SERVICE TAX

SERVICE TAXKEY RULES, REVERSE CHARGE MECHANISM, INPUT SERVICES Presented by :-Kunal Trivedi Jyot ShuklaKenan PatelChandani ZaveriGunjan KothariUmang ThakkarHardik Jetani Jagrat Mehta

BRIEF COVERAGEIntroduction to Service TaxSERVICE & Its Implications Who is to be Registered Negative List of ServicesKey Rules Place of Provision of Service Rules Point of Taxation Rules Reverse Charge MechanismInput ServicesService Tax ComplianceRole of Company Secretary Introduction to Service TaxIntroduced first in Finance Act 1994 and levied by Central Government applies to whole of India except the state of J&K

Started with 3 Services in 1994 but current coverage is more than 120 taxable services

Government started with 410Cr of Revenue in first year of implementation while FY13-14 accounted Revenue of Rs.2 Lacs Crore (Source: www.indiabudget.nic.in)

Service Tax was levied on Positive list uptill 2012, wherein major amendment introduced i.e Tax wil levied on all services except those listed in Negative list and provided in Exemption Notifications.

SERVICE & its ImplicationsService means any ACTIVITY carried out by a person for another for CONSIDERATION and includes declared services but shall not include :An activity which constitutes merely transfer of title in goods or immovable property Transaction in money or actionable claimsService provided by an employee to the employer under employmentFees taken in any court/Tribunal Service tax was charged on specified list of services up till 2012, now chargeability of service tax has been shifted from Positive list to Negative list of approach. Such activity is a service in terms of Section 65B(44) of the ActSuch service is not mentioned in negative list Such service is provided or agreed to be provided in taxable territorySuch service is provided by one person to another.

Who is to be registered & CompliancesRegistration must be taken by:Person liable to pay service taxService provider Exceptions: Service receiver (under Reverse Charge)Input service distributorTaxable service provider whose value of taxable service > Rs. 9lacsPayment of Service tax

ParticularsFrequencyDue DatePaid PhysicallyPaid onlineIndividual/PartnershipQuarterly5th of Following Qtr6th of Following QtrOthersMonthly5th of Following Month6th of Following Month Service Tax Collected for the month/quarter ending March shall be payable by 31st March of thesaid calendar year

NEGATIVE LIST OF SERVICESKey Rules Service Tax Voluntary Compliance Encouragement Rules, 2013Place of provision of Services Rules, 2012Service Tax (Compounding of Offences) Rules, 2012Service Tax (Settlement of Cases) Rules, 2012Point of Taxation Rules, 2011Service Tax (Determination of Value) Rules, 2006Dispute Resolution Scheme Rules, 2008Service Tax Dispute Resolution Scheme, 2008Export of Service Rules, 2005Service Tax (Provisional Attachment of Property) Rules, 2008The Service Tax (Publication of Names) Rules, 2008Service Tax (Advance Rulings) Rules 2003Service Tax Return Preparer Scheme, 2009

Cases for Service Receipt to pay Tax

Place of Provision of Services As per Section 66B of the Act, Service tax shall be levied on value of services which are Provided or agreed to be provided in Taxable Territory

Place of Provision of services rules applied w.e.f 01.07.2012 and provides the circumstances based on which the place where any services has been provided shall be determined.

Place of Provision = The place of provision of a service shall be the location of the recipient of service: Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the provider of service.

Point of Taxation As per Rule 6 of the Service Tax Rules, 1994 the service tax liability is required to be discharged by the service provider by 5th or 6th (electronically) of the month immediately Following the calendar month/quarter in which the service is deemed to be provided as per the Point of Taxation Rules,2011Question1: What is the Point of taxation as determined by the Point of Taxation Rules,2011?? Answer: As per Rule 3 of the Point of Taxation Rules,2011,point of taxation shall be (a) The time when the INVOICE for the service provided or agreed to be provided is issued OR (b) If the Invoice is not issued within prescribed time period specified in Rule4A of Service Tax Rules 1994 (i.e. within 30 days or in some cases within 45 days of completion of service) ,then the date of completion of service shall be point of taxation OR (c) The date of receipt of payment where the payment is received before issuance of invoice or completion of service

Suppose the date of invoice is 02.09.2014 whereas the payment for same was already made on 28.08.2014,in this case the point of taxation shall be 28.08.2014.Accordingly service tax shall be paid by 6th of September 2014 electronically or 5th otherwiseQuestion2: What is the point of taxation in case of continuous supply of services?? Answer: Continuous supply of service mean Any Service which is provided or agreed to be provided CONTINUOUSLY Or on Recurrent Basis Under a Contract For a period exceeding 3 months With obligation for payment periodically or from time to time Or any service declared by central government in official gazette As per proviso to Rule 3,as far as date of completion of provision of service is concerned the date of completion of each event as specified at which receiver is required to make any payment to service provider shall deemed to be date of completion.

