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Service Tax :Service Tax

is a tax imposed by Government of India on services provided


in India. The service provider collects the tax and pays the same to the government. It
is charged on all services except the services covered in the negative list (Section 66d
of Finance Act'1994) of services & services covered under Mega Exemption Notification
(Notification NO. 25/2012 ST dated 20.06.2012). The current rate is 14.% on gross
value of the service.
Service tax is a tax levied by the government on service providers on certain service
transactions, but is actually borne by the customers.
Definition: 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.
Description: In this case, the service provider pays the tax and recovers it from the
customer. Service Tax was earlier levied on a specified list of services, but in the 2012
budget, its scope was increased. Services provided by air-conditioned restaurants and
short term accommodation provided by hotels, inns, etc. were also included in the list
of services.
It is charged to the individual service providers on cash basis, and to companies on
accrual basis. This tax is payable only when the value of services provided in a financial
year is more than Rs 10 lakh. This tax is not applicable in the state of Jammu &
Kashmir.

History of Service Tax :Dr.Raja chelliah committee on tax reforms recommend the introduction of service tax.
Service tax had been first levied at a rate of five per cent flat from 15 July 1994 till 13
May 2003, at the rate of eight percent flat w.e.f 1 plus an education cess of 2% thereon
w.e.f 10 September 2004 le services provided by service providers. The rate of service
tax was enhanced to 12% by Finance Act, 2006 w.e.f 18.4.2006. Finance Act, 2007 has
imposed a new secondary and higher education cess of one percent on the service tax
w.e.f 11.5.2007, increasing the total education cess to three percent and a total levy of
12.36 percent. The revenue form the service tax to the Government of India have
shown a steady rise since its inception in 1994. The tax collections have grown
substantially since 1994-95 i.e. from Rs. 410 crores in 1994-95 to Rs.132518 crores in
2012-13. The total number of Taxable services also increased from 3 in 1994 to 119 in
2012. However, from 1 July 2012 the concept of taxation on services was changed from
a 'Selected service approach' to a 'Negative List regime'. This changed the taxation
system of services from tax on some Selected services to tax being levied on the
every service other than services mentioned in Negative list.

Collections :The collections under the Service tax from the year of original levying year of 1994 are
constantly growing. The collections are shown as in the following table

Financial

Revenue Rupees(in

Number of

Number of

Year

crores)

services

Assessees

1994-1995

407

3943

1995-1996

862

4866

1996-1997

1059

13982

1997-1998

1586

18

45991

1998-1999

1957

26

107479

1999-2000

2128

26

115495

2000-2001

2613

26

122326

2001-2002

3302

41

187577

2002-2003

4122

52

232048

2003-2004

7891

62

403856

2004-2005

14200

75

774988

2005-2006

23055

84

846155

2006-2007

37598

99

940641

2007-2008

51301

100

1073075

2008-2009

60941

106

1204570

2009-2010

58422

109

1307286

2010-2011

71016

117

1372274

2011-2012

97509

119

1535570

2012-2013

132518

Negative List
Regime

1712617

APPLICABILITY OF SERVICE TAX :1) Territorial Application State of Jammu & Kashmir excluded
The provisions related to Service Tax are applicable to the whole of India except to the
State of Jammu & Kashmir. As a result, the services provided within the territorial limits
of the State of Jammu & Kashmir are excluded from the ambit of the levy ofservice tax.
In other words as clarified by the Department that any service provider who has his
place of business in the State of Jammu & Kashmir but provides taxable services to the
clients in other parts of the country are liable for payment of service tax. Further any
service provider who has his place of business in any of the Indian States other
than the State of Jammu & Kashmir who provides the services to the persons in the
State of Jammu & Kashmir , is not liable to pay service tax. Accordingly when the
recipient of the taxable service is in the State of Jammu & Kashmir , the service is
outside the service tax net.

2) Levy of Service Tax


The Service Tax is livable on notified service tax providers in respect of the value of the
taxable service. In other words, service tax is levied only in respect of notified service
providers and not on all service providers. Further a taxable service cannot be
subjected to service tax twice under different classifications and is liable to tax only
once.

