Title of the Project:

e_EDP thru GOLS Academy PROJECT REPORT ON SERVICE TAXSubmitted By :

Name

:S SABATRoll No.

:

Date

:14th July. 2013

CONTENTS HISTORICAL BACKGROUND APPLICABILITY WHO MUST OBTAIN REGISTRATION & TIME LIMIT GENERAL EXEMPTION FROM SERVICE TAX (SEC.93) TAX IS CALCULATED ON THE VALUE WHO IS LIABLE FOR SERVICE TAX? OTHER PROVISIONS RELATING TO SERVICE TAX Provisional Payment of Service tax Due dates for payment of service tax DEFAULT & EXCESS PAYMENT OF SERVICE TAX When will return be filed? Other provisions relating to return Some important forms Penalty for late filing of returHISTORICAL BACKGROUND

Service Tax is an Indirect Tax.

The provisions to levy tax on services are contained in the Financial Act, 1994.

Based on the recommendation of the Tax Reforms Committee headed

by Dr. Raja J. Chelliah It was introduced in 1994 by the 10th Finance Minister Dr. Manmohan Singh Initially three services were identified and taxed

APPLICABILITY Every person whether Individual or Sole Proprietor or Partnership or Company etc. are liable to pay service tax if provide any taxable services. Sec 66 of the Finance Act, 1994 is the charging section Service Tax is levied to the whole of India except the state of

Jammu & Kashmir

From 1st April 2012 it is 12.36%. It is bifurcated by Service tax i.e. 12%

Education cess i.e.2%

Secondary and higher education cess i.e. 1%

Who must obtain registration & time limit?

General exemption from service tax (Sec. 93)

1. Services provided by united nation or an in international organizations2. Service provided to developer or units of special economic zone

3. Goods & materials sold by service provider to recipient of service4. Service provided by reserve bank of India

5. The service provider whose turnover is less than 10 lakh in the previous year

will be exempt from service tax up to Rs 10 lakh in next FY. They called

small service providers6. Exemption to technology business Incubator, Science and Technology

Entrepreneurship park (STEP) and IncubatesExemption is granted to incubates subject to following condition

a) Incubates should be located within the premises of the incubator

b)Total business turnover of incubates entrepreneurship does not exceed Rs. 50 Lakh during the preceding financial year.

c)The exemption is avail to incubate for a period of 3 year.

7. Services provided by a digital cinema service provider8. Service provided by Residential welfare association

Monthly contribution does not exceed Rs. 3000/Month9. Drug & Medicine ProducesThe tax is calculated on the value. following provisions are:-a. If consideration is charged in money then the amount charged is the value. b. If the consideration charged is either wholly or partly not in money then value shall be

equal to that part which is not in money also calculated in money value which shall be

deemed to be service tax.

c. consideration is not ascertainable then the value on which the tax has to be

charge shall be the amount as prescribed under Service Tax (Determination of Value) Rules 2006d. Where the amount charged by the service provider is inclusive of service tax then

the values will be treated as inclusive of tax.e. The gross amount charged shall include any amount received towards the

taxable service either before or during or after providing such service.

Who is liable for service tax? As per Sec 68(1) every person who is providing a taxable service to another person is liable to

pay service tax to the Government.

However Sub Section 2 of Section 68 empowers the Central Government to notify

any other class of person or persons who shall be liable to pay service tax. The Central Government has notified such class of persons in rule 2(1d) of the

Service Tax Rules 1994. These notified persons are Receivers of Taxable Services.a)General Insurance Businessb) Insurance Auxiliary Servicec) Transportation of goods by roadd) Distribution of mutual fund in business auxiliary servicee) Sponsorship Servicef) Services provided from outside India and received in India

Other provisions relating to service tax When services are provided free of cost i.e. without receiving any

consideration in cash or in kind no service tax is paid.

Service tax has to be paid only when the value of taxable service is

realized by the service provider service provider should pay service tax on advances received also.

Where any person has collected any amount as service tax which is not suppose

to collect or where a person has collected an amount which is more than the tax

that is charged then he should immediately pay the amount so collected to the

credit of the Central Government.

Provisional Payment of Service tax If assesses is unable to correctly estimate the amount of tax

payable by him, he can request in writing to the commissioner

of CBSE for payment of service tax on provisional basis. inIn such cases, the assesses has to submit a memorandum

form ST-3A giving detail of difference between service taxes

deposited and service tax to be paid for each month/Quarter.

