Service Tax - A cruise

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Service Tax - A cruise
by s. jaikumar g. natarajan advocates swamy
associates
with the members of the FKCCI, Bangalore on 04.11.
2006
2
Administered through

• Finance Act, 1994.
• Service Tax Rules, 1994.
• - Service Tax Credit Rules, 2002.
• Cenvat Credit Rules, 2004.
• Notifications / Circulars.
• Judgements.

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Valuation
F Gross amount.
F Abatements.
F Treatment of reimbursements. (Prior to
and after 18.04.2006)
F Cum duty.
F Consideration in kind.
F Notification 12/2003.
F Advances (16.06.2005).
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Reimbursements
F Thumb rule include them in gross amount.

• Exclusion only if incurred as pure agent.
• - Service recipient must be liable for
  expenses.
• - Authorises the service provider
  to pay.
• - Reimbursement only of actuals.

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Consideration in kind
F Concept of comparable charges.

• Money value of consideration vis-à-vis
• cost of provision of service.

• What if service is provided free of cost?

• What if services are bartered?

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Classification
F Most specific description to be preferred.
F Composite services vis-à-vis Essential
character.
F Residual Rule.
Classification is important for the purpose of
Abatement Exemptions. Site preparation
Construction. Non commercial construction
ECI. Sub contracting BAS.
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Cenvat Credit
F Input service / Output service.
F Inputs / Capital goods.
F Procedures.
F Rule 6.

• 16 services protected.
• - Consulting engg. -
  Architect.
• - Interior Decorator. - Mgt. Cons.
• - Real Estate Agent. - Security.
• - Scientific / Tech. Cons. -
  Banking.
• - Insce. Auxiliary. - E / C / I.
• - Maintenance / Repair. - Tech.
  Testing Analysis.
• - Tech. Insp / Certification. -
  Forex brokers.
• - Construction. - IPR.

F Input Service Distributor.
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Section 73 A
F Excess collected and retained.

• Not required to be collected
• But collected and retained.

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Important Notifications

• 1/2006 Dt. 01.03.2006.
• - Provides for abatements.
• - Conditions.
• - Effect of restriction on cenvat credit
  of
• input services.

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Important Notifications

• 6/2005 Dt. 01.03.2005.
• - Small scale exemption.
• - No exemption if others brands are
  used.
• - Limit of Rs.4 lakhs Computation
  thereof.
• - Conditions as to non availment of
  Cenvat credit.
• - No reasons for prohibiting credit on
  capital goods.

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Penalties under Service Tax.
Section 76. Penalty for delayed payment of
Service Tax. Which shall not be less
than Rs.200 per day or 2 p.m. whichever is
higher. Maximum limit ST payable.
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Penalties under Service Tax.
Section 77. Penalty for contravention of any
provisions for which no separately penalty is
prescribed. Rs.1000.
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Penalties under Service Tax.
Section 78. Penalty for suppression of value of
Taxable Service. Minimum Equal to Service
Tax. Maximum Twice the Service Tax.
Waiver under Sec. 80.
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No more a friendly levy! Sections 73 C 73
D (effective from 18th April 2006)
Power to attach property, even at SCN Stage.
Publication of names.
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Section 87 - Draconian Recovery powers.
F Deductions from any refunds from the
Customs / Central Excise Departments,
across the country. F Chase the debtors
including banks, P.Os, etc ! F Beware debtors,
if you dont oblige, you are a defaulter!
(they will chase your debtors too!) F Detention
of any movable / immovables, which
belongs to or under the control of the
defaulter. F Mundane Certificate action.
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Pathway to justice.
F Show Cause Notice.
F Normal Period Extended period.
F Power of adjudication.
F Order in Original.
F Appellate remedies. - Appeal by
assessee. - Appeal by department.
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Services often come across
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Business Auxiliary Service

• F Promotion / Marketing / Sales of goods /
  services
• Customer care services.
• Procurement of inputs / input services.
• Production or processing of goods.
• Provision of service on behalf of the client.
• Incidental / Auxiliary Services.

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Business Auxiliary Service
F Exclusion of manufacture.
F Exemption under Notification 8/2005.
F Practical difficulties in Notification 8/2005.
20
Business Support Service

• Services provided in relation to
• business or commerce.

• Outsourced services.

• Scope for interpretation.

