any additional information or details than assessee has to mandatorily intimate such change to the Central Excise Officer within 30 days of the said change.[Rule 4(5A)] • The new registration is required when there is a change in the constitution of business as the Service Tax Registration Certificate is not transferable. • When a registered assessee transfers his business to another person than transferor shall surrender the registration certificate and the transferee shall obtain a fresh certificate of registration. [Rule 4(6)]

  13. Cancellation / Surrender of Registration Certificate [Rule 4(7) & 4(8)] • Every registered assessee, who ceases to provide the taxable service for which he is registered, shall surrender his registration certificate immediately with concerned Superintendent of Central Excise. Certificate has to be surrender online by filing the forms available at WWW.ACES.GOV.IN. Following is the process for surrender of ST2 a. Fill in the form given online for surrender of registration certificate. After filling in the same, take a print of the form and then submit form online. Along with print out of surrender form ST2 E-acknowledgement of successful submission of the same shall be submitted to jurisdictional Superintendent along with following further documents.

  14. Cancellation/Surrender of Registration Certificate [Rule 4(7) & 4(8)] b. declaration form. c. Original ST-2 certificate d. Latest Income Tax returns for three years e. Latest copy of ST-3 return • The above list of documents to be submitted is based on our practical experience. • After receiving the aforesaid documents and after ensuring that assessee has paid all monies due to government, concerned Superintendent of Central Excise shall cancel the registration.

  15. Payment of Service Tax – Sec 68 and Rule 6 • Service Tax shall be paid immediately after the end of the quarter in case of individual, proprietary firm, partnership firm and LLP; after end of the month in all other cases: • By the 6th of the subsequent month, if the same is deposited electronically through internet • By the 5th of the subsequent month, in any other case • For month/quarter ending in March service tax is to be deposited by the 31st day of March • Where an assessee has paid a total service tax of rupees 10 lakhs or more including utilization of CENVAT Credit, in preceding financial year, he shall deposit the service tax electronically, through internet. • The date of tendering of cheque to the bank shall be deemed to be the date of service tax payment, provided the cheque is not dishonoured in the course of clearing.

  16. Payment of Service Tax • Bank should give double date stamp on receipted challan: Challan should bear two dates i.e. ‘date of tender’ of challans and instrument and ‘date of realization’ proceeds of instrument – RBI/2004/135 DGBA.GAD.No. 1142/42-01-001/2003 dated 02.04.2004 – reiterated in RBI Circular No. DGBA.GAD.No. H-8/42.1.034/2008-09, dated 01.07.2008. • Effect of using wrong code: If the assessee has used wrong accounting code, he need not be asked to pay service tax again and matter should be shorted out internally by department. • Rounding of service tax: As per section 37D of The Central Excise Act, which is also applicable to Service Tax and Circular No. ST-53/2/2003, Dated 27.03.2003, the Service tax amount payable is to be rounded off to the nearest rupee.

  17. Payment of Service Tax – Sec 68 and Rule 6 • Option to pay Service Tax in the month/quarter in which payment is received. In case of individual, proprietary firm, partnership firms and LLP whose aggregate value of taxable services is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on receipt basis up to a total value of taxable service rupees fifty lakhs in the current financial year.

  18. Advance Payment of Service Tax [Rule 6(1A)] Assessee may pay service tax in advance against his liability for the subsequent period provided: • He intimates to Superintendent within 15 days from the date of payment • Indicate details of advance payment and its adjustment in the subsequent return

  19. Adjustment Of Excess Service Tax Paid [Rule 6(3), 6(4A), 6(4B) and 6(4C)] • Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract, the assessee may take the credit of such excess service tax paid by him, if the assessee,— • has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or • has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued. [Rule 6(3)]

  20. Adjustment of Excess Service Tax Paid [Rule 6(3), 6(4A), 6(4B) and 6(4C)] • Asessee may adjust excess payment of service tax against his service tax liability for the succeeding month / quarter and the excess amount paid is on account of reasons not involving interpretation of law, taxability, valuation or applicability of any exemption notification. [Rule 6(4A) & (4B)] • In respect of service of renting of immovable property any excess payment of service tax for a month or quarter, on account of non-availment of deduction of property tax paid in terms of Notification No. 29/2012-ST, the assessee may adjust such excess amount paid within one year from the date of payment of such property tax and the details of such adjustment shall be intimated to the Superintendent within a period of fifteen days from the date of such adjustment. [Rule 6(4A)]

