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Service Tax Matters
Service Tax is levied on the
notified services. It is a union levy administered by the
Central Excise Department and governed by Chapter V of Finance
Act, 1994 (the Act) as amended from time to time. The rate of
service tax till 9 September, 2004 was 8 per cent and from 10
September, 2004, it was increased to 10 per cent. Education
cess at 2 per cent is levied on service tax amount from 10
September, 2004. The effective rate of service tax works out
to 10.2 per cent. Service tax is charged on the gross value of
services and is generally payable on receipt basis. It is an
indirect tax - it is payable by the service provider but it is
ordinarily recovered from the recipient of services. The law
requires separate mention of service tax amount in the
invoices.
Ordinarily, every person liable to pay service tax is required
to register itself with service tax authorities and comply
with procedural requirements like paying taxes, filing
returns, etc. However, in case of non-residents, who do not
have any office in India and who are liable to pay service tax
in India, this burden is shifted to the recipient of service
with effect from 16 August, 2002.
There is a basic exemption limit of INR 0.4 million which
means that service tax shall be exempted for service providers
providing taxable services up to INR 0.4 million. A mechanism
for credit of input service tax and central excise duty on
specified inputs and capital goods is also in place.
Any service for which payment was received in convertible
foreign exchange in India and which was not repatriated or
sent outside India was exempt from levy of service tax up to
28 February, 20031. But this exemption was withdrawn with
effect from 1 March, 20032, although export of services
continued to remain taxfree even after such a withdrawal. This
exemption was reinstated with effect from 20 November, 20033
as a stop-gap arrangement till the government could
satisfactorily determine "what constitutes export of
services". The government has now notified the new "Export of
Service Rules 2005" which defines as to what constitute
"export of services". These rules are effective from 15 March,
2005. Consequently, the exemption from service tax on payments
received in convertible foreign exchange has now been removed
with effect from 15 March, 2005.
When two or more services are bundled together it would be
classifiable under the category which gives essential
character to the service. Classification rules are in place
from 14 May, 2003. If in case of composite activities, one or
more of the activities are liable to service tax and the
others are not liable to service tax, service tax would
ordinarily be payable only on the charges received for the
services to which service tax is applicable, provided charges
for each activity can be separately identified / determined
and it is not incidental to the main service. There are no
rules for such identification / allocation and, therefore,
such allocation, if required, must be made on a reasonable
basis.
Service tax is a comparatively new levy in India and very few
judicial precedents are available on the subject. The language
of the law is quite broad and generic and uses terms like
"directly or indirectly" and "in any manner" which raise a
number of issues regarding scope of specific category of
service. Revenue authorities have been issuing explanatory
circulars from time to time in relation to specific issues.
Yet, there is, considerable ambiguity in the applicability of
the service tax law to various services.
Service tax is currently levied on following 80 notified
categories of services:
| Advertising
Agency |
Air Travel
Agent |
Airport
|
Architect |
Sound Recording
|
| Authorized
Service Station |
Banking and
Other Financial Services |
Beauty
Treatment |
Broadcasting |
Steamer Agent
|
| Business
Auxiliary Services |
Business
Exhibition |
Cable Operator
|
Cargo Handling |
Stock Broker
|
| Chartered
Accountant |
Cleaning
Activity Services |
Clearing and
Forwarding Agent |
Construction |
Storage and
Warehousing |
| Construction of
Complex Services |
Consulting
Engineer |
Convention |
Cost Accountant
|
Survey and
Exploration of Mineral |
| Courier
|
Credit Rating
Agency |
Custom House
Agent |
Dredging
Services |
Survey and
Map-making Services |
| Dry Cleaning |
Erection,
Commissioning and Installation Agency |
Event
Management |
Facsimile |
Technical
Inspection and Certification |
| Fashion
Designing |
Forward
Contract |
Franchise |
General
Insurance |
Technical
Testing or Analysis |
| Goods Transport
by Air |
Goods Transport
by Road |
Health Club and
Fitness Centre |
Insurance
Auxiliary Services |
Telegraph |
| Intellectual
Property |
Interior
Decorator |
Internet Café
|
Leased Circuit
|
Telephone and
Pager |
| Life Insurance
|
Mailing List
|
Mailing List
Compilation |
Maintenance or
Repair Mailing Services |
Telex
|
| Management
Consultant |
Mandap Keeper
|
Database
|
Opinion Poll
Access or Retrieval |
Tour Operator
|
| Outdoor Caterer |
Packaging
Activity Services |
Pandal and
Shamiana |
Photography
Studio |
Transport of
goods other than water |
| Port (major and
others) |
Programme
Production |
Rail Travel
Agent |
Real Estate
Agent |
Travel Agents
(other than air and rail) through pipeline or other conduit
services |
| Rent-a-cab |
Scientific or
Technical Consultancy |
Security Agency
|
Site Formation
and Clearance, etc., Services |
Underwriters |
| Video
Production |
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Octroi Duty
Octroi Duty is a local authority levy, which is levied on
entry of goods into a municipal / local area for use,
consumption or sale. The rate of octroi duty varies from local
area to local area.
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