I. INTRODUCTION

Law Governing Service Tax

Chapter V of the Finance Act, 1994 (Sections 64 to 96) and Chapter VA of the Finance Act, 1994 (Sections 96A to 96I) both the Chapters together are hereinafter referred to as the "Act", as amended from time to time, provide for the levy of service tax and constitute the law governing service tax. The Government has also notified the following rules:-

(i) Service Tax Rules, 1994

(ii) Point of Taxation Rules, 2011

(iii) Cenvat Credit Rules, 2004

(iv) Service Tax (Advance Ruling) Rules, 2003

(v) Export of Services Rules, 2005

(vi) Service Tax (Registration of Special Category of Persons) Rules, 2005

(vii) Taxation of Services (Provided from Outside India and Received in India) Rules, 2006

(viii) Service Tax (Determination of Value) Rules, 2006

(ix) Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

(x) Service Tax (Publication of Names) Rules, 2008

(xi) Service Tax (Provisional Attachment Property) Rules, 2008

(xii) Service Tax Return Preparer Scheme, 2009

The Act is administered by the Excise department. The effective rate of service tax is 10% w.e.f. 24-2-2009 [earlier 12%]. Further, the Finance (No. 2) Act, 2004 has also levied an education cess @ 2% on the amount of the service tax w.e.f. 10.9.2004 and Finance Act, 2007 has levied an additional "secondary and higher education cess" @ 1% on the amount of service tax w.e.f. 11-5-2007. Thus, the effective rate of Service Tax (including Cess) is 10.30%.

II. PRELIMINARY LEGAL PROVISIONS

Situs of Taxation

By section 64(1), the Act extends to the whole of India except the State of Jammu and Kashmir, and by section 64(3), the levy applies to "taxable services provided". Hence on a reading of section 64, the situs of taxation falls on taxable services provided in India.

In this context, w.e.f. 27-2-2010 the provisions of this Act have been extended to the following areas purpose wise:

Sr. No.	The areas in the CSI1 and EEZ2	Purpose
1	Whole of continental shelf and exclusive economic zone of India [i.e., 200 nautical miles from shore]	Any service provided for all activities pertaining to construction of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral, oil and natural gas and supply thereof.
2	The installations, structures and vessels within the continental shelf and the exclusive economic zone of India, constructed for the purposes of prospecting or extraction or production of mineral, oil and natural gas	Any service provided or to be provided by or to such installations, structures and vessels and for supply of any goods connected with the said activity.

[Notification No. 14/2010 dated 27-2-2010]. Thus the following services would be covered.

(i) Any Services provided within the territorial waters of India i.e. up to 12 nautical miles;

(ii) As regards services provided between 12 nautical miles and 200 nautical miles only the above two services would be covered.

Levy and Collection of Service Tax

It is to be noted that in accordance with section 66 service tax is levied on the value of taxable services and taxable service is defined in section 65(105) of the Act. Section 65(105) defines "taxable service" as "any service provided or to be provided" to ‘any person’, ‘client’, ‘customer’, etc. Thus, services "provided" and "to be provided" would be covered within the ambit of service tax. The intention is to collect tax when advance payments are received for services to be provided. Thus, service tax would be payable even on advances received.

III. PLACE OF PROVISION OF SERVICE

As already stated above, the situs of taxation falls on "taxable services" provided or to be provided in India. As regards cross-border transactions to determine the place of provision of services the law has introduced the concept of "import of services" and "export of services" along with relevant rules to determine where a service is supplied popularly known as the Place of Supply Rules which are explained hereinafter.

1. Import of services – Reverse charge mechanism codified – Section 66A and Place of Supply Rules for "reverse charge" introduced.

Preamble

1.1 The Finance Act, 2006 introduced section 66A to bring certain cross-border transactions involving overseas service providers within the ambit of service tax. In effect it brought certain services provided by overseas service providers within the purview of service tax. In such cases the recipient of the services in India would be liable to register and pay service tax. This is known as the "reverse charge mechanism". Taking into account international practices the Taxation of Services (provided from outside India and received in India) Rules, 2006 ("Import Rules") has been notified w.e.f. 19-4-2006. These Rules inter alia specify when a taxable service is to be treated as supplied in India and accordingly coming within the Indian service tax net. This is more popularly known as the "Place of Supply Rules".

1.2 Section 66A – Reverse charge

Section 66A provides for the reverse charge mechanism as follows:

"66A. Charge of service tax on services received from outside India. – (1) Where any service specified in clause (105) of section 65 is –

1. provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India, and

2. received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India

such service shall for the purposes of this section, be taxable service and such taxable service shall be treated as if the recipient had himself provided the service in India and accordingly the provisions of this Chapter shall apply :

Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:

Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.

(2) Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.

Explanation 1.— A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.

Explanation 2.—Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted."

1.3 The scope of the section is explained below:

1. The effect of the provision is that if a person who is based outside India³ provides services to a person based in India⁴ the recipient is treated as a "provider of service" and accordingly all the provisions of the Act as they apply in relation to a provider of taxable service would apply to him. Thus, he would have to register, make payment, and file returns as a service provider would do.

2. Where the recipient is an individual and such service is received by him otherwise than for the purpose of use in any business or commerce (say, for personal use), the provisions of the reverse charge mechanism shall not apply i.e. the individual would not be treated as a provider of service.

3. Where the provider of the service has his business establishment in several countries, the country where the establishment of the service provider directly concerned with the provision of service is located, shall be treated as the country from which the service is provided. Thus, where a provider who has his headquarters in the US and a branch in India provides services directly from his headquarters (without intervention of the branch in India) to an Indian company, the provider shall be treated as providing services from US although he has an establishment in India. In such cases, the reverse charge mechanism would be triggered. However, where the Indian branch provided services to the Indian company, the reverse charge mechanism would not be triggered.

4. Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. In this context Circular F. No. B1/4/2006 – TRU dated 19.04.06 issued by the Ministry of Finance clarifies that services provided by the latter permanent establishment to the former permanent establishment shall be treated as provision of services by one person to another. However, it is to be noted that the term "permanent establishment" has not been defined.

5. A "branch" or an "agency" is treated as a "business establishment".

6. The "usual place of residence" of a company is the place of incorporation or constitution.

The Taxation of Services (provided from outside India and received in India) Rules, 2006 ("Import Rules") effective from 19.4.2006⁵

When is a service "provided from outside India and received in India" ?

1.4 Taking into account international practices the Central Government has notified the Taxation of Services (provided from outside India and received in India) Rules, 2006 ["Import Rules"]. The Import Rules inter alia set out the criteria to decide when a taxable service is to be treated as "provided from outside India and received in India" and accordingly liable for service tax in India.

Broadly, the Import Rules have categorized the services in three categories and then have defined when a service can be treated as "provided from outside India and received in India". The categories are:

The categories are explained below.

Immovable Property Category

1.5 In case of 18 services (See Table A of Appendix 1), which are provided in relation to immovable property, the services shall be considered as provided from outside India and received in India (imported) if the immovable property is situated in India.

Performance Based Category

1.6 In case of 46 services (See Table B of Appendix 1), the services shall be considered as provided from outside India and received in India (imported) if the services are wholly or partly performed in India. However, in case of 2 services viz., ‘management, maintenance and repair’ and ‘technical inspection and certification’ services–

1. where the said services are provided through internet / computer / electronic network or any other means; and

2. the goods, material or immovable property in respect of which the said services are provided are situated in India at the time of provision of service then such services shall be considered as performed in India, whether or not the said services are actually performed in India.

Location of Service Recipient Category

1.7 In case of 57 services (See Table C of Appendix 1), the services shall be considered as provided from outside India and received in India (imported) in case the recipient of service is located in India and the services are used in relation to commerce or industry (i.e. commercial use). Further, in case of services falling within the category "supply of tangible goods for use", the services would be considered as imported only if the goods are located in India during the period of use by the recipient.

1.8 W.e.f. 27.2.2010, for the purpose of Import Rules "India" includes the installations 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."

Services not subject to the reverse charge

1.9 Two services are not subject to reverse charge:

1. Air transport of passengers embarking in India for international journey;

2. Transport of persons by a cruise ship embarking in any port in India.

The circular F. No. B1/4/2006-TRU dated 19th April 2006 clarifies that the two services have not been mentioned in the said categorization of services, since "service tax in such cases is charged from the service provider in India."

2. SYNOPSIS OF EXPORT OF SERVICES RULES, 2005

2.1 The Finance (No.2) Act, 2004 had empowered the Central Government to make rules to provide for –

(i) determining export of taxable services;

(ii) granting exemption to, or rebate of tax paid, on services exported; or

(iii) rebate of tax paid on input services consumed, or duties paid on goods used, for providing taxable services which are exported.

Accordingly the Central Government had notified the Export of Services Rules, 2005 ("Rules") w.e.f. 15.3.2005 which inter alia set out the criteria to decide when a service is deemed to have been exported, keeping in view the nature of the different taxable services. The significant features of the Rules (as amended) are given below.

No service tax payable on taxable services exported

2.2 Taxable services maybe exported without payment of service tax.

What is export of services?

2.3 Broadly, the rules have categorized the services in three categories and then defined what would constitute "export" of services for each category. The categories are:

• Immovable property category

• Performance based category

• Location of service recipient category

The above criteria are virtually on the same lines as import rules elucidated in the previous section. In fact export is a mirror image of import.

Immovable Property Category

2.4 In case of 18 services (See Table A of Appendix 1) which are provided in relation to immovable property, the services shall be considered as exported if the immovable property is situated outside India.

