Wednesday 27 June 2012
Saturday 23 June 2012
Point of Taxation
Point of Taxation Rules, 2011-Changes effect from Apr 1, 2012
1. The time period
for issuance of invoice is being increased to 30 days ordinarily and 45 days
for banks and financial institutions (to reconcile with the business practice
of issuing monthly statement). These changes are being provided in Rule 4A of
Service Tax Rules and the time period so defined is being incorporated in POT Rules.
2. In case of export
of services and eight specified services provided by individuals or firms, the
point of taxation is the date of payment. The special dispensation is being
shifted from the POT Rules to the Service Tax Rules. This would help provide
certainty in the application of rate of tax while retaining the benefit of payment
of tax until payment is received.
3. In case of
exporters, the period extended by the Reserve Bank of India is now explicitly
included in the period for which the tax is allowed to be deferred.
4. The benefit
available to individuals and firms to determine POT on the basis of date of
payment for eight specified services is being extended to all services in a
slightly modified form. The facility will be now available to individuals and partnership firms (including limited liability
partnership) up to a turnover of Rs 50 lakh in a financial year provided the
taxable turnover did not exceed this limit in the previous financial year. For computing
the above limits, the turnover of the whole entity is required to be summed up
and not any single registration.
5. The definition of
continuous supply of service is being amended to capture the concept in a more wholesome
manner, namely the recurrent nature of services and the obligation for payment
periodically or from time-to-time.
6. Since the essence
of the rule in case of continuous supply of service is the same as the main
Rule, the separate rule for continuous supply of service [Rule 6] is 11being
merged with the main rule. Moreover the provisions of rules 4 and 5 relating to
changes in rates or application of tax on new services would also be applicable
to continuous supply of services;
7. In case of a new
levy, no tax is chargeable on services where payment has been received and
invoice issued within a period of 14 days. To provide certainty, clause (b) is
being amended to specify that invoice should be issued within 14 days of the
date of the new levy.
8. The “date of
payment” could be a subject of litigation particularly when effective rate
changes. A new rule has been created: Rule 2A, keeping in view the impending
change in rate effective April 1, 2012 and introduction of Negative List at a
later date. In normal circumstances this date shall be the earlier of the dates
of entry into books of accounts or actual credit in the bank account (when
applicable).
However, when there
is change in effective rate of tax or a new levy between the said two dates,
the date of payment shall be the date of actual credit in the bank account, if
the amount is credited through a banking instrument more than four working days
after the date of such change.
9. This will have no
impact where invoice is the basis for point of taxation. Thus business may be
advised to take steps to deposit all advances received up to March 31, 2012 in
their bank accounts suitably. Any delay in this regard will lead to charging
tax at higher rate.
10. As a measure of
added facilitation, an option has been provided to determine the point of
taxation in respect of small advances up to Rs 1000, in excess of the amount
indicated in the invoice, on the basis of invoice or completion of service
rather than payment. Such provision is expected to address the accounting problems
faced by service providers in telecommunications, credit card businesses who
regularly receive minor excess payments from their customers.
11. A residual rule
has been made by way of best judgement to handle situations where the tax-payer
is unable to furnish one or more of the details needed i.e. date of payment or
date of invoice or both to determine POT.
12. And lastly, the
small scale exemption has also been amended recognizing that the first
clearances up to Rs 10 lakhs will be in terms of invoices and not mere payments
received.
13. These changes
come into effect from April 1, 2012.
=========================================
=========================================
Point of Taxation Rules - Applicability of New or Old rate of Service
Tax
Contributed by Bimal Jain
FCA, ACS, LLB, B.Com (Hons)
CENTRAL Board of
Excise and Customs (CBEC) has issued clarification vides Circular No. 158/9/
2012–ST dated. 8th May, 2012 on the rate of service tax applicable wherein
invoices were raised before 1st April 2012 and the payments shall be after 1st
April 2012 in case of the 8 specified services provided by individuals or
proprietary firms or partnership firms, to which Rule 7 of Point of Taxation
Rules 2011 was applicable and services on which tax is paid under reverse charge
under section 68(2) of the Finance Act.
Issue: What would be the rate of service tax
applicable wherein invoices were raised before 1st April 2012 and the payments
shall be after 1st April 2012 for both cases?
Clarification: Clarification vide Circular No. 158/9/
2012–ST provided that in case of the 8 specified services and services wherein
tax is required to be paid on reverse charge by the service receiver, the point
of taxation is the date of payment.