Point of taxation shall be same as in answer 1Question3: What is the point of taxation in case of advance given towards provision of service??Answer: The point of taxation shall be the date of receipt of such advance. Suppose a service was agrred to be provided in September,2014 but the advance payment for same was received on 30.08.2014.In this case ,the point of taxation shall be the date of advance i.e. 30.08.2014.Service tax shall be required to be paid by 6th September,2014.Question4: What is the point of taxation in case of services where the service receiver is required to pay service tax i.e. under reverse chargeAnswer: As per Rule 7 of the Point of Taxation Rules as amended by Service tax Budget 2014 w.e. f 01.10.2014, the point of taxation in case of reverse charge shall be earlier of: a. Date of payment of invoice b. Where the payment is not made within 3 months from the date of invoice, the first day that occurs immediately after the period of 3 months. Suppose, the invoice of a GTA is dated 02.10.2014. The service receiver is a specified person and is required to pay service tax under reverse charge. The date of payment of invoice is 05.10.2014.The point of taxation shall be 05.10.2014. Service tax shall be required to be paid by 6th November, 2014

Situation 1: When payment is made within 6 months of date of invoice ,in that case point of taxation shall be the date of Payment

Situation 2: When payment is not made within 6 months of date of invoice,in that case point of taxation shall be date of Invoice1. Date of Invoice: DOI 2. Date of Change in Rate:DOC 3. Date of Payment :DOP 4. Point of Taxation:POT CaseI: DOI and DOP after DOC Then POT is earlier of DOI or DOP CaseII: DOI Before DOC but DOP after DOC Then POT shall be DOI Case III: DOI after DOC but DOP before DOC Then POT shall be DOP (Thumb rule in case of taxable service provided before change is that POT is earlier of DOP or DOI) (b) In case a taxable service is provided AFTER CHANGE in effective rate of tax: Case I: DOP after DOC but DOI before DOC Then POT shall be DOP Case II: DOP before DOC but DOI after DOC Then POT shall be DOI CaseIII: DOP and DOI Before DOC Then POT is earlier of DOI or DOP (Thumbrule in case of taxable service provided after change is that POT is ( DOP or DOI) whichever is after DOC is valid.

Date of Completion of ServiceDate of InvoiceDate of Making paymentPoint of Taxation10-05-201220-05-201224-04-201224-04-201210-05-201220-05-201210-08-201210-08-201210-05-201220-05-201210-04-201320-05-201210-05-201220-06-201210-04-201310-05-2012Provision of Service or Issue of Invoice or Receipt of Payment whichever is earlier Is the point of taxation:Reverse Charge mechanismFull Reverse Charge

The entire service tax liablity is on the Service Recipient

Insurance Agents ServicesGoods Transport Agency ServicesSponsorship ServicesLegal ServicesSupport Services by government or local authorityDirector ServicesImport of Services

Partial Reverse Charge

Sharing of Service tax liablity by service provider and servvice receipient

Rent -a -Cab ServicesWorks Contract Services

REVERSE CHARGE MECHANISMReverse Charge Mechanism% of Service tax payableProviderRecipient1Provided by person who islocated in non-taxable territoryand received by any personlocated in taxable territoryAny personNIL100%2Works contract services byindividual, HUF, firm or AOPBody corporate50%50%3Manpower supply for anypurposes or security servicesby individual, HUF, firm or AOPBody corporateNIL100%4Renting of vehicle to anyperson who is not engaged inthe similar line of business tocarry passenger by individual,HUF, firm or AOP- With abatementBody corporateNIL 100%

