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Taxable Services

In terms of Section 66 of the Finance Act, 1994, there shall be charged a tax (hereinafter referred to as service tax) at the rate of eight per cent (proposed to be raised to 10% by the Finance Bill 2004) of the value of the taxable services referred to in any sub clause of clause 105 of Section 65 of the Finance Act, 1994 . Value of service shall be the gross amount charged by the service provider for such service rendered by him as stated in Section 67 of Finance Act, 1994. Being in the nature of an indirect tax, it is levied on the persons using the services and the persons responsible and liable to collect service tax are authorised to collect service tax on services rendered by them. Thus in terms of Section 68(1) of the Finance Act, 1994, the responsibility for the payment of service tax at the prescribed rates rests on every person providing taxable service, whether he receives it from the client or not. However, in terms of Section 68(2) of the Finance Act, 1994, Central Government is empowered to specify, with respect to specific services, that service tax shall be paid by another person in the manner as may be prescribed. Further, in case of the service provider being a person who is non-resident The Finance Act does not make a distinction between the various categories of service providers viz. individuals, firms or corporate with respect to the tax liability. This was emphasised in TCS v. Union of India [2001(130) ELT 726 (Karnataka)] where it was held that the term ''every person'' was wide enough to cover both natural and juristic persons.

In terms of Section 68(1) of the Finance Act, 1994 service tax is to be paid in the manner and within such period as may be specified. Rule 6 of the Service Tax Rules, 1994 states that in case the assessee is an individual or proprietary firm or partnership firm, the tax on the value of the taxable service received in any quarter shall be paid to the credit of the Central Government by the 25th day of the month immediately following calendar month on which the said quarter ended. In all other cases the tax on value of taxable services received during any calendar month is required to be paid be paid by the 25th day of the month immediately following the said calendar month. Quarter for this purpose shall be a calendar quarter and each month a calendar month. It may be worthwhile to mention that the liability to pay service tax is on the value of taxable services actually received. Thus, service tax is not payable on amounts charged in the bills / invoice, but on amounts actually received.

In principle, no tax is payable for reimbursement of expenses incurred on behalf of client. Department has clarified that out of pocket expenses like traveling, boarding and lodging on reimbursable basis are not subject to service tax. The assessee will however have to provide documentary evidence substantiating his claim from the gross amount.

The levy of service tax covers only services rendered within India. It may therefore be said that:

1. No service tax is leviable on export of service.
2. No service tax is leviable on service provided by an Indian outside India.
3. No service tax is leviable on technical consultancy provided by foreign collaborator provided outside India. However, if the foreign technicians visit India and provide technical services, tax will be payable.

In instances where value received becomes refundable if service is not provided by the assessee either wholly or partly for any reason, the assessee can adjust the amount payable from service tax liability of service tax payable and pay net amount as service tax. Such adjustment is permissible only if the assessee refunds the value of taxable service along with service tax thereon from whom it was received.

Service tax is a payable on the value of taxable services received during the period under consideration. It follows therefore, that in instances where advance payment is made and no service is provided at that time, the same shall not be chargeable to service tax till the actual rendering of the service (vide Circular No. 65/14/2003 dated November 5, 2003).

In terms of Rule 6 (2) of the Service Tax Rules, 1994 the service tax, liable to be paid by the assessee, shall be deposited only in a bank designated by the Central Board of Excise and Customs in Form TR-6 or any manner prescribed by the Central Board of Excise and Customs.

Taxable services rendered as under are exempt from service tax:

1. Service rendered to the United Nations or other international organisation (Notification No. 16/2002-ST, dated August 2, 2002).
2. Export of services (Notification No. 2/2003-ST of March 01, 2003).
3. Services rendered to Special Economic Zone (SEZ) developer or to a unit located in SEZ for the development, operation and maintenance or setting up SEZ units. (Notification No. 17/2002-ST, dated 21.11.2002 as amended by Notification No. 4/2004-ST dated 31.3.2004).
4. The cost of goods or material sold by the service provider to the receiver of such services, during the course of provision of the taxable services (Notification No. 12/2003-ST dated 31.03.2004).
5. Payment received in India in non-repatriable convertible foreign exchange, is exempt from Service Tax for the period 09.04.1999 to 28.02.2003 and from 20.11.2003 onwards. (Notification No. 6/99-ST, dated 09.04.1999 and Notification No. 21/2003-ST dated 20.11.2003).