1. Service Tax – Part III V S DATEY

2. Description of Service  Description of service has been provided at various places in service tax provisions –  (a) Negative list of services  (b) Declared list of services  (c) Services exempted by a notification  (d) Place of Provision of Service Rules to determine where the service is provided  (e) In Service Tax Rules, Cenvat Credit Rules, Service Tax Valuation Rules etc.

3. Bundled Services  In some cases, a composite service may consist of two or more different services, termed as ‘bundled services’.  Naturally Bundled service – description on basis of essential character  Cargo handling versus goods transport service  Airlines providing food, video facility  Boarding schools, tunrkey projects  Air transport service provider providing door delivery

4. Valuation of Service  Gross amount charged by service provider for service provided or to be provided – section 67  Value of taxable service + service tax = Gross amount charged  Amount may be received before, during or after provision of service  Bharat Sanchar Nigam Ltd. v. UOI (2006) (SC 3 member bench) - price of goods cannot be included in value of services.

5. Valuation Rules o Valuation Rules apply subject to section 67 and 66B o Gross amount charged for similar services [rule 3(a)] o Equivalent money value of consideration which shall not be less than cost [rule 3(b)] o Distinction between cost and value

6. Gross amount charged for service  Service tax not payable on any other amount charged and/or recovered from service receiver if it is not part of value of taxable service  Examples – Advertisement Agent, Air Travel Agent, Customs House Agent  Parking fees, toll naka charges by rent-a-cab operator

7. Cost and Expenditure relating to service includible o Travelling Expenses, hotel expenses o Out of pocket expenses includible. o Reimbursement of expenses incurred by service receiver o Specific provision made in rules w.e.f. 1-6-2015 o Concept of ‘pure agent’

8. Illustration of Pure Agent o Entry tax, transport charges paid by Agent o Customs duty, transport, warehousing charges paid by CHA o Parking fees, toll naka charges by rent-a-cab operator o Air fare/rail fare paid by Agent o Rent, telephones, transport expenses incurred by C&F Agent

9. Illustration when not ‘Pure Agent’  Travelling expenses of Auditor, Consulting Engineer, Maintenance Engineer, Management Consultant – provision held invalid by Delhi HC – but rule amended  Out of pocket expenses  Charges of salary of labour by Labour Contractor (Issue debatable)

10. Other Provisions relating to valuation  Service tax is payable on net amount excluding Vat, if payable on that transaction  Vat really not payable on service tax – but States taking different views  No service tax on free services, if they are really free  Service tax, excise duty and customs duty are independent duties.

11. Point of Taxation  ‘Point of taxation’ means the point in time when a service shall be ‘deemed to have been provided’ [Rule 2(e) of Point of Taxation Rules, 2011]. This point will determine due date of payment of service tax.  Rate of tax as per section 67A and not as per POT Rules.

12. General Rule of Taxation o The general rule is that the time of provision of service will be Date of invoice if issued within 30/45 days [rule 3(a)] o If invoice not issued within 30/45 days, date of completion of provision of service is Point of Taxation o If advance is received, that date is Point of Taxation even if invoice is not issued

13. Continuous Supply of Services  Construction, telecom, works contract, renting, insurance, security are continuous service where service continues for more than 3 months  Completion of each event as specified in contract will be POT (e.g. plinth, first slab, second slab, plaster etc.)  or monthly/quarterly as per agreement  Event complete only when measurement, quality testing is completed, as per CBE&C circular

14. Point of Taxation when service tax payable under reverse charge  Date of payment is POT if payment is made to service provider within 3 months  If payment not made to service provider within three months, service tax becomes due  In case of Associated Enterprises (group companies), when service provider is outside India, date of credit in books of account of person receiving the service or date of payment whichever earlier is Point of Taxation [second proviso to rule 7]

15. Point of Taxation in case of small service providers  In case of individuals, partnership firms and LLP (but not HUF), POT is date of receipt of payment, if value of services in previous year was less than Rs 50 lakhs  (on optional basis. He can pay on accrual basis)

16. Issue of Credit Note  Service provider can refund the payment received to service provider, or issue credit note in following situations –  (a) if service is not provided partly or fully or  (b) amount of invoice is re-negotiated due to deficient provision of service or any terms contained in the contract.  After such refund or credit note, assessee can take self credit of excess service tax paid by him when he had issued the invoice/Bill/Challan [Rule 6(3)].  Adjustment not permissible for bad debts

17. Place of Provision of Service Rules  As per section 65B, service tax is payable when service is provided in taxable territory. Taxable territory is whole of India plus 200 nautical miles inside the sea minus J&K  Place of Provision of Service relevant for export and import of service, services provided to and from SEZ and J&K  It is also relevant when assessee does not have centralised registration  Location of service provider or service receiver is where he is registered under service tax  If not registered, then his place of business or fixed establishment will be his location

18. POPS Rules o Subsequent specific Rules would prevail over earlier rules [Rule 14] – Latter the better o Services provided on board a conveyance – first point of departure is POPS [Rule 12] o Transport of passengers – POPS where journey starts [Rule 11] o Transport of goods – POPS where goods destined [Rule 10] o Services of Banks to account holders, Online Information and Data Access or Retrieval, intermediary, hiring of means of transport upto one month - location of service provider is POPS [Rules 9 ]

