Service Tax - A cruise…

1. Service Tax - A cruise… by s. jaikumar & g. natarajan advocates swamy associates with the members of the FKCCI, Bangalore on 04.11.2006

2. Administered through… • Finance Act, 1994. • Service Tax Rules, 1994. - Service Tax Credit Rules, 2002. • Cenvat Credit Rules, 2004. • Notifications / Circulars. • Judgements.

3. Valuation… F Gross amount. F Abatements. F Treatment of reimbursements. (Prior to and after 18.04.2006) F Cum duty. F Consideration in kind. F Notification 12/2003. F Advances (16.06.2005).

4. Reimbursements… F Thumb rule – include them in gross amount. • Exclusion only if incurred as “pure agent”. - Service recipient must be liable for expenses. - Authorises the service provider to pay. - Reimbursement only of actuals.

5. Consideration in kind… F Concept of comparable charges. • Money value of consideration vis-à-vis cost of provision of service. • What if service is provided free of cost? • What if services are bartered?

6. Classification… F Most specific description to be preferred. F Composite services vis-à-vis Essential character. F Residual Rule. Classification is important for the purpose of Abatement & Exemptions. Site preparation & Construction. Non commercial construction & ECI. Sub contracting & BAS.

7. Cenvat Credit… F Input service / Output service. F Inputs / Capital goods. F Procedures. F Rule 6. • 16 services protected. - Consulting engg. - Architect. - Interior Decorator. - Mgt. Cons. - Real Estate Agent. - Security. - Scientific / Tech. Cons. - Banking. - Insce. Auxiliary. - E / C / I. - Maintenance / Repair. - Tech. Testing & Analysis. - Tech. Insp / Certification. - Forex brokers. - Construction. - IPR. F Input Service Distributor.

8. Section 73 A… F Excess collected and retained. • Not required to be collected; But collected and retained.

9. Important Notifications… • 1/2006 Dt. 01.03.2006. - Provides for abatements. - Conditions. - Effect of restriction on cenvat credit of input services.

10. Important Notifications… • 6/2005 Dt. 01.03.2005. - Small scale exemption. - No exemption if others’ brands are used. - Limit of Rs.4 lakhs & Computation thereof. - Conditions as to non availment of Cenvat credit. - No reasons for prohibiting credit on capital goods.

11. Penalties under Service Tax. Section 76. Penalty for delayed payment of Service Tax. Which shall not be less than Rs.200 per day or 2 % p.m. whichever is higher. Maximum limit – ST payable.

12. Penalties under Service Tax. Section 77. Penalty for contravention of any provisions for which no separately penalty is prescribed. Rs.1000.

13. Penalties under Service Tax. Section 78. Penalty for suppression of value of Taxable Service. Minimum : Equal to Service Tax. Maximum : Twice the Service Tax. Waiver under Sec. 80.

14. No more a friendly levy! Sections 73 C & 73 D (effective from 18th April 2006) Power to attach property, even at SCN Stage. Publication of names.

15. Section 87 - Draconian Recovery powers. F Deductions from any refunds from the Customs / Central Excise Departments, across the country. F Chase the debtors including banks, P.Os, etc ! F Beware debtors, if you don’t oblige, you are a defaulter! (they will chase your debtors too!) F Detention of any movable / immovables, which “belongs to” or “under the control of” the defaulter. F Mundane Certificate action.

16. Pathway to justice. F Show Cause Notice. F Normal Period & Extended period. F Power of adjudication. F Order in Original. F Appellate remedies. - Appeal by assessee. - Appeal by department.

17. Services – often come across…

18. Business Auxiliary Service… F Promotion / Marketing / Sales of goods / services • Customer care services. • Procurement of inputs / input services. • Production or processing of goods. • Provision of service on behalf of the client. • Incidental / Auxiliary Services.

19. Business Auxiliary Service… F Exclusion of manufacture. F Exemption under Notification 8/2005. F Practical difficulties in Notification 8/2005.

20. Business Support Service… • “Services provided in relation to business or commerce”. • Outsourced services. • Scope for interpretation.

21. Goods Transport Agency… F Reverse charge. F 75 % abatement and conditions therefor. F Whether can be paid out of Cenvat credit? F Exemption upto Rs.1500/Rs.750. F Cenvatability of outward transportation.

22. Commercial / Industrial construction… F Commercial Vs Non Commercial. F Abatement of 67 %. F Effect of sub contracting. F Finishing services. F Materials supplied by client.

23. Residential construction… F Treatment of land value. F Sale at different stages. F Personal use.

24. Intellectual property service… F Brand names / Trade marks. F Technical know how vis-à-vis Patent. F Franchisee service.

25. Export of Services…

26. Era of simplicity… Notification 2/1999 Dt. 28.02.1999. Notification 6/1999 Dt. 09.04.1999. Rescinded by Notification 2/2003 Dt. 01.03.2003 Notification 21/2003 Dt. 20.11.2003. Rescinded by Notification 10/2005 w.e.f. 15.03.05

27. Era of complexity… Export of Services Rules, 2005 Introduced vide Notification 9/2005 Dt. 03.03.2005 With effect from 15.03.2005. Amended by 28/2005 Dt. 07.06.2005 With effect from 16.06.2005. Amended by 13/2006 Dt. 19.04.2006 With effect from 19.04.2006

28. Basic thumb rules. Service must be delivered outside India and used outside India. Payment for such service must be received in convertible forex.

29. Category I The service must be in relation to immovable property situated outside India.

31. Examples F An Indian construction company, building a commercial complex, in Afghanistan. F An interior decorator, being engaged for beautification of “White House”.

32. Category II The service must be performed outside India, at least partly.

38. Examples F Despatch through courier to a foreign destination. F Tour operator, covering Pakistan also. F Madonna inviting an Indian beautician. F Chartered Accountant, auditing the accounts of Britney Spears. F Putting up a pandal, along Indo-Nepal boarder, covering a bit of Nepal too.

39. Category III If provided in relation to business or commerce - the recipient should be located outside India. Otherwise - the recipient should be located outside India, at the time of provision of such service. If the recipient has a presence in India, the order for service must be from outside India.

44. Examples F Consulting engineer, rendering service to a foreign client. F Downloading web content, by a foreign national. F Soliciting orders for a foreign company. F Job work for a foreign principal. F Manpower recruitment for a foreign company.

45. What if services are exported? No Service tax needs to be paid on export of Services. (Rule 4 of Export of Service Rules, 2005) If paid, rebate can be claimed. (Rule 5, ibid and Notification 11/2005) Rebate of duties of excise / service tax, suffered on inputs / input services, can be claimed. (Rule 5, ibid and Notification 12/2005)

46. What if services are exported? Cenvat can be availed for the inputs / input services used for the exported services. (Cenvat Credit Rules, 2004) Refund of unutilized credit. (Rule 5 of CCR, 2004 & Notification 5/2006) F Rule 6 & Export of Service.

47. Import of Services…

48. Rule 2 (1) (d) (iv) of Service Tax Rules, 2002 (16.08.2002) Explanation to Section 65 (105) (16.06.2005) Section 66 A and Rules made thereunder (18.04.2006)

49. Category I F The property must be situated in India. Category II F The service must be performed in India, at least partly. Category III F The recipient must be in India.

50. F Services received by individuals, for non business / non commercial purposes are not covered. F To be paid only in cash. F Cenvatable, if otherwise eligible.