Q. What is Service Tax?
A. It is a tax levied on the transaction of certain specified services by the Central Government under the Finance Act, 1994. It is an indirect tax, which means that normally the service provider pays the tax and recovers the amount from the recipient of taxable service
Q. Can recipient of service be also asked to pay service tax
A. In certain cases Government may shift the liability of payment of service tax to the receiver of service as a measure of administrative convenience. It is often referred to as ‘reverse charge’ in common language. [Refer Question 1.8]
Q. Under which authority service tax is levied?
A. Vide Entry 97 of Schedule VII of the Constitution of India, the Central Government levies service tax through Chapter V of the Finance Act, 1994. The taxable services are defined in section 65 of the Finance Act, 1994. Section 66 is the charging section of the said Act.
Q. What are the taxable services?
A. The list of the services is available at home page of this web site www.servicetaxinda.co.in . The Accounting Heads are also mentioned in the list, which need to be mentioned on the tax payment documents (GAR-7 or TR-6), while depositing the Service Tax and other related dues in the banks.
Q. How to decide whether Service Tax is payable by a person?
A.) If you are engaged in providing service to your customer, please check:—
Whether the service rendered by you is falling under the scope of any of the taxable services .
Whether there is a general or specific exemption available for the category of service provided under any notification.
Whether you are entitled to the value based exemption of Rs. 10 Lakhs available for small service
Whether the service charges were received for the services provided or to be provided.
In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received subject to the eligible abatements.(if any)
B.) If you are availing the services of the service provider, please check:—
Whether the service received by you is falling under the scope of any of the services where the recipient of the service is liable to pay Service Tax in terms of Section 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994.
In case the service received by recipients of such service is falling under the scope of any of the taxable services defined under section 65 of the Finance Act, 1994, the recipients of the service shall pay Service Tax having regard to the exemptions/abatements admissible, if any.
Please note that the value based exemption for small scale service providers under Notification No. 6/2005-ST, dated 01.03.2005 effective from 01.04.2005 is not admissible to such recipients of taxable services.
Q. What is the rate of Service Tax?
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Q. What is meant by “value of taxable service”?
Normally, the “value of taxable service” means, the gross amount received by the service provider for the taxable service provided or to be provided by him. Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006, has to be followed to arrive at the taxable value.
For certain services, a specified percentage of abatement is allowed from the gross amount collected for rendering the services, subject to the conditions, inter alia, that CENVAT Credit has not been availed by the service provider and cost of goods sold in the process of providing the subject service is not deducted in terms of Notification No. 12/2003-ST, dated 20.6.2003.
There is also a composition scheme for ‘works contract service’, where the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4% of the gross amount charged for the works contract..
Q. What is meant by registration? Who should apply for registration under Service Tax law?
Every person providing a taxable service of value exceeding Rs. 9 lakhs, is required to register with the central excise or service tax office having jurisdiction over the office of such service provider.
In case a recipient is liable to pay service tax, registration is required by him.
There is also provision for centralised registration
The ‘Input Service Distributors’ also require registering themselves.
Q. Why registration is necessary?
A. Registration is identification of an assessee. Identification is necessary to deposit service tax, file returns and undertake various processes ordained by law relating to service tax.
Q. What is the meaning of an ‘assessee’ in relation to Service Tax?
A. ‘Assessee’ means a person liable to pay Service Tax and includes his agent.
Q. When can a prospective assessee obtain registration?
When a person commences business of providing an existing taxable service, he is required to register himself within 30 days of such commencement.
In case a new taxable service is introduced, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.
Q. What does the word “person” appearing in the definition of taxable service mean?
A. The word “Person” shall include any company or association or body of individuals, whether incorporated or not. Thus this expression includes any individual, HUF, proprietary firm or partnership firm, company, trust, institution, society etc.
Q. What is the procedure for Registration? Who should be approached for Service Tax Registration?
A. An application in Form ST-1 (in duplicate) has to be filed before the jurisdictional Central Excise/Service Tax officer. Certain documents to verify the correctness of declaration in the said form as may be required by the registering authority, such as copy of PAN card, proof of address of business premise(s), constitution of the business [proprietorship, firm, company, trust, institute etc.] etc. The copies may be self-certified by the applicant. In case of doubts in select cases, original documents may have to be presented for across the counter verification and return.
