The Service Providers, engaged in rendering consultancy or other services are most impacted by Service Tax law, as they dont have the knowledge infrastructure required to comply with requirements of this law.
The Tax Experts at Taxmantra proposes to assist you in all your service tax issues, such as levy of services, taxability, filing of returns and others. We believe that you as a service provider should just focus on your core expertise to enhance the value of your profession and leave the compliances part to us.
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FAQ On ‘Service Tax’
Histroy about Service Tax.
Service tax was introduced for the first time in the year 1994 through insertion of Chapter V of Finance Act, 1994 (here in after referred to as “Act”). There is as yet no separate Act for levy and collection of service tax. Since 1994, the scope of taxability was increased by providing for levy of service tax on new categories of services. However, in the Finance Act, 2012, radical changes have been made in section 66B by providing that service tax is payable on all services rendered in taxable territory except the specified under section 66D. Thus from 1-7-2012 tax will be levied on all the services except the one specified under section 66D.
Since 1994, taxable service was defined in section 65(105) of Finance Act, 1994. Service Tax as per section 66, was payable on rendering of services specified in section 65(105). The Finance Act, 2012 has completely changed the basis of imposing the tax. The tax is payable on all the activities except those specified in negative list or otherwise exempt.
Definition of Service.
Service tax is charged on the taxable amount of services rendered by the service provider. Here “service” means any activity carried out by a person for another for consideration and includes a declared service, but shall not include –
- Any activity which constitutes merely-
a) A transfer of title in goods or immovable property, by way of gift, sale or in any other manner
b) Such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution
c) A transaction in money or actionable claims
- Any kind of service provided by an employee to an employer in the course of his employment.
- Fees taken in any Court or Tribunal established under any law for the time being in force.
Act does not extend to Jammu & Kashmir
Unlike the Central Act which extends to the whole of India including the State of Jammu & Kashmir, the provisions relating to service tax do not extend to the State of Jammu & Kashmir but only to the rest of India. Therefore, services provided within the territorial limits of the State of Jammu & Kashmir are excluded from the purview of the levy of service tax, irrespective of whether the person rendering the service or the person receiving the service is residing within or outside that State.
What is Negative List ?
To a lay person, not initiated into the rigors of tax policy, a negative list of services implies two things: firstly, a list of services which will not be subject to service tax; secondly, other than the services mentioned in the negative list, all other services will become taxable which fall within the definition of the ‘supply of services’. This can be contrasted from the present method of taxation that has detailed description for each taxable service and all other unspecified services are not liable to tax. The latter method of taxation is also referred to as taxation by way of a positive list.
Date of effect.
The provisions contained in the Finance Act, 2012 relating to levy of tax by specifying negative list of services will be effective from 1-7-2012.
List of services under Negative List?
(a) Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere:
(i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Government;
(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;
(iii) transport of goods or passengers; or
(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities.
(b) Services by the Reserve bank of India.
(c) Services by a foreign diplomatic mission located in India.
(d) Services relating to agriculture or agricultural produce by way of –
(i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;
(ii) supply of farm labour;
(iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter essential characteristics of agricultural produce but make it only marketable for the primary market;
(iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;
(v) loading, unloading, packing, storage or warehousing of agricultural produce;
(vi) agricultural extension services;
(vii) services by any Agricultural Produce Marketing Committee or Board or servicesprovided by a commission agent for sale or purchase of agricultural produce.
(e) Trading of goods.
(f) Any process amounting to manufacture or production of goods.
(g) Selling of space or time slots for advertisements other than advertisements broadcast by radio or television.
(h) Service by way of access to a road or a bridge on payment of toll charges.
(i) Betting, gambling or lottery.
(j) Admission to entertainment events or access to amusement facilities.
(k) Transmission or distribution of electricity by an electricity transmission or distribution utility.
(l) Services by way of –
(i) pre-school education and education up to higher secondary school or equivalent;
(ii) education as a part of a curriculum for obtaining a qualification recognized by law;
(iii) education as a part of an approved vocational education course.
