Introduction to Service Tax Legislation

I. CONSTITUTIONAL BACKGROUND

Article 265 of the Constitution of India read as:

"No tax shall be levied or collected except by authority of law"

This implies that the Government (whether central or State) can levy tax only when it has power to levy such tax in the Constitution. In other words, there can be no tax if the Government does not have the power to levy such tax in the Constitution of India.

Thus, the Government may levy a tax on the citizens only under the authority of the Constitution of India.

Powers of the Government to make laws is divided under three lists:

(a)    List – I: Also known as Union List - It contains the matters in respect of which only the Central Government has the power to make laws.

(b)   List – II: Also known as State List - It contains the matters in respect of which only the State Government has the power to make laws.

(c)    List – III: Also known as Concurrent List - It contains the matters in respect of which both the Central and the State Governments have power to make laws.

Entry 92C of the Union List read as “Taxes on services”, thereby the Central Government has power to levy Tax on Services (i.e. Service Tax can be imposed by the Central Government exclusively).

II. STRUCTURE OF SERVICE TAX LAW

Service tax was introduced in year 1994.

Statutory Provisions in the Act

Provisions of Service tax are mentioned in Chapter V of the Finance Act, 1994. There is no separate legislation for Service Tax. As provisions of Income Tax are mentioned in Income Tax Act 1961, but provisions of service tax are mentioned in Finance Act, 1994. It is to be noted that Service tax has no separate legislation and there is no independent Service Tax Act.

SERVICE TAX ACT[1].

Rules on service tax

(a) Services Tax Rules, 1994

(b) Service Tax (Advance Rulings) Rules, 2003

(c) CENVAT Credit Rules, 2004

(d) Export of Service Rules, 2005

(e) Service Tax (Registration of Special Category of Persons) Rules, 2005

(f)  Service Tax (Determination of Value) Rules, 2006; and

(g) Taxation of Services (Provided from Outside India and Received in India) Rules, 2006

Rules should be read with the statutory provisions contained in the Act. Rules are made for carrying out the provisions of the Act. The rules can never override the Act and cannot be in conflict with the same.

Notifications on service tax

Sections 93 and 94 of Chapter V, and section 96-I of Chapter VA of the 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. Consequently, notifications on service tax have been issued by the Central Government from time to time.

Circulars or Office Letters (Instructions) on service tax:

The Central Board of Excise and Customs issues departmental circulars or instruction letters from time to time to explain the scope of taxable services and the scheme of service tax administration etc.

The circulars clarify the provisions of the Act and thus, bring out the real intention of the legislature. However, the provisions of Finance Act, 1994 cannot be altered by the departmental circulars. In other words Circulars give intention to a provision; however these circulars can be challenged in Tribunal on the grounds of overriding Finance Act, 1994.

Orders on service tax:

Rule 3 of the Service Tax Rules, 1994, empowers the CBEC to appoint such Central Excise Officers as it thinks fit for exercising the powers under Chapter V of the Finance Act, 1994. Accordingly, orders have been issued by the CBEC, from time to time, to define jurisdiction of Central Excise Officers for the purposes of service tax.

Orders on service tax may be issued either by the CBEC or by the Central Government.

Trade Notices on service tax:

Trade Notices are issued by the Central Excise/Service Tax Commissionerates. These Commissionerates receive various instructions from the Ministry of Finance or Central Board of Excise & Customs for effective implementation and administration of the various provisions of service tax law. The same are circulated among the field officers and the instructions which pertain to trade are communicated to them in the form of trade notices.

Trade Associations are supplied with the copies of these trade notices. Individual assessees may also apply for copies of trade notices.

The trade notice disseminate the contents of the notifications and circulars/letters/orders, define their jurisdiction; identify the banks in which service tax can be deposited; give clarifications regarding service tax matters, etc.