Press Release Service tax changes announced in the budget become effective from 18th April PIB Press Release, dated 19-4-2006

The Finance Act, 2006 (No.21 of 2006) has received the assent of the President of India on the 18^th April, 2006.  The effect of the various provisions of the Finance Act relating to levy of service tax are explained hereinafter.

Service tax leviable on taxable services under section 66 of the Finance Act, 1994 has been increased from 10% to 12% with effect from the date of the assent of the President.  In addition to 12%, Education Cess at the rate of 2% of 12% i.e. 0.24% is also leviable.  The total tax leviable on taxable services thus works out to 12.24% of the value of taxable services.

The following sections of the Finance Act, 2006 come into force with effect from the date of the assent of the President:

Section 66A charge of service tax on services received from outside India.

        Section 67 valuation of taxable services for charging service tax.

        Section 73(1A) payment of service tax after issue of show cause notice.

        Section 73A service tax collected from any person to be deposited with Central Government.

        Section 73B interest on amount collected in excess.

        Section 73C provisional attachment to protect revenue in certain cases.

        Section 73D publication of information in respect of persons in certain cases.

        Section 76 penalty for failure to pay service tax.

        Section 87 recovery of any amount due to Central Government.

        Section 93A power to grant rebate.

        Section 94(2) power to make rules.

        Section 96(C)(2)(f) application for Advance Ruling.

Section 66A provides charging of service tax on taxable services received from outside India, from the recipient of services in India, under reverse charge method.   Services received in India are taxable under Sections 66A, 93 and 94 read with Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.  Services received by individuals other than for the purpose of use in business or commerce, are not chargeable to service tax.

Rule 3 of Export of Services Rules, 2005 has been amended to incorporate the changes in the Finance Act, 2006.

Section 67 provides for valuation of taxable services for charging service tax.   Service Tax (Determination of Value) Rules, 2006 is being notified under Section 67.

Section 67 and the Rules notified thereunder provide for valuation of services for charging service tax under different situations wherein the consideration received for provision of service is partly or wholly not consisting of money. The service tax in such cases shall be charged on the basis of the gross amount charged by the service provider for providing similar service to any other person.  If the value of similar services is not available, then the service provider on his own shall determine the total money value of the consideration and pay the service tax accordingly.  The value of the service so determined by the service provider should not be less than the cost of provision of such service.

The following notifications are being issued:

         Notification No.8/2006-ST Section 73B provides for collection of interest on amount collected in excess. For this purpose, the rate of interest chargeable is notified at 13% per annum.

         Notification No.9/2006-ST amends Notification No.36/2004-ST dated 31.12.2004.  This amendment notifies the taxable services provided or to be provided from a country other than India and received in India under section 66A. The service tax thereon shall be paid by the recipient of such services.

         Notification No.10/2006-ST amends Service Tax Rules, 1994.

         Notification No.8/2006-CE(NT) deletes explanation to clause (p) of rule 2 of CENVAT Credit Rules, 2004.  Rule 5 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 specifically state that the services received from outside India are not treated as output services for the purpose of input credit availment by the recipient of services.   In view of this rule, the said explanation is being omitted.

         Notification No.14/2006-ST being issued to rescind the following notifications:

- Notification No.22/2005-ST dated 7.6.2005

- Notification No.25/2005-ST dated 7.6.2005

In view of Section 66A, these notifications have become redundant and hence rescinded.  

BY/VV-104/06

Letter - Sub: Enactment of Finance Bill, 2006 Reg Letter F.NO.B1/4/2006-TRU, dated 19-4-2006 issued by Ministry Of Finance, Department Of Revenue, Tax Research Unit

With the assent of the President of India on 18.4.2006, Finance Bill, 2006 has now become an Act.   Consequently, changes announced in the Budget regarding in the rate of Service Tax and amendments in Service Tax Rules and CENVAT Credit Rules have become effective from 18.4.2006.    A Press Release giving details of all these changes is placed below.   It is requested that this may kindly be given wide publicity through print and electronic media.  Soft copy of the Press Release is also enclosed for facility of circulation.

