9th SEMESTER

TAXATION LAW

NAME - HENA KAWSHAR

CU ROLL NO. - L06/LLB/161778
CU REGISTRATION NO. - L06-1221-0027-16
COLLEGE NO. – 14
SEMESTER – 9th
[Company name]
9th SEMESTER
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SERVICE TAX

Introduction:

It is a type of indirect duty levied on particular services that are categorized as taxable services. The
responsibility of paying this kind of levy lies on the service provider. This duty can't be levied on services
that are not included in the specified list. Over last one or two years, the domain of service tax been
broadened to include new services.

The goal behind imposing service tax in India is to lower the extent of concentration of taxation on business
and industry without compelling the government to find the middle ground on the revenue requirements.

Salient features of Service Tax in India:

Service tax is a tax levied by the government on service providers on certain service transactions, but is
actually borne by the customers. It is categorized under Indirect Tax and came into existence under the
Finance Act, 1994. The salient features of levy of service tax are:

1. Scope:

It is leviable on taxable services ‘provided’ or ‘to be provided’ by a service provider. The services ‘to be
provided’ in future are taxed only if payment in its respect is received in advance.

 Two separate persons required Payment to employees not covered: For charge of service tax, it is
necessary that the service provider and service recipient should be two separate persons acting on
‘principal to principal basis’. Services provided by an employee to his employer are not covered
service tax and, therefore, salaries or allowances paid to them cannot be charged to service tax.

2. Rate:

It is leviable @ 12% of the value of taxable services. Education Cess @ 2% and Secondary and Higher
Education Cess @ 1 % are chargeable on the amount of service tax, thus, making the effective rate of
service tax at 12.36% of the value of taxable service.

Update: While presenting the Budget 2015, the FM had increased the Service Tax Rate from 12.36% to
14%. This new rate of Service Tax @ 14% was applicable from 1st June 2015. Moreover from 15th Nov
2015, Swachh Bharat Cess @ 0.5% also got applicable. Budget 2016 has proposed to impose a Cess, called
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the Krishi Kalyan Cess, @ 0.5% on all taxable services. The new effective service tax rate in India could
henceforth be 15%.

3. Taxable services: Service tax is leviable only on the taxable services:

Taxable services mean the services taxable under section 65(105) of the Finance Act, 1994.

4. Value:
For the levy of the service tax, the value shall be computed in accordance with section 67 read with Service
Tax (Determination of Value) Rules, 2006.

5. Free services not taxable:

No service tax is leviable upon the services provided free of cost.

6. Payment of service tax :

The person providing the service (i.e. the service provider) has to pay service tax in such manner and within
such period as is prescribed in the Service Tax Rules, 1994. The service tax is to be paid only on the receipt
of payment towards the value of taxable services.

7. Procedures:
Provisions have been made for registration, assessment including self assessment, rectifications,
revisions, appeals and penalties on the service provider.

8. Services provided by an unincorporated association/body to its members also taxable:

[Explanation to Sec. 65] : ‘Taxable service’ includes any taxable service provided or to be provided by
any unincorporated association or body of persons to a member thereof, for cash, deferred payment
or any other valuable consideration. Hence, the services (falling under any category of taxable
service) provided or to be provided by any unincorporated association/body to member thereof shall be
liable to service tax. This provision is an exception to the ‘principle of mutuality’.

9. Performance of statutory activities/duties, not ‘service’:

An activity performed by a sovereign /public authority under provisions of law does not constitute
provision of taxable service to a person and, therefore, no service tax is on such entities.

10. Import/Export of services:

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While import of services is chargeable to tax u/s 66A, the export of services has been made exempt from tax.
Import/export provisions are discussed separately.

Person liable to pay Service Tax:

Service tax levied is liable to be credited to the Central Government account. Sec. 68 of the Finance Act,
1994 provides that every person providing taxable service to any person shall pay service tax at the rate
specified in Sec. 66 in such manner and within such period as may be prescribed. Thus, the service provider
is liable to pay service tax. Now there are 106 services under he services under the service tax net. This
Section further provides that in respect of any taxable service notified by the Central Government in the
Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be
prescribed at the rate specified in Section. 66 and all the provisions of the service tax shall apply to such
person as if he is the person liable for paying the service tax in relation to such service.

