Service Tax –Key Points
Introduction
Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994.
The service provider pays the tax and recovers it from the customer with certain exceptions. Service Tax was earlier levied on a specified list of services, but in the 2012 budget, its scope was increased. Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns, etc. were also included in the list of services.
It is charged to the individual service providers on cash basis, and to companies on accrual basis. This tax is payable only when the value of services provided in a financial year is more than Rs 10 lakh. This tax is not applicable in the state of Jammu & Kashmir.
Reverse Charge
Q. What is Reverse Charge?
- Generally, Service tax is payable by person providing the service who actually collect the tax and pays to government.
- But Section 68(2) introduced and makes provision for reverse charge i.e. making person receiving the service, liable to pay tax. Provision can be made that part of tax will be paid by service receiver and part by service provider or entire by Service Receiver.
- Provisions relating to reverse charge are contained in Notification No. 30/2012-ST dated 20-6-2012. See Appendix 2 for tax of the Notification and which amend from time to time.
Q. How to book Cenvat Credit on Service Tax paid on reverse charge basis?
- In case of an input service where service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall allowed on or after the day on which:
- payment is made on the value of input service and
- Service tax paid or payable as indicated in invoice referred in Rule 9.
- Even if Service Provider is liable for payment of service tax in certain portion ie partial reverse charge then Cenvat Credit can be availed on entire input w.r.t.334/1/2012
- Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR-7 challan.
Q What are the services under reverse charge?
♣ Under Partial Reverse Charge (Proportional / Joint)
- Renting of motor vehicles
- Manpower supply & security services
- Works contracts
♣ Under Full Reverse Charge (100%)
- Insurance related services by agents
- Goods Transportation By Road
- Sponsorship
- Arbitral tribunals
- Legal services
- Company director’s services
- Services provided by Government / local authority excluding specified services
- Services provided by persons located in non-taxable territory to persons located in taxable territory.
Abatement
Q What is abatement?
- Abatement means that service tax is paid on specified % of amount mentioned on the invoice.
- Input credit cannot availed.
Q What are the rates of Abatement?
| Taxable Service | Partial abatement / Composition Scheme | Conditions | Relevant Notification/Rule |
| Accommodation booking service by tour operator | 10% of amount charged (Abatement Scheme, though really it is composition scheme) | No Cenvat Credit. Invoice should be inclusive of cost of accommodation | Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012. |
| Air Travel Agent | Option to pay service tax at flat rate on ‘basic fare’ @ 0.6% in case of domestic booking and 1.2% in case of international booking – plus education cess (Composition Scheme) | No restriction on availment of Cenvat credit | Rule 6(7) of Service Tax Rules |
| Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises | Tax on 70% of amount charged including fair value of goods and services supplied by service receiver (to service provider) under same or different contract
(Composition Scheme)
| Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. | Sr. No. 4 of Notification No. 26/2012-ST dated 20-6-2012 |
| Chit related services | Tax on 70% of amount charged (Abatement Scheme) | No Cenvat Credit allowed | Sr. No. 8 of Notification No. 26/2012-ST dated 20-6-2012. |
| Financial leasing and hire purchase | Tax on lease management fee, processing fee, documentation charges and administrative fee plus 10% of interest | No restriction on availment of Cenvat Credit | Sr. No. 1 of Notification No. 26/2012-ST dated 20-6-2012 |
| Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, if value of land is included in the amount charged from the service receiver | Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) | Cenvat credit of input services and capital goods can be taken but not of input goods | Sr No. 12 of Notification No. 26/2012-ST dated 20-6-2012 |
| Foreign Currency – sale and purchase | At slab rates prescribed under rule 6(7B)on total gross amount of currency exchanged (OptionalComposition Scheme) | No restriction on availment of Cenvat Credit | Rule 6(7B) of Service Tax Rules |
| Foreign Currency – sale and purchase | Value is difference between buying or selling rate and RBI reference rate (Normal Scheme of valuation) | No restriction on availment of Cenvat Credit | Rule 2B of Service Tax (Determination of Value) Rules |
| Life Insurance | 3% of net premium (excluding investment or savings part, if such amount is informed to policy holder) – If not so informed, 3% in first year and 1.5% in subsequent years(Composition Scheme) | No restriction on availment of Cenvat Credit | Rule 6(7A) of Service Tax Rules |
| Lottery ticket promotion | Rs. 7,000 or Rs. 11,000 per Rs. 10 lakhs of tickets printed by State lottery (Composition Scheme) | No restriction on availment of Cenvat Credit | Rule 6(7C) of Service Tax Rules |
| Outdoor caterer | Tax on 60% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 50%) | Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. | Rule 2C of Service Tax (Determination of Value) Rules |
| Renting of motor vehicle designed to carry passengers | Tax payable on 40% of amount charged (Abatement Scheme) | No Cenvat credit available | Sr. No. 9 of Notification No. 26/2012-ST dated 20-6-2012 |
| Restaurant service | Tax on 40% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 30%) | Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. | Rule 2C of Service Tax (Determination of Value) Rules |
| Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes | Tax payable on 60% of amount charged (Abatement Scheme) (Till 1-7-2012, the tax payable was on 50% amount). | Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods | Sr. No. 6 of Notification No. 26/2012-ST dated 20-6-2012 |
| Tour operator – Package tours (“package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour). | Tax is payable on 25% of gross amount charged (Abatement Scheme) | No Cenvat credit available.
