4 SERVICE TAX

Need of Service Tax

With the increasing role of service sector and its contribution to GDP, the Government felt
that this sector should not go untaxed. This offers tremendous revenue potential to the
Government.

Different approaches to Service Tax

There are two approaches to taxation of services:
(i) Comprehensive Approach In comprehensive approach, all services are taxable and
a negative list is specified for services, which are not taxable.
(ii) Selective Approach In the selective approach only selective services are subjected
to service tax.
Coverage of Service Tax

Selective Approach Comprehensive Approach

Selective services are All Services are made

subjected to Service Tax taxable and some are
not taxable

Positive List Negative List

In India Comprehensive Approach to Service Tax is followed.

The following are main features highlighting the structure of Service Tax in India:
1. Indirect tax : It is a source of revenue for the Government in the form of Indirect Taxes.
 SERVICE TAX 81

2. No separate Act: There is no separate Act for taxing the services. It is governed by
Chapter V of Finance Act 1994.
3. Administered by CBEC : It is administered by Central Board of Excise & Customs.
4. Uniform rate : There is a uniform rate of tax on all services. Currently, it is 14% w.e.f 1-
6-2015. Prior to this it was 12.36%.
5. Swachh Bharat Cess: Central Government has been empowered to impose a Swachh
Bharat Cess on all or any of the taxable services at a rate of 2% on the value of taxable
services. This cess is levied @ 0.5% w.e.f. 15-11-2015.
6. Krishi Kalyan Cess: KKC shall be levied @ 0.5% on value of all taxable Services w.e.f.
1.6.2016
7. Not applicable in Jammu and Kashmir : It is extended to the whole of India except
the services provided in state of Jammu & Kashmir. The location of the service provider
or the service recipient doesnt matter.
8. Small service provider excluded : A threshold limit of ` 10 lakh has been prescribed,
up to which all taxable services provided by a small service provider during a financial
year is fully exempt from tax.
9. Tax is generally payable by service provider : The Act makes the person providing
the service to pay Service Tax in such manner, and within a prescribed period, except in
situations provided in Rule 2(1)(d) of the Service Tax Rules.

Person liable to Service Tax [Sec. 65B(37)]

Service Tax is payable when service is provided by one person to other. Thus, two persons
are required. Example: One Branch cannot provide service to another branch except
Foreign and Indian branch of same company. If the Indian branch provides some service to
its head office/ other branch outside India (or vice-versa) it will be taxable service. Person
includes both natural and artificial persons, i.e. Individual, Hindu Undivided Family (HUF),
Firms, LLP, Companies, AOP or BOI whether incorporated or not, Government, Local
Authority and Artificial Judicial Person.

Extent, Commencement and Application [Sec. 64]

Levied after recommendation made by committee headed by Prof. Dr. Raja J. Chelliah in
1994-95. Service Tax was first imposed on services of telephones, non-life insurance and
stock brokers @ 5%. Entry No. 92C of Union List enables the union to levy service tax but
it has yet not been made effective and is imposed under Entry No. 97 (Residual Power) of
Union List. Service Tax, introduced by virtue of Chapter V of the Finance Act, 1994, extends
to the whole of India except to the State of Jammu and Kashmir. The Service Tax provisions
have been extended to designated areas in the continental shelf and exclusive economic
zone of India. The exclusive economic zone extends upto 200 nautical miles inside the sea
from the base line.
 82 INDIRECT TAXES

Charging Section [Sec. 66B]

Service tax would be charged at the rate of 14% on the value of all services other than those
services specified in the negative list provided or agreed to be provided in the taxable
territory by one person to another and collected in such manner as may be prescribed. In
addition to 15 services under negative list, about 73 services (including sub-parts) are
exempted under Mega Exemption Notification No. 25/2012. In case of some services
abatement is available under Notification No. 26/2012.

Place of Provision of Service

Sea India Land India

Beyond Upto 200 NM Other than

200 NM EEZ J&K J&K
High Seas

Taxable Territory

Service Tax is exempt if services are wholly consumed in SEZ for authorized operations.
Service provided to a unit in SEZ is considered as export. If the services are not
authorized operations, service tax shall be charged and refund has to be applied by SEZ
unit.

Place of Providing Place of Service Place of Service Place of Provision

Service Provider Recipient of Service
Outside Taxable Territory Taxable Territory Taxable Taxable Territory
Territory
Partly in Taxable territory - - Taxable Territory
Varanasi Allahabad Delhi Varanasi

Service [Sec. 65B(44)]

Service means any activity carried out by a person for another for consideration, and
includes a declared service, but shall not include
(a) An activity which constitutes merely, -
(i) A transfer of title in goods or immovable property, by way of sale, gift or in any
other manner; or
(ii) Such transfer, delivery or supply of any goods which is deemed to be a sale
within the meaning of clause (29A) of articles 366 of the Constitution; or
(iii) A transaction in money or actionable claim;
 SERVICE TAX 83

(b) A provision of service by an employee to the employer in the course of or in relation

to his employment;
(c) Fees taken in any Court or tribunal established under any law for the time being in
force.

Declared Services
Section 66E specify ten activities or transactions which are declared to be covered as
Service. Such activities include:
(a) Renting of immovable property
(b) Construction of a complex, building, civil structure or part there of.
(c) Temporary transfer or permitting the use or enjoyment of any intellectual property
right
(d) Development, design, programming, customization, adaptation, upgradation,
enhancement, implementation of information technology software
(e) Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation,
or to do an act
(f) Activities in relation to delivery of goods by way of hiring, leasing, licensing or in any
such manner without transfer of right to use such goods
(g) Activities in relation to delivery of goods on hire purchase or any system of payment
by instalments
(h) Service portion in the execution of a works contract
(i) Service portion in an activity wherein goods, being food or any other article of
human consumption or any drink (whether or not intoxicating) is supplied in any
manner as a part of the activity
(j) Assignment by the Government of the right to use the radio-frequency spectrum and
subsequent transfers thereof.

Negative List
Taxation in our country is based on Negative List of Services. This is a comprehensive
method of taxation normally adopted by advanced/ developed countries.

Negative List of Services

1. Services Provided by Government or Local Authority
Most of the services provided by the Central or State Government or Local
authorities are in the negative list except the following:
(a) Services provided by the Department of Posts by way of speed post, express parcel
post, life insurance and agency services carried out on payment of commission on
non government business.
(b) Services in relation to a vessel or an aircraft inside or outside the precincts of a port
or an airport.
 84 INDIRECT TAXES

(c) Transport of goods and/or passengers.

(d) Any services provided to business entities.
2. Services Provided by Reserve Bank of India
All service provided by the Reserve Bank of India are in the negative list. Services
provided to the Reserve Bank of India are not in the negative list and would be taxable
unless otherwise stated.
3. Services by a Foreign Diplomatic Mission Located in India
Any service that is provided by a diplomatic mission of any country located in India is
in the negative list. This entry does not cover services, if any, provided by any office or
establishment of an international organization.
4. Services Relating to Agriculture or Agriculture Produce
The services relating to agriculture that are specified in the negative list are:
Agricultural operations directly related to production of any agricultural produce
including cultivation, harvesting, threshing, plant protection or any testing.
Supply of farm labour.
Processes carried out at the agricultural farm including tending, pruning, cutting,
harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting,
grading, cooling or bulk packaging and such like operations which do not alter
essential characteristics of agricultural produce but makes it only marketable
for the primary market.
Renting of agro machinery or vacant land with or without a structure incidental to
its use.
Loading, unloading, packing, storage and warehousing of agricultural produce.
Services provided by any Agricultural Produce Marketing Committee or Board for
sale or purchase of agricultural produce.
Services provided by commission agent for sale or purchase of agricultural
produce.

Further, the activities like breeding of fish (pisciculture), rearing of silk worms
(sericulture), cultivation of ornamental flowers (floriculture) and horticulture along
with forestry also are included in the definition of agriculture. The plantation crops like
coffee, tea are also covered in agricultural produce.

Agriculture
Agriculture has been defined in the Act as cultivation of plants and rearing or breeding of
animals and other species of life forms for foods, fibre, fuel, raw materials or other similar
products but does not include rearing of horses.
 SERVICE TAX 85

Agricultural Produce
Agricultural produce means any produce of agriculture on which either no processing is
done or such processing is done as is usually done by a cultivator or producer which does
not alter its essential characteristics but makes it marketable for primary market. It also
includes specified processes in the definition like tending, pruning, grading, sorting etc.
which may be carried out at the farm or elsewhere as long as they do not alter the essential
characteristics. For example: Potato chips or tomato ketchup are manufactured through
processes which alter the essential characteristic of farm produce (potato and tomato in
this case) therefore, it does not qualify as agricultural produce.

Whether letting of shed for storage of agricultural produce is also covered?

Yes. In terms of the specified services relating to agriculture leasing of vacant land with or
without structure incidental to its use is covered in the negative list.

Whether agriculture operations carried out in rural area are only covered under
negative list?
No. There is no condition that agriculture activities should be performed in rural area only.

Whether activities of horticulture, animal husbandry or dairying etc. are covered by

the agriculture operations?
Yes. These activities are also in the nature of agriculture only. Animal husbandry and
dairying are specifically used in the definition of agriculture.
5. Trading of Goods
Transfer of title of goods is one of the essential conditions for a transaction to come
under the ambit of trading of goods. However, the services supporting or ancilliary to
the trading of goods would not come under the above item of Negative List.
What is covered?
Futures contracts would be covered as these are contracts which involve transfer of
title in goods on a future date at a pre-determined price.
In commodity futures, actual delivery of goods does not normally take place and the
purchaser under a futures contract normally offsets all obligations or closes out by
selling an equal quantity of goods of the same description under another contract for
delivery on the same date. These are, therefore, two contracts of sale/purchase
involved, which would fall in the category of trading of goods.

Whether service tax is applicable when there is a right to use the goods given by X to
Y in exchange for a consideration?
No, as it is a transfer of right to use goods. This is specifically liable to VAT. There is no
service involved in the same.
 86 INDIRECT TAXES

Whether the lump sum single contract for sale of goods followed by installation is
covered in negative list?
When it is a single contract, a view is possible that the installation charges collected could
be treated as a part of the composite contract, the dominant nature of which is to make a
sale of goods. However, the entry of service portion of works contract in declared
services would cover such transactions.

6. Processes Amounting to Manufacture or Production of Goods

The phrase processes amounting to manufacture or production of goods has been
defined as a process on which duties of excise are leviable under the Central Excise Act,
1944 or any process amounting to manufacture of alcoholic liquors for human
consumption, opium, Indian hemp and other narcotic drugs and narcotics on which
duties of excise are leviable under any State Act.
This entry, therefore, covers manufacturing activity carried out on contract or job work
basis provided duties of excise are leviable on such processes under the Central Excise
Act, 1944 or any of the State Acts. Service tax shall be levied on contract
manufacturing / job work for production of potable liquor for a considerable i.e.
intermediate production of alcoholic liquor for human consumption.
Whether processing of goods resulting in manufacture of goods that are exempted
or nil duty is covered?
The manufacture of excisable goods is covered in negative list irrespective of whether
leviable to a rate of duty or exempted from such duty by exemption notification. It would
also cover the excisable goods, which are at nil rate of duty.

Whether the process undertaken by a job worker not amounting to manufacture

but used by principal in manufacturing of goods subject to Nil rate of duty is
covered in negative list?
Service Tax would be levied on processes, not amounting to manufacture or production of
goods carried out by a person for another for consideration. But there is an exemption
under Notification No. 12/2012-ST dated 17-3-2012 for the intermediate production
process as job work, where appropriate duty is paid by manufacturer. Appropriate rate of
duty would not include Nil rate of duty or duty wholly exempt. It could be liable.

7. Selling of Space for Advertisements in Print Media

Print Media means Book and Newspaper only. It does not include business directory,
yellow pages and trade catalogues primarily meant for commercial purpose. Also, sale
of space or time slots for advertisements on internet website, cell phones, bill boards,
conveyances, ATM, aerial advertising, theatre screen etc. are taxable.
 SERVICE TAX 87

Whether sale of space to advertisement agency on lump sum basis would be

covered by the negative list entry?
Any sale of space for advertisement purpose is covered under the negative list entry.
There is no condition in the definition that the sale of space or time should be directly
made to the advertiser. Bulk selling of space or time to advertisement agency for a
specified period which in turn sells it to different advertisers on piecemeal basis would
also be covered by the negative list entry and exempted from service tax.

An advertiser approaches advertisement agency to undertake advertisement

activities for its company for the entire year for a contractual amount. Scope of
work includes advertisement consultancy, choosing of different advertising
medium, preparation of advertisement and display on mediums, purchase of space
for display of advertisement in Print Media. Could this be covered in negative list
entry?
Composite contract is given to advertisement agency for handling entire advertisement
activity for the year on lump sum basis. This would be a case of bundled services
taxability which has to be determined in terms of the principles laid down in Section 66F
of the Act. Here the dominant nature of the transaction needs to be determined in order to
check if it could be chargeable to Service Tax. Here the following two services are
bundled, namely, taxable service of advertising agency services in relation to design,
conceptualization and preparation of advertisement and non taxable service of sale of
space. The dominant nature would be the services which are being offered by advertising
agency related to creativity including designing, planning, preparation and display of the
advertisement would be only the incidental activity. Therefore the contract would be
liable to service tax.

What would be the taxability of space allowed in buses and public transport system
to run display of advertisement?
Liable to service tax.

Whether advertisement service rendered to Government departments is exempted

from service tax?
There is no exemption on the advertisement services provided to Government
departments. It is liable to service tax.

Whether the agency commission paid by print media to advertising agency is

taxable?
Sale of space in print media is not liable to service tax. However, commission or discount
received by the advertisement agency is not in the nature of sale of space or time. It is
 88 INDIRECT TAXES

liable to service tax.

8. Access to a Road or a Bridge on payment of Toll Charges

The negative list entry covers access to a road or a bridge on payment of toll charges.
The access to National highways or state highways, which are also roads, is hence,
covered in this entry.

Whether services provided in relation to collecting toll charges are liable to service
tax?
Where a toll collecting agency is engaged for collecting the above mentioned toll charges,
then the collecting agency would be liable to pay service tax on its charges.

9. Betting, Gambling or Lottery

Betting or gambling has been defined as putting on stake something of value,
particularly money, with consciousness of risk and hope of gain on the outcome of a
game or a contest, whose result may be determined by chance or accident or on
likelihood of anything occurring or not occurring. The State Government levy a betting
tax on such activities.

Whether payment for admission to horse race as a spectator is covered under this
entry?
The amount collected by the Club from the viewer is not covered since it does not pertain
to betting. However, the same gets excluded from the levy of service tax net because this
transaction is covered under the entry relating to admission to entertainment event or
access to amusement facility. Since, horse race is a sporting event, it gets excluded.

Mr. X bets an amount of ` 5,000 on a horse in a race event. The race club has only
paid betting tax to the State Government on ` 4,000 and ` 1,000 is charged for the
entry into the race. Whether entire amount is covered by this entry?
This entry reads as services by way of betting, gambling or lottery. Mr. X with the
consciousness of risk and hope has bet an amount of ` 5,000 and therefore the entire
amount is covered by this entry irrespective on what amount the betting tax is paid to the
State Government.

Mr. Y, member of the Horse Racing Club has sponsored certain amount for a
particular race in the club. Is the amount paid by Mr. Y covered under this entry?
No, the betting or gambling has been defined under the Finance Act. The amount paid by
the member is not with the consciousness of risk and hope of gain and the outcome of
game which is primary requisite to be covered under this entry. Since the amount
sponsored by Mr. Y does not have this attribute, it falls into the definition of service and
 SERVICE TAX 89

hence service tax is applicable.

Whether auxiliary services used to provide betting/ gambling services are liable to
service tax?
Auxiliary services that are used for organizing or promoting betting or gambling events,
which are not betting are not covered in the negative list. They could be liable to service
tax.

10. Entry to Entertainment Event or access to Amusement Facilities - Now Ommitted

11. Transmission or Distribution of Electricity by Authorised Authority

Electricity is specified goods in Central Excise Tariff Act, 1985. Generation of
electricity amounts to process of manufacture. Therefore, would not be liable to service
tax. Also, its distribution by authorised authority (including authorised private bodies)
is not liable for service tax.

Whether the charges collected by a developer for distribution of electricity within a

residential complex are covered in this entry?
Charges collected by a developer of a housing society for distribution of electricity within
a residential complex are not covered in the Negative List. They would be liable to service
tax.

12. Specified Services Relating to Education Now Ommitted. This has been moved to
Mega Exemption.

13. Services by way of Renting of Residential Dwelling for use as Residence

Renting has been defined as allowing permitting or granting access, entry,
occupation, usage or any such facility, wholly or partly, in an immovable property, with
or without the transfer of possession or control of the said immovable property and
includes letting, leasing, licensing or other similar arrangements in respect of
immovable property.

Illustrative List on taxability/non-taxability of Renting Transactions:

If Then
A residential house taken on rent is used The renting transaction is not covered in
only or predominantly for commercial or this negative list entry.
non-residential use.
A house is given on rent and the same is The renting transaction is not covered in
used as a hotel or a lodge. this negative list entry because the person
taking it on rent is using it for a
 90 INDIRECT TAXES

commercial purpose.
Rooms in a hotel or lodge are let out The renting transaction is not covered in
whether or not for temporary stay. this negative list entry because a hotel or a
lodge is not a residential dwelling.
Government department allots houses to its Such service would be covered in the
employees and charges a license fee. negative list entry.
Furnished flats given on rent for temporary These are in the nature of lodges or guest
stay. houses and hence not treatable as a
residential dwelling.

Would renting of a residential dwelling partly used as a residence and partly for
non residential purpose like an office be covered under this entry?
Renting of a residential dwelling which is for use partly as a residence and partly for non
residential purpose like an office would be a case of bundled services. Taxability of such
bundled services has to be determined in terms of the principles laid down in Section 66F
of the Act. The taxability would be based on the predominant service.

14. Financial Services

Services by way of
(i) Extending deposits, loans or advances in so far as the consideration is represented
by way of interest or discount;
(ii) Inter se sale or purchase of foreign currency amongst banks or authorized dealers
of foreign exchange or amongst banks and such dealers;

15. Service Relating to Transportation of Passengers

The following services relating to transportation of passengers, with or without
accompanied belongings, have been specified in the negative list. Services by:
Railways in a class other than (i) first class; or (ii) an AC coach;
Metro, monorail or tramway;
Inland waterways;
Public transport, other than predominantly for tourism purpose;
In a vessel between places located in India; and
Metered cabs or auto rickshaws.
Radio Taxis Service is excluded from Negative list and hence it is now taxable.

16. Service Relating to Transportation of Goods

The following services provided in relation to transportation of goods are
specified in the negative list:
By road except the services of (i) a goods transportation agency; or (ii) a courier
agency.
 SERVICE TAX 91

By inland waterways. (Services provided as agents for inland waterways are not
covered in the negative list.)
All services provided by goods transport agency are excluded from the negative list.
However, there are separate exemptions available to the services provided by the goods
transport agency.
The provision relating to reverse charge, i.e. service tax is liable to be paid by the
consignor or consignee in specified cases, are applicable.

