1. LAW GOVERNING SERVICE TAX

1.1 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 certain rules which are listed in Annexure 1.

1.2 The Act is administered by the Excise department. The rate of service tax is 12% w.e.f. 1.4.2012. 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 12.36%.

1.3 The Finance Act, 2012 w.e.f 1.7.2012 made a paradigm shift in the law governing service tax. Taxation of services is now based on what is popularly known as ‘Negative List of Services’’. This note contains the provisions summarizing the law w.e.f. 1.7.2012.

2. SITUS OF TAXATION

2.1 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”.

2.2 The term “India” has been defined in the Act to mean –

(i) The territory of the Union as per clauses (2) & (3) of article 1 of the Constitution i.e. the state territories and the union territories;

(ii) The ‘territorial waters’, continental shelf, exclusive economic zones and other maritime zones as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 i.e. upto 200 nautical miles;

(iii) The sea bed and sub-soil underlying the territorial waters [upto 12 nautical miles];

(iv) The airspace above its territory and territorial waters [upto 12 nautical miles]; and

(v) installations, structures and vessels located in the continental shelf and exclusive economic zone of India for the purposes of prospecting or extraction or production of mineral, oil and natural gas and supply thereof.

3. CHARGE OF SERVICE TAX

3.1 Charging Section

3.1.1 The charging section 66B provides that there shall be levied a tax @12% of ‘the value of all services other than those specified in the negative list provided or agreed to be provided in the taxable territory, by one person to another…’.Thus, the features of the charging section are -

(a) the charge is on the ‘service’ provided or agreed to provided by one person to another;

(b) the service provided is not specified in the ‘negative list’;

(c) the service is provided in the ‘taxable territory’;

(d) the rate of tax is 12% on value of all services.

The term ‘service’ and ‘negative list’ are analysed below.

3.2 What is Service?

Definition [Section 65B(44)]

3.2.1 ‘Service’ means –

• any activity

• for consideration

• carried out by a person for another

• and includes a ‘declared service’.

• but excludes ‘specified transactions’.

General

3.2.2 The term ‘activity’ is a term of very wide connotation and could be active or passive and would also include forbearance to act.

3.2.3 ‘Consideration’ means everything received (both monetary and non-monetary) in return for provision of service.

3.2.4 A service must be provided by one person to another – a requirement of two distinct entities. A service provided by a person to self is not taxable e.g. Inter-branch transactions where branches are located in India. There are two statutory exceptions to this proposition:

(i) an establishment (e.g. branch, agency or representative office) of a person located in the taxable territory and another establishment of such person located in a non-taxable territory will be separate persons. Example, a transaction between the Indian branch of a company and its overseas head office would be considered as ‘service’.

(ii) an unincorporated association or body of persons and the members thereof are also treated as ‘distinct persons’. Thus, the intention is to pierce the doctrine of mutuality and tax transactions between members and a club of a ‘members’ club’.

Specified transactions not regarded as a service

3.2.5 The following transactions would not be regarded as service:

• any activity that constitutes only a transfer of title in

(i) goods or

(ii) immovable property

by way of sale, gift or in any other manner;

• any transfer, delivery or supply of goods which is deemed to be a sale within article 366 (29A) of the Constitution, namely,:-

(i) Sale of goods otherwise than in pursuance of a contract [compulsory Sale].

(ii) Transfer of property in goods involved in the execution of a “works contract”.

(iii) Delivery of goods on hire purchase or payment by installments

(iv) Transfer of the right to use goods (where the effective control and possession is transferred).

(v) Supply of goods by unincorporated association to a member thereof.

(vi) Supply of food or drink by way, of or as part of, any service or in any other manner (catering contracts)

• a transaction only in

(i) money or

(ii) actionable claim;

A transaction in money shall not include any activity relating to –

(a) the use of money (e.g. lending) ; or

(b) Conversion of money, by cash or any other mode, from one form, currency or denomination to another form, currency or denomination (e.g. Conversion of Indian to foreign currency and vice versa)

for which a separate consideration is charged.

• any service provided by an employee to an employer in the course of the employment; and

• fees payable to a court or a tribunal set up under a law for the time being in force.

Certain transactions under Section 66E specifically deemed to be a ‘service’ - termed as ‘Declared services’

3.2.6 Certain transactions specified in section 66E would be considered to be a service – termed as ‘declared service’. A list of such declared services is given in Annexure 2.

Negative List of Services – Section 66D – service tax not applicable

3.2.7 Certain services specified in section 66D are termed as ‘negative list of services’ and service tax is not applicable on such services. The negative list of services is given in Annexure 3.