3) Levy of Service Tax- Threshold Exemption


With effect from 1-4-2008, i.e. from the Financial Year 2008-2009, the threshold
exemption is raised upto Rs. 10 lakhs vide Notification NO.8/2008-ST,dt. 1-3-2008.
The expression aggregate value of taxable services means the aggregate value of
services for which service tax is payable and exclusive of services which are exempt
from service tax by way of any general / specific exemption.
The eligibility to avail threshold limit exemptions of Rs. 8 lakhs, Rs. 10 lakhs as the case
may be is burdened with various conditions. They are ,

1. No CENVAT Credit is availed on the service tax paid on input services used to
render the subject taxable service.
2. Similarly no CENVAT Credit is availed in respect of capital goods and inputs till
the date of exhausting threshold exemption.
3. Only capital goods and inputs received after the completion of availing exemption
limit can alone qualify for input credit.
4. Input Credit in respect of goods lying in stock or unutilized input credit lying in
the books to the credit of the serviceprovider should not be utilized and shall also
be reversed to the extent to service tax payable.
5. The aggregate value taxable services rendered by the service provider shall not
exceed Rs. 9 lakhs in the preceding Financial Year.
6. With effect from 1-4-2008, i.e. from the Financial Year 2008-2009, the threshold
exemption is raised upto Rs.10 lakhs vide Notification No. 8/2008-ST,dt. 1-32008.

4) Levy of Service Tax- Not applicable


The levy of service tax on taxable services will not extend to the following receipt as
there is no element of service in such receipts and / or consideration is involved.

Value of goods and materials sold by the service provider subject to the condition
that they should be quantified and shown separately in the invoice.

Reimbursement of out-of-pocket expenses on actual basis subject to the


condition that such expenses are specified separately in the bills raised by the
service providers under certain circumstances.

Taxable service provided free of charge without any consideration thought the
service is otherwise taxable.

Interest & Penalities of Late Tax


Payment :From 01.04.2011, the interest rate is 18% per annum is payable for late payment of
Service Tax. For the assesses having less than 60 lakh Taxable Service, interest rate is
@ 15%. And penalty for late tax payment is Rs.100/- for each day or 1% of tax
whichever is higher (Total amount of penalty shall not exceed 50% of tax payable).
After going through the Negative List of Services, Mega Notifications For Exemption Of
Services, Declared Services Partially / Fully Reverse Charge Mechanism, Place Of
Provision Of Services and such new amendment of service Tax Law from 01/07/2012
and the latest amendments upto the end of year 2014 and updates. we properly guide
in the matter. As per ammended Finance Act 2013, themaximum penalty imposable
for failure

to

obtain

registration

will

be

Rs.10,000/-

only.

A new section is also being introduced to impose penalty on directors and officials of the
company for specified offences in cases of willful actions.who is in any manner
knowingly concerned with specified contraventions; And further, punishment of
imprisonment for minimum 6 months to 7 years have been proposed in Finance Act
2013 for specified offences. So, our timely and proper advice to our client, save them
from interest, penalties and prosecutions. FURTHER from 01.10.2014 variable rate of
interest will be applicable on delay in tax payments.
S.No.

Period of Delay

Interest Rate

Upto 6 months

18%

More than 6 months and

18% for 1st 6 months of delay and 24% for

upto 1 year

the delay beyond 6 months

More than 1 year

18% for 1st 6 months of delay, 24% for the


delay beyond 6 months upto 1 year and
30% for any delay beyond 1 year

Negative List :The negative list is given under Section 66D.


It contains 17 activities.
It would be appropriate to call the negative list, a list of activities rather than a
negative list of services because some of the activities mentioned in said list are not
services.

The Negative lists of services are as under:

1) Services provided by Government or Local authority


Most of the services provided by the Central or State Government or Local authorities
are in the negative list except the following:
a) Services provided by the Department of Posts by way of speed post, express parcel
post, life insurance and agency services carried out on payment of commission on non
government business;
b) Services in relation to a vessel or an aircraft inside or outside the precincts of a port
or an airport;
c) Transport of goods and/or passengers;
d) Support services, other than those covered by clauses (a) to (c) above, to business
entities.

2) Services provided by Reserve Bank of India


All services provided by the Reserve Bank of India are in the negative list. Services
provided to the Reserve Bank of India are not in the negative list and would be taxable
unless otherwise covered in any other entry in the negative list.

