Service Tax Act 1994

Service Tax Act 1994


INTRODUCTION

Service Tax is a form of indirect tax imposed on specified services called "taxable services". Service tax cannot be levied on any service which is not included in the list of taxable services. Over the past few years, service tax been expanded to cover new services. The objective behind levying service tax is to reduce the degree of intensity of taxation on manufacturing and trade without forcing the government to compromise on the revenue needs. The intention of the government is to gradually increase the list of taxable services until most services fall within the scope of service tax. For the purpose of levying service tax, the value of any taxable service should be the gross amount charged by the service provider for the service rendered by him.

Service Tax was first brought into force with effect from 1 July 1994. All service providers in India, except those in the state of Jammu and Kashmir, are required to pay a Service Tax in India. Initially only three services were brought under the net of service tax and the tax rate was 5%. Gradually more services came under the ambit of Service Tax. The rate of tax was increased from 5% to 8% w. e. f. 14 May 2003. From 10 September 2004 the rate of Service Tax was enhanced to 10% from 8%. Besides this 2% education cess on the amount of Service Tax was also introduced. In the Union Budget of India for the year 2006-2007, service tax was increased from 10% to 12%. On February 24, 2009 in order to give relief to the industry reeling under the impact of economic recession, the rate of Service Tax was reduced from 12 per cent to 10 per cent.

Service tax is a tax levied on service providers in India, except the State of Jammu and Kashmir

Central Board of Excise and Customs (CBEC)


The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC). Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs and Central Excise duties, prevention of smuggling and administration of matters relating to Customs, Central Excise and Narcotics to the extent under CBEC's purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise Commission rates and the Central Revenues Control Laboratory.

1. Constitutional & Legal provisions behind levy of Service Tax in India.

Constitutional Validity

Article 265 of the Constitution lays down that no tax shall be levied or collected except by the authority of law. Schedule VII divides this subject into three categories-

a) Union list (only Central Government has power of legislation)

b)

State list (only State Government has power of legislation)

c)Concurrent list (both Central and State Government can pass legislation).

To enable parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Govt. & collection of the proceeds there of by the Central Govt. & the State, the amendment vide constitution (95th amendment) Act, 2003 has been made. Consequently, new article 268 A has been inserted for Service Tax levy by Union Govt., collected and appropriated by the Union Govt., and amendment of seventh schedule to the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on services as well as in article 270 of the constitution the clause (1) article 268A has been included.


2. Formation and function of DGST:

Considering the increasing workload due to the expanding coverage of service tax, it has been decided to centralize all the work and entrust the same to a separate unit supervised by a very senior official. Accordingly, the office of Director General (Service Tax) has been formed in the year 1997. It is headed by the Director General (Service Tax). The functions and powers of Director General (Service Tax) are:

i)To ensure that proper establishment and infrastructure has been created under different central excise Commissionerate to monitor the collection and assessment of service tax.

ii)To study the staff requirement at field level for proper and effective implementation of service tax.

iii)To study as to how the various service taxes are being implemented in the field and to suggest measures as may be necessary to increase revenue collection or to streamline procedures :

iv)To undertake study of law and procedures in relation to service tax with a view to simplify the service tax collection and assessment and make suggestions thereon:

v)To form a data base regarding the collection of service tax from the date of its inception in 1994 and to monitor the revenue collection from service tax:

vi)To inspect the service tax cells in the Commissionerate to ensure that they are functioning effectively :

vii)

To undertake any other functions as assigned by the Board from time to time.


3. Existing scheme for levy, assessment & collection of Service Tax in India

Levy and assessment

Service tax is levied on specified taxable services and the responsibility of payment of the tax is cast on the service provider. System of self-assessment of Service Tax Returns by service tax assesses has been introduced w. e. f.01.04.2001. The jurisdictional Superintendent of Central Excise is authorized to cross verify the correctness of self-assessed returns. Tax returns are expected to be filed half yearly.

Central Excise officers are authorized to conduct surveys to bring the prospective service tax assesses under the tax net. Directorate of Service Tax at Mumbai over sees the activities at the field level for technical and policy level coordination.

