Service Tax

What is Service Tax?

It is a type of indirect duty levied on particular services that are
categorized as taxable services. The responsibility of paying this kind
of levy lies on the service provider. This duty can't be levied on services
that are not included in the specified list. Over last one or two years,
the domain of service tax been broadened to include new services.

The goal behind imposing service tax in India is to lower the extent of
concentration of taxation on business and industry without compelling
the government to find the middle ground on the revenue requirements
Why service tax?
Services constitute a very good spectrum of
economic activities.
The share of the services sector in the real
GDP s higher than agriculture and industrial
sector.
Why service tax needed?
With the increasing role of service sector and its
contribution to GDP, the government felt that this
sector should not be untaxed
This decision also make tremendous revenue
potential to the government
It is expected that in due course, service tax would be
reduce the tax burden on international trade and
domestic manufacturing sector
So a planned growth of service tax would be
commensurate with the goals of economic utilization
and globalization
Beginning
Service tax in India made a humble
beginning from 1
st
July, 1994 with only three
services being covered in the organized
sector like telephone, general insurance and
stock broking.
Different approaches to Service tax
There are two approaches to service tax
Comprehensive approach: All services are taxable and a
negative list is specified for services, which are not taxable
Selective approach: Only selective services are subjected to
service tax. India follows the selective approach of taxing
selected service only.
Service tax is levied on the specified service and is paid by the
service provider except in a few cases when the service receiver
pays it
The liability to pay service tax is there even if it is not collected
from customer
Central board of excise & Customs (CBEC) regulates service tax
matter
What is nature of Service Tax?
Service tax is a tax on service.
Service means value addition to a product that is intangible
If there is no service, there is no tax.
There is no service tax act; service tax is imposed by amending
chapter V of finance act 1994 from time to time.
There is also no provision of deduction of tax at source from
service tax
For charge of service tax, one has to know
What is taxable service and,
Value of service.
Service tax is payable only and only on taxable service.
Different features of service tax
Indirect tax
No separate act
Central govt. has power to make rules to carry out ST act
Administrated by CBEC
Uniform rate
12% Service tax + 2% EC + 1% SHEC = 12.36% actually
No double taxation
Service falling under two or more sub clauses cant taxed twice
Not applicable in Jammu & Kashmir
Chargeable on taxable service
Small service provider excluded
A threshold limit of ` 10 lakh has been provided
Taxable service/value
Taxable service and value have been specially defined
Tax is generally payable by service provider
Self assessment
Exemption by notification
Power have been given to government to exempt from service tax in appropriate cases by special notification
Voluntary compliance
There is reliance on collection of tax primarily through voluntary
How to define extent & application
(Sec. 64)
Service tax introduced by virtue of chapter V of the finance act 1994,
extends to the whole of India except to the state of Jammu and Kashmir
Service provided in the state of Jammu and Kashmir from any other
state are not subject to service tax. However service provided from
Jammu and Kashmir to other state are subject to service tax
Service provided beyond the territorial waters of India were not liable to
service tax provision but under a notification issued in 2002, the service
tax provisions have been extended to designated areas in the
continental shelf and exclusive economic zones of India. The exclusive
economic zone extends up to 200 nautical miles inside the sea from
base line.
Service provided within the territorial water of India are subject to
service tax in the same way as services provided in India are taxable.
India includes territorial waters extended up to 12 nautical miles from
the Indian land and mass
What is basis of charge of service tax?
The rate of service tax is applied on the value
of taxable services provided or to be
provided
There is a uniform rate of service tax on all
services currently it is 12.36% (12 + 3% of 12)
The cess paid on input services is allowed as
credit for payment of cess on output
services.
How to find out valuation of taxable service?
The consideration for a taxable service shall be
the gross amount charged by service provider
for the service provided or to be provided.
Consideration in terms of money: gross amt.
charged by service provider
Consideration is not in terms of money: the
value of taxable service shall be the amount of
money as with addition of service tax charged, is
equivalent to consideration
How to find out valuation of taxable service?
(Cont)
Consideration is not ascertainable than value of taxable service will be on valuation basis like
When service provider provides similar service to any
other
valuation on the basis of charged by the service
provider from other person
In any other case Shall determine equivalent money value of such
consideration
Valuation of Service Tax = Gross Amount Charged x 100
100 + 12.36
Computation of service tax
Find out value of taxable service
12.36% value of taxable service is the
quantum of service tax
Again the tax liability calculated & step no. 2,
one can claim credit for service tax paid on
input service subject to a few condition.
Partial abatement of service tax
Service Who can take
benefit
Rate Is it optional
Air travel agent Person liable for
paying service tax
in relation to
service provided
by an air travel
agent
0.6% - domestic
booking
1.25% -
international
booking
If ones this potion
select than, It
charged for a
whole FY and for
all bookings.
Life insurance Policy holder 1% of gross
amount of
premium
Only for risk cover
premium
Purchase or sale of
foreign currency,
money changer
Authorized money
changer or foreign
exchange broker
0.25 % of gross
amount of
currency
exchanged

Works contract Person liable to
pay service tax
4 % gross amount
charged for work
contract
If one exercise it
shall be applied
for entire contract.
