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Basic provisions of service tax and Procedure

Basic Provisions of Service Tax and Procedure

Service tax is a tax levied at 14% on:

  1. The value of all services.
  2. Other than those specified in negative list.
  3. Which is provided or agreed to be provided.
  4. In the taxable territory.
  5. By one person to another person.

So, now let us understand these points in brief:

1. Services

As we understood, service tax is a tax levied on the value of all services which is provided or agreed to be provided.

So, what is this services?

Sec 65B(44) defines “service” as :

1. Any activity

2. Carried out

3. By a person for another and

4. Includes a declared services.

However, services shall not include,

1) An activity which constitutes merely:

a. A transfer of tittle in goods or immovable property, by way of sale, gift or in any other manner; or

b. Such transfer delivery or supply of goods which is deemed to be a sale

c. A transaction in money or actionable claims.

2)Provision of service by an employee to an employer in course of his employment.

3) Fees taken in any court or tribunal established under any law for time being in force.

Explanation 1:

For the removal of doubts it is hereby clarified that, nothing contained in this clause shall apply to:

I. The functions performed by the members of parliament, members of state legislative, members of panchayaths, members of municipalities and members of local authorities who receive any consideration in performing the functions of that office as such a member; or

II. Duties performed by any person who holds any post in pursuance of the provisions of the constitution.

III. Duties performed by any person as a Chairperson or a Member or Director in a body established by Central Government, State Government or Local Authority.

Explanation 2:

For the purpose of this clause the expression “transaction in money or actionable claim” shall not include:

I. Any activity relating to use of money or conversion by cash or in any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

II. Any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out:

A. By a lottery distributor or selling agent, in relation to promotion, marketing, organizing,  selling of lottery or facilitating in organizing the lottery of any kind in any manner.

B. By a foreman chit fund for conducting or organizing chit in any manner.

Explanation 3:

For the purpose of this chapter:

A. An incorporated association or a body of persons and a member thereof shall be treated as distinct persons.

B. An establishment of persons in taxable territory and his other establishment in non taxable territory shall be considered as establishment of two distinct persons.

Explanation 4:

A person carrying on business through branch or agency or representational office in any other territory shall be treated as having an establishment in that territory.

Therefore we can conclude that “Service” means:

AAny activity carried out
BBy a person for another for a
CConsideration and includes
DDeclared services but
EExcludes
EEmployee to employer services
FFees taken in any court or tribunal established in any law
GGoods or immovable property

What is an activity?

Activity means any act done, work done or provision of facility, or deed done.It can be active or passive.

Meaning of the phrase “by a person to another”

The phrase “activity carried out by a person to another”, implies that there must be two distinct persons involved. Hence service provided to oneself to another shall be outside the ambit of service tax.

It is very important to note that, as per explanation 3, any service provided by the AOP to its members or vice versa, shall be treated as service provided by one person to another and hence it will be taxable. Further, service provided by a person of taxable territory to his another establishment located in non taxable territory shall be treated as establishments of distinct persons.

Example:

Services provided by Bangalore branch of A ltd to Mumbai branch of A ltd, is treated as service provided by a person himself and thus it is outside the ambit of service tax. Service provided by Bangalore branch of A ltd to London branch of A ltd is treated as service provided to a distinct person as per explanation 3 and hence taxable.

What is consideration?

“Consideration” means everything received or receivable in return for a provision of a service. Consideration can be monetary or non monetary in nature. Any activity without a consideration are not taxable.

Example:

Tourism information provided for free of charge, there is no consideration involved and hence not taxable.

Declared services

Any services provided in section 66 E of the Finance Act, 1994 are called as declared services. Service also includes declared services. Therefore, declared services are also liable to service tax.

2. Negative list of services

Negative list of services specifies the list of services which is outside the ambit of service tax. Section 66 E of the Finance Act,1994 defines negative list of services.

For further details regarding negative list of services, please refer the article.(https://www.cakart.in/blog/negative-list-services/).

3. Provided or agreed to be provided.

Service tax is levied on any services which is provided or agreed to be provided. Provision or agreement to provide taxable service is a taxable event in case of service tax. Therefore, if any advance is received before provision of service it would be taxable before actual provision of service.

4. Taxable territory.

Service tax is levied on any services which is provided or agreed to be provided in the taxable territory. So now let us understand what is taxable territory.

The chapters of the Finance Act applies to whole of India, except to the state of Jammu and Kashmir.

Sec 65B (27) defines India as:

  1. Territory of union
  2. Territorial waters, continental shelf, exclusive economic zones and any other maritime zones
  3. Seabed and subsoil underlying the territorial waters.
  4. Airspace above its territory and territorial waters.
  5. Installations, structures and vessels located in the continental shelf of India and the exclusive economic zones of India, for the purpose of prospecting or extracting or production of mineral oil and natural gas and supply thereof.

5. Rate of levy

Service tax is levied as 14% on the value of taxable services. Further Swachh Bharath Cess is leviable at the rate of 0.5% on all taxable services with effect from 15 November 2015, and Krishi Kalyan Cess is leviable at the rate of 0.5% on all taxable services with effect from 1 June 2016.

Basic Provisions of Service Tax

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