3) Services by a Foreign Diplomatic Mission Located in India


Any service that is provided by a diplomatic mission of any country located in India is in
the negative list. This entry does not cover services, if any, provided by any office or
establishment of an international organization.

4) Services relating to agriculture


The services relating to agriculture that are specified in the negative list are as below:
a) agricultural operations directly related to production of any agricultural produce
including cultivation, harvesting, threshing, plant protection or seed testing;
b) supply of farm labour;
c) processes carried out at the agricultural farm including tending, pruning, cutting,
harvesting, drying cleaning, trimming, sun drying, fumigating, curing, sorting, grading,
cooling or bulk packaging and such like operations which do not alter essential
characteristics of agricultural produce but makes it only marketable for the primary
market;
d) renting of agro machinery or vacant land with or without a structure incidental to its
use;
e) loading, unloading, packing, storage and warehousing of agricultural produce;
f) agricultural extension services;
g) services provided by any Agricultural Produce Marketing Committee or Board or
services provided by commission agent for sale or purchase of agricultural produce;
h) Testing activities in relation to agriculture and agricultural produce
Further the activities like breeding of fish (pisciculture), rearing of silk worms
(sericulture), cultivation of ornamental flowers (floriculture) and horticulture, forestry is
also included in the definition of agriculture. The plantation crops like coffee, tea are
also covered in agricultural produce.

5) Trading of Goods
Transfer of title of goods is one of the essential conditions for a transaction to come
under the ambit of trading of goods. However, the services supporting or ancillary to
the trading of goods would not come under the above item of Negative List.

6) Processes amounting to Manufacture or Production of Goods


The phrase processes amounting to manufacture or production of goods has been
defined in section 65B of the Act as a process on which duties of excise are leviable

under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting
to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and
other narcotic drugs and narcotics on which duties of excise are leviable under any
State Act.
This entry, therefore, covers manufacturing activity carried out on contract or job work
basis provided duties of excise are leviable on such processes under the Central Excise
Act, 1944 or any of the State Acts.

7) Selling of Space or Time Slots for Advertisements other than


Advertisements Broadcast by Radio or Television
Sale of space for advertisement in print media, bill boards, public places, buildings,
conveyances, cell phones, automated teller machines, internet, Aerial advertising are
covered in negative list.
However, Sale of space or time for advertisement to be broadcast on radio or television
and sale of time slot by a broadcasting organization are the taxable services.

8) Access to a Road or a Bridge on Payment of Toll Charges


The negative list entry covers access to a road or a bridge on payment of toll charges.
The access to National highways or state highways, which are also roads, is hence
covered in this entry.

9) Betting, Gambling or Lottery


Betting or gambling has been defined in section 65B of the Act as putting on stake
something of value, particularly money, with consciousness of risk and hope of gain on
the outcome of a game or a contest, whose result may be determined by chance or
accident, or on the likelihood of anything occurring or not occurring. The State
Government levy a betting tax on such activities.

10) Entry to Entertainment Events and access to Amusement


Facilities
Entertainment event has been defined in section 65B of the Act as an event or a
performance which is intended to provide recreation, pastime, fun or enjoyment, such
as exhibition of cinematographic films, circus, concerts, sporting events, fairs,
pageants, award functions, dance performances, musical performances, theatrical

performances including cultural programs, drama, ballets or any such event or


program.
Amusement facility has been defined in the Act as a facility where fun or recreation is
provided by means of rides, gaming devices or bowling alleys in amusement parks,
amusement arcades, water parks, theme parks or such other place but does not include
a place within such facility where other services are provided.