Partial abatement available vides notification no. 1/2006:- 1
st
march, 2006 service tax abatement is available
in some cases. However service tax provider cannot take CENVET credit of such duty/tax on inputs. Input
service & Capital goods used for providing such taxable service
Illustration
In Particular service 70% gross amount is chargeable for service tax
Particular A Ltd. B Ltd.
Gross amount charged (a) 18,00,000 25,00,000
Value of Capital goods used (b) 15,00,000 4,00,000
Balance (a) - (b) = (c) 3,00,000 21,00,000
Normal Service tax (c) x 12.36% 37,080 2,59,560
Service available on abetment (a) x 70% x 12.36% 1,55,736 2,16,300
Service tax available whichever Is lower 37,080 2,16,300
How service tax is paid
Service tax is payable on receipt basis. As is an indirect
tax, it s payable by the service provider but it is recovered
from recipient of service
Credit for Input Service
Output and input service fall within the same category
Registration
Person liable to pay service tax is required to register.
In case of non-resident, who do not have office in India but
liable to pay service tax in India, this burden of shifted to
recipient of service
Payment Schedules of service tax
Every person providing taxable service is liable to pay service
tax to the central government
Exceptions
Notified service Person liable to paying
Telecommunication Director general of post & Telegraph
MTNL chairmen
Any person who granted license by Govt.
for service
General Insurance business Insurer or reinsurance providing such
service
Insurance auxiliary service provider by an
insurance agent
Person who carrying general insurance
business or life insurance business
Service provided by any person from a
country other than india
Recipient of such service
Service I relation to transport of goods
by road in a goods carriage
Any person who pays or liable to pay
freight either himself or through his
agent.
Sponsorship Service Who receive such sponsorship service
Registration Requirements
The following person must
Person liable to pay service tax
Input service distributor :- head office
Every provider of taxable service whose
aggregate value of taxable service in a FY
exceeds ` 9.00 Lakh
Form of Application
The application for registration is required to be made in duplicate form
ST-1 with
A copy of PAN
Proof of address
Constitution of applicant (Partnership Deed, AOA, MOA)
Time limit for making application
Particular Time
Person who liable to pay service tax Within 30 days from the date on
which charge of service tax is bought
into force
Input Service distributor Within a period of 30 days of the
commencement of business or 16th
June 2005 whichever is later
Small Service Provider Within a period of 30 days of the
date in FY on which the aggregate
value of service exceeds Rs. 9 Lakh
Time limit for granting
registration
The department is required to issue
the registration certificate in form
ST-2, within 7 days of the receipt of
the application
In case failure to issue certificate
assessee can carry his activities with
a deemed registration.
Centralized registration Process
Central office or premises registered if accounting is
centralized.
Particular Situation
When more than one
service is provided
Single application is
sufficient
When information is to
be change or added
Writing an application to
assistant of CBSE within
30 days of such change
When assessee stop to
provide taxable service
Surrender the
registration certificate
immediately
Tax to be pain on amounts
actually received
Service provider charges service tax on the amount of
bill raised on his client, service tax is payable to the
government on the amount actually received towards
value of taxable service.
It is thus, not payable on amount charged in the
Bills/Invoice but on the amount actually received
No Service tax on free service
If service is given free of charge
than service tax is not payable.
Payment of service tax if not
collected from the client
Service tax on payments
received in advance
Service tax is payable as soon as advance is received even
if service I provided later
If when service is not taxable at the time of receipt of
advance but become taxable at the time of providing
service than advance received is apportioned between
two periods (When Service was not taxable and become
taxable) and tax is paid on the part of service which is
provided on or after the service becomes taxable
If advance is received but no service provided than
Service tax paid in advance shall be refunded.
Payment of service tax collected in excess to be paid to
the central government.
Due date for payment of Service tax
Individual Proprietary,
Partnership Firm
Any Other (Corporate Assessee)
Quarter E-payment
Due
Due
Date
Month E-payment
due
Due date
1st Apr. to 30th
Jun
6th July 5th July April 6th May 5th May
1st July to 30th
Sep
6th Oct 5th oct May 6th Jun 5th Jun
1st Oct to 31st
Dec
6th Jan 5th Jan
Service Tax = Gross Amount Charged x 12.36
100 + 12.36
Valuation of Service Tax = Gross Amount Charged x 100
100 + 12.36
Manner of Payment fo Service tax
Assesses has to pay service tax in the bank designated by CBEC in form
TR-6, or any other manner is prescribed by CBEC.
Form TR-6 is yellow in colour.
Multiple service providers can use a single TR Challan.
E Payment of Service Tax
GR 7 challan used instead of TR-6 Challan
From 1
st
January 2006. In case of assesses who paid service tax of Rs. 50
Lakh or more in the preceding FY have already paid during current year
must make payment through E-payment
Payment By Cheque
The cheque should be deposited with the designated bank on or before the
due date
Rounding off
Includes 50 paisa or more rounded off to Rs.1
Less than 50 paisa ignored
Adjustment of Service Tax
When no service is provided
Service provider can adjust the excess service tax paid by hm against his service tax liability for the
subsequent period if the following two condition are satisfied\
Assesses has no rendered service wholly or partly
Value of taxable service along with service tax has been refunded by the service provider
When excess amount of service tax is paid for other reason
A assesses is allowed to adjust the excess service tax paid by him for the subsequent period. Wit
effect from 1
st
march 2007.