Legal provisions

The provisions relating to Service Tax were brought into force with effect from 1st July 1994. It extends to whole of India except the state of Jammu & Kashmir. The services, brought under the tax net in the year 1994-95, are as below:

(1)"actuary" has the meaning assigned to it in clause (1) of section 2 of the Insurance Act, 1938 (4 of 1938)

(2)"advertisement" includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas

(3) "Advertising agency" means any person engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant


(3a) “aircraft” has the meaning assigned to it in clause (1) of section 2 of the Aircraft Act, 1934 (22 of 1934)

(3b) “aircraft operator” means any person which provides the service of transport of goods or passengers by aircraft; (3c) “airport” has the meaning assigned to it in clause (b) of section 2 of the Airports Authority of India Act, 1994 (55 of 1994)

(3d) “airports authority” means the Airports Authority of India constituted under section 3 of the Airports Authority of India Act, 1994 (55 of 1994) and also includes any person having the charge of management of an airport or a civil enclave

(4)"air travel agent" means any person engaged in providing any service connected with the booking of passage for travel by air

(5)"Appellate Tribunal" means the Customs, Excise and Gold (Control) Appellate constituted under section 129 of the Customs Act, 1962 (52 of 1962)(6)"architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architect Act,1972 (20 of 1972) and also includes any person engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture

(7) "assessee" means a person liable to pay the service tax and includes his agent

(7a) “auction of property” includes calling the auction or providing a facility, advertising or illustrating services, pre-auction price estimates, short-term storage services, repair or restoration services in relation to auction of property

(7b) “associated enterprise” has the meaning assigned to it in section 92A of the Income tax Act, 1961; [Inserted vide Finance Bill 2008 w. e. f.16th May, 2008]

(8) Authorized dealer of foreign exchange" has the meaning assigned to "authorized person" in clause (c) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999)


(9) authorized service station" means any service station or Centre, authorized by any motor vehicle manufacturer, to carry out any service, repair, reconditioning or restoration of any motor car or two wheeled motor vehicle manufactured by such manufacturer;

(9a) “automated teller machine” means an interactive automatic machine designed to dispense cash, accept deposit of cash, transfer money between bank accounts and facilitate other financial transactions

(9b)“automated teller machine operations, maintenance or management service” means any service provided in relation to automated teller machines and includes site selection, contracting of location, acquisition, financing, installation, certification, connection, maintenance, transaction processing, cash forecasting, replenishment, reconciliation and value-added services

(9c) “banker to an issue” means a bank included in the Second Schedule to the Reserve Bank of India Act, 1934, carrying on the activities relating to an issue including acceptance of application, application money, allotment money and call money, refund of application money, payment of dividend and interest warrants

(10)"banking" shall have the meanings assigned to it in clauses (b) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),

11)"banking company" shall have the meanings assigned to it in clauses (a) of section 45 A of the Reserve Bank of India Act, 1934 (2 of 1934)

(12) “Banking and other financial services” means(a)the following services provided by a banking company or a financial

institution including a non-banking financial company or any other body corporate or [commercial concern]*, namely :—(i) financial leasing services including equipment leasing and hire-

purchase;[‘Explanation.—For the purposes of this item, “financial leasing” means a lease transaction where—

(i) contract for lease is entered into between two parties for leasing of a specific asset;

(ii) such contract is for use and occupation of the asset by the lessee;(iii) the lease payment is calculated so as to cover the full cost of the


asset together with the interest charges; and(iv) the lessee is entitled to own, or has the option to own, the asset at

the end of the lease period after making the lease payment;’;](ii) Omitted(iii) merchant banking services;(iv) securities and foreign exchange (forex) broking, and purchase or

sale of foreign currency, including money changing [Substituted vide Finance Bill 2008 w. e. f.16th May, 2008]

(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, [x x x]1

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;

(vii) provision and transfer of information and data processing; and(viii)banker to an issue services; and(ix) other financial services, namely, lending, issue of pay order,

demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts;”;

(b)foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorized dealer in foreign exchange or an authorized money changer, other than those covered under sub-clause (a);

