Service Tax Procedures

1.1     As on 1^st May, 2006,   95 services are identified as taxable services in India.  Section 64 of the Finance Act, 1994, extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir.

Generally, the liability to pay service tax has been placed on the ‘service provider’.

1.2     Service tax is payable @ 12% of the ‘gross amount’ ( in specific cases partial deductions are allowed, refer section 67 of the Finance Act) charged by the service provider for providing such taxable service. The Education Cess is payable @2% of the service tax payable. The liability to pay service tax has been placed on the ‘receiver / recipient’ of the service under certain situations.( Refer section 68 of the Finance Act and Rule 2(1)(d) of Service Tax Rules, 1994)

Example: Suppose the value of taxable service is Rs.100. Service tax @12%  will be Rs.12 and Education Cess @2% of the Service Tax will be Rs.0.24

1.3     The Table below shows the category of services which are taxable with the date of introduction of such service. The table also shows the ‘accounting heads’ for each category service, for the purpose of payment of service tax, interest / penalty and Education Cess.

2.1     Every service provider of a taxable service is required to take registration with the jurisdictional Central Excise Office. A ‘registered’ service provider is referred to as an ‘assessee’
(Refer section 69 of Finance Act, 1994)

2.2     The service tax is administered by the Central Excise Department. The government website www.exciseandservicetax.nic.in gives the details of the jurisdictional offices of the Central Excise Department, State-wise, District-wise as well as Commissionerate-wise.

2.3     Following two categories of persons have been identified as ‘Special Category of Persons’ under The Service Tax (Registration of Special Category of Persons) Rules, 2005:-

2.3.1   Input Service Distributor: It is an office of the manufacturer of excisable goods or an office of the provider of taxable service. When  ‘input services’ are purchased by such office under the cover of invoices issued by a service provider, the said office can distribute the  amount of service tax paid on such services, under a cover of invoice / bill / challan to its manufacturing units or service providing units. For this purpose such ‘office’ is required to obtain registration ( by filling up Form S.T.1) under the provisions of the above referred rules. The Input Service Distributor is also required to file a return, on half-yearly basis, giving details of credit received and distributed.

(Refer Rule 9(10) of Cenvat Credit Rules, 2004)

2.3.2   Any provider of taxable service whose ‘aggregate value of taxable service’ (‘aggregate value’ has been defined in Rule 2(b) of  The Service Tax (Registration of Special Category of Persons) Rules, 2005)  in a financial year exceeds three lakh rupees is required to apply ( by filling up Form S.T.1) to the jurisdictional Superintendent of Central Excise for registration.

2.4     In the following cities, Service Tax Commissionerates have been established. All service tax matters in the specified limits, are dealt by them.

          1. Mumbai

          2. Delhi

          3. Chennai

          4. Kolkata

          5. Bangalore

          6. Ahmedabad

3.1     Fill the Form ST-1 in duplicate. (Form ST-1 is available on the departmental website ( www.cbec.gov.in ) Enclose photocopy of PAN card and proof of address to be registered.

3.2     Copy of PAN card is necessary as a PAN based code (Service Tax Code) is allotted to every assessee.

3.3     These forms are required to be submitted to the jurisdictional Central Excise office ( in case of six Service Tax Commissionerates, to the jurisdictional Division office. There are separate service tax commissionerates in Mumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabad  as mentioned in the previous chapter).

3.4    A person liable to pay service tax should file an application for registration within thirty days from the date on which the service tax on particular taxable service comes into effect or within thirty days from the commencement of his activity.

(Refer Rule 4 (1) of Service Tax Rules, 1994)

3.5     Where a person, liable for paying service tax on a taxable service,

(i)                 provides such service from more than one premises or offices; or
 

(ii)               receives such service in more than one premises or offices; or,

iii)              is having more than one premises or offices, which are engaged in relation to such service in any other manner, making such person liable for paying service tax,

and has centralised billing system or centralised accounting system in respect of such service, and such centralised billing or centralised accounting systems are located in one or more premises, he may, at his option, register such premises or offices from where centralised billing or centralised accounting systems are located.

3.5.1       The registration under sub-rule (2), shall be granted by the Commissioner of Central Excise in whose jurisdiction the premises or offices, from where centralised billing or accounting is done, are located:

Provided that nothing contained in this sub-rule shall have any effect on the registration granted to the premises or offices having such centralised billing or centralised accounting systems, prior to the 2^nd day of November, 2006.