(m) Services by way of renting of residential dwelling for use as residence;
(n) Services by way of –
(i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount;
(ii) inter-se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst banks and such dealers;
(o) Service of transportation of passengers, with or without accompanied belongings, by –
(i) a stage carriage;
(ii) railways in a class other than –
(A) first class; or
(B) an air conditioned coach;
(iii) metro, monorail or tramway;
(iv) inland waterways;
(v) public transport, other than predominantly for tourism purpose, in a vessel between places located in India; and
(vi) metered cabs, radio taxis or auto rickshaws;
(p) Services by way of transportation of goods –
(i) by road except the services of –
(A) a goods transportation agency; or
(B) a courier agency;
(ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; or
(iii) by inland waterways;
(q) Funeral, burial, crematorium or mortuary services including transportation of the deceased.
What are Declared Services?
Service tax is imposed on various services since 1994. The list of taxable services has been expanded in every Finance Act. Since then levy of service tax on some of the services like renting of immovable property, on professionals like Chartered Accountants, Cost Accountants, Sale of premise by builder/developer, etc. have led to lot of litigations. Trade Associations have challenged the authority of the Parliament to levy service tax on such services in the ground that Central Government does not have power to levy tax under the Constitution of India and on other grounds like the transaction is sale and not a service. In the Finance Act, 2012, the said disputed items have been separately declared as taxable services under 66E of Chapter V of Finance Act, 1994. The reason for declaring these services under section 66E is for removal of some ambiguities and to avoid litigations.
List of Declared Services
(a). Renting of immovable property
(b). Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.
(c). Temporary transfer or permitting the use or enjoyment of any intellectual property right
(d). Development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software
(e). Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act
(f). Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods
(g). Activities in relation to delivery of goods on hire purchase or any system of payment by installments
(h). Service portion in the execution of a wrong contract
(i). Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.
Compliances relating to Service Tax
When should one apply for Service Tax Registration?
Any person who collects Service Tax on taxable service provided is required to pay the service tax to the Government. However, in the terms of Finance Act it is provided that any person who has provided a taxable service not exceeding Rs. 9 lakh in the previous Financial Year or in case of a new service provider taxable service provided not exceeding Rs. 10 lakh.
As per section 68(1) of the Finance Act, every person liable for paying service tax has to register with the Superintendent of Central Excise. He should register within 30 days from date of commencement of the business of providing taxable services.
What is the procedure of Registration & when it is required to get registered?
When the total amount of taxable service in a year exceeds Rs.9lakhs, registration with the Service Tax office or the Central Excise office is required, making an application in Form ST – 1(in duplicate) within 30 days from the date of notification of taxable service. Department is required to issue the registration certificate within 7 days of the receipt of the application in Form ST – 2. In case of failure to issue the certificate, the registration is deemed to have been granted and the assessee can carry out his activities.
Documents required for registration
- Copy of PAN Card
- Proof of residence
- Constitution of applicant
- Address proof of the premises being registered
- Residential address of proprietor /partners in the firm along with address proof and stamp size photograph;
- Copy of partnership deed or memorandum of association; and
- Copy of power of attorney authorizing any of the partners/employees of the firm to sign deal and comply with the matters relating to Service Tax.
This list is not exhaustive in nature and it includes other documents which varies with entity applying for registration.
Penalty for late registration
If there is delay in registration, then penalty upto Rs.10000 or Rs.200 per day of delay (whichever is higher) can be imposed by the department. However if the assessee proves that there was a reasonable cause for the delay, the penalty can be waived.
When is service tax required to be paid?
Service Tax is to be paid on accrual basis, that is,it is to be paid irrespective of the fact whether the payment of service is received or not. However professionals are entitled to pay tax on receipt basis.
In case the assessee is an individual or a proprietary or partnership firm, the Service tax is to be paid on quarterly basis. In other cases, the tax is payable on monthly basis. The payment is to be made by the 5th day of the month following the quarter or month, as the case may be. Except for the quarter ending March, it is required to be paid latest by 31st March of that quarter itself. Payment is to be made using the G.A.R 7 form
What are the compliances under the service tax laws?
- Service Tax return is to be submitted on half yearly basis in form ST-3/ ST-3A (in triplicate) along with a copy of the form GAR-7.
- Due date of filling return is normally on half yearly basis for all assessees:
- for April to Sept – 25th Oct
- for Oct to Mar – 25th April
But for this year the Dept. has allowed filing on quarterly basis i.e. April-June
- Having a PAN is essential for successful registration and for payment of service tax within the due date.