Self adjustment facility has been extended to all assesses subject to following condition
If adjustment are other than interpretation of law, taxability, classification, valuation on applicability of any
exemption notifications
Adjusted amount should be made only in succeeding month/Quarter.
Adjustment amount should not exceed Rs. 1,00,000 for the relevant month/Quarter
The detail of self-adjustment should be intimated to officer within a 15 days from the date of adjustment.
Centralized registration can adjust the excess service tax paid without any monetary limit
Provisional Payment of Service tax
If assesses is unable to correctly estimate the amount of tax
payable by him, he can request in writing to the commissioner of
CBSE for payment of service tax on provisional basis
In such cases, the assesses has to submit a memorandum in form
ST-3A giving detail of difference between service taxes deposited
and service tax to be paid for each month/Quarter.
Interest on Late payment of service tax
(Sec.75)
If the service tax is paid after the due date, simple interest is paid at
13% for late payment
Interest is paid for the period of delay not for the whole month.
Period of delay is counted from the first day after the due date till the
actual payment of service tax is made.
If delay s for 10 days than interest is paid for 1 days only.
General exemption from service tax
(Sec. 93)
The central government can grant total or partial exemptions to taxable services following are general exemptions..
Services provided by united nation or an in international organizations
Service provided to developer or units of special economic zone
The central government has granted full exemption to the service provider who provided taxable service to a developer of SEZ
He exemption is granted subject to the following condition
The developer has been approved by the board
The unit of SEZ has been approved by the development commission of SEZ
The developer or unit of SEZ shall maintain proper account of receipt & utilization of the said taxable services
Goods & materials sold by service provider to recipient of service
If provider sold goods than that amount is not included in the taxable service amount
The sale value of goods and material sold as a part of service must be shown separately in the bills raised on the recipients.
Exemption for small service provider
The service provider whose turnover is less than 10 lakh in the previous year will be exempt from service tax up to ` 10 lakh in next FY
Service provided by reserve bank of India
Exemption to technology business Incubator, Science and Technology Entrepreneurship park (STEP) and Incubates
STEP Software developer Company
Incubates - Who help for development of IT
Exemption is granted to incubates subject to following condition
Incubates should be located within the premises of the incubator
Total business turnover of incubates entrepreneurship does not exceed ` 50 Lakh during the preceding financial year.
The exemption is avail to incubate for a period of 3 year.
Services provided by a digital cinema service provider.
If service rendered by satellite, microwave or global communication line thats only exempt but physical means including CD/DVD thats not
exempt.
Service provided by Residential welfare association
Monthly contribution does not exceed Rs. 3000/Month
Drug & Medicine Produces
What is Provisions Pertaining to returns
Furnishing of returns: Who paid tax are must file the return
Form of Return: ST-3
Periodicity for filing return: Half year basis April to September
October to March
Due dated for filing return
1
st
April to 30
th
Sep. 25
th
Oct is Due Date
1
st
Oct. to 31
st
Mar. 25
th
April is Due Date
If the 25
th
April or 25
th
Oct. is a public holiday, than filled on the immediately succeeding working day.
Contents of Return
Half Year Period detail
Name of the Assesses, Registration No.
Category of Taxable Service
Documents submitted along with return
Copies of TR-6 challan indicate payment of service tax for Month/Quarter
Memorandum in form ST-3A (in case of Provisional Assessment)
First Return: At first time furnish all the accounts which maintained by assesses are inform to the officer
Return when no service provided: Must file a NIL return
Return in case of multiple service: Service wise detail should be given in the return instead of Single figure
Revised Return: According to Rule 7B of Service tax rules it allows to assesses to rectify mistakes and file a revised return in form ST-3, in triplicate within
90 days from the date of filing the original return
E-Filing of return: Assesses should have a 15 digit STP code for e-filing
Penalty for late filing of return: Overall maximum limit is Rs. 2000
Delay Penalty
Up to 15 Days `. 500
15 to 30 Days ` 1000
31 Days and On ` 1000 to ` 100/day from 31st day onwards but the total penalty
can not exceed ` 2000
When Person is liable for penalty under
Service Tax
Particular Penalty
For non-Payment or Late Payment ` 200/Day during which failure contains
Interest s charge 2%/Month which the
failure contains
Whichever is higher is selected but the penalty
cannot exceed the amount of service tax
which was payable. penalty can be waived or
reduced if proper cause is shown
Penalty for non-Obtain Registration
For not furnishing required information
` 5000 or
` 200/Day whichever is higher
For non maintenance of books of account and
documents. For Failure to pay tax electronically
when required. Penalty for issuing incorrect
invoice.
Liable to penalty which may extent to ` 5000
Other Points:
Interest and penalty paid within 30 days from the date of communication of order of the
central excise officer. The amount of above penalty shall be 25%
If this penalty is payable, penalty for non-payment or late payment service tax can not be
imposed.
What is a role of Chartered
Accountant?
Advising Clients
Procedural Requirements
Personal representation
Appear before the assessment authority for
appeal
Certification and Audit
Constant updating of Law and Provisions
Challenges before the Service tax
administration in India
Service tax is said to be the tax of 21
st
century because of its potential to raise
revenue for the government it is open for a number of challenges.
A few of them are related to the nature and growth while others to procedural
aspects of the service tax collection.