3.3 The service must be provided in the ‘Taxable Territory’ – place of provision of service

3.3.1 Section 66B clearly provides that the taxable event i.e. the ‘service’ must happen in the ‘taxable territory’. The term ‘taxable territory’ has been defined in section 65B(52) as ‘the territory to which the provisions of this Chapter apply’. By section 64(1) Chapter V of the Finance Act, 1994 (i.e. the law governing service tax) extends to the whole of ‘India’ except the State of Jammu & Kashmir.

3.3.2 The Central Government has been empowered u/s. 66C to enact rules to determine when would the service be considered as provided in the taxable territory i.e. rules to determine the place of provision of service. The Place of Provision of Services Rules, 2012 [“PoP Rules”] is notified vide notification no. 28/2012-ST dated 20.6.2012 which is effective from 1.7.2012. The PoP Rules would be effective for the first time in India. Prior to 1.7.2012, there were separate rules for determining ‘import of services’ [Taxation of Services (provided from outside and received in India) Rules, 2006] and ‘export of services’ [Export of Services Rules, 2005] but no rules to determine the place of provision of services. However, w.e.f. 1.7.2012, the PoP Rules has been enacted to determine when the services would be considered as provided in the taxable territory and when it would not. Thus, the present PoP Rules is neutral to Imports and Exports. With the introduction of the PoP Rules, the import and export rules¹ have been rescinded. The only requirement would be whether a service is provided in the taxable territory (pursuant to place of provision of service rules). If yes – liable, if no – not liable. The text Place of Provision of the Services Rules, 2012 is given in Annexure 4.

3.3.3 The Place of Provision of Service Rules is basically to determine the place of provision of a service. The essence of the rules is that service is to be taxed in the jurisdiction of the place of consumption of service. The basic rule is that the place of provision of service shall be the location of the service receiver. However, exceptions have been provided in case of performance based services, immovable property based services, certain specified services and transportation service. The POP rules maybe summed up in a table as under:

3.3.4 Further any service provided or agreed to be provided shall be treated as export of service when all the following conditions are satisfied –

(a) Service provider is located in taxable territory;

(b) Service recipient is located outside India;

(c) The service is not a service specified in the negative list;

(d) The place of provision of service is outside India;

(e) Payment of service is received in convertible foreign Exchange; and

(f) Service provider and service recipient are not merely establishment of same persons.

4. TIME OF SUPPLY OF SERVICE (POINT OF TAXATION RULES, 2011)

4.1 Preamble

4.1.1 The Point of Taxation Rules, 2011 [“PoT 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. The salient features of the PoT Rules are as under.

4.2 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

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

A. Where the invoice is issued within 30/45 days (as the case maybe refer para 9.4.5 of Chapter 9 hereinafter) of the date of completion of provision of services the earliest of the following dates:

(i) Date of issue of invoice

(ii) Date of receipt of payment

B. Where the invoice is not issued within 30/45 days (as the case maybe refer para 9.4.5 of Chapter 9 hereinafter) of the date of completion of provision of services the earliest of the following dates:

(i) Date of completion of provision of services

(ii) Date of receipt of payment.

4.2.2 Thus it is important that the invoice is issued within 30/45 days (as the case maybe refer para 9.4.5 of Chapter 9 hereinafter) 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 30/45 days (as the case maybe refer para 9.4.5 of Chapter 9 hereinafter) of completion of provision of service.

4.2.3 However, in case of ‘continuous supply of service’ the above rule (para 4.2.1) would be applicable subject to the following modifications –

(i) where in terms of the contract the provision of the whole or part of the service is determined periodically on the completion of an event; and

(ii) Such event obligates payment by the service receiver,

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

4.2.4 A ‘continuous supply of service’ means–

(a) any service provided or to be provided continuously or on recurrent basis by a service provider under a contract for a period more than 3 months with the obligation for payment periodically or from time to time; or

(b) such services which the Central Government prescribes by a notification to be in the nature of continuous supply of services.

4.2.5 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) Service portion in execution of Works contract

4.2.6 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 :

(i) Determination of PoT in case of excess payments received upto Rs. 1,000/-

(ii) Determination of point of taxation in case of change in the effective rate of tax

(iii) Payment of tax in case of new services

(iv) Determination of point of taxation in payment of tax under reverse charge.

(v) Determination of point of taxation in case of associated enterprises

(vi) Determination of point of taxation in case of copyrights, etc.

4.3 PoT in case of excess payments received upto Rs. 1,000/-

4.3.1 In case where service provider receives excess payments not exceeding Rs. 1000/- in respect of an invoice, the point of taxation for such excess amount would be the date of issue of invoice or date of completion of service if invoice is not issued within prescribed time.