In this regard, Circular
No 154/5/2012 – ST dated 28th March 2012 has also issued clarifying the same.
Thus in case of such
8 specified services provided by individuals or proprietary firms or
partnership firms and in case of services wherein tax is required to be paid on
reverse charge by the service receiver, if the payment is received or made, as
the case maybe, on or after 1st April 2012, the service tax needs to be paid
@12%.
Hence, the invoices
issued before 1st April 2012 may reflect the previous rate of tax (10% and cess).
In case of need, supplementary invoices may be issued to reflect the new rate
of tax (12% and cess) and recover the differential amount. In case of reverse
charge, the service receiver pays the tax and takes the credit on the basis of
the tax payment Challan. Cenvat credit can be availed on such supplementary
invoices and tax payment Challans, subject to other restrictions and conditions
as provided in the Cenvat Credit Rules 2004.
Further, this
clarification is important to further determine the point of taxation in case
of change in effective rate of tax which is reproduced here in below:-
Notwithstanding
anything contained in rule 3, the point of taxation in cases where there is a
change in effective rate of tax in respect of a service, shall be determined in
the following manner, namely,:-
(a) In case a taxable
service has been provided before the change in effective rate of tax –
(i) Where the invoice
for the same has been issued and the payment received after the change in
effective rate of tax, the point of taxation shall be date of payment or
issuing of invoice, whichever is earlier; or
(ii) Where the
invoice has also been issued prior to change in effective rate of tax but the
payment is received after the change in effective rate of tax, the point of
taxation shall be the date of issuing of invoice; or
(iii) Where the
payment is also received before the change in effective rate of tax, but the
invoice for the same has been issued after the change in effective rate of tax,
the point of taxation shall be the date of payment;
(b) In case a taxable
service has been provided after the change in effective rate of tax,-
(i) Where the payment
for the invoice is also made after the change in effective rate of tax but the
invoice has been issued prior to the change in effective rate of tax, the point
of taxation shall be the date of payment; or
(ii) Where the
invoice has been issued and the payment for the invoice received before the
change in effective rate of tax, the point of taxation shall be the date of
receipt of payment or date of issuance of invoice, Whichever is earlier; or
(iii) Where the
invoice has also been raised after the change in effective rate of tax but the
payment has been received before the change in effective rate of tax, the point
of taxation shall be date of issuing of invoice."
For ease of your
understanding, a table is created for total understanding of Rule 4 of the
Point of Taxation Rules, considering different Date of completion of Service,
Date of Invoice and Date of Payment when taxable services provided before or
after the change in effective rate of tax:-
|
Change of Rate:
|
1-4-2012
|
10%.....12%
|
9/4/2012 25/5/2012 12% 9/4/2012
|
25/5/2012 10% 28/3/2012
|
|
Date of Service
|
Date of Invoice
|
Date of Payment
|
Rate of Tax
|
POT
|
|
28/3/2012
|
9/4/2012
|
25/5/2012
|
12%
|
9/4/2012
|
|
28/3/2012
|
25/5/2012
|
10%
|
28/3/2012
|
|
|
9/4/2012
|
26/3/2012
|
10%
|
26/3/2012
|
|
|
10/4/2012
|
28/3/2012
|
25/5/2012
|
12%
|
25/5/2012
|
|
28/3/2012
|
16/3/2012
|
10%
|
16/3/2012
|
|
|
9/4/2012
|
28/3/2012
|
12%
|
9/4/2012
|
Open Issues even after clarifications:-
++ Is interest
payable on differential payment of Service tax....answer seems yes, but why
said Circular is Silent.
++ Moot Question
-> a) what is the taxable event under service tax? Relevant for the
applicability of Rule
4(a)(i) of the Point
of Taxation Rules 2011.
• Can there be
service tax even before rendering the services?
• Why new rate would
be applicable when service is rendered before change in effective rate of
Service tax?
• 'Tax on services
Vs. Tax on Advances'
The Hon'ble Supreme
Court in the case of "All India Federation of Tax Practitioners Vs. UOI
2007-149-
SC-ST” held that “tax
on things or goods can only be with reference to a taxable event” and same
contention is upheld also in the case of "Association of Leasing &
Financial Service Companies vs. UOI 2010-87-SCST-LB" that Taxable Event is
Rendering of Service.