Performance based category

2.5 In case of 46 services (See Table B of Appendix 1), the services shall be considered as exported if the services are wholly or partly performed outside India. However, in case of 2 services viz., ‘management, maintenance and repair’ and ‘technical inspection and certification’ services –

1. where the said services are provided through internet / computer / electronic network or any other means; and

2. the goods, material or immoveable property in respect of which the said services are provided are situated outside India at the time of provision of service

then such services shall be considered as performed outside India, whether or not the said services are actually performed outside India.

Location of service recipient criterion

2.6 In case of 57 services (See Table C of Appendix 1), the services shall be considered as exported-

1. If the recipient of service is located outside India in a case where the services are provided and used in or in relation to business or commerce (i.e., commercial use). However, if such a recipient of service has any commercial establishment or office in India, the services shall be considered to be exported only if the order for provision of such services is made by the recipient of the service from any of his commercial establishment or any office located outside India

2. If the recipient of the service is located outside India at the time of provision of such services in a case where the services are not provided and used in or in relation to business or commerce (such as for personal use).

Further, in case of services falling within the category "supply of tangible goods for use", the services would be considered as exported only if the goods are located outside India during the period of use by the recipient.

N.B. W.e.f. 27.2.2010, for the purpose Export Rules, "India" includes the installations 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."

Condition applicable to all categories for services to be considered as exported

2.7 One condition that applies for services to be considered as exported in all cases mentioned in para 2.4 to para 2.6 is that payment for such service should be received by the service provider in convertible foreign exchange.

Services not subject to Export Rules

2.8 Two services do not form part of the categorization for the purpose of Export Rules. They are:

(i) Air transport of passengers embarking in India for international journey;

(ii) Transport of persons by a cruise ship embarking in any port in India.

The circular F. No. B1/4/2006-TRU dated 19th April, 2006 clarifies that the "two services have not been mentioned in the said categorization of services, as they are services provided in India."

2.9 The Government has also notified conditions for granting rebate of tax paid, on services exported and rebate of tax paid on input services consumed, or duties paid on goods used, for providing taxable services which are exported. These notifications are dealt with in Appendix 2.

IV. TIme of supply of service (POINT OF TAXATION RULES, 2011)

Preamble

1. The Government had on the eve of the Union Budget 2011-12, formulated Point of Taxation Rules, 2011 ["PoT Rules"] which were to take effect from 1.4.2011. The said Rules set out the criteria to decide the point of time when a service is deemed to have been provided for the purpose of collection of service tax and determination of rate of service tax. Pursuant to several representations made by the tax-paying fraternity, the Government has made several changes to the said Rules. The changes take effect from 1.4.2011. The salient features of the revised Point of Taxation Rules, 2011 are as under.

Effective date

2. The PoT Rules take effect from 1.4.2011. However, the Rules do not apply where –

(a) provision of service is completed; or

(b) invoice is issued before 1.4.2011.

3. Further, an option has been given to continue to pay tax on payment basis, as at present till 30.6.2011 where -

(a) provision of service is completed; or

(b) invoice is issued before 30.6.2011.

Basic general rule – earlier of (i) date of issue of invoice/date of completion of provision of service; or (ii) date of receipt of payment

4. The general rule for determining the time of provision of service will be as follows :

5. Thus it is important that the invoice is issued within 14 days from the date of completion of service failing which the due date may be advanced resulting in interest and penalty. In any case, Rule 4A of the Service Tax Rules, 1994 mandates the issue of invoice within 14 days of completion of provision of service.

6. The Circular F. No. 341/34/2010 – TRU dated 31.3.2011 issued by the Tax Research Unit of the Department of Revenue, Ministry of Finance (TRU Circular) illustrates the application of this rule as follows:

Sl. No.	Date of completion of service	Date of invoice received	Date on which payment	Point of Taxation	Remarks
1.	April 10, 2011	April 20, 2011	April 30, 2011	April 20, 2011	Invoice issued in 14 days and before receipt of payment
2.	April 10, 2011	April 26, 2011	April 30, 2011	April 10, 2011	Invoice not issued within 14 days and payment received after completion of service
3.	April 10, 2011	April 20, 2011	April 15, 2011	April 15, 2011	Invoice issued in 14 days but payment received before invoice
4.	April 10, 2011	April 26, 2011	April 5, 2011 (part) and April 25, 2011 (remaining)	April 5, 2011 and April 10, 2011 for respective amounts	Invoice not issued in 14 days. Part payment before completion, remaining later

7. The above is the basic rule to decide at what point of time a service is deemed to be provided. The exceptions to the above rule is given in subsequent rules which deal with the following:

Determination of point of taxation in case of change in the effective rate of tax

8. Rule 4 of the POT Rules provides when a service is deemed to have been provided in cases where there is a ‘change of effective rate of tax’ which would also include change in that portion of value on which tax is payable in terms of an exemption notification or rules made in this regard. The TRU Circular clarifies as follows:

9. In such cases, the point of taxation is determined as under.

Sl. No.	Taxable Service Provided	Issue of Invoice	Receipt of Payment	Point of Tax	Rate applicable
1	Before	After	After	Earlier of date of payment/issue of invoice	New
2	Before	Before	After	Date of issue of invoice	Old
3	Before	After	Before	Date of payment	Old
4	After	Before	After	Date of payment	New
5	After	Before	Before	Earlier of date of payment/ Issue of invoice	Old
6	After	After	Before	Date of issue of invoice	New

NOTE : The words ‘Before / After’ in the table denote ‘Before/After’ the change in the effective rate of tax.

Payment of tax in cases of new services

10. 10. Rule 5 of the POT Rules provide that in the case of new services (other than continuous supply of service) brought into the tax net, no tax shall be payable –

    1. to the extent the invoice has been issued and the payment received before such service became taxable;

    2. if the payment has been received before the service becomes taxable and invoice has been issued within the time limit specified in rule 4A of the service tax rules.

Determination of Point of Taxation in case of continuous supply of service

11. A continuous supply of service has been defined to mean–

12. Notification No. 28/2011–ST dated 1.4.2011 issued by the Central Government has prescribed following services to be in the nature of continuous supply of services.

(a) Telecommunication service

(b) Commercial or industrial construction

(c) Construction of residential complex

(d) Internet Telecommunication Service

(e) Works contract service

13. In case of continuous supply of service, the Point of Taxation would be basically as per the general rule described in para 4 above i.e.

14. For the purpose of the above rule, where in terms of the contract –

the date of completion of each such event shall be the date of completion of provision of services.

The TRU circular illustrates this with an example as under:

"For example, in the case of construction services if the payments are linked to stage-by-stage completion of construction, the provision of service shall be deemed to be completed in part when each such stage of construction is completed."

Point of taxation in case of exports, payment of tax under reverse charge and certain specified professional services would be date of receipt of payment subject to certain exceptions.

15. The point of taxation in case of exports, payment of tax under reverse charge and certain specified professional services shall be the date on which payment is received or made, as the case maybe, subject to certain exceptions:

Sl. No.	Particulars	Exceptions	Remarks
1	Exports	If payment is not received in foreign currency within the time specified by the Reserve Bank of India the normal PoT rule would apply	See Note (c) below
2	Persons liable to make payment under ‘reverse charge’ (see Note 1 below)	If payment is not made within a period of 6 months the normal PoT rule would apply	See note (d) below
3	Specified Professionals (see Note 2 below)	Nil

Notes:

Determination of Point of Taxation in case of associated enterprises

16. In case where –

the Point of Taxation shall be the earliest of the following dates –

This rule is intended to cater to situations where the service recipient is liable to pay service tax under the reverse charge (u/s. 66A) in respect of services received from overseas entities who are associated enterprises. A welcome change is that the date of credit / debit in case of associated enterprise is restricted to payments made to overseas associated enterprises. It would not cover domestic transactions between two associated enterprises as well as provision of service to an associated enterprise. It only covers services received from an associated enterprise.

Determination of Point of Taxation in case of copyrights, etc.

17. In respect of royalty payments received in respect of copyrights, trademarks, designs or patents, where the whole amount of the consideration for the provision of service is not ascertainable at the time when the service was performed and subsequently the use or the benefit of these services by a person other than the supplier gives rise to any payment of consideration, the service shall be treated as having been provided –

whichever is earlier

V. PROVISIONS FOR VALUATION OF TAXABLE SERVICES

A. SECTION 67 – VALUATION OF TAXABLE SERVICES

1. The Finance Act, 2006 w.e.f. 18.4.2006 has substituted the earlier provision with a new section 67 which provides for a more elaborate method of computing the value. The significant features are as follows:

1. Where the "consideration" for provision of the service is in money, the gross amount charged by the service provider for such services provided by him shall be the value of taxable service;

2. Where the "consideration" for provision of the service is not wholly or partly in money, then the value of taxable service shall be such amount in money as with the addition of service tax charged, be equivalent to the consideration;

3. Where the "consideration" for provision of the service is not ascertainable the value of taxable service shall be determined in a manner laid down by the Rules which the Central Government has notified.

B. VALUATION RULES W.E.F. 19.4.2006

Pursuant to above the Central Government has notified the Service tax (Determination of Value) Rules, 2006 ("Valuation Rules") vide Notification No.12/2006-service tax, dated April 19, 2006. The valuation rules are explained as under.

Determination of value where consideration received is not wholly or partly consisting of money

2. Where the consideration received is not wholly or partly consisting of money, the value of taxable service shall be determined by the application of the following rules.

Rule 1 : The value shall be equivalent to the gross amount charged by the service provider to provide similar services to any other person in the ordinary course of trade and the gross amount charged is the sole consideration.

Rule 2 : Where the value cannot be determined in accordance with rule 1 above, value shall be the equivalent money value of the consideration as determined by the service provider. Such value however, shall not be less than the cost of provision of such taxable service.