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

4.4.1 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 Board Circular 341/34/2010-TRU, dated 31.3.2011 clarifies as follows:

“change in the effective rate of tax shall 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. It may be noted that an exemption has been granted in value for various services vide Notification No. 1/2006-ST dated 01.03.2006 which has the effect of payment of tax only on a part of the value. Similarly either the values or the rates at which tax is payable are provided under rule 6(7, 7A, 7B or 7C) of the Service Tax Rules, 1994 as well as the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Thus, whenever these values or the composition rates are changed, it would have the same effect as the change in the rate of duty. It is hereby further clarified that the rate of tax shall also include any other notification which is issued, rescinded or amended and has the effect of altering the taxability of any service.”

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

NOTES :

(i) The words ‘Before / After’ in the table denote ‘Before / After’ the change in the effective rate of tax.

(ii) A new Rule 2A has been provided for deciphering the ‘date of payment’ w.e.f. 1.4.2012. In the normal course it shall be the earlier of the date of entry in the books of accounts or date of credit in bank account. However, when there is change in effective rate of tax or a new levy between the said two dates, the date of payment shall be the date of actual credit in the bank account, if the amount is credited in the bank more than four working days after the date of such change.

4.5 Payment of tax in cases of new services

4.5.1 Rule 5 of the POT Rules provide that in the case of new services brought into the tax net, no tax shall be payable –

(i) to the extent the invoice has been issued and the payment received before such service became taxable;

(ii) if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.

4.6 Point of taxation in case of payment of tax under reverse charge would be date of payment

4.6.1 The point of taxation in case of payment of tax under reverse charge shall be the date on which payment is made. However, where the payment is not made to the service provider within six months from the invoice date, the due date for payment of tax would automatically relate back i.e. the PoT date would be the date of issue of invoice by the service provider or the date of completion of service by the service provider as explained in para 4.2.1 instead of the date of disbursement of payment. Thus, this would result in a case where post six months, a service recipient may have to pay interest.

4.7 Determination of point of taxation in case of associated enterprises

4.7.1 In case where –

(a) The transaction is with an associated enterprise as defined in section 92A of the Income-tax Act, 1961; and

(b) The service provider is located outside India

the point of taxation shall be the earliest of the following
dates –

(i) date on which credit is made in the books of accounts of the service recipient; or

(ii) date on which payment has been made.

4.8 Determination of point of taxation in case of copyrights, etc.

4.8.1 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 –

(i) each time a payment in respect of such use or benefit is received by the service provider; or

(ii) each time the service provider issues an invoice,

whichever is earlier.

4.9 Determination of PoT based on best judgement

4.9.1 In cases where PoT is not determinable due to non availability of date of invoice or date of payment, the Central Excise Officer may determine the PoT on best judgment basis subject to giving the assessee an opportunity of being heard.

5. PROVISIONS FOR VALUATION OF TAXABLE SERVICES

5.1 Introduction

5.1.1 Section 67 deals with valuation of taxable services. It provides for an elaborate method of computing the value. The significant features are as follows:

(i) 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;

(ii) 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;

(iii) 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.

5.1.2 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.

5.2 Determination of value where such value is not ascertainable

5.2.1 Where the value of taxable service is not ascertainable, the value of taxable service shall be determined by the application of the following rules.

(i) 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.

(ii) 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.

5.3 Power of Central Excise Officer to question the valuation

5.3.1 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.”

5.4 Reimbursement of expenditure

5.4.1 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.

5.4.2 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.

5.5 Specific inclusions and exclusions

5.5.1 Rule 6 of the Valuation Rules provides for inclusions and exclusions in case of certain services.

Inclusions

(i) 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;

(ii) 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;

(iii) the amount of premium charged by the insurer from the policy holder;

(iv) the commission received by the air travel agent from the airline;

(v) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

(vi) 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.

(vii) the commission or any amount received by the rail travel agent from the Railways or the customer.

(viii) 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;

(ix) 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, and

(x) amount realized as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service

Exclusions

(i) 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;

(ii) the airfare collected by air travel agent in respect of service provided by him;

(iii) the rail fare collected by rail travel agent in respect of service provided by him.

(iv) Interest on delayed payment of any consideration for the provision of services or sale of property, whether movable or immovable.

(v) the taxes levied by any Government on any passenger traveling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger.

(vi) accidental damages due to unforeseen actions not relatable to the provision of service ;and

(vii) subsidies and grants disbursed by the Government, not directly affecting the value of service.

5.6 Other provisions

Valuation of taxable services to include advance payments

5.6.1 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 charging section viz., section 66B of the Act also covers “services agreed to be provided”. Thus, service tax would be payable even on advances received.

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

5.6.2 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.