17. Funeral, Burial, Crematorium or Mortuary Services including transportation of

the Deceased

Mega Exemptions [Notification No. 25/2012]

Exemption in respect of following services has been introduced:
1. Services provided to the United Nations or a specified International Organization
The Central Government has exempted all services provided by any person to the
United Nations or a specified International Organization such as WHO, UNESCO,
UNICEF, IMF etc.

2. Health care services by a clinical establishment, an authorized medical

practitioner or para-medics
Health care services means any service by way of diagnosis or treatment or care for
illness, injury, deformity, abnormality or pregnancy in any recognized system of
medicine in India and includes services by way of transportation of the patient to and
from a clinical establishment, provided by all service provider (whether or not by
clinical establishment) but does not include hair transplant or cosmetic or plastic
surgery, except when undertaken to restore or to reconstruct anatomy or functions of
body affected due to congenital defects, developmental abnormalities, injury or trauma.
Only services in respect of recognized system of medicine in India are exempt such as
Allopathy, Yoga, Naturopathy, Ayurveda, Homeopathy, Siddha, Unani and any other
system of medicine that may be recognized by Central Government.

No exemption to cosmetic or plastic surgery

There is no exemption from services tax to cosmetic or plastic surgery unless it was part
of other medical treatment.

Exemption to ambulance service

Service of transportation of patient to and from a clinical establishment by all service
provider is not subject to service tax.
 92 INDIRECT TAXES

2A. Services provided by cord blood banks by way of preservation of stem cells or any
other service in relation to such preservation.

2B. Services provided by operators of the common bio-medical waste treatment

facility to a clinical establishment by way of treatment or disposal of bio-medical waste or
the processes incidental thereto.

3. Services by a veterinary clinic in relation to health care of animals or birds

4. Services by an entity registered under Section 12AA of the Income tax Act, 1961
by way of charitable activities
Charitable Institution registered with Income tax authorities for this purpose under
Section 12AA the Income Tax Act, 1961 and carry out one or more of the specified
charitable activities. Following are the specified charitable activities:
(a) Public health by way of:
Care or counseling of (i) terminally ill persons or persons with severe physical
or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons
addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
Public awareness of preventive health, family planning or prevention of HIV
infection.
(b) Advancement of religion or spirituality.
(c) Advancement of Yoga
(d) Advancement of educational programmes of skill development relating to:
Abandoned, orphaned or homeless children;
Physically or mentally abused and traumatized persons;
Prisoners; or
Persons over the age of 65 years residing in a rural area.
(e) Preservation of environment including watershed, forests and wildlife.

5. Services by a person by way of

(a) Renting of precincts of a religious place meant for general public; or
(b) Conduct of any religious ceremony.
Renting of precincts of a religious place is exempt from Service Tax only if that religious
place is meant for general public. Occasions like birth, marriage and death involve
elaborate religious ceremonies.

5A. Service provided with respect to Kailash Mansarovar and Haj prilgrimage service
provided by a specified organisation Like Kumaon Mandal Vikas Nigam Ltd. and Haj
Committee of India in respect of a religious pilgrimage facilitated by the Ministry of
 SERVICE TAX 93

External Affairs of the Government of India under Bilateral arrangement have been
exempted from service tax.

6. Services provided by Advocates or Arbitral Tribunals

(a) An arbitral tribunal to:
(i) Any person other than a business entity; or
(ii) A business entity with a turnover up to ` 10 lakh in the preceding Financial
Year.
(b) A partnership firm of advocates or an individual as an advocate other than a senior
advocate, by way of legal services to
(i) An advocate or partnership firm of advocates providing legal services;
(ii) Any person other than a business entity; or
(iii) A business entity with a turnover up to ` 10 lac in the preceding financial
year; or
(c) A senior advocate by way of legal services to a person other than a person
ordinarily carrying out any activity relating to industry, commerce or any other
business or profession.

7. Technical Testing of Newly Developed drugs - Exemption withdrawn

8. Services by way of training or coaching in recreational activities relating to arts,

culture or sports
There is exemption from service tax to training or coaching in recreational activities
relating to arts, culture or sports. The benefit is available to coaching or training
relating to all forms of dance, music, painting, sculpture making and sports etc.
Recreational Training Institute
Music Class Dance Class

Whether liable for Service Tax? No. Covered by Mega Exemption N/No. 25/2012.
Sports Training Centre

Whether liable for Service Tax? No. Covered by Mega Exemption N/No. 25/2012.
 94 INDIRECT TAXES

9. Services provided by or to an educational institution in respect of following

services are exempted from service tax:
(a) Services provided by educational institution to its students, faculty and staff.
(b) Services provided to an educational institution by way of:
Transportation of students, faculty and staff;
Catering including any mid-day meal sponsored by the Government;
Security or cleaning or house-keeping services performed in such educational
institution; and
Services relating to admission or conduct of examination by such institution.
Services other than those specified above are taxable.

(i) Pre-school education and education up to higher secondary school or equivalent.

Pre- School

Whether liable for Service Tax? No

Reason Pre-School training & coaching centre have been exempted.

(ii) Education as a part of a prescribed curriculum for obtaining a qualification

recognized by any law for the time being in force.

University/ College/ ICAI/ ICSI

BHU ICAI

Whether liable for Service Tax? No

Reason Education which is part of prescribed curriculum for obtaining a qualification
which is legally recognised in India have been included in Mega Exemption.

(iii) Education as a part of an approved vocational education course.

 SERVICE TAX 95

Vocational Training
Mobile Repairing Computer Typing

Whether liable for Service Tax? No

Reason Services provided by Vocational Training Institute affiliated to National
Council of Vocational Training is included in Mega Exemption.

Approved vocational education courses specified in section 65B of the Act are:
A course run by an Industrial Training Institute or an Industrial Training Centre
affiliated to the National Council for Vocational Training or State Council for Vocational
Training offering courses in designated trades as notified under the Apprentices Act.
A Modular Employable Skill Course, approved by the National Council of Vocational
Training, run by a person registered with the Directorate General of Employment and
Training, Ministry of Labour and Employment, Government of India.

Whether services provided by international schools are also covered in Mega

Exemption?
Yes. Services provided by international schools are not liable as they are equivalent to the
12th standard.

Are services provided by way of education as a part of a prescribed curriculum for

obtaining a qualification recognized by a foreign law covered in the negative list
entry?
No. In order to be covered in the Mega Exemption, a course should be recognized by an
Indian law.

Whether services provided by Boarding schools are covered in this entry?

Boarding schools provide service of education coupled with other services like residence
and food. This may be a case of bundled services if the charges for education and lodging
and boarding are inseparable. Their taxability would be determined in terms of the
principles laid down in Section 66F of the Act. Such services in the case of boarding
schools are bundle in the ordinary course of business. Therefore, the bundle of services
would be treated as consisting entirely of education service covered under Mega
Exemption.
 96 INDIRECT TAXES

If a course in a college leads to dual qualification only one of which is recognized by

law, would the service provided by the college by way of such education be covered
in this entry?
Provision of dual qualifications is in the nature of two separate services as the curriculum
and fees for each of such qualifications are prescribed separately. Service in respect of
each qualification would, therefore, be assessed separately.

Are services of conducting admission tests for colleges exempt?

Yes, in case the education institutions are providing qualification recognized by law for
the time being in force.

Services provided by Institutes of Language Management (ILMs) are liable to service

tax
Institutes of Language Management (ILMs) are engaged by various schools/Institutions to
develop knowledge and language skills of students. The services provided by the ILMs are
not covered by section 66D(I) of the Finance Act, 1994 or Entry 9 of Notification No.
25/2012 ST as they are not providing pre-school education or education up to higher
secondary school (or equivalent) or education for obtaining a qualification recognized by
law. It is the schools/ colleges/ institutions (in which the students take admissions) which
provide such education. The ILMs provides services to such educational institutions, which
helps such educational institutions in providing services specified in the negative list. Thus,
it is clarified that services provided by ILMs are not eligible for exemption under section
66D(I) of the Finance Act, 1994 or under Sl. No. 9 of Notification No. 25/2012 ST.

9A.Any services provided by.-

(i) The National Skill Development Corporation set up by the Government of India;
(ii) A Sector Skill Council approved by the National Skill Development Corporation;
(iii) An assessment agency approved by the Sector Skill Development Corporation or
the National Skill Development corporation
(iv) A training partner approved by the National Skill Development Corporation or the
Sector Skill Council
In relation to (a) the National Skill Development Programme implemented by the
National Skill Development Corporation; or (b) a vocational skill development course
under the national Skill Certification and Monetary Reward Scheme; or (c) any other
Scheme implemented by the National Skill Development Corporation.
9B. Exemption to services provided by the Indian Institute of Management
Exemption has been provided for the services provided by the Indian Institutes of
Management, to their students, by way of the following educational programmes, except
Executive Development Programme. Programs which have been exempted are as under:
 SERVICE TAX 97

Two year full time residential Post Graduate Programmes in Management for the
Post Graduate Diploma in Management, to which admissions are made on the basis
of Common Admission Test (CAT), conducted by Indian Institute of Management;
Fellow programme in Management;
Five year integrated programme in Management.
It has also been clarified that since IIMs have been conducting Post Graduate
Programmes in Management and Fellowship Programmes which are equivalent to
MBA and Ph.D degrees, respectively, such education was exempt earlier also and
this exemption is clarificatory in nature.

9C. Exemption to certain Vocational Training Institutes

Exemption has been provided for the services of assessing bodies empanelled centrally
by Directorate General of Training, Ministry of Skill Development and Entrepreneurship
by way of assessments under Skill Development Initiative (SDI) Scheme. Testing of skills
of trainees by independent assessing bodies is envisaged in scheme, including industry
organizations such as FICCI, CII, etc. which do not involve in training delivery, to ensure
an impartial assessment by the employer itself.

9D. Services Provided by Training Provider

Exemption has also been provided for the service provided by training providers
(Project implementation agencies) under Deen Dayal Upadhyaya Grameen Kaushalya
Yojana (DDU-GKY) under the Ministry of Rural Development by way of offering skill or
vocational training courses certified by National Council For Vocational Training. DDU-
GKY follows a 3-tier implementation model. The DDU-GKY National Unit at MoRD
functions as the policy-making, technical support and facilitation agency. The DDU-GKY
State Missions provide implementation support; and the Project Implementing Agencies
(PIAs) implement the programme through skilling and placement projects.

10. Services provided to a recognized sports body by:

(a) An individual as a player, referee, umpire, coach or team manager for participation
in a sporting event organised by a recognized sports body.
(b) Another recognized Sports body.
Services by individuals such as selectors, commentators, curators, technical experts are
taxable.

11. Services by way of sponsorship of specified sporting events

(a) Organised by a national sports federation, or its affiliated federations, where the
participating teams or individuals represent any district, state or zone;
 98 INDIRECT TAXES
TAX

(b) Organised by Association of Indian Universities, Inter-University

Inter University Sports Board,
School Games Federation of India, All India India Sports Council for the Deaf,
Paralympics Committee of India or Special Olympics Bharat;
(c) By Central Civil Services Cultural and Sports Board;
(d) As part of national games, by Indian Olympic Association; or
(e) Under PanchayatYuvaKreedaAurAbhiyaan (PYKKA) Scheme. Sch

Whether Sponsorship of IPL covered in Mega

Exemption?

No

12. Services provided to the Government, a local authority or a governmental

authority by way of construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation or alteration of :
(a) A historical monument, archaeological site or remains of national importance,
import
archaeological excavation or antiquity specified under the Ancient Monuments and
Archaeological Sites and Remains Act, 1958.
1958
(b) Canal, dam or other irrigation works.
(c) Pipeline, conduit or plant for:
for
(i) Water supply
(ii) Water treatment; or
(iii) Sewerage treatment or disposal; or

12A. Service provided to the Government, a local authority or a governmental authority by

way of construction, erection, commissioning,
commissioning, installation, completion, fitting out, repair,
maintenance, renovation, or alteration of (a) a civil structure or any other original works
meant predominantly for use other than for commerce, industry, or any other business or
profession; (b) a structure meant predominantly for use as (i) an educational, (ii) a clinical,
or (iii) an art or cultural establishment; or (c) a residential complex predominantly means
for self-use
use or the use of their employees or other persons specified in the Explanation
Explana 1 to
clause (44) of section 65B B of the said Act; under a contract which had been entered into
st
prior to the 1 March, 2015 and on which appropriate stamp duty, where applicable, had
been paid prior be such date.

13. Services provided by way of construction,

construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation or alteration of: of
(a) A road, bridge, tunnel or terminal for transportation for use by general public;
(b) A civil structure or any other original works pertaining to a scheme under
Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;
 SERVICE TAX 99

(c) A building owned by an entity registered under Section 12AA of the Income tax
Act and meant predominantly for religious use by general public;
(d) A pollution control or effluent treatment plant, except located as a part of a
factory;
(e) A structure meant for funeral, burial or cremation of deceased.
(f) A civil structure or any other original works pertaining to the "in-site
rehabilitation of existing slum dwellers using land as a resource through private
participation" under the Housing for all (Urban) Mission/ Pradhan Mantri Awas
Yojana, only for existing slum dwellers.
(g) A civil structure or any other original works pertaining to the "Beneficiary-led
individual house construction/ enhancement under the housing for All (Urban)
Mission/ Pradhan Mantri Awas Yojana"

14. Services by way of construction, erection, commissioning or installation of

original works pertaining to:
(a) Railways;
(b) A single residential unit otherwise than as a part of a residential complex;
(c) Low- cost houses up to a carpet area of 60 square meters per house in a housing
project approved by competent authority empowered under the Scheme of
Affordable Housing in Partnership framed by the Ministry of Housing and Urban
Poverty Alleviation, Government of India; or Pradhan Mantri Awas Yojana or any
housing scheme of State Government;
(d) Post- harvest storage infrastructure for agricultural produce including a cold
storages for such purposes; or
(e) Mechanized food grain handling system, machinery or equipment for units
processing agricultural produce as food stuff excluding alcoholic beverages;

14A. Services by way of construction, erection, commissioning, or installation of original

works pertaining to an airport or port provided under a contract which had been entered
into prior to 1st March, 2015 and on which appropriate stamp duty, where applicable, had
been paid prior to such date: provided that Ministry of Civil Aviation or the Ministry of
Shipping in the Government of India, as the case may be, certifies that the contract had been
entered into before the 1st March, 2015.

15. Temporary transfer or permitting the use or enjoyment of a copyright relating to

original literary, dramatic, musical, artistic works or cinematograph films exhibited
in cinema halls.
I am a composer of a song having the copyright for my song. When I allow the
recording of the song on payment of some royalty by the music company for
further distribution, am I required to pay service tax on the royalty amount
 100 INDIRECT TAXES

received from a music company?

No, as the copyright relating to original work of composing song is exempt from
service tax.

Will a music company having the copyright for any sound recording be taxable
for its activity of distributing music?
Yes

Will an author having copyright of a book written by him be required to pay

service tax on royalty amount received from the publisher for publishing the
book?
No
16. Services by a performing artist in folk or classical art forms of:
(a) Music, or
(b) Dance, or
(c) Theatre, excluding services provided by such artist as a brand ambassador.
Brand Ambassador means a person engaged for promotion or marketing of a brand of
goods, service, property or actionable claim, event or endorsement of name.
Exemption will be limited only to such cases where amount charged is upto
` 1,50,000 for a performance.

17. Services by Journalist

Services by way of collecting or providing news by an independent journalist, Press
Trust of India or United News of India are exempt.

18. Services by a hotel, inn, guest house, club, campsite whether commercial or
otherwise, by whatever name called for residential or lodging purposes, having
declared tariff of a unit of accommodation below ` 1,000 per day or equivalent
Declared tariff includes charges for all amenities provided in the unit of
accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators or
any other amenities, but without excluding any discount offered on the published
charges for such unit. Thus if the declared tariff is ` 1,100, but actual room rent charged
is ` 800, tax will be required to paid on ` 800. When if the declared tariff is revised as
per the tourist season, the liability to pay tax shall be only on the declared tariff for the
accommodation where the published/printed tariff is above ` 1,000. However, the
revision in tariff should be made uniformly applicable to all customers and declared
when such change takes place.

19. Non-air conditioned or non-central heating restaurants

 SERVICE TAX 101

Services provided in relation to serving of food or beverages by a restaurant, eating

joint or a mess, other than those having the facility of air-conditioning or central air-
heating in any part of the establishment, at any time during the year.

Is a air-conditioned restaurant serving food but not alcoholic beverages is liable

for Service tax?Yes

Is a restaurant serving food and alcoholic beverages

outside the restaurant, say near swimming pool is
liable for Service tax?
Yes
19A. Services provided in relation to serving of food or beverages by a canteen maintained
in a factory covered under the Factories Act, 1948, having the facility of air-
conditioning or central air-heating at any time during the year.

20. Services by way of transportation by rail or a vessel from one place in India to
another of the specified goods
Specified goods are:
(a) Relief materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap.
(b) Defense or military equipments.
(c) Newspaper or magazines registered with the Registrar of Newspapers.
(d) Railway equipments or materials.
(e) Agricultural produce.
(f) Milk, Salt and food grains including flours, pulses and rice.
(g) Chemical fertilizer and oilcakes.
(h) Organic manure.
(i) Cotton, ginned or baled.

21. Services provided by a goods transport agency by way of transportation of:

(a) Agricultural Produce.
(b) Any goods where gross amount charged for the transportation of all the
consignment in a single goods carriage does not exceed ` 1,500; or gross amount
charged for transportation of an individual consignment in the goods carriage does
not exceed ` 750.
(c) Relief materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap.
(d) Defense or military equipments.
(e) Newspaper or magazines registered with the Registrar of Newspapers.
(f) Milk, Salt and food grains including flours, pulses and rice.
 102 INDIRECT TAXES

(g) Chemical fertilizer, organic manure and oilcakes.

(h) Cotton, ginned or baled.

22. Services by way of giving on hire :

(a) to a state transport undertaking, a motor vehicle meant to carry more than 12
passengers; or
(b) to a goods transport agency, as a means of transportation of goods.

23. Transport of passengers, with or without accompanied belongings, by :

(a) air, embarking or terminating in an airport located in the state of Arunachal
Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim or Tripura or at
Baghdogra located in West Bengal;
(b) a non AC contract carriage other than radio taxi for the transportation of
passengers, excluding tourism, conducted tour, charter or hire;
(c) a non AC stage carriage

24. Exemption Omitted.

25. Specified services provided to Government, a local authority or a governmental

authority
(a) Water supply, public health, sanitation conservancy, solid waste management or
slum improvement and up gradation; or
(b) Repair or maintenance of a vessel.

