Service Tax : Law,Applicability and Procedures
Service Tax is indirect tax imposed on specified services (taxable services) provided by a service provider (Company, Individual, Firm etc.).
Service Tax was first brought into force with effect from 1 July 1994. All service providers in India, except those in the state of Jammu and Kashmir, are required to pay a Service Tax in India.
Initially only three services were brought under the net of Service Tax and the tax rate was 5%. Gradually more services came under the ambit of Service Tax.
In accordance with the Annual Budget 2015-16, the current Service Tax rate has been increased to 14% Service tax,0.5% Swach Bharat Cess,0.5% Krishi kalyan Cess
Important Points about Service Tax:
- Levied on Services e.g. Transport Service, Labor Charges, Professional Services Etc.
- It is a Central Government Tax.
- It is administered by Central Board of Excise and Customs.
- Revenue goes to Central Government.
- Current Tax Rate : Service Tax is14%
- Swach Bharat Cess is 0.5%
- Krishi Kalyan Cess is 0.5%
- ST 1 is Application form for registration
- ST 2 is registration certificate
- ST 3 Form is for Filing Returns
- Service Tax is Exemption if the yearly turnover of taxable services is Below 10 Lakh
Example: Royal Agency provided advertising services of Rs. 1,00,000 to SysImage. On the service amount of Rs.1,00,000, Royal Agency is liable to pay the tax of,
- 14,000 @ 14% of Service Tax,
- 500 of Swach Bharat Cess
- and Rs 500 of Krishi Kalyan Cess
Scope and Applicability
Initially, Service Tax was chargeable on Realization basis i.e. receipt of the consideration for the services provided/to be provided (in case of advance receipts). With effect from 1 April 2011, the Point of Taxation Rule was introduced for effective collection of Service Tax.
Point of Taxation refers to the point of time when a service shall be deemed as provided.
|Date of Issue of Invoice|
According to this Rule, Point of Taxation shall be the,
|Date of receipt of payment, whichever is earlier.|
The liability of paying tax to the Government is on the service provider i.e. the person providing service, and in some cases, on the service receiver.
Service tax is applicable on taxable services
- Provided and taxable in the hands of service provider
- Received and taxable in the hands of service receiver : Generally it is the service provider who is liable to collect Service Tax from his customer/client and pay the same to the Government. But Section 68(2) empowers the Government to notify the services with regard to which the service receiver would be held liable to pay Service Tax to the Government. For the services mentioned below, the service receiver is liable to pay Service Tax (as per Notification 36/2004 ST dated 31.12.2004 as amended from time to time)
- Goods Transport Agency service
- Business auxiliary service of distribution of mutual fund by a mutual fund distributor or agent
- Sponsorship service provided to any body corporate/firm
- Taxable services received by any person in India from abroad
- Insurance auxiliary service by an insurance agent
With effect from 1 July, 2012, Negative List-based System of Tax on Services was introduced-
- Negative List is a list of services which are not subject to Service Tax
- All services other than those featuring in the Negative List fall under the purview of Taxable Services
The definition of Taxable Service is different for each class of services, e.g. in case of Stock Broker Agency, any service provided to an investor by buying or selling securities listed on a recognized Stock Exchange will be a Taxable Service.
Service Tax Assesse Code
Service Tax Registration number is a PAN based 15 digit alpha numeric numbers e.g. ASDCE1588QST001.
The first part denotes (10 characters – alpha numeric) Permanent Account Number issued by Income tax authorities to the concerned person to whom the Service Tax Registration Number is to be allotted. Second part comprises of a fixed 2 character alpha code – ST (Service Tax). This is followed by 3-Character numeric code representing the registered Premises or Office of the service provider
The Service Tax Registration Number has to be quoted on GAR–7 Challans covering deposit of Service Tax, Cess and other dues to the Government.
As per section 69 of the Finance Act 1994, every person liable for paying Service Tax has to register as set out in the Rules.
According to Rule 4 of the Service Tax Rules, 1994 following is the manner and time for registration
- Application for registration to the superintendent concerned in form ST -1 within 30 days from the date on which Service Tax is levied or 30 days from the commencement of business providing a taxable service, whichever is later.
- Assesse providing Service from more than one Premises or Office, has to make separate applications for each of such premises or Offices.
If the assesse has Centralized Billing System or Centralized Accounting System, a Centralized Registration covering all the premises or offices can be obtained.
- In case of transfer of business from Registered Assesse to a new person, Transferee has to obtain a fresh Registration Certificate.
Note: For every Registered Assesse there is a provision under Service Tax Rules to Surrender Registration Certificate to Superintendent of Central Excise when he ceases to provide taxable services for which he is registered.