Law Governing Service Tax

Chapter V of the Finance Act, 1994 (Sections 64 to 96) and Chapter VA of the Finance Act, 1994 (Sections 96A to 96I) both the Chapters together are hereinafter referred to as the "Act", as amended from time to time, provide for the levy of service tax and constitute the law governing service tax. The Government has also notified the following rules:–

1. Service Tax Rules, 1994

2. Cenvat Credit Rules, 2004

3. Service Tax (Advance Ruling) Rules, 2003

4. Export of Services Rules, 2005

5. Service tax (Registration of Special Category of Persons) Rules, 2005

6. Taxation of Services (provided from outside India and received in India) Rules, 2006

7. Service Tax (Determination of Value) Rules, 2006

8. Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

9. Service Tax (Publication of Names) Rules, 2008

10. Service Tax Dispute Resolution Scheme, 2008

The Act is administered by the Excise department. The rate of service tax is 12% w.e.f. 18.04.2006 [earlier 10%]. Further, the Finance (No. 2) Act, 2004 has also levied an education cess @ 2% on the amount of the service tax w.e.f. 10.9.2004 and Finance Act, 2007 has levied an additional "secondary and higher education cess" @ 1% on the amount of service tax w.e.f. 11.5.2007. Thus, the effective rate of Service Tax is 12.36%.

Situs of Taxation

By section 64(1), the Act extends to the whole of India except the State of Jammu and Kashmir, and by section 64(3), the levy applies to "taxable services provided". Hence on a reading of section 64, the situs of taxation falls on taxable services provided in India. In this context, "India" includes designated areas in the Continental Shelf and Exclusive Economic Zone of India [Notification No. 1/2002 dated 1.3.2002]. Hence services provided beyond the territorial waters of India [i.e., 12 nautical miles from the baseline] but in the designated areas of the Continental Shelf and Exclusive Economic Zone of India which extends to 200 nautical miles from the baseline would also be liable for service tax.

Levy and Collection of Service Tax

It is to be noted that in accordance with section 66 service tax is levied on the value of taxable services and taxable service is defined in section 65(105) of the Act. Section 65(105) defines "taxable service" as "any service provided or to be provided" to a client, customer, etc. Thus, services "provided" and "to be provided" would be covered within the ambit of service tax. The intention is to collect tax when advance payments are received for services to be provided. Thus, service tax would be payable even on advances received.

As already stated above, the situs of taxation falls on "taxable services" provided or to be provided in India. As regards cross-border transactions to determine the place of provision of services the law has introduced the concept of "import of services" and "export of services" along with relevant rules to determine where a service is supplied popularly known as the Place of Supply Rules which are explained hereinafter.

IMPORT AND EXPORT OF SERVICES

1. Import of services – Reverse charge mechanism codified - section 66A and Place of Supply Rules for "reverse charge" introduced.

Preamble

1.1 The Finance Act, 2006 introduced section 66A to bring certain cross-border transactions involving overseas service providers within the ambit of service tax. In effect it brought certain services provided by overseas service providers within the purview of service tax. In such cases the recipient of the services in India would be liable to register and pay service tax. This is known as the "reverse charge mechanism". Taking into account international practices the Taxation of Services (provided from outside India and received in India) Rules, 2006 ("Import Rules") has been notified w.e.f. 19.4.2006. These Rules inter alia specify when a taxable service is to be treated as supplied in India and accordingly coming within the Indian service tax net. This is more popularly known as the "Place of Supply Rules".

Section 66A – Reverse charge

1.2 Section 66A provides for the reverse charge mechanism as follows :

"66A. Charge of service tax on services received from outside India. – (1) Where any service specified in clause (105) of section 65 is –

1. provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India, and

2. received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India

such service shall for the purposes of this section, be taxable service and such taxable service shall be treated as if the recipient had himself provided the service in India and accordingly the provisions of this Chapter shall apply :

Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:

Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.

2. Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.

Explanation 1.— A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.

Explanation 2.—Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted."

1.3 The scope of the section is explained below :

1. The effect of the provision is that if a person who is based outside India¹ provides services to a person based in India² the recipient is treated as a "provider of service" and accordingly all the provisions of the Act as they apply in relation to a provider of taxable service would apply to him. Thus, he would have to register, make payment, and file returns as a service provider would do.

2. Where the recipient is an individual and such service is received by him otherwise than for the purpose of use in any business or commerce (say, for personal use), the provisions of the reverse charge mechanism shall not apply i.e. the individual would not be treated as a provider of service.

3. Where the provider of the service has his business establishment in several countries, the country where the establishment of the service provider directly concerned with the provision of service is located, shall be treated as the country from which the service is provided. Thus, where a provider who has his headquarters in the US and a branch in India provides services directly from his headquarters (without intervention of the branch in India) to an Indian company, the provider shall be treated as providing services from US although he has an establishment in India. In such cases, the reverse charge mechanism would be triggered. However, where the Indian branch provided services to the Indian company, the reverse charge mechanism would not be triggered.

4. Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section. In this context Circular F. No. B1/4/2006 – TRU dated 19.04.2006 issued by the Ministry of Finance clarifies that services provided by the latter permanent establishment to the former permanent establishment shall be treated as provision of services by one person to another. However, it is to be noted that the term "permanent establishment" has not been defined.

5. A "branch" or an "agency" is treated as a "business establishment".

6. The "usual place of residence" of a company is the place of incorporation or constitution.

The Taxation of Services (provided from outside India and received in India) Rules, 2006 ("Import Rules") effective from 19.4.2006³

When is a service "provided from outside India and received in India"?

1.4 Taking into account international practices the Central Government has notified the Taxation of Services (provided from outside India and received in India) Rules, 2006 ["Import Rules"]. The Import Rules inter alia set out the criteria to decide when a taxable service is to be treated as "provided from outside India and received in India" and accordingly liable for service tax in India.

Broadly, the Import Rules have categorized the services in three categories and then have defined when a service can be treated as "provided from outside India and received in India". The categories are:

• Immovable Property category

• Performance based category

• Location of service recipient category

The categories are explained below.

