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« Service Tax »
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Existing scheme for levy assessment & collection of Service Tax in India
March, 21st 2013

3.   Existing scheme for levy, assessment & collection of Service Tax in India

 

Levy and assessment

            Service tax is levied on specified services and the responsibility of payment of the tax is generally cast on the service provider but for few exceptions. System of self-assessment of Service Tax Returns by service tax assessees has been introduced w.e.f. 01.04.2001. The jurisdictional Superintendent of Central Excise is authorized to cross verify the correctness of self assessed returns. These tax returns have to be filed half yearly.

           

The Central Excise officers are authorized to conduct surveys to bring the prospective service tax assessees under the tax net. Directorate General of Service Tax at Mumbai oversees the activities at the field level for technical and policy level coordination.

 

Legal provisions

            The provisions relating to Service Tax were brought into force with effect from 1st July 1994. It extends to the whole of India except the state of Jammu & Kashmir. The chronological list of taxable services with date of their introduction as on 1.5.2011 is given below:

The following services were brought under the tax net in the year 1994-95:

 

1

Telephone 

01.07.1994

{This service has been de-notified and  grouped as ‘Telecommunication Services’  w.e.f. 01.06.2007 vide Notfn. .23/07 ST dated 22.05.07 and Sec.135 of  Finance Act,2007 (22 of 2007)}

2

Stock broker

01.07.1994

3

General Insurance

01.07.1994

 

Rate of service tax was 5% adv.  

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       The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services viz.,

4

Advertising agencies

01.11.1996

5

Courier agencies

01.11.1996

6

Radio pager services.

01.07.1994 

 {This service has been de-notified  and  grouped as  ‘Telecommunication Services  w.e.f. 01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of  Finance

 Act,2007 (22 of 2007)}

Rate of service tax was 5%.

--------------------------------------------------------------------------------------------------------     

 

The Finance Act of 1997  further extended the scope of service tax to cover a larger number of services rendered by the following service providers, from the dates indicated against each of them.

 

(7)

Consulting engineers

(7th July, 1997)

(8)

Custom house agents

(15th June, 1997)

(9)

Steamer agents

(15th June, 1997)

(10)

Clearing & forwarding agents

(16th July, 1997)

(11)

Air travel agents

(1st July, 1997)

(12)

Tour operators

01.09.1997 (exempted upto 31.3.2000 Notification No.52/98, 8th July, 1998, reintroduced w.e.f. 1.4.2000)

(13)

Rent-a-Cab Operators

16.07.1997 (exempted from 1.3.1999 upto 31.3.2000 Vide Notification No.3/99 Dt.28.2.99, reintroduced w.e.f. 1.4.2000)

(14)

Manpower recruitment Agency

(7th  July, 1997)

(15)

Mandap Keepers

(1st July, 1997)

           

The services provided by goods transport operators, out door caterers and pandal shamiana contractors were brought under the tax net in the budget 1997-98, but abolished vide Notification No.49/98, 2nd June,1998.

           

The Service Tax was leviable  @ 5% on the 'gross amount' charged by the service provider from the client, from the dates as notified and indicated above.

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 Following new services were brought under the Service Tax net in the 1998-99 union Budget. These services were notified on 7th October, 1998 and were subjected to levy of Service Tax w.e.f. 16th October, 1998.

 

16

Architects

16.10.1998

17

Interior Decorators

16.10.1998

18

Management or Business Consultants

16.10.1998

19

Practicing Chartered Accountants

16.10.1998

20

Practicing Company Secretaries

16.10.1998

21

Practicing Cost Accountants

16.10.1998

22

Real Estates Agents/Consultants

16.10.1998

23

Credit Rating Agencies

16.10.1998

24

Security Agencies

16.10.1998

25

Market Research Agencies

16.10.1998

26

Underwriters Services

16.10.1998

            In case of mechanized slaughter houses, since exempted, vide Notification No.58/98 dtd. 07.10.1998, the rate of Service Tax was used to be a specific rate based on per animals slaughtered.

           

              The rate of service tax was 5% on gross amount charged by the service provider.

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In the Finance Act’2001, the levy of service tax was extended to the following   services with effect from  16.07.2001:

27

Scientific and technical consultancy services

16.07.2001

28

Photography

16.07.2001

29

Convention

16.07.2001

30

Telegraph

16.07.2001

{This service has been de-notified and grouped as  ‘Telecommunication

Services  w.e.f. 01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and  Sec. 135 of Finance  Act,2007 (22 of 2007)}

31

Telex   

16.07.2001

 {This service has been de-notified & grouped as ‘Telecommunication

 Services  w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135  of Finance Act,2007 (22 of 2007)}

32

Facsimile (fax)

16.07.2001

{This service has been de-notified and grouped as ‘Telecommunication Services’ w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)}

33

Online information and database access or retrieval

16.07.2001

34

Video Tape Production services

16.07.2001

35

Sound recording

16.07.2001

36

Broadcasting

16.07.2001

37

Insurance auxiliary services in relation to General Insurance

16.07.2001

38

Banking and other financial services

16.07.2001

39

Port Services (by Major Ports).

