Service tax ques and ans for all professional exams.

A.)  If you are engaged in providing service to your customer, please check:—

1. Whether the service rendered by you is falling under the scope of any of the taxable services .
2. Whether there is a general or specific exemption available for the category of service provided under any notification.
3. Whether you are entitled to the value based exemption of Rs. 10 Lakhs available for small service
4. Whether the service charges were received for the services provided or to be provided.

In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received subject to the eligible abatements.(if any)

B.)  If you are availing the services of the service provider, please check:—

1. Whether the service received by you is falling under the scope of any of the services where the recipient of the service is liable to pay Service Tax in terms of Section 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.
2. In case the service received by recipients of such service is falling under the scope of any of the taxable services defined under section 65 of the Finance Act, 1994, the recipients of the service shall pay Service Tax having regard to the exemptions/abatements admissible, if any.
3. Please note that the value based exemption for small scale service providers under Notification No. 6/2005-ST, dated 01.03.2005 effective from 01.04.2005 is not admissible to such recipients of taxable services.

At present, the rate of Service Tax is 12%, payable on the "gross value of taxable
service". In addition to this, Education Cess is payable at the rate of 3% on the Service Tax amount.

(Total: 12.36% on the value of the taxable service). – Refer section 66 of the Finance Act, 1994 (12% Service Tax), Section 85 of the Finance Act, 2004 (2% Education Cess) and Section 126 of the Finance Act, 2007(1% Secondary and Higher Education Cess). The rate of tax may change during Annual Budget by a Finance Act.
History of rates:
The table below shows the  service tax rates from time to time .

1. Normally, the "value of taxable service" means, the gross amount received by the service provider for the taxable service provided or to be provided by him. Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006, has to be followed to arrive at the taxable value.
2. For certain services, a specified percentage of abatement is allowed from the gross amount collected for rendering the services, subject to the conditions, inter alia, that CENVAT Credit has not been availed by the service provider and cost of goods sold in the process of providing the subject service is not deducted in terms of Notification No. 12/2003-ST, dated 20.6.2003.
3. There is also a composition scheme for ‘works contract service’, where the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4% of the gross amount charged for the works contract..

Generally, the ‘person’ who provides the taxable service on receipt of service
charges is responsible for paying the Service Tax to the Government (Section 68
(1) of the Act), except the following:

1. the recipient of such services in India is liable to pay Service Tax, where taxable services are provided by foreign service providers with no establishment in India;
2. the Service Tax is to be paid by the Insurance Company for the services in relation to Insurance Auxiliary Service by an Insurance Agent.
3. the person who pays or is liable to pay freight for the taxable services provided by a Goods Transport Agency for transport of goods by road, is liable to pay Service Tax, if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a corporation (d) a society (e) a co-operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm
4. the taxable services provided by Mutual Fund Distributors in relation to

distribution of Mutual Fund. In this regard, Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service. Refer: Sec. 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.

The following procedure is specified:

(a) the serial number and date of issue of such undertakings;
(b) the name and the registration number of the provider of taxable service; and
(c) the descripttion of taxable service and invoice number.

1. the foreign diplomatic mission or consular post in India, is issued with a certificate by the Protocol Division of the Ministry of External Affairs that  it is entitled to exemption from service tax, as stipulated in the certificate, based on the principle of reciprocity;
2.  the head of such foreign diplomatic mission or consular post, or any person of such mission or post authorized by him, shall furnish to the provider of taxable service, a copy of such certificate duly authenticated by him or such authorized person, along with an undertaking in original, signed by him or such authorized person, bearing running serial number commencing from a financial year and stating that the services received are for official purpose of the said foreign diplomatic mission or consular post;
3. the head of such foreign diplomatic mission or consular post or such authorized person shall maintain an account of such undertakings issued during a financial year and such account shall contain:—
4. the invoice or bill or as the case may be, the challan issued under the provision contained in rule 4A of the Service Tax Rules, 1994 shall, in addition to the information required to be furnished under the said rule, contain the serial number and the date of the undertaking furnished by the said head of foreign diplomatic mission or consular post; and
5. The provider of taxable service shall retain the documents referred to in point number (i) above along with a duplicate copy of invoice issued, for the purposes of verification.