 (R.Sriram)
Deputy Secretary (TRU)

Notification Rate of interest fixed u/s 73B Notification No. 8/2006-Service Tax, dated April 19, 2006

In exercise of the powers conferred by section 73B of the Finance Act, 1994 (32 of 1994), the Central Government hereby fixes the rate of interest at thirteen per cent. per annum for the purpose of said section.

[F.No. B1/4/2006-TRU]

(R. Sriram)
Deputy Secretary to the Government of India

Notification Amendment in Notification No. 36/2004-ST, dated 31-12-2004 Notification of taxable services u/s 68(2) Notification No. 9/2006-Service Tax, dated April 19, 2006

In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 36/2004-Service Tax, dated the 31st December, 2004, G.S.R. 849 (E), dated the 31st December, 2004, namely:-

In the said notification, for paragraph (B), the following paragraph shall be substituted, namely:-

(B) any taxable service provided or to be provided from a country other than India and received in India, under section 66A of the Finance Act, 1994..

[F. No. B1/4/2006-TRU]

(R. Sriram)
Deputy Secretary to the Government of India

Notification - Service Tax (Second Amendment) Rules, 2006 Amendment in rules 2, 6 Notification No. 10/2006-Service Tax, dated April 19, 2006

In exercise of the powers conferred by sub-sections (1) and (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Service Tax Rules, 1994, namely :-

1. (1) These rules may be called the Service Tax (Second Amendment) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Service Tax Rules, 1994, (hereinafter referred to as the said rules), in rule 2, in sub-rule (1), in clause (d), for sub-clause (iv), the following sub-clause shall be substituted, namely:-

(iv) in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service;.

3. In the said rules, in rule 6, sub-rules (8) and (9) shall be omitted.

[F. No. B1/4/2006-TRU]

(R. Sriram)
Deputy Secretary to the Government of India.

Notification - Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Notification No. 11/2006-Service Tax, dated 19-4-2006, effective from 19-4-2006

In exercise of the powers conferred by sections 93 and 94, read with section 66A of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. (1) These rules may be called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions. In these rules, unless the context otherwise requires

(a) Act means the Finance Act, 1994 (32 of 1994);

(b) input shall have the meaning assigned to it in clause (k) of rule 2 of the CENVAT Credit Rules, 2004;

(c) input service shall have the meaning assigned to it in clause (l) of rule 2 of the CENVAT Credit Rules, 2004;

(d) output service shall have the meaning assigned to it in clause (p) of rule 2 of the CENVAT Credit Rules, 2004;

(e) India includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O.429 (E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September 1996;

(f) words and expressions used in these rules and not defined, but defined in the Act shall have the meanings respectively assigned to them in the Act.

3. Taxable services provided from outside India and received in India. Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services

(i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India;

(ii) specified in sub-clauses (a), (f), (h),(i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf), and (zzzp) of clause (105) of section 65 of the Act, be such services as are performed in India:

Provided that where such taxable service is partly performed in India, it shall be treated as performed in India and the value of such taxable service shall be determined under section 67 of the Act and the rules made thereunder;

(iii) specified in clause (105) of section 65 of the Act, but excluding

(a) sub-clauses (zzzo) and (zzzv);

(b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), and (zzzr) does not relate to immovable property; and

(c) those specified in clause (ii) of this rule, be such services as are received by a recipient located in India for use in relation to business or commerce.

4. Registration and payment of service tax. The recipient of taxable services provided from outside India and received in India shall make an application for registration and for this purpose, the provisions of section 69 of the Act and the rules made thereunder shall apply.

5. Taxable services not to be treated as output services. The taxable services provided from outside India and received in India shall not be treated as output services for the purpose of availing credit of duty of excise paid on any input or service tax paid on any input services under CENVAT Credit Rules, 2004.

[F. No. B1/4/2006-TRU]

(R.Sriram)
Deputy Secretary to the Government of India

Notification - Service Tax (Determination of Value) Rules, 2006 Notification No.12/2006-Service Tax, dated 19-4-2006, effective from 19-4-2006

In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely:-

1. Short title and commencement. (1) These rules may be called the Service Tax (Determination of Value) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. Definitions.In these rules, unless the context otherwise requires,

• Act means the Finance Act, 1994 (32 of 1994);

• section means the section of the Act;

• value shall have the meaning assigned to it in section 67;

• words and expressions used in these rules and not defined but defined in the Act shall have the meaning respectively assigned to them in the Act.

