All You Need to Know About Service Tax in India

By Prakash Kumar
prakashsadopur2@gmail.com

The word “Tax” is a Latin word which means To estimate. As you all know that
a tax is not a voluntary payment or donation rather it is a n enforced
contribution imposes by the government by different names like toll, duty,
custom etc. Service tax is collected by the central government on those kind of
services which is already provided as well as on those services which are
agreed to be provided by the established government. The provisions relating
to Service Tax were brought into force with effect from July 1, 1994 vide
chapter V of the Finance Act, 1994. It extends to the whole of India including
the State of Jammu and Kashmir. Entry 97 of List-I of Schedule VII of the
Constitution of India extends the constitutional rights to the Central
Government to levy service tax. The Government of India, through the
Department of Revenue administers the levy and collection of service tax in
India. The service tax being an indirect tax, its administrative control is vested
with the Central Board of Excise & Customs (CBEC). Service tax is charged on
every services with an exception which are mentioned in the negative list.
Person who is liable to pay tax is governed by the service tax rule 1994 where
he may be a service provider or a service receiver. I would be pleased to tel
you one more interesting fact which is like service tax is a reciprocal tax
system. Which is under use in our country. It can be called as an indirect tax
where the service provider receives services tax from there service receiver
and then after they hand it over to the authorized agency or in simple word to
the central government.
The main motto of the collection of tax by the government is to provide basic
facilities to the public and they collect taxes for the welfare scheme for the
people of the country. By keeping this view in mind the government has
decided to exempt certain services from the ambit of service tax in the public I
treat at a large by the official notification 25/2012-ST as amended up to date
but some of the services are charged with service tax at the amended rate
under the notification no 26/2012-ST.
You should know the rate as well as the criteria on which the rate has been
decided by the Indian government. From 1 June 2016 the rate has suddenly
touched the sky and it was raised to 15% of rate of service provided. The
consolidated rate is as 14%+0.5%+0.5% which is equal to 15%. The education
cess as well as the secondary higher education cess are merged together and
they itself cover 2% and Swachh Bharat cess has been notified by the
government with 0.5% cess. One new cess was also included in it which is
known as Krishi Kalyan Cess.
Before the service tax to be 16% the finance minister of India had increased
the service tax rate from 12.36% to 14% which came into force from 1 st June
2015. But the government did not stop itself here and they further added 0.5%
Swachh Bharat Cess from Nov 15, 2015 by the consequences of it the service
tax was raised to 14.5%. but due to the continuous rise in service tax rate it
became 15% by the new announcement made by the government in 2016 at
the time of submitting the Union Budget.
The dispute over the collection of the tax is not newly known it has a very past
history, to overcome with the disputes one committee was formed u der the
expert guidance of Dr. Raja Chelliah and on which the name of the committee
was named as Chelliah committee. He was popularity known as the father of
the tax reform. He is the person who is responsible for the introduction of the
word service tax.
The rate of the service tax has gone under several increment, earlier between the
period of 1st July 1994 to 13 May 2003 it was just of 5% flat but it became 8%
from 10 September 2004 on the services provided by the service provider.
Finance Act 2006 played an important role in this increment of the service tax
rate and it became 12% which came into force from 18th April 2006. Again in
the year of 2007 the Finance Act 2007 made an increment and it introduced a
new secondary and higher education cess of one percent on the service tax
which came into force from 11th May 2007.Due to the several reforms led by
Chelliah Committee the total amount of revenue from the service tax shown a
remarkable positive growth since it’s starting phase in 1994.this is possible
because the number of taxable service has also been increased from 3 in 1994 to
119 in 2012. This TRC came up with three reports in 1991, 1992 and 1993 with
several measures.

Here you need to know some of the recommendations made by the Chelliah
Committee which are as follows:-
1. Reforming the personal taxation system by reducing the marginal tax rates.
2. Reduction in the corporate tax rates.
3. Reducing the cost of imported inputs
4. by lowering the customs duties.
5. Reduction in the number of Customs tariff rates and its rationalization.
6. Simplifying the excise duties and its integration with a Value-Added Tax
(VAT) system.
7. Bringing the services sector in the tax net within a VAT system.
8. Broadening of the tax base.
9. Building a tax information and computerization and Improving the quality
of tax administration.
However there was a change in the taxation system of service tax on some
selected service to tax charged on all service other than services specifically
mentioned in negative list. When I use the term Negative List then you may
raise a question that what the actually negative list means? Then I want to
answer the question as per the clause 34 of section 65B of the Finance Act
1994, the term Negative List means the services which are listed in section
66D. Negative List can be understand as per the provision mentioned in section
66D of Services Tax Act 1994.
You should also know about the certain exemptions mentioned regarding the
service tax. Service tax is only charged in a case where the total value of the
provided service during that financial year is more than 10 Lakh but where the
value of service provided is less than 10 Lakh in the current financial year then
it will be covered under it’s exemption.
The Union budget of 2012 changed the existing taxation provision to a much
extend by introducing a new as well as modified form of taxation system in
India. Before the union budget 2012 the service tax was charged on the basis
of positive list which exclusively deals with 119 taxable services but now the
service tax is charged in different way and it is levied on all services except the
services which are exclusively mentioned under the ambit of negative list.
One more important information I would like to share with you which is
related to the registration of service tax. To make a registration it is mandatory
to certain kinds of person, those who are liable to pay service tax under the
reverse charge,those who are an input service provider whose total value of
taxable services exceeds 9 lakhs in a financial year and along with these
provisions there is importance of time too. According to the service tax law the
person who is liable to pay service tax will have to get them registered within
the time period of 30 working days and this will be counted from the
commencement of such services or business. In case where a service provider
whose total value of taxable service whose total value of taxable service not
more than 9 lakh they need not to be registered but if they have registered
themselves then they will have to pay the service tax only when the value of
service exceeds to 10 lakhs at the current financial year.
A new reform in the taxation system of India was introduced by the name of
Goods and services tax which was implemented on July 1, 2017. Actually the
GST was planned to be implemented in April 2010 itself but it could not to
happen because of some political issues and conflicting interests of various
stakeholders. The main purpose behind implementation of GST was to sort out
all the conflicts that had been taken place due to certain kinds of direct as well
as indirect taxes like Central excise tax, VAT, service tax etc and to implement
one taxation system all over India. According to the government officials GST
brings more transparency in taxation system and it reduced corruption to a
some extend as well, it is also said that it has increased the GDP rate by 1% to
2% and minimized the tax theft as well.
Article 366(12A) of the Constitution of India explains about GST as an form of
tax on supply of goods or services or both except taxes on the supply of
alcoholic liquor for human consumption.