Immovable Property Category

1.5 In case of 13 services (See Table A of Appendix 1), which are provided in relation to immovable property, the services shall be considered as provided from outside India and received in India (imported) if the immovable property is situated in India.

Performance Based Category

1.6 In case of 53 services (See Table B of Appendix 1), the services shall be considered as provided from outside India and received in India (imported) if the services are wholly or partly performed in India. However, in case of 3 services viz., ‘management, maintenance and repair’, ‘technical testing and analysis’, and ‘technical inspection and certification’ services–

1. where the said services are provided through internet / computer/electronic network or any other means; and

2. the goods, material or immovable property in respect of which the said services are provided are situated in India at the time of provision of service

then such services shall be considered as performed in India, whether or not the said services are actually performed in India.

Location of Service Recipient Category

1.7 In case of 41 services (See Table C of Appendix 1), the services shall be considered as provided from outside India and received in India (imported) in case the recipient of service is located in India and the services are used in relation to commerce or industry (i.e., commercial use). Further, in case of services falling within the category "supply of tangible goods for use", the services would be considered as imported only if the goods are located in India during the period of use by the recipient.

Services not subject to the reverse charge

1.8 Two services are not subject to reverse charge :

1. Air transport of passengers embarking in India for international journey;

2. Transport of persons by a cruise ship embarking in any port in India.

The circular F. No. B1/4/2006-TRU dated 19th April, 2006 clarifies that the two services have not been mentioned in the said categorization of services, since "service tax in such cases is charged from the service provider in India."

2. SYNOPSIS OF EXPORT OF SERVICES RULES, 2005

2.1 The Finance (No. 2) Act, 2004 had empowered the Central Government to make rules to provide for –

1. determining export of taxable services;

2. granting exemption to, or rebate of tax paid, on services exported; or

3. rebate of tax paid on input services consumed, or duties paid on goods used, for providing taxable services which are exported.

Accordingly the Central Government had notified the Export of Services Rules, 2005 ("Rules") w.e.f. 15.3.2005 which inter alia set out the criteria to decide when a service is deemed to have been exported, keeping in view the nature of the different taxable services. The significant features of the Rules (as amended) are given below:

No service tax payable on taxable services exported

2.2 Taxable services maybe exported without payment of service tax.

What is export of services?

2.3 Broadly, the rules have categorized the services in three categories and then defined what would constitute "export" of services for each category. The categories are:

• Immovable property category

• Performance based category

• Location of service recipient category

The above criteria are virtually on the same lines as import rules elucidated in the previous section. In fact export is a mirror image of import.

Immovable Property Category

2.4 In case of 13 services (See Table A of Appendix 1) which are provided in relation to immovable property, the services shall be considered as exported if the immovable property is situated outside India.

Performance based category

2.5 In case of 53 services (See Table B of Appendix 1), the services shall be considered as exported if the services are wholly or partly performed outside India. However, in case of 3 services viz., ‘management, maintenance and repair’, ‘technical testing and analysis’, and ‘technical inspection and certification’ services –

1. where the said services are provided through internet / computer/electronic network or any other means; and

2. the goods, material or immovable property in respect of which the said services are provided are situated outside India at the time of provision of service

then such services shall be considered as performed outside India, whether or not the said services are actually performed outside India.

Location of service recipient criterion

2.6 In case of 41 services (See Table C of Appendix 1), the services shall be considered as exported

1. If the recipient of service is located outside India in a case where the services are provided and used in or in relation to business or commerce (i.e. commercial use). However, if such a recipient of service has any commercial establishment or office in India, the services shall be considered to be exported only if the order for provision of such services is made by the recipient of the service from any of his commercial establishment or any office located outside India

2. If the recipient of the service is located outside India at the time of provision of such services in a case where the services are not provided and used in or in relation to business or commerce (such as for personal use).

Further, in case of services falling within the category "supply of tangible goods for use", the services would be considered as exported only if the goods are located outside India during the period of use by the recipient.

Conditions applicable to all categories for services to be considered as exported

2.7 The following conditions apply for services to be considered as exported in all cases mentioned in para 2.4 to para 2.6:

(i) payment for such service provided outside India is received by the service provider in convertible foreign exchange; and

(ii) the service is –

(a) "Provided from India" (prior to 1.3.2007 – "delivered outside India"); and

(b) "used outside India";

Services not subject to Export Rules

2.8 Two services do not form part of the categorization for the purpose of Export Rules. They are:

(i) Air transport of passengers embarking in India for international journey;

(ii) Transport of persons by a cruise ship embarking in any port in India.

The circular F. No. B1/4/2006-TRU dated 19th April, 2006 clarifies that the "two services have not been mentioned in the said categorization of services, as they are services provided in India."

2.9 The Government has also notified conditions for granting rebate of tax paid, on services exported and rebate of tax paid on input services consumed, or duties paid on goods used, for providing taxable services which are exported. These notifications are dealt with in Appendix 2.

1. SECTION 67 – VALUATION OF TAXABLE SERVICES

1. The Finance Act, 2006 w.e.f. 18.4.2006 has substituted the earlier provision with a new section 67 which provides for a more elaborate method of computing the value. The significant features are as follows:

1. Where the "consideration" for provision of the service is in money, the gross amount charged by the service provider for such services provided by him shall be the value of taxable service;

2. Where the "consideration" for provision of the service is not wholly or partly in money, then the value of taxable service shall be such amount in money as with the addition of service tax charged, be equivalent to the consideration;

3. Where the "consideration" for provision of the service is not ascertainable the value of taxable service shall be determined in a manner laid down by the Rules which the Central Government has notified.

2. NEW VALUATION RULES W.E.F. 19.4.2006

Pursuant to above the Central government has notified the Service Tax (Determination of Value) Rules, 2006 ("Valuation Rules") vide notification No. 12/2006-Service tax, dated April 19, 2006. The valuation rules are explained as under.

Determination of value where consideration received is not wholly or partly consisting of money

2. Where the consideration received is not wholly or partly consisting of money, the value of taxable service shall be determined by the application of the following rules.

