SERVICE TAX

There is no separate Act for Service Tax. The provisions of service tax are contained in Chapter V of theFinance Act, 1994 and administered by the Central Excise Department.Service tax is being imposed and the scope has been enhanced by amending Finance Act, 1994 from time to time.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. The taxable services are defined in section 65 of the Finance Act, 1994. Section 66 is the charging section of the said Act.

Statutes Governing the Levy of Service Taxi. The Finance Act, 1994 Chapter V — Sections 64 to 96-I. This chapter extends to the

whole of India except the State of Jammu and Kashmir.ii. The Finance Act, 2004 Chapter VI — for levy of Education Cess @ 2% on the

Service Tax.iii. The Finance Act, 2007 — for levy of Secondary and Higher Education Cess of 1% on

service tax.iv. The Service Tax Rules, 1994. (Also referred to as ‘Rules’ or ‘STR, 1994’).v. The CENVAT Credit Rules, 2004.vi. The Place of Provision of Services Rules, 2012vii. The Service Tax (Registration of Special categories of persons) Rules, 2005.viii. viii. The Service Tax (Determination of Value) Rules, 2006 (with effect from 19th

April, 2006)ix. ix. The Point of Taxation Rules, 2011

Sec. 65B(44): ‘Service’ means – (W.E.F. 1-7- 2012)i. any activityii. for considerationiii. carried out by a person for anotheriv. and includes a declared service.

But excludes :(a) IMAGE:1. Immovable property2. Money3. Actionable claim4. Goods sold (including Deemed sale)5. Employee to the Employer(b) fees payable to a court or a tribunal

1. Activities without consideration do not attract service tax:(a) Free tourism information,(b) Access to free channels on TV(c) Large number of governmental activities for citizensAn award received in consideration for contribution over a life time (without reciprocity) will not comprise an activity for consideration. Hence, not taxable.2. Payments without an activity also do not attract service tax:The following has not been given in terms of reciprocity:(d) Grant of pocket money(e) A gift(f) Reward (which has not given in terms of reciprocity)

(g) Amount paid as alimony for divorce3. Consideration:

Consideration includes monetary as well as non-monetary consideration. It means service tax attract not only on monetary values but also consideration received in kind (i.e. non-monetary).

4. Non-Monetary consideration means compensation in kind such as the following:(a) supply of goods and services in return for provision of service(b) refraining or forbearing to do an act in return for provision of service(c) tolerating an act or a situation in return for provision of a service(d) doing or agreeing to do an act in return for provision of service.

5. Carried out by a person for another:Services provided by a person to self are outside the ambit of taxable service:Example:A service provided by one branch of a company to another or to its head office is not taxable service.Exceptions:(a) An establishment of a person located in taxable territory and another establishment of

such person located in non-taxable territory.(b) An unincorporated person or body of persons.

Taxable ServicesService tax is levied on all services except negative list of services in the Finance Act, 1994. There are several services which are taxable if service is provided by a service provider; any person to any person.However, all taxable services are NOT subject to service tax.This is because taxability is not only dependent on the nature of service but also on—

(a) Who is the service provider,(b) Who is the service receiver

Services include a Declared ServiceAs per Sec. 66E: Declared services includes

(a) Renting of immovable property(b) Construction of a complex, building, civil structure or part thereof(c) Temporary transfer or permitting the use or enjoyment of any intellectual property

right(d) Development, design, programming, customization, adaption, upgradation,

enhancement, implementation of information technology software.(e) Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or

to do an act(f) Transfer of goods by way of hiring, leasing, licensing or in any such manner without

transfer of right to use such goods(g) Hire purchase(h) Service portion in the execution of a works contract(i) Service portion in an activity wherein goods, being food or any other article of human

consumption or any drink is supplied in any manner as a part of the activity

Service excludes IMAGE:a) Immovable Property:

Transfer of title in land, things attached to the earth or permanently fastened to anything attached to the earth cannot be considered as service.Money:Transaction only in money cannot be considered as service.Example :

i. The principal amount of deposits in or withdrawals from a bank accountii. Repayment of principal sum on loaniii. Conversion of ` 1,000 currency note into one rupee coins.

b) Actionable ClaimsA claim to any debt (other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property) or to any beneficial interest in movable property not in the possessionExample:

i. Unsecured debts transferred to a third personii. Right to participate in the draw to be held in a lottery (i.e. sale of lottery tickets)

c) Goods:i. Transfer of title in goods (includes “SECURITIES”)ii. Transfer of goods (i.e. deemed sale) are excluded from the definition of

serviced) Employee to the Employer: No service tax will attract if the services provided by the employee to the employer.