3.6     A single registration is sufficient even  when an assessee is providing more than one taxable services. However, he has to mention all the services being provided by him in the application for registration and the field office shall make suitable entries/endorsements in the registration certificate.

(Refer Rule 4 (4) of Service Tax Rules, 1994)

3.7     An assessee should  get the registration certificate (registration number) within 7 days from the date of submission of form S.T.1, under normal circumstances.

(Refer Rule 4 (5) of Service Tax Rules, 1994)

3.8     A fresh registration is required to be obtained in case of transfer of business to another person.

(Refer Rule 4 (6) of Service Tax Rules, 1994)

3.9     Any registered assessee when ceases to provide the taxable service shall surrender the  registration certificate immediately.

(Refer Rule 4 (7) of Service Tax Rules, 1994 )

3.10    In case a registered assessee starts providing any new service from the same premises, he need not apply for a fresh registration. He can simply fill in the Form S.T.1 for necessary amendments he desires to make in his existing information. The new form may be submitted to the jurisdictional Superintendent for necessary endorsement of the new service category in his Registration certificate.

4.1.  Every person providing taxable service is required to issue (within 14 days of completion of service) an invoice, a bill or challan signed by him or a person authorized by him. Such invoice, bill or challan should be serially numbered and should contain following information :

i    name, address and registration number of such person

ii    the name and address of the person receiving services

iii   description, classification and value of taxable service provided, and

iv   service tax payable thereon.

(Refer Rule 4A (1) of Service Tax Rules, 1994)

4.2 Every input service distributor, distributing credit of taxable services should issue an invoice, a bill or challan signed by him or a person authorized by him for each of the recipient of credit distributed and such invoice, bill or challan should be serially numbered and should contain :

i. name, address and registration number of the person providing input services and the serial number and date of invoice, bill or challan issued by him.

ii    name, address and registration number of the input service distributor

iii   name and address of the recipient of the credit distributed, and

iv   the amount of the credit distributed.

(Refer Rule 4A (2) of Service Tax Rules, 1994)

4.3 Records to be maintained:

The records as maintained by the assessee in accordance with the various laws in force,  shall be accepted.

( Refer Rule 5 (1) of Service Tax Rules, 1994)

4.4 Every assessee is required to furnish to the Superintendent of Central Excise a list of accounts maintained by him in relation to service tax. This list is to be submitted once at the time of filing his first S.T.3 return.

(Refer Rule 5 (2) of Service Tax Rules, 1994)(e.g. books of account, viz. sales register, purchase register, cash book, petty cash book, general ledger, etc.)

5.1     The valuation under service tax is governed by the provisions made under section 67 of the Finance Act, 1994

5.2     Value of taxable service shall be determined on the basis of one of the following:

a. consideration in money for providing the service.

b. consideration in money + consideration in any other form

c. consideration in any form other than money

The consideration in any form other than money shall be determined in a manner as prescribed.

(Refer section 67(1) of the Finance Act, 1994)

5.3     Service Tax (Determination of Value) Rules, 2006 have been notified which have the following salient features:

5.3.1   the value of taxable service shall be the gross amount charged for providing such service in ordinary course of trade and the gross amount charged is the sole consideration.

5.3.2   when value can not be determined by the method given at 5.3.1, then the service provider shall determine the equivalent money value  of such consideration ( which shall In no case be less than the cost of provision of such taxable service)

5.3.3   if the Central Excise Officer is satisfied that the value determined by the service provider is not in accordance with the provisions of the Act or these rules, he shall issue a notice to show cause why the value of taxable service should not be fixed at the amount specified in the notice.

5.3.4   Any expenditure or costs incurred by the service provider in course of providing taxable service shall be treated as consideration for the taxable service provided and shall be included in the value of taxable value.

5.3.5   The expenditure or costs incurred by the service provider as a ‘pure agent’ of the recipient of the service, shall be excludible from the value of taxable service, subject to conditions specified in the rule 5(2) of the Service Tax (Determination of Value) Rules, 2006

5.3.6   Specific cases in which the commission, costs, etc. shall be included or excluded are provided under rule 6 of the Service Tax (Determination of Value) Rules, 2006

5.3.7   Rule 7 of the Service Tax (Determination of Value) Rules, 2006 provides for actual consideration to be the value of taxable service in case of services provided from outside India

(refer section 66A of the Finance Act, 1994, as amended)

5.4     The gross amount charged can be inclusive of service tax. In such a case the value shall be such amount as , with the addition of tax payable, is equal to the gross amount charged. ( e.g. if gross amount charged, including service tax is Rs.100. Then the value of taxable service shall be Rs.90.75 and the service tax payable shall be Rs.9.07 plus Education Cess  Rs.0.18)

(Refer section 67(2) of the Finance Act, 1994)

5.5     The gross amount charged for taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(Refer section 67(3) of the Finance Act, 1994)

The table below shows the rate of service tax applicable at the relevant period of time.