Power of Central Excise Officer to question the valuation

3. The Central Excise Officer has the power to satisfy himself as to the accuracy of any information furnished or document presented for valuation. Where the Central Excise Officer is satisfied that the value determined by the service provider is not in accordance with the provisions of the Act or the Valuation Rules, the Central Excise Officer may proceed to determine the value of such taxable service after issuing a notice and giving a hearing to the assessee. The Circular No F. No. B1/4/2006-TRU dated 19th April, 2006 issued by Ministry of Finance has instructed the department to use extreme care and caution before exercising their powers under this rule. It clarifies :

"4.1.6 It is expected that the department should use this provision with extreme care and caution. Such verification should be undertaken only after the written instructions from the Divisional AC/DC. After verification of the records, if the department is of the view that the value so determined and adopted for payment of service tax warrants revision, the issue should be decided after issue of show cause notice and observing the prescribed procedures. Before issuing any show cause notice on matters relating to valuation, concurrence of Commissioner should be obtained."

Reimbursement of expenditure

4. Recovery of reimbursements would also be included in the taxable value unless the recovery by the service provider is as a "pure agent" of the client and all the following conditions are satisfied :

• the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

• the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

• the recipient of service is liable to make payment to the third party;

• the recipient of service authorises the service provider to make payment on his behalf;

• the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

• the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

• the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

• the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

5. A "pure agent" means a person who–

• enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

• neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

• does not use such goods or services so procured; and

• receives only the actual amount incurred to procure such goods or services.

Specific inclusions and exclusions

6. The Valuation Rules provides for inclusions and exclusions in case of certain services.

1. the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

2. the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

3. the amount of premium charged by the insurer from the policy holder;

4. the commission received by the air travel agent from the airline;

5. the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

6. the reimbursement received by the authorised service station from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer.

7. the commission or any amount received by the rail travel agent from the Railways or the customer.

8. the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

9. the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.

1. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

2. the airfare collected by air travel agent in respect of service provided by him;

3. the rail fare collected by rail travel agent in respect of service provided by him.

4. interest on loans.

5. the taxes levied by any Government on any passenger travelling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger.

Value of taxable service in case of reverse charge – Import of services

7. In the case of reverse charge mechanism due to import of services, service tax is payable on the actual amount charged by the overseas service provider. Further, where the services are considered as imported as a result of being wholly or partly performed in India, the entire amount paid by the receiver of service would be the value of taxable services liable for service tax even if such amount includes an amount for services provided outside India.

All circulars hitherto issued on valuation provisions stand withdrawn

8. Para 4.1.13 of the Circular F. No. B1/4/2006-TRU dated 19th April, 2006 issued by Ministry of Finance clarifies that:

"4.1.13 In view of the comprehensive provisions on value of taxable services, all the circulars issued relating to value of taxable services are withdrawn. If there are any areas where specific clarification on valuation is needed, the same may immediately be brought to the notice for consideration."

C. Works Contract service – Valuation/Composition Scheme

9. General

Service tax is leviable on the services involved in the execution of a "works contract". "Works Contract" has been defined to mean a contract where -

a. transfer of property in goods involved in the execution of such contract is leviable to VAT/sales tax;

and

b. the contract is of the following nature -

1. erection, commissioning or installation of plant, machinery, equipment or structures etc. or

2. construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

3. construction of a new residential complex or a part thereof; or

4. completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (ii) and (iii); or

5. turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

Thus, in order to attract service tax the works contract should be liable for VAT/sales tax and must be one of the five categories mentioned above failing which it would not be liable for service tax. However, works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams shall be excluded.

The Central Government has amended the Valuation Rules providing for valuation of works contract services. Further, it has also prescribed an optional Composition Scheme for payment of service tax on works contract services. The two alternatives available to a service provider are elucidated below:

10. Alternative 1 : Payment by valuation of services involved in a Works Contract

Service tax is required to be paid on the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. The gross amount charged would, however, not include VAT or sales tax paid on transfer of property in goods involved in the execution of the said works contract.

Thus, two components are required to be ascertained :

(a) the gross amount charged for the works contract; and

(b) the value of the goods involved in the execution of works contracts;

The value of goods would be deducted from the gross amount charged to arrive at the value of services in a works contract on which service tax at the applicable rates would be payable.

The value of goods involved in the execution of a works contract shall be arrived at as follows :

1. where VAT/sales tax has been paid on the actual value of transfer of property in goods then such value shall be adopted.

2. In other cases [say, where the VAT/sales tax has been paid under a composition scheme under the relevant state law] the value of the goods may have to be arrived at by actual records.

It has been provided that the value of works contract service shall include,–

(i) labour charges for execution of the works;

(ii) amount paid to a sub-contractor for labour and services;

(iii) charges for planning, designing and architect’s fees;

(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) cost of consumables such as water, electricity, fuel, used in the execution of the works contract;

(vi) cost of establishment of the contractor relatable to supply of labour and services;

(vii) other similar expenses relatable to supply of labour and services; and

(viii) profit earned by the service provider relatable to supply of labour and services.

Thus, the above would have to be excluded in determining the value of goods involved in the execution of works contract.

11. Alternative 2 : Payment by Composition Scheme

11.1 A service provider instead of valuing the works contract service as explained in alternative 1 above and paying the service tax thereon, also has the option to avail of the composition scheme and pay service tax @ 4% [prior to 1.3.2008 – 2%] of the gross amount charged for the works contract (excluding VAT / sales tax paid on transfer of property in goods involved in execution of works contract). However, in this alternative no CENVAT credit of duty paid on "input goods" can be claimed. But Cenvat credit of tax/duty paid on "input services" and "capital goods" would be allowed. This option is qua each contract. It must be exercised prior to payment of service tax on a works contract and the option once exercised shall apply for the entire works contract and cannot be withdrawn until the completion of the said works contract.

11.2 The term ‘gross amount charged’ shall be the sum, -

Circular No. D.O.F. No. 334/13/2009-TRU dated 6.7.2009 issued by Ministry of Finance has clarified that all the goods and material that go into the works contract whether it is supplied free of cost by the client or for some other reason does not form part of contract is includible in the gross amount charged for computing the value on which the 4% is to be applied. The composition scheme is an alternative to the Rule 2A of Valuation Rules where the intention is to exclude the value of goods. Thus, the circular expresses the following intention –

The composition scheme shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such works contract. Thus, the composition scheme would be applicable only if the composition rate [presently 4%] is applied on an amount which is a tleast equal to or more than gross amount charged.

W.e.f. 1-3-2011 a new sub-rule (2A) has been inserted in Rule 3 of the Works Contract Composition Rules, whereby a service provider availing the works contract composition scheme shall be eligible to claim Cenvat credit only to the extent of 40% of the service tax paid on the following input services which are used in provision of the works contract services viz., -

However, the above restriction would be applicable only in those cases where the input service provider has paid service tax on the full value of the services [i.e., the erection, commissioning and installation services; or commercial or industrial construction services; or construction of residential complex services as the case may be] after availing cenvat credit on his inputs. Thus the above restriction of 40% would not apply in the following cases.

Circular No. D.O. F. No.334/3/2011-TRU dated 28.2.2011 explaining the amendments to service tax by the Bill has explained the purpose of the above amendment as "to ensure that the credit on inputs is not availed of indirectly while availing of the composition scheme".

D. Telecommunication Services

12. W.e.f. 1.4.2011, an amendment has been made in Service Tax (Determination of Value) Rules, 2006, vide Notification No. 2/2011-ST dated 1.3.2011, by inserting an Explanation to sub-rule (1) of Rule 5 whereby it has been clarified that with regard to the telecommunication services the value of taxable services shall be the gross amount paid by the subscriber to whom the telecommunication services have been provided by the telegraph authority. Thus, assessees engaged in providing telecommunication services, i.e. the telegraph authority would have to pay service tax on the retail price of the recharge coupons or prepaid cards and not on the actual money received by them from the distributor or intermediary. Prima facie it appears that telecommunication service providers would be forced to pay service tax even on the amounts not received by them.

13. The TRU Circular has explained the purpose of the above amendment as follows:

"9.2 An Explanation has been added after rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 clarifying that for the purpose of telecommunication service [Section 65(105)(zzzx)] the value shall be the gross amount paid by the person to whom the service is provided by the telegraph authority. Thus in case of service provided by way of recharge coupons or prepaid cards or the like, the value shall be the gross amount charged from the subscriber or the ultimate user of the service and not the amount paid by the distributor or any such intermediary to the telegraph authority. This amendment shall come into force on 01.03.2011."

E. Money Changing Services – Valuation and presumptive rate option

14. W.e.f. 1.4.2011 for an assessee with regard to payment of tax on transaction of "purchase and sale of foreign currency" following options are available.

15. Alternative 1 : Payment of service tax as per the value determined under Valuation Rules

W.e.f. 1.4.2011, a new rule 2B has been introduced in the Service Tax (Determination of Value) Rules, 2006 prescribing the value of the money changing service in terms of Section 67 of the Act. The value shall be as follows:

1. The difference between the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency ‘at that time’ multiplied by units of currency exchanged;

2. If RBI reference rate is not available the value shall be 1% of the value of money exchanged in Indian rupees;

3. When both the currencies are not Indian rupees, 1% of the lesser of the amounts receivable if the two currencies are converted at RBI reference rate.

Thus, the assessee can pay service tax at the full rate [presently 10.3%] on the value as determined above.

16. Alternative 2 : Payment of service tax as per composition scheme under Service Tax Rules

Gross amount of currency exchanged.	Amount of Tax6 applicable
Up to Rs. 1,00,000/-	0.1% of gross amount of currency exchanged subject to a minimum tax of Rs. 25/-.
Rs. 1,00,001 to Rs. 10,00,000/-	Rs. 100 + 0.05% of gross amount of currency exchanged in excess of Rs.1,00,000.
Rs. 10,00,001 and above	Rs. 550 + 0.01% of gross amount of currency exchanged in excess of Rs.10,00,000 subject to a maximum tax of Rs. 5,000.

