SERVICE TAX

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 INDEX

Serial Page
No. TOPICS No.

1 A Brief History 3

2 Why Service Tax? 3

3 Progression of tax rate over the years 4

4 Ready Reckoner - Services covered under the Service Tax 4-9

5 Collection of Service Tax 10

6 Computation of Service Tax 11

7 Input Tax Credit 11

8 Service Tax: Some Statistics and 12 - 13

Budget Highlights

9 Challenges before the Service Tax Administration in India 14 - 15

Future Growth Path and Future Course of Action
( Forms – ST 1, ST 2, ST – 3 and TR - 6 )

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 A Brief History
A tax is a financial charge or other levy imposed on an individual or a legal entity
by the state.
Based on how a taxpayer pays a tax, taxes are differentiated into direct taxes and
indirect taxes. A direct tax is one paid directly to the government by the persons on whom
it is imposed. Income Tax is an example of direct tax. An indirect tax is a tax collected by
an intermediary from the person who bears the ultimate economic burden of the tax.
Examples of indirect tax are Sales Tax, VAT, Service Tax, Customs Duty etc.

Why Service Tax?

In India, the economy consists of three sectors viz. agricultural sector, industrial
sector and the services sector. At present the share of the three sectors are 18.5%, 26.4%
and 55.1% of the GDP respectively. Service sector not only occupies the most significant
part of the GDP but is also the fastest growing of all. In 2006-07, the rate of growth for
these sectors was 2.7%, 7.4% and 11.1%. (Source: Economic Survey 2006-07 – Ministry
of Finance, Govt. of India)

In 1994, the then government headed by Prime Minister Mr. P.V.Narasimha Rao
realized the significant contribution of services to the GDP and its potential growth in the
future. Hence it decided to impose tax on services. Services have been taxed world over.
However, the difference between many countries taxing services and India is that India
has chosen a selective model of taxation whereas the other countries have adopted a
comprehensive model of taxation. In the comprehensive model all the services are taxed
except a few like medical services, education etc. In the selective model only a few
selected services are taxed by a government notification and rest of the services are
exempted.
Initially only three services viz. telecommunication, general insurance and stock-
broking were taxed. The rate of taxation was 5% of the amount of service provided.

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 Progression of tax rate over the years
Year Rate (%) Educational Cess (%) Effective Rate (%)
1994 5 - 5
2003 8 - 8
2004 10 2 10.2
2005 12 2 12.24
2007 12 3 12.36

Service tax was introduced for the first time in the year1994
through the insertion of Chapter V in the Finance Act 1994.

For ready reference, details of the service in chronological order of

their introduction are given below:

SL.NO. Nature of service Date of introduction

1994
1. General Insurance 1-7-1994

2. Stock broking 1-7-1994

3. Telephone 1-7-1994

1996
4. Advertising agency 1-11-1996
5. Courier 1-11-1996
6. Pager 1-11-1996

1997
7. Custom house agent 15-6-1997
8. Steamer agent 15-6-1997
9. Air travel agent 15-6-1997
10. Mandap keeper 15-6-1997
11. Consulting Engineer 15-6-1997
12. Manpower recruitment or supply agency 15-6-1997

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 13. Clearing & Forwarding Agent 15-6-1997
SL.NO. Nature of service Date of introduction

1998

14. Architect 16-10-1998

15. Chartered Accountant 16-10-1998
16. Company Secretary 16-10-1998
17. Cost & Works Accountant 16-10-1998
18. Credit rating agency 16-10-1998
19. Interior decorator 16-10-1998
20. Management Consultant 16-10-1998
21. Market research agency 16-10-1998
22. Real estate agent 16-10-1998
23. Security agency 16-10-1998
24. Underwriter 16-10-1998

2000

25. Rent-a-Cab Scheme operator 1-4-2000

26. Tour operator 1-4-2000

2001

27. Authorized service station 16-7-2001

(Motor car/Two-wheelers)

28. Banking & other Financial services 16-7-2001

29. Broadcasting 16-7-2001
30. Computer network 16-7-2001
31. Convention 16-7-2001

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 32. Facsimile 16-7-2001
33. Insurance Auxiliary(Genl. Insurance) 16-7-2001
SL.NO. Nature of service Date of introduction

