Service Tax

Service tax is a tax levied by Central Government of India on services provided or to be provided excluding services covered under negative list and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax. Person liable to pay service tax is governed by Service Tax Rules, 1994 he may be service provider or service receiver or any other person made so liable. It is an indirect tax wherein the service provider collects the tax on services from service receiver and pays the same to government of India. Few services are presently exempt in public interest via Mega Exemption Notification 25/2012-ST as amended up to date and few services are charged service tax at abated rate as per Notification No. 26/2012-ST as amended up to date. Presently from 1 June 2016, service tax rate has been increased to consolidated rate at 15% of value of services provided or to be provided. The service tax rate now is consolidated rate as education cess and secondary higher education cess are subsumed with 2% of "Swach Bharat Cess(0.50%)" has been notified by the Government.

From 15 November 2015, the effective rate of service tax plus Swachh Bharat Cess, post introduction of Swachh Bharat Cess, was 14.5%. Currently, Swachh Bharat Cess and Krishi Kalyan Cess would also be levied on all services on which Service Tax is being levied and therefore, the Service Tax (including Swachh Bharat Cess and Krishi Kalyan Cess) applicable from 1 June 2016 has become 15%.

History of Service Tax

Dr. Raja Chelliah Committee on tax reforms recommended the introduction of service tax. Service tax had been first levied at a rate of five per cent flat from 1 July 1994 till 13 May 2003, at the rate of eight percent flat w.e.f 1 plus an education cess of 2% thereon w.e.f 10 September 2004 on the services provided by service providers. The rate of service tax was increased to 12% by Finance Act, 2006 w.e.f 18.4.2006. Finance Act, 2007 has imposed a new secondary and higher education cess of one percent on the service tax w.e.f 11.5.2007, increasing the total education cess to three percent and a total levy of 12.36 percent. The revenue from the service tax to the Government of India have shown a steady rise since its inception in 1994. The tax collections have grown substantially since 1994–95 i.e. from ₹410 crore (US$61 million) in 1994–95 to ₹132,518 crore (US$20 billion) in 2012–13. The total number of Taxable services also increased from 3 in 1994 to 119 in 2012. However, from 1 July 2012 the concept of taxation on services was changed from a 'Selected service approach' to a 'Negative List regime'. This changed the taxation system of services from tax on some Selected services to tax being levied on the every service other than services mentioned in Negative list.^[1]

Under the Service tax from the year of original levying year of 1994 are constantly growing. The collections are shown as in the following table:

Rates

Service Tax which started out at a nominal 5% is now at 15%.

It was increased to 14% for transactions that happened on or after 1 June 2015 and then for transactions that occurred on or after 15 Nov 2015, the new Swachh Bharat Cess at 0.5% was also added to the Service Tax. Therefore, the effective rate became 14.5% with effect from 15 Nov 2015.

For transactions that occurred on or after 1 June 2016 this tax is at 15%.^[2] 2016 Union budget of India has proposed to impose a cess, called the Krishi Kalyan Cess, at 0.5% on all taxable services effective from 1 June 2016. The current service tax is at 15%.^[3]

Krishi Kalyan Cess:-

With introduction of Krishi Kalyan Cess^[4] at 0.5% w.e.f June 1, 2016, effective rate of Service tax would eventually go up to 15%, which was earlier increased to 14% (with subsumation of Education Cess and Secondary and Higher Education Cess) from 12.36% w.e.f June 1, 2015 and Swachh Bharat Cess at 0.5% on value of all taxable services imposed w.e.f November 15, 2015. Krishi Kalyan Cess, which was announced during the 2016–17 Budget, has become applicable from 1 June. A tax of 0.5% would be levied over and above the Service Tax and Swachh Bharat Cess. Till 31 May 2016, the Service Tax rate was 14.5%. With Krishi Kalyan cess, the service tax would increase to 15%. While Swachh Bharat Cess was levied to conduct cleanliness drive in India, the new cess has been levied for the purpose of financing and promoting initiatives to improve agricultural growth.

Krishi Kalyan Cess Cenvat Credit Rules

CENVAT Credit will be available on Krishi Kalyan Cess. CENVAT (central value added tax) credit, whose rules will be revised according the change in service tax, will be available to service providers on the cess they are pay.

Small Scale Exemption

Service tax is only liable to be paid in case the total value of the service provided during the financial year is more than ₹10 lakh (US$15,000). If the value of services provided during a preceding^[5] financial year is less than ₹10 lakh (US$15,000), only then this exemption is applicable in the current financial year. it is optional for he wants to avail this exemption or not.^[6]

Declared Services ^[7]

In the year of 2012, service tax laws has witnessed a paradigm shift when the taxation shifts from positive list if services to negative list of services. At that time, another concept of declared service was introduced by the Government of India via Section 66E of Finance Act, 1994.

Declared service is the deeming fiction of law. It provides the lawmakers with an arbitrary power to declare any activity as a service. Section 65B(22) defines the declared service as any activity carried out by a person for another person for consideration and declared as such under section 66E. Further, the definition of service under section 65B(44) also specifically covers the declared service under the definition of service.

