SERVICE TAX IN INDIA
Introduction:
Service tax was 1st time introduced in the year 1994. In the 1st year there were only 3 services under the service tax net. With the 2010 budget, there are altogether 117 services under the service tax net as on 31.07.10.
Service tax is a tax on services. It is an indirect tax which means that the service provider pays the tax and recovers the same from the recipients of the taxable service. Service Tax is levied on specific services and responsibility of payment of tax is generally cast on the service provider but for few exceptions.
Service tax is administered by Central Excise and Service Tax Commissionerates and the Service Tax Commissionerates working under the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance. Presently there are 7 service tax Commissionerates established at Mumbai (2), Delhi, Kolkatta, Chennai, Ahmedabad & Bangalore. Also there are 5 large tax payer units (LTU) at Mumbai, Delhi, Kolkatta, Chennai, Ahmedabad & Bangalore. The office of the Director General of Service Tax (DGST) was formed in the year 1997. The office of DGST is located at Mumbai.
System of self assessment of service tax was introduced with effect from 1.04.2001.These tax returns have to be filed half yearly.
Under Rule 6 of Service Tax Rules the tax is permitted to be paid on the value received. This is because in many cases the entire amount charged/ billed may not be received by the service provider.
There are Penal Provisions in respect of Service Tax. Failure to obtain registrations, failure to pay tax, failure to furnish prescribed returns, suppression of the correct value of the taxable service and failure to comply with notice attract penal provisions.
Normally the person who provides the service is responsible for paying service tax. However the receiver of the services is responsible to pay service tax in the following cases:
a. Where taxable services are provided by Foreign Service providers.
b. For Insurance auxiliary service by an Insurance agent.
c. For a goods transport agency for transport of goods by road.
d. For Mutual fund distributors.
The present rate of service tax is 10.3% which comprises of 10% of Service tax on the gross value of taxable service, 2% education cess on the tax amount and 1% secondary and higher education cess on the service tax amount.
Registration:
Application for registration under Service tax has to be filed in FORM ST-1 (in duplicate) before the jurisdictional service tax office. It should be supported by documents such as copy of PAN card, Proof of Address, Constitution documents of the business etc. The registration should be issued within a period of 7 days from the date of submission of application ST-1, along with all details and documents. Centralised registration of service tax is possible for service providers who have a centralised billing system or who are located in one or more premises. It is enough to take only one registration certificate even if the person provides more than one service from the same premises for which registration is sought.
A person who commences a business for providing taxable service shall register himself within 30 days of such commencement of business. If the service tax is extended to new service, the existing service provider must register himself within 30 days from the date of new levy. If an existing assessee, starts providing a taxable service not mentioned in the registration certificate, he shall immediately intimate the same to the jurisdictional service tax office. Similarly any other changes to the information provided during registration shall be brought to the notice of the service tax office. In case of closure of the business, the registration certificate should be surrendered to the jurisdictional service tax office. In case of transfer of the business, the transferee shall obtain a fresh certificate of registration.
Failure to register under service tax may attract penalty up to Rs. 5000/- or Rs. 200/- for every day during which such failure continues. In case of loss of Registration Certificate a duplicate is normally issued.
Payment of Service Tax:
Service tax is paid through FORM GAR 7 at designated banks. It can also be paid electronically using e-payment facility. E-Payment of service tax is mandatory for assesses who have paid service tax of Rupees Ten lakhs or more in the preceding financial year. Individuals, sole proprietorship firms and partnership firms shall pay service tax every quarter.
Companies, trusts etc shall pay the service tax every monthly. An assessee is eligible to make provisional assessment and pay the service tax if he is unable to correctly estimate the actual amount to be paid as service tax. With effect from 1.03.2008 provision has been made to pay service tax in advance. Service tax is payable on the gross amount including the TDS deducted by the client. 13% interest will be charged for delayed paymentof service tax. Interest cannot be waived by any authority.
Filing of returns:
Service tax assessee has to file 2 returns ST-3 and ST-3A. ST-3 returns are to be filed half yearly by every assessee. Under Rule 7B of Service Tax Rules, an assessee may submit a revised return to correct mistakes or omissions with in a period of 90 days from the date of submission. E-filing of returns is compulsory for assessees who have paid service tax of rupees ten lakhs or more in the preceding financial year. Filing of returns is compulsory even if no tax service is provided or no payment is received during a period. If a person fails to file the return by due date he shall be liable to penalty which may extend to Rs.5,000/-. It is compulsory to indicate the amount of service tax charged from the client in the bills/invoices. All records and documents concerning service tax must be preserved for minimum period of 5 years.
Exemptions:
Small scale service providers whose aggregate taxable value is less than Rs.10 lakhs are exempted from payment of service tax. However this exemption is not applicable if a person provides a service under the brand or trade name. The aggregate taxable value means the sum total of first consecutive payments received during financial year towards gross amount under the taxable services. There is no exemption for Central/ State Government organisations, public sector under takings from the liability to pay service tax.
Adjudication:
Show cause notices or notices are usually issued under provisions of the Finance Act, 1994 charging any person for contravention of any provisions or rules or notifications under the said act and proposing penal action.Thereafter the competent officers of the department adjudge the case and issue orders. The said process is called adjudication. The adjudicating authorities have different monetary limits of adjudication. Lawyers and
chartered accountants can represent the parties before the adjudicating officers.
Appeals:
An assessee aggrieved by the order or decision of an adjudicating officer can file an appeal before Commissioner (Appeals) within 3 months from the date of receipt of the decision or order. There is no fee for filing an appeal. Against an order of Commissioner(Appeals), an appeal can be filed before the Customs, Excise and Service Tax Appellate Tribunal(CESTAT).The said appeal shall be filed within 3 months from the receipt of the order of Commissioner(Appeals).There is fee applicable for this appeal.
Service tax on export and import of services:
The Export of service rules, 2005 defines export of services. The export of taxable services is exempted from service tax. As per section 66A of the Finance Act, 1994, service tax is applicable to import of service. It is the recipient who has to pay the service tax of such services. The taxation of services (provided from outside India and received in India) rules 2006, defines import of services.
Advance ruling:
Advance ruling facility is provided by the Office of the Authority for Advance Rulings at Delhi for intending investors on a wide range of service tax liability matters. Here the applicant can seek clarifications from the authority regarding questions of their tax liability. These
rulings are not appealable under the Finance Act, 1994.