‘Explanation.— For the purposes of this clause, it is hereby declared that “purchase or sale of foreign currency, including money changing” includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately;

[Substituted vide Finance Bill 2008 w. e. f.16th May, 2008]

(13)"Board" means the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);


(14)"body corporate" shall have the meaning assigned to it in clause (7) of Section 2 of the Companies Act, 1956 (1 of 1956);

{clause (7) of section 2 of the Companies Act, 1956 – “body corporate” or “corporation” includes a company incorporated outside India, but does not include – (a) a corporate sole; (b)a co-operative society registered under any law relating to co-operative societies; and (c ) any other body corporate (not being a company as defined under this Act) which the Central Government may, by Notification in the official Gazette, specify in this behalf.}

(15) "broadcasting " has the meaning assigned to it in clause (c ) of section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 (25 of 1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organisation, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner;

(16) "broadcasting agency or organization" means any agency or organization engaged in providing service in relating to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or


by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organisation;

(17) “beauty treatment” includes hair cutting, hair dyeing, hair dressing, face and beauty treatment, cosmetic treatment, manicure, pedicure or counseling services on beauty, face care or make-up or such other similar services;

(18)"beauty parlour" means any establishment providing beauty treatment services; (19)“business auxiliary service” means any service in relation to, —

(i)promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;[Explanation inserted vide Finance Bill 2008 w. e. f.16th May, 2008]

(iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or

Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;

(v) production or processing of goods for, or on behalf of the client; or(vi) provision of service on behalf of the client; or

(vii)

a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include [* * * * ] any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).[Omitted vide Finance Bill 2008 w. e. f.16th May, 2008]Explanation. — For the removal of doubts, it is hereby declared that for


the purposes of this clause, —(a) ”commission agent” means any person who acts on behalf of

another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person —

(i) deals with goods or services or documents of title to such goods or services; or

(ii) collects payment of sale price of such goods or services; or (iii)guarantees for collection or payment for such goods or services; or(iv)undertakes any activities relating to such sale or purchase of such

goods or services;(b) [* * * * ] [Omitted vide Finance Bill 2008 w. e. f.16th May, 2008]

(19a)“business exhibition” means an exhibition, —

a) to market; or

(b) to promote; or

(c) to advertise; or

(d) to showcase,

any product or service, intended for the growth in business of the producer or provider of such product or service, as the case may be;

(20) "cab" means

[(i) a motorcab, or

(ii) a maxicab, or

(iii) any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward:

Provided that the maxicab referred to in sub-clause (ii) or motor vehicle referred to in subclause (iii) which is rented for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a


commercial training or coaching centre, shall not be included within the meaning of cab;]*

(21) "Cable operator" shall have the meaning assigned to it in clause (aa) of section 2 of the Cable Television Networks (Regulation) Act, 1995 (7 of 1995)

(22) "Cable service" shall have the meaning assigned to it in clause (b) of section 2 of the Cable Television Networks (Regulation) Act, 1995 (7 of 1995)

(23) "cargo handling service” means loading, unloading, packing or unpacking of cargo and includes,—

(a) cargo handling services provided for freight in special containers or for non containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and

(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking,but does not include, handling of export cargo or passenger baggage or mere transportation of goods;

(24)"caterer" means any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose of occasion;

(24a) “civil enclave” has the meaning assigned to it in clause (i) of section 2 of the Airports Authority of India Act, 1994 (55 of 1994);

(24b) “cleaning activity” means cleaning, including specialised cleaning services such as disinfecting, exterminating or sterilising of objects or premises, of —

(i) Commercial or industrial buildings and premises thereof; or

(ii) Factory, plant or machinery, tank or reservoir of such commercial or industrial buildings and premises thereof, but does not include such


services in relation to agriculture, horticulture, animal husbandry or dairying;

(25)"clearing and forwarding agent" means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent;

(25a) “club or association” means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include-

(i) any body established or constituted by or under any law for the time being in force; or

(ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or

(iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or

(iv) Any person or body of persons associated with press or media;

