Case Studies in Service Tax -Covering various important Issues/ Aspects
July 2014
Index
Exemption limit of Rs. 10 lakh1 Exemption limit of Rs. 10 lakh
Reverse Charge Mechanism2
Place of Provision of Service
1
3
CENVAT Credit on Input Services4
Index
Exemption limit of Rs. 10 lakh1 Exemption limit of Rs. 10 lakh1
Exemption Limit of Rs. 10 Lakh
Notification No. 33/ 2012 – Service Tax dated 20 June, 2012 – Exemption to
Small Service Providers
Exempts taxable services of aggregate value not exceeding ten lakh rupees in any financial year
Conditions for availing exemption:
1. Aggregate value of taxable services does not exceed ten
Notification shall not apply in the following cases:
1. Taxable services provided under a brand name or trade name, whether registered or not, of another person;
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1. Aggregate value of taxable services does not exceed ten lakh rupees in preceding financial year;
2. No CENVAT Credit on inputs, input services and capital goods to be availed during the period for which exemption is claimed;
3. On the date of availing exemption, CENVAT Credit of any inputs lying in stock or in process, to be paid by service provider. Balance CENVAT Credit lying unutilized, if any, shall lapse;
4. Exemption limit shall be computed cumulatively for all taxable services provided from all premises and not separately for each premise or each taxable service;
5. Option given to service provider not to avail exemption and pay service tax. However, option once availed shall not be withdrawn for remaining part of the year.
person;
2. Value of taxable services in respect of which service tax is to be paid under reverse charge mechanism.
Exemption Limit of Rs. 10 Lakh
Aggregate Value of Taxable Services
Includes
1. Value of taxable services charged in the first consecutive
Does not include
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1. Value of taxable services charged in the first consecutive invoices issued during a financial year;
2. Taxable service means any service on which service tax is leviable under Section 66B of the Finance Act, 1994 i.e. services provided in the taxable territory, other than services specified in the negative list.
1. Value of services which are not leviable to service tax under Section 66B of the Finance Act, 1994, including services specified in the negative list;
2. Value of services which are exempt from the whole of service tax under any other notification.
Exemption Limit of Rs. 10 Lakh
Case Studies:
Particulars Value of services for which
exemption available
Value of services for which
service tax to be paid
Case 1
• ABC Ltd., a Pune based company. is engaged in providing software services to clients in
India. Year wise aggregate value of taxable services provided by ABC Ltd. is mentioned
below:
Year 1 – Rs. 700,000;
Year 2 – Rs. 1,200,000;
Year 3 – Rs. 500,000
5
Year 3 – Rs. 500,000
• What happens if no service tax was required to be paid in the 1st year, however, ABC Ltd.
being ignorant of the exemption limit, pays service tax on Rs. 700,000.
Case 2
• Mr. A has obtained the franchise of McDonald's in Pune to provide restaurant services. Year
wise aggregate value of taxable services provided by Mr. A is mentioned below:
Year 1 – Rs. 1,200,000;
Year 2 – Rs. 500,000;
Year 3 – Rs. 800,000
Exemption Limit of Rs. 10 Lakh
Case Studies:
Particulars Value of services for which
exemption available
Value of services for which
service tax to be paid
Case 3
• ABC Ltd., a Pune based company is engaged in providing software services. XYZ Inc.
situated in USA is a group company of ABC Ltd.
• Following is the breakup of services provided and received by ABC Ltd. in the 1st year:
Software services provided to clients in India – Rs. 200,000;
Software services provided to clients outside India – Rs. 1,000,000;
Management Cross charges for administration support charged by XYZ Inc. – Rs.
6
Management Cross charges for administration support charged by XYZ Inc. – Rs.
1,200,000
• In the 2nd year of operation, ABC Ltd. provides software services to the extent of Rs.
500,000 only to clients in India.
Case 4
• XYZ Ltd., a Pune based company has obtained registration for 2 units in Pune.
• Unit 1 is engaged in providing construction services;
• Unit 2 is engaged in providing restaurant services with the facility of air-conditioning;
• Unit wise value of services provided by ABC Ltd. is mentioned below:
Unit 1 – Rs. 500,000 (Service tax abatement available on 75% of value of service under a
notification);
Unit 2 – Rs. 700,000.
Exemption Limit of Rs. 10 Lakh
Case Studies:
Particulars Value of services for which
exemption available
Value of services for which
service tax to be paid
Case 5
• XYZ Ltd., a Pune based company has obtained registration for 3 units in Pune.
