SUDHIR SIR KEE CLASS - SERVICE TAX

CA SUDHIR HALAKHANDI: - Good Morning Students! Today we are starting our service tax class.  Since service tax is more complicated than VAT hence it will require more of you attention.  Are you ready?

CA SUDHIR HALAKHANDI: - Let us start with basics. See till 1994 services in our country were not taxable. In out country Goods were taxed but in most of the developed countries the Goods and services both were taken on the same footing as far as the tax is concerned. So in 1994 Dr. Manmohan Singh who was the Finance Minister at that time introduced service tax with three services at the initial stage. Do you know the famous quote of Dr. Singh when he introduced Service tax in India?

CA SUDHIR HALAKHANDI: - Yes the meaning was the same as you said but for exact wording we have to go for his Budget speech of 1994.  The exact wordings were:-

“There is no sound reason for exempting services from taxation, when goods are taxable and many countries treat goods and services alike for tax purpose.

CA SUDHIR HALAKHANDI: - Yes exactly, the providing services were not taxable in our country till 1994 but since in most of the countries the services are taxable hence there was a talk in our country to introduce service tax.

Further the Tax Reforms committee under the chairmanship of Late Dr. Raja Chelliah (Born in 1922 and passed away in April 2009) has also recommended introduction of service tax to broaden the base of indirect taxation.

Further the contribution of the Service sector to the Gross domestic product (GDP) was increasing from year to year hence there was a need to tax the services as goods are taxed.

CA SUDHIR HALAKHANDI: - Only three services: - 1. Telephones 2. Non-life insurance and 3. Stock brokers and the collection in very first year was only 410 crores and the number of assesses were only 3943 and see till 2003-04 the number of assesses were  403856 and the collection was 7890 crores. The collection in the year 2005-06 was Rs. 23053 Crores and it is increasing from year to year. 

See at present more than 100 services are covered under the net of service tax.

CA SUDHIR HALAKHANDI: - See service tax is relatively new concept and there are two approaches of imposing the tax on services, the first one is selective approach and the second one is Comprehensive approach and you are talking about the Comprehensive approach in which whole the service tax is taxed at once and if the law makers want to exempt some of the services then a negative list is also released.

In the selective approach Services are selected for taxation just it is being done in our country.

CA SUDHIR HALAKHANDI: - See the world is divided basically in two parts, the developed countries and the developing countries though a major part of un-developed countries is also there but for taxation purpose we can divide the world as Developed countries and Developing countries. Both these segments of world economy has their own taxation policies and most of the developed countries have adopted the comprehensive approach but the developing countries have adopted the selective approach and since India is a developing country hence we have also adopted the same.

CA SUDHIR HALAKHANDI: - See the situations are different in both type of countries and the developing countries have to give more exemptions , they have to protect   essential services and further in developing countries the resistance for new taxation system is more extensive hence they have to gradually increase the number of services under the net of service tax. On the same footing India has adopted the Selective approach.

Now we are taking the basics of administration part of the service Tax. See you have seen the Income tax Act, 1961, Indian Companies Act, 1956 and on the same footing we must have Service Tax Act, 1994. OK? Is there confusion on this part!!

CA SUDHIR HALAKHANDI: - Very Good Ajay!! See there is no service tax Act in our country. The Finance Act 1994 which was converted from Finance Bill 1994 was the part of Budget of 1994 which was presented by Dr. Manmohan Singh in 1994 when he was the Finance Minister of the country. One of the Chapter i.e. chapter No. V of the Finance Act, 1994 contained the statutory provisions as applicable with respect to the taxation of the services in our country. So Chapter V of the Finance Act, 1994 is the Act for taxation of services in our country.