The above option once exercised at any time during the financial year cannot be withdrawn during the remaining part of that financial year.

F. OTHER PROVISIONS

Valuation of taxable services to include advance payments

17. Payments received before, during or after the provision of taxable service would form part of gross amount charged. Thus, the payments received even before the provision of taxable service would form part of the gross amount for charging service tax. Further the definition of "taxable service" also covers "services to be provided". Thus, service tax would be payable even on advances received.

Concept of deemed service non-existent

18. The valuation rules only deal with a case where the consideration is wholly or partly in money or where the consideration is not ascertainable. It does not deal with a case where no consideration is payable for services rendered. Thus, service tax is not payable on free services as the concept of deeming provision for valuation of taxable services is non-existent.

Computation of service tax where bill is inclusive of service tax.

19. The law provides that in cases where the total amount charged is inclusive of service tax the value of taxable service is to be computed by the following methodology -

Value of Taxable Service =	100   x	Total amount charged
	100+R

where, R is the rate of tax.

Thus, the amount of service tax would be :

Amount of service tax =	R     x	Total amount charged
	100+R

where, R is the rate of tax.

VI. GAMUT AND COVERAGE OF SERVICE TAX LAW

The law governing service tax may affect a person in the following ways:

1. As a service provider : An assessee may be liable for service tax as a provider of any of the 119 categories of services mentioned hereinafter in Appendix 3 except in exceptional circumstances stated below in clauses (b) & (c) below.

2. As a service receiver : The following are the cases where the availer of services is liable to pay service tax:

(i) Services received from persons based outside India – service receiver to pay

In case of taxable services provided by a person who is based outside India⁷ and received by a person based in India⁸ in accordance with section 66A it is the recipient of the service who is liable for paying service tax.

(ii) Insurance Companies to pay service tax in respect of services provided by insurance agents

In case of insurance auxiliary services, relating to general insurance and life insurance provided by an insurance agent, service tax shall be paid by the general insurance company or the life insurance company carrying on business in India which has appointed the agent.

(iii) Mutual fund/asset management companies to pay service tax on mutual fund distribution services

In cases where the services of distribution of mutual fund are provided by a mutual fund distributor or an agent, the mutual fund or asset management company who is receiving such service would be liable to register and pay service tax.

(iv) Sponsor of the event to pay service tax in case of sponsorship services

In case of sponsorship services the recipient of service who sponsors the event would be liable to pay service tax. Further, the recipient of service is required to pay service tax only if he is located in India. Thus in case of foreign sponsorships; i.e., where the sponsor is located outside India, it would be the provider of services i.e., the sponsored organisation which would be liable to pay service tax. However in case of foreign sponsorships it may be considered as exports with no service tax liability.

3. As a payer of service – Services provided by a goods transport operator

In the case of services provided by a goods transporting agency, where the Consignor or Consignee of goods is a specified entity viz., a factory, a company, a statutory corporation, a society, a co-operative society, a dealer of excisable goods, a body corporate or a partnership firm "the person liable to pay service tax" is the person who is liable to pay the freight either himself or through his agent for the transportation of goods.

N.B. It is to be noted that where neither the consignor nor the consignee is any of the specified entities mentioned above it would be the goods transport agency which would be liable to pay Service Tax in such cases.

4. Vendor liability : In a business entity many suppliers / vendors charge service tax. The incidence of service tax on these services is passed on to the availer of services. Thus, an availer of services has to be conversant with the service tax provisions due to two important reasons -

1. From an economic standpoint, since he bears the burden of tax, which adds to his costs, he must check whether the supplier is legally correct in charging service tax on his services;

2. From a procedural standpoint, he may be entitled to input tax credit if the availer is also providing the taxable service.

2. Classification of Services

The Act now covers 119 different types of services. In case a service is prima facie taxable under two or more categories, the basic principles of classification would be as follows:

1. The category which provides most specific description shall be preferred to a category providing a more general description;

2. Composite services, consisting of a combination of different services, which cannot be classified in a manner specified in clause (a), shall be classified under the category which gives them their essential character;

3. Where the first two methods [(a) and (b) above] fail, the classification will be under the category which occurs first in the statute amongst those categories which merit equal consideration.

A list of various categories of services in the order in which they occur in the statute is given in Appendix 3.

VII. EXEMPTIONS APPLICABLE TO ALL SERVICES

All taxable services, provided by any person to the UN or International Organization are exempt. "International Organization" means an international organization declared by the Central 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.

Taxable services provided to the developer/unit of SEZ in relation to authorized operations is exempt from service tax subject to the certain conditions.

Modus Operandi of exemption

The exemption operates in the following manner:

1. The exemption is applicable only in respect of "specified services" provided to the SEZ developer/unit. "Specified services" means those services which are required in relation to the authorized operations and which have been approved by the Approval Committee of the SEZ.

2. If the "specified services" are wholly consumed within the SEZ, then the service provider is not required to charge service tax to the service recipient (developer or units of SEZ). A specified taxable service shall be considered to be "wholly consumed" within the SEZ if the relevant criteria given below as applicable to the service is satisfied. The criteria are as follows:

1. such services as are listed in Table A of Appendix 1 (e.g., interior decorator, architect, construction services, etc.) would be considered as "wholly consumed" in the SEZ if they are in relation to an immovable property situated within the SEZ; or

2. such services as are listed in Table B of Appendix 1 (e.g. steamer agent, custom house agent, cargo handling, storage and warehousing, tour operator services, etc.) would be considered as "wholly consumed" in the SEZ if they are wholly performed within the SEZ; or

3. such services other than those falling under (a) and (b) above (See Table C of Appendix 1), would be considered as "wholly consumed" only if they are provided to a SEZ Developer/Unit, who does not own or carry on any business other than the operations in the SEZ. [In this regard it is to be noted that SEZ developer /unit who does not own or carry out any business other than SEZ operation would require to furnish the decoration in the prescribed form].

3. In respect of "specified services" that are not consumed inside the SEZ, only a SEZ developer/unit would be the person who is entitled to claim the exemption in respect of the "specified services" provided to it by way of refunds. The service provider shall not be eligible to claim an exemption with respect to such specified services. It is, however, to be noted that with regard to services that are not "specified services" there is no exemption under the service tax law but the service provider may claim an exemption under the SEZ Act.

4. The SEZ developer/unit claiming exemption, is required to pay service tax on such "specified services" that are not consumed inside the SEZ to the service provider and thereafter claim refund in accordance with the procedure below.

5. In cases where the specified taxable services are not "wholly consumed" within the SEZ i.e. they are shared for both SEZ operations as well as domestic tariff area operations, the refund of service tax would be available on pro-rata basis i.e. the ratio of SEZ turnover to total turnover.

6. In case where the SEZ developer / unit is liable to pay tax under reverse charge he may claim exemption if the specified services are wholly consumed within the SEZ. However, in cases where the specified services are not wholly consumed within the SEZ the SEZ developer / unit would have to pay service tax to the Government and thereafter claim refund.

Condition for claiming exemption (Refund)

In order to claim the exemption the SEZ developers/units must satisfy the following conditions:

1. The "specified services" must actually be used in the authorized operations.

2. The service tax on "specified services" must be actually paid by the SEZ developer/unit.

3. The SEZ developer/unit has not claimed cenvat credit of service tax paid on the specified services.

4. The SEZ developer/unit shall maintain proper account of receipt and utilisation of the taxable services for which exemption is claimed.

Procedure for claiming refund (Exemption)

1. The SEZ developer/unit has to file a refund claim with the jurisdictional Assistant/Deputy Commissioner ("AC/DC") within one year [prior to 1.3.2011 it was six months] (or such extended period as the AC/DC may allow) from the date of actual payment of service tax to the service provider.

2. If the SEZ developer/unit is not registered under the Central Excise Act, 1944 or the Finance Act, 1994 (Service tax law) it shall prior to the filing of refund claim make an declaration, in the prescribed form to the jurisdictional AC/DC for allotment of a Service tax Code number (STC number) who may after due verification allot the STC number within 7 days of the receipt of the said application.

3. The refund claim shall be accompanied by the following documents, viz.:-

1. copy of list of "specified services" in relation to authorized operations approved by Approval Committee;

2. invoice / bill / challan issued by the service provider and proof of payment of service tax to the service provider in original;

3. a declaration by SEZ developer/Unit to the effect that –

• the said "specified services" have been received by it in relation to its authorised operations in the SEZ.

• the proper account of the specified services received and used for authorized operations are maintained and same shall be produced to the officer sanctioning refund on demand.

• the accounts / documents furnished by the SEZ developer/ unit as a proof of payment of service tax to input service provider are true and correct in all respects.

4. The jurisdictional AC/DC may after satisfying himself that the said specified services have been used for the authorized operations grant refund of service tax paid on the said services.

Note: As per the Special Economic Zones Act, 2005 (‘SEZ Act’) no service tax is payable on services provided to a developer or unit (including a unit under construction) to carry on the authorized operations in a Special Economic Zone. [Section 26(e) of the SEZ Act read with Rule 31 of SEZ Rules, 2006]. These provisions override anything contrary in any other law for the time being in force [Section 51 of the SEZ Act]. Hence the exemption provided under the SEZ Act, 2005 maybe more beneficial to the assessee. The provisions of SEZ Act maybe more relevant in the following cases:

1. where services other than specified services are provided to SEZ developer/unit

2. where specified services are not consumed inside the SEZ, the SEZ unit would prefer to request the service provider not to charge service tax instead of opting for refund mechanism provided under service tax.

