Service Tax

When we use any service be it a phone bill payment or Hire a room in a hotel we have to pay out little more than the actual rates charged. It is a tax which is payable on services provided by the service provider. Just like Excise duty is payable on goods which are manufactured, similarly Service Tax is payable on Services provided.

This Tax is payable by the provider of Service to the Govt. of India. However, the Service Provider can collect this Tax from the Consumer of and deposit the same with the Govt.

From 1st July 2012 onwards, all services (except those specified in the negative list of services by the Govt) are now liable for service tax.

However, there are some services which are composite services. For eg: Food being served in a Restaurant. Although VAT is levied on Food, but we don't go to a Restaurant only to have Food but also to avail the services of the waiters, kitchen staff etc. Therefore, Service Tax is also levied on Food served in Restaurant. In such cases, it is practically impossible to segregate how much the customer has paid for the food and how much he has paid for the services.Such services are popularly known as Composite Services and in such cases an abatement scheme is announced by the govt under which Service Tax is only levied only on a specified portion of the Total Bill

Earlier Service Tax was charged on cash basis for every service provider. Currently, it is charged on cash basis for Individual service providers and for companies it is being charged on accrual basis i.e companies liability to deposit tax arises as soon as services are provided irrespective of the collection of funds on the same.

However Individual Service Providers have to deposit this Tax with the Govt only when the Invoice Amount has been collected. Service Tax Payment is deposited by the Service Provider with the Govt. quarterly in case of Individuals/Partnership and Monthly in all other cases.

Moreover, every Service Provider is now required to apply for Service Tax Registration if the Value of Services provided by him during a Financial Year is more than Rs. 9 Lacs, but the Tax would be payable only when the Value of Services provided is more than Rs. 10 Lacs.

All service providers in India, except those in the state of Jammu and Kashmir, are required to pay this tax in India

Service Tax Rate

The Current of Service Tax Rate is 12%

Education Cess @ 2% and Senior and Higher Education Cess @ 1% are also liable to be payable on the above Service Tax Rate.

Service Tax Rate = 12%

(+) Education Cess @ 2% = 0.2%
(+) Senior & Higher Education Cess @ 1% = 0.1%
Effective Service Tax Rate = 12.36%

Let's understand via simple case, If a Chartered Accountant, provides services in the capacity of auditor to ABC Ltd. and the audit fees is Rs. 1,00,000 then the service tax chargeable will be 12.36% on Rs. 1,00,000 i.e. INR 12,360. Hence, the total billing to be done by CA to ABC Ltd will be INR 1, 12,360.

The segregation of Value of Service Provided (i.e. Rs. 1,00,000) and the Tax payable thereon (i.e. Rs. 12,360) shall be separately showing on the Invoice.

In case, no tax is separately charged in Invoice or the service receiver makes partial payment then the service tax shall be proportionately taken to be amount as on the gross amount received by the service provider for the taxable service provided or to be provided by him.

Procedure for Registration
  • 3.1Fill the Form ST-1 in duplicate. (Form ST-1 is available on the departmental website (www.cbec.gov.in). Enclose photocopy of PAN card, proof of address to be registered and copy of constitution /partner ship deed etc. of the firm, if any.
  • 3.2Copy of PAN card is necessary as a PAN based code (Service Tax Code) is allotted to every assessee.
  • 3.3These forms are required to be submitted to the jurisdictional Central Excise office (in case of seven Service Tax Commissionerates, to the jurisdictional Division office). There are separate service tax commissionerates in Mumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabad as mentioned in the previous chapter).
  • 3.4A person liable to pay service tax should file an application for registration within thirty days from the date on which the service tax on particular taxable service comes into effect or within thirty days from the commencement of his activity.

    (Refer Rule 4 (1) of Service Tax Rules, 1994)
  • 3.5 Where a person, liable for paying service tax on a taxable service,
    • provides such service from more than one premises or offices; or
    • receives such service in more than one premises or offices; or,
    • is having more than one premises or offices, which are engaged in relation to such service in any other manner, making such person liable for paying service tax, and has centralized billing system or centralized accounting system in respect of such service, and such centralized billing or centralized accounting systems are located in one or more premises, he may, at his option, register such premises or offices from where centralized billing or centralized accounting systems are located.
  • 3.5.1The registration under sub-rule 2 of Rule 4 of the Service Tax Rules,1994, shall be granted by the Commissioner of Central Excise in whose jurisdiction the premises or offices, from where centralized billing or accounting is done, are located:

    Provided that nothing contained in this sub-rule shall have any effect on the registration granted to the premises or offices having such centralized billing or centralized accounting systems, prior to the 2nd day of November, 2006.
  • 3.6A single registration is sufficient even when an assessee is providing more than one taxable services. However, he has to mention all the services being provided by him in the application for registration and the field office shall make suitable entries/endorsements in the registration certificate. (Refer Rule 4 (4) of Service Tax Rules, 1994)
  • 3.7An assessee should get the registration certificate (registration number) within 7 days from the date of submission of form S.T.1, under normal circumstances.
    (Refer Rule 4 (5) of Service Tax Rules, 1994)
  • 3.8A fresh registration is required to be obtained in case of transfer of business to another person.
    (Refer Rule 4 (6) of Service Tax Rules, 1994)
  • 3.9Any registered assessee when ceases to provide the taxable service shall surrender the registration certificate immediately.
    (Refer Rule 4 (7) of Service Tax Rules, 1994)
  • 3.10 In case a registered assessee starts providing any new service from the same premises, he need not apply for a fresh registration. He can simply fill in the Form S.T.1 for necessary amendments he desires to make in his existing information. The new form may be submitted to the jurisdictional Superintendent for necessary endorsement of the new service category in his Registration certificate.

LIST OF DOCUMENTS AND THE CHECK-LIST FOR APPLICATION OF SINGLE/CENTRALISED REGISTRATION

  • Print out of the filled ST-1 form duly signed by the Director/partner/ proprietor/ authorized person at the end of the application
  • Information with regard to the branches for which single registration has already been taken as per Annexure-II
  • Documents Required for new branches and Centralized Registration office which is not registered with Service Tax:
    • List of new branches, which are not registered so far
      (Name and Address of branches sought to be centrally registered).
    • Name and Address of the place from where centralized accounting/billing is sought to be done.
    • Address proof of (a) and (b) above.

    • (No address proof required for existing branches, for which ST-2 Certificate has been issued, if address remains the same as per the existing ST-2. Address proof is required only for branches and office which are not registered with service tax department and where there is any change in address of the branches already registered)
  • Proof of Address: Any one of the following
    • In case of self owned property, any document like Annual Property tax payment return/receipt showing name of applicant, or copy of sale deed etc. may be provided.
    • In case of a rented premises, Lease License/rent agreement or rent receipt of Registered Co. Op. Housing Society.
      Note:- In case the Lease License Agreement or Rent Receipt is not made in the name of the applicant and the Lessee is related /associate person of the tenant/lessee, then the Rent Agreement between original lessor and applicant shall be produced along with following document/details:
    • Relationship between applicant and lessee/ tenant,
    • No objection Certificate for carrying out the business of applicant from the owner of the premises,
    • Photo ID proof of the person giving NOC i.e. owner of the premises
  • Details of the Director / Partners/Proprietors/Authorized Signatory
    • Name and address of the Directors/Partners /Proprietor, (Note II),
    • Name and address of Authorized signatory (Note 1),
    • Copy of PAN Card of (a) &(b) above,
    • Identity Proof (To verify the address) of (a) & (b)(submit any one of the following)

      1. Passport,
      2. Voter Identity Card,
      3. Driving License,
      4. Bank Passbook showing name and address, along with photograph.

      Note – (I) In case of Authorized Signatory, submit the Authorization by the Partner/Proprietor/Director of the Firm. In the case of a Company, submit Board Resolution.

      Note – (II ) In case of partnership Firm, Company under the Companies Act or Association of persons (Like Trust), Co-operative Societies, please give the identity proof and copy of PAN documents only for 3 partners/directors/trustees, who are actively involved in running the affair of business
  • Copy of PAN Card of the assessee
  • Details of at least one major Bank accounts of the applicant (attach photocopy of blank cheque)
    • Name of the bank and address
    • Account Number
  • Memorandum of Association/Partnership deed.
  • Notarized Affidavit certifying of keeping Centralized accounting or billing
  • Undertaking in Annexure III for centralized registration and annexure V for single registration

Frequently asked questions on service tax and their answers

1) GENERAL:-

Q.1.1) What is Service Tax? Is it an indirect tax ?
Ans :- Service Tax is an indirect tax levy imposed under Chapter v of the Finance Act, 1994 as amended. The tax is applicable to services specified in the Section 65 & 66".
Q.1.2) What is the rate of Service Tax?
Ans:- At present the rate of Service Tax is eight percent to be levied on the "value of taxable service". Generally speaking "value of taxable service" means the gross amount received by the service provider for the taxable service rendered by him.
Q.1.3) Who is liable to pay Service Tax to the Govt.?
Ans:- The person who provides the taxable service on receipt of charges is responsible for paying the Service tax to the Government.
Q.1.4) Who is liable to pay Service Tax in case service is provided by a person other than Indian resident or who does not have any establishment in India?
Ans:- In this case the services receiver in India is liable to pay Service Tax.