CA SUDHIR HALAKHANDI: - See at the first instance only three services were covered under the net of service tax hence on experimental basis the provisions might have been introduced in one of the Chapter of Finance Act at that time and now when more than 100 services are covered under the net of service tax , the same practice is going on, though there was a demand from various experts to make a separate Service tax Act but the law makers are using the Finance Act, 1994 for this purpose and lot of changes are being made in it to introduce new services and new provisions. So please see that there is no Service tax Act in our country and Finance Act, 1994 is working as Service Tax Act and remember Section 64 to 96 of the Finance Act, 1994 are  Governing the Service Tax in India.

Here see while referring the various sections you will have to refer the Finance Act, 1994 such as Section 64 of Finance Act, 1994 and not the Section 64 of the Service Tax Act, 1994. Is that OK?

CA SUDHIR HALAKHANDI: - Good question Rajat!! See section 64 of the Finance act, 1994 and you will find that Service tax is applicable to whole of India except the state of Jammu and Kashmir.

CA SUDHIR HALAKHANDI: - Since we have only section 64 to Section 96 hence there is no question of having definitions in Section 2. The definition part of the Service Tax law in our country is covered in Section 65 of the Finance Act, 1994. See in this class we have only introductory part hence we will discuss every thing related to your syllabus in details in coming classes. Is that OK!!!!

CA SUDHIR HALAKHANDI: - Now the service tax department. Have you listen about the service tax department.

CA SUDHIR HALAKHANDI: - Yes both of you are right but strangely we don’t have separate Service tax department and the service tax in our country is governed by the “Central Excise and custom department. 

CA SUDHIR HALAKHANDI: - Yes reason was the same as we don’t have the separate Service tax Act. See in 1994 the service tax was imposed on only 3 services hence it was given to the “Central Excise and Customs department but later also the same practice was going on. Hence the Service tax in our country is governed by the Central Excise and customs department.  The administration of Service tax can be understood with the help of following table:-

To coordinate the work between Central Board of excise and customs, Central Excise Zones and Central Excise commissionerates Director General of Service tax was appointed in 1997.

CA SUDHIR HALAKHANDI: - See in case of sale of Goods the Tax (Vat) is collected and deposited by the seller of the Goods and on the same footings the Service tax is collected and deposited by the Service provider , though in case of some of services the responsibility of payment of tax  is given to service receivers. So generally the Service tax is payable by the service provider but due to peculiarities of certain services the responsibility of payment of service tax is given to persons other than the service tax providers mostly the service receivers. We will discuss this in detail in the procedural part of service tax.

CA SUDHIR HALAKHANDI: -At present Practically the rate of service tax is 10% and the person responsible for paying the service tax has to pay 2% Education cess and 1% Senior and Higher Education cess hence the overall rate of service tax is 10.3%.

CA SUDHIR HALAKHANDI: - In case of  Individual, proprietorship or partnership  firms the service tax is payable quarterly basis and in case of other assesses the service tax is payable on monthly basis . For the first three quarters the service tax is payable on 5^th of the following month and in case of last quarter it has to be deposited on or before 31^st. March itself.

In case of monthly payment the service tax for the first 11 Months have to be deposited on 5^th of the following month and for the month of March it has to be deposited on or before 31^st. March.

CA SUDHIR HALAKHANDI: - The service tax returns have to be presented six monthly basis and the same has to be presented on or before 25^th Day of next Month  following the close of half year hence first return has to be presented on or before 25^th Oct and the second and last return has to be presented on 25^th April .

The penal provisions for delay in payment of tax and presentation of return are very harsh. The dates of filing of service tax return in tabular form are as under:-

CA SUDHIR HALAKHANDI: - Yes , your problem is genuine and it will not be easy for you to go for more than 100 service hence ICAI has also considered your problem and on 20^th July 2009 it is declared that in case of PCC no direct questions will be asked on Individual services and in case of IPCC direct questions will asked on the following services only:-

1. Renting of immovable property

2. Tour operator’s services

3. Commercial training or coaching services

4. Erection, commissioning and installation services

5. Works contract services.

So specifically you have to prepare only 5 services along with the other material service tax as r mentioned in your syllabus.

So students this is end of today’s class.