34. Leased circuit 16-7-2001

35. Photography 16-7-2001
36. Port 16-7-2001

37. Scientific & technical consultancy 16-7-2001

38. Sound recording 16-7-2001
39. Telegraph 16-7-2001
40. Telex 16-7-2001
41. Video production agency 16-7-2001

2002

42. Beauty Treatment 16-8-2002

43. Cable 16-8-2002
44. Cargo handling 16-8-2002
45. Dry cleaning 16-8-2002
46. Event management 16-8-2002
47. Fashion designing 16-8-2002
48. Health and fitness 16-8-2002
49. Insurance Auxiliary(Life Insurance) 16-8-2002
50. Life Insurance 16-8-2002
51. Rail travel agent 16-8-2002
52. Storage and warehousing 16-8-2002

2003

53. Authorized service station 1-7-2003

(Light motor vehicle)

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 54. Business auxiliary services 1-7-2003
55. Commercial training or coaching 1-7-2003
SL.NO. Nature of service Date of introduction

56. Erection, commissioning or installation 1-7-2003

57. Foreign exchange broking 1-7-2003
58. Franchise 1-7-2003
59. Internet access 1-7-2003
60. Maintenance or repair 1-7-2003
61. Other Ports 1-7-2003
62. Technical inspection & certification 1-7-2003
63. Technical testing & analysis 1-7-2003

2004

64. Airport 10-9-2004

65. Business exhibition 10-9-2004
66. Commercial or Industrial construction 10-9-2004
67. Forward contract 10-9-2004
68. Intellectual property 10-9-2004
69. Opinion poll 10-9-2004
70. Outdoor caterer 10-9-2004
71. Pandal or Shamiana Contractor 10-9-2004
72. Programme Producer 10-9-2004
73. Survey & exploration of mineral 10-9-2004
74. Transport of goods by air 10-9-2004
75. Transport of goods by road 10-9-2004
76. Travel agent(other than by air travel
Agent and rail travel agent) 10-9-
2004

2005

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 77. Cleaning activity 16-6-2005
78. Club or Association 16-6-2005
SL.NO. Nature of service Date of introduction

79. Construction of Complex 16-6-2005

80. Dredging 16-6-2005
81. Mailing list compilation & Mailing 16-6-2005
82. Packaging activity 16-6-2005
83. Site formation and clearing, etc. 16-6-2005
84. Survey and map- making 16-6-2005
85. Transport of goods through pipeline or
Other conduit 16-6-
2005

2006

86. Auctioneer’s service 1-5-2006

87. Automated Teller Machines Operations,
Maintenance or Management services 1-5-
2006
88. Business support services 1-5-2006
89. Credit card, debit card, charge card or other
Payment card related services 1-5-
2006
90. Internet telephony service 1-5-2006
91. Public relations management service 1-5-2006
92. Recovery Agent’s service 1-5-2006
93. Registrar to an Issue’s service 1-5-2006
94. Sale of space or time for advertisement service 1-5-2006
95. Share transfer agent’s service 1-5-2006
96. Ship management service 1-5-2006

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 97. Sponsorship service 1-5-2006
98. Transport of goods in containers by rail service 1-5-2006
99. Transport of passengers embarking in India for
International journey by air service 1-5-
2006
100. Transport of persons embarking from any port
Or other port in India by cruise ship service 1-5-
2006

SL.NO. Nature of service Date of introduction

2007
101 Telecommunication services 28-02-2007

102 Mining services 28-02-2007

103 Renting of Immovable Property for use in the

Course or furtherance of business or commerce 28-02-2007

104 Services involved in the execution of works 28-02-2007

contract

105 Development and supply of content service 28-02-2007

106 Asset management including portfolio management

and all forms of fund management service 28-02-2007

107 Design services 28-02-2007

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 Collection of Service Tax
Collection of Service Tax is administered by the Customs & Excise Department.
Following is the procedure foe collecting Service Tax:-

i. Any Service Provider providing service which is mentioned in the notification

should get himself registered within 30 days from the date on which he starts
providing the service. The application for registration is made in form ST-1.
ii. Registration Certificate is issued in form ST-2 within 7 days from the receipt of
application.
iii. Once the certificate is issued the Service Provider is obliged to charge Service
Tax. In case the Service Provider raises bill without charging the Service Tax,
then he is liable to pay the Service Tax from his own pocket.
iv. The Service Tax is payable only when the bill is realized and it is chargeable
when the bill is raised. The Service Tax is required to be deposited using a challan
in the form TR-6.
v. The liability to pay Service Tax is dependant on whether the Service Provider is a
company or non-company.
In case the Service Provider is a company then the Service Tax collected
in a month is to be paid before the 5th of the next month except for March when it
is to be paid before 31st.
In case the Service Provider is a not a company then the Service Tax is to
be paid on a quarterly basis and the due date is 5th of the next month.