1) GENERAL:-

Q.2.1) Whom& where should one approach for registration?
Ans:- Generally, all Commissionerates of Central Excise, have a Service Tax Cell, headed by Assistant Commissioner/Deputy Commissioner. However, in certain Commissionerates, separate Service Tax Divisions have been constituted. The work is also delegated to Central Excise Divisions in many Commissionerates. A prospective assessee of Service Tax can approach the Assistant Commissioner/Deputy Commissioner in charge of Service Tax cell of the jurisdictional Commissionerates or Central Excise Division for registration depending upon the arrangements made in the Commissionerates.
Q2.2.) What is the procedure for registration?
Ans:- A prospective taxable service provider seeking registration should file an application in Form ST-1(in duplicate) before the jurisdictional Central Excise officer/Service Tax officer within thirty days from the date of notification of the taxable service. Department is required to issue the registration certificate within 7 days of the receipt of the application. In case of failure to issue registration certificate within 7 days, the registration applied for is deemed to have been granted and the assesee can carry on with his activities.
Q.2.3) Who should apply for registration under Service Tax law? Is there any provision for Centralised Registration?
Ans: All persons providing taxable services are required to register with the Central Excise department. They would have to take only one registration even if they operate from more than one premise but have centralised billing at one place. However, if such persons do not have Centralised billing at one place, then they will have to register at each place separately. Besides, only one registration is required to be taken even if an individual provides more than one service but from the same premises.
Q.2.4) What is to be done with the registration when
a) a registered assessee transfers his business to another person, or
b) a registered assessee ceases to carry on the activity for which he is registered?
Ans:- a) When a registered assessee transfers his business to another person the transferee should obtain a fresh certificate of registration.
b) When a registered assessee ceases to carry on the service activity for which he is registered, he should surrender his registration certificate to the Central Excise authorities.
Q.2.5) What is that time limit within which the Service provider should register with the Central Excise department for the service tax purpose once the service is notified or once the assessee commences the business of rendering the taxable service?
Ans:- Every person liable to pay the service tax should make an application to the concerned Central Excise officer for registration within a period of 30 days of the Service tax having come into force. In cases where a person commences the business of providing a taxable service after such service has been notified, he is required to make an application for registration within a period of 30 days from the date of commencement of his activities.
Q.2.6) Whether a service provider can make payment of service tax and file returns before the grant of registration by the proper officer?
Ans :- Yes. A service provider can pay service tax and file returns immediately after applying for registration.
Q2.7) Is there any penal provision for non-registration?
Ans :- Yes. Any offence of failure of non-registration will attract a mandatory penalty of rupees five hundred.
Q2.8) Is obtaining a PAN No. from Income Tax Department a must for obtaining Service Tax Registration?
Ans:- It is not mandatory to have a PAN for obtaining registration in Service Tax. However, it is advisable for Service tax assessees to have a PAN No. as Service Tax Code (STC) Number based on PAN allotted by Income tax department has been introduced in Service Tax also. The main objective of allocating a number is to identify the concerned person where he is located and registered.