================================================================
Accrual system of taxation in Service Tax
Learning Objectives
1. Shift from cash system to accrual
system – changes in provision of law
2. Meaning of Point of Taxation
3. Applicability of Point of Taxation
Rules, 2011
4. Determination of Point of Taxation
under different situations
5. Impact of Point of Taxation on taxable
event in service tax
6. Applicability of accrual system to
Credit of Service Tax
7. Self Adjustment of Service Tax
Accrual System – Changes in provision of law
Notification No.
03/2011-ST
Amend Service Tax
Rules, 1994
Amendments made
Amendments made
1. Rule 6(1)
2. First proviso to
Rule 6(1)
3. Second proviso to
Rule 6(1) omitted
4. Third proviso to
Rule 6(1)
5. Rule 5B added
These amendments
have following effect.
Liability to pay tax
shall be determined on
date when services
are deemed to be
provided. And then following came into existence Point
of Taxation Rules, 2011Friday 22 June 2012
Export of Services
To understand this
concept first we will go through the exact language of the law. Don’t worry
about complexity of the language of the law, later we will try to simplify the
language through simple explanations and articles. Idea is to first grasp what
is law and then interpretating the same and not to miss out anything.
Below is the language of Law
Very important: Below rules are amended up to date by different notifications were issued from time to time(Total 7 notifications for amendment in such rules). We don't need to see old notifications, reason is that the same have been already incorporated in EXPORT OF SERVICE RULES, 2005, thus the present law in relation to rule is in its current form so we need to know only what is current and what is applicable from now onwards i.e. changes have prospective effects not retrospective effects. But for past cases we need to check what was relevant at that time.
Very important: Below rules are amended up to date by different notifications were issued from time to time(Total 7 notifications for amendment in such rules). We don't need to see old notifications, reason is that the same have been already incorporated in EXPORT OF SERVICE RULES, 2005, thus the present law in relation to rule is in its current form so we need to know only what is current and what is applicable from now onwards i.e. changes have prospective effects not retrospective effects. But for past cases we need to check what was relevant at that time.
=========================================
EXPORT OF SERVICE
RULES, 2005
[Notification NO.
9/2005-S.T., dated 03.03.2005
as amended by
Notification NO.
13/2006-S.T., dated 19.04.2006,
02/2007-S.T., dated 01.03.2007,
30/2007-S.T., dated
22.05.2007,
05/2008-S.T., dated 01.03.2008,
20/2008-S.T., dated 10.05.2008,
38/2009-S.T., dated
23.09.2009,
06/2010-S.T., dated 27.02.2010,
In exercise of the
powers conferred by section 93 & 94 of the Finance Act, 1994 (32 of 1994),
the Central Government
hereby makes the following rules, namely:-
1. Short title and commencement.-
(1) These rules may
be called the Export of Services Rules, 2005.
(2) They shall come
into force on the 15th day of March, 2005.
2. Definitions. - In these rules, unless the
context otherwise requires,-
(a) “Act” means the
Finance Act, 1994 (32 of 1994);
(b) “input” shall
have the meaning assigned to it in clause (k) of rule 2 of the CENVAT Credit
Rules, 2004;
(c) “input service”
shall have the meaning assigned to it in clause (l) of rule 2 of the CENVAT
Credit Rules, 2004.
3. Export of taxable
service. – (1) Export of taxable services shall, in relation to taxable services‚–
(i) specified in sub-clauses (d), (m), (p), (q),
(v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz), (zzzza)
& (zzzzm) of clause
(105) of section 65 of the Act, be provision of such services as are provided
in relation to an immovable property
situated outside India;
(ii) specified in
sub-clauses (a), (f), (h), (i), (j), (l), [*
* *], (n), (o), [* * *], (w),
(x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu),
(zv),(zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm),
(zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf),
(zzzp), (zzzzg), (zzzzh), (zzzzi), (zzzzk) and (zzzzl) of clause (105) of section 65 of the
Act, be provision of such services as are performed outside India:
Provided that where such taxable service is
partly performed outside India, it shall be treated as performed Outside India;
Provided further that
where the taxable services referred to in sub-clauses (zzg), (zzh) and (zzi) of
clause (105) of section 65 of the Act, are provided in
relation to any goods or material or any immovable property, as the case may be, situated
outside India at the time of provision of service, through internet or an
electronic network including a computer network or any other means, then
such taxable service, whether or not performed outside India, shall
be treated as the
taxable service performed outside India;
(iii) specified in
clause (105) of section 65 of the Act, but excluding‚–
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this
rule except when the provision of taxable services specified in
sub-clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to
immovable property; and
(c) those specified in clause (ii) of this
rule,
when provided in
relation to business or commerce, be provision of such services to a recipient
located outside India and when provided otherwise, be provision of
such services to a recipient located outside India at the time of
provision of such service:
Provided that where
such recipient has commercial establishment or any office relating thereto, in
India, such taxable services
provided shall be treated as export of service only when order for provision of
such service is made from any of his
commercial establishment or office located outside India:
Provided further that
where the taxable service referred to in sub-clause (zzzzj) of clause (105) of
section 65 of the Act is
provided to a recipient located outside India, then such taxable service shall
be treated as export of taxable service
subject to the condition that the tangible goods supplied for use are located
outside India during the period of
use of such tangible goods by such recipient.