Value of goods and materials sold by a service provider to the recipient of service is exempt from service tax subject to documentary proof specifically indicating the value of the said goods and materials. This exemption is subject to the following conditions–

All Taxable Services provided by Reserve Bank of India are exempt. Further, the Reserve Bank is also not liable to pay service tax as recipient of the services or as a payer of freight [Notification No. 22/2006 dated 31.5.2006].

Service Tax Law in spite of being 10 years old did not have a minimum/threshold limit. Even if a person renders taxable service for a paltry amount of Rs. 100/- he had to register and pay service tax. The Central Government having appreciated the requirement of minimum/threshold limit has issued Notification No. 6/2005-S.T. dated 1.3.2005 providing for an exemption scheme for small service providers w.e.f. 1.4.2005. Thus, w.e.f. 1.4.2005 aggregate value of all taxable services upto Rs. 4 lakhs in a financial year provided from one or more premises shall be exempt from service tax subject inter alia to certain conditions. W.e.f 1.4.2007 this limit of Rs. 4 lakhs was increased to Rs. 8 lakhs which is further increased to Rs. 10 lakhs w.e.f. 1.4.2008. The conditions to be satisfied are as follows:

• Aggregate value of all taxable services rendered by a service provider from one or more premises, in the preceding financial year does not exceed Rs. 10 lakhs.

• The following restrictions on availment of CENVAT credit apply:

– CENVAT credit on input services and capital goods is not availed;

– An amount equal to the CENVAT credit taken on inputs lying in stock or in process on the date on which this exemption is availed would have to be paid;

– Unutilised balance of CENVAT credit shall lapse on the day the service provider starts availing the exemption;

– CENVAT credit shall be availed only on such inputs or input services –

a) received on or after the date on which the service provider starts paying service tax, and

b) used for the provision of taxable services for which service tax is payable;

Calculation of monetary limits

The provisions regarding monetary limits can be summarized as under:

1. where the previous year’s value of taxable service provided exceeds Rs. 10 lakhs, service tax would be payable even if the current year’s turnover is less than Rs. 10 lakhs.

2. where the previous year’s turnover is Rs. 10 lakhs or below and the current year’s turnover exceeds Rs. 10 lakhs, no service tax is payable up to Rs. 10 lakhs if the specified conditions are complied with.

Further, the sum total of first consecutive payments ‘received’ during the financial year towards the taxable services upto Rs. 10 lakhs would be exempt. The payments received towards wholly exempt services are to be excluded for determining the amount of Rs. 10 lakhs.

Thus, it appears that, while considering the limit of Rs. 10 lakhs of the current year, it is the payment ‘received’ for the taxable service that has to be considered but for considering the previous year’s limit of Rs. 10 lakhs, it is the value of taxable service ‘provided’ that has to be taken.

The above exemption would not be applicable in the following cases:

1. where taxable services are provided by a person under a brand name / trade name of another person whether registered or not. Thus, service provided by a person under his own brand name would not be affected by this restriction and would be entitled for the exemption.

2. Where service tax is payable by a person

a) As a receiver of service e.g.

(i) Services provided by Non-residents / foreign companies who do not have an office in India

(ii) Services provided by insurance agents

(iii) Services provided by a mutual fund distributor

(iv) Services provided by a sponsor

b) As a payer of service - for transport services

Thus, the exemption would apply only in cases where service tax is payable as a provider of service.

N. B. The service provider has the option not to avail the exemption and pay service tax and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year.

Taxable services provided by any person for the official use of a foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.

The services provided by any person for the personal use or for the use of family members of diplomatic agents or career consular officers posted in foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.

VIII. SUMMARY OF ABATEMENTS

The Central Government has granted the exemption in the form of abatements/rebates to the service providers vide several notifications which are summarised below -

Sr. No.	Nature of service		Rebate Allowed	Taxable value	Rate of tax after abatement9
(i)	Mandap keepers
	•	Mandap keepers providing catering services i.e., supply of food	40%	60%	6.18%
	•	Hotels providing mandap keeper services including catering services i.e., supply of food (Refer note 2 below)	40%	60%	6.18%
(ii)	Tour operator providing
	•	Package tour [i.e., accommodation cum transport, part of tour]	75%	25%	2.58%
	•	Non-package tour [say transport]	60%	40%	4.12%
	•	Only accommodation booking forming part of a tour	90%	10%	1.03%
(iii)	Rent-a-cab scheme operator		60%	40%	4.12%
(iv)	Convention services along with catering services (Refer note 2 below)		40%	60%	6.18%
(v)	Outdoor catering [involving supply of food] (Refer note 2 below)		50%	50%	5.15%
(vi)	Pandal and Shamiana Services including catering services (Refer note 2 below)		30%	70%	7.21%
(vii)	Erection, commissioning or installation (Refer note 3 below)		67%	33%	3.399%
(viii)	Transport of goods by road in a goods carriage		75%	25%	2.58%
(ix)	Commercial or industrial construction service (Refer note 4 below)		67%	33%	3.399%
(x)	Construction of complex (Refer note 4 below)		75%	25%	2.58%
(xi)	Transport of goods by Rail		70%	30%	3.09%
(xii)	Business Auxiliary services in relation to production or processing of parts or accessories in the manufacture of cycles, cycle rickshaws and hand operated sewing machines, for, or on behalf of, the client.[Refer note 5 below]		30%	70%	7.21%
(xiii)	Banking and other Financial Services - Services provided in relation to a Chit		30%	70%	7.21%
(xiv)	Banking and other Financial Services - Interest earned on finance leasing services/equipment leasing / hire purchase		90%	10%	1.03%
(xv)	Services provided by a restaurant		70%	30%	3.09%
(xvi)	Short-term hotel accommodation		50%	50%	5.15%

Notes:

1. The abatements [except (viii) & (xiv)] would be available only if:

1. no input credit in respect of duties paid on input goods or capital goods or input services has been taken; and

2. exemption providing for value of goods and materials sold from the value of taxable service is not availed. [Notification No. 12/2003-ST dated 20.6.2003].

2. The bill in case Sl. Nos. (i), (iv), (v) and (vi) should be inclusive of catering charges.

3. The abatement/rebate in case of erection, commissioning and installation is optional. Further, the abatement is available only if the gross amount charged includes the value of the plant, machinery, equipment, parts and any other material sold by the commissioning and installation agency, during the course of providing erection, commissioning or installation service.

4. The abatement in respect of construction services is available only if –

1. the services are not exclusively of completion and finishing services; and

2. the "gross amount charged" includes the value of goods and materials supplied or provided or used by the provider of the construction service for providing such service.

5. The abatement of business auxiliary services mentioned in Sl. No. (xii) above would be available only if the gross amount charged is inclusive of the cost of inputs and input services, whether or not supplied by the client.

6. It maybe noted that the above abatements give an abatement on the amount of tax and not on the amount of value of taxable service charged.

7. This abatement is also available in cases where the services are rendered wholly within the ‘port’ or ‘airport’ and taxable as ‘port’ or ‘airport’ services.

IX. PROCEDURAL INFORMATION

Application for registration

Application for registration is to be made by every person liable for paying the service tax in Form ST-1 [see Appendix 4] within 30 days from the date on which service tax is levied or within 30 days from the date of commencement of business, whichever is later, to the concerned Superintendent of Central Excise having jurisdiction.

Every service provider whose "aggregate value of all taxable services" in a financial year from one or more premises exceeds Rs. 9 lakhs (prior to 1.4.2008 Rs. 7 lakhs) shall make application to the Jurisdictional Superintendent of Central Excise in the Form ST-1 within 30 days of exceeding the aggregate value of Rs. 9 lakhs. The "aggregate value" is to be reckoned on the basis of sum total of first consecutive payments ‘received’ during the financial year towards taxable services. The payments received towards wholly exempt services are to be excluded.

Every input service distributor (see definition in CENVAT Credit Rules, 2004) shall make an application for registration in Form ST-1 to the Jurisdictional Superintendent of Central Excise within 30 days of commencement of business.

Intimation of any information or details or any change

The assessee shall intimate to the Jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise:

1. any change in the information or details furnished by an assessee in the Form ST-1 at the time of obtaining registration, or

2. any additional information or details the assessee intends to furnish within a period of 30 days of such change.

W.e.f 1.3.2007 Rule 4, Forms ST-1 and ST-2 have been amended to –

1. dispense with the requirement of furnishing the original registration certificate at the time of intimation of changes and instead furnish a self-certified photocopy of the registration certificate.

2. provide for issuance of a fresh registration certificate after incorporating changes intimated by the assessee and accordingly the previous registration certificate shall stand cancelled.

Premises to be registered

General Rule

If taxable services are provided from more than one premises, separate application for registration are to be made in respect of each such premises or office.

Centralised registration

Where a person, liable to pay service tax on a taxable service,–

1. provides such service from more than one premises or offices;

2. receives such service from more than one premises or offices;

3. is having more than one premises or offices, which are engaged in relation to such service in any manner making such person liable for paying service tax

has a centralized billing or centralized accounting systems in respect of such service, located in one or more offices or premises, he may, at his option, register such premises or offices from where such centralized billing or centralized accounting systems are located with the previous permission of the Commissioner in whose jurisdiction the premises or offices from where centralized billing or centralized accounting is done, are located.

Multiple Taxable Services

Where an assessee is providing more than one taxable service, he may make a single application mentioning therein all the taxable services provided by him. In case the assessee is already registered for one service but subsequently becomes liable for another category of service, then he has to intimate the additional category of service as a change as mentioned under "Intimation of any information or details or any change" above.

Certificate of registration

The Superintendent of Central Excise shall after due verification of the Form ST-1, grant a certificate of registration in Form ST-2 within 7 days from the date of receipt of the application.

Cancellation of Registration certificate

Every registered assessee who ceases to provide taxable service shall surrender his registration certificate immediately to the Superintendent of Central Excise. Where an assessee makes an application for cancellation or surrenders his certificate, the concerned Superintendent of Central Excise shall cancel the registration certificate after verifying that the assessee has paid all the dues under the service tax law.