(25b) “commercial or industrial construction service” means —

(a) Construction of a new building or a civil structure or a part thereof; or

(b) Construction of pipeline or conduit; or

(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services, in relation to building or civil structure; or

(d) Repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is —

(i) Used, or to be used, primarily for; or


(ii) Occupied, or to be occupied, primarily with; or

(iii) Engaged, or to be engaged, primarily in, commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams;

(26)"commercial training or coaching" means any training or coaching provided by a commercial training or coaching centre;

(27) "commercial training or coaching centre" means any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes but does not include preschool coaching and training centre or any institute or establishment which issues any certificate or diploma or degree or any educational qualification recognized by law for the time being in force;

(28) [Omitted ]2 (29)"commissioning and installation agency" means any agency providing service in relation to erection, commissioning or installation; (

30) "Computer network" has the meaning assigned to it in clause (j) of sub-section (1) of section 2 of the Information Technology Act,2000 (21 of 2000);

(30a) “construction of complex” means —construction of a new residential complex or a (a) part thereof; or completion and finishing services in relation (b) to residential complex such as glazing, plastering, painting, floor and wall tiling, wall covering and wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic applications or fittings and other similar services; or repair, alteration, renovation or restoration (c) of, or similar services in relation to, residential complex

(31) "consulting engineer" means any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to any person in one or more disciplines of engineering; [Substituted vide Finance BIll 2008, w. e. f.16th May, 2008]


(32)"convention" means a formal meeting or assembly which is not open to the general public, and dose not include a meeting or assembly the principal purpose of which is to provide any type of amusement, entertainment or recreation;

(33) "courier agency" means a any person engaged in the door-to-door transportation of time –sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles

(33a) “credit card, debit card, charge card or other payment card service” includes any service provided,—

(i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder;

(ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank’s personalization agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation;

(iii) By any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card.

Explanation.—For the purposes of this sub-clause, “acquiring bank” means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card;

(iv) In relation to joint promotional cards or affinity cards or co-branded cards;

(v) in relation to promotion and marketing of goods and services through such card;


(vi) by a person, to an issuing bank or the holder of such card, for making use of automated teller machines of such person; and

(vii) by the owner of trademarks or brand name to the issuing bank under an agreement, for use of the trade mark or brand name and other services in relation to such card, whether or not such owner is a club or association and the issuing bank is a member of such club or association.

Explanation.—For the purposes of this sub-clause, an issuing bank and the owner of trademarks or brand name shall be treated as separate persons;’;

(34) "credit rating agency" means any person engaged in the business of credit rating of any debt obligation or of any project or programme requiring finance, whether in the form of debt or otherwise, and includes credit rating of any financial obligation, instrument or security, which has the purpose of providing a potential investor or any other person any information pertaining to the relative safety of timely payment of interest or principal;

(35)“customs house agent" means a person licensed, temporarily or otherwise, under the regulations made under sub-section (2) of section 146 of the Customs Act,1962 (52 of 1962); (35a)“customs airport” means an airport appointed as such under clause (a) of subsection (1) of section 7 of the Customs Act, 1962;’

(36)"data" has the meaning assigned to it in clause (o) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

(36a)“dredging” includes removal of material including, silt, sediments, rocks, sand, refuse, debris, plant or animal matter in any excavating, cleaning, deepening, widening or lengthening, either permanently or temporarily, of any river, port, harbour, backwater or estuary;

(36b) “design services” includes services provided in relation to designing of furniture, consumer products, industrial products, packages, logos, graphics, websites and corporate identity designing and production of three dimensional models;


(36c) “development and supply of content” includes development and supply of mobile value added services, music, movie clips, ring tones, wall paper, mobile games, data, whether or not aggregated, information, news and animation films;’]*

(37)"dry cleaning" includes dry cleaning of apparels, garments or other textile, fur or leather articles;

(38)"dry cleaner" means any person providing service in relation to dry cleaning;

(39) "electronic form" has the meaning assigned to it in clause ( r) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000);

(39a) “erection, commissioning or installation” means any service provided by a commissioning and installation agency, in relation to,—