Service Tax Registration: is required if —i. the taxable turnover of the service provider during the previous year exceeds ` 9

lakhs, orii. the service provider is acting as an input service distributor irrespective of his

turnover.iii. Service provider provided services under the brand name of another person.iv. the service receiver is liable to pay service tax being recipient of service under

Reverse Charge.Registration is not required if the service provider’s taxable turnover is less than ` 9 lakhs during the previous year.It is advisable to register in the same year in which taxable services of the service provider is likely to exceed ` 9 lakhs.

Reverse chargeService receiver is liable to pay service tax instead of service provider is termed as reverse charge.In certain cases, recipients or other specified persons of the specified taxable services are liable to pay service tax and hence, they are required to register compulsory irrespective of the turnover limit.Moreover, the exemption limit of ` 10 lakhs is not applicable to recipient of services were liable to pay service tax.

Brand name of another personService provider who is providing taxable services under the brand name of another person is not eligible for claiming exemption limit of ` 10 lakhs and hence, is liable to pay service tax irrespective of the turnover.

Example: Mr. Ram who markets his goods under the brand name of TATA Company. Therefore, it is very clear that Mr. Ram is a provider of services under the brand name of the company and his services are taxable under Business Auxiliary Services. Hence, he can not avail the benefit of ` 10, 00,000 exemption.

Negative list

In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list.The services specified in the negative list therefore go out of the ambit of chargeability of service tax.The negative list of service is specified in the Act itself in Section 66 D. In all, there are seventeen heads of services that have been specified in the negative list. The scope and ambit of these is explained below.1) Services provided by Govt. or local Authority:All services provided by Govt., in terms of their sovereign right to business entities.

Grant of mining licenses Audit of Comptroller and Auditor General, etc.

Exclusion from Negative list: Speed post, Express Parcel post, Life insurance and agency services carried out on

payment of commission Services in relation to vessel or an aircraft Transport of goods and passengers Support services.

2) Services provided by RESERVEBANK OF INDIA(RBI)All type of services provided by RBI.Exclusion from Negative listServices provided by banks to RBI taxable3) Services Provided by a foreign diplomatic mission located in IndiaAll type of services. Service provided to a foreign diplomatic mission located in india is exempt from service tax.4) Agriculture or agricultural produce

Cultivation, harvesting, seed testing Supply of farm labour Trimming, sorting etc., thereby marketable in the primary market Renting of agro machinery loading, unloading, packing, storage and warehousing of

agricultural produce Agricultural extention services Services by any agriculrual Produce marketing committee

Exclusion from Negative list Potato Chips or Tomoto Ketchup Grinding, sterilizing extraction of packaging in retail packs of agricultural products.

5) Trading goods Forward contracts incommodities Commodity futures.Exclusion from Negative list

Auxiliary services relating to future contracts or commodity futures provided by commodity exchanges, clearing houses or agents.

6) Process amounting to manufacture or production of goods

Process for which Excise duty Exempted (i.e. Nondutiable goods). Excisable goods for which Central Excise Duty or State Excise are leviable.

Exclusion from Negative list Process do not amounting to manufacture.

7) Selling of space or time slots for advertisementSale of space for advertisement in

Print media Bill boards Public places, Cell phones Automated teller machines, internet Aerial advertising.

Exclusion from Negative list Sale of space for adv.On radio or T.V. Sale time slot by a broadcasting org.

8) Access to a road or a bridge on payment of toll chargesToll charges collected to access to National Highways or State Highways.Exclusion from Negative listThe activity of toll collection outsourced to any third party agency who undertakes the work for consideration.Example:Intertoll India Consultants was under taken a subcontract to collect toll on commission basis from Noida Toll Bridge Company (i.e. agency authorized to levy toll). Commission is subject to S.T.9) Betting, gambling or lottery Sale of lottery tickets

Exclusion from Negative list Sale promotion or marketing of lottery tickets shall be liable for S.T. Distributor or

selling agent has option to pay S.T. at composition scheme as per Rule 6(7C) of Service Tax Rules, 1994.

