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SUPPLEMENTARY NOTES ON SERVICE TAX

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Service Tax (Determination of Value) Rules, 2006

(1) Rule 5: the following explanation is newly inserted- w.e.f 1.3.2011 Explanation- For the removal of doubts, it is hereby clarified that for the telecommunication services, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority.

(2) Rule 6: Specific inclusion/exclusion of certain items from the value of taxable service
The following shall be included in the value of the taxable services; (a) the commission or brokerage charged by a broker on the sale or purchase of securities; (b) the adjustments made from any deposits made by the subscriber at the time of application for telephone connection; (c) the amount of premium charged by the insurer from the policy holder; (d) the commission received by the air travel agent or rail travel agent; (e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; (f) the reimbursement received by the authorized service station, from manufacturer for carrying of any service of any motor car; (g) the remuneration or commission paid to clearing and forwarding agent by the client engaging such agent in relation to clearing and forwarding operations; and (h) the commission, fee paid to such insurance agent by the insurer in relation to such insurance auxiliary services. .

The followings shall be excluded from the value of taxable service (a) initial deposit made by the subscriber at the time of application of the telephone connection or FAX; (b) the airfare collected by air travel agent in respect of service provided by him; (c) the rail fare collected by rail travel agent in respect of service provided by him; and (d) interest on loans. (e) the taxes levied by any Government on any passenger traveling by air, if shown separately on the ticket, issued to the passenger. [w.e.f 27-2-2010]

(3) Rule 7: Valuation in case taxable service provided from outside India:
This Rule is applicable when service receiver liable to pay service tax u/s. 66A. The value of taxable service received from outside India shall be the amount as is equal to the actual consideration charged for the services provided or to be provided. However, where a taxable service is only partly performed in India, then, the value of taxable service shall be the total consideration paid by the recipient for such services including the value of service partly performed outside India.

(4) Rule 2A: Valuation of works contact Service

Value of works contract service = Gross amount charged for the works contract (-) Value of transfer of property in goods involved in the execution of the said works contract on which VAT has been paid. Notes: (a) Exclusions: Gross amount charged for the works contract shall not include VAT or sales tax (b) Inclusions: Value of work contract service shall include,(a) labour charges ; (b) Payment to sub-contractor; (c) Planning and Designing charges; (d) machinery and tools hire charges; (e) architects fees; (f) cost of consumables such as water, electricity, fuel; (g) establishment charges; (g) charges relating to supply of labour and services ; (h) profit earned by the service provider relatable to supply of labour and services. (c) No CENVAT credit of duty paid on goods shall be allowed. (d) Composition Scheme: Assessee has the option to pay service tax @ 10.3% of the value determined as per rule 2A or 4% of Gross amount charged for the works contract. For instance: Suppose, Gross amount for the works contract (excluding VAT) is ` 2,00,000 and Value of goods and materials sold in the execution of works contract is ` 1,40,000. The value of taxable service and service tax payable thereon is computed as follows Option 1: Gross amount for the works contract (excluding VAT) Less : Value of goods and materials sold in the execution of works contract Value of works contract service as per Rule 2A Service tax @ 10.3 % on ` 60,000

` 2,00,000 ` 1,40,000 ` 60,000 ` 6180

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Option 2: Composition Scheme Service Tax = 4.12% on ` 2,00,000 = ` 8240. Hence, the assessee should opt for option 1.

-------------------------------------------------------------------------------------------------------------------------------------------------EXEMPTIONS UNDER SERVICE TAX

1. The taxable service provided to any person, by any other person in relation to management, maintenance or repair of roads, bridges, tunnels, dams, airport, railways and transport terminals has been exempted from service tax. 2. Exemption to service provided by a person located outside India in relation to booking of accommodation for a customer located outside India in a hotel in India. Located outside India means- place of business, fixed establishment, permanent address or usual place of residence, in a country other than India Hotel means a place that provides boarding and lodging facilities to public on commercial basis. 3. Exemption for services provided to units in SEZ: Refer page 260 Exemption No. 7. (a)The taxable services (whether domestic or imported) received by a Unit located in a SEZ or Developer of SEZ for the authorised operations, shall be exempted from the whole of the service tax, education cess and secondary and higher education cess leviable thereon. (b) Manner of exemptions Particulars Specified Services consumed wholly within the Special Economic Zone. Specified Services not consumed wholly within SEZ i.e, shared between authorised operations in SEZ Unit and Domestic DTA Unit