(i) Erection, commissioning or installation of plant, “machinery, equipment or structures, whether pre-fabricated or otherwise” or

(ii) Installation of—

(a) Electrical and electronic devices, including wirings or fittings therefor; or

(b) Plumbing, drain laying or other installations for transport of fluids; or

(c) heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work; or

(d) Thermal insulation, sound insulation, fire proofing or water proofing; or

(e) Lift and escalator, fire escape staircases or travelators; or

(f) Such other similar services;

(40)"event management" means any service provided in relation to planning, promotion, organizing or presentation of any arts, entertainment,


business, sports, [marriage]* or any other event and includes any consultation provided in this regard; (

41)"event manager" means any person who is engaged in providing any service in relation to event management in any manner;

(42) "facsimile (FAX)" means a form of telecommunication by which fixed graphic images, such as printed texts and pictures are scanned and the information converted into electrical signals for transmission over the telecommunication system;

(43)"fashion designing" includes any activity relating to conceptualizing, outlining, creating the designs and preparing patterns for costumes, apparels, garments, clothing accessories, jewellery or any other articles intended to be worn by human beings and any other service incidental thereto; (44)"fashion designer" means any person engaged in providing service in relation to fashion designing; (45)"financial institution" has the meaning assigned to it in clause (c) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934); (40) "general insurance business" has the meaning assigned to it in clause (g) of section 3 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972)

(46)"foreign exchange broker" includes any authorised dealer of foreign exchange

(46a)"forward contract" has the meaning assigned to it in clause (c) of section 2 of the Forward Contracts (Regulation) Act, 1952 (74 of 1952)

(47) “Franchise” means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved

(48)"franchisor" any person who enters in to franchise with a franchisee and includes any associates of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term "franchisee" shall be construed accordingly


(49)"general insurance business" has the meaning assigned to it in clause (g) of section 3 of General Insurance Business (Nationalisation) Act, 1972 (57 of 1972)

(50)"goods" has the meaning assigned to it in clause (7) of section 2 of the sale of Goods Act, 1930 (3 of 1930)

(50a)“goods carriage” has the meaning assigned to it in clause (14) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988)

(50b)“goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called

(51)"health and fitness service" means service for physical well-being such as, sauna and steam bath, Turkish bath, solarium, spas, reducing or slimming salons, gymnasium, yoga, meditation, massage (excluding therapeutic massage)or any other like service

(52)"health club and fitness centre" means any establishment, including a hotel or resort, providing health and fitness service

(53)"information" has the meaning assigned to it in clause (v) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000)

(53a) "information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing machine or any other device or equipment;[Inserted vide Finance Bill 2008 w. e. f.16th May, 2008]

(54)"Insurance Agent" has the meaning assigned to it in clause (10) of section 2 of the Insurance Act, 1938 (4 of 1938)

(55)"insurance auxiliary service" means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business and includes risk assessment, claim settlement, survey and loss assessment


(55a)“intellectual property right” means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright

(55b) “intellectual property service” means, —

(a) Transferring, temporarily; or

(b) Permitting the use or enjoyment of any intellectual property right;’;

(56)"intermediary or insurance intermediary" has the meaning assigned to it in sub-clause (f) of clause (1) of section 2 o the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)

‘(56a)“international journey”, in relation to a passenger, means his journey from any customs airport on board any aircraft to a place outside India

(56b) “internet” means a global information system which is logically linked together by a globally unique address, based on Internet Protocol or its subsequent enhancements or upgradations and is able to support communications using the Transmission Control Protocol or Internet Protocol suite or its subsequent enhancements or upgradations and all other Internet Protocol compatible protocols

(57)"internet cafe" means a commercial establishment providing facility for assessing internet

‘(57a) “internet telecommunication service” includes,—(i) internet backbone services, including carrier services of internet traffic by one Internet Service Provider to another Internet Service Provider,(ii) internet access services, including provision of a direct connection to the internet and space for the customer’s web page,(iii) provision of telecommunication services, including fax, telephony, audio conferencing and video conferencing, over the internet;

[Substituted vide Finance Bill 2008 w. e. f.16th May, 2008]

(58)"insurer," means nay person carrying on the general insurance business or life insurance business and includes a re-insurer”


(59)"Interior decorator" means any person engaged, whether directly or indirectly, in the business of providing by way of advice, consulting, technical assistance or in any other manner, services related to planning, design or beautification of space, whether man-made or otherwise and includes a landscape designer

The levy of service tax on these services is effective from 10th September, 2004 and the rate of service tax has been enhanced to 10% from 8%. Besides this 2% Education Cess on the amount of service tax has also been introduced. Thus the effective service tax rate is now 10.2% including Education Cess.