• Every person providing a taxable service of value exceeding Rs. 9 lakhs, is required to register with the central excise or service tax office having jurisdiction over the office of such service provider.
• In case a recipient is liable to pay service tax, registration is required by him.
• There is also provision for centralised registration
• The ‘Input Service Distributors’ also require registering themselves.

1. When a person commences business of providing an existing taxable service, he is required to register himself within 30 days of such commencement.
2. In case a new taxable service is introduced, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.

—Quarterly -by the 5th day of the month following each quarter and by the 6th day of the month following each quarter if the duty is deposited electronically through internet banking. For example, Service Tax for the quarter ending 30th of June is to be paid by 5th or 6th of July as the case may be.

For all other categories (Company, Society, Trust etc.).—Monthly - by the 5th day of the succeeding month and by the 6th day of the succeeding month if the duty is deposited electronically through internet banking;

1. Yes. Where an assessee has paid to the credit of the Government in respect of a taxable service, which is not so provided by him, either wholly or partially for any reason, the assessee may adjust the excess Service Tax so paid by him (calculated on a 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 person from whom it was received (Rule 6(3) of the STR, 1994).
2. Further, assesses having centralised registration who paid excess amount of Service Tax, on account of non-receipt of details regarding the receipt of gross amount for the services at his other premises or offices, may adjust such excess amount against the Service Tax liability for the subsequent period and furnish the details of such adjustment to the Jurisdictional Superintendent of Central Excise/Service Tax within 15 days from the date of such adjustment (Rule 6(4A) of the STR, 1994).
3. In all other cases of excess payment, refund claims have to be filed with the Department. The refund claims would be dealt as per the provisions of Section 11B of the Central Excise Act, 1944, which is made applicable to Service Tax under Section 83 of the Finance Act 1994.
4. It is important to note that any amount of Service Tax paid in excess of the actual liability, is refundable, only if it is proved that the claimant of refund had already refunded such amount to the person from whom it was received or had not collected at all (Section 11 B of the Central Excise Act, 1944 which is applicable to Service Tax matters under Section 83 of the Act).

GAR-7 is the document for payment of service tax.

GAR-7 or TR-6 challan is also available in any stationary shop selling government forms. You can download this challan from www.servicetaxindia.co.in . Click Home page and then FORMS

The Service Tax for a particular period is payable on the amount/value of taxable service received during that period and not on the gross amount billed to the client.

If the charges for the taxable service have been received in advance prior to rendering of the services, the Service Tax is payable even if the services are yet to be provided by them (Section 67 and Rule 6(1) of the STR, 1994).

ST-3 Return – For all the registered assessee, including Input Service
Distributors,
ST-3A Return – The assessee who is making provisional assessment under rule 6(4) of the Service Tax Rules, 1994.

There is no prescribed format for issue of Invoice. However, the invoice/bill/challan should contain the following information (Rule 4A of the STR, 1994):

1. Serial number.
2. Name, address and registration no. of the service provider.
3. Name and address of the service receiver.
4. Descripttion, classification and value of taxable service being rendered.
5. The amount of Service Tax payable (Service Tax and Education cess should be shown separately)

1. • Serial Number
   • Name of the consignor and consignee
   • Registration no. of the vehicle
   • Details of the goods transported
   • Details of the place of origin & destination
   • Person liable for payment of Service Tax (consignor/consignee/GTA)

1. Application in the prescribed form (Form - R) is to be filed in triplicate with the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax.
2. The application should be filed within one year from the relevant date as prescribed in Section 11B of the Central Excise Act, 1944 which has been made applicable to Service Tax refund matters also.
3. Application should be accompanied by documentary evidence to the effect that the amount claimed as refund is the amount actually paid by him in excess of the Service Tax due and the incidence of such tax claimed as refund has not been passed on to any other person.