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 vi. The Service Provider has to also file returns for the Service Tax collected and paid
by him. Filing of returns takes place twice in a year. For the period April to
September, the last date of filing returns is 25th October while for the period
October to March; the last date is 25th April.
The returns are filed in the form ST-3.
vii. If there is a delay in the payment of Service Tax, a fine of 13% per annum is
applied.

Computation of Service Tax

Service Tax = Amount of bill * Rate of Service Tax

100 + Rate of Service Tax

Thus if the bill is of Rs. 1 Lac, then the Service Tax is computed as

100000 * 12.36
=
100 + 12.36

This is equal to Rs. 11000.

Input Tax Credit

The concept of Input Tax Credit was introduced to avoid cascading effect of
paying Service Tax on Service Tax. It applies to all services under the Service Tax net
provided there is some co-relation between the Service Tax on the input service and the
output service.

For e.g. suppose there is an event management firm. It is managing an event for
which it charges Rs. 10 Lacs from the organizers. This firm hires the services of an

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interior decorator who charges Rs. 1 Lac. At the effective rate of 12.36%, the interior
decorator would raise a bill of Rs. 111000. The event management firm would raise a bill
of Rs. 1110000, i.e. charging the organizers Rs. 110000. But while filing returns it will
claim a credit for Rs. 11000 it paid to the interior decorator. Thus it would avoid paying
Service Tax on Service Tax. At the same time, the government also does not lose any tax.

Service Tax: Some Statistics

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 Budget Highlights

Service Tax :

• Tax to GDP ratio up 11.4 per cent in 2007-08.

•

• No change in Service Tax rate.

Service tax - Recommendations for the financial year 2007 - 08

• * Exemption limit for small service providers to be raised from Rs400,000 to Rs800,000.
* Extension of service tax to: Tax to be levied on services outsourced for mining
of mineral, oil or gas and renting of immovable property for use in commerce or business
(residential properties, vacant land used for agriculture and similar purposes and land for
sports, entertainment and parking purposes and immovable property for educational or
religious purposes to be excluded).
* Service tax extended to content supplied for use in telecom and advertising purposes,

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 asset management services provided by individuals and design services.
* Services involved in optional schemes of a works contract will be levied tax at only 2
per cent of the total contract value.
* Exemption to: Tax exemption to services provided by resident welfare associations
to their members who contribute Rs. 3,000 or less per month; Services provided by
technology business incubators to incubatees whose annual turnover does not exceed Rs.
50 lakh (for three years); and clinical trial of new drugs.
* Department of telecommunications to constitute a committee to study the present duty
structure n telecom industry.

The one per cent additional " Education Cess " on all taxes over and above the
existing two per cent is uncalled for. So is the increase in the rate of dividend
distribution tax by 2.5 per cent to 15 per cent. Large allocations are being made for
agri sector year after year. But not enough is done to ensure effective utilisation of the
funds. On the positive side is the reduction in customs duty on several items including
coal and steel. Introduction of MAT on IT companies has come as surprise.

Challenges before the Service Tax Administration in India.

Service tax administration in India has before it multi-dimensional challenges.
Few of them are related to the very nature and growth of service sector in the economy
and others relate to procedural aspects of the service tax collection.
The growth of service sector at higher rate offers opportunities as well as
challenges to bring under the tax net hitherto uncovered services. This offers tremendous
revenue potential to the Government. It is expected that in due course Service Tax would
reduce the tax burden on international trade (Customs duty) and domestic manufacturing
sector (Excise duty). So a planned growth of service tax would be commensurate with the
goals of economic liberalization and globalization. This process requires levy of taxes on
new services without substantial rise in the rate or cost of collection.
The administration of service tax requires a separate comprehensive legislation
along with distinct administrative machinery exclusively devoted to the collection of
service tax. That alone would bring in greater clarity, streamlined procedures, greater

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taxpayer assistance and a new tax culture of voluntary compliance. . The twin goal of
revenue maximization introduction of the culture of voluntary tax compliance also throw
up major challenge before the service tax administration in the country.

Future growth path for service tax in India.

Service tax is envisaged as the tax of the future. Well synchronized taxation on
manufacturing, trade (domestic & international) and service without giving rise to
cascading effect of taxation would be an ideal worth pursuing in the immediate future.
This would bring in VAT in its truest sense.