Administrative mechanism.

Service Tax is administered by the Central Excise Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India. The unique feature of Service Tax is reliance on collection of tax, primarily through voluntary compliance.

Government has from the very beginning adopted a flexible approach concerning Service Tax administration so that the assessees and the general public gain faith and trust in the tax measure so that voluntary tax compliance, one of the avowed objectives of the Citizens Charter, is achieved. Substantive and procedural liberalization measures, adopted over the years for this purpose, are clear manifestations of the above approach. Following are some of the measures adopted in that direction:

(i)Under Section 67 of the Finance Act, 1994, Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. However, in terms of Rule 6 of Service Tax Rules, 1994, the tax is permitted to be paid on the value received. This has been done to ensure that providers of professional services are not


inconvenienced, as in many cases, the entire amount charged/billed may not be received by the service provider and calling upon him to pay the tax on the billed amount in advance would have the effect of asking him to pay from his own pocket. It would also make the levy a direct tax, which is against the very scheme of Service Tax.

(ii)Corporate assessees are given the liberty to pay tax on the value of taxable service, provided by them in a month, by the 25th of the following month to enable them to finalize the accounts. Further, the individual assessees are required to pay the levy only once in a quarter.

(iii)The process of registration of assessees has been considerably simplified.

(iv)No separate accounts have been prescribed for the purposes of Service Tax. It has been provided that accounts being maintained by the assessees under any other law in force would be sufficient. This has placed the Department at considerable inconvenience to itself, so as to minimize difficulties for the assessees.

(v)The Finance Act’2001 has introduced self assessment for service tax returns; thereby sparing the assessees from the rigours of routine scrutiny and assessment.

(vi)Frequency of filing the returns is minimized. Filing of Statutory return has been made half yearly and by the 25th of the month following the half-year. This is in replacement of the monthly/quarterly returns prescribed earlier.

(vii)Penal provisions do exist in respect of Service Tax also. Failure to obtain registrations, failure to pay the tax, failure to furnish the prescribed returns, suppression of the correct value of the taxable services and failure to comply with notice do attract penal provisions as prescribed. But, it is specifically provided that no penalty is imposable on the assessee for any of the above failures, if the assessee proves that there was reasonable cause for the failure.


This provision has been inserted to take care of the genuine difficulties of the new assessees.

(viii)Government's liberal attitude is more evident in the case of prosecutions. Hardly will there be any tax statute with revenue implications, where prosecutions of the offenders are not provided. In the case of the Service Tax also it was thought of and sections 87 to 93 of the Finance Act, 1994, did provide for prosecution of offenders. However, these provisions were subsequently withdrawn as a noble gesture towards the assessees.

(ix) Service Tax Credit Rules, 2002, have been replaced by the CENVAT Credit Rules, 2004, introduced by the Finance Act, 2004, where under CENVAT credit has been extended across the sectors i.e. goods and services.

4. Analysis of Service Tax Revenue

SERVICE TAX REVENUE (ALL INDIA FROM 1994-95 TO 2003-04)

4.1 The Service Tax collections have shown a steady rise since its inception in 1994. The tax collections have grown manifolds since 1994-95 i.e Rs. 410 crores in 1994-95 to Rs. 14196 crores in 2004-05.

1.2 Service Tax revenue collection target for the year 2004-05 was fixed at Rs. 14150 crores, however on the basis of figures obtained from the Pr. C.C.A., the actual service tax revenue collection stands at Rs. 14196.19 crores. It indicates a growth of 79.93% against the actual realization Rs. 7889.97 crores during the last f.y. 2003-04.

