SERVICE TAX

                                                                          SERVICE TAX

         “Services “ constitute a very various range of economic activities. Over the years, the definition as to what constitutes ‘service’ has also undergone many changes. Service sector now occupies the center stage of the economy, so much so that in the contemporary world, development of the service sector has become synonymous with the advancement of the economy. The share of the services sector in the real GDP in India has surpassed that of agriculture and industry at a relatively faster pace, as compared to other industrialized nations. Service sector contributed 28 percent of GDP in 1950, which rose to 41 percent in 1990-91, 49 percent in 2000-01, and about 57.3 percent in 2009-10. The share of agriculture and industry was 18.5 percent and 26.4 percent of GDP respectively in the year 2006-07.

         With the increasing role of service sector and its contribution to GDP, the Government felt that this sector should not go untaxed. The growth of servicef 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 ( custom 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.

        Service tax in India made a humble beginning from July 1,1994 with only three services being covered in the organized sector, viz telephone, general insurance and stock broking. Since 1994, it has been amended every year to add more services into the tax net.

       There are two approaches to taxation of services :

a)     Comprehensive approach

b)    Selective approach.

In comprehensive approach, all services are taxable and a negative list is specified for services, which are not taxable. In the selective approach only selective services are subjected to service tax. India follows the selective approach of taxing selected services only. Service tax is levied on specified services and is paid by the service provider except in a few cases when the service receiver pays it.

Though the service providers pay it, it is charged or collected by him from the client or the service receiver. However, the liability to pay service tax is there even if it is not collected from the customer. The central authority that regulates matters with respect to service tax is Central Board of Excise and Customs. (CBEC)

Nature of Service Tax

Service tax is a tax on service. Service means value addition to a product that is intangible. If there is no service, there is no tax. There is no ‘Service Tax Act’ as such. Service tax is imposed by amending Chapter V of Finance Act 1994 from time to time. There is also no provision of deduction of tax at source from service tax ( like under the Income Tax ) and , therefore the service receiver does not deduct tax from the payment to the service provider and deposit it to the department.

For levy of service tax, one has to know, what is taxable service and value of taxable service. Service tax is payable on taxable service only.

Features of service Tax

The following are the main features highlighting the structure of service tax in India.

1.     Indirect Tax – It is a source of revenue for the Government in the form of Indirect Taxs.

2.     No Separate Act – There is no separate Act for taxing the services. Central Government has the power to make rules to carry out the provisions of the Act.

3.     Administered by CBEC – It is administered by Central Board of Excise and Customs.

4.     Uniform rates – There is a uniform rate of tax on all services. Currently , it is 12.6 percent.

5.     No double taxation – Services falling under two or more sub-clauses cannot be taxed twice if the service is provided only once.

6.     Not applicable in Jammu and Kashmir – It is extended to the whole of India except the state of Jammu and Kashmir.

7.     Leviable on taxable services – Service tax is leviable on taxable services i.e. those services in respect of which charge of tax has been created under the Act.

8.     Small service provider excluded- A threshold limit of Rs 10 lakh has been prescribed , up to which value of all taxable services provided by a service provider during a financial year is fully exempt from tax.

9.     Taxable service / value thereof – For this purpose, the ‘taxable service’ and the ‘value of taxable service’ have been specifically defined.

10.   Tax is generally payable by service provider – The Act makes the person providing the service to pay service tax in such manner, and within a prescribed period, except in situations provided in rule 2(1) (d) of the Service Tax Rules. In situations  referred to in rule 2(1) (d), the person receiving the service is liable to pay service tax.

11.  Self assessment – Provisions have been made for assessment, rectification, revision, appeals, penalties, etc. as well as for registration of persons liable to pay tax.

12. Exemption by notification – Powers have been given to Government to grant exemptions from service tax in appropriate cases, by means of specific notifications.

13. Voluntary compliance- Under service tax, there is reliance on collection of tax, primarily through voluntary compliance.

                  

 Service tax is levied by the Union of India and is charged on the gross value of services. Generally , it is payable on receipt basis. As it is an indirect tax, it is payable by the service provider but it is ordinarily recovered from the recipient of services.

          Under section 69(1) of the Act, every person liable to pay service tax must mandatory make an application for registration to the designated Superintendent of Central Excise, within such time and in such manner and in such form as may be prescribed. Rule 4 days down the procedure in this regard.

          Under section 69(2) , the Central Government has been empowered to specify other persons or class of persons ( other than service provider ) who shall make application for registration within such time as may be specified. Under this provision, the Central Government have notified (i) an input service distributor, and (ii) any provider of taxable service whose aggregate value of taxable service in a financial year exceeds of Rs 9 Lakh, for purposes of obtaining mandatory registration.

         The following categories of persons must mandatory obtain registration:

a)     Every person liable to pay service tax.

b)    An input service distributor

c)     Every provider of taxable service whose aggregate value of taxable service in a financial year exceeds of Rs 9 Lakh.