In order to speed up and smoothen the service tax administration in India, it is
required that exists a separate legislation along with distinct mechanism that
exclusively looks after collection of Service tax
A separate legislation would bring greater clarity in service tax procedure and
promote govt. revenue from tax collection along with tax environment
The twin goal of revenue maximization introduction of the culture of voluntary
tax compliance also throw up major challenge before the service tax
administration in the country.
Services are by nature, intangible & Spread across the nation in both organized
and unorganized sector.
Service provides in all sectors cannot easily identified & Brought under the Tax
Net
Some services are provided by people with low education level who can not
easily follow the tax administration provision.
Taxable Services
Taxable Services

Commercial training and coaching services
Shall mean any service provided or
to be provided
To any person,
By any institute or establishment
providing commercial training or
coaching
For imparting skill or knowledge or
lessons
On any subject or field,
Whether with or without issuance of
a certificate, and
But it includes
1. Coaching or tutorial classes
2. Computer training institute
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Commercial training and coaching
Services
Taxable:
Not Taxable:
Sports coaching
Preschool coaching (Nursery or Play group)
Certificate course by recognised institute
Degree course by recognised institute
Coaching at residence of service recipient
Training to employee
Vocational
training
Provided by central affiliated to
NCVT

Other than above
Not for profit organisation
Postal coaching
Taxable Services
Practicing Chartered Accountancy Services
Any service provided (or to be
provided) to person, by a practicing
chartered accountant in his
professional capacity in any manner, is
taxable service. Individual/ Proprietor/
Firms providing this service shall
continue to pay tax on receipt basis.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Practicing Chartered Accountancy
Value of Taxable Services:
Service tax is payable on the amount received
for the aforesaid services (excluding exempt
services). However, service tax is not payable on
charges which represent cost of goods sold by
service provider. Moreover, expenses (which are
a liability of the service receiver) incurred by the
practicing chartered accountant and later on
recovered from the service receiver, are not
subject to service tax.
Taxable Services
Information Technology Services
Information technology software
means any representation of
instructions, data, sound or image,
including source code and object
code, recorded in a machine readable
form, and capable of being
manipulated or providing interactivity
to a user, by means of a computer or
an automatic data processing machine
or any other device or equipment.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Information Technology Services
Important points:
Only customized software is covered. Packaged software sold off the shelf is leviable
to excise duty. However in some cases here is an exemption granted from excise /
customs duty for part of the value of the packaged software. Such value which is
exempt from excise would be liable for service tax.
Packaged or Canned software intended for single use and packed accordingly is not
liable to service tax if following conditions are satisfied
Document providing the right to use is packed along with software
Importer has paid appropriate customs duties
The manufacturer/ duplicator/ the person holding the copyright to software has
paid the excise duty on the entire amount received from the buyer.
Services provided in relation to Information Technology (IT) software, such as
development, designing, programming, up-gradation, providing advice, consultancy
and assistance on the mattes of IT software and providing right to use IT software,
whether supplied on a media or electronically, were brought in the ambit of Service
tax. However, taxable only when the receiver of service exploits them for commercial
or business purposes.
Taxable Services
Consulting Engineering Services
Any service provided (or to be provided) to
any person, by a consulting engineer in
relation to advice, consultancy or technical
assistance in any manner (in one or more
discipline of engineering including the
discipline of computer hardware engineering)
is a taxable service. Services provided by a
consulting engineer in relation to advice,
consultancy or technical assistance in the
disciplines of both computer hardware
engineering and computer software
engineering shall also be classifiable under
consulting engineers services.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Consulting Engineer Services
Discipline of Engineering
Industrial engineering
Mechanical engineering
Aerospace engineering
Computer engineering
Electrical engineering
Metallurgical engineering
Chemical engineering
Civil/environmental engineering
Agricultural engineering
Aquaculture engineering
Architecture engineering
Automobile engineering
Aviation engineering
Electronics engineering
Environmental engineering
Fabrication engineering
Geotechnical engineering
Hydraulic engineering
Marine engineering
Mining engineering
Telecommunication engineering
Biotechnology engineering
Value of Services
Service tax is payable on the amount received for the aforesaid service. However, service tax is not payable on charges which
represent cost of goods sold by service provider. Moreover, expenses (which are the liability of the service receiver) incurred by
the service provider and later on recovered from service receiver, are not subject to service tax.
Important Points
Service provided by unqualified engineers cannot be taxed under consulting engineers services.
Service provided by a person who is holder of certificate from an industrial training institute run by Ministry of Labour and
Rehabilitation, cannot be taken as service provided by consulting engineer.
It is not necessary that the concern rendering service should be a commercial concern.
Research & Development Cess (Cess payable on import of technology) is allowed as deduction from value of taxable
Service provided.
Taxable Services
Meaning: shall mean any service provided or to be
provided to any person, by a scientist or a
technocrat, or any science or technology institution
or organisation, in relation to scientific or technical
consultancy.

Scientific or technical consultancy means any
advice, consultancy, or scientific or technical
assistance, rendered in any manner, either directly
or indirectly, by a scientist or a technocrat, or any
science or technology institution or organisation,
to any person, in one or more disciplines of science
or technology.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Scientific or Technical Consultancy
Clarification/Explanation
Consultation may be in nature of an expert opinion/advice.
Service tax will be payable by public funded research institutions like
CSIR, ICAR, DRDO, IIT, IISc, Regional Engineering Colleges, etc.
Service tax will be payable even if consultancy is provided to
Government Department for which consultation fee is received.