(2) The provision of
any taxable service specified in sub-rule (1) shall be treated as export of
service when the following conditions are satisfied, namely:-
(a) [* * * ]
(b) payment for such
service is received by the service provider in convertible foreign exchange.
Explanation.- For the
purposes of this rule “India” includes the installation structures and vessels located in the continental
shelf of India and the exclusive economic zone of India, for the purposes of
prospecting or extraction or
production of mineral oil and natural gas and supply thereof.
4. Export without
payment of service tax. - Any service, which is taxable under clause (105) of
section 65 of the Act, may be
exported without payment of service tax.
5. Rebate of service
tax. - Where any taxable service is exported, the Central Government may, by notification, grant
rebate of service tax paid on such taxable service or service tax or duty paid
on input services or inputs,
as the case may be, used in providing such taxable service and the rebate shall
be subject to such
conditions or limitations, if any, and fulfillment of such procedure, as may be
specified in the notification.
=========================================
Now, let understand the law in simple language by help of following articles and explanations.
Implications of service tax on export of services
|
S Madhavan / New Delhi November 06, 2006
As is by now well known, the service tax, which has been in force in
India for more than a decade, is intended to operate as a destination based
consumption tax.
|
Consequently, services will be taxed at the place of consumption and,
as a corollary, not taxed from where they are exported. Therefore, export of
services from India are intended to be exempt from domestic service tax law.
|
In order to bring about this dispensation, the Government of India
introduced the Export of Services Rules, 2005, with effect from March 15,
2005. However, it was not as though that export of services from India were
taxed prior to that date.
|
The erstwhile exemption from the tax which was prevalent prior to the
above date did not however lay down rules to determine as to what constituted
export of services from India, and was based on the sole condition of receipt
of inward remittances of non repatriable convertible foreign exchange.
|
Thus, the above Rules laid down, for the first time, elaborate
criteria for the determination of export of services, besides laying down
other conditions, for the exemption from the service tax.
|
The Rules enable the exporter of services to either not charge service
tax on such exports or to discharge the service tax thereon and claim a
rebate/refund of the tax.
|
In both situations, provisions have been made to ensure that the
exporter of such services is able to offset/obtain a refund of the service
taxes paid on input services/goods used in the provision of the exported
services.
|
As regards the rules for determination of exports, a three-part
categorisation of services has been done. The first category relates to a set
of 10 services which will be treated as exported from India if the immovable
property to which these services relate are situated outside India. The
second category pertains to those services which require physical performance
and the Rules state that these services will be treated as exports, if the
services are either wholly or partly performed outside India. A list of 50
different services has been identified under this category. The third and
final category is with regard to services other than those referred to above,
constituting 40 in number, which will be treated as exports, if the service
is both delivered and used outside India and payment for such services is
received by the service provider in convertible foreign exchange.
|
The Export of Services Rules underwent changes in June 2005 and April
2006, pursuant to the Finance Act 2006, as a result of which the benefit of
exemption from the service tax would be available only if the twin conditions
of delivery and use outside India and receipt of payment for such services in
convertible foreign exchange are met.
|
It can thus be seen that the erstwhile condition of inward remittances
of convertible foreign exchange continue to remain as an essential condition.