10) admission to entertainment events or access to amusement facilitiesRecreation Pastime Fun or enjoyment Cinematographic film, PageantsExclusion from Negative listMember ship of a club Auxiliary services provided by a person, like an event manager, for organizing an entertainment event or by an entertainer for providing the entertainment to an entertainment event organizer11) Transmission or distribution of electricityServices provided by The Central Electricity Authority A State Electricity Board A State Transmission Utility

Exclusion from Negative listCharges collected by a developer or a housing society for distribution of electricity within a residential complex Installation of gensets12) Education servicesServices by way of

I. Pre-school education and education upto higher secondary school (i.e. XII standard)

II. Education as a part of a curriculum for obtaining a qualification recognised by any an Indian law

III. Vocational education course approved by National Council for Vocational Training (NCVT) or National Skill Development Corporation (NSDC)

Exclusion from Negative list Qualifications recognised by a law of foreign country Services provided to educational institutions Private tuitions Services by educational institutions for campus recruitments Exemption from S.T: Training relating to arts, culture or sports, Auxiliary educational services

13) Residential dwellingI. Govt. Deptt. Allots houses to its employees and charges a license feeII. Flats given on rent for residential purposesExclusion from Negative list Residential house taken on rent for commercial purposes House is given on rent and the same is used as a hotel or a lodge Rooms in a hotel or a lodge are let out

14) Banking, financial and insurance servicesI. Extending deposits, loans, or advances in so far as the consideration is represented

by way of interest or discountII. Foreign currency exchange amongst banks or authorized dealers

Exclusion from Negative list Interest portion of leasing or hire purchase after claiming an abatement @90%. All other services of a banker or financial and insurance servicesExemption: Mutual fund broker services to Mutual fund company exempted from S.T.15) Services relating to transportation of passengersServices by A stage carriage Railways in a class other than first class or ac coach Metro, monorail or tramway Inland waterways Public transport (other than tourism purpose) in a vessel between places located in india

and Metered cabs, radio taxis, auto rickshawsExclusion from Negative list

Public transport predominantly for tourismExemption:

Giving on hire of motor vehicles to State Transport, No S.T.

16) Services relating to transportation of goodsI. By road (except gta and courier angency)II. By aircraft or vessel from a place outside india up to the customs stationIII. By inland waterways

Exclusion from Negative list Goods Transport Agency (GTA) COURIER

17) Funeral, burial, crematorium or mortuary services including tranportation of the deceased. All relevant services

There are broadly two types of exemptions namely general exemptions and mega exemption from service tax levy.(A) General Exemptions:(i) Small service providerA service provider whose previous year taxable services are less than or equal to ` 10 Lakhs, in the current year such service provider is called as small service provider. A person who is newly started business or office for the first time is also be called as small service provider if in the current year his taxable services does not exceeds ` 10 Lakhs.A small service provider has option to claim exemption from service tax upto ` 10 Lakhs (also called as Threshold limit). Such limit called as threshold limit. Also, registration is not required when taxable service provided by them is valued up to ` 9 Lakhs.The Small Service Provider whose turnover of all taxable services from one or more premises does not exceeds ` 10,00,000 during the previous year, then no service tax in the current year upto ` 10,00,000.How to compute aggregate value (i.e. exemption limit) of ` 10,00,000:W.e.f. 1-4-2012 it has been provided that the exemption to the small service provider shall be on the basis of the value of invoice in a financial year and not on the basis of payment received in that year.As per the amendment, Aggregate value means the sum total of value of taxable services charged in the first consecutive invoices issued or required to be issued, as the case may be, during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66 of the Finance Act, 1994Exemption limit of ` 10,00,000 lacs not applicable in the following cases(a) Previous year taxable turnover of a service provider exceeds ` 10 Lacs.(b) Service recipient is liable to pay service tax (i.e. Reverse Charge).(c) Provider of services under the brand name of others.

(ii) Services provided to United Nations or an International OrganizationServices provided to the agencies of the United Nations and to the employees of the United Nations, whether for official or personal purpose. Services rendered to an approved international organization, service tax is exempted.(iii) Special Economic Zone (SEZ)(Vide Notification No. 17/2011-ST dt. 1-3-2011, w.e.f. 1-3-2011)Taxable services provided to a unit of SEZ or a SEZ developer by the service provider is exempted from payment of service tax, if the services are wholly consumed within SEZ. If services are not consumed wholly within SEZ, such services are taxable in the hands of service provider. However, the exemption is available by way of refund of service tax paid on the specified services received for the authorized operations in a SEZ.Wholly consumed within SEZWhere the specified services has been received and used for authorized operation by a unit of Special Economic Zones (or) SEZ developer will be exempt if the services are “wholly

consumed” within SEZ, including services liable to tax on reverse charge basis under Section 66A of the Finance Act, 1994.It has also been specified that all services received by an entity in a SEZ, which does not have any otherDomestic Tariff Area (DTA) operations, will constitute “wholly consumed” services w.e.f. 1-3-2011. A service provider shall provide the services wholly consumed within the SEZ, without payment of service tax on obtaining from developer or the unit of SEZ for authorized operation the following documents

(a) List of taxable services for authorized operations approved by the approval committee (i.e. specified services) of the concerned SEZ.