PAYMENT OF SERVICE TAX [SECTION 68 & RULES 2(1)(d) AND 6]

Person liable for paying service tax

Person liable for paying service tax in respect of all services is the service provider except in the following cases:

1. In case of insurance auxiliary services related to general insurance and life insurance business provided by an insurance agent, service tax is to be paid by the general insurance company or life insurance company carrying on business in India which has appointed the agent.

2. In case of taxable services provided by a person who is based outside India¹⁰ and received by a person based in India¹¹ in accordance with section 66A it is the recipient of the service who is liable for paying service tax.

3. In cases where the services of distribution of mutual fund are provided by a mutual fund distributor or an agent, the mutual fund or asset management company who is receiving such service would be liable to register and pay service tax.

4. In the context of services provided by a goods transporting agency, where the consignor or consignee of goods is a specified entity viz., a factory, a company, a statutory corporation, a society, a co-operative society, a dealer of excisable goods, a body corporate or a partnership firm "the person liable to pay service tax" is the person who is liable to pay the freight either himself or through his agent for the transportation of goods.
   
   N.B. It is to be noted that where neither the consignor nor the consignee is any of the specified entities mentioned above it would be the goods transport agency which would be liable to pay service tax in such cases
   
   In case of sponsorship services the recipient of service who sponsors the event would be liable to pay service tax. Further, the recipient of service is required to pay service tax only if he is located in India. Thus in case of foreign sponsorships; i.e., where the sponsor is located outside India, it would be the provider of services i.e., the sponsored organisation which would be liable to pay service tax. However in case of foreign sponsorships it may be considered as exports with no service tax liability.

5. In case of sponsorship services the recipient of service who sponsors the event would be liable to pay service tax. Further, the recipient of service is required to pay service tax only if he is located in India. Thus in case of foreign sponsorships; i.e., where the sponsor is located outside India, it would be the provider of services i.e., the sponsored organisation which would be liable to pay service tax. However in case of foreign sponsorships it may be considered as exports with no service tax liability.

Time limit for payment

Service tax on the value of taxable services which is deemed to be provided as per the Point of Taxation Rules, 2011 during any calendar month (except March) is payable by the

– 6th of the month immediately following the said calendar month in case of assessee’s depositing tax electronically through internet banking.

– 5th of the month immediately following the said calendar month in other cases.

However, where the assessee is an individual or a proprietary firm or a partnership firm service tax on the value of taxable services which is deemed to be provided as per the Point of Taxation Rules, 2011 during any quarter (except quarter ended March) is payable by the

– 6th of the month immediately following the said quarter in case of assessee’s deposting tax electronically through internet banking.

– 5th of the month immediately following the said quarter in other cases.

The service tax on the value of taxable services which is deemed to be provided in the month / quarter ended March should be paid by 31st of March.

N.B. In case of payment by cheque the date of payment is the date on which the cheque is tendered to the designated bank, provided the cheque is not dishonoured in the course of clearing.

Prior to 1.4.2011 service tax was liable to be paid only by 5th /6th of the month following the month in which the value of taxable services are received. Thus, the payment of service tax can be deferred until the payment of value is received. Rule 6(1) of the Service Tax Rules, 1994 has been amended w.e.f. 1.4.2011 to provide that service tax shall be paid by 5th /6th of the month following the month in which ‘the service is deemed to be provided’ as per the Point of Taxation Rules, 2011. Thus, now the due date is governed by date and point of time when ‘service is deemed to be provided’. The general rule when service is deemed to be provided [refer para 4 under the title "Time of supply of service" ] is the earliest of the following dates:

(i) Date of issue of invoice / date of completion of provision of services; or

(ii) Date of receipt of payment

subject to the exceptions in certain circumstances as enlisted in para 7 under the title "Time of supply of service".

Thus, now service tax would be payable on a hybrid system i.e. accrual or cash whichever is earlier.

Date for determining the rate of service tax

A new rule 5B has been inserted in the Service Tax Rules, 1994 w.e.f. 1.4.2011 to provide that the rate of service tax in case of service provided or to be provided shall be the rate prevailing when the ‘services are deemed to have been provided’ under the Point of Taxation Rules, 2011.

Payment of service tax in advance

A new Rule 6(1A) has been introduced w.e.f. 1.3.2008 to provide the assessee an option to pay an amount as service tax in advance. The amount so paid in advance is allowed to be adjusted against any subsequent period’s tax liability provided:

(i) The details of the advance tax paid is intimated to the Jurisdictional Superintendent of Central Excise within 15 days from the date of payment; and

(ii) The details of payment and adjustment of advance tax is disclosed in the returns.

Manner of payment

The service tax shall be paid in Form GAR – 7 challan into the designated bank. The said Form GAR – 7 challan for each month/quarter is to be submitted with the half-yearly return.

W.e.f. 1st April, 2010, any assessee who has paid service tax of rupees Ten lakhs or more (either in cash or through cenvat credit) in the preceding financial year then he shall be liable to discharge his service tax liability for the immediate succeeding financial year electronically through internet banking. The procedure for payment is explained in detail in Circular No. 919 dated 23rd March, 2010. For computing the limit of Rs. 10 Lakhs:

1. Each registered premises would be treated as a separate assessee. Thus, where the assessee is providing taxable service from more than one premises or offices the criterion of Rs. 10 Lakhs would apply qua each registered premises/offices individually.

2. In case of a person who has opted to be a large Tax Payer Unit (LTU) the aggregate payments from all the registered premises would have to be considered.

3. The aggregate of payments made as a provider of taxable services as well as a recipient of taxable services would have to be considered.

4. The aggregate amount of tax paid in cash plus CENVAT credit would have to be considered.

Adjustment of taxes

W.e.f. 1.4.2011 where service tax is paid on invoice issued or advance payment received for a ‘service to be provided’, but which the assessee has not so provided wholly or partially for any reason or where the amount is renegotiated due to deficient provision of service or any terms contained in a contract, he can take ‘credit’ of such tax subject to the condition that –

1. where the assessee had received the payment, the assessee should have refunded the payment or part thereof received for the services so provided; or

2. where the assessee has not received any payment, but had paid the service tax on issue of invoice the assessee should have issued a credit note for value of service not so provided.

The Ministry’s Circular No. 341/34/2010-TRU dated 31.3.2011 explains:

"If the amount of invoice is renegotiated due to deficient provision or in any other way changed in terms of conditions of the contract (e.g. contingent on the happening or non-happening of a future event), the tax will be payable on the revised amount provided the excess amount is either refunded or a suitable credit note is issued to the service receiver. However, concession is not available for bad debts."

Thus, as per the above Circular service tax on bad debts cannot be adjusted.

An assessee who has opted for centralized registration at one or more premises, may adjust against his subsequent period’s liability the excess service tax paid by him earlier by reason of not receiving details of payments received towards the value of taxable services at his other premises or offices. Such adjustments must be intimated to the jurisdictional superintendent within 15 days from the date of such adjustment.

An assessee can adjust excess service tax paid against his succeeding period’s [i.e. next month / quarter] liability provided the following conditions are fulfilled.

1. The excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification;

2. The excess amount allowed to be adjusted (in a month / quarter) would be a maximum of Rs. 2,00,000/-. However, where an assessee is centrally registered, he may adjust the excess amount paid on account of delayed receipt of details of payments towards value of taxable services, without any monetary limit;

3. The details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise with in 15 days from the date of such adjustment.

If the service provider has paid excess tax in any month / quarter on account of non-availment of the deduction in respect of property taxes paid from commercial rentals, the assessee may adjust such excess amount paid by him against his subsequent service tax liability within one year from the date of payment of such property tax. The details of such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within 15 days from the date of such adjustment.

Interest on delayed payment of tax

Failure to pay service tax on time attracts simple interest u/s. 75 at a rate not below 10% p.a. but not exceeding 36% p.a. as may be notified by the Central Government. The interest rate has been increased to 18% p.a. w.e.f. 1.3.2011 from 13% p.a.

The rate of interest would be 15% (i.e., 18% less 3% of concession) for tax-payers –

1. whose turnover, in any of the financial years covered by a show cause notice issued under section 73 does not exceed Rs. 60 lakhs; or

2. whose turnover in the immediately preceding financial year does not exceed Rs. 60 lakhs.

RETURNS [SECTION 70 AND RULES 5(2), 7,7B]

The assessee must himself assess the service tax due on the services provided by him and thereafter furnish the returns.

The returns are to be filed in triplicate in Form ST-3 (See Appendix 5) on half-yearly basis by the 25th of the month following the particular half year.

In the case of new assessees who have not yet filed their returns, such assessees shall at the time of filing their returns for the first time furnish in duplicate to the Superintendent of Central Excise a "list of all accounts maintained in relation to service tax" of -

1. all the records prepared or maintained by the assessee for accounting of transactions in regard to,-

(a) providing  of any service, whether taxable or exempted;

(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.

2. all other financial records maintained by him in the normal course of business.

A ‘Nil’ return also has to be filed.

An assessee who has paid service tax of rupees Ten lakhs or more (either in cash or through cenvat credit) in the preceding financial year shall be required to file his half-yearly service tax returns for the succeeding year electronically. Other assessees have been given an option to file their returns electronically [Refer CBEC Circular No. 919 dated 19/3/2010]

An assessee may revise his returns to correct a mistake or omission, within 90 days from the date of submission of the original return. Further it is also provided that the limitation period [1 year/5 years] for issue of a show cause notice u/s. 73 for the purpose of recovery of service tax will be reckoned from the date of submission of such revised return.