26. Specified general insurance services

Services of general insurance business provided under following schemes are exempt:
(a) Hut Insurance Scheme
(b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as
Integrated Rural Development Programme)
(c) Scheme for Insurance of Tribals
(d) Janata Personal Accident Policy and Gramin Accident Policy
(e) Group Personal Accident Policy for Self-Employed Women
(f) Agricultural Pumpset and Failed Well Insurance
(g) Premia collected on export credit insurance
(h) Weather Based Crop Insurance Scheme or the Modified National Agricultural
Insurance Scheme, approved by the Government of India and implemented by the
Ministry of Agriculture
(i) Jan Arogya Bima Policy
(j) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana)
(k) Pilot Scheme on Seed Crop Insurance
 SERVICE TAX 103

(l) Central Sector Scheme on Cattle Insurance

(m) Universal Health Insurance Scheme
(n) Rashtriya Swasthya Bima Yojana; or
(o) Coconut Palm Insurance Scheme.
(p) Pradhan Mantri Suraksha Bima Yojna
(q) Niramaya Health Insurance Scheme
26A. Services of Life insurance business provided under following Schemes:
(a) Janashree Bima Yojana (JBY)
(b) Aam Aadmi Bima Yojana (AABY)
(c) Life micro-insurance product approved by IRDA, having maximum amount of cover
of ` 50,000.
(d) Varishtha Pension BimaYojna
(e) Pradhan Mantri Jeevan Jyoti Bima Yojna
(f) Pradhan Mantri Jan Dhan Yojna

26B. Services by way of Collection of contribution under Atal Pension Yojna

26C. Services of life insurance in case of NPC

Exemption in case of services of life insurance business provided by way of annuity
under the National Pension System regulated by Pension Fund Regulatory and
Development Authority of India (PFRDA) under the Pension Fund Regulatory And
Development Authority Act, 2013.

27. Services Provided by an incubatee

Services provided by an incubate upto total turnover of ` 50 lakh in a financial year is
exempt if:
(a) The total turnover had not exceeded ` 50 lakh during the preceding financial year;
and
(b) A period of 3 years has not been elapsed from the date of entering into an
agreement as an incubatee.

28. Service by an unincorporated body or a non-profit entity to its own members

Services to its own members by housing society (upto` 5,000 per member per month)
and trade unions are exempt.
Example: X Group Co-operative Housing Society owns residential flats in Andheri (West),
Mumbai. There are two types of flats in the society complex Category A (5 bedroom, 3500
sq. ft.) and Category B (4 bedroom, 2700 sq. ft.). Out of the total flats of 200, 70 flats come
under Category A. The Resident Welfare Association (RWA) of the society charges ` 6,000
per month from Category A flat owners and ` 4,000 per month from Category B flat owners.
Determine the amount of service tax in this case.
 104 INDIRECT TAXES

Solution: If monthly contribution does not exceed ` 5,000 per month per member, it is not
chargeable to service tax. Conversely, Service Tax is payable if such contribution exceeds `
5,000 per month. Service tax liability will be calculated as follows:
Total value of taxable services provided to Category A flat owners (` 6,000 x 12 50,40,000
x 70)
Total value of taxable service provided to Category B flat owners (since the Nil
amount is ` 5,000 per month, it is not chargeable to service tax) 50,40,000
Value of taxable service 7,56,000
Service tax @ 15%

29. Services by the following persons in respective capacities:

(i) Sub-broker or an authorised person to a stock broker;
(ii) Authorised person to a member of a commodity exchange;
(iii) Selling agent or a distributer of SIM cards or recharge coupon vouchers;
(iv) Business facilitator or a business correspondent to a banking company or an
insurance company, in a rural area; or
(v) Sub-contractor providing services by way of works contract to another contractor
providing works contract services which are exempt.
(vi) Business Correspondent to a banking company with respect to Basic Savings Bank
Deposit Accounts covered by Pradhan Mantri Jan Dhan Yojana.

30. Carrying out an intermediate production process as job work in relation to:
(i) Agriculture, printing or textile processing.
(ii) Cut and polished diamonds and gemstones; or plain and studded jewellery of gold
and other precious metals.
(iii) Any goods (excluding alcoholic liquors for human consumption) on which
appropriate duty is payable by the principal manufacturer.
(iv) Processes of electroplating, zinc plating, anodizing, heat treatment, powder
coating, painting including spray painting or auto black, during the course of
manufacture of parts of cycles or sewing machines upto an aggregate value of
taxable service of the specified processes of ` 150 lakh in a financial year subject to
the condition that such aggregate value had not exceeded ` 150 lakh during the
preceding financial year.
(v) Milling of paddy into Rice.

31. Services by an organizer to any person in respect of a business exhibition held

outside India
 SERVICE TAX 105

An organizer of business exhibition An Exhibitor

[e.g., Indian trade promotion Organization]

Business Exhibition
Outside India

Business Exhibition means an exhibition

(a) To market
(b) To promote Any product or service
(c) To advertise
(d) To showcase
And which is intended for growth in the
business of the producer or provider of such
product or service.

Footwear Association of India is organizing a business exhibition in Germany for

footwear manufacturers of India. Is Footwear Association of India required to pay
service tax on services to footwear manufacturers?
No, the activity is exempt from service tax.

32. Exemption withdrawn

33. Services by way of slaughtering of animals

34. Services received from a provider of service located in a non-taxable territory by:
(a) Government, a local authority, a governmental authority or an individual in
relation to any purpose other than commerce, industry or any other business or
profession.
(b) An entity registered under Section 12AA of the Income tax Act, 1961 for the
purposes of providing charitable activities.
(c) A person located in a non-taxable territory.

35. Services of public libraries by way of lending of books, publications or any other
knowledge-enhancing content or material.

36. Services by Employees State Insurance Corporation to persons governed under

the Employees Insurance Act, 1948.
 106 INDIRECT TAXES

37. Services by way of transfer of a going concern, as a whole or an independent part

thereof.

38. Services by way of public conveniences such as provision of facilities of

bathroom, washrooms, lavatories, urinal or toilets.

39. Services by a governmental authority by way of any activity in relation to any

function entrusted to a municipality under Article 243W of the Constitution.
Function entrusted to a municipality under article 243W of the constitution are:
(i) Urban planning including town planning
(ii) Regulation of land-use and construction of buildings
(iii) Planning for economic and social development
(iv) Roads and bridges
(v) Water supply for domestic, industrial and commercial purposes
(vi) Public health, sanitation conservancy and solid waste management
(vii) Fire services
(viii) Urban forestry, protection of the environment and promotion of ecological aspects.
(ix) Safeguarding the interests of weaker sections of society, including the
handicapped and mentally retarded
(x) Slum improvement and up gradation
(xi) Urban poverty alleviation
(xii) Provision of urban amenities and facilities such as parks, gardens, playgrounds
(xiii) Promotion of cultural, educational and aesthetic aspects
(xiv) Burials and burial grounds; cremation grounds; and electric crematoriums
(xv) Cattle pounds; prevention of cruelty to animals
(xvi) Vital statistics including registration of births and deaths
(xvii) Public amenities including street lighting, parking lots, Bus stops and public
conveniences
(xviii) Regulation of slaughter houses and tanneries.

40. Services by way loading, unloading, packing, storage or warehousing of rise,

cotton, ginned or baled.

41. Services received by RBI from outside India in relation to management of foreign
exchange reserves.
Example- External asset management, custodial services, securities lending services are
being exempted.

42. Services provided by a tour operator to a foreign tourist in relation to a tour

conducted wholly outside India.
 SERVICE TAX 107

43. Service provided by a common Effluent Treatment Plant operator for treatment of
effluent.

44. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing,

labeling of fruits and vegetables is being exempted which do not change or alter the
essential characteristics of the said fruits or vegetables.

45. Service by way of right to admission to Museum, zoo, national park, wild life sanctuary,
and a tiger reserve.

46. Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the
distributor or association of persons consisting of such exhibitor as one of its members
is being exempted.

47. Service by way of right to admission to Entertainment Event like

(i) Exhibition of cinematographic film, circus, dance, or theatrical performances
including drama or ballet.
(ii) Recognized sporting events.
(iii) Concerts, pageants, award functions, musical concerts or unrecognized sporting
event, where the consideration for such admission is upto ` 500 per person.

48. Services provided by Government or a local authority to a business entity with a

turnover upto ` 10 lakh in the preceding financial year.

49. Exemption to services of Employees Provident Fund Organization:

Exemption in case of services provided by Employees Provident Fund Organization
(EPFO) to persons governed under the Employees provident Funds and Miscellaneous
Provisions Act, 1952.

50. Exemption in case of services of IRDA

Exemption in case of services provided by insurance Regulatory and Development
Authority of India (IRDA) to insurers under the Insurance Regulatory and Development
Authority of India Act, 1999.

51. Exemption is case of services by SEBI

Exemption in case of services provided by Securities and Exchange Board of India
(SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of
protecting the interest of investors in securities and to promote the development of,
and to regulate, the securities market.

52. Exemption to services by National Centre for Cold Chain Development

 108 INDIRECT TAXES

Exemption in case of services provided by National Centre for Cold Chain Development
under Ministry of Agriculture, Cooperation and Farmers Welfare by way of cold chain
knowledge dissemination.

53. Exemption to inward transportation of goods by air

Exemption in case of services by way of transportation of goods by an aircraft from a
place outside India upto the customs station of clearance in India.

54. Services Provided by Government or a local authority to another Government or

local authority
Provided that nothing contained in this entry shall apply to services specified in sub-
clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994.

55. Services provided by Government or a local authority by way of issuance of passport,

visa, driving licence, birth certificate or death certificate.

56. Services provided by Government or a local authority where the gross amount
charged for such services does not exceed ` 5000.
Provided that nothing contained in this entry shall apply to services specified in sub-
clause (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994:
Provided further that in case where continuous supply of service, as defined in clause
(c) of rule 2 of the Point of Taxation Rules, 2011, is provided by the Government or a
local authority, the exemption shall apply only where the gross amount charged for
such service does not exceed ` 5,000 in a financial year.

57. Services provided by Government or a local authority by way of tolerating non-

performance of a contract for which consideration in the form of fines or liquidated
damages is payable to the Government or the local authority under such contract.

58. Services provided by Government or a local authority by way of

(a) Registration required under any law for the time being in force;
(b) Testing, calibration, safety check or certification relating to protection or safety of
workers, consumers or public at large, required under any law for the time being in
force.

59. Services provided by Government or a local authority by way of assignment of right to

use natural resources to an individual farmer for the purposes of agriculture.
 SERVICE TAX 109

60. Services by Government, a local authority or a governmental authority by way of any

activity in relation to any function entrusted to a Panchayat under articles 243G of the
Constitution.

61. Services provided by Government or a local authority by way of assignment of right to

use any natural resource where such right to use was assigned by the Government or
the local authority before the 1st April, 2016:
Provided that the exemption shall apply only to service tax payable on one time charge
payable, in full upfront or in installments, for assignment of right to use such natural
resource.

62. Services provided by Government or a local authority by way of allowing a business

entity to operate as a telecom service provider or use radio frequency spectrum during
the financial year 2015-16 on payment of licence fee or spectrum user charges, as the
case may be.

63. Services provided by Government by way of deputing officers after office hours or on
holiday for inspection or container stuffing or such other duties in relation to import
export cargo on payment of Merchant Overtime charges (MOT).

Principle to interpret description of service [Sec. 66F]

The principles to interpret description of service are contained in Section 66F of Finance
Act, 1994.
(1) Exemption to Service does not mean exemption to services for providing that
service
Unless otherwise specified, reference to a service (herein referred to as main service)
shall not include reference to a service which is used for providing main service. For
example-If construction of a Government building is exempt (main service), architect
or labour supplier providing service to builder/ contractor for such contract will not be
able to avail that exemption.
(2) Specific description prevails Over General description
Where a service is capable of differential treatment for any purpose based on its
description, the most specific description shall be preferred over a more general
description. For example-A hotel rents out a conference room for an official conference
where lunch is also served. It can be classified as Mandap keeper or convention
service. Between these two entries, convention service is more specific as it covers
only conventions which is like official function. Mandap keeper is general description
as it includes official, social as well as business functions.
(3) Bundled Service
 110 INDIRECT TAXES

Subject to the provisions of sub-section (2), the taxability of a bundled service

shall be determined in the following manner, namely:
(a) Naturally Bundled
If various elements of such service are naturally bundled in the ordinary course of
business, it shall be treated as provision of the single service which gives such
bundle its essential character. Example of naturally bundled service is package
tour, where service provider offers to provide service right from pickup, travel,
hotel accommodation, sight-seeing etc.
(b) Not Naturally Bundled
If various elements of such service are not naturally bundled in the ordinary course
of business, it shall be treated as provision of the single service which results in
highest liability of service tax. For example-Premises are rented which are partly
for residential purposes and partly for manufacturing activity. Thus, it is not
service bundled in ordinary course of business. In such case, though residential
use is not taxable, commercial use is taxable. Hence, the entire bundle will be
treated as renting of commercial property.

Reverse Charge Rule 2(1)(d)

Section 68(2) empowers the Central Government to notify certain specified persons to pay
service tax in respect of certain services in the prescribed manner. The specific classes of
persons liable to pay service tax are notified in Rule 2(1)(d) of Service Tax Rules, 1994.

Sr. Description of Service Provider Service Recipient

No Service Person % Person %
1 Insurance Agent Insurance Agent 0 Insurance 100
Company
2 Goods transport Goods Transport Agency 0 Consignor or 100
agency (Applicable to Consignee
transport by road)
1. Liability to pay Service Tax arises on Consignor or Consignee, one who pays
or is liable to pay freight.
2. Incase both consignor & consignee is Individual (Sole proprietary)/ HUF,
Goods Transport Agency liable for Service Tax.
3. Tax payable only on 30% of value by service receiver if Cenvat Credit has
not been availed by service provider.
4. If service recipient is located in non-taxable territory, the provider of service
shall be liable to pay Service Tax.
3 Sponsorship Any Person 0 Any Body 100
Corporate or
 SERVICE TAX 111

Partnership firm
located in taxable
territory
4 Arbitral Tribunal Arbitral 0 Business Entity 100
Tribunal
5 Services by government or local Government or 0 Business Entity 100
authorities. Local Authority located in taxable
territory
6 Renting or hiring of motor Individual, HUF, 50 Business Entity 50
vehicle to carry passengers to Proprietary or registered as body
any person who is not in Partnership corporate located
similar line of business. firm, AOP in taxable territory
Note: If Service provider does located in 0 40
not wish to avail Cenvat Credit taxable territory
of input & capital goods
7 Services of Advocate (other Individual 0 Business Entity 100
than Senior Advocate)

8 Supply of manpower or Individual, HUF, 0 Business Entity 100

Security services Proprietary or registered as body
partnership corporate located
firm, AOP in taxable territory
located in
taxable territory
Note: Service Tax on entire value including Salary, PF and ESI of manpower supplied
including commission charged towards such supply.
9 Service portion in execution of Individual, HUF, 50 Business Entity 50
Works Contracts (Job Work, Proprietary or registered as body
AMC) partnership corporate located
firm, AOP in taxable territory
located in
taxable territory
10 Import of Services Located in non- 0 Located in taxable 100
taxable territory territory
11 Services by director to Non-Executive 0 Company 100
company (excluding director in Director
employment). e.g. Sitting fee,
Reimbursement of expenses.
12 Service of Recovery Recovery Agent 0 Banking Company, 100
Financial
 112 INDIRECT TAXES

Institution, or a
NBFC
13 Selling or Marketing of Lottery Selling or 0 Lottery Distributor 100
Tickets Marketing (State Government)
Agent
14 Services by Government or Government or 0 Business Entity 100
Local Authority Local Authority having turnover of
more than 10 lac in
Preceding FY

Concept of Aggregator
Aggregator means a person, who owns and manages a web based software application, and
by means of the application and a communication device, enables a potential customer to
connect with persons providing service of a particular kind under the brand name or trade
name of the aggregator.
Companies which act as aggregator for service providers are travel portals, food portals or
cab services portal.
Aggregator to pay service tax under reserve charge
Rule 2(1)(d)(i) defines the term person liable for paying service tax in respect of the
taxable services notified under section 68(2) of Finance Act, 1994. A new clause has been
inserted in the said rule to provide that in relation to service provided or agreed to be
provided by a person involving an aggregator in any manner, the aggregator of the service
would be the person liable for paying service tax.
In case, the aggregator does not have a physical presence in the taxable territory, any
person representing the aggregator for any purpose in the taxable territory will be liable for
paying service tax.
However, if the aggregator neither has a physical presence nor does it have a representative
for any purpose in the taxable territory, it will have to appoint a person in the taxable
territory, it will have to appoint a person in the taxable territory for the purpose of paying
service tax and such person will be the person liable for paying service tax.

Business Entity
Business entity means any person ordinarily carrying out any activity relating to
industry, commerce or any other business or profession.

Body Corporate
Company, LLP, Co-operative Society is Body Corporate.
Firm, HUF, Trust is not body corporate.

If the service provider is exempted being a SSP (turnover less than ` 10 lakhs), how
 SERVICE TAX 113

will the reverse charge mechanism work?

The liability of the service provider and service recipient are different and independent of
each other. Thus in case the service provider is availing exemption owing to turnover
being less than ` 10 lakhs, he shall not be obliged to pay any tax. However, the service
recipient shall have to pay service tax which he is required to pay under the partial
reverse charge mechanism.
Even if the service recipient is SSP, he needs to pay his service tax liability under reverse
charge mechanism.

Will the credit of such service tax paid under reverse charge be available to the
service recipient?
The credit of the entire tax paid on the service received by the service receiver would be
available to the service recipient subject to the provisions of the CENVAT Credit Rules,
2004.
Whether Cenvat Credit can be utilized to pay Service tax under Reverse charge?
Cenvat Credit cannot be used to pay tax by service receiver. Here Service tax has to be paid
in cash only.

When a service provider is liable to pay only a part of the liability and the other part by
service recipient under reverse charge Mechanism. Service provider would charge only his
part of service tax in the invoice. Service receiver would pay his own part of service tax by
GAR-7 challan. Service receiver is liable to pay only his part and not entire amount by GAR-
7 challan, even if service provider does not charge his portion of service tax.

Illustration 1: Determine the person liable to pay Service Tax.

M/s MNO, a goods transport agency, furnishes you the following information of Service
provided.
(a) Services provided to Mr. X in respect of a consignments addressed to M/s X Ltd. (freight
paid by Mr. X).
(b) Services provided to Y, a registered society in respect of consignment addressed to Mr.
X (freight paid by Y).
(c) Transport of goods by M/S MNO for Individuals to sole proprietary.
Solution:
(a) Since consignee is a company. Hence person liable to pay service tax is Mr. X [Person
who paid freight].
(b) Since consignor is a registered society, hence person liable to pay service tax is Y
[Person who paid freight].
(c) Since both consignor & consignee is individual & sole proprietary, hence person liable
to pay Service tax is M/s MNO [Goods Transport Agency].
 114 INDIRECT TAXES

Illustration 2: Mr. X, a Delhi resident, submits a cab request to Speed Cabs for travelling
from Delhi to Gurgaon. Speed Cabs is a mobile application owned and managed by Speed
Technologies Ltd. located in India. The application facilitates a potential customer to
connect with persons providing cab service under the brand name of Speed Cabs. After Mr.
X pays the cab charges using his debit card, he gets details of the driver, Mr. Y and the cabs
registration number.
With reference to the Service Tax Rules, 1994, discuss who is liable to pay service tax in this
case. Will your answer be different, if speed Technologies Ltd. is located in New York and
does not have a representative in India?
Solution: With effect from 01.03.2015, aggregators have also been brought within the
service tax net be amending the Service Tax Rules, 1994. Aggregator means a person, who
owns and manages a web based software application, and by means of the application and a
communication device, enables a potential customer to connect with persons providing
service of a particular kind under the brand name or trade name of the aggregator. In
relation to service provided by a person involving an aggregator in any manner, the
aggregator of the service is the person liable for paying service tax.
Since in the given case, Speed Technologies Ltd. fulfills all the conditions of being an
aggregator, it will be liable to pay service tax under reverse charge.
However, where the aggregator neither has a physical presence nor does it have a
representative for any purpose in the taxable territory, it will have to appoint a person in
the taxable territory for the purpose of paying service tax and such person will be the
person liable for paying service tax. Therefore, Speed technologies Ltd. will have to appoint
a person in India for the purpose of paying service tax if Speed Technologies Ltd. is located
in New York and does not have a representative in India.