1.3 There is a substantial growth in the assessee base from 403856 nos. in 2003-04 to 7,74,988 nos. in 2004-05. It indicates a growth of almost 91%, which is significantly robust ever after 1994-95 in comparison with 74% growth rate of previous year. The revenue and


assessee statistics from the year 1994-95 to 2004-05 is as shown in the Table-1 below:

Table – 1

FinancialYear

RevnueRs. Crores

% Growth

No. of Services taxed

No. of Assessees

% Growth

1994-95 410 Base Year 3 3943 Base Year

1995-96 846 101 3 4866 19

1996-97 1022 24 6 13982 187

1997-98 1515 49 18 45991 228

1998-99 1787 18 30 107479 133

1999-00 2072 16 27 115495 7.45

2000-01 2540 23 26 122326 5.91

2001-02 3305 26 41 187577 53

2002-03 4125 25 51 232048 24

2003-04 7890 91 58 403856 74

2004-05 14196 79.93 71 774988 91

1.4 Zone wise performance in Service Tax revenue collection as reported by the Chief Commissioners of all the Zones and comparison thereof with previous year is as per Table-2 below.

8. Audit and Inspections


Directorate of Service Tax conducts inspections of Service Tax work in Central Excise Commissionerates all over the country. Inspections in the past have prompted the Commissionerates to streamline the service tax administration system and to conduct surveys to register all prospective assessees under the tax net. Commissionerates have also been directed to conduct the internal audit of assessees’ records as per the instructions of the Board. This audit drive has resulted in the augmentation of revenue. Similarly, CERA has brought on record many instances where assessees were either suppressing the value of taxable service or not getting registered under the tax net.

A few Commissionerates have taken up this work seriously and shown commendable results. Some Commission rates have certainly lagged behind in the field of survey work. Many of them being major service tax earning Commission rates. Survey efforts are adversely affected due to non-deployment of adequate manpower and other resources such as vehicles, etc. it is necessary that all available resources and efforts are mobilized by the field formations to register all assesses for optimum service tax realization.

The service tax is envisaged tobe administered on self-assessment basis. Legal provisions for facilitating such self-assessment have been made in the Finance Act, 2001. This underlines the need for strengthening the audit mechanism to prevent tax evasion/avoidance.

As a path breaking experiment in the field of auditing of services tax assessees on selective basis, the Board has directed the field formations in the metro cities of Mumbai, Chennai, Delhi & Kolkata to conduct the audit of service tax records (1999-2000 onwards only) of the leading service providers in the category of advertising, pagers, couriers, CHAs, steamer agents, air travel agents, manpower recruitment agencies, tour operators, credit rating agencies, chartered accountants, real estate agents etc. (16 service categories). Results of these Audits checks are awaited.

The Director General of Audit, Central Board of Excise & Customs New Delhi has published ‘SERVICE TAX AUDIT MANUAL 2003’ on 01.10.2003 containing the entire procedure to be followed by the officers of the Department while conducting audit of the Service Tax providers.


9. 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.


1. Target of Rs. 17,500 crores Service Tax collection for f.y. 2005-06 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. 2005-06 to be implemented and monitored by various levels of supervisory officers on a monthly basis.

4. While the basic tenet of voluntary compliance of Service Tax law has to be adhered to, recalcitrant/ habitual evaders of Service Tax have to be booked for appropriate action under the law. There could be no leniency in this regard.

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

6. Facilitate the implementation of the recommendations of Expert Group set up by the Government, so that steps for early rationalization and enlargement of the scope of service levy in the country are hastened.

7. 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. Directorate General of Systems have developed software for electronic filing of ST-3 returns for 10 major services from April, 2003. All the Chief Commissioners have been requested to arrange meetings of service providers and service tax staff to inculcate the awareness about E-filing of returns/E-Tax Administration.

8. Concentrate on liquidation of Service Tax arrears and issue necessary clarifications to the field officers so that arrears linked up with disputed interpretations of the provisions of the law could be easily resolved.