Continued growth in GDP accompanied by higher rate of growth in service sector

promises new & wider avenues of taxation to the Government. If the tax on services
reduces the degree of intensity of taxation on manufacturing and trade without forcing the
Government to compromise on the revenue needs, then one of the basic objectives of
taxing the service sector would be achieved.

Voluntary tax compliance on the part of taxpayers demands prudent accounting

practices and transparency in the conduct of their business. Marginal rates of taxation
would be conducive in this process. Many new services may be brought under the tax net
in future. The inclusion of all value added services in the tax net would yield larger
amount of revenue and make the existing tax structure more elastic.

Advanced economies of Western Europe, North America and Far East have share
of service sector in their GDP ranging from 60% to 80%. The growth in absolute
quantum of GDP and proportion of Service-sector in GDP holds promise for larger
revenue generation without increasing the existing level of taxation

Future Course of Action

The following items of works have to be attended to urgently to improve the

administration of Service Tax in the country.

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1. Target of Service Tax collection for f.y. 2007-08 to be exceeded

2. Intensify the field survey operations to ensure that all taxable service assessees are
brought into the tax net and Service Tax due from them are collected without hitch.

3. Action plan for the f.y. 2007-08 to be implemented and monitored by various levels
of supervisory officers on a monthly basis.

4. The statutory change to prosecute frequent offenders/tax evaders is needed in the Act.

5. Design and implement an Electronic Tax Administration (ETA) system for service tax
so that service tax could be administered as first e-tax of the country.

6. Attend to all major court cases relating to Service Tax law for early decision.
Deploy adequate staff to attend to the service tax work and provide infrastructure and
conveyance to implement service tax law effectively.

VAT, CST and a Roadmap towards GST: Agreement reached with State Governments to
phase out CST; rate to be reduced from 4% to 3% with effect from April 1, 2007;
Rs.5,495 crore provided for compensation for losses, if any, on account of VAT and also
on account of CST; a roadmap for introducing a national level Goods and Services Tax
(GST) with effect from April 1, 2010 to be prepared.

FORM ST- 1

[Application form for registration under Section 69 of the Finance Act, 1994 (32 of 1994)]

(Please tick appropriate box below)

New Registration

Amendments to information declared by the existing Registrant.

Registration Number in case of existing Registrant seeking Amendment

_____________

1. (a) Name of applicant

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 (b) Address of the applicant

2. Details of Permanent Account Number (PAN) of the applicant

(a) Whether PAN has been issued by the Income Tax Department

Yes No

(b) If Yes, the PAN

(c) Name of the applicant (as appearing in PAN)

3. (a) Constitution of applicant (Tick as applicable)

(i) Proprietorship

(ii) Partnership

(iii) Registered Public Limited Company

(iv) Registered Private Limited Company

(v) Registered Trust

(vi) Society/Cooperative society

(vii) Others

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 (b) Name, Address and Phone Number of Proprietor/Partner/Director

(i) Name

(ii) Address

(iii) Phone Number

4. Category of Registrant (Please tick appropriate box)

(a) Person liable to pay service tax

(i) Service provider

(ii) Service recipient

(b) Other person/class of persons

(i) Input service distributor

(ii) Any provider of taxable service whose aggregate value of taxable

service in a financial year exceeds three lakh rupees

5. (a) Nature of Registration (Tick as applicable)

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(i) Registration of a single premise

(ii) Centralized Registration for more than one premises

(b) Address of Premises for which Registration is sought

(i) Name of Premises / Building

(ii) Flat/Door/Block No.

(iii) Road/Street/Lane

(iv) Village / Area / Lane

(v) Block/Taluk/Sub-Division/Town

(vi) Post office

(vii)City/District

(viii)State/Union Territory

(ix) PIN

(x) Telephone Nos.:

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 (xi) Fax No.

(xii)E-mail Address

(c) In case of application for Centralized Registration, furnish address of all the
premises from where taxable services are provided or intended to be provided
(FORMAT AS PER 5(b) ABOVE)

(d) In case of application for Input Service Distributor, furnish address of all the
premises to which credit of input services is distributed or intended to be
distributed (FORMAT AS PER 5(b) ABOVE)

6. Address of the premises or office paying service tax under centralised billing or
centralised accounting under sub-rule (2) and (3A) of rule 4 of the Service Tax
Rules, 1994.

Address

7. Description of taxable services provided or to be provided by applicant

S.No. Description of service Relevant clause of section 65 of the Finance Act, 1994, to be
indicated, if possible
(1) (2) (3)

8. Name, Designation and Address of the Authorized Signatory /Signatories:

DECLARATION

I, ___________________________________________hereby declare that the information

given in this application form is true, correct and complete in every respect and that I am
authorized to sign on behalf of the Registrant.