Valuation of Taxable Services [Sec. 67]

The provisions of Section 67 are as follows:
1. If the consideration for a taxable service is in terms of money, the value of such service
shall be the gross amount charged by the service provider for such service provided or
to be provided by him.
2. If the gross amount charged by the service provider is inclusive of service tax payable
(that is, service tax is not separately charged in invoice), the value of taxable service
shall be calculated in a manner that with addition of service tax payable, the total is
equal to the gross amount charged. The gross amount is value of taxable service plus
service tax payable.
3. When consideration received is not wholly (or partly) consisting of money, then taxable
value of service shall be determined as follows:
When service provider Value of the above taxable service shall be equivalent to
provides similar service to the gross amount charged by the service provider for
any other person similar service to any other person in the ordinary
 SERVICE TAX 115

course of trade.
In any other case The service provider shall determine the equivalent
money value of such consideration. However, it cannot
be lower than the cost of provision of such taxable
service.
4. When 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). All reimbursable
expenditure shall be included in the value of taxable services. However, out of pocket
expenditure in some cases shall be excluded.
(i) Expenditure or cost incurred by the service provider as a pure agent of recipient
of service.
Eg: Clearing & forwarding agent paying transportation charge, custom duty etc.
(ii) Initial deposit made by the subscriber at the time of application for telephone
connection or pager or facsimile (FAX) or for leased circuit.
(iii) The air fare collected by air travel agent in respect of service provided by him.
(iv) The rail fare collected by rail travel agent in respect of service provided by him.
(v) Any other tax collected by provider which is applicable on service.
5. Money includes any currency, cheque, promissory note, letter of credit, draft, pay order,
travelers cheque, money order, postal remittance and other similar instruments but
does not include currency that is held for its numismatic value.
6. Gross amount charged includes payment by cheque, credit card, deduction from
account and any form of payment by issue of credit notes or debit notes and book
adjustment.
7. Free services not taxable. There should really be a free service and not when the cost of
services is recovered through different means. For instance, telephone provided by the
telephone company to its employees will be treated as a perquisite and not a free
service.

Illustration 3: Answer the following with respect to valuation of taxable service:

(a) In the course of providing a taxable service, a service provider incurs costs such as
traveling expenses, postage, telephone, etc. to the tune of ` 20,000. He charges ` 80,000
for his services and indicates the said costs separately on the invoice issued to the
recipient of service.
(b) A contracts with B, an architect for building a house and Bs fees is fixed at ` 3,00,000.
During the course of providing the taxable service, B incurs expenses such as telephone
charges, air travel tickets, hotel accommodation, etc., totaling ` 50,000 to enable him to
effectively perform the provision of services to A.
(c) A clearing and forwarding agent charges ` 50,000 for his services, which includes octroi
charges ` 10,000 paid on behalf of his client.
 116 INDIRECT TAXES

(d) A cable operator charges ` 10,000 for his services, which includes entertainment tax `
2,000 paid on behalf of his client.

Solution:
(a) In this case, the service provider is not acting as an agent of recipient of service but
procures such inputs or input service on his own account for providing taxable service.
Hence, value of taxable service is ` 1,00,000.
(b) Value of taxable service = 3,00,000 + 50,000 = ` 3,50,000.
(c) The clearing and forwarding agent acts as pure agent of the client while paying octroi
charges. Hence, value of taxable service = 50,000 - 10,000 = ` 40,000.
(d) The cable operator acts as pure agent of the client while paying entertainment tax.
Hence, value of taxable service = 10,000 2,000 = ` 8,000.

Abatement i.e. Partial Exemption

In case of some services, service tax is payable on lower value, i.e. abatement is available
from amount charged. Abatement is really nothing but partial exemption from service tax.
Abatement is at times subject to the condition that Cenvat Credit shall not be availed.
Taxable Service Partial Abatement Conditions
Bundled service by way of supply Tax on 70% of amount Cenvat Credit of input
of food or drink, in a premises charged. services and capital goods
(including hotel, club, pandal, is available. Cenvat credit
shamiana) together with renting on food items not
of such premises. available. Cenvat Credit of
other inputs is available.
Financial leasing and hire Tax on lease No restriction on
purchase management fee, availment of Cenvat
processing fee, Credit.
documentation charges
and administrative fee
plus 10% of interest.
Services of foreman to a Chit Tax on 70% of amount No Cenvat Credit
Fund charged available.
Outdoor caterer Tax on 60% amount Cenvat Credit of input
excluding State Vat. services and capital goods
is available. Cenvat Credit
on food items not
available. Cenvat Credit of
other inputs is available.
Renting of motor cab Tax payable on 40% of Cenvat Credit of input
amount charged. The fair service available.
 SERVICE TAX 117

market value of all goods

(including fuel) &
services supplied by the
recipient in relation to
the service should be
included in consideration
charged for availing the
abatement.
Transport of passengers, with or Tax payable on 40% of No Cenvat Credit
without accompanied belongings amount charged. available.
by contract carriage other than a
motor cab, stage carriage and
radio taxi.
Restaurant service Tax on 40% amount Cenvat Credit of input
excluding State Vat. services and capital goods
is available. Cenvat Credit
of excise duty on food
items not available.
Cenvat Credit of other
inputs is available.
Renting of hotels, inns, guest Tax payable on 60% of
houses, clubs or other amount charged.
commercial places meant for
residential or lodging purposes.
Transport of goods by rail, GTA Tax payable on 30% of
(Goods Transport Agency), amount charged.
Vessel from one port in India to
another.
Transport of Goods by Rail in Tax Payable on 40% of Cenvat Credit of input
container other than by Indian Amount charged services allowable but no
Railway Cenvat Credit of inputs
and capital goods.
Transport of used household Tax Payable on 40% of No Cenvat Credit available
article by GTA the amount charged
Transport of passengers by air Tax payable on 40% Cenvat Credit of input
(Economy Class) & 60% services allowable but no
(Business Class) of Cenvat Credit of inputs
amount charged. and capital goods.
Transport of passengers by rail Tax payable on 30% of
amount charged.
 118 INDIRECT TAXES

Transport of Goods by vessel Tax Payable on 30% of Cenvat credit of input

the amount charged service available but no
cenvat credit of input &
capital goods
Work Contract Service Tax on 40% of amount Cenvat Credit of input
Construction (does not charged. services and capital goods
include value of land) is available. Cenvat Credit
Complete Renovation of excise duty on goods,
Erection, Commissioning & the property of which is
Installation of P&M transferred is not
Work Contract Service Tax on 30% of amount available. Cenvat Credit of
Construction Contract including charged other inputs (like
value of land consumables) is available.
Work Contract Service Tax on 60% of amount
Any Other Contract (such as charged.
Plastering, Floor & Wall Tilling)
Tour Operator - providing Tax is payable on 10% of No Cenvat Credit available
services solely of arranging or
amount charged. other than on input
booking accommodation for any service of a tour
person in relation to a tour. operator. Bill to be
inclusive of charges for
such accommodation & it
is clearly mentioned in
bill.
Tour Operator - other than Tax is payable on 30% of No Cenvat Credit available
those above. amount charged. other than on input
service of a tour
operator. Bill to be
inclusive of all charges for
the tour.

Composition Schemes
Composition Scheme is a simplified scheme for payment of service tax when calculation of
value of service for payment of service tax is very difficult. Composition scheme is at option
of assessee.
Service Who can take the Optional Rates Is it optional
benefit
Air travel agent Person liable for 0.7% of the basic fare It is optional. If
paying service tax in the case of domestic option is once
in relation to booking and 1.4% of exercised, it shall be
 SERVICE TAX 119

services provided basic fare in the case of applied uniformly in

by an air travel international booking. respect of all
agent. bookings made by
the service provider
and shall not be
changed during a
financial year under
any circumstances.

Life insurance An insurer 1.4% of gross amount It is optional but this

carrying on life of premium charged option is not
insurance applicable if the
business liable for entire insurance
paying service tax premium paid by
in relation to the policy holder is only
risk cover in life towards risk cover.
insurance Moreover, it is not
provided to a applicable if
policy holder who insurance premium
pays composite payable towards risk
premium (i.e., risk cover, is shown
+ saving). separately.

Purchase or sale of Foreign exchange Upto`1,00,000- It is optional.

foreign currency broker, authorized 0.14% of the gross However, this option
including money money changer amount of is not available if
changer and authorized currency consideration for
dealer in foreign exchanged or ` 35 service provided is
exchange. whichever is shown separately in
higher. the invoice.
Exceeding
` 1,00,000 and
upto` 10,00,000 -
` 140 + 0.07% of
the gross amount
of currency
exchanged.
Exceeding
` 10,00,000 -
` 770 + 0.014% of
 120 INDIRECT TAXES

the gross amount

of currency
exchanged or
` 7,000 whichever
is lower.
Promotion, Distributor or Where the It is optional. One
marketing or selling agents guaranteed lottery can discharge
organizing/assisting prize payout is > Service Tax liability
in organizing lottery 80% - ` 8,200 on by paying @ 14%.
every ` 10 Lakh
( or part of ` 10
Lakh) of aggregate
face value of
lottery tickets
printed by
organizing State
for a draw.
Where the
guaranteed lottery
prize payout is <
80% - ` 12,800 on
every ` 10 Lakh
(or part of ` 10
Lakh) or aggregate
face value of
lottery tickets
printed by
organizing State
for a draw.
Illustration 4: Briefly answer the following questions:-
(i) Armaan travelled business class on 15.10.2016, by Origin Airlines. He booked the
ticket on the same day. The airfare charges (value on which service tax was payable)
was ` 1,00,000. Determine the amount of service tax payable on the service received
by Armaan assuming that:
(a) Origin Airlines opted for abatement and did not avail CENVAT credit on inputs
and capital goods used for providing such service,
(b) Rate of service tax is 15%, and
(c) Origin Airlines is not eligible for small service providers exemption under
Notification No. 33/2012.
 SERVICE TAX 121

(ii) Raghav, a mutual fund agent, provided services to ABC Asset Management Company
Ltd. on 20.10.2016. Raghav is of the view that services provided by him are
exempted as per the Mega Exemption.
Examine whether Raghavs view is correct and if not, discuss the correct legal
position in the given case.
Solution:
(i) Abatement for classes other than economy is 40%. Therefore, service tax will be
payable on 60% of the value of airfare charges in such higher classes. Hence, in the
given case, service tax will be payable on 60% of the value of airfare charges paid by
Armaan on 15.10.2016 in the following manner:
Service Tax = (` 1,00,000 60%) 15%
= ` 9,000
(ii) No, Raghavs view is not correct. Services provided by Raghav to ABC Asset
Management Company Ltd. are liable to service tax.
Further, in relation to service provided by a mutual fund agent to an asset
management company, the recipient of the service would be the person liable for
paying service tax. Therefore,in the given case, ABC Asset Management Company
Ltd. is liable to pay service tax on the service provided to it by Raghav.

Illustration 5: Lottery Service Optional payment: M/s. Raman Lotteries, is a distributor

of lotteries organized by the State of Rajasthan. On account of festivals, two schemes of
lotteries were announced as follows:
Laxmi Scheme Uphar Scheme
Total No. of tickets proposed under the 33,50,000 75,000
scheme
Face Value per ticket 10 200
Value of guaranteed prize payouts 75% 85%
Actual No. of tickets sold 25,50,000 90,000
Mode of conducting the scheme Printed Online
(33,50,000 tickets)

Though M/s. Raman Lotteries receives commission, however, it has learnt that there is
some composition scheme under service tax law to discharge its service tax liability. It
wishes to opt and therefore asks you to compute its service tax liability thereunder.

Solution: M/s. Raman Lotteries can very well opt for the composition scheme for payment
of service tax. The service tax liability shall be as under-
Laxmi Uphar
Total No. of tickets (In case of Laxmi scheme, the total no. of 33,50,000 90,000
 122 INDIRECT TAXES

tickets printed shall be taken; while in case of Uphar, since

the lottery is conducted online, hence, the actual no. of
tickets sold shall be taken) [A]
Face Value per ticket [B] 10 200
Aggregate face value of lottery tickets [C = A B] 3,35,00,000 1,80,00,000
Value of guaranteed prize payouts 75% 85%
Service Tax payable (for every ` 10 lakhs or part thereof) 12,800 8,200
[D]
No. of Units of ` 10 lakhs or part there of 34 18
[E = C 10 lakh]
Service tax payable [F = D E] 3,35,200 1,47,600
Total Service Tax Liability 5,82,800

SSI Exemption (i.e. exemption for small service providers) under Service Tax
[Notification No. 33/2012]
Condition Benefit
First consecutive invoices issued during current year
Last year service provided does
of ` 10 lacs (excluding invoices issued towards
not exceed ` 10 lacs.
exempted services) is exempt from service tax.
1. Exemption available even if turnover crosses specified limit in the current
financial year
Even if the service provider crosses turnover of specified limit in current year, he will
be liable to service tax only on turnover exceeding the specified limits and not on his
earlier turnover, so long as his taxable turnover during previous year was less than
specified limit.
For example, if the value of taxable services was ` 8 lakhs in 2015-16, assessee can
avail exemption in 2016-17. Suppose his turnover of taxable services was ` 12 lakhs in
2016-17, he will be liable to pay service tax on ` 2 lakhs in 2016-17. Next year, i.e. in
2017-18, he will not be eligible for any exemption and will have to pay service tax from
1-4-2017 itself. If his turnover of taxable services in 2017-18 comes down to ` 9 lakhs,
then in 2018-19, he can avail exemption upto first ` 10 lakhs.
2. Services provided jointly by more than one person Whether eligible for
separate exemption of ` 10 lakhs
A building co-owned by two people is given on rental basis. Issue is whether the
exemption available to both of them separately or the service tax is payable as AOP?
Definition of person includes an association of persons or body of individuals,
whether incorporated or not. Hence, separate exemption to each co-owner will not be
available.
 SERVICE TAX 123

3. The threshold limit is before availing the abatement where abatement is

available
By abatement, the value of taxable services does not come down. Value remains the
full amount. Only tax payable is reduced by a given percentage. Hence, the full value of
service without abatement is required to be considered.
For example, in case of construction, service tax is payable on 40% of gross amount
received by service provider. Assume that value of service is ` 12 lakhs. Though the
service provider is required to pay service tax on ` 4.8 lakhs, his value of taxable
service for the purpose of the threshold limit shall be considered be ` 12 lakh.
4. Exemption not applicable to service receivers who are liable to pay services tax
under reverse charge
Nothing in this notification shall apply to such value of taxable services in respect of
which service tax shall be paid by such person and in such manner as specified under
Section 68 (2) of Finance Act 1994 read with Service Tax Rules, 1994.
Thus threshold exemption of ` 10 lakhs is not applicable in cases where the service
receiver is liable to pay service tax under reverse charge method.
5. Services provided from all premises to be considered together
Where a taxable service provider provides one or more taxable services from one or
more premises, the exemption under this notification shall apply to the aggregate value
of all such taxable services and from allsuch premises and not separately for each
premises or each services. Also the aggregate value of all taxable services rendered by a
provider of taxable service from one or more premises, should not exceed ` 10 lakhs in
the preceding financial year.
6. Goods Transport Agency exempt if its taxable turnover is less than ` 10 lakhs
In case of Goods Transport Agency, the service tax is payable by service receiver. In few
cases, the GTA (Goods Transport Agency) is liable to pay service tax. If its turnover in
respect of which he is liable to pay service tax is less than ` 10 lakhs, he can avail the
exemption. Thus, total turnover of GTA is not required to be considered. Only his
taxable turnover, i.e. on which he is required to pay service tax should be considered.
However, consignor/consignee who is liable to pay freight is not entitled to this
exemption of small service provider.
7. Exemption not to apply if Brand Name of another is used
This exemption shall not apply to taxable services provided by a person under a brand
name or trade name, whether registered or not, of another person.
8. Exemption is optional
The service provider has the option not to avail the exemption and pay service tax on
the taxable services provided by him and such option, once exercised in a financial year,
shall not be withdrawn during the remaining part of such financial year.
9. No credit on capital goods
The provider of taxable service shall not avail the CENVAT Credit on capital goods
received in the premises of provider of such taxable service during the period in which
 124 INDIRECT TAXES

the service provider avails this exemption from payment of service tax. Thus, for the
period during which a person claims small service provider exemption, he cannot even
avail of the CENVAT Credit of capital goods.
10. No credit on inputs and input services
The provider of taxable service shall avail the CENVAT Credit only on such inputs or
input services:
- Received, on or after the date on which the service provider starts paying service
tax; and
- Used for the provision of taxable services for which service tax is payable.

Illustration 6: The value of taxable services provided by Mr. A during the financial year
2015-16 was ` 9 lakh. During the financial year 2016-17, Mr. A provides taxable services
valuing ` 10 lakhs but issued invoices towards taxable services valuing ` 11 lakh. Compute
the amount of service tax payable by him. Will he get any exemption in the financial year
2017-18?
Solution: Since the value of taxable services provided in financial year 2015-16 was not
exceeding ` 10 lakhs, Mr. A would get exemption in 2016-17 in respect of aggregate value
not exceeding ` 10 lakh. Hence, service tax payable = (11 lakh 10 lakh) 15% = ` 15,000.
He will be eligible for exemption in the financial year 2017-18, as the value of taxable
service provided in the financial year 2016-17 doesnt exceed ` 10 lakh.

Illustration 7: XYZ Co. Ltd. provided services valuing ` 8 lakhs during the financial year
2015-16. During 2016-17, it has provided taxable services valuing ` 10 lakhs and has issued
invoice towards taxable services ` 8.5 lakhs. It also received services in the nature of
transport of goods by road valuing ` 50,000, in respect of which it is the person liable to pay
service tax. Compute the amount of service tax, if any, payable by XYZ Co. Ltd. for the
financial year 2016-17. It is given that goods transport service is exempt to the extent of
75% of value thereof.
Solution: M/s. XYZ Co. Ltd. is eligible for small service provider exemption during the
financial year 2016-17, as the value of taxable services provided during financial year 2015-
16 doesnt exceed ` 10 lakhs. For the value of taxable services received during the financial
year 2016-17, no tax liability would arise, as the payments received do not exceed ` 10
lakhs. However, for goods transport agency services received, in respect of which M/s. XYZ
Co. Ltd. is the person liable to pay service tax, the company cannot claim small service
provider exemption. Therefore, it will have to pay service tax = 50,000 30% 15% =
` 2,250.

