Service Tax in India

Service Tax in India

The concept of service tax has undergone various developments and changed in the recent world. It is assumed as one of the most significant contributor to the Government exchequer. In the last two financial years 2014-2015 & 2015-2016, the total revenue collection from service tax was Rs. 168132 crore & Rs. 211456 Crore (flash-figures) respectively, which shows a commendable growth from revenue collection of Rs. 407 crore in the financial year 1994-1995. The budgetary target of revenue collection in this financial year 2016-2017 is Rs. 231000 crore which is about 14%% of the total tax collection target of Government of India.

The law for the same has expanded its arms and taken in all he forms of services offered in any sector and therefore it prevails in each and every sector of the economy. To begin with, service tax was introduced on 3 services namely Telephone Services, Non-Life Insurance Services and Stock Brokers’ Services which gradually increased to 119 services.Service tax is a kind of tax levied over the services provided by certain categories of persons including companies, individuals, body of individuals, etc. Service provided is a value added destination based consumption tax on commercial activities i.e. the service tax is a financial compulsion to pay when you consume certain services provided but even though it is value added tax, it is a tax charged to the consumer and not to the business.

Service Tax is imposed under powers of Entry 97 of List I of Seventh Schedule of the constitution of India. Article 265 of the constitution lays down that no tax shall be levied or collected except by authority of law. Schedule VII divides these subjects into 3 categories.

1. Union List (only central government has power of legislation).
2. State List (only state government has power of legislation)
3. Concurrent list (both central and state government can pass legislations)

To enable parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Government and collection of the proceeds thereof by the Central Government and State, amendment vide Constitution (92nd amendment) Act 2003 was enacted. Consequently, new article 268A was inserted for Service Tax levy by Union Government, collected and appropriated by the Union Government and amendment of seventh schedule to the constitution, in list I-Union List after entry 92B, entry 92C has been inserted for tax on services as well as in Article 270 of the Constitution the clause (1) Article 268A has been included. Service Tax is applicable in the whole of country except in J & K i.e. for the services provided in the state of J & K there is no tax.

There is no particular statute which specifies service tax, therefore the following laws are the sources of service tax in India:

1. Finance Act, 1994
2. Rules on Service Tax

• Notifications on Service Tax

1. Circulars or Office Letters (Instructions) on Service Tax
2. Orders on Service Tax
3. Trade notices on Service Tax

The aforementioned are the basics of charging service tax in this country. Under the Finance Act the power to administer the Service Tax lies with the Central Government and therefore the central government has issues the following rules regarding administration of service tax:

1. Service Tax Rules, 1994
2. Service Tax (Advance Ruling) Rules, 2003
3. Point of Taxation Rules, 2011
4. Place of Provision of Service Rules, 2012
5. Service Tax (Registration of Special Category of Persons) Rules, 2005
6. Service Tax (Determination of Value) Rules, 2006

To remove the ambiguity service have been defined under Section 65B of the Finance Act, 1994.

Service tax is payable on the gross amount which is charged by the service provider. The thing which is to be noted is that tax is to be paid on reimbursement of expenses which are part of the service itself, but not the payments which are incurred by the service provider itself. When the value is not ascertained, the valuation of similar services can be taken into account to determine the cost for the services provided. The gross amount that is charged is considered to be inclusive of service tax and the same has to be calculated by making further back calculations.

Small service providers whose total value of services provided are less than Rs. 10 lakhs in previous year are exempted from paying service tax unless they reach a turnover of Rs. 10 lakhs. The services which are provided by the RBI are exempted but the services provided to RBI are not exempted from the same.

Under the Finance Act 1994, there are provisions which provide for conclusion of proceedings if payment of tax dues along with interest is done by the assessee on the basis of his own ascertainment or on the basis of tax ascertained by the jurisdictional officer. A tax payer can get full waiver of penalty if payment of tax dues is made along with interest voluntarily before it comes in the notice of the court or when there is a notice about the same by the court or within 30 days its issuance in case the show cause notice is for the normal period of limitation of 30 days and does not involve suppression of facts, misstatement, etc.

Presently there is a hue and cry in the nation about the GST bill. Many states have ratified to it and many are yet to ratify for the same. The bill has its advantages and disadvantages but if this is a successful integration of goods and service tax, it would give India a world class tax system and allow our country to compete in the global market. As a result our system will match the international standard in sphere of indirect taxation.

Service tax is considered to be tax of the future and shall continue to be an exchequer for the government in the distant future itself.

Author: This blog is written by Ms. Anmol Srivastava, student of Damodaram Sanjivayya National Law University, Visakhapatnam, a passionate blogger & intern at  Aapka Consultant.

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