19. Intermediary Services  Services of intermediary covered under rule 9(c) of Place of Provision of Service Rules  “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of service or a supply of goods between two or more persons  Services of Commission Agent in India taxable w.e.f. 1-10-2014. Services of foreign Commission Agent not taxable w.e.f. 1-10-2014

20. Sequence of Rules in reverse direction  Taxable territory (India) is place of provision if both service provider and receiver in taxable territory rule 8] (even if service is provided outside the taxable territory)  Taxable territory is place of provision of service, if even partly it is in taxable territory as per rules 4,5 or 6 [Rule 7]  Services relating to admission or organisation of events – where the event takes place [rule 6]

21. POPS Rules in sequence  Services relating to immovable property – where immovable property is situated [Rule 5]  Performance on goods supplied by service receiver or performance where physical presence of service receiver is required – place of performance of service [Rule 4]  Location of service receiver is place of provision of service if no other rule applies[Rule 3]. This is residual rule

22. Basic Procedures PAN based registration Invoice Payment of service tax – monthly by companies, LLP and HUF – quarterly by proprietary and partnership firms Return – half yearly by 25th April and 25th October in form ST-3

23. Adjudication and appeals Demand within 18 months but within five years if there is suppression of facts, wilful misstatement or fraud Adjudication by excise authority (mostly farce) Appeal before Commissioner (Appeals) and then finally before CESTAT Appeal before High Court and Supreme Court

24. Cenvat Credit Cenvat is to avoid cascading effect of taxes Vat was introduced in France in 1954 Vat got momentum when European Union (EU) [that time European Common Market] made Vat compulsory In Indis, Modvat introduced in 1985 and State Vat in 2005

25. Conventional Tax System DetailABC Purchases-110165 Value Added1004035 Sub-Total100150200 Add Tax 10%101520 Total110165220

26. Tax credit System under Vat Transaction without VATTransaction With VAT Details ABAB Purchases -110-100 Value Added 1004010040 Subtotal 100150100140 Add Tax 10151014 Total 110165110154

27. Highlights  Instant Credit  Credit of (a) excise duty on inputs (b) Excise duty on capital goods and (c) service tax on input services  Credit of excise duty and service tax inter-changeable  One to one co-relation not required in Vat/Cenvat

28. Eligible duty paying documents o Original or Duplicate Invoice, Dealer’s Invoice, Bill of Entry, Supplementary Invoice o Xerox not permitted. Endorsed Invoice/Bill of Entry permissible o Defect in document – Permission of AC/DC required to avail Cenvat Credit

29. Ineligible Input Services Rent-a-cab services, insurance of motor vehicles, repair of motor vehicles not eligible, except where motor vehicle is eligible as ‘capital goods’ Architect and Construction services for building, civil structure, laying of foundation or structures for capital goods – except when used for construction itself Canteen, club membership of employees, insurance of employees, LTA of employees – not eligible

30. Capital Goods Capital goods (machinery, plant, spare parts of machinery, tools, dies, etc. ) as defined in rule 2(a),eligible. Capital goods should be used in the factory. Sending to job worker permissible Motor vehicles and office equipment – mostly not eligible 50% credit is available in current year and balance in subsequent financial year or years, except in case of SSI

31. Capital Goods Assessee should not claim depreciation on duty portion on which he has availed Cenvat credit Only those defined as capital goods eligible – check chapter heads Steel, cement for construction not eligible Spare parts, components, tools covered under the definition though normally not capitalised in books of account

32. Zero rated and exempt transactions  Basic principle is that Cenvat credit available only when tax payable on final product or output services  In zero rated transaction, tax not payable on final product, but Credit of input taxes is available (e.g. exports)  In ‘exempted transaction’, tax is not payable on final product and input credit is not available

33. Rule 6 of Cenvat Credit Rules Rule 6 applies where both exempted goods and taxable goods are manufactured or exempted and taxable services provided Options are available to assessee – (a) Maintain setarate records for exempted and taxable (b) Pay 6% amount on exempted goods and services (c) Proportionate reversal Option once availed cannot be changed during financial year

34. No reversal in case of zero rated transactions Export of goods and export of services Supplies to SEZ, EOU Goods supplied against international competitive bidding, goods supplied to UN organisations, foreign diplomats Provision of services to SEZ (where exemption is available)

35. Input Service Distributor – Rule 7 HO or Branch or Depot can pass on credit to factories. They have to register, file returns etc. Monthly Invoice No credit where input service exclusively for exempted goods or exempted service Distribution on turnover basis On basis of turnover of previous month/quarter

36. Refund of Cenvat Credit – Rule 5 Refund of Cenvat credit on proportionate basis of exports of goods and services. General Experience is bad – some excuse is found to reject the refund claim Advisable to avail Cenvat credit wherever possible

37. Thanks  Thank you  Wish you safe journey of tough road of service tax  Website – www.dateyvs.com