Registration Requirements
Persons who must Mandatorily Obtain Registration : The following categories of person
must mandatorily obtain registration:
 SERVICE TAX 125

Every person liable to pay service tax

An input service distributor
Every provider of taxable service whose aggregate value of taxable service in a financial
year exceeds ` 9 lakh.
1. Person Liable to pay Service Tax : As per section 68(1) of the Act, every person
providing taxable service is himself primarily made the person liable to pay service tax.
However, Section 68(2) empowers the Central Government to notify any taxable service
in respect of which rules may provide for a designated person who will be treated as the
person liable to pay service tax. The persons liable to pay service tax, will have to get
themselves registered.
2. Input Service Distributor : An input service distributor is defined in Rule 2(m) of the
Cenvat Credit Rules as to mean an office of the manufacturer or producer of final
products or provider of output service, which receives invoices towards purchases of
input services and issues invoice, bill or, as the case may be, challan for the purposes of
distributing the credit of service tax paid on the said services to such manufacturer or
producer or provider, as the case may be.

Explanatory notes issued by Ministry of Finance:

In many cases, it so happens that the bill/invoice is raised in the name of Head Office.
This may be case of services which are actually received in service premises (branches).
In addition, the bill for service which are not specific for any Service Premise such as
advertisement, market research, management consultancy etc. would also be received
only in Head Office.

Provisions relating to distribution of credit by input Service Distributor

Rule 7 relating to input Service Distributor has been amended as under:
The credit of service tax attributable as input service to a particular unit shall be
distributed only to that unit
The credit of service tax attributable as input service to more than one unit but not to all
units shall be distributed only amongst such operational units to which the input service
is attributable
The credit of service tax attributable as input service to all the operational units shall be
distributed to all the units pro rata.
Outsourced manufacturing unit shall maintain separate account for input service credit
received from each of the input service distributors and shall use it only for payment of
duty on goods manufactured for the input service distributor concerned
Provisions of rule 6 shall apply to the units manufacturing goods or provider of output
service and shall not apply to the input service distributor.

3. Small Service Providers :

 126 INDIRECT TAXES

Registration is required only if value of taxable services exceeds ` 9,00,000 in a

financial year. For instance, in the case of new service provider registration is not
necessary so long as value of taxable services does not exceed ` 9,00,000.

Illustration 8: X Ltd. starts the business of Interior Decorator on April 10, 2016. The
following bills are issued by X Ltd. during 2016-17:
Bill No. Amount Registration Exemption
`
Bill No. 1 (June 30, 7,20,000 No registration No service tax
2016)
Bill No. 2 (July 2, 2016) 1,50,000 No registration No service tax
Bill No. 3 (July 17, 60,000 Registration is No service tax as the value of
2016) required as value of services does not exceed
taxable services ` 10,00,000.
exceeds ` 9,00,000.
Bill No. 4 (July 29, 80,000 Value of taxable service
2016) immediately after issue of
Bill No. 4 is ` 10,10,000.
` 10,000 out of ` 80,000 of
Bill No. 4 is chargeable to
service tax.
Bill No. 5 (Oct 10, 1,000 Chargeable to service tax.
2016)
Note: - From the next financial year 2017-18 service tax will be applicable from day one.

Illustration 9: Y Ltd. starts the business of Cargo Handling on June 25, 2016. During the
financial year 2016-17, value of taxable service is ` 9,10,000. Although registration is
required as soon as value of taxable services exceeds ` 9,00,000, service tax is not
chargeable (value of taxable service does not exceed ` 10,00,000 during the financial year
2016-17).
In the immediately following financial year 2017-18, the applicability of service tax will be
as follows-
Bill No. Amount Registration Exemption
`
Bill No. 1 (April 2, 6,67,000 Already No service tax (as value of taxable
2017) registered service in the immediately
preceding financial year does not
exceed
` 10,00,000 and current years
value of taxable service has not
 SERVICE TAX 127

crossed ` 10,00,000).
Bill No. 2 (May 22, 2,90,000 Already No service tax (as value of taxable
2017) registered service in the immediately
preceding financial year does not
exceed
` 10,00,000 and current years
value of taxable service has not
crossed ` 10,00,000).
Bill No. 3 (June 10, 1,60,000 Already Value of taxable service
2017) registered immediately after issue of Bill No.
3 is ` 11,17,000. ` 1,17,000 out of
` 1,60,000 of Bill No. 3 is
chargeable to service tax.
Bill No. 4 (Aug 12, 2,000 Already Chargeable to service tax
2017) registered
Bill No. 5 (Sep 17, 4,000 Already Chargeable to service tax
2017) registered
Note: - Y Ltd. will charge service tax from day one of the financial year 2018-19, as value of
taxable service in the immediately preceding financial year (i.e., 2017-18) exceeds
` 10,00,000.

Due Date for payment of Service Tax

Individuals, Proprietary Concerns, HUF, Partnership Firms (excluding LLP) & OPC
Quarters Due dates if Due date
(In which Service is deemed to be deposited (other cases)
provided) electronically
1 April to 30 June 6 July 5 July
1 July to 30 September 6 October 5 October
1 October to 31 December 6 January 5 January
1 January to 31 March 31 March 31 March
Other Persons
Months Due dates if Due date
(In which service is deemed to be deposited (other cases)
provided) electronically
April 6 May 5 May
May 6 June 5 June
June 6 July 5 July
July 6 August 5 August
August 6 September 5 September
 128 INDIRECT TAXES

September 6 October 5 October

October 6 November 5 November
November 6 December 5 December
December 6 January 5 January
January 6 February 5 February
February 6 March 5 March
March 31 March 31 March
If the last day of payment of service tax is a public holiday, tax can be paid on the following
working day. Interest is paid for the period of delay. Period of delay is counted from the first
day after the due date. If delay is 8 days, interest is paid for 8 days only and not for whole
month.
Further, where the tax is paid electronically the same should be paid by 8 p.m. on the due
date. If the same is paid later than 8 p.m. on the due date, if shall be deemed to have been
paid on the next date.

Interest Payable on Delayed Payment of Service Tax

Interest on delayed payment is payable @ 15% p.a. However, for assessee with turnover
upto ` 60 lac during preceding financial year, 3% concession on the applicable rate of
interest be available (i.e. 12% p.a.)

Illustration 10: XYZ a proprietary concern paid service tax on 15-3-2017.

Point of Taxation 15-10-2016
Amount of Service Tax 1,50,000
Last Year Turnover of Assessee - ` 80 lac
Calculate Interest payable on delayed payment of service Tax.
Solution: Interest Payable = 1,50,000 x 15% x = 4,192

Determination of Taxable Event, or Point of Taxation of Taxable Services

Point of Taxation [Rule 2(e)]: Point of taxation means the point in time when a service
shall be deemed to have been provided.
 SERVICE TAX 129

Point of Taxation

In case advance payment Other

is upto` 1,000 cases

Date of Invoice* or
Date of Invoice or Date of
Date of Payment
completion of service
whichever is earlier
whichever is earlier * If invoice not issued within 30 days (45 days in
case of bank & financial institution) of completion
of service, date of invoice to be replaced by date of
completion of service inthe above Rule

Note:
In case of Continuous supply of service, Date of Completion of service shall be the event which require receiver
of service to make payment to service provider

Continuous Supply of Service

(a) Any service which is provided, or to be provided continuously, under a contract, for a
period exceeding three months; or
(b) Where the Central Government, by a notification in Official Gazette, prescribes
provision of a particular service to be a continuous supply of service, whether or not
subject to any condition.

The following services are continuous supply of services:

(i) Telecommunication service (v) Works contract service
(ii) Commercial or industrial construction (vi) Renting
(iii) Construction of residential complex (vii) Insurance
(iv) Internet Telecommunication Service (viii) Security

Time-limit for issue of invoice: Every person providing taxable service shall within 30
days from the date of completion of such taxable service or receipt of any payment towards
the value of such taxable service, whichever is earlier, issue an invoice/bill/ challan in
respect of such taxable service provided or to be provided. In case of continuous supply of
service every person providing such taxable service shall issue an invoice, bill or challan
 130 INDIRECT TAXES

within 30 days of the date when each event specified in the contract, which requires the
service receiver to make any payment to service provider, is completed.

Illustration 11: Determine point of taxation in the following cases-

No. Date of completion of Date of Date on which payment received
service invoice
1 April 10, 2016 April 20, 2016 April 30, 2016
2 April 10, 2016 May 26, 2016 May 30, 2016
3 April 10, 2016 April 20, 2065 April 15, 2065
4 April 10, 2016 May 26, 2016 April 5, 2016 (part) and May 26, 2016
(remaining)
Solution: The point(s) of taxation in the aforesaid cases is determined below:
No. Point of Taxation Remarks
1 April 20, 2016 Invoice issued in 30 days and before receipt of
payment.
2 April 10, 2016 Invoice not issued within 30 days and payment
received after completion of service.
3 April 15, 2016 Invoice issued in 30 days but payment received
before invoice.
4 April 5, 2016 and April 10, Invoice not issued in 30 days. Part payment before
2016 for respective completion, remaining payment after completion.
amounts

Determination of point of taxation in case of specified services or persons

In respect of Point of Taxation
(A) Export of Services Point of taxation shall be the date on which
payment is received. However, where
payment is not received within the period
specified by RBI, the point of taxation shall be
determined, as if this rule does not exist.
(B) The persons required to pay tax as Point of taxation shall be the date on which
recipients in respect of services payment is made. However, where payment
notified u/s 68(2) [Rule 2(i)(d)] of is not made within 3 months of the date of
the Finance Act, 1994. invoice, the point of taxation shall be the
first day that occurs immediately after a
period of 3 months from the date of
invoice.
(C) Individual/ Proprietorship/ Point of taxation shall be date on which
Partnership/ LLP/ OPC whose payment is received. This is optional.
aggregate value of taxable service
provided is ` 50 lakhs in previous
 SERVICE TAX 131

financial year.
(D) In the case of associated enterprises, Point of taxation shall be the date of credit in
where the person providing the the books of account of person receiving
service is located outside India. service or date of making the payment,
whichever is earlier.

Service Tax on Delayed payment charges collected by Stock Brokers

Invoice indicate delayed payment charges No service tax to be collected on delayed
separately. payment charges.
Invoice does not indicate delayed payment Service tax payable on entire amount
charges separately. including delayed payment charges.

Illustration 12: Point of taxation in the following cases of payment of service tax under
reverse charge, will be as under:
S. Date of Date of payment Point of taxation
No. invoice
(i) 15.10.2016 10.01.2017 10.01.2017
(ii) 20.10.2016 15.02.2017 20.01.2017

Illustration 13:With reference to Point of Taxation Rules, 2011, determine the point of
taxation in respect of following independent transactions:
(a) MNO Ltd. paid director fee of ` 1,00,000 to one its director for attending a Board
Meeting held in the month of December. The meeting was held for approving accounts
of the company. Though the journal entry for the transaction was passed on the same
day, actual payment was made to the director by the end of April.
(b) PQR Ltd. paid consultancy fees of ` 50,000 to its associated enterprises located in
Dubai. Dubai firm raised the invoice on 27.01.2017 and the same was received by PQR
Ltd. on 06.02.2017 Though the journal entry was passed on 07.02.2017 in the books of
PQR Ltd., actual payment to Dubai firm was made on 25.02.2017
Solution:
(a) In case of taxable service provided by a director of a company to said
company,service recipient is liable to pay service tax under reverse charge
mechanism.
Further, Rule 7 of Point of Taxation Rules, 2011 provides that in respect of persons
liable to pay service tax under reverse charge mechanism, the point of taxation shall
be the date on which payment is made subject to the condition that payment is made
within a period of three months of the date of invoice.
However, if payment is not made within a period of 3 months of date invoice, point
of taxation will be first day that occurs immediately after expiry of said 3 months.
 132 INDIRECT TAXES

Since, in the present case, payment is made in April end, which is beyond 3 months
of date of invoice (invoice is issued in December), the point of taxation would be the
first day that occurs immediately after expiry of said 3 months.
(b) Point of taxation in case of import of service by associated enterprises where the
person providing the service is located outside India is-
(i) date of debit in the books of account of the person receiving the service
OR
(ii) date of making the payment
whichever is earlier
Here, date of debit in PQR Ltd.s books of accounts is 07.02.2017 and date of
payment to Dubai firm is 25.02.2017. Therefore, point of taxation is 07.02.2017.

Date of Payment [Rule 2A of the Point of Taxation Rules, 2011]:

Date of payment shall be:
Date on which payment is entered in the books of accounts; or
Date on which payment is credited to the bank account.
Whichever is earlier.
However, if there is a change in effective rate of tax or when a service is taxed for the first
time and the bank account is credited in respect of payment received after 4 working days
from the date of change in effective rate of tax or a service is taxed for the first time, then
the date of payment shall be date of credit in the bank account.

Service Brought to tax for the first time

New service brought to tax for first time would not be taxable if:
Service provided before change of rate.
Payment received before change of rate, if cheque/ draft is received it must be
credited to bank account within 4 working days.
Invoice issued within 14 days of the date when the service is taxed for the first
time.

Rule 5 - Taxability of Newly Introduced Service (Service Brought to Tax for first time)

Case 1: Not
Before Levy After Levy

Service Invoice Payment

Provided Raised Received Taxable
 SERVICE TAX 133

Case 2: Taxable
Before Levy After Levy

Service Invoice Payment

Provided Raised Received

Case 3: Taxable
Before Levy After Levy

Service Payment Invoice raised beyond

Provided Received 14 days of Service
made taxable for first

Case 4: Not Taxable

Before Levy After Levy

Service Payment Invoice raised

Provided Received within14 days of Service
made taxable for first
time
Illustration 14: Certain services have become taxable for the first time on 1.6.2016. The
following details are furnished by a service provider in respect of the services for the
financial year 2016-17. You are required to compute the amount of service tax payable @
15%:
Bill Value of Date of actual Date of issue Date of Remarks, if any
No. service provision of of invoice receipt of
`)
(` service payment
A-1 12,00,000 01.04.2016 12.04.2016 01.05.2016 NIL
A-2 13,00,000 01.05.2016 15.05.2016 31.05.2016 ` 10,50,000
07.06.2016 recd.
` 2,50,000 recd.
A-3 25,50,000 31.05.2016 14.06.2016 31.05.2016 Nil
A-4 38,00,000 01.06.2016 15.06.2016 25.06.2016 Nil
 134 INDIRECT TAXES

Solution: The following table computes the service tax payable by the service provider:
Bill Value of Taxable Reason for computing taxable value
No. service Value of (Date of service becoming taxable = 1.6.2016)
`)
(` service
`)
(`
A-1 12,00,000 0 All payments received and invoice issued prior to
1.6.2016, hence, not taxable.
A-2 13,00,000 2,50,000 Payments of ` 10.5 lakh received and invoice in respect
thereof issued prior to 1.6.2016 hence not taxable.
The balance consideration of ` 2.5 lakh received on
7.6.2016 (i.e. on or after 1.6.2016 shall be liable to
service tax).
A-3 25,50,000 0 The payment has been received prior to 1.6.2016 and
the invoice has been issued within the time-limit of 14
days allowed under Rule 4A of the Service Tax Rules,
1994. Hence, not liable to service tax.
A-4 38,00,000 38,00,000 Liable to service tax.
Total 88,50,000 40,50,000
Tax @ 15% 6,07,500

Rule 4 - Date of levy in case of change of rate

The change of rate would not only mean the change of rate by amendment in the Act, but
would also cover change of rate by amendment in exemption notification.
Further, it has also been clarified that it would also cover a change in abatement rate or
value on which the duty needs to be computed.
Given below are the different cases which would tell the date of levy for applicability of rate
of service tax.

Date of Service Change of Rate Date of receipt of

Provided Date of Invoice Payment

Date of Levy
Case 1

Date of Service Change of Rate Date of receipt of

Provided Date of Invoice Payment

Date of Levy
Case 2
 SERVICE TAX 135

Case 3
Change of Rate
Date of Service Date of receipt of
Date of Invoice
Provided Payment

Date of Levy

Change of Rate
Date of Service Date of receipt of
Date of Invoice Provided Payment

Case 4 Date of Levy

Case 5
Change of Rate
Date of receipt of Date of Service
Date of Invoice Payment Provided

Date of Levy

Case 6 Change of Rate

Date of Date of Service Date of Invoice
Payment Provided

Date of Levy

Rule 5 Changes to sustain levy of rate change as per Point of Taxation

The levy of KKC (0.5%) shall be guided by Rule 5 of POTR. Accordingly, the new levy shall
be as under.
 136 INDIRECT TAXES

S.No. Events before 01.06.2016 Events after 01.06.2016 Rate of

Tax
1 Invoice has been issued N.A. 14.5%
Payment received against such invoice (no KKC)
Services rendered
2 Invoice has been issued Payment received against 15%
Services rendered such invoice
3 Invoice has been issued Services rendered 14.5%
Payment received against such invoice (no KKC)
4 Payment received Invoice issued within 14 14.5%
Services rendered days of 01.06.2016 (no KKC)
5 All other cases 15%

Service Tax Registration

Online application for registration to be mandatory filed with ACES website. Applicant shall
quote e-mail address and mobile number in the application form. Registration shall be
granted within 2 days of the receipt of duly completed online application form, thus
initiating trust based registration. Applicant shall be required to submit self attested copy of
the following document by registered post/ speed post to the concerned division within 7
days of giving the form ST-1 online.
(i) Copy of PAN
(ii) Photograph and proof of identity
(iii) Document to establish possession of premise
(iv) Detail of main bank account
(v) MOA/ AOA/ List of Directors
(vi) Authorization by BOD/ Partners/ Proprietor for the person filing application
(vii) Business Transaction Numbers obtained from other Government departments or
agencies such as Custom Registration number, VAT/ CST Number, Excise
Registration Number.

Time-Limit for Making Application

The position in respect of the three categories of persons is as follows:
Persons who are liable to pay service tax: Under Rule 4(1), the application for
registration is required to be made within 30 days from the date on which levy of
service tax is brought into force in respect of the relevant services.
Input service distributors: An input service distributor must make the application in
Form No. ST-1 within a period of 30 days of the commencement of business.
Small service providers: The small service providers must make the application in
Form No. ST-1 within a period of 30 days of the date in the financial year on which the
aggregate value of taxable services has exceeded ` 9 lakh.
 SERVICE TAX 137

Illustration 15: Discuss whether the following persons are liable for registration under
service tax. If yes, when registration is required?
1. A provider of taxable services whose aggregate value of taxable services is ` 8,00,000
up to February 28, 2017.
2. An input service distributor who starts his business on February 12, 2017.
3. A provider of taxable services under a brand which is not yet registered provided
services of ` 8,00,000 up to January 31, 2017.

Solution:
1. The service provider is not liable for registration since aggregate value of taxable
services does not exceeds ` 9,00,000.
2. An input service distributor must make a registration application in Form No. ST-1
within a period of 30 days of the commencement of business. In this case, the
application should be filed on or before March 14, 2017.
3. The basic exemption of the small service provider is not available to a service provider
who provides taxable services under a brand name or trade name whether registered
or not of the another person. So in the given case the service provider is liable to apply
for registration within a period of 30 days from the commencement of business of
providing taxable services.