9. Attend to all major court cases relating to Service Tax law for early decision.

10. Deploy adequate staff to attend to the service tax work and provide infrastructure and conveyance to implement service tax law effectively.


OFFICERS TO BE CONTACTED UNDER RIGHT TO INFORMATION ACT, 2005

Name/Designation/Address of the CPIO/CAPIO

Districts Sub-DivisionAddress

Shri R.P. Raheja, CPIO

All districts of India

All sub-divisions of India

Additional Director General, DGST, 9th floor, Piramal Chambers, Jijibhoy Lane, Lalbaug, Parel, Mumbai – 400 012.

Phone No. : 2418 1418

Shri P.K. Sinha, CAPIO

All districts of India

All sub-divisions of India

Additional Director General, DGST, 9th floor, Piramal Chambers, Jijibhoy Lane,


Lalbaug, Parel, Mumbai – 400 012. Phone No. : 2418 1420

RATE AND PAYMENT OF SERVICE TAX

The rate of service tax has been enhanced to 8% with effective from 14.05.2003. The assessee should deposit the Service Tax in the authorized Branches of State Bank of India (Nominated Bank). Remittance of Service Tax shall be made by Cash or Cheque in favour of (“State Bank of India A/C. Service Tax-0044).

A) An individual or a Proprietary or Partnership

Service Tax on the value of taxable service received during any quarter shall be required to be paid by him by the 25th of the month immediately following the said quarters (quarter means the period between 1st January to 31st March, or 1st April to 30th June, or 1st July to 30th September or 1st October to 31st December of a financial year.)

B) All other categories (other than “A” above) e.g Public or Private limited Companies

Service Tax on the value of taxable services received during any calendar month shall be required to be paid by them by the 25th of the month immediately following the said calendar month.


FILING OF RETURNS

The Service Tax Assesses are required to file a half yearly return in Form ST-3 in triplicate, to the Superintendent of Central Excise, dealing with Service Tax work. The return is to be filed within 25 days from the last day of the half year it relates to and should be accompanied by copies of all TR-6 Challans issued in the relevant period.

Half-Year period means (1) 1st April to 30th September and (2) 1st October to 31st March.

Thus, the returns for half year ending 30th September and 31st March are required to be filed on or before 25th October and 25th April.

Further, assesses filing the returns for the first time should also furnish to the department the list of all the accounts maintained by them, relating to Service Tax.

If no Services have been provided during a half year and no Service tax is payable, the assessee may file a “Nil” return within the prescribed time limit.

PENALTY

Penalty may be imposed by the department on the assessee if he;

1) fails to get registered within the prescribed time limit; or

2) fails to pay service tax to the Government in time; or

3) fails to file half-yearly return with the department in time; or

4) wilfully suppresses or conceals the value of taxable services or furnishes inaccurate value of such taxable services or


5) fails to comply with a notice requiring him to produce within the specified time limit, such accounts, documents or other evidence as considered necessary by the Central Excise Officer for assessment.

Penalty for Non-Registration

A Penalty of Rs.500/- shall be imposed on an assessee in case they have not registered themselves with Service Tax Cell within one month from the date of commencement of Service or from the date of introduction of the Service.

Penalty in the case of delay in paying the Service Tax to the Government within the prescribed time limit:

For failure to pay the service tax, the assessee would be required to pay a minimum penalty of Rs.100/- to Rs.200/- per day as decided by Central Excise Officer. This amount is subject to a ceiling of the amount equivalent to Service Tax not paid.

Interest is also payable at the rate of fifteen percent per annum for delayed payment of Service Tax.

Penalty for non filing or delayed filing of the half yearly returns:

An assessee failing to file the half yearly returns or failing to file them in time are liable to a penalty of a sum which may be extended to One Thousand Rupees.

Nominated Bank for payment of Service Tax:

In respect of Chennai IV Commissionerate, State Bank of India has been authorised to collect the Service Tax. However, Upto 30-6-2003, the assessee can also pay the Service Tax in the Authorised Branches of Indian Overseas Bank. The assessee should indicate in their TR6 Challans the Accounting Commissionerate as Chennai IV with code number 65.

Documents

Service Tax Act 1994