Service Tax is fully exempted in respect of the taxable services of aggregate value not exceeding Ten lakh rupees in any financial year. w.e.f 1-4-2008

The above mentioned exemption based on the turnover is not available to the persons who are liable to pay Service Tax but are not the service providers. For example:

1. The recipient of services from an overseas service provider who has no registered office in India
2. A company incurring the Transportation charges for availing the services from Goods Transport Agencies, for transportation of goods by Road.

Some of the important conditions for availment of the exemption are as follows:

• If the aggregate value of taxable services rendered by the service provider from one or more premises exceeds rupees eight lakhs in the preceding financial year, the service provider is not eligible for the exemption for the current year.
• The exemption shall apply to the aggregate value of all taxable services and from all premises and not separately for each premise or each service.
• The benefit of the exemption shall not apply to taxable services rendered by a person under a brand name or trade name whether registered or not, of another person.
• The exemption shall not apply to persons who are other than the service providers, but liable to pay Service Tax under section 68 (2) of the Act.
• The provider of the taxable service shall avail the CENVAT credit only on such inputs or input services received, on or after the date on which the service provider starts paying Service Tax, and used for the provision of taxable services for which Service Tax is payable.
• CENVAT Credit of Service Tax paid on any input services, under Rule (3) or Rule (13) of the CENVAT Credit Rules 2004, used for providing the services under the above exemption, is not admissible for persons availing the above exemption.
• CENVAT Credit under Rule (3) of the said Rules, is not admissible on the capital goods which are received in the premises of the service provider during the exemption period.
• An amount equivalent to the CENVAT Credit taken, if any, in respect of the inputs lying in stock or in process as on the date on which the provider of taxable service starts availing the exemption should be paid; the balance credit amount, if any, shall lapse.

The following general exemptions from payment of whole of the amount of Service Tax are available for the Service Providers:

• Services provided to the United Nations or International Organisations (Notification No. 16/2002-ST, dated 02.08.2002).
• Services provided to a developer of Special Economic Zone or a unit of Special Economic Zone (Notification No.04/2004-ST, dated 31.03.2004).
• The value of the goods and materials sold by the service provider to the recipient of the service is exempted from payment of the Service Tax, if there is a documentary proof specifically indicating the value of the goods and materials and,—

• •  no credit of duty paid on such goods and material sold, has been taken under the provisions of CENVAT Credit rules, OR
  • where such credit has been taken by the service provider on such goods and materials, but such service provider has paid the amount equal to such credit availed before the sale of such good and materials. (Notifn.12/2003-ST dated 20.06.2003).

• Exemptions to Diplomatic Missions for official use of taxable services and also to the officers and their families of a Diplomatic Mission for personal use of taxable services-Refer Notification Nos. 33/2007-ST and 34/2007-ST, both dated 23.5.2007-See Question No. 1.13, 1.14 and 1.15, ante.
• Specified taxable services, namely, port service, other port service, goods transport service and containerised transport service, received by an exporter and used for export of goods (Notification No. 40/2007-ST dated 17.9.2007).

• No. There is no such exemption. All service providers, including the Central/State Government Organisations and the Public sector undertakings rendering the specified taxable service, are liable to pay Service Tax.
• If a Government Department (sovereign)/public authorities performs any mandatory or statutory function under the provisions of any law and collect any fees, such activity shall be treated as activity purely in public interest and will not be taxable.
• If such authority performs a service, which is not in the nature of statutory activity, for a consideration, the same shall be taxable.
  1. However, the taxable services provided by a Banking company or a financial institution including a non banking financial company, or any other body corporate or any other person, to the Government of India or the Government of a State, in relation to collection of any duties or taxes levied by the Government of India or the Government of a State, are exempted from the payment of Service Tax. (Notification No. 13/2004-ST, dated 10.09.2004).