Bill to be inclusive of all charges for the tour.
| Sr. No. 11(i) of Notification No. 26/2012-ST dated 20-6-2012 |
| Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour (If Bill includes cost of accommodation) | Tax is payable on 10% of amount charged (Abatement Scheme) | No Cenvat credit available.
Bill to be inclusive of charges for such accommodation
| Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012 |
| Tour operator – Other than package tours and other than service of booking accommodation where Bill includes cost of accommodation | Tax is payable on 40% of amount charged (Abatement Scheme) | No Cenvat credit available.
Bill to be inclusive of all charges for the tour
| Sr. No. 11(iii) of Notification No. 26/2012-ST dated 20-6-2012 |
| Transport of goods by rail | Tax payable on 30% of amount charged (Abatement Scheme) | No restriction on availment of Cenvat Credit | Sr. No. 2 of Notification No. 26/2012-ST dated 20-6-2012 |
| Transport of goods by road by Goods Transport Agency (GTA) | Tax payable on 25% of amount charged (Abatement Scheme) | No Cenvat Credit available (Certificate should be taken from the GTA that he has not availed Cenvat credit, as tax is payable by service receiver under reverse charge – this headache was not there earlier) | Sr. No. 7 of Notification No. 26/2012-ST dated 20-6-2012 |
| Transport of goods in a vessel from one port in India to another | Tax payable on 50% of amount charged (Abatement Scheme) | No Cenvat Credit available) | Sr. No. 10 of Notification No. 26/2012-ST dated 20-6-2012 |
| Transport of passengers by air | Tax payable on 40% of amount charged (Abatement Scheme) | Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods | Sr. No. 5 of Notification No. 26/2012-ST dated 20-6-2012 |
| Transport of passengers by rail | Tax payable on 30% of amount charged (Abatement Scheme) | No restriction on availment of Cenvat Credit | Sr. No. 3 of Notification No. 26/2012-ST dated 20-6-2012 |
| Works Contract Service | Tax on value of service calculated as per rule 2A(i) or Tax on 25%/40%/60% of gross amount charged as specified in rule 2A(ii) (Composition Scheme)
Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme)
| Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available | Rule 2A of Service Tax (Determination of Value) Rules |
Negative List
Q What is negative list?
- List of services on which service tax is specifically exempted under section 66D
Q What is the services covered in negative list?
A- Advertisement (except on radio & T.V.)
B- Bridges
C- Cabs (means transportation of passengers)
D- Diplomatic mission
E- Electricity
F- Funeral (includes transportation of deceased)
G- Goods Transportation
H- House Residential
I- Interest
J- Jhule (Rides)
K- Kheti (agriculture)
L- Lottery
M- Manufacture
Q- Qualification (education)
R- RBI
S- Sarkar (government)
T- Trading of Goods
Place of Provision of service (POPOS)
Q What is place of provision of service?
- It is to seen that service is provided in Taxable Territory or Non Taxable Territory. For this place of provision of service is to be identified
- There are 13 Rules to identify POPOS
Q What are the rules for identifying POPOS?
| Rule | Basis | POPOS |
| 3 | General | Shall be place of service receiver |
| 4 | Performance based service | Shall be place where service is performed |
| 5 | Immovable Property related service | Shall be place where immovable property is
located
|
| 6 | Event based service | Shall be the place where event is performed |
| 7 | Services provided at more than one location (overrides Rules 4,5 & 6) | Shall be the taxable territory where the greatest proportion of the service is provided |
| 8 | Situations where place of provision of service outside the taxable territory, however service provider and recipient located in taxable territory | Shall be Taxable Territory |
| 9 | Specified services such as:
| Shall be the place of service provider |
| 10 | Transportation of goods
– By road i.e. GTA
– By other modes except mail or courier
| Shall be the place of destination of goods |
| 11 | Passenger transportation services
Rule 14 Where a service falls under more than one rule then the rule which appears later shall be applicable
| Place where the passenger embarks on the conveyance for a continuous journey |
| 12 | Services provided on board a conveyance | First scheduled point of departure of that conveyance of a journey |
| 14 | Where a service falls under more than one rule then the rule which appears later shall be applicable | |
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