The Professional Learing Program On Service Tax FICCI, NEW DELHI ON 1472006

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The Professional Learing Program On Service
TaxFICCI, NEW DELHI ON 14-7-2006

• TOPICS -
• Emerging Issues
• Expectations Ahead
• By S.S. Gupta
• Chartered Accountant

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Issue No. 1

• Person other than the service provider specified
  under rule 2(d)(1) of the Service Tax Rules, 1994
  are liable to pay service tax. Is the services in
  respect of which the person is liable to pay
  service tax can be considered as output services
  under the Cenvat Credit Rules, 2004?
• The relevant provisions are -
• Payment of Service Tax Section 68
• (1) Every person providing taxable service to
  any person shall pay service tax at the rate
  specified in section 66 in such manner and within
  such period as may be prescribed
• (2) Notwithstanding anything contained in
  sub-section (1) in respect of any taxable service
  notified by the Central Government in the
  official gazette, the service tax thereon shall
  be paid by such person and in such manner as may
  be prescribed at the rate specified in section 66
  and all the provisions of this Chapter shall
  apply to such person as if he is the person
  liable for paying the service tax in relation to
  such service.

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• Cenvat Credit Rules, 2004.
• 2(l) Input service means any service,-
• used by a provider of taxable service for
  providing an output service or
• (ii) used by the manufacturer, whether
  directly or indirectly, in or in relation
  to the manufacture of final products and
  clearance of final products from the place of
  removal,
• and includes services used in relation to
  setting up, modernization, renovation or repairs
  of a factory, premises of provider of output
  service or an office relating to such factory or
  premises, advertisement or sales promotion,
  market research, storage upto the place of
  removal, procurement of inputs, activities
  relating to business, such as accounting,
  auditing, financing, recruitment and quality
  control, coaching and training, computer
  networking, credit rating, share registry, and
  security inward transportation of inputs or
  capital goods and outward transportation upto the
  place of removal.

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Cenvat Credit Rules, 2004.(Contd.) 2(p) output
service means any taxable service provided by
the provider of taxable service, to a customer,
client, subscriber, policy holder or any other
person, as the case may be, and the expressions
provider and provided shall be construed
accordingly. 2(q) person liable for paying
service tax has the meaning as assigned to it in
clause (d) of sub-rule (1) of rule 2 of the
Service Tax Rules, 1994. 2(r) provider of
taxable service include a person liable for
paying service tax.
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Issue No. 2Rule 6(5) of Cenvat Credit Rules,
2004 specifies following 16 services in respect
of which credit is allowed for the whole amount
unless such service is used exclusively in or in
relation to manufacture of exempted goods or
providing exempted services

• Architects service
• Banking and Financial Services
• Commercial or Industrial Construction Service
• Consulting Engineers Service
• Erection, Commissioning and Installation Service
• Foreign Exchange Brokers Service
• Insurance Auxiliary Service
• Intellectual Property Service

• Interior Decorators Service
• Maintenance or Repair Service
• Management Consultants Service
• Real Estate Agents Service
• Scientific or Technical Consultancy Service
• Security Agency Service
• Technical Inspection and Certification Service
• Technical Testing and Analysis Service

