In this blog post, Trishna Menon, a B.Sc. LLB student at Gujrat National Law University and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, details how and when service tax is payable in India.
What is Service Tax?
Service tax is an indirect tax levied by the Central Government of India on services provided or to be provided, excluding services covered under negative list, and considering the Place of Provision of Services Rules, 2012 and collected as per Point of Taxation Rules, 2011 from the person liable to pay service tax. Persons liable to pay service tax are governed by Service Tax Rules, 1994. Such a person may be a service provider or service receiver or any other person so made liable. Generally, the service provider collects the tax on services from service receiver and pays the same to the Government of India.
Brief History of Service Tax
Service Tax was introduced from July 1, 1994, with only three services being covered in the organised sector, i.e., telephone, general insurance and stock-broking. Since then, it has been amended every year to tax more services.
Service Tax was introduced since it was felt that this sector should not go untaxed, given its increasing role and its contribution to the country’s GDP. It was expected that, in time, service tax would reduce the tax burden on international trade (customs duties) and the manufacturing sector (excise duty).
Approaches to Service Tax
There are two approaches to taxing services: comprehensive and selective. In the comprehensive approach, all services are taxable and a negative list of services which are not to be taxed is provided. In the selective approach, a list of taxable services is provided. In India, it is the comprehensive approach that is followed.
Basic Features of Service Tax
There is no separate act governing the imposition and collection of service tax. It is imposed by amending Chapter V of the Finance Act, 1994 (“Act”, in this article). The Central Government further has the power to make rules to carry out the provisions of the Act. It is administered by the Central Board of Excise and Customs.
The Basis of Charge on Service Tax
Service tax is normally required to be paid by a service provider, except where he is located outside the taxable territory.
The point of taxation is generally the date of issue of invoice of the date of receipt of payment, whichever is earlier.
Rate of Charge of Service Tax
There is a uniform rate of taxation on all services. It was 14 per cent of the value of the service. With effect from November 15, 2015, it was increased by the Swachh Bharat Cess, imposed at the rate of 0.5 per cent of the value of the taxable service. With effect from June 1, 2016, it was further increased by the Krishi Kalyan Cess, which is also imposed at the rate of 0.5 per cent of value of the taxable service. The effective rate of taxation now is 15 per cent.
General Procedure of Taxation of Services: An Example
A person providing a taxable service should charge service tax in his invoice. Assume, for example, that the value of taxable service is INR 20,00,000. Service tax at the rate of 14 per cent (INR 2,80,000) should be shown separately in the invoice. After the issue of the invoice, he is required to deposit service tax within a specified time. However, he can claim credit of input tax (also known as CENVAT Credit). This credit of input tax is available in respect of tax paid on inputs (that is, excise duty paid on input goods), tax paid on input services and tax paid on input capital goods (that is, excise duty paid on capital goods), if such input goods, input services or input capital goods are utilised for providing the taxable service. Assume that such tax on inputs borne by him is INR 90,000. In that case, he will deposit only INR 1,90,000 to the Government. If in this case, the service is provided outside India, it is not chargeable to tax. In such case, he can claim a refund of input tax subject to a few conditions. The provisions pertaining to deposit of service tax by utilising CENVAT credit are governed by the Cenvat Credit Rules, 2004.
Determination of Point of Taxation: General Rule
The point of taxation is determined in terms of the Point of Taxation Rules, 2011. In a normal situation, the point of taxation will be as follows:
- Date of invoice or payment, whichever is earlier.
- Date of completion of service or payment, whichever is earlier.
General Procedure to Pay Service Tax
Registration is the first step towards the payment of service tax. Every person liable for paying the service tax must apply to the concerned Superintendent of Central Excise in Form ST-1 for registration within a period of thirty days from the date on which the service tax under section 66 of the Finance Act, 1994(32 of 1994) is levied.
Service tax is administered by the Central Excise Department. The government website www.exciseandservicetax.nic.in gives the details of the jurisdictional offices of the Central Excise Department, State-wise, District-wise as well as Commissionerate-wise.
There are 67 Central Excise & Service Tax Commissionerates, 7 exclusive Service Tax Commissionerates and 5 Large Taxpayer Units administer Service tax collection in India.
Steps for Registration
- Fill the Form ST-1 (available on the departmental website) in duplicate. A photocopy of PAN card, proof of address to be registered and copy of constitution/partnership deed etc. of the firm, if any are to be enclosed.
Copy of PAN card is necessary as a PAN based code (Service Tax Code) is allotted to every assessee.
- These forms are required to be submitted to the jurisdictional Central Excise office (in case of seven Service Tax Commissionerates, to the jurisdictional Division office). There are separate service tax commissionerates in Mumbai, Chennai, Delhi, Kolkata, Bangalore and Ahmedabad.
- A person liable to pay service tax should file an application for registration within thirty days from the date on which the service tax on particular taxable service comes into effect or within thirty days from the commencement of his activity.
- The registration under sub-rule 2 of Rule 4 of the Service Tax Rules,1994, shall be granted by the Commissioner of Central Excise in whose jurisdiction the premises or offices, from where centralized billing or accounting is done, are located.
- A single registration is sufficient even when an assessee is providing more than one taxable services. However, he has to mention all the services being provided by him in the application for registration and the field office shall make suitable entries/endorsements in the registration certificate.
- An assessee should get the registration certificate (registration number) within 7 days from the date of submission of Form ST-1, under normal circumstances.
A fresh registration is required to be obtained in case of transfer of business to another person. Once any registered assessee ceases to provide the taxable service, he or she must surrender the registration certificate immediately.
In case a registered assessee starts providing any new service from the same premises, he need not apply for a fresh registration. He can simply fill in the Form ST-1 for necessary amendments he desires to make in his existing information. The new form may be submitted to the jurisdictional Superintendent for necessary endorsement of the new service category in his Registration certificate.
The assessee is also to maintain certain records including computerized data. Every assessee is required to furnish to the Superintendent of Central Excise a list of accounts maintained by him in relation to service tax. This list is to be submitted once at the time of filing his first S.T.3 return. )(e.g. books of account, viz. sales register, purchase register, cash book, petty cash book, general ledger, etc.)
- Dr. Vinod K Singhania and Dr Monica Singhania, Students’ Guide to Income Tax (Taxmann 55th edition).
- CBEC, Service Tax Procedures accessible at http://www.cbec.gov.in/htdocs-servicetax/st-proc-home.