why service tax international trend services catching attention indian gdp has 54% coming from...

WHY SERVICE TAXWHY SERVICE TAX

• International Trend

• Services catching attention

• Indian GDP has 54% coming from services

• Commodities groaning under tax burden

• Milking services yields large Revenue

SERVICE TAX & CONSTITUTIONSERVICE TAX & CONSTITUTION

• Service not defined

• Article 246 read with Union List

• Residual entry no 97

• New entry no 92 – C covers taxes on services

• Constitution amendment in 2003

SOME UNIQUE ASPECTS OF SOME UNIQUE ASPECTS OF SERVICE TAXSERVICE TAX

• Tax payable only on payments received

• Self adjustment of excess tax

• Centralized Registration

• Cenvat Credit across goods and services

• Bi – Annual Returns

SERVICE TAX LEGAL SERVICE TAX LEGAL FRAMEWORKFRAMEWORK

• Finance Act 1994 as amended

• Service Tax Rules 1994

• Service Tax Valuation Rules 2006

• Cenvat Credit Rules 2004

• Export of Services Rules 2005

CONTD.CONTD.

• Import of Services Rules 2006

• Service Tax Advance Rulings Rules 2003

• Registration of special category of persons Rules 2005

• The Works Contract Rules 2007

REGISTRATIONREGISTRATION

• Threshold limit of Rs 10 lacs

• Tax not payable till payments received cross 9 lacs , with reference to previous year

• Single Registration for all services

• Centralized Registration

IMPORTANT FORMSIMPORTANT FORMS

• ST – I application for Regn

• ST – 2 Regn certificate

• ST – 3 Return

• ST-3A Provisional assessment

• ST – 4 Appeal to commissioner ( Appeals)

CONTD.CONTD.

• ST 5 Appeal to CESTAT

• ST 6 Memorandum of Cross Objection

RULES OF CLASSIFICATIONRULES OF CLASSIFICATION

• Specific definition preferred

• Test of essential character for composite services

• Service brought into the tax net earlier than the other

VALUATIONVALUATION

• New section 67

• Value should be fullest consideration

• Otherwise Valuation Rules to apply

• Comparison with similar service

• Finding out cost of provision of service

CONTD.CONTD.

• Provision for rejection of value by Departmental Officers

• SCN & PH necessary

• Speaking order

• Rule 5 and the concept of pure agent

• Expenditure of pure agent excluded

CONDITIONS FOR PURE AGENTCONDITIONS FOR PURE AGENT

• Service provider as the pure agent

• Of the recipient of the service

• Payments to third party by agent

• Recipient to receive and use the goods and services procured by the agent

• Recipient to be liable to pay third party

CONTD.CONTD.

• Recipient authorizes service provider to make payment to third party

• Recipient has knowledge of transactions with third party – supply and payment

• Agent’s payments to be invoiced separately on recipient

CONTD.CONTD.

• Invoicing of recipient in this should be at actual

• Service provided as agent should be in addition to own services being provided

• Agency contract essential

• Agent not to use the goods and services procured and provided

CONTD.CONTD.

• Agent should not hold any title to the goods and services so provided

• Should receive only actual payments to the extent of costs incurred

Problem areas in service tax Problem areas in service tax valuationvaluation

• Deduction of cost of reimbursable expenses

• Exclusion of the cost of value of materials consumed in providing service

• Interpretation of the notification no 12/2003 dated 20-6-2003

• Case studies :

• Photography service and Tyre retreading

Continued-----Continued-----

• Cum – Tax Value

• Commissioner of service tax, Bangalore Vs Prompt and Smart security – 2008 ( 9 ) STR ( Tribunal- Bangalore )

• Malabar Management services Vs Commissioner of service tax, chennai -2008 ( 9 ) STR ( Tri- Chennai )

Continued----Continued----

• Excludability of the cost of materials in the assessable value in the operation of power plants

• CMS ( India ) Operations & Maintenance co pvt ltd Vs Commissioner – 2007 ( 7 ) STR 369 ( TRI)

• Covanta Samalpatti operating co pvt Ltd- 2008 ( 10 ) STR 133 ( Tri )

Case studies on certain problem Case studies on certain problem servicesservices

• Consulting Engineer service :

• Technology transfer and royalty payments

• Indivisible contracts

• Ratio of the Daelim case

• Goods Transport Agency service

• Works contract service

Continued-----Continued-----

• Management , maintenance and repair service:

• Maintenance of computer software

• Renting out of immovable property service

• Residential construction service

Service tax creditService tax credit

• Capital goods used for providing output service

• It includes motor vehicles registered in the name of service provider, namely:

• Courier agency

• Tour operator

• Rent a Cab scheme operator

• Cargo handling agency

continuedcontinued

• Goods transport agency

• Outdoor caterer

• Pandal and shamiyana contractor ( caterer )

continuedcontinued

• INPUTS:

• All goods except light diesel oil, HSD and petrol, used for providing output service

• Or used in or in relation to the manufacture of final products or any other purpose, within the factory of production

continuedcontinued

• INPUT SERVICE• Any service --------• Used by a provider of taxable service for

providing an output service, or• Used by a manufacturer, whether directly

or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal

continuedcontinued

• And includes services used in relation to---

• Setting up

• Modernization

• Renovation

• Repairs ---

• Of a factory,

• Premises of service provider

continuedcontinued

• Or an office relating to such factory or premises,

• Advertisement

• Sales promotion

• Market research

• Storage upto the place of removal

• Procurement of inputs

continuedcontinued

• Activities relating to business such as ----

• Accounting

• Auditing

• Financing

• Recruitment and quality control

• Coaching and training

• Computer networking

continuedcontinued

• Credit rating

• Share registry

• Security

• Inward transportation of inputs or capital goods

• Outward transportation upto the place of removal

Export of servicesExport of services

• Exempt , subject to conditions

• Services in relation to immovable property

• Services partly performed in India and partly abroad

• Services in relation to business or commerce abroad, where the recipient of the services is located abroad and in case

continuedcontinued

• Such recipient has commercial establishment or an office in India, the order for such service is made from any of his office or commercial establishment abroad.

• All services are to be provided from India and used outside India

• Payment in convertible foreign exchange

Import of servicesImport of services

• Services criteria same as for export of services

• Reverse charge

• Imported services not to be treated as output services

• Implications of the above

Service tax refund/ rebateService tax refund/ rebate

• Self adjustment

• Section 11B cash refund

• Refund under Rule 5 of CCR 2004

• Rebate under form ASTR 1

• Rebate under form ASTR 2

• Bar of unjust enrichment

continuedcontinued

• Refund claim through credit notes

• Case laws:

• Mafatlal Industries Vs union of India

• L&T sargeant Lundy Ltd vs CCE, Vadodara

Important procedures in service tax Important procedures in service tax lawlaw

• Provisional assessment and interest liability

• Input service distributor

• Advance payment and self adjustment

• Payment of amount in lieu of service tax in works contract service