In case of Scientific or Technical Consultancy Services, Point of Taxation
Rules, 2011 provides that services shall be deemed to be provided on
the date of receipt of amount (i.e. service tax shall be deposited on
receipt basis and not on accrual basis).
Exemptions
By doctors, medical colleges, nursing homes, hospitals,
diagnostic and pathological labs, etc. as in common parlance
they are not known as scientists, technocrats, etc.
Taxable Services Meaning: Shall mean any service provided or to
be provided to any person, by a technical testing
and analysis agency, in relation to technical testing
& analysis.

Technical testing and analysis agency means any
agency or person engaged in providing service in
relation to technical testing and analysis.

Technical testing and analysis means any service in
relation to physical, chemical, biological or any
other scientific testing or analysis of goods or
material or information technology software or any
immovable property, but does not include any
testing or analysis services provided in relation to
human beings or animals.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Technical testing and analysis
Clarification/Explanation
Includes testing and analysis undertaken for the purpose of clinical testing of
drugs and formulations; but does not include testing or analysis for the purpose
of determination of the nature of diseased condition, identification of a disease,
prevention of any disease or disorder in human beings or animals. (i.e. medical
testing & diagnosis has been excluded from service tax)
Exemptions
Clinical testing of newly developed drugs
Testing & analysis services provided in relation to water quality testing by
Government owned State & District level laboratories
Testing & analysis of seed done by Central or State Laboratory and Central
or State Certifying Agency.
Any testing or analysis services provided in relation to human beings or
animals
Taxable Services Meaning: Shall mean any service provided or to be
provided to an exhibitor, by the organizer of a business
exhibition, in relation to business exhibition.

Business Exhibition means an exhibition (a) to market; or
(b) to promote; or (c) to advertise; or
(d) to showcase, any product or service, intended for the
growth in business of the producer or provider of such
product or service, as the case may be.

Business Exhibition Service vs. Advertisement Service:
Whether taxable services rendered in relation to a circular,
label, documents, hoardings or any other audio visual
representation of a product or service falls under
Advertisement Services? Taxable services rendered in
relation to a circular, label, documents, hoardings or any
other audio visual representation of a product or service
falls under ''advertisement services'', the services relating
to actual exhibition or display of the product or services
would fall under the category of ''Business Exhibition
Services''.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Business exhibition services
Clarification/Explanation
Business exhibition service is a service rendered to an exhibitor by an organizer of a business exhibition that intends
to market, promote, advertise or show case products or services for growth services. Thus, organizers of events such
as trade fairs, road shows, fashion shows, display showcases kept in airports, railway stations, hotels etc. would be
covered under this new levy. A display of consumer goods in shops or shopping centres for customers to select and
purchase would normally not attract any Service Tax, as normally no separate charges are collected by the shop-
keepers for displaying such goods. However, in case an amount is collectzed for merely displaying an item, the same
would be chargeable to Service Tax.
Exhibition Service vs Event Management Service
Organizers of Trade Fairs and Exhibitions solicit participation from the trade and industry and provide space and
other facilities, including furniture, cabins, security, electricity, etc., to display products and provision of services.
Whether services provided by the organizers of trade fairs/exhibitions are covered within the scope of event
management service? Trade fairs and exhibitions are organised by persons. Such organisers of trade fairs and
exhibitions provide services to exhibitors in relation to business exhibition. Services provided by an organizer of trade
fairs and exhibitions to an exhibitor in relation to business exhibition is liable to Service Tax under Business Exhibition
Service In addition, an organiser of the trade fair or business exhibition may engage an event manager to provide
service to the organizer in relation to organising trade fairs and exhibitions. In such cases, the event manager renders
the service of Event Management to the organisers and is liable to pay Service Tax under Event Management
Service. The two services, namely Business Exhibition Service and Event Management Service, and the two
service providers of the respective services are distinct.
Exemptions
Services provided by an organiser of business exhibition for holding a business
exhibition outside India.
Taxable Services
Meaning:Shall mean any service provided or to be
provided to any person, by a mandap keeper in relation
to the use of a mandapin any manner including the
facilities provided or to be provided to such person in
relation to such use and also the services, if any, provided
or to be provided as a caterer.

Mandapmeans any immovable property as defined in the
section 3 of the Transfer of Property Act, 1882 and
includes any furniture, fixtures, light fittings and floor
coverings therein let out for consideration for organizing
any official, social or business function (For this purpose,
social function includes marriage.)

Mandap keeper means a person who allows temporary
occupation of a mandapfor consideration for organizing
any official, social or business function.
Caterermeans any person who supplies, either directly or
indirectly, any food, edible preparations, alcoholic or non-
alcoholic beverages or crockery and similar articles or
accoutrements for any purpose or occasion.
1. Commercial training and
coaching services
2. Practicing CAs services
3. Information Technology
services
4. Consulting Engineer
services
5. Scientific and Technical
consultancy services
6. Technical testing and
analysis services
7. Business exhibition
services
8. Mandap keepers services
Mandap Keepers services
Clarification/Explanation
Dance, drama or music programme or competitions are social functions and allowing
temporary occupation of a hall for a consideration for organizing such functions are liable
to service tax under Mandap Keeper Service.