3) PAYMENT OF SERVICE TAX :-

Q.3.1) How and where to pay Service Tax?
Ans:- The Service Tax amount is required to be paid in Form TR-6 Challan (yellow in colour) in the specified branches of designated banks. The list of such Banks and Branches is available in every Commissionerate of Central Excise. Different heads of accounts have been specified for different taxable service by the Govt. under which payment has to be made. While making the payment of service tax to the credit of Central Govt., head of account should be correctly and properly indicated under major and minor heads and sub-heads to avoid misclassification.
Q.3.2.) When is Service Tax required to be paid?
Ans:- If the assessee is an individual or a proprietary or partnership firm, the Service tax is to be paid on quarterly basis. The payment is to be made by the 25th day of the month following the quarter. For example, Service Tax for the quarter ending 30th June is to be paid by 25th July.
In respect of other categories, the tax is payable on monthly basis and is to be paid by 25th day of the succeeding month.
Q3.3.) Whether the payment of Service tax is to be made for the billed amount or for the value received?
Ans:- The Service Tax for a particular period is payable on the value of taxable service received in that period and not on the gross amount billed to the client.
Q.3.4) Whether Service tax deposited by the assessees in non-designated bank will amount to non-payment of Service Tax?
Ans:- Yes. For payment of service tax, specific Bank has been nominated for every Central Excise Commissionerate. If Service Tax amount is deposited in a branch of Bank other than nominated Bank, it amounts to non-payment of Service Tax.
Q.3.5) What is the date of payment of Service Tax? Is it the date on which the cheque for the same is deposited/tendered in the designated Bank or the date on which the amount is credited?
Ans:- The date of deposit of cheque is the date of payment of Service Tax. The Service Tax Rules as amended provide that it would suffice if the cheque is presented to the bank by the 25th of the month. However, if the cheque bounces, it would mean as if the tax has not been paid and the necessary penal consequences would follow.
Q.3.6) How do you describe the expression "person" appearing in the definition of taxable service?
Ans:- The expression refers to a "legal person" and would include any individual, proprietary firm or partnership firm, company, trust, institution and society etc.
Q.3.7) Would services provided in India for the foreign client be liable for payment of Service tax?
Ans:- Yes, the service tax is payable on all taxable services rendered in India, whether to an Indian or foreign client
Q3.8) Would the service provided abroad liable for payment of service tax?
Ans:- No, the services rendered abroad shall not attract service tax as the levy covers only the services provided within India.
Q.3.9) When payment is made by a client or customer to an assessee after deducting his Income tax liability under "Tax Deducted at source" provision, whether the service tax liability of the assessees is only towards the amount actually received from his client or customer or tax is to be paid on the amount of income tax deducted at source also?
Ans:- The Service tax is to be paid on the value of taxable services which is charged by an assessee. Any income tax deduced at source is included in the charged amount. Therefore, Service tax is to be paid on the amount of income tax deducted at source also.
Q.3.10) What is the interest rate applicable on delayed payment of Service Tax?
Ans:- Every person, liable to pay the tax in accordance with the provisions of Section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at the rate of fifteen percent per annum for the period by which such crediting of the tax or any part thereof is delayed.
Q.3.11) Is the amount for Service Tax charged from the client compulsorily to be indicated separately in the Bills/Invoices raised on him?
Ans:- Yes it is compulsory to separately indicate the amount of Service tax charged in the Bills/Invoices raised on clients in terms of Section 83 of Finance Act, 1994 read with Sec.12A of Central Excise Act, 1944. It is also advisable for the service providers to separately bill the amount of Service tax in the invoice/bill on the basis of taxable value of service rendered, especially so if he requires to avail the input credit scheme.
Q.3.12) Is there any exemption for payment of Service Tax if the receiver/provider of the service is the Central Govt./State Govt. organization and/or Public Sector undertaking? Can any one of the above claim immunity from the liability to pay or make provision for paying the Service tax?
Ans:- No, there is no such general exemption, exempting the services received/provided by the Central Government/State Government organization or Public Sector Undertakings. Non one can claim immunity from payment of service tax until specifically provided in law.
Q.3.13) Whether any general exemption from Service tax is available for small scale service providers, as in the central excise?
Ans:- No. At present there is no such general exemption available for small scale service providers.
Q3.14) What are the penal provisions if the service tax is not paid?paid late?
Ans:- Any person liable to pay service tax in accordance with the provisions of Section 68 or the rules made thereunder, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of Section 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay?
Q.3.15) Can any adjustment of tax liability be made by an assessee on his own in cases where Service tax has been paid in excess?
Ans:- Yes. As per Rule 6(3)"where an assessee has paid to the credit of Central Government service tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him(calculated on a pro-rata basis) against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received". In all other cases of excess payment, the refund claims have to be filed with the department.

4. FILING OF RETURNS:-

Q.4.1) How to file Service Tax Returns on what interval and with whom?
Ans:- The Service Tax assessees are required to file a half yearly return in Form ST-3 or ST-3A as applicable in duplicate, to the Superintendent, Central Excise, dealing with Service Tax work. The return is to be filed within 25 days from the last day of the half year it relates to and should be accompanied by copies of all TR-6 Challans issued in the relevant period. Thus, returns for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.
Q.4.2.) What is e-filing of Service Tax returns?
Ans:- E-filing is a facility for the electronic filing of Service tax returns by assesee from his office, residence or any other place of choice, through the Internet, by using a computer. The assessee can go to the e-filing site "Home page" by typing the address http://servicetaxefiling.nic.in in the address bar of the browser.

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