Rule 1 : The value shall be equivalent to the gross amount charged by the service provider to provide similar services to any other person in the ordinary course of trade and the gross amount charged is the sole consideration.

Rule 2 : Where the value cannot be determined in accordance with rule 1 above, value shall be the equivalent money value of the consideration as determined by the service provider. Such value however, shall not be less than the cost of provision of such taxable service.

Power of Central Excise Officer to question the valuation

3. The Central Excise Officer has the power to satisfy himself as to the accuracy of any information furnished or document presented for valuation. Where the Central Excise Officer is satisfied that the value determined by the service provider is not in accordance with the provisions of the Act or the Valuation Rules, the Central Excise Officer may proceed to determine the value of such taxable service after issuing a notice and giving a hearing to the assessee. The Circular No F. No. B1/4/2006-TRU dated 19th April, 2006 issued by Minister of Finance has instructed the department to use extreme care and caution before exercising their powers under this rule. It clarifies :

"4.1.6 It is expected that the department should use this provision with extreme care and caution. Such verification should be undertaken only after the written instructions from the Divisional AC/DC. After verification of the records, if the department is of the view that the value so determined and adopted for payment of service tax warrants revision, the issue should be decided after issue of show cause notice and observing the prescribed procedures. Before issuing any show cause notice on matters relating to valuation, concurrence of Commissioner should be obtained."

Reimbursement of expenditure

4. Recovery of reimbursements would also be included in the taxable value unless the recovery by the service provider is as a "pure agent" of the client and all the following conditions are satisfied :

• the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

• the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

• the recipient of service is liable to make payment to the third party;

• the recipient of service authorises the service provider to make payment on his behalf;

• the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

• the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

• the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

• the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

5. A "pure agent" means a person who–

• enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

• neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

• does not use such goods or services so procured; and

• receives only the actual amount incurred to procure such goods or services.

Specific inclusions and exclusions

6. The Valuation Rules provides for inclusions and exclusions in case of certain services.

Inclusions

1. the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

2. the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

3. the amount of premium charged by the insurer from the policy holder;

4. the commission received by the air travel agent from the airline;

5. the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

6. the reimbursement received by the authorised service station from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer.

7. the commission or any amount received by the rail travel agent from the Railways or the customer.

8. the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

9. the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent

Exclusions

1. initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

2. the airfare collected by air travel agent in respect of service provided by him;

3. the rail fare collected by rail travel agent in respect of service provided by him.

4. interest on loans.

Value of taxable service in case of reverse charge – Import of services

7. In the case of reverse charge mechanism due to import of services, service tax is payable on the actual amount charged by the overseas service provider. Further, where the services are considered as imported as a result of being wholly or partly performed in India, the amount paid by the receiver of service would be the value of taxable services liable for service tax even if such amount includes an amount for services provided outside India.

All circulars hitherto issued on valuation provisions stand withdrawn

8. Para 4.1.13 of the Circular F. No. B1/4/2006-TRU dated 19th April, 2006 issued by Minister of Finance clarifies that:

"4.1.13 In view of the comprehensive provisions on value of taxable services, all the circulars issued relating to value of taxable services are withdrawn. If there are any areas where specific clarification on valuation is needed, the same may immediately be brought to the notice for consideration."

3. Works contract service – Valuation/Composition Scheme

9. General

Service tax is now leviable in the services involved in the execution of a "works contract". "Works contract" has been defined to mean a contract where –

a. transfer of property in goods involved in the execution of such contract is leviable to VAT/sales tax;

and

b. the contract is of the following nature –

1. erection, commissioning or installation of plant, machinery, equipment or structures etc. or

2. construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or

3. construction of a new residential complex or a part thereof; or

4. completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (ii) and (iii); or

5. turnkey projects including engineering, procurement and construction or commissioning (EPC) projects;

Thus, in order to attract service tax the works contract should be liable for VAT / sales tax and must be one of the five categories mentioned above failing which it would not be liable for service tax. However, works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams shall be excluded.

The Central Government has amended the Valuation Rules providing for valuation of works contract services. Further, it has also prescribed an optional Composition Scheme for payment of service tax on works contract services. The two alternatives available to a service provider are elucidated below:

10. Alternative 1 : Payment by valuation of services involved in a Works Contract

Service tax is required to be paid on the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract. The gross amount charged would, however, not include VAT or sales tax paid on transfer of property in goods involved in the execution of the said works contract.

Thus, two components are required to be ascertained :

(a) the gross amount charged for the works contract; and

(b) the value of the goods involved in the execution of works contracts;

The value of goods would be deducted from the gross amount charged to arrive at the value of services in a works contract on which service tax at the applicable rates would be payable.

The value of goods involved in the execution of a works contract shall be arrived at as follows :

(i) where VAT /sales tax has been paid on the actual value of transfer of property in goods then such value shall be adopted.

(ii) In other cases [say, where the VAT/sales tax has been paid under a composition scheme under the relevant state law] the value of the goods may have to be arrived at by actual records.

It has been provided that the value of works contract service shall include,–

1. labour charges for execution of the works;

2. amount paid to a sub-contractor for labour and services;

3. charges for planning, designing and architect’s fees;

4. charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

5. cost of consumables such as water, electricity, fuel, used in the execution of the works contract;

6. cost of establishment of the contractor relatable to supply of labour and services;

7. other similar expenses relatable to supply of labour and services; and

8. profit earned by the service provider relatable to supply of labour and services.

Thus, the above would have to be excluded in determining the value of goods involved in the execution of works contract.

11. Alternative 2 : Payment by Composition Scheme

A service provider instead of valuing the works contract service as explained in alternative 1 above and paying the service tax thereon, also has the option to avail of the composition scheme and pay service tax @ 4% [prior to 1.3.2008 – 2%] of the gross amount charged for the works contract (excluding VAT / sales tax paid on transfer of property in goods involved in execution of works contract). However, in this alternative no CENVAT credit of duty paid on "input goods" can be claimed. But Cenvat credit of tax / duty paid on "input services" and "capital goods" would be allowed. This option is qua each contract. It must be exercised prior to payment of service tax on a works contract and the option once exercised shall apply for the entire works contract and cannot be withdrawn until the completion of the said works contract.