16.07.2001

40

Authorized Service Stations

16.07.2001

41

Leased circuits Services 

16.07.2001{This service has been de-notified and grouped as ‘Telecommunication Services’ w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of  Finance Act,2007 (22 of 2007)}

 

   

 The rate of service tax was 5% on gross amount charged by the service provider.

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  In the Budget 2002-2003, the following  services were added to the tax net with effect from 16.08.2002:

 

42

Life Insurance  services

16.08.2002

43

Insurance auxiliary services in relation to Life Insurance

16.08.2002

44

Cargo handling

16.08.2002

45

Storage and warehousing services

16.08.2002

46

Event Management

16.08.2002

47

Cable operators

16.08.2002

48

Beauty parlors

16.08.2002

49

Health and Fitness centers

16.08.2002

50

Fashion designer

16.08.2002

51

Rail travel agents.

16.08.2002

52

Dry cleaning services.

16.08.2002

 

     Rate of service tax was 5% ( till 13.05.2003) on the gross amount charged by the service provider.

-------------------------------------------------------------------------------------------------------        

   

   In the Budget 2003-04, the  following new services along with extension to  the existing services were added to the tax net with effect from 01.07.2003:

53

Commercial Training & Coaching centers

01.07.2003

54

Technical testing and analysis

01.07.2003

55

Technical inspection and certification service.

01.07.2003

56

Management, Maintenance or Repair services

01.07.2003

57

Erection, Commissioning and Installation Services

01.07.2003

58

Business Auxiliary Services

01.07.2003

59

Internet café

01.07.2003

60

Franchise Services

01.07.2003

61

Foreign Exchange Broker

01.07.2003

62

Port Services (Other or Minor Ports)

01.07.2003
{extension to port services}

          

The rate of Service Tax was 5% till 13.05.2003 and from 14.05.2003 the rate was increased to 8%  of the gross amount charged by the service provider on all the taxable services till 09.09.2004.

 

 

        In the Budget 2004-05, 10 more services have been introduced in the service tax net along with reintroduction of three existing services w.e.f 10.09.2004 as follows:

 

63

Out door Caterer’s service (re-introduced)

10.09.2004

64

Pandal or Shamiana service (re-introduced)

10.09.2004

65

Airport Services

10.09.2004

66

Transport of Goods by Air Services

10.09.2004

67

Business Exhibition Services

10.09.2004

68

Construction Services in relation to commercial or Industrial Building

10.09.2004

69

Intellectual Property Services

10.09.2004

70

Opinion Poll Services

10.09.2004

71

TV or Radio Programme Production Services

10.09.2004

72

Survey and Exploration of Minerals Services

10.09.2004

73

Travel Agent’s Services other than Rail and Air travel agents

10.09.2004

74

Forward Contract Services

 

10.09.2004

 

 

        The rate of service tax on these services as well as all other  services  was enhanced from 8% to 10% with effect from 10thSeptember, 2004. Besides this, 2% Education Cess on the amount of service tax was introduced. Thus the effective service tax rate was 10.2% including Education Cess w.e.f 10.09.2004.

---------------------------------------------------------------------------------------------------

             Vide Notfn. No.33/2004 ST. 34/2004-ST and 34/2004-ST, all dated 3.12.2004, the following service was brought under service net with effect from 01.01.2005.

75

Transport of goods by road (earlier Goods Transport Operators service re- introduced).

01.01.2005

 

 

 The rate of service tax was 10% plus 2% Education Cess.

------------------------------------------------------------------------------------------------------------    

      In the Budget 2005-06, 9 more services were brought under the service tax net with effect from 16.06.2005, as detailed below-

76

Transport of goods through pipe line or other conduit Services

16.06.2005

77

Site Formation & Clearance etc. Services

16.06.2005

78

Dredging Services

16.06.2005

79

Survey & Mapmaking Services

16.06.2005

80

Cleaning Services

16.06.2005

81

Membership of Clubs & Associations

16.06.2005

82

Packaging Services

16.06.2005

83

Mailing list compilation & Mailing Services

16.06.2005

84

Construction Services in relation to Residential Complexes

16.06.2005

            The rate of service tax was 10% plus 2% Education Cess till 17.04.2006 and from 18.04.2006 rate was enhanced to 12% Plus 2 % Education Cess.

