WHY SERVICE TAX International Trend Services catching attention Indian GDP has 54% coming from services Commodities groaning under tax burden Milking services yields large Revenue

SERVICE TAX & CONSTITUTION Service not defined Article 246 read with Union List Residual entry no 97 New entry no 92 – C covers taxes on services Constitution amendment in 2003

SOME UNIQUE ASPECTS OF SERVICE TAX Tax payable only on payments received Self adjustment of excess tax Centralized Registration Cenvat Credit across goods and services Bi – Annual Returns

SERVICE TAX LEGAL FRAMEWORK Finance Act 1994 as amended Service Tax Rules 1994 Service Tax Valuation Rules 2006 Cenvat Credit Rules 2004 Export of Services Rules 2005

CONTD. Import of Services Rules 2006 Service Tax Advance Rulings Rules 2003 Registration of special category of persons Rules 2005 The Works Contract Rules 2007

REGISTRATION Threshold limit of Rs 10 lacs Tax not payable till payments received cross 9 lacs, with reference to previous year Single Registration for all services Centralized Registration

IMPORTANT FORMS ST – I application for Regn ST – 2 Regn certificate ST – 3 Return ST-3A Provisional assessment ST – 4 Appeal to commissioner ( Appeals)

CONTD. ST 5 Appeal to CESTAT ST 6 Memorandum of Cross Objection

RULES OF CLASSIFICATION Specific definition preferred Test of essential character for composite services Service brought into the tax net earlier than the other

VALUATION New section 67 Value should be fullest consideration Otherwise Valuation Rules to apply Comparison with similar service Finding out cost of provision of service

CONTD. Provision for rejection of value by Departmental Officers SCN & PH necessary Speaking order Rule 5 and the concept of pure agent Expenditure of pure agent excluded

CONDITIONS FOR PURE AGENT Service provider as the pure agent Of the recipient of the service Payments to third party by agent Recipient to receive and use the goods and services procured by the agent Recipient to be liable to pay third party

CONTD. Recipient authorizes service provider to make payment to third party Recipient has knowledge of transactions with third party – supply and payment Agent’s payments to be invoiced separately on recipient

CONTD. Invoicing of recipient in this should be at actual Service provided as agent should be in addition to own services being provided Agency contract essential Agent not to use the goods and services procured and provided

CONTD. Agent should not hold any title to the goods and services so provided Should receive only actual payments to the extent of costs incurred

Problem areas in service tax valuation Deduction of cost of reimbursable expenses Exclusion of the cost of value of materials consumed in providing service Interpretation of the notification no 12/2003 dated Case studies : Photography service and Tyre retreading

Continued----- Cum – Tax Value Commissioner of service tax, Bangalore Vs Prompt and Smart security – 2008 ( 9 ) STR ( Tribunal- Bangalore ) Malabar Management services Vs Commissioner of service tax, chennai ( 9 ) STR ( Tri- Chennai )

Continued---- Excludability of the cost of materials in the assessable value in the operation of power plants CMS ( India ) Operations & Maintenance co pvt ltd Vs Commissioner – 2007 ( 7 ) STR 369 ( TRI) Covanta Samalpatti operating co pvt Ltd ( 10 ) STR 133 ( Tri )

Case studies on certain problem services Consulting Engineer service : Technology transfer and royalty payments Indivisible contracts Ratio of the Daelim case Goods Transport Agency service Works contract service

Continued----- Management, maintenance and repair service: Maintenance of computer software Renting out of immovable property service Residential construction service

Service tax credit Capital goods used for providing output service It includes motor vehicles registered in the name of service provider, namely: Courier agency Tour operator Rent a Cab scheme operator Cargo handling agency

continued Goods transport agency Outdoor caterer Pandal and shamiyana contractor ( caterer )

continued INPUTS: All goods except light diesel oil, HSD and petrol, used for providing output service Or used in or in relation to the manufacture of final products or any other purpose, within the factory of production

continued INPUT SERVICE Any service Used by a provider of taxable service for providing an output service, or Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal

continued And includes services used in relation to--- Setting up Modernization Renovation Repairs --- Of a factory, Premises of service provider

continued Or an office relating to such factory or premises, Advertisement Sales promotion Market research Storage upto the place of removal Procurement of inputs

continued Activities relating to business such as ---- Accounting Auditing Financing Recruitment and quality control Coaching and training Computer networking

continued Credit rating Share registry Security Inward transportation of inputs or capital goods Outward transportation upto the place of removal

Export of services Exempt, subject to conditions Services in relation to immovable property Services partly performed in India and partly abroad Services in relation to business or commerce abroad, where the recipient of the services is located abroad and in case

continued Such recipient has commercial establishment or an office in India, the order for such service is made from any of his office or commercial establishment abroad. All services are to be provided from India and used outside India Payment in convertible foreign exchange

Import of services Services criteria same as for export of services Reverse charge Imported services not to be treated as output services Implications of the above

Service tax refund/ rebate Self adjustment Section 11B cash refund Refund under Rule 5 of CCR 2004 Rebate under form ASTR 1 Rebate under form ASTR 2 Bar of unjust enrichment

continued Refund claim through credit notes Case laws: Mafatlal Industries Vs union of India L&T sargeant Lundy Ltd vs CCE, Vadodara

Important procedures in service tax law Provisional assessment and interest liability Input service distributor Advance payment and self adjustment Payment of amount in lieu of service tax in works contract service