4. Book entries in respect of transactions between associated enterprises – deemed charge and payment

Section 67 of Act has been amended to provide that as regards transactions between "Associated Enterprises" ("AE") as defined in section 92A of the Income-tax Act, 1961, the "gross amount charged" by one enterprise on the other shall include any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay service tax. Simultaneously rule 6(1) of the Service Tax Rules, 1994 has also been amended by inserting an Explanation to consider such credit / debit as value of taxable service "received".

Further the Circular No. D.O. F. No. 334/1/2008-TRU dated 29th February, 2008 vide para 6.3 states that:

"As an anti-avoidance measure, it is proposed to clarify that service tax is leviable on taxable services provided by the person liable to pay service tax even if the amount is not actually received, but the amount is credited or debited in the books of account of the service provider. In other words, service tax is required to be paid after receipt of payment or crediting/debiting of the amount in the books of account, whichever is earlier. However, this provision is restricted to transaction between associated enterprises. This provision shall also apply to service tax payable under reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended."

Thus, the intention it appears is to ensure service tax is paid when the income/expense in respect of taxable service is booked but the payment therefor has not been received. However, the amendment in section 67 may also cover cases where the amounts are debited/credited unilaterally but are not charged.

The term ‘associated enterprise’ has the same meaning as assigned to it in section 92A of the Income-tax Act, 1961. It is a relative concept; i.e., an enterprise is an associated enterprise when it is viewed in relation to other enterprises. This concept is used in the Income-tax Act for applying transfer pricing provisions. An enterprise which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise is considered as associated enterprise. It also covers an enterprise in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise. Section 92A(2) of the Income-tax Act specifies various situations under which two enterprises shall be deemed to be associated enterprises. Enterprise means a person who is engaged in the provision of any services of any kind. However, it may be noted that the definition of an associated enterprises in the context of Transfer Pricing Regulations for Income-tax Act, 1961 is relevant only in case of international transactions but, in case of service tax, it would also be relevant for domestic transactions.

5. OTHER PROVISIONS

Valuation of taxable services to include advance payments

12. Payments received before, during or after the provision of taxable service would form part of gross amount charged. Thus, the payments received even before the provision of taxable service would form part of the gross amount for charging service tax. Further the definition of "taxable service" also covers "services to be provided". Thus, service tax would be payable even on advances received.

Concept of deemed service non-existent

13. The new valuation rules only deal with a case where the consideration is wholly or partly in money or where the consideration is not ascertainable. It does not deal with a case where no consideration is payable for services rendered. Thus, service tax is not payable on free services as the concept of deeming provision for valuation of taxable services is non-existent.

Computation of service tax where bill is inclusive of service tax

14. The law provides that in cases where the total amount charged is inclusive of service tax the value of taxable service is to be computed by the following methodology –

Value of Taxable Service = 100 x Total amount charged
                                    100+R

where, R is the rate of tax.

Thus, the amount of service tax would be :

Amount of service tax = R x Total amount charged
                                100+R

where, R is the rate of tax.

1. Applicability

The law governing service tax may affect a person in the following ways:

a. As a service provider : An assessee may be liable for service tax as a provider of any of the 106 categories of services mentioned hereinafter in Appendix 3 except in exceptional circumstances stated below in clauses (b) & (c) below.

b. As a service receiver : The following are the cases where the availer of services is liable to pay service tax :

1. Services received from persons based outside India – service receiver to pay

In case of taxable services provided by a person who is based outside India⁴ and received by a person based in India⁵ in accordance with section 66A it is the recipient of the service who is liable for paying service tax.

2. Insurance companies to pay service tax in respect of services provided by insurance agents

In case of insurance auxiliary services, relating to general insurance and life insurance provided by an insurance agent, service tax shall be paid by the general insurance company or the life insurance company carrying on business in India which has appointed the agent.

3. Mutual fund/asset management companies to pay service tax on mutual fund distribution services

W.e.f. 1.4.2005 in cases where the services of distribution of mutual fund are provided by a mutual fund distributor or an agent, the mutual fund or asset management company who is receiving such service would be liable to register and pay service tax.

4. Sponsor of the event to pay service tax in case of sponsorship services.

1. Services provided to UN or International Organization exempt [Not. No. 16/2002-S.T. dated 2.8.2002]

All taxable services, provided by any person to the UN or International Organization are exempt. "International Organization" means an international organization declared by the Central Government in pursuance of Section 3 of the United Nations (Privileges and Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply.

2. Services, provided to a developer or units of Special Economic Zone exempt [Not. No. 4/2004-S.T. dated 31.3.2004]

All taxable services provided to a developer or unit (including a unit under construction) of a Special Economic Zone (SEZ) for consumption of the services within the SEZ is exempt subject to the following conditions:

1. the developer has been approved by the Board of Approvals ("Board") to develop, operate and maintain the SEZ;

2. the unit has been approved by the Development Commissioner or Board to establish the unit in SEZ;

3. the developer or unit shall maintain proper account of the receipt and utilization of the taxable services.

Note: As per the Special Economic Zones Act, 2005 (‘SEZ Act’) no service tax is payable on services provided to a developer or unit (including a unit under construction) to carry on the authorized operations in a Special Economic Zone. [Section 26(e) of the SEZ Act read with Rule 31 of SEZ Rules, 2006]. These provisions override anything contrary in any other law for the time being in force [Section 51 of the SEZ Act]. Hence the exemption provided under the SEZ Act, 2005 maybe more beneficial to the assessee.

3. Exemption in respect of value of goods and materials from the value of taxable service [Not. No. 12/2003-S.T. dated 20.6.2003 read with Not. No. 12/2004-S.T. dated 10.9.2004]

Value of goods and materials sold by a service provider to the recipient of service is exempt from service tax subject to documentary proof specifically indicating the value of the said goods and materials. This exemption is subject to the following conditions–

1. that no credit of duty paid on such goods/materials is taken; or

2. where such credit has been taken, an amount equal to the amount of credit availed is paid before the sale of such goods/materials.

