FREE EBOOK SERVICE TAX CHANGES CONCEPTS UPDATED 01.10.12 BY TEAM HIREGANGE

Service tax is a subject which has been posing quite a few problems to assessees since its introduction in the year 1994 through Chapter V o...

Service tax is a subject which has been posing quite a few problems to assessees since its introduction in the year 1994 through Chapter V of Finance Act 1994. Over Rs.97,000 Crores has been collected last year on this count. The service tax law like other tax laws prevalent in the country is not simple, not equitable, not certain and tax administration not fair. Over the years there have been number of instances where assessees have had to face litigations with the department at various levels mainly due to lack of clarity in the subject matter. It has been observed that though the Tribunals and Court provide the clarity, the demands from the revenue for the past periods are raised. Now with the Negative List slated to augment revenues to at least Rs. 1,50,000 crores, the earlier understanding of the provisions have substantially changed. The professional advisor would also face difficulties while advising the clients in this area which is in a developing stage. 

Though an attempt has been made to remove confusion by appropriate clarifications [education guide] where ever applicable, the assessee‘s woes and the advisors problems are far from over. One of the main reasons for this has been the fact that the subject has not yet developed to the fullest extent and we continue to see changes every year by way of amendments, exemptions, clarifications being given even after 1.7.2012. The comprehensive approach to cover the taxes has not been correspondingly found seamless cenvat credit with most major restriction still remaining. Invariably it is seen that the changes have been primarily been aimed at increasing the revenue to the government even if it means arming the tax administrators unduly. 

It is not uncommon to find entrepreneurs / business advisors/ chartered accountants new to service tax who are doubtful/ unclear about the legal provisions pertaining to the same. This brief online book is aimed at such Chartered Accountants in employment as well as practice / assessees who are new to service tax practice and are interested in understanding the basic concepts of the subject so that they can take steps to ensure effective compliance with the law. The attesting auditor may also like to have a handily easy to refer book for ensuring compliance under laws he Certifies when he signs off the financials for corporate. Keeping this fact in mind and as well as the constraints as to space, this book deals with concepts of service tax to guide the assessee/ professional rather than an in-depth discussion of the legal provisions, especially the taxable services individually. 

This book has attained its present form partly due to the efforts of the partners CA Madhukar N Hiregange, CA Rajesh Kumar TR, CA Sudhir V S and also the efforts ofqualified staff who have contributed individually parts- CA Roopa Nayak, CA Abkar Basha, CA Harshavardan, CA Manindar, CA Gaurav Shah, CA Prateek M, CA Lakshmi G K among others. We acknowledge their efforts. 

The book contains an overview of service tax initially which would provide the reader with a bird‘s eye view of service tax. The reader is advised to go through the same before proceeding onto the subsequent chapters. This book also contains some of the important procedures which would be useful to the assessee in complying with the legal provisions of service tax. 

The authors have tried their best to make this online book as complete as possible but where the readers have any doubt regarding the subject matter are advised to refer a more comprehensive publication regarding the same or seek expert opinion. The chapters in this book have been arranged in such a way as to give the reader a fairly good idea as to the provisions of law. The authors would also welcome valuable suggestions from the readers, which would help us in ensuring a better offering next time around. For any comments or feedback please write to mhiregange@gmail.com, rajesh@hiregange.com or sudhir@hiregange.com

For your queries on the subject you may also host your queries on pdicai.org under Service Tax segment.

Finally, we wish the reader all the best in their career/ practice.

Team Hiregange

02.10.2012

Bangalore

DOWNLOAD LINK IS PROVIDED AT THE END OF THE POST

Table of Contents

OVERVIEW OF SERVICE TAX ................................................................................. 10

Constitutional validity and concepts ............................................................................. 10

Levy and collection ....................................................................................................... 12

Concept of Classification .............................................................................................. 13

Registration ................................................................................................................... 14

Concept of consideration and valuation ........................................................................ 15

Payment of service tax .................................................................................................. 15

Payment of Interest ....................................................................................................... 17

CENVAT Credit scheme .............................................................................................. 17

Export of Services ......................................................................................................... 17

Filing of returns............................................................................................................. 18

Assessment .................................................................................................................... 19

Provisions as to recovery .............................................................................................. 19

Provisions pertaining to penalty.................................................................................... 20

Collecting amounts representing service tax ................................................................ 21

Provisions pertaining to Appeals .................................................................................. 21

SERVICE TAX - LEVY ................................................................................................. 23

Levy and charge of service tax ..................................................................................... 23

What is Service? ........................................................................................................... 23

Classification of Service ............................................................................................... 25

DECLARED SERVICE ................................................................................................. 27

1. Renting of Immovable Property ................................................................................ 28

2. Construction of Complex .......................................................................................... 29

3. Temporary transfer or permitting the use or enjoyment of any intellectual property

right ............................................................................................................................... 31