11) Transmission or Distribution of Electricity


An electricity transmission or distribution utilityhas also been defined in section 65B of
the act to means the following:
the Central Electricity Authority
a State Electricity Board
the Central Transmission Utility (CTU)
. a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of 2003)
a distribution or transmission licensee licensed under the said Act
any other entity entrusted with such function by the Central or State Government

12) Specified services relating to Education


The following services relating to education are specified in the negative list
a) pre-school education and education up to higher secondary school or equivalent
b) education as a part of a prescribed curriculum for obtaining a qualification recognized
by any law for the time being in force;
c) education as a part of an approved vocational education course
Approved vocational education courses have been specified in section 65B of the Act.
These are
a) a course run by an industrial training institute or an industrial training centre
affiliated to the National Council for Vocational Training, offering courses in designated
trades as notified under the Apprentices Act, 1961 (52 of 1961)
b) a Modular Employable Skill Course, approved by the National Council of Vocational
Training, run by a person registered with the Directorate General of Employment and
Training, Ministry of Labour and Employment, Government of India;
c) a course run by an institute affiliated to the National Skill Development Corporation
set up by the Government of India.
d) Vocational courses offered by institutes affiliated to the State Council of Vocational
Training;

13) Services by way of Renting of residential dwelling for use as


residence
Renting has been defined in section 65B as allowing, permitting or granting access,
entry, occupation, usage or any such facility, wholly or partly, in an immovable property,
with or without the transfer of possession or control of the said immovable property and
includes letting, leasing, licensing or other similar arrangements in respect of
immovable property.

14) Financial Sector


The services of loans, advances or deposits are in the list in so far as the consideration
is represented by way of interest or discount. Any charges or amounts collected over
and above the interest or discount amounts would represent taxable consideration.
Some examples:
Fixed deposits or saving deposits or any other such deposits in a bank for which return
is received by way of interest.
Providing a loan or over draft facility for a credit limit facility in consideration for
payment of interest.
Mortgages or loans with a collateral security to the extent that the consideration for
advancing such loans or advances are represented by way of interest.
Corporate deposits to the extent that the consideration for advancing such loans or
advances are represented by way of interest or discount.
The Invoice discounting is covered only to the extent consideration it is represented by
way of discount. Any charges or amounts collected over and above the interest or
discount amounts would represent taxable consideration. Services provided by banks or
authorized dealers of foreign exchange by way of sale of foreign exchange to gene ral
public are not covered in Negative List.

15) Service relating to Transportation of Passengers


The following services relating to transportation of passengers, with or without
accompanied belongings, have been specified in the negative list. Services by:
a stage carriage;
railways in a class other than (i) first class; or (ii) an AC coach;
metro, monorail or tramway;
inland waterways;

public transport, other than predominantly for tourism purpose, in a vessel between
places located in India ; and
metered cabs, radio taxis or auto rickshaws.
The various other equivalent modes of transport not specified herein could be cause of
dispute as the above list is not complete within each segment.

16) Service relating to Transportation of Goods


The following services provided in relation to transportation of goods are specified in
the negative list:a) by road except the services of (i) a goods transportation agency; or (ii) a courier
agency
b) by aircraft or vessel from a place outside India up to the customs station of clearance
in India; or
c) By inland waterways. (Services provided as agents for inland waterways are not
covered in the negative list.)

17) Funeral, Burial, Crematorium or Mortuary services including


transportation of the deceased
This entry exempts services in relation to cremation, etc. of dead.

Revised Negative List of Service Tax for 2014-15 (Section 66D)


Revised Negative List of Service Tax for 2014-15 (Section 66D )

The charging section of the Finance Act, 1994, Section 66B provides that service tax
should be levied on all services except the services which are specified in Section
66D of the said Act.
As per Section 66D of the Financial Act, 1994, Negative list of Service Tax are
introduced (by Finance Act 2012) and further amended (by Union Interim 2014Interim). There are currently 17 heads of Services which are given in the negative
list.

Two more services have been included in the negative list for service tax
through the amendment.

This can also be called as the comprehensive approach. Since there was a
considerable increase in the list of services being brought under service tax, it added
gravity to the administrative challenge. As a result of the comprehensive approach,
now, all the services would be taxable except those that are specifically excluded or
exempt.
This Negative list of service tax is very important because every activity not covered
under this list is chargeable to Service Tax. This is basically an exclusive tendency
towards the amendment being brought to the law, whereby the tax is imposed based
upon the exclusions approach.

Two more services have been included in the negative list services in
interim Budget 2014, as mentioned below:a)

loading, unloading, packing, storage and warehousing of rice and

b)

Services provided by cord blood banks

Notification of changes in service tax is issued as on 17/02/2014 is attached below.