4. Exemption to Reserve Bank of India from payment of service tax

All Taxable Services provided by Reserve Bank of India are exempt. Further, the Reserve Bank is also not liable to pay service tax as recipient of the services or as a payer of freight [Notification No. 22/2006 dated 31.5.2006].

5. Exemption scheme for small service providers – Minimum / threshold limit of Rs. 10 lakhs provided subject to conditions [Not. No. 6/2005-S.T. dated 1.3.2005 (as amended)]

Service Tax Law in spite of being 10 years old did not have a minimum/threshold limit. Even if a person renders taxable service for a paltry amount of Rs. 100/- he had to register and pay service tax. The Central Government having appreciated the requirement of minimum / threshold limit has issued notification No. 6/2005-S.T. dated 1.3.2005 providing for an exemption scheme for small service providers w.e.f. 1.4.2005. Thus, w.e.f. 1.4.2005 aggregate value of all taxable services up to Rs. 4 lakhs in a financial year provided from one or more premises shall be exempt from service tax subject inter alia to certain conditions. W.e.f 1.4.2007 this limit of Rs. 4 lakhs was increased to Rs. 8 lakhs which is further increased to Rs. 10 lakhs w.e.f. 1.4.2008. The conditions to be satisfied are as follows:

• Aggregate value of all taxable services rendered by a service provider from one or more premises, in the preceding financial year does not exceed Rs. 10 lakhs.

• The following restrictions on availment of CENVAT credit apply:

• CENVAT credit on input services and capital goods is not availed;

• An amount equal to the CENVAT credit taken on inputs lying in stock or in process on the date on which this exemption is availed would have to be paid;

• Unutilised balance of CENVAT credit shall lapse on the day the service provider starts availing the exemption;

• CENVAT credit shall be availed only on such inputs or input services-

a) received on or after the date on which the service provider starts paying service tax, and

b) used for the provision of taxable services for which service tax is payable;

Calculation of monetary limits

The provisions regarding monetary limits can be summarized as under:

1. where the previous year’s value of taxable service provided exceeds Rs. 10 lakhs, service tax would be payable even if the current year’s turnover is less than Rs. 10 lakhs.

2. where the previous year’s turnover is Rs. 10 lakhs or below and the current year’s turnover exceeds Rs. 10 lakhs, no service tax is payable up to Rs. 10 lakhs if the specified conditions are complied with.

Further, the sum total of first consecutive payments ‘received’ during the financial year towards the taxable services up to Rs. 10 lakhs would be exempt. The payments received towards wholly exempt services are to be excluded for determining the amount of Rs. 10 lakhs.

Thus, it appears that, while considering the limit of Rs. 10 lakhs of the current year, it is the payment ‘received’ for the taxable service that has to be considered but for considering the previous year’s limit of Rs. 10 lakhs, it is the value of taxable service ‘provided’ that has to be taken.

The above exemption would not be applicable in the following cases:

1. where taxable services are provided by a person under a brand name/trade name of another person whether registered or not.

Thus, service provided by a person under his own brand name would not be affected by this restriction and would be entitled for the exemption.

2. Where service tax is payable by a person

1. As a receiver of service e.g.

1. Services provided by Non-residents / foreign companies who do not have an office in India

2. Services provided by insurance agents

3. Services provided by a mutual fund distributor

4. Services provided by a sponsor

2. As a payer of service – for transport services

Thus, the exemption would apply only in cases where service tax is payable as a provider of service.

N. B. The service provider has the option not to avail the exemption and pay service tax and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year.

6. Services provided to foreign diplomatic mission or consular post in India is exempt [Notification No. 33/2007-S.T. dated 23.5.2007].

Taxable services provided by any person for the official use of a foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.

7. Services provided to family members of foreign diplomatic agents or career consular officers is exempt from service tax [Notification No. 34/2007-S.T. dated 23.5.2007]

The services provided by any person for the personal use or for the use of family members of diplomatic agents or career consular officers posted in foreign diplomatic mission or consular post in India is exempt from service tax subject to compliance of certain conditions and procedures.

The Central Government has consolidated several exemptions granting abatements / rebates into one new notification No. 1/2006 dated 1.3.2006 [as amended]. This may be summarised by way of a table.

Sr. No.	Nature of service	Rebate allowed	Taxable  value	Rate of tax after abatement6
(i)	Mandap keepers
.	Mandap keepers providing catering services; i.e., supply of food	40%	60%	7.416%
.	Hotels providing mandap keeper services including  catering services; i.e.,  supply of food (Refer note 2 below)	40%	60%	7.416%
(ii)	Tour operator providing
.	Package tour [i.e.  accommodation cum  transport, part of tour]	75%	25%	3.09%
.	Non-package tour [say  transport]	60%	40%	4.944%
.	Only accommodation  booking forming part of a tour	90%	10%	1.2436%
(iii)	Rent-a-cab scheme operator	60%	40%	4.944%
(iv)	Convention services along with catering services (Refer note 2 below)	40%	60%	7.416%
(v)	Outdoor catering [involving supply of food] (Refer note 2 below)	50%	50%	6.18%
(vi)	Pandal and Shamiana  Services including catering services (Refer note 2 below)	30%	70%	8.652%
(vii)	Erection, commissioning or  installation (Refer note 3 below)	67%	33%	4.08%
(viii)	Transport of goods by road in a goods carriage	75%	25%	3.09%
(ix)	Commercial or industrial  construction service (Refer note 4 below)	67%	33%	4.0788%
(x)	Construction of complex  (Refer note 4 below)	67%	33%	4.0788%
(xi)	Transport by containers  through Rail	70%	30%	3.708%
(xii)	Business Auxiliary services in relation to production or processing of parts or accessories in the manufacture of cycles, cycle rickshaws and hand operated sewing machines, for, or on behalf of, the client.[Refer note 5 below]	30%	70%	8.652%

REGISTRATION

Application for registration

• Application for registration is to be made by every person liable for paying the service tax in Form ST-1 [see Appendix 4] within 30 days from the date on which service tax is levied or within 30 days from the date of commencement of business, whichever is later, to the concerned Superintendent of Central Excise having jurisdiction.