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In the Budget 2006-07, 15 more services were brought under  the service tax net with effect from 01.05.2006 vide Notfn.No.15/2006-ST dated 25.04.2006 and Finance Act, 2006 ( 21 of 2006) as detailed below:

85

Sale of space or time for advertisement

01.05.2006

86

Auctioneers’ Services

01.05.2006

87

ATM Operation, maintenance or management Services

01.05.2006

88

Business Support Services

01.05.2006

89

Credit Card, Debit Card, Charge Card or other payment Card Services

01.05.2006

90

Internet Telecommunication  Services

01.05.2006

91

Public Relations Services

01.05.2006

92

Services provided by Recovery Agent

01.05.2006

93

Services provided by Registrar to an Issue

01.05.2006

94

Services provided by Share Transfer Agent

01.05.2006

95

Ship Management Services

01.05.2006

96

Sponsorship Services

01.05.2006

97

Transport by Cruise ship services

01.05.2006

98

Transport of goods in container by rail services (‘Other than Govt. Railway’ ) The words ‘other than Govt. Railways’ have been deleted w.e.f.01.09.2009)

01.05.2006

99

Transport of passengers by air on international journey services

01.05.2006

      

            Rate of service tax  from 18-04-2006 to 10.05.2007 was 12% plus 2% Education Cess on service tax. With effect from 11.05.2007 the rate of service tax became 12% plus 2% Education Cess on service tax plus 1% Secondary & Higher Education Cess  on service tax ( Aggregating to 12.36%) 

------------------------------------------------------------------------------------------------------------

           In the Budget 2007-08, 7  more services were brought under the service tax net with effect from 01.06.2007, and 6 existing services were grouped with Telecommunication Services  vide Notfn.No.23/2007-ST dated 22.05.2007 and Finance Act, 2007 ( 22 of 2007), as per the details given below:

100

Asset Management Services

01.06.2007

101

Development & Supply  of Content Services

01.06.2007

102

Designing Services

01.06.2007

103

Mining of Mineral, Oil or Gas

01.06.2007

104

Renting of immovable property services

01.06.2007

105

Works Contract Services

01.06.2007

106

Telecommunication Services

 

01.06.2007

(This is not a new service but the existing services viz.Telephone services, pager, facsimile, telegraph, leased circuit, telex were grouped under it)

           Rate of service tax was 12% plus 2% Education Cess plus 1% Secondary Higher Education cess ( Aggregating to 12.36%) 

-----------------------------------------------------------------------------------------------------------

                 In the Budget 2007-08, the scope of  service tax was extended to cover 6 more services  with effect from 16.05.2008 vide Notfn.No.18/2008-ST dated 10.05.2008 and Finance Act, 2008 ( 18 of 2008), as per the details given below:

107

Services of Clearing & Processing House

16.05.2008

108

Registered or Recognised Associations’ services in relation to sale or purchase of goods and forward contract

16.05.2008

109

Information Technology Services

16.05.2008

110

Investment Management Services under ULIP

16.05.2008

111

Services of Recognised  Stock Exchange

16.05.2008

112

Supply of tangible goods services

 

16.05.2008

         

Rate of service tax w.e.f.11.05.2007 was12% + 2% (of  service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess.

       

 From 24.02.2009, Rate of service tax became 10% + 2% (of service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess (aggregating to 10.30%).

 

       In budget 2009, following three new services have been brought under service tax net vide Finance (No.02) Act, 2009 (33 of 2009) and taxed w.e.f.01.09.2009 vide Notification No. 26/2009 ST dated 19.08.2009.

 

113

Cosmetic or Plastic Surgery Services

01.09.2009

114

Transport of Coastal goods, Goods through National Waterways or Goods through Inland Waterways

01.09.2009

115

Legal Consultancy Services

01.09.2009

    

 From 24.02.2009, Rate of service tax became 10% + 2% (of service tax) education Cess + 1% (of service tax) Secondary Higher Education Cess (aggregating to 10.30%)

---------------------------------------------------------------------------------------------------------------------

In the Budget 2010 vide Finance (14/2010) Act,  2010, the scope of service tax was extended to cover 8 more services w.e.f.01.07.2010 vide Notification No.24/2010 ST dated 22.06.2010 as per details given below.

 

116

Promotion, marketing or organizing  of games of chance  including lottery, bingo etc. services

01.07.2010

117

Health services undertaken by Hospitals or Medical  establishments

01.07.2010

118

Maintenance of Medical Records services

01.07.2010

119

Promotion of Brand of Goods/Services etc.

01.07.2010

120

Services of Permitting Commercial Use or Exploitation of any event

01.07.2010

121

Electricity Exchange Services

01.07.2010

122

Copyright Services

01.07.2010

123

Services provided by Builder in relation to preferential location, internal/external development etc.