- Without abatementBody corporate50%50%5Support services8 by Governmentand Local Authority (excludingrenting and 66D (a) (i) to (iii)Business EntityNIL 100%6Provided or agreed to beprovided by a director of acompany to the said company(w.e.f. 7 August 2012 vide Not.45/2012)Body CorporateNIL 100%7Individual advocateBusiness EntityNIL 100%8SponsorshipBody CorporateNIL 100%9GTACompany, P. Firm,Factory, Society,excise registeredassesseeNIL 100%10Insurance agent to insurancecompaniesInsurance BusinessNIL 100%11In relation to service providedor agreed to be provided by arecovery agentBanking company or afinancial institution ora non-bankingfinancial companyNIL 100%The small service provider exemption of 10 lakhs not available when tax is payable under reverse charge.Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR7 challan.Once paid, Cenvat credit can be taken if otherwise it is his eligible input service.Tax should be paid under service tax registration number of service receiver and included in his return as he is liable to pay service tax.Service tax is payable by service receiver when actual payment is made to service provider and not on receipt of Invoice from service provider. However, if payment is not made to service provider within 6 months, service tax is anyway payable. Interest is also payable.Exception is that when service provider is outside India is Associated Enterprise (group company with at least 25% common interest), the service receiver is liable to pay service tax as soon as the account of service provider is credited in books of account of service receiverReverse charge with condition of non availability of Cenvat ((e.g. GTA, renting or hire of motor vehicle designed to carry passengers), the abatement is subject to condition of nonavailment of Cenvat credit by service provider (not by service receiver)In some cases, reverse charge is applicable only when service receiver is business entity registered as body corporate. Business entity means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Thus, Government, charitable organisation is not business entity. Body Corporate Company, LLP, Cooperative Society is Body Corporate Firm, HUF, Trust is not Body CorporateExample Reverse Charge X is a Service Provider and Y is a Service Receiver such that they fall within the scope of reverse charge mechanism.The ratio applicable is 25% and 75% for the Service Provider & Receiver, respectively.An invoice of Rs. 15 lakhs (excluding tax) has been raised on 20th April 2015With reference to the example given above, while raising a service invoice, the total service tax payable ofRs.1,85,400/- needs to be disclosed.In addition to that, service tax attributable to the Service Receiver ofRs.1,39,050/- shall be disclosed on the invoice so that the receiver knows the amount of service tax that is required to be paid by him

ParticularsAmount(in Rs.)Invoice Value (excluding tax)15,00,000/-Service Tax @ 12.36% (A)1,85,400/-Total Value16,85,400/-Less: Tax attributable to Service Receiver and to be borne by him [75% of (A)]1,39,050/-Amount Payable by Service Receiver to Service Provider15,46,350/-Service Tax payable by Service Receiver1,39,050/-Service Tax payable by Service Provider46,350/-Reverse charge in works contract

50% tax by service receiver if service provider of works contract service is individual, HUF, proprietary or partnership firm or AOP AND service receiver is business entity Incorporated as body corporate50% service tax is payable by service provider and 50% by service receiver. The service receiver liable for50% even if service provider does not charge service tax.Construction, Job work with material, AMC covered under works contractHiring or Renting of Motor Vehicles Reverse ChargeCase 1. (Abated Value) Jyot is and Individual Provides Services to ICSI Pvt Ltd in relation to renting of Motor vehicles, designed to carry passengers, and charges Rs. 100. Service tax liability on abated value: Rs. (100 x 40% x 12.36%) = Rs. 4.944Case 2 (Total value): Jyot is an Individual provides services to ICSI Pvt Ltd in relation to renting of motor vehicles, designed to carry passengers, and charges Rs. 100. Further, Jyot charges Rs. 7.416 (i.e. Rs. 100 x 60% x 12.36%) as service tax on the face of the invoice. In this case, ICSI Pvt Ltd, the Service Receiver will have to discharge Rs. 4.944 (Rs. 100 x 40% x 12.36%) as Service Recipient.Case 3 The Director of a Company avails services in relation to renting of motor vehicles to travel from one city to another on a business tour. He obtains thebill from the service provider in the name of the companyand passes it on to the company to obtain reimbursement of expenses. In such a case, thecompany WILL be required to pay Service Taxas applicable on it under the reverse charge mechanism because the bill has been raised in the companys name.Case 4 The Director of a Company avails services in relation to renting of motor vehicles to travel from one city to another on a business tour. He obtains thebill from the service provider in his ownpersonal nameand passes it on to the company to obtain reimbursement of expenses. In such a case, thecompany WILL NOT be required to pay Service Taxas applicable on it under the reverse charge mechanism.