Centralised Registration
Where an assessee is providing a taxable service from more than one premises or offices
and has centralized billing systems or centralized accounting systems in respect of such
service and such centralized billing or centralized accounting systems are located in one or
more offices or premises, he may, at his option, register such premises or offices from
where such centralized billing or centralized accounting system are located.

When more than one Service is provided

If the same assessee provides more than one taxable service, Rule 4(4) stipulates that a
single application will suffice, mentioning therein all the taxable services.

When information is to be changed or added

Under sub-rule (5A), where there is a change in any information or details furnished by an
assessee in Form ST-1 at the time of obtaining registration or he intends to furnish any
additional information or detail, such change or information or details shall be intimated, in
writing, by the assessee, to the jurisdictional Assistant Commissioner or Deputy
Commissioner of Central Excise, as the case may be, within a period of thirty days of such
change.
 138 INDIRECT TAXES

When Assessee ceases to provide Taxable Service

Once a registered assessee ceases to provide the taxable service in respect of which
registration has been obtained, rule 4(7) requires that the assessee must surrender the
registration certificate immediately to the designated Central Excise Officer/
Superintendent of Central Excise. On receipt of the certificate, the Superintendent of Central
Excise shall ensure that the assessee has paid all monies due to the Central Government
under the provisions of the Act, and the rules and notifications issued there under, and
thereupon cancel the registration certificate.

Registration

Single Service

One Premises Multiple Premises

Single Centralized Independent

Registration Accounting & Accounting &
Billing Billing

Centralized Independent
Registration Registration
 SERVICE TAX 139

Multiple Service

One Premises Multiple Premises

Single Brand Multiple Centralized Independent

Name Brand Name Accounting & Accounting &
Billing Billing

Single Multiple Centralized Independent

Registration Registration Registration Registration

Payment of service tax collected in excess to be paid to the Central Government

As per Section 73A(1), if any person who is liable to pay service tax has collected any
amount in excess of the service tax assessed or determined and paid on any taxable service,
from the service recipient in any manner as representing service tax, he shall pay the
amount so collected to the credit of the Central Government.
According to Section 73A(2), if any person has collected any amount of service tax from
any person, who is not required to be collected, such person shall also pay the amount
so collected to the credit of the Central Government.
Person in sub-section (1) refers to those who are liable to pay service tax in respect of a
taxable service and in sub-section (2), it refers to a person who collects any amount in
the name of service tax in the name of taxable and non-taxable service. The purpose of
this section is to ensure that the service provider does not collect any excess amount in
the name of service tax from the service receiver.
As per Section 73(A)3, if the service provider does not pay the amount as explained
above, the Central Excise Officer shall serve on him a notice requiring him to show
cause as to why the amount, as specified in the notice, should not be paid by him to the
credit of the Central Government.
 140 INDIRECT TAXES

After considering the representation made by the person on whom the show-cause notice is
served, the Central Excise Officer shall determine the amount due from such person which
he shall have to pay to the credit of the Central Government. This cannot be more than the
amount as specified in the show-cause notice.

Interest payable on amount collected in excess

As per Section 73B, where an amount has been collected in excess of the tax assessed or
determined and paid for any taxable service from the recipient of such service, the person
who is liable to pay such amount as determined shall, in addition to the amount, be liable to
pay interest. Rate of interest notified by the Central Government is 24%. Interest shall be
payable from the date on which the Service Tax Payment become due.

E-Payment of Service Tax

Some banks provide the facility of e-payment of excise duty and service tax. It is known as
Electronic Accounting System in Central Excise and Service Tax (Easiest). In case of
e-payment, GAR-7 challan is used instead of TR-6 challan. Every assessee is now
mandatorily required to pay service tax electronically through internet banking,
except where Deputy/ Assistant Commissioner for reasons to be recorded in writing,
allows on assessee to make payment of duty by any mode other than internet
banking.
Payment of service tax is rounded off to nearest multiple of rupee. If the amount of tax
payable includes 50 paise of more, it is rounded off to one rupee and less than 50 paise is
ignored.

Adjustment of Service Tax

Adjustment of service tax is required in the following cases:
When no service is provided.
When excess amount of service tax is paid for any other reasons.
1. When no Service is Provided: Where an assessee has paid service tax to the credit of
the Central Government:
(i) in respect of taxable service which is not provided by him either wholly or partly
for any reason;
(ii) where the amount of invoice is renegotiated.
The service provider can himself adjust the excess service tax paid by him against his
service tax liability for the subsequent period.
This can be done subject to fulfillment of the following conditions:
(i) The value of taxable service along with the service tax has been refunded; or
(ii) Credit note has been issued by the service provider.
However, such adjustment is not permissible for bad debts.
 SERVICE TAX 141

If any of these conditions is not satisfied, the assessee cannot adjust his excess service
tax paid against his future liability. In such a case, the assessee can only file the refund
claim.
2. When Excess Amount of Service tax is paid for other Reasons: Where an assessee
had paid excess amount of service tax to the credit of Central Government for a month
or of quarter, as the case may be, the assessee is allowed to adjust the excess service tax
paid by him for the subsequent period. Self-adjustment facility is possible only in cases
like:
(i) Excess payment since exact amount to be paid could not be calculated.
(ii) When tax is to be paid by 31st March &calculation of exact amount is practically
impossible.
(iii) Calculation mistakes.
There is no limit on amount that can be adjusted or time limit for adjustment.

Provisional payment of Service Tax [Rule 6(4)]

Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit,
the actual amount payable for any particular month or quarter, as the case may be, he may
make a request in writing to the Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, giving reasons for payment of service
tax on provisional basis and the Assistant Commissioner of Central Excise or the Deputy
Commissioner of Central Excise, as the case may be, on receipt of such request, may allow
payment of service tax on provisional basis on such value of taxable service as may be
specified by him.

Provisional Assessment
The assessee requesting for provisional assessment shall file a statement giving details of
the difference between the Service Tax deposited and the Service Tax liable to be paid for
each month in a memorandum in Form ST-3A accompanying the half-yearly return in Form
ST-3.In case the Service Tax assessee resorts to provisional assessment after following the
procedure and furnishes the returns in Form ST-3A along with Form ST-3, it is the
responsibility of the Assistant/ Deputy Commissioner to complete the assessment after
calling for/ from the assessee the relevant documents or records, as may be considered
necessary by him. Wherever the Assistant/ Deputy Commissioner, after considering all the
details/ documents proposes to re-assess the Service Tax liability, the finalization of the
provisional assessment would be made after providing adequate opportunity to assessee by
issuing show cause notice &giving opportunity of being heard in person.

Structure of Service Tax Law

 142 INDIRECT TAXES

Service Tax Legislation

Statutory Rules on Notifications Circulars Orders Trade

Provisions Service Notices
in the Act Tax

Chapter V of
the Finance
Act, 1994

Service Tax Service Tax CENVAT Export of Service Tax

Service Tax
Rule, 1994 (Advance Credit Rules, Service (Determi-
(Registra-
Rulings) 2004 Rules, 2005 nation of
tion of
Rules, 2003 Value)
Special
Category of Rules, 2006
Person )
Rules, 2005

Statutory Provisions in the Act

Provisions of Service Tax are mentioned in Chapter V of the Finance Act, 1994. There is no
separate legislation for Service Tax.

Rules on Service Tax

(a) Service Tax Rules, 1994
(b) Service Tax (Advance Rulings) Rules, 2003 The benefit of Advance Ruling Authority
is now extended to Resident Public limited Companies.
(c) CENVAT Credit Rules, 2004
(d) Service Tax (Registration of Special Category of Persons) Rules, 2005
(e) Service Tax (Determination of Value) Rules, 2006;
(f) Point of Taxation Rules, 2011
(g) Place of Provision of Service Rules, 2012

Rules should be read with the statutory provisions contained in the Act. Rules are made for
carrying out the provisions of the Act. The rules can never override the Act and cannot be in
conflict with the same.
 SERVICE TAX 143

Notifications on service tax

Sections 93 and 94 of Chapter V, and Section 96-I of Chapter VA of the Finance Act, 1994
empower the Central Government to issue notifications to exempt any service from service
tax and to make rules to implement service tax provisions. Consequently, notifications on
service tax have been issued by the Central Government from time to time.

Notifications

Issued by Central Government

Section 94 Section 93 Section 96I

Circulars or Office Letters (Instructions) on service tax:

The Central Board of Excise and Customs issues departmental circulars or instruction
letters from time to time to explain the scope of taxable services and the scheme of service
tax administration etc. The circulars clarify the provisions of the Act and thus, bring out the
real intention of the legislature. However, the provisions of Finance Act, 1994 cannot be
altered by the departmental circulars. In other words Circulars give intention to a provision.
However, these circulars can be challenged in Tribunal on the grounds of overriding
Finance Act, 1994.
Circular/Office
Letters/instructions

Issued by Central Board of Excise and Customs

Clarify the provisions of Can be challenged in

Service Tax Tribunal

Order on Service Tax:

Rule 3 of the Service Tax Rules, 1994, empowers the CBEC to appoint such Central Excise
Officers as it thinks fit for exercising the powers under Chapter V of the Finance Act, 1994.
Accordingly, orders have been issued by the CBEC, from time to time, to define jurisdiction
of Central Excise Officers for the purposes of service tax.
 144 INDIRECT TAXES

Orders on service tax may be issued either by the CBEC or by the Central Government.

Orders

CBEC Central Government

Trade Notices on Service Tax:

Trade Notices are issued by the Central Excise/Service Tax Commissionerates. These
Commissionerates receive various instructions from the Ministry of Finance or Central
Board of Excise & Customs for effective implementation and administration of the various
provisions of service tax law. The same are circulated among the Field Officers and the
instructions which pertain to trade are communicated to them in the form of trade notices.
Trade Associations are supplied with the copies of these trade notices. Individual assesses
may also apply for copies of trade notices. The trade notice disseminate the contents of the
notifications and circulars/letters/orders, define their jurisdiction; identify the banks in
which service tax can be deposited; give clarifications regarding service tax matters, etc.

Trade Notices

Issued by Service
Tax Commission
rates

Field officers Trade Associations

Administrative Mechanism
The matters related to direct and indirect taxes are controlled by the Department of
Revenue of the Ministry of Finance through two statutory boards:
1. Central Board of Direct Taxes (CBDT): It deals with matters related to levy and
collection of all direct taxes.
2. Central Board of Excise and Customs (CBEC): It deals with matters related to levy
and collection of indirect taxes.
Service Tax is administered by the Central Excise Commissionerates working under the
Central Board of Excise & Customs, Department of Revenue, Ministry of Finance,
Government of India.
 SERVICE TAX 145

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Central Board of Excise

Taxes and Customs

Income
Excise Customs Service Tax

The administrative set up for service tax is as follows:

1. CBEC: A Central Board of Excise and Customs, consisting of six/ seven members,
headed by a Chairman, administers the Excise, Customs and Service tax law. This Board
has its headquarters at New Delhi.
2. Chief Commissioner of Central Excise: The Board Administers service tax matters
through Central Excise Zones. Country is divided in several zones. Each zone is headed
by Chief Commissioner of Central Excise. The Chief Commissioner exercises
supervision and control over Commissioners and Commissioner (Appeals) within his
zone. He monitors matters related to collection of revenue, disposal of pendencies,
redressal of grievances, etc.
3. Commissioner of Central Excise: Each zone has various commissionerates and each
Commissionerate is headed by Commissioner of Central Excise. In metropolitan cities
of Delhi, Mumbai, Kolkata, Chennai, Ahmadabad and Bangalore, there is a separate
Commissioner of service tax but in other places, the Commissioner of Excise looks after
the work of service tax also.
4. Additional and Joint Commissioner: Each commissionerates also has Additional and
Joint Commissioners.
5. Deputy Commissioner, Assistant Commissioner and Superintendent: Each
Commissionerate of Central Excise is divided into divisions and each division is
controlled by either a Deputy Commissioner or Assistant Commissioner of Central
Excise. The division under the Deputy/ Assistant Commissioner of Central Excise is
further divided into various ranges and each range is controlled by Superintendent of
Central Excise who holds the rank of a Gazetted Officer. Inspectors work under
Superintendent who is not a Gazetted Officer.
6. Director General of Service Tax: To coordinate the increasing workload of matters
related to service tax, the office of Director General (Service Tax) was formed in 1997 to
146 INDIRECT TAXES

centralize all the work related to service tax to a separate limit. It is headed by the
Director General (Service Tax) and presently has his office in Mumbai. The Director
General exercises the following functions:
(i) He ensures proper infrastructure so that different Central Excise
Commissionerates can monitor the collection and assessment of service tax.
(ii) He determines the staff requirement at field level for effective implementation
of service tax.
(iii) He suggests measures for implementing and streamlining service tax
procedures for increasing the revenue collection.
(iv) He maintains a database for collection of service tax for its proper monitoring.
(v) He inspects various service tax cells in the Commissionerates to ensure their
effective functioning.
(vi) He coordinates between CBEC and Central Excise Commissionerates for
collection and assessment of service tax.
(vii) His office (Directorate of service tax) complies the service tax revenue reports
received from Central Excise Commissionerates and monitors their
performance.
(viii) He replies to clarifications sought for, wherever possible to service providers
and field formations.
(ix) Where the doubts and clarifications involve policy matters, the Directorate
apprises the Board for issuing clarifications.
(x) To perform such function as assigned by the Board from time to time.

Chief CCE

CCE CCE (A)

JC / Addl. Comm

AC / DC

SCE

Inspector CEO
CEO
 SERVICE TAX 147

Provisions pertaining to Returns

Furnishing of Returns: Every person liable to pay the service tax needs to self assess the
tax due on the services provided by him. The person or class of persons notified under
Section 69(2) are also required to file returns in similar manner.

Form of Return: The return is to be furnished in Form ST-3 in Triplicate and Input Service
distributor in single copy.

Periodicity for filling Return: Under Rule 7(1), the return is to be filed on half-year basis.
The half-year for this purpose will cover the periods of April 1 to September 30 and October
1 to March 31 of the relevant year.

Due dates for filing Return: The half-yearly return should be filed in triplicate, on or
before the 25th of the month following the particular half-year, i.e., on April 25 (covering the
half-year October 1 to March 31), and October 25 (covering the half-year April 1 to
September 30). If April 25 or October 25 is a public holiday, the returns can be filed on the
immediately succeeding working day. For Input Service Distributor by the last day of the
month following the half-year period.

Filing of Annual Service Tax Return introduced

Rule 7 of Service Tax Rules, 1994 is being amended to introduce annual return in Service
Tax. All assesses other than those notified by CBEC, shall be required to file an annual
return for the financial year to which the return relates, in such form and manner as may be
specified by CBEC, by the 30th day of November of the succeeding financial year. Such return
can be revised within a period of one month from the date of submission. Also, penalty for
delay of filing such return has been provided at the rate of Rs. 100 per day for the period of
delay in filing of such return, subject to a maximum of Rs. 20,000.

Contents of Return: Return under Section 70 contains general information like financial
year, half-yearly period (April September or October March), name of the assessee,
registration number of premises for which return is being filed, and category of taxable
services for which return is being filed.
Besides, it contains month-wise details of payment of service tax, details of other payments,
credit details for service tax provider/ recipient.

First Return: Under rule 5(2), every assessee must, at the time of filing the return for the
first time, furnish a list of all accounts maintained by the assessee in relation to service tax
including memoranda received from his branch offices.
 148 INDIRECT TAXES

Return in case of multiple service providers: If the assessee is providing more than one
taxable service, he should file only one return. However, the details in each of the columns
of Form ST-3 have to be furnished separately for each of the taxable service rendered by the
assessee. Thus service-wise details should be given in the return instead of a single total
figure for all the services.

Return when no services are provided (Nil return) : Even if no services have been
provided during a half year and no service tax is payable, the assessee may file a nil return
within the prescribed time limit.

Filing of revised return: It allows an assessee to rectify mistakes and file a revised return
in Form ST-3, in triplicate within 90 days from the date of filing the original return.

Electronic Filing (E-filing) of Return :E-filing of Service Tax Return is mandatory for all
E-filing is a facility for the electronic filing of service tax return by the assessee from his
office, residence or any other place of choice, through the internet, by using a computer. The
assessee can go to the e-filing site Home Page by typing the address
http://www.servicetaxefiling.nic.in in the address bar of the browser.

Service Tax Code

Service Tax Code number is a 15 digit alphanumerical number allotted by the system to the
assessee based on the PAN number. The first 10 digits of the STC code are 10 character PAN
issued by Income Tax Authorities. Next 2 digits are ST and last 3 digit are numeric code.
Procedure for e-filing: The assessee should have a 15-digit STP code for e-filing of return.
STP code is a Service Taxpayer code used by the computer as a unique identifier for the
assessees records. All assesses who have a 15-digit STP code should file an application to
their jurisdictional AC/ DC mentioning their e-mailing address. The department then sends
them their user word and password that helps them to file their return. Assessee will
download the form for entering the details of ST-3 and TR-6/ GAR-7 Challans. He will enter
the necessary details and file the return by following the instructions. After submitting the
return, the computer will generate a key number and give an acknowledgement on the
screen. The assessee can take a print out of the copy as a proof of his having filed the return
and quote it in all his future correspondence with the department on this return.
If an assessee files electronic returns for any of the services and receives an electronic
acknowledgement for the same, he need not file a manual return for the same service. He
need not file the manual TR 6 copies for the said returns if he has taken care to ensure that
he has been indicating his 15 digit STP code in the challans used by him as stated above.

Penalty under Service Tax

 SERVICE TAX 149

Penalty for late filing of halfyearly return: The Central Government has power to
prescribe penalty for delayed filing of return within the overall maximum limit of ` 20,000.
Rule 7C has been introduced for this purpose to provide penalty as follows:
Delay Penalty
Up to 15 days ` 500
16 days to 30 days ` 1,000
31 days onwards ` 1,000 plus ` 100 per day from 31 days onwards but the total
penalty cannot exceed `20,000
If the assessee has paid the amount of penalty as mentioned above, no further proceedings
will be taken against the assessee for delayed submission of return.

Penalty for non-payment or late payment of service tax: If Service tax is not paid or paid
after due dates, penalty can be imposed which will be equal to:
(i) ` 100 per day during which the failure continues; or
(ii) 1 % per month during which the failure continues, whichever is higher.
This penalty can be imposed for the period of default (i.e., the first day after due date till the
date of actual payment) in respect of outstanding amount. However, the penalty cannot
exceed 50% of service tax which was payable. The defaulter will have to pay penalty,
outstanding service tax and interest.

Illustration 16:
1. Due date of payment of service tax is May 6, 2016 (amount due being ` 5,50,000).
Service tax is paid on May 27, 2016. The period of delay is 21 days. Penalty @ ` 100 per
day for 21 days comes to ` 2,100. Penalty @ ` 1% per month comes to ` 3,726 (i.e., `
5,50,000x 21 days 31 days x 0.01). Penalty which can be levied in this case is ` 3,726
(being higher of ` 2,100 or ` 3,726).