This section is also one of the vital sections of Finance Act, 1994. Any service included under this section will be liable to service tax straight.

Negative list

Budget 2012 revamped the taxation provisions for services by introducing a new system of taxation of services in India. In the new system all services, except those specified in the negative list, are subject to taxation. Earlier the levy of service tax was based on positive list—specified 119 taxable services.

As per clause (34) of section 65B of the Finance Act, 1994, the term "Negative List" means the services which are listed in section 66D. ^[8] 66D;government service

Registration of Service Tax^[9]

As per Service Tax Law it is mandatory for the following categories of persons obtain registration :-

• Every person liable to pay service tax under Reverse Charge
• An input service distributor
• Ever provider of taxable service whose aggregate value of taxable service exceeds 9 lakhs in a financial year.

Every person mentioned above will have to get themselves registered under the service tax law within 30 days from the date of commencement of such service or business.

Whereas in case of service provider whose aggregate value of taxable service not exceeded 9 lakhs in a financial year not need to obtain registration, where in case he has obtained registration he is liable to payment of service tax only if the value of taxable services exceeds 10 lakhs rupees.

Payment of Service Tax ^[10]

As per Rule 6(1) of Service Tax Rules 1994 Service tax is paid to the credit of the central government by 5th or 6th as the case maybe immediately following the calendar month (5th or 6th as the case maybe immediately following the quarter in case of partnership,individual and proprietary firm) in which the service deemed to provided as per rules framed in this regard.

The time limit for the payment of Service Tax as follows

1.by the 6th day of immediately following calendar month if the duty is deposited by electronically through internet banking and

2.by the 5th day of immediately following calendar month in any other case.

In case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or agreed to be provided by him up to a total of rupees fifty lakhs in the current financial year, in which payment is received^[10]

Service Tax Return, records and invoices

Service Tax Return^[10]

Every person liable to pay service tax shall himself assess the tax and shall submit a half yearly return in From ST-3 or ST-3A in case of provisional assessment as the case may for the months covered in the half-yearly return. Every assessee shall submit the half yearly return by the 25th of the month following the particular half-year.

The half years for this purpose will cover

1st half year 1 April to 30 September due date for the return is 25 October

2nd half year 1 October to 31st march due date for the return is 25 April.

Late filing of Return^[10]

Where the return is furnished after the date prescribed for submission of such return, the person liable to furnish the said return shall penalty for the period of delay of as

1. fifteen days from the date prescribed for submission of such return, an amount of five hundred rupees;
2. beyond fifteen days but not later than thirty days from the date prescribed for submission of such return, an amount of one thousand rupees; and
3. beyond thirty days from the date prescribed for submission of such return an amount of one thousand rupees plus one hundred rupees for every day from the thirty first day till the date of furnishing the said return:

The total amount of penalty for delayed submission of return, shall not exceed Rs.20,000/-

i.e., maximum penalty is penalty as calculated above or Rs.20,000/- whichever is lower.

Records^[10]

According to Rule 5 of Service Tax Rules, 1994, records include computerized data and means the record as maintained by an assessee in accordance with the various laws in force from time to time. Records maintained as such shall be acceptable to Central Excise Officer.

Every assessee shall furnish to the Superintendent of Central Excise at the time of filing of first return after 28-12-2007 a list in duplicate, of all the records prepared or maintained by the assessee for accounting of transactions in regard to

(a) providing of any service,

(b) receipt or procurement of input services and payment for such input services;

(c) receipt, purchase, manufacture, storage, sale, or delivery, as the case may be, in regard of inputs and capital goods;

(d) other activities, such as manufacture and sale of goods, if any.

and all other financial records maintained by him in the normal course of business. This intimation may be sent along with a covering letter while filing the service tax return for the first time.

All such records shall be preserved at least for a period of five years immediately after the financial year to which such records pertain.

Invoice

Rule 4A prescribes that taxable services shall be provided and input credit shall be distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan will also include documents used by service providers of banking services (such as pay-in-slip, debit credit advice etc.) and consignment note issued by goods transport agencies. Rule 4B provides for issuance of a consignment note to a customer by the service provider in respect of goods transport booking services.^[11]

Every person providing taxable service shall issue an invoice/bill/challan within 30 days (45 days in case of banking and other financial service providers) from the date of completion of such service or receipt of any amount for such taxable service.^[10]

The invoice/bill/challan signed by such person or a person authorized by him in respect of taxable service provided or agreed to be provided and such invoice, bill or, as the case may be, challan shall be serially numbered and shall contain the following, namely :-

(i) the name, address and the registration number of such person;

(ii) the name and address of the person receiving taxable service;

(iii) description and value of taxable service provided or agreed to be provided; and

(iv) the service tax payable thereon:

In case the provider of taxable service is a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person, providing service to any person an invoice, bill or, as the case may be, challan shall include any document, by whatever name called, whether or not serially numbered, and whether or not containing address of the person receiving taxable service but containing other information as prescribed above.^[10]

References

Service Tax on Export of the Services What is Swachh Bharat Cess

External links

• Automation of Central Excise and Service Tax Portal