Service Tax is an indirect levy of tax. Chapter V of the Finance Act, 1994 was inserted in order to tax Services in
Any service can be taxed only once even though it can be categorized in two or more categories. Thus classification of Service will gain importance. The principle to be followed is stated below and to be preferred in the order in which it is numbered
|
1 |
Primary |
Specific description will prevail over the general description. |
|
2 |
Secondary |
Classication based on the essential character |
|
3 |
Residuary |
Classification under the sub-clause which occurs first among the sub clauses of Section 65 of the Finance Act |
In the recent budget a new entry Works Contract Service is brought into Service tax net which includes (1) construction of building/civil structure for the purpose of commerce or industry and (2) construction of residential complex. These two services were liable to service tax even before 01.04.2007. There being a specific classification for both these service they will prevail over the general entry being works contract.
When to pay service tax i.e., when does the taxable event arise?
Section 67 of the Act – The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service
|
1 |
Advance towards provision of service |
Advances forms part of the gross amount charged if they are received after such service is notified in the law. |
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2 |
Advance payment is received for a service which is not taxable at the time of receipt but becomes taxable during the course of service |
Apportion appropriately between the two periods and that part of service provided on or after the notification date is liable for tax |
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3 |
Advances received after the Service is notified to be taxable |
Chargeable as soon as the advances are received in respect of services provided because the gross amount charged as per 67 also includes amount received towards the taxable service before the provision of service |
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4 |
Advances received in case of continuous provision of services |
Service tax is payable periodically from time to time as and when the payment is due or received |
Who has to pay the Service Tax?
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Sl. No |
Classification of Service |
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|
1 |
Insurance Auxiliary Services |
Even insurance agent is providing service, person carrying business or life insurance business is liable to pay service tax |
|
2 |
Goods transport agency (GTA) |
Consignor or Consignee are liable to pay the service tax if they are specified persons as defined in law and if GTA has not paid tax |
|
3 |
Mutual Fund Distributor (Business Auxiliary Services) |
If an agent is appointed by the Mutual fund or asset management company (AMC) on a commission basis then Mutual fund or AMC will be liable to tax. |
|
4 |
Sponsorship Services |
The body corporate or firm receiving sponsorship services should pay Service tax |
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5 |
Import of Services |
Recipient of Service (Importer) has to pay service tax subject to certain conditions |
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6 |
All other Services |
Provider of Services |
|
Rate of Service Tax | |
|
Service Tax |
12% of taxable value of service |
|
Education Cess |
0.24% of taxable value of service |
|
Secondary and Higher Education Cess (w.e.f 12.05.2007) |
0.12% of taxable value of service |
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Due date for payment | |
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Individual, Proprietorship Concern and Partnership Firms |
5th day from the end of relevant quarter Eg: For April to June (Quarter) by 5th of July |
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Other than the above |
5th day from the end of the relevant month |
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For the quarter/month ending 31st March |
31st March is the due date. |
Other points:
1. Provisions in the Act are the main legislature. Central Government cannot issue any circular or letter giving instructions or clarifications contradicting the provisions of the law or enlarging the scope.
2. Service tax is not leviable when:
· the services are provided free of cost
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