6.1     In case of Individuals or Proprietary Concerns and Partnership Firm, service tax is to be paid on quarterly basis. The due date for payment of service tax is the 5^th of the month immediately following the respective quarter. For the purpose,  quarters are : April to June, July to September, October to December and January to March. However,  payment for the last quarter i.e. January to March is required to be made by 31^st of March itself.

( Refer Rule 6 (1) of Service Tax Rules, 1994)

6.2     In case of any other category of service provider than specified in 1 above,  service tax is to be paid on monthly basis, by the 5th of the following month.  However,  payment for the month of March is required to be made by 31st of March itself.      

( Refer Rule 6 (1) of Service Tax Rules, 1994)

6.3     Service tax is to be paid on the amount realized / received by the assessee during the relevant period ( i.e. a month or a quarter as the case may be)     

( Refer Rule 6 (1) of Service Tax Rules, 1994)

6.4     The assessee is required to deposit the amount of service tax due in the designated banks through TR-6 challan .

(Refer Rule 6 (2) of Service Tax Rules, 1994) ( Assessees may contact jurisdictional office for details of designated banks.)

6.5     From 1st October, 2006 e-payment of service tax has been made mandatory for the assessees who have paid service tax of Rs.50 Lakhs and above during the last financial year or who have paid service tax of Rs.50 Lakhs and above during the current financial year (i.e. 2006-07, till 30th September, 2006)

(Refer Rule 6 (2) of Service Tax Rules, 1994)

6.6     It is required that the TR-6 challan should be yellow in colour. Each category of service is assigned a particular ‘account head’. While depositing the service tax the appropriate ‘account head’ pertaining to the particular service category should be mentioned on the challan. The correct accounting heads have been given in the table showing the ‘List of Services’ in the foregoing pages.

6.7              If the assessee deposits the amount of tax liable to be paid, by cheque, then the date of presentation of the cheque to the designated bank would be treated as the date of payment of service tax.

(Refer Rule 6 (2a) of Service Tax Rules, 1994)

6.8     Where an assessee has paid to the credit of Central Govt. service tax in respect of taxable service, which is not provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him        (proportionately on pro-rata basis) against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the concerned person.    

( Refer Rule 6 (3) of Service Tax Rules, 1994)

6.9     The assessee can opt for provisional payment of service tax in case he is not able to correctly estimate the tax liability. In such a situation he may request in writing to the jurisdictional Assistant / Deputy Commissioner for the same.

( Refer Rule 6 (4) of Service Tax Rules, 1994).

6.10    Service tax ( including interest, penalty, refund) is to be rounded off to the nearest rupee. 50 paise or more should be rounded off to the next rupee and less than 50 paise should be ignored.

( Refer Board’s Circular No.53/1/2003 dated 11.03.2003)

6.11    Service tax is an indirect tax and can be recovered from the service receiver by the service provider in course of his business transactions.  Even if a service receiver disputes or refuses to pay the service tax element, the service provider must discharge his service tax liability.

6.12    Any person who has collected any sum on account of service tax, is under obligation to pay the same to the Government. He can not retain the sum so collected with him by contending that service tax is not payable.           

( Refer section 73A of the Finance Act, 1994.)

7.1  Import of service: There is no concept as ‘import’ of service in the strict sense of the term in the Finance Act, 1994 or the rules made there under. Here the word ‘import’ is used just to indicate service provided by a person who has established his business or has his permanent address outside India and the recipient of such service is such a person who has his permanent address or usual place of business in India.

7.1.1   Provisions made under section 66A of the Finance Act, 1994 provide for payment of service tax by the recipient of service in cases where the provider of taxable service is from outside  India and the receiver of service has his permanent address / usual place of business in India. This is applicable even though the service is received / consumed by the such Indian outside India. This provision is not applicable in case of individuals who have received such service other than for the purpose of use in business or commerce.