- If a person fails to furnish in due time the return which he is required to furnish then he shall be liable to penalty which may extend to an amount not exceeding one thousand rupees.
Payment of Service Tax
Service Tax will be payable on the basis of date of billing or receipt of advance (Whichever is earlier) and not on receipt basis. Payment is Service Tax is to be made on the following basis:
Assessee (other than individual, proprietary firm or partnership firm) has to pay by 5th of the month following the month in which service is deemed to be provided as per rules framed in this regard (by 6th in case of e-payment) except in March.
ssessee who is an individual or proprietary firm or partnership firm shall make payment on quarterly basis within 5 days at the end of quarter in which service tax is deemed to be provided as per rules framed in this regard (by 6th in case of e-payment) except in March.
Filing of Service Tax Return
Service tax is required to be filed by every assessee in relation to services rendered by them. With the advancement in technology, nowadays service tax return can be filed online or electronically by every eligible assessee. A misconception always occurs in the mind of assessee while filing service tax return that it’s a cumbersome process and is often confused by this.
Advantages of filing service tax return online –
- Saves time
- Easy to proceed
- Quick refund of tax
- Secure & confidential submission
- Online tracking the status of selected documents
- Reduces paper work
The following steps needs to be undertaken –
- Returns can be filed and prepared online by selecting the ‘File Return’ option under RET module after logging into the ACES (Automation of Central Excise and Service Tax).
- All validations are thrown up during the preparation of return in this mode & the status of the return filed using the online mode is instantaneously shown by the ACES.
- Off- line returns can also be filed & prepared. Assessee’s downloads the offline return preparation utility available at http://www.aces.gov.in
- Prepares the offline return using this utility. The return preparation utility contains preliminary validations which are thrown up by the utility from time to time.
- Using the User ID & Password assessee should log in.
- Select RET from the main menu and upload the return. Instructions for using the offline utilities are given in detail in the HELP section, under ‘Download’ link and assessee are advised to follow them.
- Returns uploaded through this procedure are validated by the ACES before acceptance into the system which may take up to one business day. Assessee can track the status of the return by selecting the appropriate option in the RET sub menu. The status will appear as ‘uploaded’ meaning under process by ACES.
‘Filed’ means it has successfully accepted by the system & ‘rejected’ means ACES has rejected the return due to validation error and it can be resubmitted after making corrections.
- Once the returns has been filed in the ACES or uploaded to the system using the offline utility, the same cannot be modified or cancelled by the assessee. However, the service tax return can be modified once as per rules up to 90days from the date of filing the initial return.
- Self assessed CE returns, after scrutiny by the competent officer, may result into modification. Both the ‘original’ and ‘reviewed’ return can be viewed by the assessee online.
Consequences for Delayed filing
If you are filing Service tax return after the due date then you may be held liable for the late fee upto Rs. 20,000. Every taxable service provider is mandatory required to e-file half yearly ST-3 return within 25 days of the end of the half year i.e., 25th October and 25th April every year.
Late fee for delayed filing
Mandatory late fee for delayed filing of ST-3 Return is as follows:
- Delay upto 15 days – Rs.500
- Beyond 15 days and upto 30 days – Rs.1000
- Delay beyond 30 days – Rs.1000 plus Rs.100 per day of delay beyond 30 days, from 31st day onwards, subject to, the ceiling limit of Rs. 20000.
Is “late fee” mandatory
In case of delayed filing of ST return, the appropriate late fee should be paid at the time of filing the return, without waiting for any communication or notice from the department.
Penalty for late filing of return
If ST return is not filed within due date, penalty is leviable, which can be upto Rs. 10,000. The penalty can be waived, if assessee proves that failure was due to reasonable cause.
Waiver or reduction of penalty by Central Excise Officer, if service tax payable was Nil
ST return is required to be filed even if service tax payable is Nil. However, in this case Central Excise Officer can reduce or waive penalty, if return was not filed, if sufficient cause is shown.
Moreover, if late fee is paid by the assessee then penalty will not be imposed.
Penalty in case providing more than one service
If assessee is providing more than one service, there is only one penalty for delay in filing return and no separate penalties for each taxable service.