4. Development etc of IT software ............................................................................... 32

5. Non Compete Fee ..................................................................................................... 33

6. Transfer of goods by way of hiring, leasing, licensing or in any such manner without

transfer of right to use such goods ................................................................................ 34

7. Delivery of goods on hire-purchase or any system of payment by installments ...... 35

8. Service portion in execution of Works Contracts ..................................................... 36

9. Supply of Food or other articles of Human Consumption ....................................... 38

NEGATIVE LIST ........................................................................................................... 42

1. Services provided by Government or Local authority: ............................................. 42

2. Services provided by Reserve Bank of India ............................................................ 44

3. Services by a Foreign Diplomatic Mission Located in India .................................... 44

4. Services relating to agriculture ................................................................................. 44

5. Trading of Goods ...................................................................................................... 46

6. Processes amounting to Manufacture or Production of Goods ................................. 47

7. Selling of Space or Time Slots for Advertisements other than Advertisements

Broadcast by Radio or Television ................................................................................. 48

8. Access to a Road or a Bridge on Payment of Toll Charges ...................................... 51

9. Betting, Gambling or Lottery .................................................................................... 51

10. Entry to Entertainment Events and access to Amusement Facilities ...................... 52

11.Transmission or Distribution of Electricity ............................................................. 53

12. Specified services relating to Education ................................................................. 54

13. Services by way of Renting of residential dwelling for use as residence ............... 56

14. Financial Sector ...................................................................................................... 57

15. Service relating to Transportation of Passengers .................................................... 58

16. Service relating to Transportation of Goods ........................................................... 58

17. Funeral, Burial, Crematorium or Mortuary services including transportation of the

deceased ........................................................................................................................ 59

Break of Cenvat Chain .................................................................................................. 60

CLASSIFICATION OF SERVICE ............................................................................... 61

Relevance of the concept of classification .................................................................... 61

Possible ramifications where the assessee gets the classification wrong ..................... 64

Pointers for practice ...................................................................................................... 65

EXEMPTIONS INCLUDING MEGA EXEMPTION ................................................ 67

Mega Exemption Notification....................................................................................... 67

Small Service Provider Exemption ............................................................................... 87

Abatements ................................................................................................................... 90

Pointers for practice ...................................................................................................... 92

Other exemptions .......................................................................................................... 93

PLACE OF PROVISION OF SERVICE RULES, 2012 ............................................. 95

Rule 14: Order of application of rules .......................................................................... 96

Rule 13: Powers to notify description of services or circumstances for certain purposes

....................................................................................................................................... 97

Rule 12: Place of Provision of services provided on board a conveyance ................... 97

Rule 10: Place of Provision of goods transportation services....................................... 98

Rule 9: Place of Provision of Specified services .......................................................... 98

Rule 8: Place of Provision of services where provider and receiver are located in

taxable territory ........................................................................................................... 101

Rule 7- Part performance of a service at different locations ...................................... 102

Rule 6: Place of Provision of Services relating to events ........................................... 102

Rule 5: Place of provision of services relating to immovable property ...................... 103

Rule 4: Place of provision of performance based services ......................................... 104

Rule 3: General Residuary rule ................................................................................... 105

Conclusion: ................................................................................................................. 105

REVERSE CHARGE & JOINT CHARGE MECHANISM .................................... 106

Introduction ................................................................................................................. 106 

No Charging section w.e.f.1.7.12 on reverse charge .................................................. 106 

What is reverse charge? .............................................................................................. 106 

What is Joint Charge Mechanism? ............................................................................. 107 

What is covered under Reverse Charge? .................................................................... 107 

What is covered under Joint Charge? ......................................................................... 109 

Other relevant aspects ................................................................................................. 110 

Important point to be considered ................................................................................ 111 

Conclusion .................................................................................................................. 112 

CENVAT CREDITS AND PAYMENTS .................................................................... 113 

Introduction ................................................................................................................. 113 

Concept of Input ......................................................................................................... 115 

Concept of Output service .......................................................................................... 116 

Concept of Capital goods ............................................................................................ 117 

Concept of Input Service ............................................................................................ 118 

Exempted Service means ............................................................................................ 121 

Duties/taxes which can be considered for set off or availing credits .......................... 122 

Utilization of the credits.............................................................................................. 122 

When inputs/capital goods are removed outside the premises ................................... 123 

When inputs/capital goods are written off fully ......................................................... 124 

Restriction in case of capital goods ............................................................................ 124 

Cenvat Credits – Refund for exporter of service ........................................................ 126 

Rule 6 – Reversal of Cenvat Credit ............................................................................ 127 

Documentation work to be done ................................................................................. 130 

Concept of input service distributor ............................................................................ 132 

Payment of service tax ................................................................................................ 133 

Recovery of cenvat credit wrongly taken or erroneously refunded ............................ 134 