2. Due date of payment of service tax is June 5, 2016 (amount due being ` 2,100). Service
tax is paid on June 30, 2016. The period of delay is 25 days. Penalty @ ` 100 per day for
25 days comes to ` 2,500. Penalty @ 1% per month comes to ` 18 (i.e., ` 2,100 25
days 30 days 0.01). The higher of two figures is ` 2,500. However, penalty which
can be levied for non-payment or late payment cannot exceed 50% of outstanding
amount. Therefore, in this case, penalty imposable is ` 2,100 x 50% = ` 1,050.

Penalty for not obtaining registration: If a person who is required to obtain registration,
fails to take registration in accordance with the provisions of law, he shall be liable to pay
penalty which may extend to ` 10,000.
 150 INDIRECT TAXES

Penalty for non-maintenance of books of account and documents: If a person fails to

keep, maintain or retain books of account and other documents as required by law, he shall
be liable to a penalty which may extend to ` 10,000.

Penalty for not furnishing information required: This penalty can be imposed in the
case of following defaults:
(i) If a person fails to furnish information called by an officer in accordance with the
provisions of law.
(ii) If a person fails to produce documents called for by a Central Excise officer.
(iii) If a person fails to appear before the Central Excise Officer, when issued with a
summon for appearance to give evidence or to produce a document in an inquiry.
In these cases, the assesee is liable to pay a penalty which may extend to-
(a) ` 10,000; or
(b) ` 200 per day during which the default continues (i.e., starting with the first day after
the due date, till the date of actual compliance), whichever is higher.

Penalty for failure to pay tax electronically when required: If a person, who is required
to pay tax electronically, fails to do so, he shall be liable to a penalty which may extend to `
10,000.

Penalty for issuing incorrect invoice or not accounting invoices in books of account: If
a person issues an invoice with incorrect or incomplete details or fails to account for an
invoice in his books of account, he shall be liable to a penalty which may extend to ` 10,000.

Penalty for suppressing value of taxable services:This penalty can be imposed if:
(i) Service tax is applicable but it has not been levied;
(ii) Service tax is not paid;
(iii) Service tax has been short levied;
(iv) Service tax has been short paid, or
(v) Service tax has been refunded erroneously.
By reason of :
Fraud; or
Collusion; or
Willful mis-statement; or
Suppression of facts; or
Contravention of any provision of law pertaining to service tax with intention to evade
payment of service tax.
 SERVICE TAX 151

SC

HC

1 SCN CESTAT

CCE (Appeal)
3 Demand
CEO Order Assessee
Pay Demand

2 Representation by
Assessee

In case not involving fraud or collusion or willful mis-statement or suppression of facts or

contravention of any provision of the Act or rules with the Act or rules with the intent to
evade payment of service tax, in the following manner -
(i) Penalty not to exceed 10% of service tax amount involved in such cases;
(ii) No penalty is to be paid if service tax and interest is paid within 30 days of issuance of
notice under section 73(1);
(iii) A reduced penalty equal to 25% of the penalty imposed by the Central Excise officer
by way of an order is to be paid if the service tax, interest and reduced penalty is paid
within 30 days of such order; and
(iv) If the service tax amount gets reduced in any appellate proceeding, then penalty
amount shall also stand modified accordingly, and benefit of reduced penalty (25% of
penalty imposed) shall be admissible if service tax, interest and reduced penalty is
paid within 30 days of such appellate order.

In case involving fraud or collusion or willful mis-statement or suppression of facts or

contravention of any provision of the Act or rules with the intent to evade payment of
service tax, in the following manner, -
(i) Penalty shall be 100% of service tax amount involved in such cases;
(ii) Penalty equal to 15% of the service tax amount is to be paid if service tax, interest
and reduced penalty is paid within 30 days of service of notice in this regard;
 152 INDIRECT TAXES

(iii) A reduced penalty equal to 25% of the service tax amount determined by the
Central Excise Officer, by an order, is to be paid if the service tax, interest and
reduced penalty is paid within 30 days of such order; and
(iv) If the service tax amount gets reduced in any appellate proceeding, then penalty
amount shall also stand modified accordingly, and benefit of reduced penalty
(25%) shall be admissible if service tax, interest and reduced penalty is paid
within 30 days of such appellate order.

Penalty on person responsible for conduct of the companys business

Penalty up to ` 1 lakh is imposed on a director, manager, secretary or other officer in charge
and responsible for conduct of the companys business who is knowingly concerned with
any of the following contraventions by the company:
Evasion of service tax; or
Issuing invoice, bill or challan without providing taxable service; or
Availing and utilizing CENVAT credit without actual receipt of taxable service or
excisable goods; or
Failing to pay any amount collected as service tax to the credit of the Central
Government beyond a period of six months from the date on which such payment
becomes due. [Section 78A]

Penalty for any other default:Penalty for contravention of any provision of law pertaining
to service tax (for which separate penalty has not been provided) shall be `10,000.
However, this penalty cannot be made if the assessee proves that the failure was due to a
reasonable cause.

Consequences for Offences [Sec. 89 & Sec. 90]

Nature of Offence Consequences
Involving an amount Minimum Maximum Cognizable Non-
exceeding ` 2 Crore Imprisonment Imprisonment cognizable
& bailable
Evasion of payment of
service tax
Availment and
utilisatinon of CENVAT 6 months 3 year No Yes
credit without actual
receipt of service or
excisable goods
Maintain false books of
account, failure to
supply/of false
 SERVICE TAX 153

information

Non-payment of 6 months 7 year Yes No

service tax collected
beyond six month
from due date
Involving an amount Not prescribed (1) 1 year for No Yes
not exceeding ` 2 crore first
for above referred offence
offences (2) 3 year for
second and
for every
subsequent
offence

The Commissioner of Central Excise is empowered to authorize any officer not below the
rank of the Superintendent to arrest any person who has committed any of the above
offences involving an amount exceeding ` 50 lakh. In case of cognizable offence, the
arrested person is required to be produced before the Magistrate within twenty-four hours
of the arrest. However, in case of non-cognizable and bailable offence, the Assistant
Commissioner or the Deputy Commissioner is granted same powers as those of an officer-
in-charge of a police station and is subject to section 436 of the Code of Criminal Procedure,
1973 to grant bail or release the person so arrested.

Role of Chartered Accountants

Service tax is an indirect tax and being a new legislation, there a great scope for
professionals like chartered accountants, company secretaries and others. A professional
can provide the following services in this regard:
1. Consultancy services: A great deal of expertise is required to interpret and
understand the law and give advice to the clients about the applicability of service tax
and its related issues. Professionals like Chartered Accountants are most competent to
provide advice in this field.

2. Service for complying with procedural requirement: The Chartered Accountant can
help the client to comply with the following procedural requirement:
(a) Registration
(b) Payment of tax
(c) Maintenance of books and records
(d) Availment and utilization of Cenvat Credit
(e) Submission of service tax returns, assessment if necessary.
 154 INDIRECT TAXES

3. Representation services: A Chartered Accountant is allowed to appear before the

(a) Assessment Authorities/ Adjudication Authorities, and (b) Appellate Authorities.

4. Scope for certification and audit under service tax in the near future: Since the
scope of service tax is increasing day by day, there shall be a need to evolve mechanism
similar to tax audit under section 44AB of the Income Tax Act so that the department
may choose only those returns for scrutiny where there is some default committed by
the client or there is a scope for detailed investigation.

Export of Service
Any taxable services provided shall be treated as export of services only if:
(a) Place of provision of service is outside India.
(b) Provider of service located in taxable territory & recipient of service located outside
taxable territory.
(c) Service not in Negative List.
(d) Payment in Convertible foreign exchange, within the time limit prescribed by RBI
(generally 12 months)
(e) Not branches of same person.
(f) Rate of Exchange as per customs provisions i.e. as notified by CBEC usually at the
beginning of every month.
(g) In case of export of service, Service tax Liability does not arise. But exporter can take
cenvat Credit of input taxpaid from other taxable service which is not exported or
can get refund.
Service Tax Return Preparer
1. The board may frame a scheme enabling specified persons to prepare and furnish a
return u/s 70 through a Service Tax Return Preparer authorized to act as such under
the Scheme.
2. Scheme framed shall specify the manner in which the Service Tax Return Preparer shall
assist the persons furnishing the return of service tax.
3. The scheme shall provide:
(a) The manner in which a Service Tax return Preparer shall be authorized,
(b) Educational and other qualifications to be possessed,
(c) Training and other conditions to be fulfilled by a person to act as a Service Tax
Return preparer,
(e) The code of conduct for the Service Tax Return Preparer,
(f) The duties and obligations of the Service Tax Return Preparer.

Service Tax Payment in Advance

Every person liable to pay service tax, may, on his volition:
(a) Pay service tax in advance to the credit of Central Government and
 SERVICE TAX 155

(b) Adjust the amount so paid in advance against the service tax which he is liable to pay
for the subsequent period.
(c) Provided that the assessee shall:
(i) Intimate the amount deposited in advance to the superintendent within 15 days
from the date of payment.
(ii) Indicate the details of advance payment made and adjustment, if any, in the
subsequent return to be filed u/s 70.

Indirect tax Dispute Resolution Scheme, 2016

A scheme in respect of cases pending before Commissioner (Appeals), the assessee, after
paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is
introduced. In such cases the proceedings against the assessee will be closed and he will
also get immunity from prosecution.
However, this scheme will not apply in cases:
Where prosecution has already been launched
Involving narcotics & psychotropic substances
Involving detention under COFEPOSA.

Solved Exercise

Question 1: Which committee recommended the introduction of service tax?

Answer: Tax reform committee headed by Prof. Dr. Raja J Chelliah.

Question 2: Which services were the first on which service tax was levied and what was
the rate then?
Answer: Telephone, Non-life insurance and stock brokers. Rate = 5%.

Question 3: X an individual has not provided any services in the half year period of April
to September. Should he file any return for this period?
Answer: Yes, return has to be filed even if no service tax is payable or no services are
provided.

Question 4: Under which act is service tax levied?

Answer: Finance Act, 1994.

Question 5: Is service tax payable on the advances received by the service provider?
Answer: Yes.
 156 INDIRECT TAXES

Question 6: As per Rule 7C of Service Tax Rules, 1994, the maximum penalty that can be
imposed, if the return is furnished on the 240th day of the stipulated time period, is
` 22,000. True/ False
Answer: False, as per Rule 7C maximum late fee i.e. penalty for late filing of return cannot
exceed amount specified in Section 70 i.e. ` 20,000.

Question 7: Can Vignesh & Co., providing services from different locations and billing the
client from each location, opt for centralized service tax registration?
Answer: No, the assessee has the option to take centralized registration as per Rule 4(2),
for which the assessee should have centralized billing or accounting systems.

Question 8: For the purpose of marriage of daughter, Mr. X has paid full amount as advance
money (along with service tax) to an event management company. Company has deposited
the said amount with the Central Government as per rules and regulations. Unfortunately
marriage has been cancelled and event management Company has returned full amount to
Mr. X. What are the service tax obligations on the company?
Answer: Event Management Company can adjust ST paid from its future service tax liability
since it has refunded full amount of money charged.
Question 9: Mr. A hires services of Mr. X (non resident of India) who is an architect based
in London for designing his office in New Delhi. For this Mr. X charged fees of ` 1,00,000.
Discuss service tax obligation on Mr. A and Mr. X.
Answer: The service provided by Mr. X is taxable in India as the service receiver is in India.
But in this case as per sec 68, the service receiver shall be liable to pay service tax on it.

Question 10: Bharti Ltd. is a company which provides telecommunication services under
the brand name of Airtel. The co. has its registered office situated in Delhi. Mr. A is a
resident of Jammu and is a subscriber of mobile connection of Airtel. Whether company can
charge service tax from Mr. A?
Answer: There is no service tax liability if the service is provided in the state of Jammu &
Kashmir.

Question 11: When provided, a service was not taxable; however, the same service become
taxable when the payment is received. Is tax payable?
Answer: Yes.

Question 12: Whether Service tax is governed by Service Tax Act, 1994.
Answer: False, Service tax is governed by Finance Act, 1994.

Question 13: If consideration for providing services is in kind, than no service tax shall be
paid. True/ False
 SERVICE TAX 157

Answer: False, Service tax will be paid on the amount charged for similar services provided.
If similar service is not provided, the monetary value of consideration received in kind shall
be the value of taxable service but it cannot be less than the cost of providing of service.

Question 14:Discuss the term "input service distributor".

Answer: A input service distributer means an office of the manufacturer or producer of
final products or provider of output service. He receives invoices issued under rule 4A of
Service Tax Rules 1994 towards purchases of input services and issues invoice, bill or, as
the case may be, challan for the purposes of distributing credit of service tax paid on the
said services to such manufacturer or producer or provider, as the case may be.

Question 15: When does a small service provider require to register under the Service Tax
Act, but not liable to collect and pay Service Tax?
Answer: The provisions regarding concessional tax treatment available to small service
providers are given below:
Registration: Registration is required only if value of taxable services exceeds ` 9,00,000 in
a financial year.
Exemption: Exemption is applicable if value of taxable services does not exceed `
10,00,000.
Thus, when his value of taxable service exceeds ` 9,00,000 but is below ` 10,00,000 he is
required to register under Service Tax Act but not liable to collect and pay Service Tax.

Question 16:
(a) Is an unincorporated association, liable to pay any service tax:
(b) Briefly explain the nature of service tax.
(c) Explain as to how and when the amendments made in Finance Bill, in respect service
tax matters come into force?
Answer:
(a) Yes, the taxable service includes any taxable service provided or to be provided by an
unincorporated association or body of persons to a member thereof, for cash, deferred
payment or any other valuable consideration.
(b) Service tax is tax on services. This is not a tax on profession, trade, or employment but
is in respect of service rendered. If there is no service, there is no tax. Basically, service
is a value addition that can be perceived but cannot be seen, as it is intangible; however,
usage of some goods during the course of rendering the service would not mean that
there is no service.
(c) Amendments made by the Finance Bill, in respect of service tax matters, come into
force from the date of enactment of the Finance Bill i.e., the date on which the Finance
Bill receives the assent of the President of India. However, wherever it is specifically
provided so in the Finance Bill, certain amendments like new taxable services
 158 INDIRECT TAXES

introduced vide the Finance Bill and alteration in the scope of existing taxable services,
become effective from a date to be notified after the enactment of the finance Bill.

Question 17: Will the payment to a hotelier of ` 10,000 on behalf of an architect by a

service receiver be included in the value of taxable services?
Answer: Service tax chargeable on any taxable service is on the basis of gross amount
charged by service provider for such service provided or to be provided by him. It is not
necessary that the service receiver should pay the consideration only to the service
provider; any money paid to the third party is also includible. Hence, the hotel bill met by
the client would be includible in the value of taxable services.

Question 18: Can it be said that if the taxable service is not capable of ascertainment, it
cannot form part of value of taxable services?
Answer: No, it cannot be said so. The provisions of section 67, as amended, state clearly
that if the consideration for a taxable service is not ascertainable, the value of such service
shall be:

When service Value of the above taxable service shall be equivalent to the gross
provider provides amount charged by the service provider for similar service to any
similar service to any other person in the ordinary course of trade.
other person
In any other case The service provider shall determine the equivalent money value
of such consideration. However, it cannot be lower than the cost
of provision of such taxable service.

Question 19: (a) Can service tax return be revised by a person?

(b) Ms. Amrapali, a registered service provider did not render any services during the
financial year 2016-17. Whether she is required to file service tax return?
Answer:
(a) An assessee can submit a revised return, in Form ST-3, in triplicate, to correct a mistake
or omission, within a period of 90 days from the date of submission of the original
return.
(b) Every assessee shall file a half yearly return in Form ST- 3. Even if there is no service
provided during a half year, a Nil return has to be filed. Therefore, Ms. Amrapali is
required to file a service tax return.

Question 20: Ajay Ltd. has agreed to render services to Mr. Guru. The following are the
chronological events:
Particulars `
Contract for services entered into on 31.8.2016
 SERVICE TAX 159

Advance received in September, 2016 towards all services 60,000

Total value of services, billed in February, 2017 2,10,000
Above includes non-taxable services of 70,000
Balance amount is received in March, 2017

When does the liability to pay service tax arise and for what amount? Contract contains
clear details of services; consideration and service tax are charged separately, as mutually
agreed upon.

Answer: The liability to pay service tax arises at the time of receipt of advance in
September, 2016 and at the time of billing for balance consideration in Feb 2017. Service
tax is payable as soon as any advance is received as the taxable service includes service to
be provided and payments received.

Advance portion
Particulars `
Advance received towards all services in Sep, 2016 = 60,000
Amount billed for taxable services = 2,10,000 70,000
= 1,40,000
Advance received towards taxable services = 60,000 x (1,40,000/ 2,10,000)
= 40,000
Services tax @ 15% (service tax charged = 40,000 x 15%
separately) = 6,000
In this case, the due date for payment of service tax will be 5th October,2016
Balance portion
Particulars `
Balance amount when billed in Feb 2017 = 2,10,000 - 60,000
= 1,50,000
Amount invoiced towards taxable services =1,50,000 x (1,40,000/2,10,000)
= 1,00,000
Service tax @ 15% = 1,00,000 x 15%
= 15,000
In this case, the due date for payment of service tax will be 5th March, 2017.

Question 21: A club exempt from payment of income-tax under the Income-tax Act, 1961
on the ground of being a public charitable institution will be compulsorily exempt from
payment of service tax also. Examine the validity of the statement.
Answer: The statement is not correct. Public Charitable Institution is exempt from service
Tax only in respect of specified charitable activities.
 160 INDIRECT TAXES

Question 22: Explain the special provision for payment of service tax in case of an air travel
agent.
Answer: Special provision for payment of service tax in case of air travel agent: Rule 6(7) of
the Service Tax Rules, 1994 Provides that the person liable for paying the service tax in
relation to the services provided by an air travel agent, shall have the option:
(i) To pay an amount calculated at the rate 0.7% of the basic fare in the case of domestic
bookings, and
(ii) At the rate of 1.4% of the basic fare in the case of international bookings, of passage
for travel by air, during any calendar month or quarter, as the case may be, towards
the discharge of his service tax liability instead of paying service tax at the rate of
specified service tax.
(iii) The option once exercised, shall apply uniformly in respect of all the bookings of
passage for travel by air made by him and shall not be changed during a financial
year under any circumstances.

Question 23: Find out the amount of service tax in the following cases:
Case 1: Service provider is X Ltd. which is based in Jammu and Kashmir. Services are,
however, provided in the State of Karnataka (amount of invoice being ` 18,50,000).
Case 2: Service is provided by Y Ltd. to UNO in New Delhi (amount of invoice being `
25,00,000).
Case 3: Service is provided by Z Ltd. to a unit in a special economic zone (amount of
invoice being ` 2,00,000).
Case 4: Service is provided by A Ltd. Since then its annual turnover / gross receipt is not
more than ` 6,00,000 in last year. In current year invoice of ` 2,50,000 is issued.
Answer: Pointwise answer:
Case 1: Service provided in the State of Karnataka is chargeable to tax, even if it is provided
by a company having its registered office in Jammu and Kashmir. Service tax
liability is ` 2,77,500 (i.e., 15% of ` 18,50,000).
Case 2: Service provided to UNO is not chargeable to service tax.
Case 3: Service provided to a unit in special economic zone is not subject to service tax.
Case 4: A Ltd. is a small service provider (annual gross receipt being less than `
10,00,000). Its Services are not chargeable to service tax.