5.7 Valuation of service portion in execution of Works contract

General

5.7.1 Service tax is leviable on the services portion in the execution of a “works contract”. “Works contract” means -

(a) a contract wherein a transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods; and

(b) such contract is for the purpose of –

(i) construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of any movable or immovable property; or

(ii) carrying out any other similar activity or a part thereof in relation to such property.

Thus, “Works Contract” would now also include construction, repairs, maintenance etc. of ‘movable property’. Thus a contract to construct a ship or aircraft or a bus-body or railway-coach etc. or repair and maintenance of air-conditioners, computers etc. would be considered as “works contracts” for the purpose of service tax. This may have repercussion on the valuation.

5.7.2 However construction, erection, commissioning, installation, completion, fitting out repair, maintenance, renovation or alteration of –

(i) road, bridge, tunnel or terminal for road transportation for use by general public;

(ii) airport, port, railways including monorail or metro;

(iii) canal, dam or other irrigation works for the Government or local authority.

is exempt from payment of service tax.

Methods of Valuation

5.7.3 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 the services portion in the works contract on which service tax at the applicable rates would be payable.

5.7.4 For determining the value of goods involved in the execution of a works contract where VAT / sales tax has been paid on the actual value of transfer of property in goods then such value shall be adopted.

5.7.5 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 included in determining the value of goods involved in the execution of works contract.

5.7.6 However, if the value of services under the method mentioned in para 5.7.3 has not been determined the value of services shall be determined as under:

(a) Works Contract for original works – 40% of total
amount

(b) Works Contract for maintenance/ – 70% of total
repair /reconditioningrestoration amount
/servicing of any goods

(c) For other contracts including – 60% of total
maintenance, repair, completion amount
& finishing services in respect of
an immovable property

5.7.7 The following points may be noted:

(i) Original Works means all new construction, all types of additions and alterations to abandoned or damaged structures to make them workable, and erection/ commissioning/ installation of plant, machinery or equipment or structures whether pre-fabricated/ otherwise

(ii) Total amount means gross amount charged and fair market value of all goods and services supplied in relation to execution of works contract (whether or not under the same contract or a separate contract) after deducting –

(1) amount charged for such goods/services by the service recipient;

(2) value added tax if any levied thereon

It may be noted that fair market value of goods/ services supplied may be determined according to the generally accepted accounting principles. Further cenvat credit on inputs would not be allowed.

(iii) Cenvat Credit on inputs would not be available but Cenvat credit on capital goods and input services would be available.

5.8 Telecommunication Services – valuation of recharge coupons and prepaid cards

5.8.1 In case of 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.

5.8.2 The Board Circular no. 334/3/2011-TRU dated 28.2.2011 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 distributer or any such intermediary to the telegraph authority. This amendment shall come into force on 01.03.2011.”

5.9 Money Changing Services – Valuation and presumptive rate option

5.9.1 For an assessee with regard to payment of tax on transaction of “purchase and sale of foreign currency” the following options are available.

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

• The value of the money changing service shall be determined as follows:

(i) 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;

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

(iii) 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 12.36%] on the value as determined above.

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

• Rule 6(7B) of Service Tax Rules, 1994 prescribes the rate of composition as under:

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

5.10 Catering Contracts

5.10.1 The value of service portion in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity at a restaurant or as outdoor catering the value of taxable services shall be determined as follows.

5.10.2 Total amount means gross amount charged and fair market value of all goods and services supplied after deducting

(3) amount charged for such goods/services by the service recipient;

(4) value added tax if any levied thereon

It may be noted that fair market value of goods/ services supplied may be determined according to the generally accepted accounting principles. Further cenvat credit on inputs
(Chapters 1 to 22 of Central Excise Tariff Act, 1985) would not be allowed.

5.11 Composition schemes for life insurance business

5.12 Composition scheme for air travel agents

“Basic Fare” means that part of the air fare on which commission is normally paid to the air travel agent by the airline.

5.13 Composition schemes for the selling agent of lottery tickets

In case of online lottery, aggregate face value of the tickets sold shall be taken instead of aggregate face value of lottery tickets printed.

6. TAXABLE PERSON & REVERSE CHARGE

6.1 Section 68 of the Act read with rule 2(1)(d)(i) of the Service Tax Rules, 1994 together determine the ‘taxable person’ i.e. the ‘person liable to pay service tax’. In all cases except in case of certain notified services, the service provider is liable to pay service tax. However, under section 68(2) the Central Government can notify –

(a) the services where a person other than a service provider (e.g. the service recipient) can be made liable to pay service tax; and

(b) the extent to which service tax would be payable by such person and the service provider.

The Central Government has issued notification no. 30/2012-ST dated 20.06.2012 which is effective from 1.7.2012 under section 68(2) of the Act.

6.2 The ‘taxable person’ and the extent to which tax would be payable by him is indicated in the table below.