  21. Provisional Payment of Tax [Rule 6(4), 6(5) and 6(6)] • Where an assessee is unable to correctly estimate the actual amounts of service tax payable for any month or quarter, the assessee may make a request in writing to the AC/DC of Central Excise to make a payment on provisional basis and after receiving request AC/DC may allow the provisional payment of tax. • In such cases, memorandum in form No. ST-3A shall be accompanied with the service tax return for the relevant period. • After receiving memorandum in ST-3 AC/DC is require to complete the assessment after calling further documents and records as he may consider necessary. • Upon finalization of such assessment, if a liability of service tax arises, the differential amount be paid by the assessee. If he has paid excess amount he would be entitled to refund.

  22. Excess or Wrong Collection of Service Tax [Section 73A and73B] Any amount collected in excess of service tax leviable or collected service tax which is not required to be collected to deposit the same with the Central Government and also provide authority to Central Excise Officer for recovery of such excess amount. This also enables the Central Government to collect interest on the amount referred to in Section 73A.

  23. Rates of Interest

  24. Penalty for Failure to Pay Service Tax and Suppressing Value of Service Tax

  25. Issue Of Invoice/Bill/Challan/Consignment Note [rule 4A & 4B] • Service provider of taxable service shall issue Invoice within 30days from date of completion of such taxable services or receipt of payment towards the value of such taxable service, whichever is earlier. • In case of continuous supply of service, every person providing such taxable service shall issue an invoice, bill or challan, as the case may be, within 30 days of the date when each event specified in the contract, which requires the service receiver to make any payment to service provider, is completed. • The invoice, bill or, as the case may be, challan issued by service provider of taxable service shall be serially numbered and shall contain the following, namely:-

  26. Issue Of Invoice/Bill/Challan/Consignment Note [rule 4A & 4B] • The name, address and the registration number of such person; • The name and address of the person receiving such taxable service; • Description and value of taxable service provided or to be provided; and • The service tax payable thereon. • The invoice issued shall be sign by authorised person. • Service tax, education cess and secondary and higher education cess shall also be shown separately on the invoice. • BANKING & OTHER FINANCIAL SERVICES: Invoice, a bill or, as the case may be, should be issued within 45 days. Invoice/bill/challan issued by banking company, Financial institution including NBFC is not require to be serially numbered and address of the person receiving the taxable service, but it should contain other information.

  27. Issue of Invoice/ Bill/ Challan by Input Service Distributor • Input service distributor shall issue an invoice, a bill or, as the case may be, a challan signed by authorized person, for each of the recipient of the credit distributed, and such invoice, bill or, challan shall be serially numbered and shall contain the following, namely:- • The name, address and registration number of the person providing input services and serial number and date of the invoice, bill or, as the case may be, challan. • The name and address of the said input service distributor. • The name and address of the recipient of the credit distributed • The amount of credit distributed

  28. Issue of Consignment Note • Goods transport agency which provides service in relation to transport of goods by road in a goods carriage shall provide a consignment note which is serially numbered to the customer containing following details: • Name and address of Goods transport agency • Name of the consignor and consignee • Registration number of the goods carriage in which the goods are transported • Details of goods transported • Details of the place of origin and destination • Person liable for paying service tax whether consignor, consignee or the goods transport agency • Gross weight of consignment

  29. Returns [Section 70 & Rule 7] Returns have to be filed in Form ST-3 in triplicate on half yearly basis by the 25th of the month following the particular half-year[Rule 7(2)]. • DUE DATES FOR FILING OF SERVICE TAX RETURN • DATES FOR FILING OF ISD RETURN [Rule 9(10) of CENVAT Credit Rules, 2004] • Every assessee shall submit the half-yearly return electronically. [Rule 7(4)]

  30. Step Wise Online Return Submission Process Upload the XML file generated Logs in to the site using user Id and password

  31. Revise Return [Rule 7B] • Assessee is allowed to rectify mistakes or omission and file revised return including CENVAT credit return within 90 days from the date of filing of the original return. • We can file revised return even in case original return is filed late.

  32. Late Fee for Delay in Filling of Return [Section 70] [Rule 7C] • The assessee is required to pay following amount of late fee depending upon the period of delay, but not exceeding Rs. 20,000.