However, the significant additional condition is that the services should be
delivered and used outside India.
|
This leads us straight to the biggest issue surrounding the
determination of export of services, in the absence of rules for determining
the fact of delivery and use of services outside India, when provided from
India.
|
The underlined expression is important since the Rules can only come
into play if such services are provided from or rendered from India. If the
services are altogether performed from outside the country, they would not be
covered under the ambit of Indian service tax law at all.
|
The absence of rules to determine the delivery and use of services
outside India has created numerous difficulties for a variety of service
providers/services.
|
Given that services are typically transient in nature and also
intangible in character, formidable semantic difficulties arise in
determining how and when the services are supposedly delivered to a recipient
outside India and also how and when such a service, which is delivered
outside India, is also put to use outside India.
|
Broadly speaking, it could be said that if the service is executory in
nature, it will be delivered and used only at the place where it is performed
and if the service is advisory in nature, it will be delivered at the place
where the recipient, to whom such services are rendered, is located.
|
However, these broad rules do not clinch the issue in a variety of
circumstances where the services are quasi executory and quasi advisory in
nature and it becomes imperative in such situations to apply the ‘essential
characteristic’ test to determine the delivery and use of the service outside
India, in order to qualify for the exemption.
|
The other difficulty related to the above is that the service could
ostensibly be used, subsequent to its delivery, on a repeated basis and such
use could conceivably be both outside and within the country. The question
that arises therefore is whether the word ‘used’ is limited to the immediate
use or could it extend to subsequent uses as well.
|
Several similar and associated difficulties have arisen in specific
situations and the absence of clear rules for determination of exports has
caused significant concern. An idea of the seriousness of the question can be
gauged from the fact that several of the activities/services that are
typically performed by the IT and IT enabled services sector, including call
centre and back office operations, could potentially not qualify as exports,
so as to be eligible for the exemption from the service tax.
|
Given that India is a significant provider of such services to the
wider world, it will be self defeating and entirely negative for India’s
aspirations, should there be a tax cost of 12.24% on the value of such
services.
|
The second connected problem is with regard to the inability of
service providers from India to recoup all input taxes, upon their exporting
such services. As indicated earlier, the input taxes can either be set off
against output taxes or refunded in cash.
|
Typically, for exporters of services, such offsets are not possible
and hence cash refunds are the only means of recouping input taxes. For all
those who are in the know, the fact that till date there is not a single
instance of a refund being granted by the authorities to any service provider
in India is an indication of the difficulties faced.
|
While the rules for grant of rebates/refunds for such exports have
been in place for more than a year and have also been subsequently
liberalised, it is a fact that till date no refunds have been granted.
|
In conclusion, it is fair to suggest that there has been significant
progress in service taxation in India in terms of evolving a comprehensive
set of guidelines in the form of the Export of Services Rules.
|
However, it is equally true that in the absence of rules of
determination of the delivery and use of the service outside the country,
service exporters continue to face formidable difficulties in determining
whether their exports are free from service tax. Clear rules are therefore
urgently required to do away with the ambiguities in service tax law relating
to exports.
|
(The author is Leader, Indirect Tax Practice, PricewaterhouseCoopers)
|
An introduction
Introduction to Service Tax Legislation
Contributed By CA. RAJAT MOHAN on 18 November 2011
Article 265 of the Constitution of India read as:
"No tax shall be levied or collected except by authority of law"
This implies that the Government (whether
central or State) can levy tax only when it has power to levy such
tax in the Constitution. In other words, there can be no tax if the
Government does not have the power to levy such tax in the Constitution of
India.
Thus, the Government may levy a tax
on the citizens only under the authority of the Constitution of India.
Powers of the Government to make laws is divided under three lists:
(a) List – I: Also known as Union List - It contains the matters in
respect of which only the Central
Government has the power to make laws.
(b) List – II: Also known as State List - It contains the matters in
respect of which only the State Government
has the power to make laws.
(c) List – III: Also known as Concurrent List - It contains the matters
in respect of which both the Central and
the State Governments have power to make laws.
Entry 92C of the Union List read as “Taxes on services”, thereby the
Central Government has power to levy Tax on
Services (i.e. Service Tax can be imposed by the Central
Government exclusively).
II. STRUCTURE OF SERVICE TAX LAW
Service tax was introduced in year 1994.
We have to study following to become expert in Service Tax Law
(i) Statutory Provisions in the Act
Provisions of Service tax are mentioned in Chapter V of the Finance Act,
1994. There is no separate legislation for
Service Tax. As provisions of Income Tax are mentioned in Income Tax Act
1961, but provisions of service tax are mentioned in Finance Act, 1994. It is
to be noted that Service tax has no separate legislation and there is no
independent Service Tax Act.