Q. Is there any provision for centralized registration?
A. Service providers having centralised accounting or centralised billing system, at their option, can have Centralised registration at one or more places. Commissioner of Central Excise/Service Tax in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration.
Q. Is PAN allotted by the Income Tax Department a must for obtaining Service Tax Registration?
A. Having PAN is essential because the Service Tax Registration number is generated based on the PAN issued by the Income Tax Department. However, in the absence of PAN, a temporary Service Tax registration number would be issued for assessees who are not having PAN at the time of filing the application (ST-1) for Service Tax registration till such time they obtain PAN. Once the PAN is obtained, the Service Tax assessee should obtain the PAN – based Service Tax Registration number.
PAYMENT OF SERVICE TAX
Q. How to pay Service Tax?
A. You may pay service tax by G.A.R.7 (previously known as TR6 Challan which was yellow in colour) in the specified branches of the designated banks. The details of such Banks and branches may be obtained from the nearest Central Excise Office/Service Tax Office. Service Tax can also be paid electronically, called e-payment facility.
Q. When is Service Tax required to be paid? For individual or a proprietary or partnership firm.
—Quarterly -by the 5th day of the month following each quarter and by the 6th day of the month following each quarter if the duty is deposited electronically through internet banking. For example, Service Tax for the quarter ending 30th of June is to be paid by 5th or 6th of July as the case may be.
For all other categories (Company, Society, Trust etc.).—Monthly – by the 5th day of the succeeding month and by the 6th day of the succeeding month if the duty is deposited electronically through internet banking;
Exception: For the month of March or quarter ending March, all assessees have to pay by 31st of March of the Calendar year (Rule 6(1) of the STR, 1994
Q. If full details are not available to assess correct service tax, how can service be paid by due date?
A. You may seek in writing, provisional assessment, giving reasons, from the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax under rule 6 (4) of the STR, 1994. He may allow payment of Service Tax on provisional basis, on such value of taxable service as may be specified by him.
Q. Can excess payment be adjusted while paying tax for the next month or quarter?
Yes. Where an assessee has paid to the credit of the Government in respect of a taxable service, which is not so provided by him, either wholly or partially for any reason, the assessee may adjust the excess Service Tax so paid by him (calculated on a pro-rata basis) against his Service Tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the Service Tax thereon to the person from whom it was received (Rule 6(3) of the STR, 1994).
Further, assesses having centralised registration who paid excess amount of Service Tax, on account of non-receipt of details regarding the receipt of gross amount for the services at his other premises or offices, may adjust such excess amount against the Service Tax liability for the subsequent period and furnish the details of such adjustment to the Jurisdictional Superintendent of Central Excise/Service Tax within 15 days from the date of such adjustment (Rule 6(4A) of the STR, 1994).
In all other cases of excess payment, refund claims have to be filed with the Department. The refund claims would be dealt as per the provisions of Section 11B of the Central Excise Act, 1944, which is made applicable to Service Tax under Section 83 of the Finance Act 1994.
It is important to note that any amount of Service Tax paid in excess of the actual liability, is refundable, only if it is proved that the claimant of refund had already refunded such amount to the person from whom it was received or had not collected at all (Section 11 B of the Central Excise Act, 1944 which is applicable to Service Tax matters under Section 83 of the Act).
Q. What is the head of account into which the Service Tax amount is to be paid in respect of various services?
A. Separate “Head of account ” has been specified for each taxable service. This must be mentioned on G.A.R. 7 (previously known as TR-6) challans for proper accounting. ( See List of Service tax Code Visit Home Page)
Q. What is GAR-7 challan? Where is it available?
GAR-7 is the document for payment of service tax.
GAR-7 or TR-6 challan is also available in any stationary shop selling government forms. You can download this challan from www.servicetaxindia.co.in . Click Home page and then FORMS
Q. Can the Service Tax be deposited in Non-designated banks?
A. No. For payment of Service Tax, specific bank has been nominated for every Central Excise/Service Tax Commissionerate. If Service Tax is deposited in a Branch/Bank other than the nominated Bank/Branch, it amounts to non-payment of Service Tax (Rule 6(2) of the STR, 1994). In any case, a nondesignated bank will not accept service tax challans.
Q. Whether the payment of Service Tax is to be made for the billed amount or for the value received?
The Service Tax for a particular period is payable on the amount/value of taxable service received during that period and not on the gross amount billed to the client.
