Service tax
SERVICE TAX IN INDIA
15 Jul 2016  |  Views: 352  | 
Rashi Gahlaut
Advocate

Service tax refers to tax collected by the government of India from certain service providers for providing certain services. The person who pays service tax can be either a service provider or a service receiver or any other person who is responsible for providing certain services. Service tax is a kind of indirect tax because the service providers pay the tax and recovers it from the service receivers who receive or purchase the taxable services. It is a kind of tax that you pay to the government for enjoying different services received from various service providers.

The payment of service tax by companies, trusts, associations, societies has to be done in monthly intervals. For example, Service Tax for the month of February has to be paid on or before 6th of March. 

Service Tax for Quarter ending or month ending March

Service Tax on value of taxable services provided during the month of March or quarter ending March is required to be paid by 31st March. For example, service tax for the quarter Jan to March has to be paid on or before 31st March.

Payment of Service Tax

  1. On Accrual Basis

Service tax is payable on the basis of date of billing or receipt of advance, whichever is earlier and not on receipt basis.

  1. On Cash Basis

Individuals, proprietary concerns, partnership firms, Limited Liability Partnerships (but not HUFs) whose total value of taxable service is Rs.50 Lakhs or less in the previous financial year can opt to pay service tax on receipt basis instead of accrual basis.

Normally, service tax is paid on all services except for those included in the negative list of services. All service providers including central and state government service providers as well as private sector service providers are liable to pay service tax.

However, there are a few exceptional scenarios wherein service providers can avoid paying service tax. Listed below the major exemptions:

  • A small scale or individual service provider can enjoy service tax exemption, if its total turnover of taxable services does not go beyond Rs. 10 lakhs in a single a financial year.
  • The recipients are exempted from paying service tax for the goods and services received from the service provider, if there is written proof indicating the value of the goods and materials and no credit of duty is paid on such goods and materials, and if the services have been rendered under the CENVAT Credit rules.
  • Service tax is not applicable to the services provided to diplomatic missions and to the officers a diplomatic mission and their family members.
  • Services such as port services, goods transport services and containerized transport services received by an exporter and used for export of goods are not taxable. In such cases, service tax paid by an exporter on the above mentioned situations is refunded to the exporter.
  • Services provided to international organizations and the United Nations are not taxable.
  • Service tax is not applicable to the services provided to a developer of Special Economic Zone or a unit of Special Economic Zone.

Payment of Service Tax on reverse charge mechanism

Generally, the person who is providing taxable service is liable to collect and pay service tax from the service recipient. However, in few cases, exceptions have been made and the service recipient is made liable to pay service tax. Such payments are called as ‘service tax on reverse charge mechanism’. In case of reverse charge, the recipient has to pay tax only after payment is made to the service provider. However, if the payment is not made within a period of 3 months of the date of the invoice, the due date for payment of service tax on reversecharge basis shall be the date immediately following the expiry of 6 months (from the date of the invoice received from the service provider).

Reverse Charge Mechanism is now, classified into two categories.

 

  1. Full Reverse Charge: In this Mechanism, the Service receiver alone is liable to pay Service Tax
  2. Partial/Joint Reverse Charge: In this Mechanism, both the service receiver and the service provider are liable to pay service tax at specified percentage of the value of taxable service. Service receiver is liable to discharge his obligation irrespective of any mention of his liability in the service invoice. Further, absence or short charge of service tax by service provider do not reduce or enhance the liability of the service receiver.

 

Reverse charge is primarily applicable on the following specified services:

a. Insurance Services

b. Services by a recovery agent to an NBFC

c. Good Transportation Agency Services

d. Sponsorship Services

e. Arbitral Services

f. Legal Services

g. Services by a director to a Company or a Body Corporate

h. Support Services

i. Supply of Manpower Services

j. Mutual Fund Services

k. Lottery Services

l. Import Services

m. Aggregator Services

n. Rent-A-Cab Services

o. Works Contract Services

Cenvat credit cannot be utilized for payment of service tax when tax is payable under reverse charge method.The service recipient is liable to pay service tax even if the value of service of the service provider is less than Rs.10 Lakhs. Thus, small service provider exemption is not available in case of reverse charge method.The service recipient is eligible to avail Cenvat credit of the service tax paid on reverse charge method- However till 31.03.2015, such credit shall be available to the service recipient only after: a. the payment has been made to the service provider and; b. Service tax is paid. w.e.f. 01.04.2015, credit on reverse charge mechanism shall be available to the service recipient on payment of service tax.

Interest on delayed payment of service tax

  • Upto 6 months delay – 18% per annum
  • 6 months to 1 year – 24% per annum
  • 1 and above – 30% per annum
  • Interest is mandatory. It can’t be waived by the officer, even if evasion of duty is not mala fide or intentional.
  • Interest payable for actual period of delay (i.e., number of days)

Penalty on Nonpayment of service tax

  • Delayed payment of service tax attracts a penalty (in cases not involving fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax) – Maximum of 10% of the service tax.
  • In case service tax, interest are paid within 30 days of Show Cause Notice no penalty is levied.
  • In case service tax, Interest are paid within 30 days of Order of CE Officer, 25% of penalty is payable.

Excess payment of Service Tax

One can pay any amount of service tax (more than the actual dues) as advance towards future tax liability. Such excess amount can be adjusted against the future tax liability. There is no limit on amount that can be adjusted or time limit for adjustment.

Excess Tax collected from the customer to be paid to the Government or refunded to the customer

Service tax is an indirect tax, it is to be collected from customer and remitted to the government. If tax is collected from the customer either it has to be remitted (after adjusting Cenvat credits, if any, to the government or to be refunded to the customer (in the event of non-provision or part provision of service). One can’t keep the taxes collected with him.

Adjusting the Service Tax paid but the payment not recoverable later.

It may happen that invoice is raised and service tax is paid to the government, but the payment may not come partly or fully from customer. In such cases, the taxpayer can issue a Credit Note to customer and then adjust the excess service tax paid by him against his service tax liability for the subsequent period. Please note that self-adjustment is possible for reasons such as service not provided partly or fully, invoice is renegotiated due to deficient provision of service, tax. However, such adjustment is not permissible in case of bad debts or giving simple discount/reduction in charges.

Service Tax on Advance Payment

Service Tax is payable as soon as advance is received, even if service is provided later. For example, Mr. X gets an advance of Rs.2,00,000 from the client in the month of March 2015 for the services to be provided in April 2015. In this case, Mr. X has to pay Service Tax on Rs.2 Lakh in the month of March 2015. Please note that service tax is levied on service provided or agreed to be provided.

 

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