RECORDS [RULES 4A AND 5]

General

Records (including computerized data) as maintained by an assessee in accordance with various laws in force from time to time shall be acceptable for service tax. It is obligatory for an assessee to preserve records at least for a period of 5 years immediately after the financial year to which such records pertain.

Examination and inspection of records

A new rule 5A is introduced to make provisions for entry and access to registered premises and furnishing of records. It provides as follows:

1. An officer authorised by the Commissioner shall have access to any registered premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

2. It shall be obligatory on every assessee to make available to such officer or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India to furnish within 15 working days from the day of demand or such further period as may be allowed by such officer or the audit party for his scrutiny,

1. the list of all accounts maintained in relation to service tax which he has submitted to the department at the time of filing his first return;

2. trial balance or its equivalent;  and

3. the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961.

Requirements of an invoice

Every service provider is required to issue an invoice/bill/ challan containing the following:

• Serial number;

• Name, address and registration number of the service provider;

• Name and address of the service receiver;

• Description, classification and value of taxable service;

• Service tax payable thereon;

• Signature of the service provider or his authorised person

N.B. (i) In case of service providers providing banking and financial services the requirement of mentioning serial number and the address of the service receiver has been dispensed with. (Notification No. 30/2004 dated 22.9.2004)

(ii) In case of aircraft operator providing services of transport of passengers by air, ‘tickets’ (e-ticket or other tickets) shall also be considered as invoice. Further, the requirement of mentioning registration number, classification of service and the address of the service receiver in the invoice/ bill/challan has been dispensed with [39/2010 dated 28.6.2010].

(ii) In case of goods transport agency, in addition to the above the following details are also to be shown:

• Details of Consignment note number and date.

• Gross weight of the Consignment.

Time limit for issue of invoice

The invoice/bill/challan has to be issued within a period of 14 days from the date of completion of provision of services or receipt of payment towards value of such taxable services, whichever is earlier.

The rules have been amended to provide that w.e.f. 1.4.2011 in case of ‘continuous supply of services’ every person shall issue an Invoice, Bill or Challan within 14 days of the ‘specified date’. The ‘specified date’ is the date of completion of each event which obligates payment by the service receiver. However, the words ‘continuous supply of service’ have not been defined in the Service Tax Rules, 1994.

Requirements of a consignment note to be issued by a goods transport operator

All Goods Transport Agencies shall issue a "Consignment note" to a customer except where the services are wholly exempt from Service Tax. A "Consignment note" is defined as a document issued by a Goods Transport Agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage which contains the following information:

• Serial number.

• Name of the Consignor and Consignee.

• Registration number of the Goods Carriage.

•· Details of goods transported.

• Details of place of origin and destination.

• Person liable to pay Service Tax viz., whether Consignor or Consignee or Goods Transport Agency.

RECOVERY OF SERVICE TAX NOT LEVIED OR PAID OR SHORT LEVIED OR SHORT PAID OR ERRONEOUSLY REFUNDED (SEC. 73) & ADJUDICATION OF PENALTIES (SECTION 83A)

Time Limit for issue of SCN

Section 73 empowers Central Excise Office to issue show cause notice where service tax has not been levied or paid or short levied or short paid or erroneously refunded (hereinafter referred to as "said defaults") and thereafter determine the amount of service tax due and payable. The show cause notice has to be issued within —

The "relevant dates" would be as under :

Circumstance				Relevant date
A.	Where service tax has escaped assessment or has been under assessed or has not been paid or has been short paid:
	(i)	if the assessee is liable to file the return, and
		(a)	return is filed	Date on which return filed
		(b)	return is not filed	Last date on which the return is to be filed
	(ii)	in other cases		Date on which service tax is to be paid
B.	Where service tax is provisionally assessed			Date of adjustment of service tax after final assessment.
C.	Where any sum has been erroneously refunded			Date of refund

Conclusion of adjudication proceedings on payment of tax, interest and 25% of the tax as penalty before the issue of show cause notice

In cases where a show cause notice has been issued alleging –

1. the said defaults; and

2. fraud, collusion, wilful misstatement, etc.

and the assessee has within 30 days from the receipt of the notice paid the said tax along with interest and penalty equal to 25% of the service tax specified in the notice, all the proceedings (including all penalties) in respect of the said defaults shall be deemed to be completed [Section 73(1A) read with the provisos to section 73(2)].

The Finance Act, 2011 w.e.f. 8.4.2011 inserted new provision to the following effect. In cases where no show cause notice has been issued and –

1. the said defaults are found during the course of audit, investigation or verification;

2. the true and complete details of transactions are available in the "specified records". ‘Specified records’ means records including computerised data as required to be maintained by the assessee in accordance with any law or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the ‘specified records’;

3. the assessee has paid, before the issue of a show cause notice, such service tax, ascertained on his own or by the Central Excise Officer, along with interest and penalty equal to 1% of the service tax for each month for which the default continues subject to a maximum of 25% of the service tax; and

4. informed the Central Excise Officer of such payment in writing,

1. the Central Excise Officer shall not issue a show cause notice in respect of the said defaults; and

2. all the proceedings (including all penalties) in respect of the said defaults shall be deemed to be concluded;

It appears this facility is available even in cases where there is a fraud, collusion, wilful misstatement or suppression of facts or contravention of any provisions of the law with an intent to evade payment of service tax

The effect of the above two provisions would be, broadly, that the assessee has an option before the issue of a show cause notice to either pay –

1. only the tax along with interest; or

2. the tax along with interest and penalty equal to 1% of the service tax for each month for which the default continues subject to a maximum of 25% of the service tax.

In the first case, the proceedings would be open and the department would be entitled to impose relevant penalties if it finds any fraud, collusion, wilful misstatement, etc. However, in the latter case, the proceedings shall be deemed to be concluded and no penalties would be imposable.

Section 83A provides for adjudication of penalty proceedings by Central Excise Officers empowered by the Central Board of Excise and Customs.

The Central Excise adjudication procedures are made applicable to service tax. The procedure provides as follows:

• An opportunity of being heard shall be given in all proceedings if the assessee so desires;

• Adjournments of hearings may be granted to an assessee if sufficient cause is shown;

• Not more than 3 adjournments shall be granted to an assessee.

PROVISIONAL PAYMENT AND ASSESSMENT (RULE 6)

When the assessee is unable to correctly estimate actual service tax payable for any month/quarter he may make a request in writing to the AC/DC to pay tax on a provisional basis who on receipt of such request allow payment of tax on provisional basis.

On receipt of the order of the AC/DC allowing provisional assessment service tax maybe initially paid on a provisional basis.

Where service tax is paid provisionally a monthly statement in Form ST-3A giving difference between provisional amount of service tax deposited and actual amount of service tax payable is to be filed along with the half-yearly return in Form ST-3.

Where the assessee has filed Form ST-3A the AC/DC shall complete the assessment after calling for details if any.

The provisions of the Central Excise Rules, 2001 shall apply except insofar as they relate to the execution of a bond.

APPEALS TO THE COMMISSIONER (APPEALS)

Appeals by the assessee (SECTION 85 & RULE 8)

An appeal may be filed before the Commissioner of Central Excise (Appeals) ["CCE (A)"] by any person aggrieved by an order passed by an adjudicating authority below the rank of a Commissioner of Central Excise ("CCE")

The appeal is to be filed in duplicate within 3 months of receipt of assessment order in Form ST-4 along with statement of facts, grounds of appeal, and a copy of decision or order appealed against.

Appropriate court fees stamp would be applicable.

Appeals by the department (SECTION 84)

An application maybe filed before the CCE(A) by an adjudicating authority subordinate to the CCE on the direction of the CCE who is satisfied that the order of the adjudicating authority lacks legality or propriety for determination of points arising out of the order.

The CCE shall direct such subordinate authority within 3 months from the date of communication of Order-In-Original and subordinate authority shall make an application before the CCE(A) within 1 month from the date of receipt of such direction / order.

APPEALS TO THE APPELLATE TRIBUNAL [SECTION 86 & RULE 9]

Appeals by the assessee

An appeal may be filed before the Tribunal where an assessee aggrieved by an order passed by a CCE u/s. 73, 83A or 8412 or an order passed by a CCE(A) u/s. 85.

The appeal is to be filed in quadruplicate within 3 months of receipt of order to be appealed against in Form ST-5 along with statement of facts, grounds of appeal and copies of order appealed against (including one certified copy).

The filing fees is based on the quantum of demand which is as follows:

Amount of Service tax, interest and penalty	Fees Payable (Rs.)
Rs. 5,00,000/- and below	1,000/-
Rs. 5,00,001/- to Rs. 50,00,000/-	5,000/-
Rs. 50,00,001/- and above	10,000/-

In addition to the above, a fee of Rs. 500/- is payable for :-

1. An application (other than that filed by the CCE/AC/ DC) for grant of stay in an appeal or rectification of mistake or for any other purpose; or

2. For restoration of an appeal or an application (other than that filed by the CCE / AC / DC).

Appeal by the department

An application to the Tribunal maybe filed by the –

• CCE on the direction of the Committee of Chief Commissioners of Central Excise (consisting of 2 Chief Commissioners) objecting to any order passed by a CCE u/s. 73, 83A or 84¹³; or

• A Central Excise Officer on the direction of the Committee of Commissioners of Central Excise (consisting of 2 Commissioners) objecting to any order passed by the CCE(A) u/s. 85.

The application is to be filed in Form ST-7, in quadruplicate, within 3 months from the date on which the order sought to be appealed against is received by the Committee of Chief Commissioners or by the Committee of Commissioners as the case may be. 

The appeal shall be accompanied by statement of facts, grounds of application, and 

• Copy of order passed by CCE (including one certified copy) and copy of the direction issued by the Committee of Chief Commissioners; or

• Copy of the order passed by the CCE(A) (including one certified copy) and copy of the direction issued by the Committee of Commissioners,

as the case may be.