If the charges for the taxable service have been received in advance prior to rendering of the services, the Service Tax is payable even if the services are yet to be provided by them (Section 67 and Rule 6(1) of the STR, 1994).
Please also refer to the Service Tax (Determination of Value) Rules, 2006
Q. Can service tax be paid by cheque?
A. Yes, you can pay service tax be paid by cheque.
Q. When paid by cheque, which date will be treated as date of payment?
A. The date of deposit of cheque is the date of payment of Service Tax. If the cheque is dishonoured, it would mean as if the Service Tax has not been paid and the relevant penal consequences would follow. (Rule 6(2) of the STR, 1994).
Q. When payment is made by a client to an assessee after deducting his Income Tax liability under the Tax deduction at source (TDS) provision, whether the Service Tax liability of the assessee is only towards the amount actually received from that client or tax is to be paid on the amount including the Income Tax deducted at source also?
A. Service Tax is to be paid on the gross value of taxable service which is charged by a Service Tax assessee for providing a taxable service. Income tax deducted at source is includible in the charged amount. Therefore, service Tax is payable on the gross amount including the amount of Income Tax deducted at source also.
Q. What is the interest rate applicable on delayed payment of Service Tax?
A. Every person, liable to pay the service tax in accordance with the provisions of section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest @13% per annum. Interest is payable for the period from the first day after the due date till the date of payment of any defaulted service Tax amount. Refer to Section 75 of the Finance Act, 1994.
Q. Can interest be waived, and by whom?
A. Interest payments are mandatory in nature and cannot be waived in ordinary jurisdiction.
Q. What are the penal consequences if the Service Tax is not paid or paid late?
A. A mandatory penalty, not less than Rs. 200 per day or @2% of such tax per month, whichever is higher, shall be imposed by the adjudicating authority. However, the penalty amount payable shall not exceed the amount of service tax payable. – (Refer to section 76 of the Finance Act, 1994).
Q. Whether Service Tax is payable after providing the service or after the receipt of the service charges?
A. Service Tax is payable on the amount received towards provision of a taxable service including any amount received in advance.
SERVICE TAX RETURN
Q. What are the Returns a service tax assessee has to file?
ST-3 Return – For all the registered assessee, including Input Service
ST-3A Return – The assessee who is making provisional assessment under rule 6(4) of the Service Tax Rules, 1994.
Q. When to file returns?
A. ST-3 Return is required to be filed twice in a financial year – half yearly. Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.
Q. How to file Service Tax Returns?
A. The details in respect of each month of the period for which the return is filed, should be furnished in the Form ST-3, separately. The instructions for filing return are mentioned in the Form itself. It should be accompanied by copies of all the GAR-7 (TR- 6) Challans for payment of Service Tax during the relevant period.
Q. Where to file return?
A. ST-3 or ST-3A is filed in triplicate to the Superintendent of Central Excise/Service Tax with whom the assessee has registered himself.
Q. Is filing of return compulsory even if no taxable service provided or received or no payments received during a period (a particular half year)?
A. Filing of return is compulsory, even if it may be a nil return, within the prescribed time limit, failing which penal action is attracted.
Q. Whether a single Return is sufficient when an assessee provides more than one service?
A. A single return is sufficient because the ST-3 Return is designed to capture details of each service.
Q. Is there any penalty for non-filing or delayed filing of the Returns?
A. If a person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to an amount not exceeding Rs 2000/- depending upon Period of Delay.
Q. What is the procedure for claiming refund?
Application in the prescribed form (Form – R) is to be filed in triplicate with the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax.
The application should be filed within one year from the relevant date as prescribed in Section 11B of the Central Excise Act, 1944 which has been made applicable to Service Tax refund matters also.
Application should be accompanied by documentary evidence to the effect that the amount claimed as refund is the amount actually paid by him in excess of the Service Tax due and the incidence of such tax claimed as refund has not been passed on to any other person.
Q. What are the exemptions available for small service providers?
Service Tax is fully exempted in respect of the taxable services of aggregate value not exceeding Ten lakh rupees in any financial year. w.e.f 1-4-2008
The above mentioned exemption based on the turnover is not available to the persons who are liable to pay Service Tax but are not the service providers. For example:
The recipient of services from an overseas service provider who has no registered office in India
A company incurring the Transportation charges for availing the services from Goods Transport Agencies, for transportation of goods by Road.
This exemption was introduced with effect from 01.04.2005. (Notification No. 6/2005-ST, dated 01.03.2005).
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