(b) A declaration, where applicable in Form No. A-1 duly verified by the specified officer of SEZ. Since, no service tax has been paid by a unit of SEZ or SEZ developer, refund of service tax does not arise.

(iv) Exemption to the extent of R & D Cess paidThe Government has exempted the taxable services provided by a consulting engineer to any person on transfer of technology to the amount of Cess paid (i.e. 5%).

Service Tax Payable = XXXXLess: 5% Cess Paid = (XXX)Net Service Tax Liability = XXXX

Mega Exemptions:(1) Services provided to all international organizations:Services to only specified international organisations are exempt. ‘Specified international organisation’ has been defined in the notification and means an international organization declared by theCentral Government in pursuance of section 3 of the United Nations (Privileges and Immunities) Act, 1947 to which the provisions of the Schedule to the said Act apply.Illustrative list of specified international organisations are as follows:(a) International Civil Aviation Organisation(b) World Health Organisation(c) International Labor Organisation(d) Food and Agriculture Organisation of the United Nations(e) UN Educational, Scientific and Cultural Organisation (UNESCO)(f) International Monetary Fund (IMF)(g) International Bank for Reconstruction and Development(h) Universal Postal Union(i) International Telecommunication Union(j) World Meteorological Organisation(k) Permanent Central Opium Board(l) International Hydrographic Bureau(m)Commissioner for Indus Waters, Government of Pakistan and his advisers and assistants(n) Asian African Legal Consultative Committee(o) Commonwealth Asia Pacific Youth Development Centre, Chandigarh(p) Delegation of Commission of European Community(q) Customs Co-operation Council(r) Asia Pacific Telecommunity(s) International Centre of Public Enterprises in Developing Countries, Ljubljana

(Yugoslavia)

(t) International Centre for Genetic Engineering and Biotechnology(u) Asian Development Bank(v) South Asian Association for Regional Co-operation(w) International Jute Organisation, Dhaka, Bangladesh

(2) Health Care ServicesServices in recognized systems of medicines in India are exempt. In terms of the Clause (h) of section 2 of the Clinical Establishments Act, 2010, the following systems of medicines are recognized systems of medicines:i. Allopathyii. Yogaiii. Naturopathyiv. Ayurvedav. Homeopathyvi. Siddhavii. Unaniviii. Any other system of medicine that may be recognized by central government

Paramedic Services also exempted:Services like nursing staff, physiotherapists, technicians, lab assistants etc are called as paramedic services which are exempt from service tax. Services by them in a clinical establishment would be in the capacity of employee and not provided in independent capacity and will thus be considered as services by such clinical establishment. Similar services in independent capacity are also exempted.However, the following services even if provided by Doctors or Hospitals shall be taxable:(a) hair transplant or(b) cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy

or function of body affected due to congenital defects, developmental abnormalities, injury or trauma.

(3) Services by a Veterinary Clinic in relation to health care of animals or birds are exempted from service tax.(4) Services provided to or by a governmental authorityThe following conditions should be satisfied for a board, body or an authority to be called as a governmental authority:i. set up by an act of the Parliament or a State Legislature;ii. established with 90% or more participation by way of equity or control by

Government; andiii. carriers out any of the functions entrusted to a municipality under article 243W of the

Constitution(5) Renting of religious place or conducting religious ceremony(6) Services by an Arbitral Tribunal and Advocates(7) Exemption to clinical research organisation:Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India(8) Exemption for Recreational coaching or training(9) Exemption for services provided to or by an educational institution(10) Services provided to recognised sport body(11) Services in relation to sponship of sporting events to specified organisations

(12) Services provided to the Government, a local authority or a governmental authority by way of construction, etc(13) Services provided by way of construction, erection, commissioning, etc,(14) Services by way of construction, errection, commissioning or installation of original works(15) Services in relation to Copyright(16) Services by artist in relation to folk or classical art(17) Services in relation to collecting or providing of News(18) Services in relation to renting of hotel, inn, guest house, club etc.Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent(19) Services provided by restaurant:Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages; are exempted from service tax.(21) Services by transport of essential goods etc by Goods Transport Agency (GTA) & Rail/vessel:Services provided by a goods transport agency by way of transportation of -(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;(b) goods where gross amount charged for the transportation of goods on a consignment

transported in a single goods carriage does not exceed one thousand five hundred rupees; or

(c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;

(22) Services by hiring of vehicle: Services by way of giving on hire -(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve

passengers; or(b) to a goods transport agency, a means of transportation of goods;

i. Giving on hire a bus to a state transport undertaking is exempt from service tax. If the bus is given on hire to a person other than a state transport undertaking, it will be taxed.

ii. Transport of passengers in a contract carriage for the transportation of passengers, for tourism, conducted tour, charter or hire is taxable.