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Is the utilization of such credit governed by the
provisions contained in rule 6(3)(b) (c) of
Cenvat Credit Rules, 2004. The relevant
provisions are Rule 6(1) The Cenvat credit
shall not be allowed on such quantity of input or
input service which is used in the manufacture of
exempted goods or exempted services, except in
the circumstances mentioned in sub-rule (2). Rule
6(2) Where a manufacturer or provider of output
service avails of Cenvat Credit in respect of any
inputs or input services and manufactures such
final product or provides such output service
which are chargeable to duty or tax as well as
exempted goods or services, then, the
manufacturer or provider of output service shall
maintain separate accounts for receipt,
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consumption and inventory of input and input
service meant for use in the manufacture of
dutiable final products or in providing output
service and the quantity of input meant for use
in the manufacture of exempted goods or services
and take Cenvat credit only on that quantity of
input or input service which is intended for use
in the manufacture of dutiable goods or in
providing output service on which service tax is
payable Rule 6(3)(a) . (b) If the exempted
goods are other than those described in clause
(a), the manufacturer shall pay an amount equal
to ten per cent of the total price, excluding
sales tax and other taxes, if any, paid on such
goods, of the exempted final product charged by
the manufacturer for the sale of such goods at
the time of their clearance from the factory
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(c) The provider of output service shall utilize
credit only to extent of an amount not exceeding
twenty per cent of the amount of service tax
payable on taxable output service. Rule 6(5) Not
withstanding anything contained in sub-rules (1),
(2) and (3) credit of the whole of service tax
paid on taxable service as specified in
sub-clauses (g), (p), (q), (r), (v), (w), (za),
(zm), (zp), (zy), (zzd), (zzg), (zzh),(zzi),
(zzk), (zzq), and (zzr) of clause (105) of
section 65 of the Finance Act shall be allowed
unless such service is used exclusively in or in
relation to the manufacture of exempted goods or
providing exempted services.
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Issue No. 3

• Is the credit of service tax paid on Mobile
  Telephone available to the Service Provider?
• (Old rule)
• Service tax credit on the service provided in
  relation to telephone connection shall be allowed
  only in respect of such telephone connections
  which are installed in the premises from where
  output service is provided
• Clarification Circular No. 59/8/2003 dt.
  20-6-03
• 2.8Credit of Service Tax paid on Telephones
• In regard to credit of service tax on
  telephone connection, queries have been raised as
  to whether service tax credit would be admissible
  on telephone sets installed only in the business
  premises. The answer is in the affirmative, and
  credit will be allowed only on telephone sets
  installed in the business premises. Mobile phones
  are not covered.

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Issue No. 4

• In case of Goods Transport Agency,(GTA) service
  tax is not payable by the GTA where the consignee
  or consignor is one of the person specified in
  rule 2(d)(1)(v). Is the benefit of notification
  No.32/2004 available to the persons specified in
  rule 2(d)(1)(v) and accordingly service tax is
  payable by him on 25 of the amount paid to the
  transporter?
• Notification No. 32/2004
• In exercise of the powers conferred by
  sub-section (1) of section 93 of the Finance Act,
  1994 (32 of 1994), the Central Government, being
  satisfied that it is necessary in the public
  interest so to do, hereby exempts the taxable
  service provided by a goods transport agency to a
  customer, in relation to transport of goods by
  road in a goods carriage, from so much of the
  service tax leviable thereon under section 66 of
  the said Act, as is in excess of the service tax
  calculated on a value which is equivalent to
  twenty-five per cent. of the gross amount charged
  from the customer by such goods transport agency
  for providing the said taxable service

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Notification 32/2004 (Contd.)

• Provided that this exemption shall not apply in
  such cases where
• (i) the credit of duty paid on inputs or capital
  goods used for providing such taxable service has
  been taken under the provisions of the Cenvat
  Credit Rules, 2004 or
• (ii) the goods transport agency has availed the
  benefit under the notification of the Government
  of India in the Ministry of Finance (Department
  of Revenue) No. 12/2003-Service Tax, dated the
  20th June, 2003 G.S.R. 503 (E), dated the 20th
  June, 2003.
• 2. This notification shall come into force on
  the first day of January 2005.