Method of Exemption (a) Pay tax and claim full refund or (b) Do not pay tax at all. Refund shall be restricted to the extent of the ratio of export turnover to the total turnover for the given period to which the claim relates. Mathematically, Maximum refund = service tax paid on specified services used for SEZ Authorised Operations Export turnover of SEZ Unit for shared with DTA Unit for the period the period Total turnover for the period (1) total turnover means the sum total of the value of,(i) all output services and exempted services provided, including the value of services exported; (ii) all excisable and non-excisable goods cleared, including the value of the goods exported; (iii) bought out goods sold, during the period to which the invoices pertain and the exporter claims the facility of refund under this notification. (2) turnover of SEZ Unit shall mean the sum total of the value of final products and output services exported during the period of which the invoices pertain and the exporter claims the facility of refund under this notification;

Note: No CENVAT credit available. --------------------------------------------------------------------------------------------------------------------------------------------------

PAYMENT OF SERVICE TAX

-------------------------------------------------------------------------------------------------------------------------------------------------What is EASIEST scheme?
EASIEST (Electronic Accounting System in Excise and Service Tax) scheme has been developed to make payment of tax easy. The facility is available with 28 banks. The payment is made by GAR-7 challan. Assessee had to make one singly copy of challan and its counterfoil. This mode of payment can be used only by assesses whose payment of service tax (including tax paid through CENVAT credit) was less than Rs. 10 lakhs in previous year. For other assesses, e-payment is mandatory. Benefits of EASIEST to the taxpayer (a) Only one copy of the challan has to be filled instead of earlier four copies.

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(b) Facility of online verification of the status of tax payment using CIN.

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Challan Identification Number (CIN): Challan Identification Number (CIN) is a 20 digit unique identifier which will be given on the Taxpayers computer generated acknowledgement / receipt. This number is a combination of the BSR code of the bank branch (first 7 digits), the date of deposit (next 8 digits) and Challan Serial Number (last 5 digits). --------------------------------------------------------------------------------------------------------------------------------------------------

ADJUSTMENT OF SERVICE TAX PAID

The limit in respect of adjustment of excess Service Tax paid has been increased from ` 1,00,000 to `2,00,000 per month/quarter. Refer page No. 268. --------------------------------------------------------------------------------------------------------------------------------------------------

Refer page No. 269- Interest rate on delay payment of service tax has been increased from 13% to 18% w.e.f 1.4.2011.
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SPECIAL RATES OF SERVICE TAX/COMPOSITION SCHEME

(1) Life insurance business: The rate of composition scheme has been increased from 1% to 1.5% w.e.f 1.5.2011. Refer page No. 270 (2) Money- changing services provided by a foreign exchange broker Rule 2B: Determination of value of service in relation to money changing; w.e.f 1.4.2011 Subject to the provisions of section 67, the value of taxable service in relation to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:(i) For a currency, when exchanged from, or to, Indian Rupees (INR), Value = Buying rate/Selling rate (-) RBI reference rate for that currency at that time x Total units of currency Example 1: US$1000 are sold by a customer at the rate of `45 per US$. RBI reference rate for US$ is `45.50 for that day. The taxable value = [1000 x (`45.50 - `45.00)] = `500. Service tax = 10.3% of ` 500 = `51.50 Example 2: INR 70000 is changed into Great Britain Pound (GBP) and the exchange rate offered is ` 70, thereby giving GBP 1000. RBI reference rate for that day for GBP is ` 69. The taxable value = [(1000 x (` 70 - `69)] = `1000. Service Tax = 10.3% of ` 1000 = `103 where the RBI reference rate for a currency is not available: Value = 1% of the gross amount of Indian Rupees provided or received, by the person changing the money Example 3: US$1000 are sold by a customer at the rate of `45 per US$. No RBI reference rate is available The taxable value = 1% of ` 45,000 = ` 450. Service Tax = 10.3% of ` 450 = 46.35 (ii) where neither of the currencies exchanged is Indian Rupee, Value = 1% of the lower of the following two amounts (a) Foreign Currency sold x RBI Refrence rate of that currency to Indian rupee at that time. (b) Foreign Currency bought x RBI Refrence rate of that currency to Indian rupee at that time. Example 4: US$ 10000 is sold to buy 5000 Great Britain Pound (GBP). RBI reference rate for US$ is `50 for that day. RBI reference rate for that day for GBP is ` 60. (a) US$ 10,000 x `50 = `5,00,000 (b) GBP 5000 x `60 = `3,00,000 whichever is lower `3,00,000 Taxable value = 1% of ` 3,00000= ` 3,000. Service Tax 10.3% x 3000 = ` 309 However, the assessee has an option to pay tax as per the following composition scheme instead of paying tax @10.3% on the taxable value determined under Rule 2B of service tax (Determination of valuation) Rules, 2006. Rule 6(7B) of ST Rule 1994 - Notification dated 26/2011, dated 31/3/2011. [W.e.f 1.4.2011] (a) 0.1 % of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of ` 25; and