• Every service provider whose "aggregate value of all taxable services" in a financial year from one or more premises exceeds Rs. 9 lakhs (prior to 1.4.2008 Rs. 7 lakhs) shall make application to the Jurisdictional Superintendent of Central Excise in the Form ST-1 within 30 days of exceeding the aggregate value of Rs. 9 lakhs. The "aggregate value" is to be reckoned on the basis of sum total of first consecutive payments ‘received’ during the financial year towards taxable services. The payments received towards wholly exempt services are to be excluded.

• Every input service distributor (see definition in CENVAT Credit Rules, 2004) shall make an application for registration in Form ST-1 to the Jurisdictional Superintendent of Central Excise within 30 days of commencement of business.

Intimation of any information or details or any change.

• The assessee shall intimate to the Jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise:

1. any change in the information or details furnished by an assessee in the Form ST-1 at the time of obtaining registration, or

2. any additional information or details the assessee intends to furnish within a period of 30 days of such change.

• W.e.f 1.3.2007 Rule 4, Forms ST-1 and ST-2 have been amended to –

1. dispense with the requirement of furnishing the original registration certificate at the time of intimation of changes and instead furnish a self-certified photocopy of the registration certificate.

2. provide for issuance of a fresh registration certificate after incorporating changes intimated by the assessee and accordingly the previous registration certificate shall stand cancelled.

Premises to be registered

General Rule

• If taxable services are provided from more than one premises, separate application for registration are to be made in respect of each such premises or office.

Centralised registration

• Where a person, liable to pay service tax on a taxable service,–

1. provides such service from more than one premises or offices;

2. receives such service from more than one premises or offices;

3. is having more than one premises or offices, which are engaged in relation to such service in any manner making such person liable for paying service tax

has a centralized billing or centralized accounting systems in respect of such service, located in one or more offices or premises, he may, at his option, register such premises or offices from where such centralized billing or centralized accounting systems are located with the previous permission of the Commissioner in whose jurisdiction the premises or offices from where centralized billing or centralized accounting is done, are located.

Multiple taxable Services

• Where an assessee is providing more than one taxable service, he may make a single application mentioning therein all the taxable services provided by him. In case the assessee is already registered for one service but subsequently becomes liable for another category of service, then he has to get his certificate endorsed for the other category of service.

Certificate of registration

• The Superintendent of Central Excise shall after due verification of the Form ST-1, grant a certificate of registration in Form ST-2 within 7 days from the date of receipt of the application.

Cancellation of Registration certificate

• Every registered assessee who ceases to provide taxable service shall surrender his registration certificate immediately to the Superintendent of Central Excise. Where an assessee makes an application for cancellation or surrenders his certificate, the concerned Superintendent of Central Excise shall cancel the registration certificate after verifying that the assessee has paid all the dues under the service tax law.

Person liable for paying service tax

• Person liable for paying service tax in respect of all services is the service provider except in the following cases:

1. In case of insurance auxiliary services related to general insurance and life insurance business provided by an insurance agent, service tax is to be paid by the general insurance company or life insurance company carrying on business in India which has appointed the agent

2. In case of taxable services provided by a person who is based outside India⁷ and received by a person based in India⁸ in accordance with section 66A it is the recipient of the service who is liable for paying service tax.

3. In cases where the services of distribution of mutual fund are provided by a mutual fund distributor or an agent, the mutual fund or asset management company who is receiving such service would be liable to register and pay service tax.

4. In the context of services provided by a goods transporting agency, where the consignor or consignee of goods is a specified entity viz., a factory, a company, a statutory corporation, a society, a co-operative society, a dealer of excisable goods, a body corporate or a partnership firm "the person liable to pay service tax" is the person who is liable to pay the freight either himself or through his agent for the transportation of goods.

N.B.: It is to be noted that where neither the consignor nor the consignee is any of the specified entities mentioned above it would be the goods transport agency which would be liable to pay service tax in such cases

5. In case of sponsorship services the recipient of service namely the body corporate or firm who sponsors the event would be liable to pay service tax. W.e.f. 1.4.2007 this rule has been amended to provide that the recipient of service viz., the body corporate or firm is required to pay service tax only if the body corporate or firm is located in India. Thus in case of foreign sponsorships; i.e., where the sponsor is a body corporate or a firm located outside India, it would be the provider of services; i.e., the sponsored organisation which would be liable to pay service tax.

Time limit for payment

• Service tax on the value of taxable services received during any calendar month (except March) is payable by the

– 6th of the month immediately following the said calendar month in case of assessee’s depositing tax electronically through internet banking.

– 5th of the month immediately following the said calendar month in other cases.

However, where the assessee is an individual or a proprietary firm or a partnership firm service tax on the value of taxable services received during any quarter (except quarter ended March) is payable by the

– 6th of the month immediately following the said quarter in case of assessee’s depositing tax electronically through internet banking.

– 5th of the month immediately following the said quarter in other cases.

The service tax on the value of taxable services received for the month / quarter ended March should be paid by 31st of March.

N.B.: In case of payment by cheque the date of payment is the date on which the cheque is tendered to the designated bank, provided the cheque is not dishonoured in the course of clearing.

Payment of service tax in advance

• A new Rule 6(1A) has been introduced w.e.f. 1.3.2008 to provide the assessee an option to pay an amount as service tax in advance. The amount so paid in advance is allowed to be adjusted against any subsequent period’s tax liability provided:

1. The details of the advance tax paid is intimated to the Jurisdictional Superintendent of Central Excise within 15 days from the date of payment; and

2. The details of payment and adjustment of advance tax is disclosed in the returns.

Presumably, the new return format would be providing for disclosures of opening balance, payments made, adjusted, closing balance in respect of the advance service tax. In certain cases the assessees are already paying service tax in advance e.g. paying service tax when invoice is raised without waiting for realisation of taxable value; i.e., on accrual basis since capturing data on collection basis is difficult due to lack of system support. It would now be imperative even in such cases to comply with the above conditions thus necessitating capturing data on collection basis.