Very Important Note: Provisions
of service tax are given in the Finance Act, 1994. Many student write
“Service tax Act” in exams, this is a gross negligence and paucity of
knowledge. Examiner is bound to deduct marks over such silly mistakes.
Please take good care of this in exams as well in practice.
(ii) Rules on service tax
(a) Services Tax Rules, 1994
(b) Service Tax (Advance Rulings) Rules, 2003
(c) CENVAT Credit Rules, 2004
(d) Export of Service Rules, 2005
(e) Service Tax (Registration of Special Category of Persons) Rules,
2005
(f) Service Tax (Determination of Value) Rules, 2006; and
(g)Taxation of Services (Provided from Outside India and Received in
India) Rules, 2006.
Rules should be read with the statutory provisions contained in the Act.
Rules are made for carrying out the
provisions of the Act. The rules can never override the Act and cannot be
in conflict with the same.
(iii) Notifications on service tax
Sections 93 and 94 of Chapter V, and section 96-I of Chapter VA of the
Finance Act, 1994 empower the Central
Government to issue notifications to exempt any service from service tax
and to make rules to implement service tax provisions. Consequently,
notifications on service tax have been issued by the Central Government
from time to time.
(iv) Circulars or Office Letters (Instructions) on service tax:
The Central Board of Excise and Customs issues departmental circulars or
instruction letters from time to time to
explain the scope of taxable services and the scheme of service
tax administration etc. The circulars clarify the provisions of the
Act and thus, bring out the real intention of the legislature. However,
the provisions of Finance Act, 1994 cannot be altered by the departmental
circulars. In other words Circulars give intention to a provision; however
these circulars can be challenged in Tribunal on the grounds of overriding
Finance Act, 1994.
(v) Orders on service tax:
Rule 3 of the Service Tax Rules, 1994, empowers the CBEC to appoint such
Central Excise Officers as it thinks fit
for exercising the powers under Chapter V of the Finance Act, 1994.
Accordingly, orders have been issued by the CBEC, from time to time, to
define jurisdiction of Central Excise
Officers for the purposes of service tax.
Orders on service tax may be issued either by the CBEC or by the Central
Government.
(vi) Trade Notices on service tax:
Trade Notices are issued by the Central Excise/Service Tax
Commissionerates. These Commissionerates
receive various instructions from the Ministry of Finance or Central
Board of Excise & Customs for effective implementation and
administration of the various provisions of service tax law. The same are
circulated among the field officers and the instructions which pertain to
trade are communicated to them in the form of trade notices.
Trade Associations are supplied with the copies of
these trade notices. Individual assessees may also apply for copies of
trade notices.
The trade notice disseminate the contents of the notifications and
circulars/letters/orders, define their
jurisdiction; identify the banks in which service tax can be deposited;
give clarifications regarding service tax matters, etc.
Some basic question answers:
Q.1. What is Service Tax and who pays this tax?
Ans. Service tax is, as the name suggests, a tax on Services. It is a tax
levied on the transaction of certain services specified by the Central
Government under the Finance Act, 1994.
It is an indirect tax (akin to Excise Duty or Sales Tax) which
means that normally, the service provider pays the tax and recovers the amount
from the recipient of taxable service.
Q.2. Under what authority service tax is levied?
Ans. Vide Entry 97 of Schedule VII of the Constitution of India, the Central
Government levies service tax through Chapter V of the Finance Act, 1994.
Entry 92C has been inserted to the 1st List in the VIIth Schedule (so as to make the enactment a subject matter of Union List.Entry 92C was introduced by 88th Constitution Amendment Act, 2003.
Although the Government has amended the Constitution and inserted entry No.92C the List 1 of Schedule VII but no separate Act has been passed yet and service tax is still being governed by entry 97 i.e. residuary entry.
The
taxable services are defined in Section 65 of the Finance Act, 1994. Section 66
is the charging section of the said Act.
Q.3. WHAT IS THE NEED OF INTRODUCTION OF SERVICE TAX?
Ans.Need for Taxation of
Services: It is the prime responsibility
of the
Government to fulfill
the increasing development
needs of the
country and its people, by way of public expenditure. The Government’s primary sources of revenue
are direct and indirect taxes. Central
Excise Duty on the goods manufactured and produced in India and Customs Duties
on imported goods constitute the two major sources of indirect taxes in
India. Due to WTO commitments and
rationalization of commodity duties. Therefore the revenue receipts from
customs and excise duties are low.