Due dates for payment of service tax

through Internet ,Banking the due date is 6th instead of 5th.

Tax has to be paid by using a challan GAR-7.

Default in payment of service tax Where tax is not paid on or before due date the assessee shall be liable to pay interest from the date after the due date till the actual date of payment of tax.

The current rate of interest is 13%. Excess payment of service tax If the assessee has paid excess service tax should that excess be refunded or can

the assessee adjust the excess against future liabilities. If the assessee has paid excess amount as service tax than what is required to pay

then such excess can be adjusted only if the excess is due to return of the service

provided.When will return be filed? The return has to be filed for each half year

The service tax return has to be filed in form ST-3.

If the assessee is providing more than one taxable service one return is sufficient

For all taxable services. filing nil return is also a must.Other provisions relating to return Where the assessee has not filed the return on or before the due date the return can be filed after paying late fee, which is prescribed by the Government. Every return, which is filed, can be revised within 90 days from the date of filing. Revised return cannot be filed if the revision is on account of any classification, value or cenvat credit. filing the return is holiday the next working day will be treated as the due date.

Some important forms

Penalty for late filing of return

CHANGES IN RATE OF SERVICE TAX1.1 Change in main rate of service tax:Notification No. 08/2009 dated 24.02.2009 was issued to reduce rate of service tax from 12% to 10%. The said notification has been rescinded by Notification no. 02/2012 dated 17.03.2012 w. e. f. 01.04.2012. Thus, now, w. e. f. 01.04.2012, effective rate of service tax (including education cess and S. H. Cess) has been increased to 12.36%.1.2 Rate of service tax under composition scheme: Notification No. 10/2012 dated 17.03.2012 increases the rate of service tax w. e. f. 01.04.2012 from 4% to 4.8% under Works Contract (Composition

Scheme for Payment of Service Tax) Rules, 2007.

1.3 Optional rate of Service Tax on life insurance premium: Notification 6(7A)(ii) of Service Tax Rules, 1994 provides the special rate of service tax for in respect of life insurance premium consisting of investment portion also. Said special rate is applicable only where the entire premium paid by the policy holder is not only towards risk cover in life insurance. The change in rate provided in said rule has been amended by Notification No. 3/2012. The said change is summarised as under:

1.4 Optional Rate of Service Tax sale, purchase including Money Changing of Foreign currency: Rule 6(7B) of Service Tax Rules, 1994 has been amended by Notification no.3/2012 to change the rate of service tax in respect of foreign exchange:

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1.5 Rate of Service Tax for Distributor or Selling Agent of Lotteries under Rule 6(7C) of Service Tax Rules, 1994 Rule 6(7B) of Service Tax Rules, 1994 has been amended by Notification no.3/2012 to change the rate of service tax in respect of foreign exchange:

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1.6 Introduction of abatement for transportation of passenger by Air Services: Abatement has been provided under Notification No.6/2012 dated 17.03.2012 for the taxable category Transportation of Passenger by Air Services. Special concession of service tax for economy class is withdrawn.

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Service tax was initially introduced in the year 1994, when service tax was made applicable on only three services. The scope of applicability of service tax has been widened over the years, covering almost 119 services under the ambit of taxability by 2012. However, the concept was based on the positive list of services, wherein the services specified under Section 65(105) of the Finance Act, 1994 (as amended) were taxable. Under this scenario, one had to analyze the various services and to seek whether the service provided is covered under any of the taxable service under the list.

A new service tax regime has been introduced with the announcement of budget 2012 wherein all services will be taxed unless they are specified under the negative list entry or are otherwise exempted. Under the new system, the services will be taxed comprehensively, except the few ones which have been specified under the negative list. The Central Board of Excise and Customs [CBEC] has further issued "Mega Exemption Notification" vide Notification No. 25/2012-Service Tax dated 20th June, 2012, enlisting the services which shall be exempt from the payment of service tax with effect from 1st July, 2012.

With the enforcement of Finance Act 2012, Section 65 relating to the "definitions" of the various terms relating to the service tax has been omitted. However, two important sections which have been introduced defining the new service tax code are Section 65B which provides for a whole new set of definitions in context of taxable services under the head "Interpretations" and Section 66D which states the "Negative list of service".