Full Reverse Charge Insurance Agent Services Taxable services are provided by Insurance Agent to any person carrying insurance business Service are provided by Insurance Agent to Insurance company but not by Insurance agent to insured i.e client

Goods Transport Agency GTA means any person who provides services in relation to transportation of goods by road and issues consignment note by whatever name called. Simple transport of goods service (without issue of consignment note) is not a GTA service.Service tax is payable by Consignor or Consignee, who is paying freight or is responsible for paying freight if he is body corporate, factory, registered dealer under Central excise, society, cooperative society, partnership firm (registered or not).Tax on 25% if GTA does not avail Cenvat Credit Hence service receiver should get certificate from him that he has not availed Cenvat credit.Otherwise tax on 100% value.GTA is liable to pay service tax if (a) person liable to pay freight is individual or HUF (b) Person liable to pay freight is outside taxable territory (like J&K, Nepal, Bhutan, Pakistan etc.)Generally services in relation to transportation of goods by road is specified in negative list but it excludes Goods transport agency services & accordingly GTA Services are taxable

But such consignor or consignee should be Any Factory registered under Factories ActCompany established under companies ActCorporation established by or under any lawAny Society or Cooperative societyAny dealer of excisable goodsAny body corporateAny partnership firm (includes AOP, BOI, LLP)Therefore for the case of an individual/unregistered firm/HUF/ Governmental agency that are not covered by the above, the GTA would be liable to discharge the service tax

DELTA Ltd. a Company, registered under the Companies Act is transporting goods to an Individual Y, on To Paybasis. Who is liable for payment of Service Tax?

DELTA Ltd. a Company, registered under the Companies Act is transporting goods to an Individual Y, on payment of freight. Who is liable for payment of Service Tax?

Y an individual is transporting goods to a company, DELTA Ltd. on payment of freight. Who is liable for payment of Service Tax? Since the consignor is a Company (i.e. falling under the specified category), the liability is on Consignor or consignee, paying the freight i.e. Y, notwithstanding that he is an individual. But Y would request DELTA Ltd. to pay service tax.

Since the consignor is a Company (i.e. falling under specified category), the liability is on Consignor (or) Consignee, paying the freight i.e. DELTA Ltd

Since the consignee is a Company (i.e. falling under specified category), the liability is on Consignor (or) consignee, paying the freight i.e. Y, notwithstanding that he is an individual. But Y requests DELTA Ltd. to pay service taxExemption Good Transport AgentTransportation of the following goods by a goods transport agency have been exempted from service tax:1.The following essential goodsAgriculture produceFoodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages.Chemical fertilizer and oil cakesNewspapers or magazines registered with the registrar of newspapersRelief materials meant for victims of natural or man-made disasters, calamities, accidents or mishapDefence or military equipments

2. Goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed `1,500(i.e. total freight charged does not exceed 1,500)3. Goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed ` 750 (i.e. there will be goods of other consignees)

Sponsorship ServicesIn case of sponsorship service provided or agreed to be provided by way of sponsorship to any body corporate or partnership firm located in taxable territory receiving the service is liable Notification no. 30/2012

What if receiver of service is not body corporate or partnership firm Service Provider (i.e person receiving sponsorship service will be liable to tax)

What if receiver of service is a body corporate or firm and is not located in taxable terriotry (i.e person receiving sponsorship service will be liable to tax) But if it qualifies to be export of services, exemption is available.

Legal Services - RCMLegal Services provided by Advocate or Advocate firms to business entity having turnover exceeding 10 lakhs p.a, located in taxable territory is covered under reverse charge mechanism and the business entity is liable to pay entire service tax.Business entity means ANY PERSON ordinarily carrying out any activity relating to industry, commerce or any other business or professionThe following services are exempted.Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to(i)An advocate or partnership firm of advocates providing legal services (or)(ii)A person other than business entity(iii)Business entity with a turnover upto10 lakhs in the preceding financial yearService ProviderService Recipient Taxability Advocate Individual/Firm Individual ExemptedIndividual/Firm Individual Advocate ExemptedIndividual/Firm Business Entity Exempted (Turnover during PY 10 lakhs) Individual/Firm Business Entity (Turnover during PY >10 lakhs) Taxable (SR liable to pay)Individual/Firm Firm of advocates Exempted