• A person, who fails to take registration within the time stipulated shall be liable to pay penalty which may extend to Rs. 5,000/- or Rs. 200/- per day after the due date, which ever is higher. The provisions says, a person fails to “take” registration, whereas it should have been fail to “apply” registration, as some time the Department take it own time to grant the registration as recognized by the Board in its instruction Dy. No.294/Com(ST)/2007 dated 03.09.2007.
• A person Non payment or delayed payment of service tax - A mandatory penalty, not less than Rs. 200 per day or @ 2% of such tax per month, whichever is higher, shall be imposed by the adjudicating authority. However, the penalty amount payable shall not exceed the amount of service tax payable.
• A person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to an amount not exceeding  Rs 2000/- depending upon Period of Delay
• A person, who fails to keep, maintain or retain books of account and other documents as required in accordance with service tax law, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• A person, who fails to furnish information, produced documents, when called by an officer or fails to appear before the Central Excise Officer when issued summon, shall be liable to a penalty which may extend to Rs. 5000/- or Rs. 200/- per day after the due date, which ever is higher.
• A person, who fails to pay tax electronically, through internet banking, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• A person, who issues invoice incorrect or with incomplete details for fails to account for an invoice in his books of account, shall be liable to pay penalty which may extend to Rs. 5,000/-.
• Suppression of the value of taxable services: Penalty to an extent ranging from 100% to 200% of the Service Tax which was not levied or paid or erroneously refunded, can be imposed on any person, if such short levy or short payment or erroneous refund is by reason of fraud collusion, willful mis-statement, suppression of facts; or contravention of the Act or the rules made thereunder with an intent to evade payment of Service Tax. Such liability towards penalty would be in addition to the Service Tax amount evaded or erroneously refunded and the interest thereon .

1. When show cause notices are issued under provisions of the Finance Act, 1994 charging any person for contravention of any provisions of the said Act and rules and/or notifications issued thereunder and penal action is proposed the competent officers of the Department adjudge the case and issue orders. This process is called adjudication.
2. Often notices are issued under section 73 of the Finance Act, 1994 for determination of tax, and the matter is decided by a competent officer. This is also referred to adjudication in common parlance.

• An assessee aggrieved by such order/decision may file an Appeal to the Commissioner (Appeals) in Form ST-4, in duplicate.
• A copy of the order/decision appealed against should be enclosed.
• The Appeal should be filed within 3 months from the date of receipt of the order/decision.
• There is no fee for filing an Appeal before the Commissioner of Central Excise (Appeals) (Section 85 of the Act and Rule 8 of the STR, 1994).

Yes. The procedure is as follows:—

• The Appeal against the order of the Commissioner of Central Excise or Commissioner (Appeals) can be filed before the Customs, Excise and Service Tax Appellate Tribunal (In short, CESTAT). The Appeal should be filed within three months of the date of receipt of the order sought to be appealed against.
• It should be filed in the prescribed Form (ST-5) in quadruplicate.
• It should be accompanied by a certified copy of the order appealed against.
• The Appeal should be accompanied by the prescribed fee based on the amount of Service Tax and interest demanded and penalty levied. Rs. 1000/- if the amount involved is Rs. 5 lakhs or less, Rs. 5000/- if the amount involved is more than Rs. 5 lakhs but not exceeding Rs. 50 lakhs and Rs. 10,000/- if the amount involved is more than Rs. 50 lakhs. (Section 86 of the Act and Rule 9 of the STR, 1994).

The CENVAT credit Rules, 2004 which was introduced with effect from 10.9.2004 provides for availment of the credit of the Service Tax/Central Excise duties paid on the input services/inputs/ capital goods. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services.