(Refer section 66A of the Finance Act, 1994)

7.1.2   In case where the service provider is a non-resident or is from outside India and does not have office in India, the person receiving the service shall be liable to pay the service tax.

( Refer Rule 2 (1)(iv) of Service Tax Rules, 1994)

7.2      Export of Service:  The export of service is governed by the Export of Service Rules, 2005. ( notified vide Notification No. 9/2005 - service tax, dated 03.05.2005 and subsequently amended by Notification No.28/2005 - service tax, dated 07.06.2005 and Notification No. 13/2006- service tax dated 19.04.2006)

7.2.1   The taxable services have been divided in three groups and some group-specific criteria are prescribed for provision of a particular service in a particular group to be treated as export of service. However, there are two common conditions which are required to be fulfilled by all the taxable services (irrespective of the group they belong to) to qualify as exported services.

7.2.2   These two conditions are: (i) such service is delivered outside India and used outside India, and (ii) the payment received for providing such service should be in convertible foreign exchange. It is necessary that the common qualifying conditions as well as the group-specific conditions are  fulfilled so as to treat the provision of any such service as export of service.

7.2.3   For category 1 comprising of 10 services: the service should be provided in relation to an immovable property situated outside India.

7.2.4   For category 2 comprising of 50 services:  the service should be provided outside India, though in case the service is partly performed outside India, it shall be treated as performed outside India.

7.2.5   For category 3 comprising of 39 services: when provided in relation to business or commerce, it should be provided to a recipient located outside India and when not provided in relation to business or commerce it should be provided to a recipient located outside India at the time of provision of such service.

8.1     Every assessee is required to submit a half yearly return in form S.T.3 or S.T.3A (in triplicate) along with copies of T.R.6 challans. For the purpose of filing returns half year is counted from April to September and October to March. In case the assessee has opted for provisional payment of service tax he is required to file the service tax return in form S.T.3A. (Rule 7(1) of Service Tax Rules, 1994)

8.2       Date of filing of Returns : The half yearly return is required to be filed by the 25^th of the month following a particular half year. (Rule 7(2) of Service Tax Rules, 1994)

8.3       E-filing of Returns : The department has extended the facility of filing the returns on-line (e-filing of returns). This facility is available for all the categories of service providers. The assessee who is willing to opt for this facility is required to submit an application ( at least one month in advance before the due date for filing the return), in prescribed format (Annexed to Circular No.71/1/2004-ST dated 02.01.2004) to the jurisdictional Central Excise officer. The department would allot a username and password in due course of time to such assessee.

9.1     The due date for payment of service tax is 5^th day of the month of the  following the relevant month / quarter. It is provided under section 75 of the Finance Act, 1994 that in case of delayed payments ( after due date) the assessee is required to pay simple interest at the rate prescribed. Notification No. 26/2004 dated 10.09.2004 has specified the rate of interest at 13% per annum. The table below shows the rate of interest applicable at relevant period of time.

10.1    Section 73, 73A to 73D and Section 87 provide for recovery of service tax under various circumstances. Let us discuss the provisions made under each section separately.

10.2    Section 73: This section empowers the Central Excise Officer to serve notice to the person, chargeable with service tax, which has been not levied or paid or short-levied or short-paid or erroneously refunded. Time limit for serving a notice under this situation is ‘one year’ from the relevant date. Definition of ‘relevant date’ is given at the end of this chapter.

10.2.1 In cases where service tax has been not levied or paid or short-levied or short-paid or erroneously refunded by the reason of fraud; or collusion; or willful mis-statement; or suppression of facts; or contravention of any of the provisions of this act or rules made there under with an intent to evade payment of service tax, then the time limit for serving the notice is extended up to five years.

10.2.2 Section 73(1A) provides for conclusion of adjudication proceedings in respect of a person to whom a notice is served under the proviso to sub-section(1) of section 73 (i.e. deliberate evasion of service tax), if such person voluntarily deposits the service tax demanded in full and the interest payable thereon  under section 75 and penalty equal to 25% of the service tax demanded, the adjudication proceedings can be treated as conclusive.

10.3    Section 73A provides for voluntary payment by an assessee of any amount colleted in excess of the service tax leviable or recovery of any amount as representing service tax, that has been collected by a person but not deposited with the Central Government.

10.4    Section 73B enables the Central Government to collect interest on the amount as determined under sub-section (4) of section 73A at a rate notified by the Central Government.( not less than 10% but not exceeding 24% p.a.)