01.07.2010

124

Services of Air-conditioned restaurants having license to service alcoholic beverages in relation to service of food or beverages.

1.5.2011

125

Services of providing of accommodation in hotels / inns/ cubs/ guest houses/ campsite for a continuous period of less than three months

1.5.2011

    

 From 24.02.2009, Rate of service tax became 10% + 2% (of  service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess (aggregating to 10.30%)

 

Note- As on 1.05.2011, 119 Services are under service tax net. Six services among listed above at Sr. No. 1,6,30,31,32 and 41 have been merged with “Telecommunication Service” with effect from 01.06.2007) 

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 Administrative mechanism.  

 

            Service Tax is administered by the Central Excise & Service tax Commissionerates and the Service Tax Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India. LTUs are also collecting Service Tax in respect of the Large Tax Paying units registered with them.  The unique feature of Service Tax is reliance on collection of tax, primarily through voluntary compliance.

 

            Government has from the very beginning adopted a flexible approach concerning Service Tax administration so that the assessees and the general public gain faith and trust in the tax measure so that voluntary tax compliance, one of the avowed objectives of the Citizens Charter, is achieved. Substantive and procedural liberalization measures, adopted over the years for this purpose, are clear manifestations of the above approach. Following are some of the measures adopted in that direction:

 

(i)     Under Section 67 of the Finance Act, 1994, Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. Rule      6(1) of the Service Tax Rules, 1994 has provided that Service Tax shall be paid to the credit of the Government account in respect of the services deemed to be provided as per the rules framed in this regard. Point of Taxation Rules, 2011 has provided the point in time when a service shall be deemed to have been provided; Rule 3 of the said rule provides that for the purposes of these rules, unless otherwise provided, ‘point of taxation’ shall be,-

 

(a)   the time when the invoice for the service provided or to be provided is issued: Provided that where the invoice is not issued within 14 days of the provision of the service, the point of taxation shall be date of such completion.

(b)   In a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment to the extent of such payment.

Explanation – For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance.

Rule 4.  Determination of point of taxation in case of change in effective rate of tax. – Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of tax in respect of a service, shall be determined in the following manner, namely:-

 

(a)   In case a taxable service has been provided before the change in effective rate of tax,-

 

(i)     Where the invoice for the same has been issued and the payment received after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii)    Where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or

(iii)   Where the payment is also received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment;

 

(b)   In case a taxable service has been provided after the change in effective rate of tax,-

 

(i)     Where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or

(ii)    Where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or

(iii)   Where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice.

 

Explanation – for the purposes of this rule, “change in effective rate of tax” shall include a change in the portion of value on which tax is payable in terms of a notification issued under the provisions of Finance Act, 1994 or rules made thereunder.

(for details Point of Taxation Rules, 2011 may be referred)

 

(ii)          Corporate assessees are given the liberty to pay  tax on the value of taxable service,  provided by them in a month, by the 6th of the following month if tax is deposited electronically and 5th of the following month if tax is deposited in any other manner.  Further, in case the assessee is individual or proprietary firm or partnership firm, tax payment is required to be made  only once in a quarter i.e by 6th of the following quarter if tax is deposited electronically and 5th of the following quarter if tax is deposited in any other manner.        

 

(iii)         The process of registration of assessees has been considerably simplified.

 

(iv)        No separate accounts have been prescribed for the purposes of Service Tax. It has been provided that accounts being maintained by the assessees under any other law in force would be sufficient. This has placed the Department at considerable inconvenience to itself, so as to minimize difficulties for the assessees.

 

(v)         The Finance Act, 2001 has introduced self assessment for service tax returns; thereby sparing the assessees from the rigours of routine scrutiny and assessment.

 

(vi)        Frequency of filing the returns in the form of ST 3 or ST3A as the case may be is minimized. Filing of Statutory return has been made half yearly and by the 25th of the month following the half-year ending on 31st arch and 30th September. This is in replacement of the monthly/quarterly returns prescribed earlier.

 

(vii)       Penal provisions do exist in respect of Service Tax also. Failure to obtain registrations, failure to pay the tax, failure to furnish the prescribed returns, suppression of the correct value of the taxable services and failure to comply with notice do attract penal provisions as prescribed. But, it is specifically provided that no penalty is imposable on the assessee for any of the above failures, if the assessee proves that there was reasonable cause for the failure. This provision has been inserted to take care of the genuine difficulties of the new assessees.

 

(viii)      Service Tax Credit Rules, 2002, have been replaced by the CENVAT Credit Rules, 2004, introduced by the Finance Act, 2004, where under CENVAT credit has been extended across the sectors i.e. goods and services.

 
 
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