• Unit 1 is engaged in providing restaurant services with the facility of air-conditioning;
• Unit 2 is engaged in providing restaurant services without the facility of air-conditioning;
• Unit 3 is engaged in providing lottery services.
• Unit wise value of services provided by ABC Ltd. is mentioned below:
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Unit 1 – Rs. 500,000;
Unit 2 – Rs. 1,200,000;
Unit 3 – Rs. 700,000.
Index
Reverse Charge Mechanism2 Reverse Charge Mechanism2
Reverse Charge Mechanism
1. Scheme of Reverse Charge:
Section 68 (2) – Payment of Service Tax under Reverse Charge Mechanism
Specified taxable services notified by Central
Person responsible for payment of service tax
Point of Taxationnotified by Central Government
Notification No. 30/ 2012 dated 20 June 2012
payment of service tax
Prescribed under Rule 2 (1) (d) (i) of Service Tax
Rules, 1994
Point of Taxation
Prescribed under Rule 7 of Point of Taxation Rules,
2011
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Reverse Charge Mechanism
2. Specified taxable services covered under reverse charge mechanism:
S.No. Specified Taxable Service Service Provider Service Recipient % of Service tax payable by Service Provider
% of Service tax payable by Service Recipient
1. Insurance services Insurance AgentPerson carrying on insurance
businessNil 100%
2. Recovery Agent services Recovery Agent
Banking company, financial
institution or a non banking
financial company
Nil 100%
3.Goods Transport Agency services
(Transportation of goods by road)Goods Transport Agency Person liable to pay freight Nil 100%
4. Sponsorship services Any personBody Corporate or
Partnership FirmNil 100%
*
4. Sponsorship services Any personPartnership Firm
Nil 100%
5. Services provided by an arbitral tribunal Arbitral Tribunal
Any Business Entity
Nil 100%
6. Legal ServicesIndividual Advocate or Firm
of AdvocatesNil 100%
7. Support ServicesGovernment or local
authorityNil 100%
8. Rent a cab services Individual, HUF or
Partnership Firm, whether
registered or not, including
association of persons
Business Entity registered as
a body corporate
Abated – Nil
Non Abated – 50%
Abated – 100%
Non Abated – 50%
9. Manpower Supply or security services 25% 75%
10. Works Contract services 50% 50%
11. Import of ServicesAny person located in non-
taxable territory
Any person located in taxable
territoryNil 100%
12.
Services provided by Director of a
Company or a body corporate to the said
Company or body corporate
Director of a Company or
body corporateCompany or body corporate Nil 100%
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*
*
* - Budget changes in Union Budget of 2014-15 effective from 11 July 2014.
Reverse Charge Mechanism
3. Point of Taxation under reverse charge mechanism:
Rule 7 of Point of Taxation Rules, 2011
Point of Taxation in case of taxable services covered under Reverse Charge Mechanism
Service tax under reverse
charge to be paid in cash
only (Explanation to Rule 3
(4) of CENVAT Credit
Rules, 2004)
*
Where payment for services made within 6 months from date of invoice
Where payment for services not made within 6 months from date of invoice
Point of Taxation = Date of PaymentPoint of Taxation = Point of taxation for
any other taxable service as per normal provisions
Special Provision in case of Associated Enterprises:In case of associated enterprises, where person providing service is located outside India, point of taxation shall be date of debit in the books of accounts of the person receiving the service or date of making payment, whichever is earlier.
11- Budget Changes in Union Budget of 2014-15 effective from 1 October 2014 – Point of Taxation = Date of Payment or Expiry of 3 months from Invoice Date,
whichever is earlier.*
Reverse Charge Mechanism
4. Other important provisions under reverse charge mechanism:
Taxable Services under Reverse Charge Mechanism
Availment of CENVAT Credit Registration Requirements*
Prescribed under first and second proviso to Rule 4 (7) of CENVAT Credit Rules, 2004
Section 69 of Finance Act, 1994 states that every person liable to pay service tax shall make an
application for registration
i. Service recipient is considered as a person liable for paying service tax under Rule 2 (1) (d) (i) of Service Tax Rules, 1994;
ii. Hence, registration would be required to be obtained in respect of services covered under reverse charge mechanism
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Full Reverse Charge
Partial Reverse Charge
Date on which service tax is paid
Date on which service tax and value of input service is paid
* - Budget changes in Union Budget of 2014-15 effective from 11 July 2014.
