Service tax is a tax levied on services rendered by a person and the responsibility of payment of the tax is cast on the service provider. It is an indirect tax as it can be recovered from the service receiver by the service provider in course of his business transactions. Service Tax was introduced in India in 1994 by Chapter V of the Finance Act, 1994 (External website that opens in a new window). It was imposed on a initial set of three services in 1994 and the scope of the service tax (479 KB) (PDF file that opens in a new window) has since been expanded continuously by subsequent Finance Acts. The Finance Act, extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir.
The Central Board of Excise & Customs (CBEC) (External website that opens in a new window) under Department of Revenue in the Ministry of Finance, deals with the task of formulation of policy concerning levy and collection of Service Tax. In exercise of the powers conferred, the Central Government makes service tax rules (External website that opens in a new window) for the purpose of the assessment and collection of service tax. The Service Tax is being administered by various Central Excise Commissionerates, working under the Central Board of Excise & Customs. There are six Commissionerates located at metropolitan cities of Delhi, Mumbai, Kolkata, Chennai, Ahmedabad and Bangalore which deal exclusively with work related to Service Tax. Directorate of Service Tax at Mumbai over sees the activities at the field level for technical and policy level coordination.
- A person liable to pay service tax should file an application for registration within thirty days from the date on which the service tax on particular taxable service comes into effect or within thirty days from the commencement of his activity.
- Every service provider of a taxable service is required to take registration by filing the Form ST-1 (External website that opens in a new window) in duplicate with the jurisdictional Central Excise Office (External website that opens in a new window).
- A ‘registered' service provider is referred to as an ‘assessee'.
- A single registration is sufficient even when an assessee is providing more than one taxable services. However, he has to mention all the services being provided by him in the application for registration and the field office shall make suitable entries/endorsements in the registration certificate.
- A fresh registration is required to be obtained in case of transfer of business to another person.
- Any registered assessee when ceases to provide the taxable service shall surrender the registration certificate immediately.
- In case a registered assessee starts providing any new service from the same premises, he need not apply for a fresh registration. He can simply fill in the Form S.T.1 for necessary amendments he desires to make in his existing information. The new form may be submitted to the jurisdictional Superintendent for necessary endorsement of the new service category in his Registration certificate.
In case of Individuals or Proprietary Concerns and Partnership Firm, service tax is to be paid on quarterly basis. The due date for payment of service tax is the 5th of the month immediately following the respective quarter. (Quarters are : April to June, July to September, October to December and January to March). However, payment for the last quarter i.e. January to March is required to be made by 31st of March itself. In case of any other category of service provider than specified above, service tax is to be paid on a monthly basis, by the 5th of the following month. However, payment for the month of March is required to be made by 31st of March itself. Service tax is to be paid on the amount realized / received by the assessee during the relevant period ( i.e. a month or a quarter as the case may be).
The unique feature of Service Tax is reliance on collection of tax, primarily through voluntary compliance. System of self-assessment of Service Tax Returns by service tax assesses was introduced w.e.f. 01.04.2001. The jurisdictional Superintendent of Central Excise is authorized to cross verify the correctness of self assessed returns. Tax returns are expected to be filed half yearly. Central Excise officers are authorized to conduct surveys to bring the prospective service tax assesses under the tax net.
Service tax is payable @ 12% of the ‘gross amount’ charged by the service provider for providing such taxable service. The Education Cess is payable @ 2% of the service tax payable.
Service Tax Exemptions
The Central Government can grant partial or total exemption by issuing an exemption notification. But it cannot be granted by the Government with retrospective effect. The general exemptions are :-
- Small service providers whose turnover is less than Rs 4 lakhs per annum are exempt from service tax.
- There is no service tax on export of services.
- Services provided to UN and International Agencies and supplies to SEZ(Special Economic Zones) are exempt from service tax.
- Service tax is not payable on value of goods and material supplied while providing services. Such exclusion is permissible only if Cenvat credit on such goods and material is not taken.