Sec. 66 of the Act provides that the service recipient is liable to pay service tax in certain cases with effect. It
provides that where any taxable service is provided or to be provided by a person who has established a
business or has a fixed establishment from which the services is provided or to be provided or has his
permanent address or usual place of residence, in a country other than India and received by person
(recipient) who has his place of business, fixed establishment, permanent address or usual place of residence
in India, such service shall, for the purpose of this section, be taxable service, and such taxable service shall
be treated as if the service recipient had himself provided the service in India.

 Rule 2(d) of Service Tax Rules, 1944 defines the term ‘person liable for paying service tax’ as-

(i) in relation to telecommunication service the Director General of Posts and Telegraphs referred to
in Sec. 3(6) of the Indian Telegraph Act,1885; Chairman-cum-Managing Director, Mahanagar
Telephone Nigam Limited, Delhi, a company registered under the Companies Act, 1956; or any
other person who has been granted a licence by the Central Government under the first proviso to
any Sec. 4(1) of the Indian Telegraph Act, 1885;
(ii) in relation to general insurance business, the insurer or re-insurer, as the case may be providing
such services;
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(iii) in relation to insurance auxiliary services by an insurance agent, any person carrying on the
general insurance business or the life insurance business, as the case may be, in India;

(iv) in relation to any taxable service provided or to be provided by any person from a country other
than India and received by any person in India under Sec. 66A of the Act, he recipient of such
service;
(v) in relation to any taxable service provided by a goods transport agency, where the consignor or
the consignee of good is –

Any factory registered under or governed by the Factories Act, 1948;

 Any company formed and registered under the Companies Act, 1956;
 Any corporation established by or under any law;
 Any dealer of excisable goods, who is registered under the Central Exercise Act, 1944 or
the rules made there under; or
 Any body corporate established, or a partnership firm registered by or under any law;

Any person who pays or is liable to pay freight either himself or through his agent for the
transportation of such goods by road in a goods carriage;

(vi) in relation to business auxiliary service of distribution of mutual fund distributor or an agent, as
the case may be, the mutual fund or asset management company, as the case may be, receiving
such service;
(vii) in relation to sponsorship service provided to any body corporate or firm located in India, the
body corporate or, as the case may be the firm who receives such sponsorship service;

The following are the case laws in respect of persons liable for paying service tax:

1. Kerala State Electricity Board V. Commissioner of Central Excise, Trivandrum –

[2007 – TMI – 2362 – Supreme Court of India] -
 Kerala State Electricity Board, recipient of consulting engineering service
from Canadian company was held to pay service tax on the basis of the
agreement between the parties.
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Services taxable in India:

Since the time of its inception in 1994-1995, only three services were liable to be taxed. From that time, the
Government of India has introduced almost 100 categories under its ambit, which include the following :

Traveling agencies (road. air, and railway services)

Telecommunication
Management consultants
Architects
Credit rating agencies
Colleges, universities, and schools
Broadcasting services (television and radio)
Market research analyst
Authorized service stations
Banking and other financial services
Cargo and shipping
Export import unit
Hospitals and health care providers/services
Telegraph services
Maintenance and repair services
Storage and warehousing services
Retail stores
Franchise owner
Packaging services
Transportation of goods
Cable operators
Airport services
Beauty Parlours
Event managements
Real estate agents
Dry cleaning services
Insurance underwriting agencies
Consultants of different services
Passport services
Stock brokers
Legal advising units
Immigration services
Customer service units
Chartered accountant firms
Tourist services
Technical support advising firms
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Electronic and electrical service stations

Automobile service stations
Membership of clubs and association
Human resource services
Survey and exploration of minerals
Share and stock transfer agent
Internet telephony services
Cost accountant
Transport of goods by air
Security agencies
Pager services
Health clubs
Ship management services
Custom house agent
Port services
Containers by rail
General insurance services
Postal services