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Goods Transport Agency
F Reverse charge.
F 75 abatement and conditions therefor.
F Whether can be paid out of Cenvat credit?
F Exemption upto Rs.1500/Rs.750.
F Cenvatability of outward transportation.
22
Commercial / Industrial construction
F Commercial Vs Non Commercial.
F Abatement of 67 .
F Effect of sub contracting.
F Finishing services.
F Materials supplied by client.
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Residential construction
F Treatment of land value.
F Sale at different stages.
F Personal use.
24
Intellectual property service
F Brand names / Trade marks.
F Technical know how vis-à-vis Patent.
F Franchisee service.
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Export of Services
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Era of simplicity
Notification 2/1999 Dt. 28.02.1999. Notification
6/1999 Dt. 09.04.1999. Rescinded by Notification
2/2003 Dt. 01.03.2003 Notification 21/2003 Dt.
20.11.2003. Rescinded by Notification 10/2005
w.e.f. 15.03.05
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Era of complexity Export of Services Rules, 2005
Introduced vide Notification 9/2005 Dt.
03.03.2005 With effect from 15.03.2005. Amended
by 28/2005 Dt. 07.06.2005 With effect from
16.06.2005. Amended by 13/2006 Dt.
19.04.2006 With effect from 19.04.2006
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Basic thumb rules.
Service must be delivered outside India and used
outside India. Payment for such service must
be received in convertible forex.
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Category I
The service must be in relation to
immovable property situated outside India.
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S.No Name of the taxable service.
1 General Insurance
2 Architect
3 Interior Decorator
4 Real Estate Agent
5 Commercial or industrial Construction service.
6 Site formation, clearance, excavation, earth moving, demolition and other similar services
7 Dredging
8 Survey and map making
9 Construction of residential complex
10 Auctioneering of immovable property.
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Examples
F An Indian construction company, building a
commercial complex, in Afghanistan.
F An interior decorator, being engaged for
beautification of White House.
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Category II
The service must be performed outside India, at
least partly.
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S.No. Name of the taxable service.
1 Stock broker
2 Courier agency
3 Custom House Agent
4 Steamer Agent.
5 Clearing and Forwarding Agent.
6 Air Travel Agent
7 Mandap Keeper
8 Tour operator
9 Rent a cab operator
10 Chartered Accountant.
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11 Cost Accountant
12 Company Secretary
13 Security Agency.
14 Credit Rating Agency
15 Market Research Agency.
16 Underwriter.
17 Photography.
18 Convention.
19 Video Production Agency.
20 Sound Recording.
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21 Port (Major Ports Other Ports)
22 Authorised Service Station.
23 Beauty Parlour
24 Cargo Handling.
25 Dry cleaning
26 Event management
27 Fashion Designer.
28 Health Club and fitness centre.
29 Storage or Warehouse keeping
30 Commercial training or coaching centre.
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31 Erection, Commissioning and Installation.
32 Internet café.
33 Maintenance or repair.
34 Technical testing and analysis
35 Technical inspection and certification
36 Airports authority
37 Transport of goods by aircraft
38 Business Exhibition.
39 Goods Transport Agency.
40 Opinion Poll Agency.
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41 Outdoor Caterer.
42 Survey and Exploration of mineral
43 Pandal or Shamiana Contractor
44 Travel Agents.
45 Forward Contract
46 Cleaning Services.
47 Club or Association
48 Packaging
49 Transport of goods by rail.
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Examples
F Despatch through courier to a foreign
destination.
F Tour operator, covering Pakistan also.
F Madonna inviting an Indian beautician.
F Chartered Accountant, auditing the accounts of
Britney Spears.
F Putting up a pandal, along Indo-Nepal boarder,
covering a bit of Nepal too.
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Category III
If provided in relation to business or commerce
- the recipient should be located outside
India. Otherwise - the recipient should be
located outside India, at the time of provision
of such service. If the recipient has a
presence in India, the order for service must be
from outside India.
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S.No. Name of the taxable service.
1 Telephone.
2 Pager.
3 General Insurance Other than immovable property
4 Advertising Agency.
5 Consulting Engineering.
6 Manpower recruitment and supply of manpower.
7 Management Consultant.
8 Scientist or Technocrat.
9 Leased Circuit.
10 Telegraph.
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11 Telex.
12 Fax.
13 Online information and database access and retrieval.
14 Broadcasting.
15 Insurance auxiliary Services
16 Banking and other financial services.
17 Cable Operator.
18 Life Insurance.
19 Insurance auxiliary services relating to life insurance.
20 Business Auxiliary Service.
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21 Franchisee service.
22 Foreign Exchange Broker.
23 Intellectual Property Service.
24 Programme Producer.
25 Transport of goods through pipeline or conduit.
26 Survey and map making Other than those relating to immovable properties.
27 Mailing list compilation.
28 Registrar to issue.
29 Share transfer Agent.
30 ATM Operations, maintenance or management.
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31 Recovery agents.
32 Sale of space / time for advt.
33 Sponsorship.
34 Business Support services.
35 Auctioneering Other than immovable properties.
36 Public relations services.
37 Ship Management Services.
38 Credit card related services.
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Examples
F Consulting engineer, rendering service to a
foreign client.
F Downloading web content, by a foreign national.
F Soliciting orders for a foreign company.
F Job work for a foreign principal.
F Manpower recruitment for a foreign company.
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What if services are exported?
No Service tax needs to be paid on export of
Services. (Rule 4 of Export of Service Rules,
2005) If paid, rebate can be claimed. (Rule 5,
ibid and Notification 11/2005) Rebate of
duties of excise / service tax, suffered on
inputs / input services, can be claimed. (Rule
5, ibid and Notification 12/2005)
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What if services are exported?
Cenvat can be availed for the inputs / input
services used for the exported services.
(Cenvat Credit Rules, 2004) Refund of
unutilized credit. (Rule 5 of CCR, 2004
Notification 5/2006)
F Rule 6 Export of Service.
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Import of Services
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Rule 2 (1) (d) (iv) of Service Tax Rules,
2002 (16.08.2002)
Explanation to Section 65 (105) (16.06.2005)
Section 66 A and Rules made thereunder (18.04.2006
)
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Category I
F The property must be situated in India.
Category II
F The service must be performed in India, at
least partly.
Category III
F The recipient must be in India.
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F Services received by individuals, for non
business / non commercial purposes are
not covered.
F To be paid only in cash.
F Cenvatable, if otherwise eligible.
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Miscellaneous
F Registration Centralised Registration.
F Issue of invoice.
F Self adjustment of excess payments.
F Half yearly return.
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thanks
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swamy associates 21/8 rams flats ashoka
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024. Ph 044-24811147 Fax [phone]
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080-32983989 Fax [phone]
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