  33. Service Tax Refund Service Tax refund may arise on account of: • Rebate of Service Tax to Exporter of Service • Refund of CENVAT Credit on Export of Goods or Services • Rebate of Service Tax to Exporter of Goods • Refund to SEZ Developer/Unit • Refund of CENVAT Credit to Service Providers Providing Services taxed on Reverse Charge Basis. • Refund of Service Tax under Central Excise Provisions

  34. Rebate of Service Tax to Exporter of Service • Notification No.39/2012-ST, dated 20-6-2012 grants rebate of the whole of the duty paid on excisable inputs or the whole of the service tax paid on all input services, used in providing service exported in terms of rule 6A of Service Tax Rules, 1994, to any country other than Nepal and Bhutan, subject to the conditions, limitations and procedures specified. • Conditions and limitations:- • Service has been exported in terms of rule 6A ST Rules; • The duty on the inputs, has been paid to the supplier; • Service tax on input service have been paid to the provider of service or if the person is himself is liable to pay for any input services; he should have paid the service tax. • The total amount of rebate of duty, service tax admissible is not less than one thousand rupees; • no CENVAT credit has been availed of on inputs and input services on which rebate has been claimed; and

  35. Refund of CENVAT Credit on Export of Goods or Services under CENVAT Credit Rules,2004 • A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification.   • Refund Amount = Export turnover of goods + Export turnover of services Net CENVAT credit Total turnover

  36. Rebate of Service Tax to Exporter of Goods Notification No. 41/2012-ST, dated 29.6.2012 governs scheme for refund of service tax paid on specified services used as input services in export of goods. “Specified Services" means- • in the case of excisable goods, taxable services that have been used beyond the place of removal, for the export of said goods; • in the case of goods other than (i) above, taxable services used for the export of said goods; but shall not include any service mentioned in sub-clauses (A), (B), (BA) and (C) of clause (l) of rule (2) of the CENVAT Credit Rules, 2004;

  37. Rebate of Service Tax to Exporter of Goods • The Notification provides that the rebate shall be claimed: • either on the basis of rates specified in the schedule of rates annexed to the Notification 41/2012-ST as per prescribed procedure; or • on the basis of documents. • Application for refund is to be made electronically on the basis of the shipping documents.

  38. Refund to SEZ Developer/Unit • Notification No. 40/2012-ST, dated 20-6-2012 exempts the services received by a unit located in a Special Economic Zone (SEZ) or Developer of SEZ and used for the authorised operations, from the whole of the service tax leviable thereon. • The exemption shall be provided by way of refund of service tax paid on the specified services received by a unit located in a SEZ or the developer of SEZ and used for the authorised operations: • Provided that where the specified services received in SEZ and used for the authorised operations are wholly consumed within the SEZ, the person liable to pay service tax has the option not to pay the service tax ab initio instead of the SEZ unit or the developer claiming exemption by way of refund in terms of this notification.

  39. Refund to SEZ Developer/Unit • Services wholly consumed within SEZ is determinablein accordance with the Place of Provision of Services Rules, 2012 as under: • in respect of services specified in rule 4 of the POP Rules (performance base services), the place where the services are actually performed is within the SEZ ; or • in respect of services specified in rule 5 of the POP Rules (services relating to immovable property), the place where the property is located or intended to be located is within the SEZ; or • in respect of services other than those falling under clauses (i) and (ii), the recipient does not own or carry on any business other than the operations in SEZ;

  40. Refund to SEZ Developer/Unit • Where the specified services received by the unit of a SEZ or developer are not wholly consumed within SEZ, maximum refund shall be restricted to the extent of the ratio of export turnover of goods and services multiplied by the service tax paid on services other than wholly consumed services to the total turnover for the given period to which the claim relates, i.e., •  Maximum Refund Amount = Service tax paid on services other than wholly consumed Services (both for SEZ and DTA) Export turnover of goods + Services of SEZ Unit/ Developer Total turnover for the period

  41. Refund of CENVAT Credit to Service Provider Providing Services Taxed on Reverse Charge Basis. [Rule 5(B) of CCR, 2004] • New Rule 5(B) provides for refund of CENVAT credit availed on input services when: • a provider of service is providing services which are specified in Notification No. 30/2012-ST, dated 20.06.2012 and • he is unable to utilize the credit because of service recipient is liable to pay service tax. • Note: The notification giving procedure, safeguards, conditions and limitations are yet to be notified.