Question 24: Explain the validity of the following statements with reference to the service
tax provisions:
(a) Business auxiliary services provided by a commission agent in relation to sale and
purchase of the agricultural produce are exempt from the payment of service tax.
(b) The cargo handling service provided in relation to agricultural produce or goods
intended to be stored in a cold storage are taxable under the category of cargo handling
service.
 SERVICE TAX 161

Answer:
(a) Services in relation to purchase or sale of agricultural produce are exempt from the
payment of service tax. Therefore, the given statement is valid.
(b) The cargo handling service provided in relation to agricultural produce or goods
intended to be store in a cold storage are exempt from service tax. Therefore, the given
statement is not valid.

Question 25: Calculate the net service tax payable under the provision of rule 2A of the
Service tax (Determination of Value) Rules, 2006 relating to determination of value of
services in the execution of a works contract from the following particulars:
(i) Gross amount for the works contract (excluding VAT) ` 3,00,000
(ii) Value of goods and materials sold in the execution of works contract ` 50,000
(iii) CENVAT credit on (ii) above ` 5,000
(iv) Service tax paid on input services ` 5,000
(v) CENVAT credit on capital goods issued in the provision of works contract service
` 6,000
Make suitable assumptions and provide explanations where required.
Answer:
Particulars `
Gross amount charges (excluding VAT) 3,00,000
Less: Value of goods 50,000
Net amount subject to service tax 2,50,000
Service tax @ 15% on ` 2,50,000 37,500
Less: CENVAT credit
On input service ` 5,000
On Capital Goods ` 6,000 x 50% ` 3,000 8,000
Net service tax payable 29,500

Notes: CENVAT credit of ` 5,000 on value of goods sold in the execution of work
contract shall not be available.

Question 26: Mr. Rishabh, a proprietor rendered the services for which he received
` 6,00,000 by an account payee cheque as advance while signing a contract for providing
taxable service. He received ` 3,00,000 by credit card while providing the service and
another ` 5,00,000 by a pay order after completion of service on 28th February, 2017. All
three transactions took place during financial year 2016-17. Give him advice about his
liability towards value of taxable service and the service tax payable by him.
Answer: Computation of taxable service of Mr. Rishabh for Financial year 2016-17
 162 INDIRECT TAXES

Particulars `
Advance received by an account payee cheque 6,00,000
Amount received through credit card 3,00,000
Amount received by a pay order 5,00,000
Value of taxable service 14,00,000
Calculation of service tax liability:
Service tax = ` 14,00,000 15% 2,10,000
Notes:
1. Money includes any cheque, pay order, currency, promissory note, letter of credit, draft,
travelers cheque, money order, postal remittance and other similar instruments but
does not include currency that is held for its numismatic value.
2. Gross amount charged includes payment by credit card, cheque, deduction from account
and any form of payment by issue of credit notes/debit notes and book adjustment.

Question 27: Siddhartha Ltd. gives the following particulars relating to the services
provided to various clients by them for the half-year ended on 30.9.2016:
(i) Total bills raised were for ` 15,00,000. A bill worth ` 1,00,000 was raised on an
approved International Organisation. Bill payments for ` 3,00,000 relating to current
year were not received till 30-9-2016.
A sum of ` 4,50,000 relating to last year was received in September 2016.
(ii) Amount of ` 2,70,000 was received as an advance from Omega ltd. on 25-9-2016 to
whom the services were to be provided in October 16.
You are required to work out the:
(a) Taxable value of services
(b) Amount of service tax payable
Answer:
(a) Taxable value of services
Particulars `
Total bills raised 15,00,000
Less: Services not taxable
Services provided to International organization 1,00,000
Balance 14,00,000
Add: Advance received 2,70,000
Taxable value of services 16,70,000
(b) Amount of service tax payable = 16,70,000 15% = 2,50,500

Question 28: State briefly whether the following service under the Finance Act, 1994
relating to service tax are taxable service?
(a) Service provided in the State of Punjab by a person having a place of business in the
State of Jammu and Kashmir.
 SERVICE TAX 163

(b) Service provided to an Export Oriented Unit.

Answer:
(a) Services rendered within India (except in the State of Jammu and Kashmir) come under
the service tax net, provided these services are taxable services. Therefore, services
provided in the state of Punjab are taxable services.
(b) Services provided to export oriented undertaking is liable to service tax. Service
rendered to EOU or supplies of services by EOU in domestic market is not presently
exempt from service tax.

Question 29: Mr. Patil of Gujarat rendered taxable services to a client. A bill of ` 50,000 was
raised on 30-8-2016. ` 25,000 was received from the client on 10-9-2016 and the balance
on 23-9-2016. No service tax was separately charged in the bill.
(a) Is Patil, liable to pay service tax, even though the same has not been charged by him?
(b) If so, what is the value of taxable services and the service tax?
Answer:
(a) Mr. Patil is liable to pay service tax even though he has not collected the service tax
from his client, by considering that service tax is already inclusive in the value of bill.
(b) Service tax liability is as follows:
Value of taxable services = 50,000 x100/115= ` 43,478
Service tax liability = 50,000 x 15/115 = ` 6,522

Question 30: In the course of providing a taxable service, a service provider incurs costs
such as traveling expenses, postage, telephone, etc. to the tune of ` 50,000. He charges `
1,10,000 for his services and indicates the said costs separately on the invoice issued to the
recipient of service. Compute the amount of service tax to be billed by the service provider.
Answer:In this case, the service provider is not acting as an agent of recipient of service but
procures such inputs or input service on his own account for providing taxable service. Such
expenses do no become reimbursable expenditure merely because they are indicated
separately in invoice issued by service provider to recipient of service. Hence, service tax =
(1,10,000 + 50,000) x 15% = ` 24,000

Question 31: Mr. X, a custom house agent, charges ` 1,00,000 from a client. This sum
includes ` 10,000 towards payment of customs duty on behalf of the client. Compute the
service tax to be charged from the client.
Answer: Expenses incurred by the service provider in his capacity as pure agent do not
form part of the value of taxable service. So, ` 10,000 paid towards customs duty on behalf
of the client, which is an expenditure incurred by Mr. X in his capacity as pure agent. Since
the sum of ` 10,000 doesnt include any element of profit, the same will not form part of the
value of taxable service. Hence, the Value of taxable service = 1,00,000 10,000 = ` 90,000
Service tax to be charged = 90,000 x 15% = ` 13,500
 164 INDIRECT TAXES

Question 32:Calculate the net service tax payable form the following particulars:
Gross amount for the works contract (excluding VAT) ` 1,00,000
Value of goods and materials sold in the execution of work contract ` 70,000
CENVAT credit on ` 70,000 (Value of goods and materials sold in the ` 1,000
execution of works contact)
Service tax paid on input service ` 1,000
CENVAT credit on capital goods issued for works contract service ` 1,000
Make suitable assumptions and provide explanations where required.
Answer: The value of taxable service and service tax payable thereon is computed as
follows:
Gross amount for the works contract (excluding VAT) 1,00,000
Less: Value of goods and materials sold in the execution of 70,000
works contract
Value of works contract service 30,000
Gross amount of service tax @ 15% 4,500
Less: CENVAT credit of service tax paid on inputs service 1,000
CENVAT credit of duty paid on capital goods (available only to
the extent of 50% of duty paid on capital goods in the year of
purchase; the balance shall be available in the next financial 500 1,500
year only.)
Net service tax payable 3,000

Question 33: A beauty parlour charges ` 10,000 from a client for providing beauty
treatment service; the breakup of the bill is as follows:
Labour and facility charges ` 6,000
Value of cosmetics and toilet preparations consumed in providing the ` 3,000
service
Value of cosmetics and toilet preparations sold to the client ` 1,000
Compute the amount of service tax to be charged from the client.
Answer: The labour and facility charges are liable to service tax. The value of cosmetics and
toilet preparations consumed in providing the service forms internal part of the value of
service. The materials consumed during the provision of service form part of the cost of that
service. So, the value of consumed materials will be included in the value of service.
However, the value of cosmetics and toilet preparations sold to client will be liable for
VAT.
Hence, the value of taxable service = 6,000 + 3,000 = ` 9,000, the service tax on which at
the rate of 15% amounts to ` 1350, which should be charged in the bill.
 SERVICE TAX 165

Question 34: M/s. Modi Consultants are a labour contractor of manpower. They supply
labour to various corporate. In one case it was observed that they charged to a corporate for
supply of labour` 1,50,000 and their service charges of ` 42,000 for arranging the labour.
The issue is whether service is payable on the gross amount charged by them or only
their charges for labour. Assume that you are the consultant.
Answer: As per section 67, the value of taxable service is the gross amount charged by the
service provider for the provision of service. Hence, the value of taxable service in this
case = 1,50,000 + 42,000 = ` 192,000. It will not matter whether they issue a combined bill
or a separate bill.
Question 35: Alpha Ltd. an Indian Company, has one more place of business in the United
States of America. Beta Ltd. another Indian company exported services to a unit of Alpha Ltd
which in the USA. What is the legal position relating to service tax?
(a) If the order for services emanated from the US office of Alpha Ltd?
(b) If the order for services not emanated from the US office of Alpha Ltd?
Answer: In both the cases (a) and (b), services are rendered outside India, which can be
considered as export of services. Hence, not come under the value of taxable services.
Question 36: Whether Service Tax under the provisions of Finance Act, 1994 is chargeable
on an interior decorator providing service of beautification of spaces in Srinagar.
Answer: Service tax provisions are not applicable in the State of Jammu and Kashmir.
Therefore, interior decoration services provided in Srinagar is not taxable.
Question 37: Is Service tax payable on services provided to a developer or a unit in the
Special Economic Zone (SEZ)?
Answer: Services provided to Special Economic Zones or services provided by Special
Economic Zones are not subject to service tax.
Question 38: Ms. Deepika, has rendered free of cost services to the client which are taxable
in nature but has not charged or received any fee from a client. Is service tax payable on
such free services?
Answer: No, Service tax is payable when value of services is zero, as the charging section 66
provides that service tax is chargeable on the value of taxable service. Hence, if the value is
Zero the tax will also be zero even though the service may be taxable. However, this
principle applies only when there is really a free service and not when its cost is recovered
through different means.

Fill In the Blanks

1. India includes ____________ upto 12 nautical miles from land mass of India.
2. Service provider shall __________ avail the CENVAT credit of service tax paid on any input
services used for providing the taxable service, for which exemption is availed of.
3. Registration becomes mandatory if the value of taxable services exceeds `___________
during the financial year.
 166 INDIRECT TAXES

4. Form for filing half-year return is ____.

5. Penalty for not obtaining registration is ` _______ per day for every day of default or `
________ whichever is higher.
6. If the value is not ascertainable then ___________ should be referred for arriving at the
value of such services.
7. CBEC has developed a website ___________ for automation of Service tax and Central
Excise procedures.
8. When the service tax liability is to be paid by the service receiver, it is called _________.
9. Import means services provided in India from a country _________ India.
10. Services provided to any person in other area by Special Economic Zones are
____________.
11. Due date for filing return for the period April-September is __________.
12. If the taxable turnover during the current year 2016-17 exceeds ` ________ then there is
no exemption limit in the year 2017-18.
13. In the case of Individuals the due date for payment of service tax for the 2nd quarter is
___________.
14. Service Tax is not applicable in the state of ___________.
15. The effective rate of service tax is ________.
16. Service Tax Registration number is also known as __________.
17. The expenditure or costs incurred by the service provider as a _________ of the recipient
of service shall be excluded from the value of the taxable service.
18. Superintendent of Central Excise will grant a certificate of registration in Form ST-2
within _________ of the date of receipt of the application.
19. Last date for the payment of service tax for the month of March is ________.
20. Service Tax was first imposed on ________ services.
Answer:
1. Territorial waters 2. not
3. 9,00,000 4. ST-3
5. 200 & 10,000 6. Service Tax (Determination of Value) Rules, 2006
7. www.aces.gov.in 8. Reverse Charge.
9. Outside 10. Non exempted services.
th
11. 25 October. 12. 10,00,000
13. 5th October. 14. Jammu & Kashmir.
15. 15%. 16. Service Tax Code.
17. Pure Agent 18. 7 days
19. 31st March 20. 3

True / False
1. The airfare collected by air travel agent in respect of service provided by him shall be
included in the value of services.
2. Revised return is filed in Form ST-3
3. Interest on delayed payment of Service Tax is not levied.
 SERVICE TAX 167

4. There is no provision of Provisional Payment in Service Tax.

5. It is not necessary to specify the heading under which the service being provided, falls.
6. Registration procedure in case of reverse charge has to be done by Service Recipient.
7. Due date of submission of half yearly return ST-3 for the period April-September is 30th
October.
8. ST-3 can be signed by Assessee only.
9. Single registration in the case of multiple services rendered is possible subject to
conditions.
10. The due date for monthly return for service tax is the 25th of the succeeding month in
the case of a company.
11. Services delivered by a person having a place of business sin Jammu and Kashmit to a
person having a place of business in Gujarat is subject to service tax.
12. Original Return & Revised return both are to be filed is Form ST-3.
13. Tax Reforms Committee (This Committee recommended imposition of tax on select
services in early 1990s) was headed by Dr. Manmohan Singh.
14. There is a concept of pure agent that exists for the purpose of service tax valuation.
15. When gross amount of service tax payable is nil, penalty may be reduced or waived if
sufficient cause exists for not filing returns.
16. Service tax will be paid by an individual and by a company on quarterly and monthly
basis respectively.
17. Single Registration is possible with the permission from Department, only when the
assessee maintains centralized billing or centralized accounting for multiple services
provided from more than one premises.
18. Revised returns can be filed within 120 days from the date of original return filed by
the assessee.
19. All the taxable services provided by any person to the United nations or an
International Organisation, are taxable.
20. A person having a place of business in Himachal Pradesh providing services to a person
having a place of business in Jammu and Kashmir are liable to service tax.
21. A service provider is the person who receives the service.
Answer:
1. False. The airfare collected by air travel agent in respect of service provided by him
does not included in the value of services.
2. True.
3. False. Interest is mandatory for delayed payment of Service Tax.
4. False. There is a provision of Provisional Payment in Service Tax.
5. False. It is mandatory to specify the heading under which the service being provided,
falls. It is necessary for the purpose of classification.
6. True.
 168 INDIRECT TAXES

7. False. Due date of submission of half yearly return ST-3 for the period April-September
is 25th October.
8. False. ST-3 can be signed by Assessee or Authorized Signatory
9. True. Single registration in the case of multiple services rendered is possible subject to
conditions.
10. False. The due date for submitting the return is half yearly i.e. 25th October and 25th
April. There is no monthly return concept in the service tax provisions.
11. True. Services delivered by a person having a place of business in Jammu and Kashmir
to a person having a place of business in Gujarat is subject to service tax. Place of
delivery of service is irrelevant.
12. True.
13. False. Tax Reforms Committee (This Committee recommended imposition of tax on
select services in early 1990s) was headed by Dr. Raja J. Chelliah.
14. True. There is a concept of pure agent that exists for the purpose of service tax
valuation.
15. True.
16. True. Service tax will be paid by an individual on quarterly basis and by a company on
monthly basis.
17. True. Single Registration is possible with the permission from Department, only when
the assessee maintains centralized billing or centralized accounting for multiple
services provided from more than one premises
18. False. Revised returns can be filed within 90 days from the date of original return filed
by the assessee.
19. False. All the taxable services provided by any person to the United Nations or an
international organization, are Exempt.
20. False. A person having a place of business in Himachal Pradesh providing taxable
service to a person having a place of business in Jammu and Kashmir is not liable to
service tax
21. False. A service provider is the person who renders the service.

Unsolved Exercise

Question 1: Black Cat Secure Services Ltd., a security agency, provides security services to
Delta Ltd. for an agreed amount of remuneration of ` 1,24,000 per annum. Delta Ltd. has
clearly indicated that it will not pay any extra amount than the agreed remuneration. Black
Cat Secure Services Ltd. is not a small service provider. Do you think any service tax is
payable by Black Cat Secure Services Ltd? If yes, then compute the service tax liability.
 SERVICE TAX 169

Question 2: Mr. Mohan, a Chartered Accountant, agrees to accept ` 25,000 as statutory

audit fee from one of his clients, Beta Packers. Beta Packers provides packaging services.
Mr. Mohan utilizes the services of Beta Packers while shifting his residence. Beta Packers
normally charges ` 10,000 for such service. Mr. Mohan has raised a bill of ` 15,000 against
Beta Packers.
Do you think the action of Mr. Mohan is correct? Compute the service tax liability of Mr.
Mohan. (Assume Beta Packers to be a small service provider)

Question 3: ABC Ltd. has entered into a contract with XYZ Ltd. on 31.08.2016 for rendering
services. The contract contains clear details of Services. Consideration and service tax are
charged separately.
The following information is also available:
(i) Advance received in September 2016 from XYZ Ltd. towards all services ` 60,000.
(ii) Total value of services billed to XYZ Ltd. in February 2017 ` 2,10,000.
(iii) Non-taxable services billed to XYZ Ltd. (included in (ii) above) ` 70,000.
(iv) Balance consideration for service is received in March 2017.
1) How many times does the liability to pay service tax arise in such a case and
when?
2) What is the service tax liability in each case?
3) What are the due dates for service tax in each case?

Question 4: Where a service provider maintains books of accounts on mercantile basis

relating to taxable services provided by him, will service tax be payable on accrual basis?

Question 5: J.C. Professionals, a partnership firm, gives the following particulars relating to
the services provided to various clients by them for the quarter ended on 30.09.16:
(i) Total bills raised for ` 8,75,000 out of which bill for ` 75,000 was raised on an
approved International Organization and payments of bills for ` 1,00,000 were not
received till 30.09.16.
(ii) Amount of ` 50,000 was received as an advance from XYZ Ltd. on 20.09.16 to whom
the services were to be provided in October, 2016.
You are required to work out the:
(a) Taxable value of services
(b) Amount of service tax payable

Question 6: Miss. Beauty rendered a taxable service to a client. A bill for ` 40,000 was
raised on April 29, 2016; ` 15,000 was received from the client on May 1, 2016 and the
balance on May 23, 2016. No service tax was separately charged in the bill. The Questions
are:
 170 INDIRECT TAXES

1. Is Miss. Beauty liable to pay service tax, even though the same has not been charged by
her?
2. In case she is liable, what is the value of taxable service and the service tax payable?

Question 7: Discuss whether free services after sale of motor vehicles, given by the
authorized dealers, for which they are reimbursed by the vehicle manufactures, are subject
to service tax.

Question 8: Mr. Vijay, Chartered Accountant, liable to pay service tax amounting to
` 50,000 on 05.01.17. But due to financial crunch, he has made the payment only on
31.03.17. Whether he is liable to pay any interest on service tax, if so, what is amount of
interest payable?