Confiscation and penalty in case of wrong availment of Cenvat Credits ................... 134 

Pointers for Practice .................................................................................................... 135 

VALUATION UNDER SERVICE TAX ..................................................................... 137 

What is the main basis for valuation? ......................................................................... 137 

Can the Central Excise Officer question the valuation? ............................................. 138 

Whether the gross amount charged for the service would include charges reimbursed

by the service receiver? ............................................................................................... 139 

Are there any other specific inclusions and exclusions with regard to amount charged

for specific services? ................................................................................................... 141 

Where during the course of providing service, there is transfer of property in goods,

what would be the value? ............................................................................................ 142 

Value of service portion in the execution of works contract ...................................... 142 

Determination of value of the service in relation to money changing ........................ 144 

Pointers for practice .................................................................................................... 145 

IMPORT AND EXPORT OF SERVICES ................................................................. 147 

Import of Services ....................................................................................................... 147 

Pointers for practice .................................................................................................... 147 

DEMAND, APPEALS, RECOVERY AND PENALTIES ........................................ 149 

Demand & Adjudication: ............................................................................................ 149 

Appeals ....................................................................................................................... 154 

Penalties ...................................................................................................................... 159 

REFUNDS AND REBATES ........................................................................................ 162 

Introduction: ................................................................................................................ 162 

Refund under Section 11B of Central Excise Act, 1944: ........................................... 162 

Refund of Cenvat Credit under Rule 5 of CCR 2004. ................................................ 163 

Procedure for filing the refund claim .......................................................................... 165 

Procedure for refund of credits u/r 5 of CCR 2004 prior to the 01.04.2012 ............... 166 

Refund Under Notification No 41/2012-ST dated 29.06.2012 w.e.f 1.7.2012 ........... 168 

Procedure for claiming Rebate.................................................................................... 168 

How does the scheme of rebate work? ....................................................................... 175 

Rebate of the service tax on taxable services exported............................................... 175 

Rebate of the service tax on input services or duty on inputs ..................................... 177 

PROCEDURES WITH REGARD TO REGISTRATION ....................................... 180 

When does the service provider require registration under Service Tax? .................. 180 

What is the procedure for registration? ....................................................................... 180 

How is centralized registration different? ................................................................... 182 

How to make amendments with regard to changes in particulars? ............................. 182 

Service Tax Registration Number ............................................................................... 183 

Premise code ............................................................................................................... 183 

PROCEDURE WITH REGARD TO INVOICING .................................................. 184 

How to raise a proper invoice? ................................................................................... 184 

RECORD KEEPING .................................................................................................... 186 

PAYMENT OF SERVICE TAX.................................................................................. 189 

Determination of Point of Taxation ............................................................................ 189 

How to pay service tax? .............................................................................................. 192 

SERVICE TAX RETURNS ......................................................................................... 194 

How to file the service tax return? .............................................................................. 194 

What is the procedure to file the returns online? ........................................................ 195 

SERVICE TAX AUDITS BY PROFESSIONALS .................................................... 197 

What is required of the auditor? .................................................................................. 197 

Pointers for practice .................................................................................................... 201 

FREQUENT ERRORS COMMITTED IN SERVICE TAX .................................... 207 

OTHER MISCELLANEOUS ASPECTS IN SERVICE TAX ................................. 209 

Interest and penalty calculations ................................................................................. 209 

Provisions as to penalty .............................................................................................. 210 

Searching of premises by authorized officers ............................................................. 211 

Other recovery provisions ........................................................................................... 211 

Liability under Act to be First Charge ........................................................................ 212 

Offence and penalties .................................................................................................. 212 

Application of the provisions of the Central Excise Act 1944 ................................... 212 

SOME OF THE IMPORTANT COMMON SERVICES ......................................... 214 

Renting of Immovable Property Services ................................................................... 214 

Management, Maintenance or Repair Services .......................................................... 216 

Information Technology Software Services ............................................................... 217 

Goods Transport Agency Services.............................................................................. 219 

Works contract service ................................................................................................ 220 

Supply of tangible goods for use service .................................................................... 225 

Construction of complexes ......................................................................................... 229 

Business Auxiliary Service ......................................................................................... 234 

Support services of business or commerce ................................................................. 236 

Sale of goods ............................................................................................................... 239 

Interior decorator ........................................................................................................ 240 

Renting of cabs ........................................................................................................... 241 

Tour operator‘s service ............................................................................................... 242 

Commercial training or coaching................................................................................ 244 

Management or business consultant‘s services ........................................................... 248 

Composite services ..................................................................................................... 249 

Health Service ............................................................................................................. 249 

Legal Consultancy service .......................................................................................... 251 

Brand Promotion service............................................................................................. 252 

BIBLIOGRAPHY/REFERENCES/ ACKNOWLEDGEMENTS ............................ 254 

APPENDIX .................................................................................................................... 255