The largest component of GDP in the country comes from the service
sector,
Ø To introduce value added tax in
indirect taxation as a whole
Ø To widen the taxation
base.
Ø To merge tax on goods
&services for eliminating levels and for bringing about single levels
called Goods & Service tax throughout country.
Q.4. EVALUATION OF SERVICE TAX IN INDIA?
Ans.Service Tax in India: Based on these recommendations, Dr.Manmohan Singh,
the then Union Finance Minister, in his Budget Speech for the year 1994-95
introduced the new concept of Service Tax and stated as under:
“There is no sound reason for exempting services from taxation, where
goods are taxed and
many countries treat goods and services alike for tax purposes. I,
therefore, propose to make
a modest effort in this direction by imposing a tax on services of
TELEPHONE, NONLIFE INSURANCE, AND STOCK BROKERS”.
Ø Therefore, the service tax was levied under Chapter V of the Finance
Act, 1994.
Ø It was introduced for the first time on 3 services with a nominal rate
of 5% advalorem.
Ø Subsequent Finance Acts have added more services to be taxes for
Service Tax purposes.
Ø As such, today more than 119 services are chargeable to Service Tax.
Q.5. WHAT IS THE CONSTITUTIONAL BACK GROUND OF INDIA?
Ans.Constitutional Background: According to Article 265 of the constitution
India, no tax of any nature can be levied or collected by Central or State
Governments expect by the Authority of Law. According to Article 246, law can
be enacted by Parliament or the State Legislature, if such power is given by
the Constitution of India.
List – I – Union list – Parliament has the exclusive right to make in
respect of that entry.
List – II – State list – Any state has exclusive power to make law for
such state or any part thereof with respect to such entry.
List – III – Concurrent list – The parliament or the legislature of a
state has power to make loss with respect to any matter enumerated in List III.
Ø there are various matters enumerated in each list. Each matter in the
list is known as an entry.
Ø Entry 97 of the Union list is the residuary entry and empowers the
Central Government to levy tax on any matters not enumerated in List II (State
List) or List III (Concurrent List).
Ø In 1994 the Service Tax was levied by the Central Government under the
powers granted under the said Entry 97 of List I.
Ø Entry 92C has been inserted to the 1st List in the VIIth Schedule (so
as to make the enactment a subject matter of Union List.
Ø Although the Government has amended the Constitution and inserted
entry No.92C the List 1 of Schedule VII but no separate Act has been passed yet
and service tax is still being governed by entry 97 i.e. residuary entry.
Q.6. EXPLAIN AS TO HOW AND WHEN
THE AMENDMENTS MADE IN FINANCE BILL, IN RESPECT OF SERVICE TAX MATTER COME INTO FORCE?
Ans.Amendments in the Finance Bill: Amendments made in the Finance Bill in respect
of Service tax matters become effective from the date when the relevant Finance
Bill gets the assent of the President and it becomes and Act. Further, new services which are introduce shall become taxable when these services
are notified or from the date mentioned in such Notification.
The law relating to service tax extends to whole of India except the State
of Jammu and Kashmir and it is applicable
to taxable services provided on or after
the commencement of Chapter V of the Finance Act. 1994.
Q.7. EXPLAIN BRIEFLY THE APPROACHES OF LEVY OF SERVICE TAX?
Ans. Selective or comprehensive coverage of service tax:
The levy of a service
tax can be based on either of the following 2 approaches:
1. Comprehensive coverage/approach
2. Selective coverage/approach
1. Comprehensive coverage/approach: The comprehensive approach contemplates
taxation of all services and a negative list is given in case some services are
to be exempted.
2. Selective coverage/approach: In the case of selective approach, only selective
are subject to service tax. In this case, the legislator attempts to specify and list the services
that would be taxable and the scope of coverage of each service. There is no residuary category for taxing
all services.
Q.8. BRIEFLY EXPLAIN THE NATURE OF SERVICE TAX?
Ans. Nature of Service Tax: Service tax is a tax on services. Service tax is not
a tax on profession / trade but is a tax on the service provided in exercise of
the profession/ trade. It is leviable only if there is provision of service.
Q.9. What is ‘service’?
Ans. Meaning of service has not been define under law hence we have to check dictionary meaning. ‘Service’ means a useful result/product of labour, which
is intangible i.e. which cannot be seen through eyes. Thus, service is a value
addition that can be felt only but cannot be seen.
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