3. Manner of determination of value. Subject to the provisions of section 67, the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined by the service provider in the following manner:

(a) the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service.

4. Rejection of value. (1) Nothing contained in rule 3 shall be construed as restricting or calling into question the power of the Central Excise Officer to satisfy himself as to the accuracy of any information furnished or document presented for valuation.

(2) Where the Central Excise Officer is satisfied that the value so determined by the service provider is not in accordance with the provisions of the Act or these rules, he shall issue a notice to such service provider to show cause why the value of such taxable service for the purpose of charging service tax should not be fixed at the amount specified in the notice.

(3) The Central Excise Officer shall, after providing reasonable opportunity of being heard, determine the value of such taxable service for the purpose of charging service tax in accordance with the provisions of the Act and these rules.

5. Inclusion in or exclusion from value of certain expenditure or costs. (1)Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

• the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

• the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

• the recipient of service is liable to make payment to the third party;

• the recipient of service authorises the service provider to make payment on his behalf;

• the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

• the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

• the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

• the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation1.For the purposes of sub- rule (2), pure agent means a person who

• enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

• neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

• does not use such goods or services so procured; and

• receives only the actual amount incurred to procure such goods or services.

Explanation2. For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

Illustration 1. X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent

Illustration 2. In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.

Illustration 3. A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.

Illustration 4. Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X.

6. Cases in which the commission, costs, etc., will be included or excluded. (1) Subject to the provisions of section 67, the value of the taxable services shall include

• the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

• the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

• the amount of premium charged by the insurer from the policy holder;

• the commission received by the air travel agent from the airline;

• the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

• the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;

• the commission or any amount received by the rail travel agent from the Railways or the customer;

• the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

• the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.

(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include

• initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;

• the airfare collected by air travel agent in respect of service provided by him;

• the rail fare collected by air travel agent in respect of service provided by him;and

• interest on loans.

7. Actual consideration to be the value of taxable service provided from outside India. (1) The value of taxable service received under the provisions of section 66A, shall be such amount as is equal to the actual consideration charged for the services provided or to be provided.

(2) Notwithstanding anything contained in sub-rule (1), the value of taxable services specified in clause (ii) of rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, as are partly performed in India, shall be the total consideration paid by the recipient for such services including the value of service partly performed outside India.

F. No. B1/4/2006-TRU

(R.Sriram)
Deputy Secretary to the Government of India

Notification - Export of Services (Amendment) Rules, 2006 Amendment in preamble, substitution of rule 3 Notification No. 13/2006-Service Tax, dated 19-4-2006, effective from 19-4-2006

In exercise of the powers conferred by sections 93 and 94 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Export of Services Rules, 2005, namely:-

1. (1) These rules may be called the Export of Services (Amendment) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Export of Services Rules, 2005 (hereinafter referred to as the said rules), in the preamble, for the words, brackets and figures sub-section (1) and sub-section (2) of section 94, the words and figures sections 93 and 94 shall be substituted:

3. In the said rules, for rule 3, the following rule shall be substituted, namely:

3. Export of taxable service. (1) Export of taxable services shall, in relation to taxable services.

(i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India;

(ii) specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv),(zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf) and (zzzp) of clause (105) of section 65 of the Act, be provision of such services as are performed outside India:

Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India;

(iii) specified in clause (105) of section 65 of the Act, but excluding.

(a) sub-clauses (zzzo) and (zzzv);

(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and

(c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service:

Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.

(2) The provision of any taxable service shall be treated as export of service when the following conditions are satisfied, namely:

(a) such service is delivered outside India and used outside India; and

(b) payment for such service provided outside India is received by the service provider in convertible foreign exchange.

Explanation. For the purposes of this rule India includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September 1996..

F.No. B1/ 4/2006-TRU

(R.Sriram)
Deputy Secretary to the Government of India

Notification Rescindment of certain notifications Notification No. 14/2006-Service Tax, dated April 19, 2006

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby rescinds the notifications of the Government of India in the Ministry of Finance (Department of Revenue) specified in column (2) of the Table below, except as respects things done or omitted to be done before such rescission, namely:-

F.No. B1/4/2006-TRU

(R. Sriram)
Deputy Secretary to the Government of India