In fact, such credit availed by a manufacturer can also be utilised for discharging their liability towards Service Tax and/or Central Excise duties.

1. Invoice issued by the manufacturers and his depot/consignment agents
2. Invoice issued by the Importer and his depot/consignment agents
3. First stage and Second stage dealer registered with the Central Excise Department
4. Bill of Entry
5. Invoice/Bill/Challan issued by the provider of input Services
6. Invoice/Bill/Challan issued by the Input Service distributor.
7. Certificate issued by the Appraiser of Customs in respect of the goods imported through Foreign Post Office.
8. A Challan evidencing payment of service tax by a person liable to pay service tax in the service category of auxiliary insurance, goods transport, recipient of service from a foreign country and sponsorship [Refer sub-clauses (iii), (iv), (v) and (vii) of rule 2(1)(d) of STR, 1994].

Credit of Service Tax on the input services can be availed, only after making payment of the amount indicated in the invoice/bill/challans. This is necessary because, the input service provider will be paying the Service Tax to the Govt. only after he realizes the payment, as the payment of Service Tax is only upon realization.

The above requirement is not applicable in respect of credit of duties paid on inputs and capital goods.

An office of the manufacturer or provider of output service who receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such manufacturer or provider of output service is an “Input Service Distributor”.

The credit of the tax amount so distributed to various places shall not exceed the total Service Tax amount contained in the original invoice/bill.

1. Name, address and Registration No. of the service provider.
2. Sl. No and date.
3. Name and address of the input service distributor.
4. The name and address of the recipient to whom the Service Tax credit is distributed.
5. The amount of credit being distributed.

1. Separate accounts are to be maintained for the receipt, consumption and inventory of input and input service meant for providing taxable output service and for use in the exempted services. Credit should be taken only on that quantity of input/input services which are used for the service on which Service Tax is payable.
2. If separate accounts are not maintained, the provider of output service shall utilize credit only to extent of an amount not exceeding 20% of the amount of service tax payable on taxable output service. For example, if Service Tax liability for a specific period is Rs. 1000/- and there is a credit of Rs. 500/- available with them, the credit can be utilized only to the extent of Rs. 200/- and the balance Service Tax liability (i.e. Rs.1000-200=800/-) has to be paid in cash/cheque. The remaining credit can be carried forward and used for the subsequent period in a similar manner.
3. However, an option is available to general insurance service providers providing taxable as well as exempted insurance schemes and do not maintain separate input/input services credit accounts to utilise CENVAT credit proportionate to the inputs and input services used in providing taxable services. The scheme is optional and is effective from 1st April, 2007. Refer Rule 6(3) of CENVAT Credit Rules, 2004 for further details.

1. specified services which are provided in relation to immovable properties situated in India – [See list of services in Appendix-4 (Not reproduced here, already available in the book)]
2. specified services which are provided partly in India – [ See list of services in Appendix -4 (Not reproduced here, already available in the book)]
3. the remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [ See list of services in Appendix -4 (Not reproduced here, already available in the book)]

1. A non-resident setting up a joint venture in India in collaboration with a nonresident or a resident; or
2. A resident setting up a joint venture in India in collaboration with a nonresident; or
3. A wholly owned subsidiary Indian company, of which the holding company is a foreign company, which proposes to undertake any business activity in India;
4. A joint venture in India,
5. A resident falling within any such class or category of persons, as the Central Government may, by notification in the official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 28H.
6. A resident as an applicant who proposes to import any goods from the Republic of Singapore under Comprehensive Economic Co-operation Agreement (CECA). –Refer Notification No. 69/2005, dated 29.07.2005

1. Classification of any service as a taxable service under Chapter V of the Finance Act, 1994;
2. Principles to be adopted for the purposes of determination of value of taxable service under the said Act;
3. Determination of the liability to pay service tax on a taxable service under the said Act;
4. Valuation of taxable services for charging Service Tax; and
5. Applicability of notifications issued under said Act.