Reverse Charge Mechanism
5. Goods Transport Agency (‘GTA’) services under reverse charge mechanism:
GTA Services
Service Provider
Goods Transport Agency:
As per Section 65B (26) of Finance Act, 1994 – goods
Service Receiver
Person liable to pay freight:
i. Any factory registered under or governed by the Factories Act,
Abatement Exemption
Notification No. 26/ 2012 – Service Tax dated 20 June, 2012:
Notification No. 25/ 2012 – Service Tax dated 20 June 2012:
Entry No. 21 – Services provided
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Finance Act, 1994 – goods transport agency means any person who provides service in relation to transport of goods by road and issues a consignment note, by whatever name called
governed by the Factories Act, 1948;
ii. Any society registered under the Societies Registration Act, 1860 or under any other law;
iii. Any co-operative society established by or under any law;
iv. Any dealer of excisable goods registered under Central Excise Act, 1944;
v. Any body corporate established, by or under any law;
vi. Any partnership firm whether registered or not under any law, including association of persons
dated 20 June, 2012:
i. Abatement of 75% available on GTA services;
ii. CENVAT Credit on inputs, capital goods and input services used for providing taxable service, shall not be taken
Entry No. 21 – Services provided by a goods transport agency, by way of transport in a goods carriage of:
a. …’
b. goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;
c. goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty
Reverse Charge Mechanism
Case Studies:
Description Whether
service tax is
required to be
paid under
reverse charge
Proportion of
service tax
payable by
service
recipient
Amount of
service tax
payable by
service
recipient
Point of
Taxation
Case 1:
• ABC Ltd., a Company registered under Companies Act, 1956 is engaged in
providing security services to XY Associates, a Partnership Firm;
• Value of services rendered for the month of May, 2014 is Rs. 100,000;
• Invoice for such services is dated 1 June 2014 and the payment in respect of • Invoice for such services is dated 1 June 2014 and the payment in respect of
such services is made on 30 June 2014.
Case 2:
• ABC Ltd., a Company registered in India is the subsidiary company of XYZ
Inc., USA;
• ABC Ltd. receives software services from XYZ Inc.;
• Value of Services rendered for the month of May, 2014 is Rs. 100,000;
• Invoice for such services is dated 1 June 2014;
• Expenses in relation to such services are booked by ABC Ltd. on 30 May 2014
as a provision for expenses;
• Payment in respect of such services is made on 30 June 2014.
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Reverse Charge Mechanism
Case Studies:
Description Whether
service tax is
required to be
paid under
reverse charge
Proportion of
service tax
payable by
service
recipient
Amount of
service tax
payable by
service
recipient
Point of
Taxation
Case 3:
• AB Associates, a Partnership Firm is engaged in providing works contract
services to ABC Ltd., a Company registered under the Companies Act, 1956;
• AB Associates has raised an invoice dated 1 June 2014, in relation to the
works contract services for Rs. 100,000;
• For the purpose of discharging service tax in relation to the works contract
services, AB Associates has adopted the Actual Value Method as prescribed
under Rule 2A (i) of Service Tax (Determination of Value) Rules, 2006;
• Payment in respect of such services is made on 30 June 2014.
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Reverse Charge Mechanism
Case Studies:
Description Whether
service tax is
required to be
paid under
reverse charge
Proportion of
service tax
payable by
service
recipient
Amount of
service tax
payable by
service
recipient
Point of
Taxation
Case 4:
• ABC Ltd. is a Pune based company registered under the Companies Act,
1956;
• During the month of April, 2014, ABC Ltd. has availed GTA services for
transport of raw materials from various vendors across India;transport of raw materials from various vendors across India;
• The goods transport agency from whom the GTA services are availed does
not provide GTA services to any other consignee;
• Following is the summary of GTA services availed during the month of April,
2014:
• A single invoice dated 1 May 2014 is raised in respect of the above GTA
services;
• Payment in respect of such services is made on 31 May 2014.
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S.No. Particulars Freight paid by ABC
Ltd.
1. 200 Trucks @ Rs. 1,400 per truck Rs. 280,000
2. 300 Trucks @ Rs. 1,600 per truck Rs. 480,000
Index
Place of Provision of Service3 Place of Provision of Service3
Place of Provision of Service
1. Concept of Place of Provision of Service:
Place of Provision of Service
Section 66B – Charge of Service Tax
Section 66C – Determination of Place of Provision
Place of Provision of Services Rules, 2012 (‘PPSR, 2012’)
Service Tax to be levied on all services, other than services
in negative list, which are provided or agreed to be provided in the taxable
territory
Central Government may frame rules in order to determine the place of
provision of service
Determination of Place of Provision of Service having
regard to the nature and description of various services
Note:Taxable Territory = Whole of India except the State of Jammu and Kashmir
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Place of Provision of Service
2. Determination of Place of Provision of Service (PPSR, 2012):
Rule No. Description Place of Provision
3.
