India: Indian Indirect Tax Laws - A Brief Guide

Last Updated: 13 January 2016
Article by Shammi Kapoor, Vishal Kumar and Purva Juneja

Service Tax

1. Taxation of Service

Service tax was introduced for the first time in 1994 through insertion of Chapter V in the Finance Act, 1994 (the "Finance Act") as a mean to broaden the indirect tax base. It may be noted that there is no separate enactment for service tax till date and it continues to be governed by the provisions of Chapter V of the Finance Act (ss 64 to 100) and the rules incorporated under the Service Tax Rules, 1994.

The Finance Act provides for methods of levying service tax, the circumstances in which the levy would arise, the procedures to be followed and allied matters such as registration, self-assessment, penalty, etc. Initially, the levy of service tax was confined only to three services. Since then, year after year, the scope of service tax gradually increased and extended to over 120 services. The Finance Act, which provides for levy of service tax has been substantially amended by the Finance Act, 2012, w.e.f., 1.07.2012. There has in fact been a paradigm shift in the law relating to levy of service tax, pursuant to the aforesaid amendments. Generally speaking, service tax is now leviable on all services except those mentioned in the negative list and exemption notification.

The relevant statutes governing the levy of service tax are as follows:

  1. Finance Act, 1994 – Chapter V (ss 64 to 100): This chapter extends to the whole of India except the State of Jammu and Kashmir
  2. Service Tax Rules, 1994
  3. Point of Taxation Rules, 2011
  4. Service Tax (Determination of Value) Rules, 2006
  5. Service Tax (Advance Rulings) Rules, 2003
  6. Place of Provision of Services Rules, 2012
  7. CENVAT Credit Rules, 2004

2. Important provisions governing levy of service tax are discussed in the succeeding paragraphs

Levy of service tax

  • Service tax is levied on all services except those mentioned in the negative list and exemption notification.
  • Presently, the service tax is levied at the rate of 14% on the value of taxable services.

Taxable services

Section 66B of the Finance Act is the charging section. The terms "taxable service" is defined to mean any service on which service tax is leviable under s 66B of the Act. Hitherto, the liability to pay service tax was on realisation of the value of taxable service. However, with the introduction of Point of Taxation Rules, 2011, w.e.f. 01.06.2011, the liability to pay service tax has been shifted to invoice method, ie, on raising of invoice.

Persons liable to pay service tax

Liability to pay service tax is cast on the service provider. However, in some cases, recipients of services have been made liable (on partial/ reverse charge method) to pay service tax under the Finance Act.

Exemption to small service providers

Service tax is exempted up to Rs 10,00,000 (Indian Rupees One Million), being the aggregate value of all taxable services provided by a service provider during a financial year. The aggregate taxable value means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year, but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under s 66 B of the Finance Act or under any other notification. However, the above exemption is not admissible to:

  1. taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or
  2. such value of taxable services in respect of which service tax shall be paid by the recipient of services (on reverse charge method) under the Finance Act.

3. General exemptions

Other than the threshold exemption to small service providers, certain relevant exemptions from payment of whole of the amount of service tax are provided by way of Notifications, as under:

  • Services provided to the United Nations or specified international organizations.
  • Services provided to a developer of Special Economic Zone or a unit in Special Economic Zone. However, under the present provisions (vide Notification No. 12/2013 dated 01.07.2013), specified service received by SEZ unit/ Developer is ab initio exempt when used exclusively used for the authorized operations. For this purpose, the SEZ unit/Developer would need to seek an approval from the Approval Committee, of the list of services as are required for the authorized operations. In relation to the specified services that are not exclusively used for authorized operations, the SEZ unit/ Developer shall be liable to first pay service tax and subsequently claim refund thereof.
  • Exemption to taxable service provided to Foreign Diplomatic Missions or Consular Post for official use and also for personal use or for the use of their family members.
  • Certain specified taxable services received by an exporter of goods and used for export of goods (vide Notification No. 41/2012-ST dated 29.06.2012).

4. Compliance under Service Tax

  • Registration to be obtained from jurisdictional Central Excise authorities.
  • Every person who has provided taxable service of value exceeding Rs 9,00,000 (Indian Rupees Nine Hundred Thousand), in the preceding financial year, is required to register with the concerned superintendent of Central Excise in Form ST-1. In case a recipient of service is liable to deposit service tax (under reverse charge method), he is also required to obtain registration.

5. Provision for centralized registration

  • Service provider located in one or more premises having centralized accounting or centralized billing system, may register such premises or office from where such centralized billing or centralized accounting systems are located and thus, hold centralized registration. The Commissioner of Central Excise in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration.
  • Payment of tax is on monthly/quarterly basis, depending upon the category of the assessee.
  • Filing of half-yearly service tax returns in Form ST-3. Return for half year ending on 30th day of September and 31st day of March is required to be filed by the 25th day of October and 25th day of April, respectively.
  • Assessment of service tax is on self-assessment basis.

6. CENVAT Credit

  • Credit under central excise and service tax has been extended across goods and services. The CENVAT Credit Rules, 2004 provide inter alia for availment of the credit of (i) the service tax paid on input services; (ii) central excise duties paid on inputs/capital goods; and (iii) additional customs duty leviable under s3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of service tax by an assessee on their output services.
  • Such credit can also be availed by a manufacturer and utilised for discharging their liability towards service tax and/or central excise duties.

7. Export and import of services

The Export of Service Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (Import of Service Rules) have been superseded by the Place of Provision of Services Rules, 2012 (PoP Rules). Presently, the PoP Rules govern where a service is provided/deemed to be provided and accordingly determine whether a service qualifies as export/ import of service.

8. Advance ruling

  • Advance ruling means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided by the applicant.
  • Authority for Advance Rulings for Central Excise, Customs and Service Tax is meant to provide binding ruling on the important issues such that intending applicants will have a clear-cut indication of their duty/ tax liability in advance.

Questions on which an advance ruling can be sought

Advance rulings, concerning service tax matters, can be sought in respect of:

  1. Classification of any service as a taxable service under Chapter V of the Finance Act;
  2. Valuation of taxable services for charging service tax:
  3. Principles to be adopted for the purposes of determination of the value of the taxable service under the Finance Act;
  4. Applicability of notifications issued under the Finance Act;
  5. Admissibility of credit of duty or tax in terms of the rules made in this regard; and
  6. Determination of the liability to pay service tax on a taxable service under the Finance Act.

Persons eligible to apply for an advance ruling

  1. A non-resident setting up a joint venture in India in collaboration with a non-resident or a resident;
  2. A resident setting up a joint venture in India in collaboration with a non-resident;
  3. A wholly owned subsidiary Indian company, of which the holding company is a foreign company, who or which proposes to undertake any business activity in India;
  4. A joint venture in India;
  5. A resident falling within any such class or category of persons, as the Central Government may, by notification in the official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-s (1) of s 96C of the Finance Act.

9. Administration

The service tax law is administered by the Central Excise Commissionerates functioning under the Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India.

To read this article in full, please click here.

© 2015, Vaish Associates Advocates,
All rights reserved
Advocates, 1st & 11th Floors, Mohan Dev Building 13, Tolstoy Marg New Delhi-110001 (India).

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Shammi Kapoor
Vishal Kumar
Purva Juneja
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
SKP Business Consulting LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
SKP Business Consulting LLP
SKP Business Consulting LLP
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions