Service Tax Law:
(a) Finance Act, 1994: Chapter V & VA of the Finance Act, 1994.
(b) Rules on service tax: Rules are made for carrying out the provisions of the Act. The rules can never override the Act. E.g. Services Tax Rules 1994, Service Tax (Registration of Special Category of Persons) Rules, 2005, Service Tax (Determination of Value) Rules, 2006, Point of Taxation Rules, 2011 and Place of Provision of Service Rules, 2012.
(c) Notifications on service tax: Finance Act, 1994 empower the Central Government to issue notifications to exempt any service from service tax and to make rules to implement service tax provisions.
(d) Circulars or Office Letters (Instructions) on service tax: The Central Board of Excise and Customs (CBEC) issues circulars to explain the scope of taxable services and the scheme of service tax administration etc. However, the provisions of any Act cannot be altered or contradicted or changed by the circulars.
Persons involved:
1) Service Provider – Generally collects & pays ST to the govt. Even if he fails to collect ST, he has to pay to govt.
2) Service recipient – Final burden of service tax is on him.
Extent, Commencement and Application [Section 64]:
The Act extends to whole of India except the state of Jammu & Kashmir (Section 64(1)).
Provisions of the Act do not extend to Jammu & Kashmir:
(a) Service provided in Jammu & Kashmir not liable to service tax.
(b) Services provided from Jammu & Kashmir outside Jammu & Kashmir liable to service tax.
India means:
(a) The territory of the Union (States and the Union Territories)
(b) Its territorial waters (up to 12 nautical miles from the Indian land mass), continental shelf, exclusive economic zone or any other maritime zone.
(c) The seabed and the subsoil underlying the territorial waters; (d) The air space above its territory and territorial waters; and
“India” includes Continental Shelf and Exclusive Economic Zones (200 NM) for following purpose:
1) Service provided for construction of installation, structure and vessel for extraction of mineral oil or natural gas.
2) Any service to such installation, structure and vessel.
Charge of Service Tax [Section 66B]:
- Tax shall be levied at the rate of 14%
- on the value of all services,
- other than those services specified in the negative list,
- provided or agreed to be provided
- in the taxable territory,
- by one person to another,
- and collected in such manner as may be prescribed.
Definition of service [Section 65B(44)]:
Service means:
(i) any activity for consideration
(ii) carried out by a person for another and
(iii) includes a declared service.
Exclusions: (Not a Service - So Not taxable) However, a service shall not include:-
(a) Activity which constitutes merely,—
(i) Transfer of title in goods or immovable property, by way of sale, gift etc; or
(ii) Transfer, delivery or supply of any goods which is deemed to be a sale within article 366 of the Constitution; (Eg. Hire Purchase) or
(iii) Transaction in money or actionable claim (Unsecured debts)
(b) Service by an employee to the employer in the course of or in relation to his employment;
(c) Fees taken in any Court or tribunal.
Explanation 1: (Functions performed by below are not considered as service and hence not taxable):
(A) the functions performed by the Members of Parliament / State Legislative / Panchayats / Municipalities / local authorities as such member; or
(B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority.
Explanation 2: If a transaction is only in money, then it is not a service and hence not taxable. But any activity relating to the use of money or its conversion from one form, currency or denomination, to another for which a fee or commission is charged, then it is not a transaction only in money and hence such fee or commission charged is taxable.
Following are not transaction in money and hence taxable: Any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out––
(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;
(b) by a foreman of chit fund for conducting or organising a chit in any manner.
Explanation 3: (Only services provided by one person to another are taxable. Therefore services provided by one branch of a company to another or to its head office or vice-versa are not taxable as they are not provided by one person to another.)
However for the purposes of this Chapter,
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (So Taxable)
(b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory. (So Taxable)
Monetary consideration and non-monetary consideration:
1. Monetary consideration means any consideration received in the form of money. Money means legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheque, money order, postal or electronic remittance or any such similar instrument but shall not include any currency that is held for its numismatic value.
2. Non-monetary consideration essentially means compensation in kind such as the following:
• Supply of goods and services in return for provision of service.
• Refraining or forbearing to do an act in return for provision of service
• Tolerating an act or a situation in return for provision of a service
• Doing or agreeing to do an act in return for provision of service.
Examples of an activity without consideration (not taxable) are as follows:-
• Tourism information free of charge
• Access to free TV channels
• An artist performing on a street where passersby may drop some coins in his bowl kept either after feeling rejoiced or out of compassion
• Large number of governmental activities for citizens
Examples of consideration without an activity (not taxable) are as follows:-
• Personal obligations e.g. pocket money
• Amount paid as alimony for divorce
• Donations without conditions
• Pure gifts
• Tips and ex-gratia payments
Negative list of services [Section 66D]:
This 'Negative List' is of importance because every activity not covered under this list is chargeable to service tax.
(a) Services provided by Government or a local authority:
Definition of Government incorporated in the Act [Section 65B(26A)]:
“Government means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder”. [Effective from 14.05.2015]
Not taxable (Negative List): - Basic mail, inland letter, registered post, transfer of money through money orders, operation of savings accounts, issue of postal orders, pension payments. - All other service by Government if not specified in taxable list below.
Taxable:
(i) Services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services (distribution of mutual funds, bonds, passport applications, collection of telephone and electricity bills) provided to a person other than Government;
(ii) Services in relation to an aircraft or a vessel;
(iii) Support services provided to business entities;
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