  42. Refund of Service Tax under Sec. 11B of Central Excise Act, 1944. • Under Sec. 83 of the Finance Act, 1994, the provisions of Sec. 11B and 11BB of the Central Excise Act, as in force time to time, shall apply, so far as may be, in relation to service tax at they apply in relation to excise duty. • Refund procedure laid down in Section 11B: • Service tax and interest paid there on, if any, can be claimed. • The person claiming refund must make an application • The application is to be made to concerned AC/DC before expiry of one year from the “relevant date” • “Relevant date” means date on which service tax of which the refund is claimed was originally paid.

  43. Refund of Service Tax under Sec. 11B of Central Excise Act, 1944. • The application would be in Form R and must be accompanied by documents, which establish that service tax was paid by the applicant and that the incidence of tax had not been passed on by the applicant to any other person. • If the adjudicating authority is satisfied that the whole or any part of the service tax paid by the applicant is refundable, he may pass an order to that effect, and if the adjudicating authority is further satisfied that the incidence of tax has not been passed on by the applicant to any other person, he may order that the amount of refund shall be paid to the applicant. • Limitation of one year shall not apply where service tax and interest, if any, has been paid under protest.

  44. Handling of Service Tax Audit • Tools available with Service Tax department to assess correct liability and enforce the compliance of Service Tax. • Service Tax Returns u/s. 70 • Service Tax Audit • Anti Evasion measures • Search of premises u/s. 82 • Determination tax u/s. 72 • Inquiry by way of summon to person to give evidence and produce documents u/s. 83 r.w. Sec. 14 of Central Excise Act, 1944

  45. Handling of Service Tax Audit • Rule 5A(1) of ST Rules grants authority to an officer authorised by the Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. • Audit should be normally distinct from anti-evasion operation in as much as it can detect irregularities only to the extent of their reflection in the books of accounts. • Every audit should invariably cover the retrospective period up to the previous audit by the Departmental Audit Party or the last 5 years (limited to the commencement of levy on particular service) whichever is less and should extend up to one completed month preceding the date of current audit.

  46. Handling of Service Tax Audit • Frequency Norms of Audit for Service Tax Assessees

  47. Handling of Service Tax Audit The stage-wise action for audit is briefly as under;- • Preparation of master file with a view to having clear and comprehensive taxpayer profile. • Gathering Information about the taxpayer and the systems followed by him by touring of taxpayers premises. • Desk review on the basis of relevant documents and information about the taxpayer, • Formulation of specific audit plan for each service provider based on desk review to be approved by Joint/Addn. Commissioner. • Verification and conducting of audit in the premises of the taxpayer.

  48. Handling of Service Tax Audit • Apprising the taxpayer of the irregularities noticed and ascertaining his view point. • Suggestions to taxpayer for future correction/improvements. • Preparation of draft audit report and its submission to the senior officers. • Monitoring of the work done as reflected in draft audit report by a committee headed by a Commissioner including approval of the objections raised. • Issue of final audit report. • Follow up action, for monitoring the compliance of various points by the field officers and issue of SCNs wherever warranted.

  49. Documents and records may be demanded by audit party • Rule 5A(2) of ST Rules provides every assessee shall, on demand, make available to the officer authorised under sub-rule (1) or the audit party deputed by the Commissioner or the C&AG, within a reasonable time not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by such officer or the audit party, as the case may be,— (i) the records as mentioned in sub-rule (2) of rule 5; (ii) trial balance or its equivalent; and (iii) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 (43 of 1961), for the scrutiny of the officer or audit party, as the case may be.]

  50. Documents and records may be demanded by audit party Records [Rule 5 of ST Rules] (1) “The records including computerised data as maintained by an assessee in accordance with the various laws in force from time to time shall be acceptable.” (2) “Every assessee shall furnish to the Superintendent of Central Excise at the time of filing of return for the first time or the 31st day of January, 2008, whichever is later, a list in duplicate, of— • (i) all the records prepared or maintained by the assessee for accounting of transactions in regard to, • providing of any service; • receipt or procurement of input services and payment for such input services; • receipt, purchase, manufacture, storage, sale, or delivery, as the case may be, in regard of inputs and capital goods; • other activities, such as manufacture and sale of goods, if any. (ii) all other financial records maintained by him in the normal course of business. (3) All such records shall be preserved at least for a period of five years immediately after the financial year to which such records pertain.

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