General Rule
- Where location of service receiver available in ordinary course of business
- Where location of service receiver not available in ordinary course of business
Location of Service Recipient;
Location of Service Provider
4.
Performance based services:
i. In respect of goods to be made physically available;
ii. In respect of services provided from a remote location by electronic means;
iii.In respect of services provided to an individual requiring physical presence
Where services are performed;
Location of goods at the time of provision of service;
Where services are performed
5. Services directly relating to immovable property Location of immovable property
6. Services relating to events Place where event is actually held
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6. Services relating to events Place where event is actually held
7.Services referred to in Rule 4, 5 and 6 are provided at more than one location,
including a location in the taxable territory
Location in taxable territory where greatest proportion of
service is provided
8. Provider and Recipient of service located in the taxable territory Location of Service Recipient
9.
Specified Services:
i. Services provided by Banking Company, non banking financial company or
financial institution to account holders;
ii. Online information and database access or retrieval services;
iii.Intermediary services;
iv.Services in relation to hiring of means of transport, upto one month
Location of Service Provider
10.Services of transportation of goods, other than by way of courier or mail
Goods Transportation Agency Services
Place of destination of goods
Location of person liable to pay tax
11. Passenger Transportation Services Place where passenger embarks for continuous journey
12. Services provided on board a conveyance First scheduled point of departure
Place of Provision of Service
3. Location of Service Provider/ Service Recipient:
Registration
Single Registration, whether centralized or otherwise
Multiple Registrations
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Services provided/ used from/ at one location
Services provided/ used from/ at more than one
location
In the absence of any establishments, whether
business or fixed
Location of Business Establishment
Location of other Fixed Establishment, where
services provided/ used from/ at a place other than Business Establishment
Location of Establishment most directly concerned with the provision/ use of service
Usual Place of Residence of the provider/ recipient of
service
Place of Provision of Service
Case Studies:
Description Which Rule is
applicable to
determine Place
of Provision
Place of Provision Whether Place of
Provision within
taxable territory
Case 1:
• ABC Ltd. is a Pune based Company registered in India under the Companies Act, 1956.
ABC Ltd. has opened a branch office in Dubai;
• For the new office in Dubai, XY Associates, a Bangalore based partnership firm in India,
has provided interior decoration services.
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has provided interior decoration services.
Case 2:
• ABC Ltd. is a Pune based tax and management consulting company;
• ABC Ltd. has entered into a contract with its group company US Inc. situated in USA to
provide a report on company law updates in India;
• Such report on company law updates in India is intended to be used by XYZ Inc, USA
which has entered into a contract with US Inc. to provide such report.
Case 3:
In the above case, assuming all other facts remaining the same, what would be the place of
provision of service, where the managing director of XYZ Inc. has visited India to attend a
training on company law updates conducted by ABC Ltd.
Please note that there is no contract of service between ABC Ltd. and XYZ Inc.
Index
CENVAT Credit on Input Services4 CENVAT Credit on Input Services4
CENVAT Credit on input services
Rule 2 (l) of CENVAT Credit Rules, 2004 – Input service
Means
Any service:
i. used by a provider of
output service for providing
an output service; or
Includes
i. modernization, renovation or repairs of a
factory, premises of provider of output service
or an office relating to such factory or
premises;
Excludes
i. service portion in the execution of a works contract and
construction services (declared services);
used in relation to building or civil structure or part
thereof or laying of foundation or making of structures for
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an output service; or
ii. 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
ii. advertisement or sales promotion, market
research, business exhibition;
iii. accounting auditing, financing;
iv. recruitment and quality control, coaching and
training;
v. computer networking;
vi. credit rating;
vii. share registry;
viii.security;
ix. legal services;
x. procurement of inputs, storage upto the place
of removal, inward transportation of inputs and
capital goods and outward transportation upto
the place of removal
thereof or laying of foundation or making of structures for
support of capital goods;
except for the provision of one or more of the above
mentioned declared services;
ii. renting of motor vehicle which is not capital goods;
iii. general insurance, servicing, repair and maintenance of
motor vehicle which is not capital goods
except when used by:
– a manufacturer of motor vehicle in respect of motor
vehicle manufactured by such person; or
– an insurance company in respect of motor vehicle
insured or reinsured by such person
iv. services primarily meant for personal use or
consumption of an employee such as outdoor catering,
health services, life insurance, health insurance etc.
Thank You