Further, for the purpose of payment of service tax under the new approach, a new Minor Head- "All taxable Services" has been allotted under the Major Head "0044-Service Tax".1Need for the new system

There have always been disputes about taxability of a particular activity and also its classification in a particular taxable head. The provisions of the Chapter V of the Finance Act, for levying service tax on various activities had been challenged under different grounds before the Courts in India. Some of the major grounds upon which the validity had been challenged includes violation of Article 14 of the Constitution of India, noncompetency of the Parliament to levy tax on the activity within the domain of the State power, discriminatory nature of the provisions etc. Also, the definitions of each service as provided under Chapter V were often vague and broad.

In order to mitigate the administrative difficulties in defining a service and administering the service tax, the concept based on negative list of service was first floated last year. However, the final set of notifications has come out on 20th June, 2012. This new approach towards the service tax applicability has simplified and resolved the issue relating to whether any particular service is liable to be taxed.New concepts

The new concepts introduced under the new Service Tax Regime based are being discussed below.

1. Meaning of Service

Earlier the word "Service" was not defined anywhere in Chapter V of the Finance Act, 1994. In order to ensure wide coverage of services under the ambid of service tax, the term 'Service' has been defined under the new inserted section 65B(44) in the Finance Act, 2012, which reads as follows-

"Service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not includea) 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; orii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; oriii) a transaction in money or actionable claim.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."2The definition prescribes the following three essential ingredients that must be present in order to call an activity as 'service'-

a) it must be an activity;

b) it must be performed by a person for another person;

c) the activity is performed for a consideration.

In the absence of any of these essential ingredients, the activity will be not be considered as service. Also, the activities which are covered under the declared service category will automatically become service.

Thereafter, the definition expressly excludes the activities from the provision of "Service". Thus, except for the activities as mentioned in the definition of the term "Service", all other activities shall be covered which involves the above three essential ingredients.

2. Meaning of Declared Services

As per the definition of "Service" as contained under Section 65B (44) of the Finance Act, the term service includes declared services. The phrase "Declared Service" has also been defined under section 66E as "an activity carried out by a person for another for consideration". Further, the section specifically mentions the following nine services as 'declared services':

a) renting of immovable property

b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority.

c) temporary transfer or permitting the use or enjoyment of any intellectual property right.

d) development, design, programming, customisation, 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) transfer 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 installments. 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.3. Negative List

Negative list of services means that all services, excluding those specified in negative list will be subject to service tax. However, in addition to items included in negative list, there will be exemptions, abatements and composition schemes as issued by the CBEC from time to time.

The Mega Exemption Notification issued by the CBEC and the issuance of guidance paper on the new approach to service tax has mentioned 38 services on which service tax shall be exempt. All the other services, i.e. which are not mentioned in the negative list, will attract service tax liability.

Some of the services covered in the negative list category are as follows:

i) Health care services by a clinical establishment, an authorised medical practitioner or para-medics

ii) Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to ;

a) an advocate or partnership firm of advocates providing legal services

b) any person other than a business entity;

c) a business entity with a turnover up to rupees ten lakh in the preceding financial year

iii) Services provided to a recognised sports body bya) an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body;

b) another recognised sports body

iv) auxiliary educational services and renting of immovable property by educational institutions in respect of education

v) Services by way of training or coaching in recreational activities relating to arts, culture or sports

vi) Temporary transfer or permitting the use or enjoyment of a copyright covered under section 13 of the Indian Copyright Act, 1957 relating to original literary, dramatic, musical, artistic works or cinematograph films

vii) Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of airconditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages

Therefore, with the exception of 38 services as specifically provided by the CBEC under negative list, all other services will come under the 12%3 service tax bracket.Chargeability under the new approach

The taxability of services or the charge of service tax has been specified in section 66B of the Finance Act which reads as follows:

"There shall be levied a tax at the rate of twelve per cent 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."

From the analysis of the above definition, it can be said that following conditions needs to be fulfilled in order to make an activity chargeable to tax under the new provisions:

a) a service should be not be specified in the negative list or as covered under the exempted list of services as issued under the Mega Notification;

b) provided or agreed to be provided in the taxable territory; and c) by a person to another.Conclusion

The new approach to taxation of services will benefit the service provider in order to understand the law and the applicability of the tax on the services to be provided. Also, the "negative approach" is a lot simpler as compared to the earlier "positive approach" based system of taxation. The expansion of the service tax base by covering most of the sectors will help in moving towards the adoption of Goods and Service Tax Code. In this way, the new system shows a remarkable shift from the old system by way of introducing comprehensive taxation system which avoids the complex issues and without getting involved into the classification of services.