Halls, rooms etc. let out by hotels/restaurants for a consideration for organising social,
official or business functions are covered within the scope of mandap, and such hotels
and restaurants are covered within the scope of mandap keeper.
Accordingly, service tax is leviable on services provided by hotels and restaurants in
relation to letting out of halls, rooms, etc. for organizing any official, social or business
function under mandap keeper service.
Political meetings, film shooting are not social function and hence not taxable.
Renting of art gallery will get covered under Business Exhibition Service.
It also includes the following:
Kalyana mandap or marriage halls
Banquet halls, Barat Ghar
Conference halls etc
Hotels and restaurants providing any such service for organising any social, official or
business function (mere reservation of seats not taxable)
Mandap Keepers services
Clarification/Explanation (Cont)
Services of letting out of boats for organizing boat parties or events would not be
liable to service tax being boat is not an immovable property.
Any sports stadium or Gymkhana let out their premises for a consideration for
holding official, social or business functions would fall within the purview of Mandap.
The renting of Banquet halls for conducting the Seminars/conferences would fall
within the ambit of the definition of the taxable service provided by a Mandap Keeper
as such seminars/conferences are considered as official/business function.
Mandap let out for stay of Barratis for a consideration would attract Service Tax, as
Barratis is a part of marriage, which is a social function.
Letting out of school/college building or open land for marriage function, which is
also a social function, would attract Service Tax.
Open land /ground is to be treated as an immovable property as per the definition
given in section 3 of Transfer of Property Act, 1882 and hence the above premises let
out for consideration will fall under the category Mandap for the levy of Service Tax.
Screening of feature films in cinema theatres is not an official, social or business
function and, therefore, no service tax would be leviable under the category of
"Mandap Keeper for giving the theatre on rent for showing premier shows of movies
which is a part of the entire process of making and relating the feature films in
cinema theatres.
Mandap Keepers services
Clarification/Explanation (Cont)
Meeting of Board of directors of a company is an example of business
function, opening ceremony of a shop is also a type of business function
and birthday, marriage function, etc. are instances of social function,
when a company holds a seminar for their staff/officers, it would be an
official function of the company.
Services rendered by mandap keepers is taxable service only when he
has let out some room, halls, etc. and essentially hand over the
temporary possession to the person to whom it is let out. In other words,
there is a certain exclusivity, which has been afforded to the person to
whom it has been let out. The activity of mere reservation of seats in a
restaurant, hence, shall not attract service tax.
Letting out furniture or any other items will not be called as 'mandap
keeper' services because no immovable property is involved.
Mandap keeper may not be owner of the premises.
If it is temporary structure, service will be taxed under Pandal or
Shamiana Contractors Service.
No tax on general donations received.
Mandap Keepers services
Clarification/Explanation (Cont)
Service charge (even if later on distributed as tips to employees) and amenities
charge shall be included in value of taxable service being charge is on gross
amount charged.
Sales Tax, Expenditure Tax are statutory levies, they cannot be included in the
value of the taxable services. Any calculation of the Service Tax has to be on the
value of service excluding the statutory taxes.
Car parking charges collected from client who availed mandap keeper service
also includible in the taxable value and liable to be taxed.
The charges of vessels, furniture, decoration etc, provided by the third party
other than the mandap keepers are not includible in the taxable value if the
mandap keeper is not associated with such supply in any way since the said
facility is not provided by the mandap keeper.
If the mandap keeper raise separate bill for the charges for other facilities like
furniture, fixtures, lighting, vessels, crockery, cutlery, etc. all these charges are
includible in the value of taxable service for levy of service tax.
Mandap Keepers services
Exemptions/Abatements
The taxable services provided to any person by a mandap keeper for the use of the precincts of a
religious place as a mandap are exempt from service tax leviable thereon. Religious place means
a place which is meant for conduct of prayers or worship pertaining to a religion
40% abatement is available if, value of taxable service includes use of mandap, facilities provided
to the client in relation to such use and also for the catering charges where the mandap keeper
also provides catering services, that is, supply of food and the invoice, bill or challan issued
indicates that it is inclusive of the charges for catering service. Effective rate of duty would be
60% of normal rate in such cases.
40% abatement is available if, taxable service provided by a hotel as Mandap keeper in such
cases where services provided include catering services, that is, supply of food alongwith any
service in relation to use of a Mandap. The invoice, bill or challan issued indicates that it is
inclusive of charges for catering services. Effective rate of duty would be 60% of normal rate in
such cases. Here, the expression hotel means a place that provides boarding and lodging
facilities to public on commercial basis. The expression "food means a substantial and satisfying
meal. High tea or unlimited breakfast is a substantial meal.
Notification 12/2003 shall not apply in case of Mandap Keeper Services if catering services are
also being provided. Notification 12/2003 applies only in case contract is divisible and further sale
of goods is not covered by definition of service. In case of mandap keeper services, supply of
food & drinks has been made integral part of services and even practically supply of food &
drinks is indivisible part of mandap keeper services. (controversial matter)
Value Added Tax (VAT)
Made Easy
Justification of VAT
The VAT not only provides full set-off for input tax as well as tax
on previous purchases, but it also abolishes the burden of several
other taxes, such as turnover tax, surcharge on sales tax,
additional surcharge, special addition tax etc.
In addition central sales tax is also going to be phased out.

VAT is tax on value addition
The Method consists of levying a tax on value added to product at each satge of
ts production & distribution. For this purpose value added is taken as the
difference between the sales and purchase of intermediate product or goods for
resale of a business.