Directors Services to company -RCMServices of director to company is covered under the provisions of reverse chargeService Provider -Director, Service Recipient -Company (Service Tax liability = 100%)Director INCLUDES Non-executive, Nominee, Public interest and IndependentDirector DOES NOT INCLUDE MD, WTD and ED, who are in full time employment of the company (Therefore no service tax as it is contract of service).Remuneration INCLUDES sitting fees, travelling expenses and incidental expenses for attending the meetings of Board and their committees and commission or other remuneration paid. Remuneration DOES NOT INCLUDE travelling expenses other than for board meetings and committee meetings.(i)How will the service tax liability be calculated in this case and who will bear it?In this case, reverse charge is applicableonlyon the payments made to theNon-Executive Directorin the form of sitting fees and reimbursements. This Service Tax will be deposited by the Company on behalf of the Director under the reverse charge mechanism @12.36%.(ii) Will the Co be eligible to avail Cenvat credit on such payment of service tax?Yes, the Company is entitled toavail the input of the Service Tax paid on the Directors remuneration on reverse charge basis. The service tax paid by the Company on Directors remuneration will be considered as common services and will be eligible under rule 6(3) of the Cenvat Credit Rules, 2004 as per the ratio of taxable and exempted services.(iii)Will the Service Tax be payable even if the Director is below the threshold limit of Rs. 10 lakhs and his income from such services to all service receivers is below such amount?It is immaterial whether the Director falls within the threshold limit or not. Service Tax will have to be deposited by the Service Receiving Company.

Works Contract Services X (an individual) provides services to PQR Pvt. Ltd. in relation to works contract (original) and charges Rs. 200.Service tax liability:Rs. (200 x 40% x 12.36%) = Rs. 9.888 (Alternate Rule)Liability to be discharged by the Service Provider= 50% x Rs. 9.888 = Rs. 4.944Liability to be discharged by the Service Receiver= 50% x Rs. 9.888 = Rs. 4.944

Important Points relating to RCMCenvat can not be availed for discharging the ST Liabilities on RCM

ST Paid under RCM can be utilize towards the discharge ST on output services

Threshold exemption of upto Rs.10 Lac is not applicable here in RCM except Legal services

Allowed Refund of unutilized cenvat credit availed from input services as per Rule 5B of Central Exice Rules,2004

Input Services As per Rule 2(I) of CENVAT Credit Rules, 2004, input service means any service, i) used by a provider of taxable service for providing an output service or(ii) used by a manufacturer, whether directly or indirectly, in or in relation to themanufacturer of final products and clearance of final products up to the place of removalEXAMPLEAn interior decoration company provides interior decoration services and pays rent for its commercial office. The decoration service is output service and rent it pays for its office is input service. The service tax paid on such rent is the input credit and the same can be adjusted against the service tax payable by the company to the governmentA manufacturer can avail CENVAT credit from the services that is related to its manufacturing activities of its final productsAMC Service on Machineries and Transport Service are Input services for Manufacturer Inclusions (Input Services)input service includes the following services, CENVAT credit on these services can be taken and adjusted against the tax payable on output services: Modernisation, renovation or repairs of factory, premises of output service provider or an office relating to such factory or premisesAdvertisement or sales promotion, market research servicesStorage services up to the place of removal, procurement of inputsAccounting, auditing, financing, recruitment and quality controlCoaching, training, computer networkingCredit rating, share registrySecurity, business exhibition, legal servicesInward transportation of inputs or capital goodsOutward transportation up to the place of removalInput service tax credit is available from the above mentioned services if they are used for providing output services or used in relation to manufacture of final productsExclusions Input servicesinput service excludes the following services if they are used for the purpose mentioned below:(A) The following services specified in clause (105) of section 65 of the Finance Act, are excluded from the definition of input service if they are used for1. Construction of a building2. Construction of a civil structure3. Construction of a part of the building or the civil structure4. Laying foundation or making of structures for the support of capital goods (p) Architect service (zn) Port services in a port (zzl) Port services in other port (zzm) Airport services (zzq) Commercial or Industrial constructions (zzzh) Construction of complex (zzzza) Works contractThe CENVAT credit is not available if the above services are used for construction of a building or any other services underlined above. Input serviced tax credit is available if the above mentioned services are used for other purposes than those underlined. For example, if port service is used for works contractExplanation of the Rule:CENVAT credit can be taken from the services included and defined as input service. The credit is not available from the services as excluded. However, the credit is available is the services are used for other purposes than those underlined purposesBudget 2015Current rate is 12% plus education cess of 2%, plus SHEC 1% Total 12.36%, however same has been increased to 14% (Subsuming Education Cess and SHEC) in Budget 2015 which shall come into effect after assent of president is sought for Finance Bill 2015

IMPACT Cost of all services to get costlier i.e foods, flats, Insurance, Mobile Bill, Transport,

Further enabling provision incorporated to empower Central Govt to impose 2% Cess as Swachh Bharat Cess on value of such taxable services (Date is yet to be notified)