10.5    Section 73C provides for provisional attachment by Central Excise Officer of any property belonging to a person on whom notice is served under sub-section(1) of section 73 or sub-section (3) of section 73A during the pendency of such proceedings.

10.6    Section 73D provides for publishing the name of any person and any other particulars relating to any proceedings under the provisions of Chapter V of the Finance Act, 1994, in relation to such person, in public interest, in such manner as may be prescribed.

10.7    Section 87 provides for recovery of any amount due to the Central Government by any one of the following modes :

a. by deducting such amount from any money owed to such person, under the control of any Central Excise Officer or any officer of Customs .

b. by recovery from any other person from whom money is due to such defaulting person.

c. by restraining any movable or immovable property belonging to such person and detain the same until the amount payable is paid.

d. by preparing a certificate signed by such person specifying the amount due and send it to the Collector of district in which such person owns any property or carries on his business. The said Collector, on receipt of such certificate shall proceed to recover from such person the amount specified thereunder as if it were an arrear of land revenue.

Penalties have been prescribed under different sections for different types of offences.

Section 80 provides for non-imposition of penalty in certain cases falling under sections 76,77 and 78 if there is reasonable cause for such failure.

12.1    The ETA comprises of on-line generation of PAN based code numbers, filing of S.T.3 Returns and payment of service tax.

12.2    The on-line generation of PAN based code is in practice for last 5 years.

12.3   On-line submission of S.T.3 Returns was introduced from April, 2003. Initially, this facility was extended for 10 selected categories of services. However, from 20.01.2004 the facility of e-filing of returns has been extended to all the categories of services.

12.4   The facility of e-payment of service tax has also been introduced from 11.05.2005. Assessees can pay service tax through Internet Banking facility extended by certain banks. The following banks offer the facility of e-payment of service tax:

The list of the Banks offering e-payment facility:

(As on 24th July, 2006)

[Based on information from the office of the Principal Chief Controller of Accounts, CBEC]

(Assessees may find out if any other bank also provides for the facility of e-payment in his jurisdiction)

12.5 The procedure to be followed for availing the facility of e-payment is as under:

For taxpayers who opt to maintain account  with the concerned bank and willing to use Internet banking facility :

12.5.1 Taxpayer logs on to the bank’s web site.

12.5.2 The bank’s site allows the taxpayer to enter into the secure banking area after verifying the user Id and password provided to the taxpayer by the bank.

12.5.3 Once in the secure banking area of the bank, the tax payer can select the “Pay Tax” menu which will further offer option to select various taxes he can pay on-line.

12.5.4 Once opted for CBEC (Indirect Tax), the taxpayer is guided to the challan form for filling up the details.

12.5.5 There will be an on-line validation for Assessee Code, Location Code, Account Head against the masters provided to the bank from the concerned Pay and Accounts Office.  The validation is mandatory and only successful entrants will be allowed to proceed further.

12.5.6 Banks will obtain and keep only such Assessee Codes, in their master, which belongs to the assessee who falls under the Commissionerates for which the bank is authorized to collect Indirect Tax revenue.  This will ensure that the bank is not collecting and accounting indirect tax revenue for a Commissionerate for which it is not authorized.

12.5.7 On successful validation of the details in the challan format, the taxpayer is guided to a ‘make payment screen’ showing the payment details filled in by the taxpayer on the challan format.

12.5.8 The taxpayer gets an option to “Continue” or “Cancel”

12.5.9 On selecting “Cancel”, the taxpayer is prompt for entering his user Id and password to enter into the bank’s e-transaction module.

12.5.10  On selecting “continue”, the taxpayer is prompt for entering his user ID and password to enter into the bank’s  transaction module.

12.5.11  This screen further leads the taxpayer to the page describing his account details with the bank.

12.5.12  Taxpayer selects the account to be debited.

12.5.13  Authorise the payment transaction.

12.5.14  On successful payment transaction, the account of the taxpayer gets debited and taxpayer gets a unique system generated payment confirmation number.

12.5.15 The concerned Focal Point Bank prints the challan and includes in the scroll on a day to day basis and forward to the concerned PAO and, to the Range Officer as per the existing procedure and ensures two copies of the challan in delivered to the taxpayer.

12.5.16  Fund transaction and settlement with Government will be the exclusive responsibility of the bank as per the existing procedure.