Manner of payment

• The service tax shall be paid in Form GAR – 7 challan [prior to 1.4.2007 – Form TR-6 challan (yellow colour) in quadruplicate] into the designated bank. A List of designated banks is given in Appendix 5. The said Form GAR – 7 challan [prior to 1.4.2007 Form TR-6 challan] for each month/quarter is to be submitted with the half-yearly return.

• It is mandatory for all persons who have paid more than Rs. 50 lakhs service tax in the preceding financial year or exceeded Rs. 50 lakhs during the current financial year to pay service tax electronically through internet banking. The procedure for payment is explained in detail in a circular which is available at the following website : www.service tax.gov.in/service tax/e-payment-st.htm. For computing the limit of Rs. 50 lakhs :

1. Each registered premises would be treated as a separate assessee. Thus, where the assessee is providing taxable service from more than one premises or offices the criterion of Rs. 50 Lakhs would apply qua each registered premises / offices individually.

2. In case of a person who has opted to be a large tax payer unit (LTU) the aggregate payments from all the registered premises would have to be considered.

3. the aggregate of payments made as a provider of taxable services as well as a recipient of taxable services would have to be considered.

4. the aggregate amount of tax paid in cash plus CENVAT credit would have to be considered

Adjustment of taxes

• The assessee may adjust against his subsequent period’s liability the excess service tax paid by him earlier for services which is not wholly or partially rendered by him for any reason provided he has refunded the amount charged as also the service tax thereon to the client. 

• W.e.f. 16.6.2005, an assessee who has opted for centralized registration at one or more premises, may adjust against his subsequent period’s liability the excess service tax paid by him earlier by reason of not receiving details of payments received towards the value of taxable services at his other premises or offices. Such adjustments must be intimated to the Jurisdictional Superintendent within 15 days from the date of such adjustment.

• W.e.f. 1.3.2007, an assessee can adjust excess service tax paid against his succeeding period’s [i.e., next month/quarter] liability provided the following conditions are fulfilled.

1. The excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification;

2. The excess amount allowed to be adjusted (in a month/quarter) would be a maximum of Rs. 1,00,000/- [prior to 1.3.2008 – Rs. 50,000/-]. However, where an assessee is centrally registered, he may adjust the excess amount paid on account of delayed receipt of details of payments towards value of taxable services, without any monetary limit;

3. The details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within 15 days from the date of such adjustment.

• W.e.f. 1.6.2007 if the service provider has paid excess tax in any month/quarter on account of non-availment of the deduction in respect of property taxes paid from commercial rentals, the assessee may adjust such excess amount paid by him against his subsequent service tax liability within one year from the date of payment of such property tax. The details of such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within 15 days from the date of such adjustment.

Interest on delayed payment of tax

• Failure to pay service tax on time attracts simple interest u/s. 75 at a rate not below 10% p.a. but not exceeding 36% p.a. as may be notified by the Central Government. The rate of interest notified is 13% p.a.

General

• Records (including computerized data) as maintained by an assessee in accordance with various laws in force from time to time shall be acceptable for service tax. W.e.f. 1.3.2006 it is obligatory for an assessee to preserve records at least for a period of 5 years immediately after the financial year to which such records pertain.

Examination and inspection of records

• A new rule 5A is introduced to make provisions for entry and access to registered premises and furnishing of records. It provides as follows:

1. An officer authorised by the Commissioner shall have access to any registered premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

2. It shall be obligatory on every assessee to make available to such officer or the audit party deputed by the Commissioner or the Comptroller and Auditor General of India to furnish within 15 working days from the day of demand or such further period as may be allowed by such officer or the audit party for his scrutiny,-

1. the list of all accounts maintained in relation to service tax which he has submitted to the department at the time of filing his first return;

2. trial balance or its equivalent;  and

3. the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961.

Requirements of an invoice

• Every service provider is required to issue an invoice/bill/ challan containing the following:

• Serial number;

• Name, address and registration number of the service provider;

• Name and address of the service receiver;

• Description, classification and value of taxable service.

• Service tax payable thereon;

• Signature of the service provider or his authorised person

N.B. (i) In case of service providers providing banking and financial services the requirement of mentioning serial number and the address of the service receiver has been dispensed with. (Notification No. 30/2004 dated 22.9.2004).

(ii) In case of goods transport agency, in addition to the above the following details are also to be shown:

• Details of Consignment note number and date.

• Gross weight of the Consignment.

Time limit for issue of invoice

• The invoice / bill / challan has to be issued within a period of 14 days from the date of completion of provision of services or receipt of payment towards value of such taxable services, whichever is earlier. However, if –

1. taxable services are provided continuously for successive periods of time;

2. payment towards value of taxable services is not received; and

3. the value is determined and payable periodically,

an invoice / bill / challan may be issued within 14 days from the end of such period.

Requirements of a consignment note to be issued by a goods transport operator

• All Goods Transport Agencies shall issue a "Consignment note" to a customer except where the services are wholly exempt from Service Tax. A "Consignment note" is defined as a document issued by a Goods Transport Agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage which contains the following information:

• Serial number

• Name of the Consignor and Consignee.

• Registration number of the Goods Carriage.

• Details of goods transported.

• Details of place of origin and destination.

• Person liable to pay Service Tax viz., whether Consignor or Consignee or Goods Transport Agency.

Appeals by the assessee

• An appeal may be filed before the Tribunal where an assessee aggrieved by an order passed by a Commissioner of C.E. u/s. 73, 83A or 84 or an order passed by a Commissioner of CE (Appeals) u/s. 85.

• The appeal is to be filed in quadruplicate within 3 months of receipt of order to be appealed against in Form ST-5 along with statement of facts, grounds of appeal and copies of order appealed against (including one certified copy).