On the face of if the simplest way to levy a VAT is to tax the value assed in a
business process embodied in the difference between q businesss sales and
purchase
What is the need for introducing
VAT
VAT is more equitable way of taxing as
well as all dealers share the tax burden
VAT is more transparent as easy
procedures exist under it and only two
rates are there
Simpler easy communication and easy
compliance
Credit for input taxation leading to cost
efficiency
Better compliance through self policing
Prevents cascading effect by providing
inpur rebate
Avoids distortions in trade and economy
due to uniform tax rates.
What are the benefits of VAT in
brief?
Set-off will be given for input tax
as well as tax paid on previous
purchase
Other taxes, such as turnover tax,
surcharge, additional surcharge
etc. will be abolished
Overall tax burden will be
rationalized
Prices will in general fall
There will be self-assessment by
dealers
Transparency will increase
There will be higher revenue
growth.
Merits of VAT
Eliminates multiple Tax: Set off will be given for the input tax as well as tax paid on previous purchase
Simple
It is based on simply on transaction and not on a base that required complicated definition like income or wealth
VAT has the merit of certainty and is required ease to understand
In most countries, the pre-VAT commodity tax systems are found to be very complicated, in fact all those countries that have gone in for VAT had a genuine need for
simplifying their tax systems.
Lowering of TAX burden: VAT reduces tax burden and helps in reduce price
Fairness
VAT is a move towards more efficiency, equal competition and fairness in the tax system
VAT helps common people, trade, industry & also the government.
Tax Evasion will be reduced
There is a self assessment and therefore better tax compliance being less chances of tax eveson
It has the merit of self-policing in that it induces business to demand invoice from the supplier to enable them to obtain credit for the tax paid on their purchase against
their total tax liability.
Tax transparency
The buyer knows, out of the total consideration paid for purchase of material, what is tax component. Thus, the system ensures transparent also.
This transparency enables the state govt. to know as to what is the exact amount of tax coming at each stage. Thus, it is a great aid to the govt. which taking decisions
regard to rate of tax etc.
Higher Tax revenue: Higher revenue growth
Uniformity: Greater uniformity in this system
Simpler System: VAT system is comparatively simpler than the sales tax system of taxation as there would be no dispute regarding taxable stage
of sale and classification of goods at a particular rate of tax and there would be minimum requirement of declaration form.
Neutral
The greatest virtue of VAT lies in its neutrality that is, non-interference with the choices or decisions of economic agents in the matter of location of business, as well as
business organization
Under VAT, the allocation of resources is left to be decided by the free play of market forces and competition and not driven by tax consideration
Stable source of revenue: In OECD countries t was found that every 1% point of VAT yields 0.4 percent of GDP in revenue.
Demerits of VAT
To get maximum benefit of VAT should
Extends through the production and distribution
chain aright up to the retail stage.
Has its base as broad as possible
Permits registered firms to obtain full and
immediate credit for VAT paid on inputs
Limits the extent of rate differential and,
Follows the destination principle.
Demerits of VAT in Indian Context
It does not cover goods as well as service
VAT extends to the retail stage, its base is nor comprehensive enough to compare all goods and services that go
into final consumption
Exemptions
Under continuous pressure from various quarters the number of commodities, which are now being exempted
from VAT in various states.
Floor Rate
There are supposed to applied uniformity in all states and so although they are describe as floor rates, the states
will have no discretion to go below as above the prescribed rates, country to what a floor rate ordinary implies.
There is also an exempted category, which will bear no tax, but no rebate will be given for taxes paid on their
purchase at the time of sale at a final consumer.
General rate of 12.5%
Unduly its high rate
A high rate became all the more necessary on revenue considerations because a large number of commodities
and industrial inputs have been included in 4% categories.
Classification of capital goods
Classification of goods under different lists is, in many instance arbitrary and leaves wide room for doubts and
disputes as to whether a particular item comes within the lower rate category or not.
Another major flaw of the rate structure is the inclusion of capital goods and industrial inputs in the 4%
list.
Input Tax
It is the tax paid or
payable in the course
of business on
purchase of any
goods made from
registered dealer on
the state.
Output Tax
Output tax means tax
charged or chargeable
under the act, by a
registered office
dealer for the sale of
goods in the course of
business
Coverage of Set-off input tax credit
Input tax credit is generally given for the entire VAT paid within the state on
purchase of taxable goods meant for resale/manufacture of taxable goods.
However, generally no credit is available in respect of purchases given below
Goods purchased from unregistered dealer
Goods purchased form other states/countries
Purchase of goods used in manufacture of exempted goods
Purchase of capital goods (n some cases credit is avail in installments)
Purchase of goods used in fuel and power generation
Purchase of goods used in manufacture of goods to be dispatched outside any
state as branch transfer/consignments.
Purchase of goods in cases where the dealer does not have invoices showing
amounts of tax charged separately by the selling dealer.
Purchase of non-creditable goods
Purchase from a dealer who has opted for composition scheme
Carrying over of Tax credit
If the tax credit exceeds the tax payable on
sales in a tax period, it shall be carried over to
the next tax period. F there is any excess
unadjusted input tax credit at the end of the
financial year; it shall be eligible for refund.