What is Input Tax Credit and when can one avail such credit?
Input tax – It is the tax paid by the dealer on his local purchases of business inputs, which include raw material, goods that he purchases for resale, capital goods as well as other inputs for use directly or indirectly in his business.
Input Tax Credit – It means setting off the amount of input tax by registered dealer against the amount of his output tax. It is reiterated that tax paid on the earlier point is called input tax. This amount will be adjusted/ rebated against the tax payable by the purchasing dealer on his sales. This credit availability is called input tax credit.
Purchases eligible for availing Input Tax Credit
For availing Input Tax Credit the taxable goods should be purchased for any one of the following purposes:
- for sale/ resale within the State;
- for sale to other parts of India in the course of inter- State trade or commerce;
- for being used in the execution of a works contract;
- to be used as –
- Containers or packaging materials
- Raw materials or
- Consumable stores
required for the purpose of manufacture of taxable goods or in the packing of such manufactured goods intended for sale in the State or in the course of inter-State trade or commerce.
- to be used as capital goods required for the purpose of manufacture or resale of taxable goods;
- to be used as -
- Raw materials
- Capital goods
- Consumable stores
- Packing materials/ containers
for manufacturing/ packing goods to be sold in the course of export out of the territory of India;
- for making zero-rated sales other than those referred to in clause (6) above.
Purchases not eligible for Input Tax Credit
Input tax credit may not be allowed in the following cases:
a) purchases from unregistered dealers;
b) purchases of goods as may be notified by the State Government;
c) purchases from registered dealer who opt for composition scheme under the provisions of the Act;
d) purchases of goods where invoice does not show the amount of tax separately;
e) purchases of goods, which are being utilized in the manufacture of exempted goods;
f) purchase of goods used for personal use/ consumption or provided free of charge as gifts
g) goods imported from outside the territory of India
h) goods imported from other States viz. inter- State purchases.
Penal Provision Under Service Tax
Every assessee under service tax should file their returns timely so as to avoid the penalty provisions. Under service tax penalty can be imposed on various matters. Non-registration, non-maintenance of books of accounts, not furnishing proper information, etc. attract penalty to be levied under service tax. In order to avoid these penal provisions assessee should compile with all the provisions under service tax properly and avoid mistakes.
The penalties under this are not mandatory and can be waived off or reduced for sufficient reasons. If service tax and interest is paid before Show Cause Notice, then penalty cannot be imposed under this section.
Penalty provisions for not obtaining Registration – A person who is liable to pay service tax, or required to take registration, and who fails to get registration under service tax, shall be liable to pay a penalty which may extend to Rs. 10,000 or Rs. 200 for every day during which the default continues (whichever is higher), starting from the first day after the due date, till the date of actual compliance.
Penalty provisions for non – maintenance of Books – Failure to maintain books or retain the books of accounts or other documents as required shall be liable to a penalty of Rs. 10,000.
Penalty provisions for not furnishing information required – If a person fails to furnish information called by an officer or fails to produce documents called for by a Central Excise Officer, then he shall be liable to a penalty which may extend to Rs. 10,000 or Rs. 200 for every day during which the default continues (whichever is higher), starting from the first day after the due date, till the date of actual compliance.
Penalty provisions for issuing incorrect invoice or not accounting invoices in his books of accounts – If a person issues invoice in accordance with the provisions of the act or rules made there under with incorrect or incomplete details or fails to account for an invoice in his books of account, he shall be liable to a penalty which may extend to Rs. 10,000.
Penalty provisions for failure to pay tax electronically when required – If a person, who is required to pay tax electronically, through internet banking, fails to pay tax electronically, then he shall be liable liable to a penalty which may extend to Rs. 10,000.
Penalty provisions for non- appearance before officers on issue of summons – If a person fails to appear before the Central Excise Officer, when issued with a summon for appearance to give evidence or to produce a document in an inquiry, he shall be liable to a penalty which may extend to Rs. 10,000 or Rs. 200 for every day during which the default continues (whichever is higher), starting from the first day after the due date, till the date of actual compliance.
Taxmantra has the domain expertise in field of Service Tax, assisting hundreds of individuals and corporates in their service tax matters ( Returns + Query + Registration).
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