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Issue No. 5

• Is Centralized Registration in respect of Goods
  Transport Operator available to the person
  specified in rule 2(d)(1)(v)?
• Rule 4(1) - Every person liable for paying the
  service tax shall make an application to the
  concerned Superintendent of Central Excise in
  Form ST-1 for registration within a period of
  thirty days from the date on which the service
  tax under section 66 of the Finance Act, 1994 (32
  of 1994) is levied.
• (2) 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,

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• he may, at his option, register such premises or
  offices from where such centralized billing of
  centralized accounting systems are located
• (3) The registration under sub-rule (2) shall be
  granted, -
• (a) by the Commissioner of Central Excise or the
  Chief Commissioner of Central Excise, as the case
  may be, in whose jurisdiction all the premises or
  offices providing taxable service and the premise
  or office from where centralized billing or
  centralized accounting is done, are located and
• (b) in case other than (a) above, by such
  authority, as may be specified by the Board.

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Issue No. 6

• Is the service tax payable under the category of
  Tour Operator by the contractor carrying children
  to the school or transporting employees from
  residence to place of work?
• The definition of tour operator is as follows
• From 1-4-200 to 9-9-2004
• Tour operator means any person engaged in the
  business of operating tours in a tourist vehicle
  covered by a permit granted under the Motor
  Vehicles Act, 1988 (59 of 1988) or the Rules made
  there-under
• From 10-9-2004
• Tour operator means any person engaged in the
  business of planning, scheduling, organizing or
  arranging tours (which may include arrangements
  for accommodation, sightseeing or other similar
  services) by any mode of transport, and includes
  any person engaged in the business of operating
  tours in a tourist vehicle covered by a permit
  granted under the Motor Vehicles Act, 1988 (9 of
  1988) or the rules made there-under.

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Issue No. 7

• Is Service Tax payable on import of services
  w.e.f. 16.8.2002 or w.e.f. 16.6.2005?
• The relevant provisions are
• The rule 2(d)(1)(iv) was introduced w.e.f.
  16.8.2002 which reads as follows
• in relation to any taxable service provided or
  to be provided by any person from a country other
  than India and received by any person in India
  under section 66A of the Act, the recipient of
  such service.
• The following explanation was added in clause
  65(105) w.e.f. 16.6.05.

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• For the removal of doubts, it is hereby
  declared that where any service provided or to be
  provided by a person, who has established a
  business or has a fixed establishment from which
  the service is provided or to be provided, or has
  his permanent address or usual place of
  residence, in a country other than India and such
  service is received or to be received by a person
  who has his place of business, fixed
  establishment, permanent address or, as the case
  may be, usual place of residence, in India, such
  service shall be deemed to be taxable service for
  the purposes of this clause.

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EXPECTATION AHEAD

• E payment of service tax and E filing of returns
• The percentage of utilization of credit (20)
  provided in rule 6(3)(c) should be increased as
  more and more services are brought in service tax
  net.
• C) There is no clarity on availment of credit on
  services like telephone, courier, use of which
  cannot be bifurcated with exempted and dutiable
  services. The department should clarify the
  manner of availment and utilization.

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Expectation Ahead (Contd.)

• Some of the Directorate like Directorate of
  Central Excise (Intelligence) have all over India
  jurisdiction. Therefore, the officers in Calcutta
  can ask for information from an assessee
  registered under Service Tax in Mumbai. In case
  the assessee is registered at any place the
  investigation should also be carried out by the
  authorities located in the place where an
  assessee is registered.. Asking for information
  for the past 5 years by the authorities situated
  outside city cause substantial inconvenience.
• Sub rule 3 of Rule 3 of Export Service Rules
  provides that the services must be delivered
  outside India and used in business outside India.
  Meaning of these words are very confusing and the
  same may be clarified.
• It is proposed that service tax on some of the
  services is collected by the State. Bifurcation
  of service at the Central and State should be
  properly done in order to avoid litigation due to
  classification of services.

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• BALANCED VIEW PRESENTED BYS.S.GUPTAChartered
  AccountantOFFICE 102-106, 1st Floor, Zaitoon
  Apartment, A-Wing,
• 182, Station Road,
• Opp. Municipal School,
• Goregaon (W), Mumbai 400 062
• TEL [phone].
• E-MAIL guptass_at_mtnl.net.in