Memorandum of cross-objections (Section 86 & Rule 9)

An assessee or the CCE or a Central Excise Officer subordinate to the CCE may present a memorandum of Cross-objections, within 45 days from receipt of notice or information about appeal filed.

The memorandum of Cross-objections is to be filed in quadruplicate in Form ST-6.

REFUNDS

In the event the assessee has to claim a refund he has to comply with section 11B of the Central Excise Act, 1944 which is made applicable to service tax.

A refund claim must comply with the following conditions:

1. It maybe in Form R. [Though no form is prescribed, the Central Excise Rules had earlier prescribed Form R].

2. It should be filed before the expiry of the limitation period of one year from the date of payment of tax.

3. Proof should be adduced that the incidence of tax has not been passed on to any person i.e. tax has been borne by the applicant.

MISCELLANEOUS

The Act/Rules also provides for the following:

1. Best Judgment Assessment;

2. Interest on delayed refund of pre-deposit;

3. Rectification of mistake apparent from record by Central Excise Officer;

4. Power to search and power to seize documents, books or things during search;

5. Deposit of excess service tax collected from any person along with interest to the Government.

6. Provisional attachment;

7. Publication of information in respect of certain persons in certain cases

8. Recovery of amounts due to the Government.

9. Service tax return preparer scheme.

Penal Consequences

Section No.	Nature of Default		Consequences of Default
76	Failure to pay service tax		Penalty — Not less than Rs. 200/- per day14 during which default continues or 2% of the service tax per month, whichever is higher but restricted to the amount of service tax. [see note 3 below].
77	(i)	Failure to register within the due date	Higher of –
			(i) Rs. 10,000/-; or (ii) Rs. 200/- per day during which the default continues
	(ii)	Failure to keep, maintain and retain books of account and other documents	Maximum – Rs. 10,000/-
	(iii)	Failure to appear in response to a summon or furnish information/ produce documents	Higher of –
			(i) Rs. 10,000/-; or (ii) Rs. 200/- per day during which the default continues
	(iv)	Failure to make e-payment where mandatory	Maximum – Rs. 10,000/-
	(v)	Failure to issue invoices in the prescribed format	Maximum – Rs. 10,000/-
	(vi)	Failure to account for an invoice	Maximum – Rs. 10,000/-
	(vii)	Contravention of the Act or Rules for which there is no separate penalty	Maximum – Rs. 10,000/-
78	Suppressing the value of taxable service		Penalty — 100% to 200% of the service tax not levied or paid or short levied or short paid or erroneously refunded. [See notes 1 & 2 below].
1570	& Failure to file returns on time		Late fees as under:
94/7C12			Period of delay (in days) Late fee (in Rs.) 15 days 500/- 15 – 30 days 1000/- Beyond 30 days 1,000/- plus Rs. 100 for every day beyond 30 days, so however, that the total amount payable under this slab shall be restricted to Rs. 20,000/-.

Notes :

1. No penalty u/ss. 76 & 77 shall be imposed if the assessee proves that there is "reasonable cause" for the failure. Further, the Central Excise Officer has the discretion to waive of penalty u/s 78 on ‘reasonable cause’ which would be available only where true and complete details of transactions are available in the ‘specified records’ and not in other cases.

2. The Finance Act, 2011 has sought to provide for a reduction in penalty u/s. 78 where true and complete details of transactions are available in the "specified records’ In such cases, the aforesaid penalty would be only 50% of the tax involved. A further reduction of the penalty in such cases (i.e where true and complete details of transactions are available in the ‘specified records’) to 25% of the tax involved is also sought to be provided if the tax, interest and penalty of 25% of the tax is paid within 30 days. (90 days in case of assessees having value of taxable services less than 60 lakhs) from the date of communication of the adjudication order.

3. Penalty for delay in payment or non-payment of service tax u/s. 76 would not be imposable where the penalty u/s. 78 for concealment or suppression of value of taxable service is payable.

Prosecution under service tax law

The Finance Act, 2011 has introduced the prosecution under service tax law by enacting a new section 89. Further sections 9A, 9AA, 9B, 9E and 34A of the Central Excise Act, 1944 have been made applicable to service tax. These provisions together constitute the provisions relating to prosecution of offences which are briefly described below –

Section 89 prescribes the offences and the quantum of punishment. The punishable offences enumerated in section 89(1) are the following :

1. provision of taxable services or receipt of any taxable services where the recipient is liable to pay service tax, without an invoice issued in accordance with the provisions of the Act or the Rules made thereunder;

N.B. (a) The recipient of the service is not in a position to ensure that invoice issued is under the service tax law (say, as per rule 4A). An overseas service provider may not even be aware of rule 4A.

(b) Presumably, invoices issued belatedly or not in accordance with rule 4A would not trigger the offence.

2. availment and utilisation of credit without actual receipt of taxable service or excisable goods either fully or partially in violation of the Act or Credit Rules;

3. maintenance of false books of account;

4. failure to supply information or supply of false information;

5. failure to pay to the Government any amount collected as service tax beyond a period of six months from the date on which such payment became due;

The quantum of punishment imposable is detailed in the table below:

1. Where amount exceeds 50 lakhs – 6 months to 3 years imprisonment

2. Where amount is less than 50 lakhs

a) First Offence – up to 1 year imprisonment

b) Subsequent offences – 6 months to 3 years imprisonment.

The punishment mentioned in Sl. Nos. (i) & (ii)(b) above, cannot in absence of ‘special and adequate reasons’ to be recorded in the judgment of the court be reduced below six months. Such special and adequate reasons would not include the following :

a. conviction of the accused for the first time for an offence under the Act.

b. payment of penalty or any other action taken for the same act which constitutes the offence.

c. the fact that the accused was not the principal offender and was acting merely as a secondary party in the commission of the offence.

d. the age of the accused.

The above prosecution provisions can be initiated only with the previous sanction of the Chief Commissioner of Central excise.

The provisions of ss. 9A, 9AA, 9B, 9E and 34A of the Central Excise Act, 1944 have been made applicable to service tax. These are briefly dealt with below:

1. The offences would be ‘non-cognizable’ i.e. an offence in which a police officer has no authority to arrest without a warrant. Further the Chief Commissioner of Central Excise is also empowered to compound the offences on payment of the compounding amount as may be prescribed [s.9A].

2. If an offence is committed by a company (which includes a firm), the persons liable to be proceeded against and punished are : (a) the company; (b) every person, who at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business except where he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence; and (c) any director (who in relation to a firm means a partner), manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. [s.9AA].

3. The court is empowered to publish the name, place of business, etc. of persons convicted under the Act [s. 9B]

4. In case of a person who is less than 18 years of age, the court, under certain circumstances, is empowered to release the accused on probation of good conduct under section 360 of the Code of Criminal Procedure, 1973 or to release the offenders on probation under the Probation of Offenders Act, 1958. [s. 9E]

5. the imposition of penalty would not prevent infliction of other punishment on the offender. [s. 34A].

X. Advance Ruling (Chapter VA – Sections 96A to 96-I)

The Finance Act, 2003 introduced Advance Ruling mechanism in service tax. The ruling shall be in respect of a question of law or fact regarding the liability to pay service tax in relation to a service proposed to be provided by –

1. a non-resident setting up a "joint venture in India" in collaboration with a non-resident or a resident; or

2. a resident setting up a "joint venture in India" in collaboration with a non-resident; or

3. a wholly owned subsidiary Indian company, of which the holding company is a foreign company.

4. existing "joint venture in India"

5. any class or category of residents notified by the Central Government. In this regard the Central Government has notified ‘public sector companies’ w.e.f. 20.8.2009

For the purpose of clauses (a), (b), & (d) above a "joint venture in India" is defined as follows:

"joint venture in India" means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders is a non-resident having substantial interest in such arrangement."

The question on which the advance ruling is sought shall be in respect of-

1. Classification of any service as a taxable service;

2. The valuation of taxable services for charging service tax;

3. The principles to be adopted for the purposes of determination of value of the taxable service;

4. Applicability of notifications issued;

5. Admissibility of service tax credit;

6. Determination of the liability to pay service tax on a taxable service.

XI. DUE DATES FOR SERVICE TAX

Within 30 days from the date on which service tax is levied or within 30 days of commencement of business whichever is later

2. Payment of Service Tax

(b) Payable by persons other than individuals, proprietary concerns and partnership firms:

3. Returns

Appendix 1

CATEGORISATION OF SERVICES FOR IMPORTS AND EXPORTS

IMMOVEABLE PROPERTY CATEGORY

TABLE A

Sl. No.	Sub-clause of clause (105) of section 65	Nature of service
1.	d	General Insurance Business (in relation to immovable property)
2.	m	Mandap keeper
3.	p	Architect
4.	q	Interior Decorator
5.	v	Real estate agent
6.	zzq	Commercial and industrial Construction Service
7.	zzza	Site formation and clearance, excavation and earthmoving and demolition services
8.	zzzb	Dredging
9.	zzzc	Survey and map-making by a person other than an agency under the control of, or authorized by, the Government (in relation to immovable property)
10.	zzzh	Construction of complex
11.	zzzr	Auctioneers’ service (in relation to immovable property)
12.	zzzy	Services in relation to Mining
13.	zzzz	Renting of Immovable Property for Commercial Purposes
14.	zzzza	Services provided in relation to execution of a works contract
15.	zzzzm	Legal Consultancy Services (in relation to immovable property)
16.	zzzzu	Special services provided by builder etc. to the prospective buyers in a residential complex such as providing preferential location or external or internal development of complexes for extra charges
17.	zzzzv	Services provided by a restaurant
18.	zzzzw	Short-term hotel accommodation

PERFORMANCE BASED CATEGOTY