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(b) ` 100 and 0.05% of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and (c) ` 550 and 0.01 % of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 5000: Provided that the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. --------------------------------------------------------------------------------------------------------------------------------------------------

SOME MISCELLANEOUS TOPICS UNDER SERVICE TAX

1. EXPLAIN AS TO HOW AND WHEN THE AMENDMENTS MADE IN THE FINANCE BILL IN RESPECT OF THE SERVICE TAX MATTERS COME INTO THE FORCE. The law relating to service tax is governed by Chapter V and Chapter V-A of Finance Act,1994(i.e. Service Tax law).Every year a finance bill containing amendments proposed in the service tax law is introduced in the Parliament at the end of February month, which when receives assent of the President becomes the Finance Act of that year. The amendments made by the Finance Act of that year are then incorporated in the service tax law comprising of Chapter V and V-A of the Finance Act,1994.The amendments relating to procedures and charge of tax made by Finance Act of that year come into effect on the date on which the Finance Act of that year receives assent of President. However, amendments relating to taxable services come into effect from the date to be notified by the Central Government. For example, the Finance (No.2) Bill,2009 proposing amendments in the Service Tax law received assent of the President on 19-8-2009 and amendments relating to service tax procedures came into effect on that date. While other amendments relating to taxable services came into effect on date notified by the Central Governments i.e.1-9-2009. Study the following topics from ICAI Study Material (a) Role of a chartered accountant (b) Components of service tax law (c) Sub Contractors liable to Service Tax. --------------------------------------------------------------------------------------------------------------------------------------------------

AMENDMENTS IN RELEVANT TAXABLE SERVICES FOR IPCC

(1) LEGAL CONSULTANCY SERVICES: Amendments w.e.f 1.5.2011 After amendments the scope of existing service has been expanded as followsa) Service provided by business entity to individuals is now taxable. b) Representational services provided by any person to a business entity is now taxable. c) Services provided by arbitrators to business entity is taxable. However, Service provided by Individual to another Individual will remain outside the levy. (2) PRACTICING CHARTERED ACCOUNTANTS: Representation service provided by CA is exempted only upto 30.4.2011. However, w.e.f., 1.5.2011 the representation service provided by CA is taxable. (3) COMMERCIAL TRAINING OR COACHING SERVICES: Exemptions: w.e.f 1.5.2011, The Central Government on being satisfied that it is necessary in the public interest so to do, hereby exempt from whole of the service tax,(i) any preschool coaching and training; (ii) any coaching or training leading to grant of a certificate or diploma or degree or any educational qualification which is recognised by any law for the time being in force; (4) INFORMATION TECHNOLOGY SOFTWARE SERVICES: 100% Exemption: w.e.f 21.12.2010Right to use packaged or canned software manufactured in India or imported from outside India, pre-packed in retail packages for single use is exempt from the whole of service tax, subject to the condition that(i) such software should be valued as per the provisions the Central Excise Act, 1944 and the appropriate excise duties /custom duties should be paid on such software. (ii) Further, the service provider should made a declaration on the invoice that no amount in excess of the retail sale price declared on the said goods has been recovered from the customer.
Every effort has been made in this book to avoid errors and omissions. Inspite of this error may creep in. It is, therefore, notified that the author/ publisher does not take any responsibility for any damage or Loss of action to any one, of any kind, in any manner. It is advised that the readers should cross check the facts, Laws and contents of the publication with the original Govt. publications and notifications.