Service tax was introduced by the central government in the year 1994-95, initially levied on three services at a rate of 5%. Slowly central government covered most of services under its net due to the fact that share of services in the economy has increased to more than 60%. From year 2012-13 it became applicable on all services except a negative list of services. The total service tax collection is approx 2 Lac crore in a financial year and Its share in total tax collection is more than 15%. I have given the answer of the question “what is service tax ” in detail.
I have explained in this article all concepts related to service tax. It will help you to understand the complex laws & rules of service tax.
What is service tax?
Meaning: It is a tax on provision of services. It is a tax on ‘economic activity’ which results in value addition. So whenever somebody provides any taxable services he is liable for service tax.
It is not tax on income generated from services but is a tax on the rendition of services.
Example: a doctor provides services of Rs. 10,000 and his expenses is Rs. 2,000. He needs to pay the service tax on Rs. 10,000 not on income of Rs. 8,000.
Section 65B(44) of finance act, 1994, service means an activity carried out by one person for another for a consideration.
The power to charge service tax vests with the central government. It is administered by the central excise department under the ministry of finance. It is applicable to whole of India except the state of Jammu & Kashmir.
Scope: Section 66B is charging section, which provides that service tax shall be levied on all services provided or agreed to be provided in taxable territory other than services specified in Negative List.
Negative List: Section 66D specifies services which are listed in negative list.
Exempted services: Notification No. 25/2012-ST, dated 20-06-2012 provides for list of services which are exempt from service tax.
Declared Services: Section 66E provides a list of nine services which are specifically taxable. This list is given to remove disputes between sale of goods and services.
Taxable Territory: It is important to find out taxable territory since services provided in taxable territory are only taxable. Place of provision of services Rules, 2012 are framed for this purpose.
Principal of Interpretation: Section 66F provides principal of interpretation of services and taxability of bundled services.
Date of determination of rate of tax, value of taxable service & exchange rate: Section 67A provides that rate, value & exchange rate will the determined on the date & time when such services are provided. Point of taxation Rules, 2011 are important for this purpose.
Rate of service Tax: This is specified under section 66B is 14% and 0.5% is Swatch Bharat Cess. From 1st June 2016 onward 0.5% will also get added as krishi Kalyan Cess.
Valuation of services: Value of services is determined in accordance with section 67 read with service Tax (Determination of value) Rules, 2006.
Payment of service Tax: The liability to pay service tax is of service provider in most cases. In some specific cases service receiver is liable to pay service tax. This scheme is called reverse charge. E-Payment is the easiest mode of payment of service tax.
CENVAT credit: Service tax input credit is available as per CENVAT credit rules, 2004.
Service Tax Return: Return is filed half yearly basis by 25th of the following month.
Exemptions: Small service provider are given exemption upto Rs. 10 Lac.
Procedural Compliance: Provisions are made for registration, assessment, audit, appeals, penalties and prosecution.
Various bodies concerned with service tax
Finance Act, 1994:
There is no separate act for service tax. Finance Act, 1994 contains the provision of its levy, collection, registration and other procedures. Chapter V & V-A of the finance act contains all these provisions
Rules framed under the Act:
Central Government is empowered to make rules for carrying out provisions of service tax.
The various service tax rules are listed below:
- Service tax rules, 1994
- CENVAT Credit Rules, 2004
- Point of Taxation Rules, 2011
- Place of provision of services rules, 2012
- Service tax( determination of Value) Rules, 2006
- Service tax (registration of special category of persons) Rules, 2005
- Service Tax ( Advance Ruling) Rules, 2003
- Service Tax (publication of names) Rules, 2008
- Service Tax ( provisional attachment of property) Rules, 2008
- Service tax ( settlement of cases) Rules, 2012; and
- Service tax (compounding of offences) Rules, 2012
Notifications:
Central Government issues notifications for clarification of any issue related with service tax
Circulars, Instructions, office Letters:
CBEC in order to explain the scope of the service tax law issues circulars or instructions or office letters.
Orders:
Orders are published by CBEC and central government for easy implementation of service tax laws
Trade Notices:
Trade Notices are issued to give necessary guidelines to field officers.
Case Laws:
Case laws are decisions of various appellate authorities, high courts & supreme courts act as guidance.