(a) For new Registration:

I would like to receive the Registration Certificate by mail / by hand/ E-MAIL

(b) For amendments to information pertaining to existing Registrant:

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Date from which amendments are made: _______________

(Original existing Registration Certificate is required to be enclosed)

(Signature of the applicant/authorized person with stamp)

Date:

Place:

ACKNOWLEDGEMENT

(To be given in the event Registration Certificate is not issued at the time of receipt of
application for Registration)

I hereby acknowledge the receipt of your Application Form

(a) For new Registration

(As desired, the New Registration Certificate will be sent by E-MAIL/ mail/handed
over to you in person on______________)

(b) For amendments to information in existing Registration (I hereby acknowledge

receipt of original existing Registration Certificate)

Signature of the Officer of Central Excise

(with Name & Official Seal)

Date:

FORM ST-2

[Certificate of registration under Section 69 of The Finance Act, 1994 (32 of 1994)]

Shri/Ms. ………………………………………………. (name with complete address of

premises ) having undertaken to comply with the conditions prescribed in Chapter V of the
Finance Act, 1994 read with the Service Tax Rules, 1994, and any orders issued thereunder
is hereby certified to have been registered with the Central Excise Department. The
Service Tax Code and other details are mentioned hereunder.

1. PAN No.

2. Service Tax Code

(Registration Number)

3. Taxable Services

4. Address of business premises:

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 (i) Name of Premises / Building

(ii) Flat/Door/Block No.

(iii) Road/Street/Lane

(iv) Village / Area / Lane

(v) Block/Taluk/Sub-Division/Town

(vi) Post office

(vii)City/District

(viii)State/Union Territory

(ix) PIN Telephone Nos:

(x) E-mail Address

5. PREMISES
CODE

[SL.NOS.2,3,4 TO BE REPEATED FOR EVERY PREMISES BEING GRANTED A

REGISTRATION UNDER THIS CERTIFICATE. PREMISES CODE IS GIVEN BY THE

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DEPARTMENT BASED ON THE COMMISSIONERATE+DIVISION+ RANGE+ SL NO]

Note:

1. In case the registrant starts providing any other taxable service (other than those
mentioned above), he shall intimate the department.

2. In case the registrant starts billing from other premises (other than those mentioned
above), he shall intimate the department.

3. These intimations and any other information which registrant wishes to bring to the
notice of the department can be submitted on-line by the registrant after logging
on to web-site.

4. This registration certificate is not transferable.

5. List of Accounting Codes is enclosed. These may invariably be furnished in the

challan at the time of making payment of service tax.

Place: ……………. Name and signature of the Central

Excise

Date: ……………. Officer with official seal

CC: (by e-mail) To-

(1) The Pay and Accounts Officer (Commissionerate Name)

(2) The Superintendent of Central Excise (Where premises are located).

FORM ST-3

(Return under Section 70 of the Finance Act, 1994)

FINANCIAL YEAR____________

For the period: (Please tick appropriate box)

[April-September]

[October-March]

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 1. Name of the assessee

2. Registration Numbers of premises for which return is being filed

3. Category of taxable services for which return is being filed:

(Mention all the taxable services provided/received)

(1)________________________________

(2)________________________________

(3)________________________________

4. Payment of Service Tax

Category of Service: __________________________________________________

(A) Payment details

Apr/Oct May/Nov June/Dec July/Jan Aug/Feb Sept/Mar Total of

column
(2) to (7)

(1) (2) (3) (4) (5) (6) (7) (8)

Amount
received
towards
taxable
service(s)
provided
Amount

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received in
advance
towards
taxable
service(s) to
be provided
Amount
Billed-
gross
Amount
billed for
exempted
services
other than
export
Amount
billed for
exported
services,
without
payment of
tax
Amount
billed for
services on
which tax is
to be paid
Abatement
claimed-
Value
Notification
number of
Abatement
Notification
number of
exemption
Provisional
Assessment
order no.
Service tax
payable
Education
cess
payable
Service tax
paid in cash
Challan
Number
Challan
date
Service tax
paid
through
cenvat

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credit
Education
cess paid in
cash
Education
cess paid
through
education
cess credit
(To be repeated for every category of service provided /received, and for every registered

premises separately)

(B) Details of other payments

Amount- Challan Date Amount-Credit Source Document

Cash Number No
(1) (2) (3) (4) (5) (6)
Arrear of service tax

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