VAT collected in a tax period is lower than
input tax credit in respect of local purchases
and inter-state purchases, only the balancing
amount is carried forward to the next period
and it will be adjusted in the next tax period on
the same basis.
However, unadjusted tax credit at the end of
the financial year is generally refunded.
Tax credit on capital goods may be adjusted
over a maximum of 36 equal monthly
installments.
There is a negative list for capital goods not
eligible for input tax credit.
Treatment of exports
For all exports made out
of the country, VAT paid
within the state will be
generally refunded in full
within stipulated periods
(generally it is 3 months).
Units located in SEZ and
EOU will be generally
granted either exemption
from payment of in put
tax or refund of the input
tax paid within the
aforesaid period.
Variants of VAT
Gross product variant Income Variant Consumption variant
This variant allows
deductions for all purchases
of raw materials and
components but no
deduction is allowed for
capital inputs.
In this way, capital goods
such as plant and
machinery are not
deductible from the tax
base in the year of purchase
and depreciation on the
plant and machinery in not
deductible in the
subsequent years.
Capital goods carry a
heavier tax burden as they
are taxed twice.
Modernization and
upgrading of plant and
machinery is delayed due to
this dual tax treatment.
Deduction are allowed
for purchase of raw
materials and
components as well as
depreciation on
capital goods
In practice there are
many difficulties
connected with
specification of any
method measuring
depreciation, which
basically depend on
the life of assets as
well as on the rate of
inflation
Under this variant,
deduction is allowed
for purchase for all
business purchases
including capital
assets.
In other words, the
economic base of the
tax is equivalent to
total private
consumption.
It does not distinguish
between capital and
current expenditure.
Different methods of computation of VAT
Addition method
This method is based on the
identification of value added,
which can be estimated by
summation of all the elements
of value added.
This method is also known as
the income approach.
This method is that is does
not require matching of
invoices in order to check tax
evasion
Tax credit method
The tax credit method, the
tax on inputs is deducted
from the tax on sales to
arrive at the VAT payable
by the dealer.
This method is also known
as the invoice method
Subtraction Method
The subtraction method estimates value-added by means
of difference between outputs and inputs
This is also known as the product approach
Subtraction method has further variants in the way
subtraction is attempted among
Direct subtraction method is equivalent to a business transfer
tax whereby tax is levied on the deference between the
aggregate tax exclusive value of sales and aggregate tax
exclusive value of purchase.
Intermediate subtraction method is based on deduction of the
aggregate tax-inclusive value of purchase from the aggregate
tax-inclusive value of sales and the taking deference between
them
Indirect subtraction method
What are administrative procedures which
are generally adopted by different cities?
Compulsory issue of tax invoice, cash memo or bill
Serially numbered tax invoice with prescribed particulars
Tax invoice will be signed & dated by the dealer or his employer with required
particular
The dealer keeps a duplicate of such tax invoice duly signed and dated
Failure to comply with the above will attract penalty
Registration, Small dealers & Composition Scheme
Registration of small dealer with gross annual turnover above a specified limit (Say RS.
5 Lakh) is compulsory
All dealer under the old system of locals sales tax have been automatically registered
A new dealer is generally allowed 30 days time from the date of liability.
Small dealers with gross annual turnover not exceeding a specified amount, who are
otherwise liable to pay VAT, shall however have the option for a composition scheme
with payment of a tax at a small percentage of gross turnover.
The dealers who obtain composition scheme will not be entitled to input tax credit.
What are administrative procedures which are
generally adopted by different cities? (Cont)
Taxpayers identification No.
It consists of a 11 digit numerous throughout the country
First 2 character will be represented the state code by the govt. of India
Next 9 characters be different in different states.
Return
Files monthly/quarterly as specified in the state acts with payment Challan
Every return furnished by dealer will be scrutinized and if any technical mistakes are detected, the dealer
will be required to pay the deficit appropriately.
Procedures to self assessment of VAT liability
VAT liability will be self-assessed by the dealer themselves
Voluntary return will be submitted after setting off the tax credit.
Audit
Correctness of self assessment will be checked through a system of departmental audit.
However evolution detected on audit, they concerned dealer may be taken up for audit for previous
period also.
The audit team will conduct its work as a time bound manner and audit will be completed within a
stipulated period.
The audit report will be transparently sent to the dealer also
Simultaneously, a cross checking computerized system is being worked out on the basis of co-ordination
between central excise & income tax authority.
This cross-checking system will help to reduce tax evasion and also lead to significantly growth of tax
revenue
What are administrative procedures which are
generally adopted by different cities? (Cont)
Declaration form
There will be no need for any provision for concessional sale under the VAT act, since the
provision for setoff makes the input zero rated, hence there will be no need for declaration
Other taxes
Other taxes like turnover, surcharge and additional surcharge have been abolished.
Penal provision
Penal provisions under the VAT are not more significant than in the sales tax system.
Coverage of goods under VAT
All the goods, including declared goods will be covered under VAT and will get the benefit
of input tax credit.
Generally exempted category includes liquor, lottery ticket, petrol, diesel, aviation fuel and
other motor spirit since there price are not fully market determined.
VAT rate and classification of commodities
Only two rate is exist one is 4% and other is 12.5%
Exempted categories generally include natural and unprocessed products in unorganized
sector, items which are legally barred from taxation and items which have social
implications.
Included in this exempted category is set of commodities flexibly chosen by individual
states?