• The filing fees is based on the quantum of demand which is as follows:

Amount of Service tax, interest and penalty	Fees Payable (Rs.)
Rs. 5,00,000/- and below	1000/-
Rs. 5,00,001/- to Rs. 50,00,000/-	5000/-
Rs. 50,00,001/- and above	10000/-

In addition to the above, a fee of Rs. 500/- is payable for :-

1. An application (other than that filed by the Commissioner of Central Excise/AC/DC) for grant of stay in an appeal or rectification of mistake or for any other purpose; or

2. For restoration of an appeal or an application (other than that filed by the Commissioner of Central Excise/AC/DC).

Appeal by the department

• An application to the Tribunal maybe filed by the –

• Commissioner of Central Excise on the direction of the Committee of Chief Commissioners of Central Excise (consisting of 2 Chief Commissioners) objecting to any order passed by a Commissioner of Central Excise u/s. 73, 83A or 84; or

• A Central Excise Officer on the direction of the Committee of Commissioners of Central Excise (consisting of 2 Commissioners) objecting to any order passed by the Commissioner of Central Excise (Appeals) u/s. 85.

• The application is to be filed in Form ST-7, in quadruplicate, within 3 months from the date on which the order sought to be appealed against is received by the Committee of Chief Commissioners or by the Committee of Commissioners as the case may be. 

• The appeal shall be accompanied by statement of facts, grounds of application, and 

• Copy of order passed by Commissioner of CE (including one certified copy) and copy of the direction issued by the Committee of Chief Commissioners; or

• Copy of the order passed by the Commissioner of CE (Appeals) (including one certified copy) and copy of the direction issued by the Committee of Commissioners, as the case may be.

Memorandum of cross-objections (Section 86 & Rule 9)

• An assessee or the Commissioner of CE or a Central Excise Officer subordinate to the Commissioner of CE may present a memorandum of Cross-objections, within 45 days from receipt of notice or information about appeal filed.

• The memorandum of Cross-objections is to be filed in quadruplicate in Form ST-6.

REFUNDS

• In the event the assessee has to claim a refund he has to comply with section 11B of the Central Excise Act, 1944 which is made applicable to service tax. This is a cumbersome procedure.

• A refund claim must comply with the following conditions:

1. It maybe in Form R. [Though no form is prescribed, the Central Excise Rules had earlier prescribed Form R].

2. It should be filed before the expiry of the limitation period of one year from the date of payment of tax.

3. Proof should be adduced that the incidence of tax has not been passed on to any person; i.e., tax has been borne by the applicant.

MISCELLANEOUS

• The Act / Rules also provides for the following:

1. Best Judgment Assessment;

2. Interest on delayed refund of pre-deposit;

3. Rectification of mistake apparent from record by Central Excise Officer;

4. Power to search and power to seize documents, books or things during search;

5. Revision of orders by the Commissioner of CE.

6. Deposit of excess service tax collected from any person along with interest to the Government.

7. Provisional attachment

8. Publication of information in respect of certain persons in certain cases

9. Recovery of amounts due to the Government.

1. Registration

Within 30 days from the date on which service tax is levied or within 30 days of commencement of business whichever is later.

2. Payment of Service Tax

1. Payable by individuals, proprietary concerns and partnership firms:

Payable on amounts received during the quarter	Payable by
1st April to 30th June	5th July [6th July in case of e-payment]
1st July to 30th September	5th October [6th October in case of e-payment]
1st October to 31st December	5th January [6th January in case of e-payment]
1st January to 31st March	31st March

2. Payable by persons other than individuals, proprietary concerns and partnership firms:

Payable on amounts received during the quarter	Payable by
April – February	5th of the following month [6th of the following month in case of e-payment]
March	31st March

3. Returns

1st April to 30th September	25th October
1st October to 31st March	25th April

Introduction

The Bill seeks to introduce a scheme known as ‘Service Tax Dispute Resolution Scheme’ for resolution of the disputes relating to service tax arrears not exceeding Rs. 25,000/- as on 1.3.2008. The Scheme is valid during the period 1.7.2008 to 30.9.2008.

Eligibility

To be eligible to avail the benefits of the scheme the following conditions are required to be satisfied:

1. Service tax arrears should not exceed Rs. 25,000/-.

2. The Order for the demand must have been passed, or the show cause notice or a demand notice must have been issued, on or before 1.3.2008.

3. The payment of the demand should be outstanding as on 1.3.2008.

4. The proceeding/disputes are not in respect of requirement of depositing excess service tax collected u/s. 73A.

Determination and Settlement of Tax arrears

The assessee shall within 30.9.2008 make a declaration to the Designated Authority in the prescribed form who shall within 15 days of the receipt of the declaration determine the amount payable by the declarant as follows:

Nature of tax arrears	Amount payable as per the Scheme
Arising on assessment/determination order
• Arrears include service tax not exceeding Rs.25,000	50% of service tax amount
• Arrears consists of only interest or penalty or both
Ø where penalty does not exceed service tax	25% of (interest + penalty)
Ø where penalty exceeds the service tax amount to which it relates	25% of (interest + service tax)
Arising by issue of Show cause/demand notice
• Arrears include service tax not exceeding Rs.25,000	50% of service tax amount
• Arrears consists of only interest or penalty or both
Ø where penalty does not exceed service tax	25% of (interest + maximum penalty)
Ø where penalty exceeds the service tax amount to which it relates	25% of (interest + service tax )

The assessee (declarant) shall pay the said amount determined as above by the designated authority within 30 days of the order and intimate the fact of such payment to the Designated Authority along with proof, who shall issue a certificate in the prescribed form.

Consequences

The order of the Designated Authority shall be final and cannot be reopened. All appeals, writs, replies etc. filed before any authority, Tribunal or Court shall abate. No refund shall be granted of the amount paid under the Scheme. Further, the Scheme shall not be construed as conferring any benefit, concession or immunity on the declarant in any proceedings other than those in relation to which the declaration has been made.

[1] This service would be considered as exported / imported only if the goods are located outside / in India during the period of use by the recipient.