levy of service tax

This query is : Resolved

srikanth (Querist)
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25 June 2011 Hi all

We got gift voucher worth of 7000/- which can used for beauty services... but in that voucher they specified taxes extra..my doubt since services are free how they can levy service tax on free services since free services are not taxable.....pls reply...
since the validity of voucher is 30th june..
thanks in advance...

U S Sharma

U S Sharma (Expert)
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25 June 2011 service is not free, but paid by the buyer of voucher,

srikanth

srikanth (Querist)
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25 June 2011 Hi sir

Thanks for reply... the case is we got this voucher from PVR cinemas along with ticket... and the Beauty and spa name specified in the voucher is new one... This is like his promotion...i dont think PVR has bought this vouchers...
since there is no cash transaction..is it right to levy service tax
Thanks in advance

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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02 August 2024 The situation you're describing involves a gift voucher that can be used for beauty services, with the voucher specifying that taxes are extra. Here’s how to approach this in terms of service tax and taxability:

### **Understanding the Taxability of Vouchers and Services**

1. **Nature of the Voucher:**
- **Gift Vouchers:** Typically, a gift voucher represents a prepaid amount that can be used for purchasing goods or services. The voucher itself is not taxable; rather, the tax implications arise when the voucher is redeemed for services or goods.

2. **Service Tax on Redeemed Vouchers:**
- **When Redeemed:** When a voucher is redeemed for services (such as beauty services), the taxability depends on the nature of the service being provided. Even though the voucher was received for free or as a promotional offer, the actual service received when redeeming the voucher is subject to service tax if the service is taxable under the relevant laws.
- **Tax on Services:** The service provider should charge service tax on the actual value of the service provided when the voucher is redeemed, based on the prevailing service tax rates at the time of redemption. This means that if the service is taxable, the service provider is required to levy service tax on the amount charged for the service, irrespective of how the payment was made (voucher or otherwise).

3. **Promotional Offers:**
- **Taxability of Promotions:** Promotional offers or vouchers that cover the cost of services do not change the taxability of the services provided. If the voucher covers the entire cost of the service, the service tax would typically be levied on the total value of the service as if it were paid in cash.

4. **No Cash Transaction:**
- **Taxable Event:** The absence of a direct cash transaction does not exempt the service from service tax. The taxable event is the provision of the taxable service, and the service tax should be levied on the value of the service.

### **Practical Application in Your Case:**

- **Voucher Details:** If the voucher is worth ₹7,000 and it can be used to obtain beauty services, the service provider is likely required to charge service tax on the value of the beauty services provided, even if the voucher itself did not involve a cash transaction.
- **Service Provider's Responsibility:** The beauty service provider must adhere to tax regulations and levy service tax based on the value of services rendered when the voucher is redeemed.
- **Voucher Validity:** The validity of the voucher until June 30th does not alter the service tax applicability at the time of redemption.

### **Summary:**

- **Voucher Itself:** The voucher is not taxable.
- **Redeemed Services:** Service tax should be levied on the services provided when the voucher is redeemed, based on the applicable service tax rates.
- **Provider's Responsibility:** The service provider should charge service tax on the value of the service, irrespective of whether the voucher was received free or as part of a promotion.

### **Recommendation:**

For the most accurate advice and to ensure compliance with current tax laws, consider consulting with a tax professional or advisor. They can provide guidance based on specific details and the latest regulations affecting service tax and promotional vouchers.