(23) Services of transport of passengers by different mode of transportation: Transport of passengers, with or without accompanied belongings, by -(a) air, embarking from or terminating in an airport located in the state of Arunachal Pradesh,

Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal;

(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or

(c) ropeway, cable car or aerial tramway; are exempted from service tax.

(24) Services of vehicle parking:Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility; service tax not required to pay on providing the facility of vehicle parking to general public.

However, if you are providing the facility of parking of vehicles to a car dealer, then required to pay tax as parking facility is not for general public. Moreover, land owner is liable to pay service tax on renting of his land.(25) Specified services to Government, a local authority or a governmental authority: Services provided to Government, a local authority or a governmental authority by way of -(a) carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or (b) repair or maintenance of a vessel.(26) Services of General insurance Business under the specified scheme:Services of general insurance business provided under following schemes are exempted from service tax:(a) Hut Insurance Scheme;(b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated(c) Rural Development Programme);(d) Scheme for Insurance of Tribals;(e) Janata Personal Accident Policy and Gramin Accident Policy;(f) Group Personal Accident Policy for Self-Employed Women;(g) Agricultural Pumpset and Failed Well Insurance;(h) premia collected on export credit insurance;(i) Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance

Scheme approved by the Government of India and implemented by the Ministry of Agriculture;

(j) Jan Arogya Bima Policy;(k) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);(l) Pilot Scheme on Seed Crop Insurance;(m)Central Sector Scheme on Cattle Insurance;(n) Universal Health Insurance Scheme;(o) Rashtriya Swasthya Bima Yojana; or(p) Coconut Palm Insurance Scheme;

(27) Services provided by an incubatee:Services provided by an incubatee up to a total turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:-(a) the total turnover had not exceeded fifty lakh rupees during the preceding financial

year;and(b) a period of three years has not been elapsed from the date of entering into an agreement

as an incubatee;

(28) Services by an Non-Profit Making Organisation:Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution -

(a) as a trade union;(b) for the provision of carrying out any activity which is exempt from the levy of service

tax; or(c) up to an amount of five thousand rupees per month per member for sourcing of goods

or services from a third person for the common use of its members in a housing society or a residential complex;

(29) Services by the specified persons in respective categories are exempted from service tax: Services by the following persons in respective capacities -

(a) sub-broker or an authorised person to a stock broker;(b) authorised person to a member of a commodity exchange;(c) Mutual fund agent to a mutual fund or asset management company. Etc

(30) Services by way of job work:

Carrying out an intermediate production process as job work exempted from service tax if these services are in relation to -

(a) agriculture, printing or textile processing;(b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and

other precious metals, falling under Chapter 71 of the Central Excise Tariff Act ,1 985 (5 of 1986);

(c) any goods on which appropriate duty is payable by the principal manufacturer; or(d) processes of electroplating, zinc plating, anodizing, heat treatment, powder coating,

painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;

(31) Services in relation to business exhibition:Services by an organiser to any person in respect of a business exhibition held outside India are exempted from service tax.

(32) Services by making telephone calls:Services by way of making telephone calls from -

(a) departmentally run public telephone;(b) guaranteed public telephone operating only for local calls; or(c) free telephone at airport and hospital where no bills are being issued;

(33) Services by way of slaughtering of bovine animals;(34) Services by a person located in non-taxable territory:Services received from a provider of service located in a non- taxable territory by-

(a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;

(b) an entity registered under section 1 2AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or

(c) a person located in a non-taxable territory;(35) Services by public libraries:Services of public libraries by way of lending of books, publications or any other knowledge enhancing content or material; are exempted from service tax.(36) Services by Employee’s State Insurance (ESI) Corporation:Services by Employees’ State Insurance Corporation to persons governed under the Employees’ Insurance Act, 1948 (34 of 1948) are exempted from service tax.(37) Services by way of transfer of a going concern:Services by way of transfer of a going concern, as a whole or an independent part thereof; exempted from service tax.(38) Services by way of public convenience:Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets; are exempted from service tax.(39) Services by a governmental authority