Service Tax

Few days left for Service Tax Amnesty Scheme (VCES)

The countdown for Service Tax Voluntary Compliance Encouragement Scheme, 2013 (“VCES” or “the Scheme”) has begun and the last date is December 31, 2013. The Government has made a fair and generous offer, a one-time offer that is not likely to come your way for at least a couple of decades.

Important highlights of VCES:

• Declare Tax dues on or before December 31, 2013 in Form VCES 1 for the period from October 1, 2007 to December 31, 2012
• Deposit at least 50% of the declared tax dues by December 31, 2013 and the remaining portion of tax dues has to be paid by June 30, 2014 without any interest or by 31^st December, 2014 along with Interest w.e.f July 1, 2014
• Tax dues can be deposited even before issuance of Form VCES 2
• Complete immunity from interest, penalty and other proceedings
• No queries as regards the veracity and the manner of calculation of tax dues would be raised by the Designated Authorities

—————————-
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com

 

Reverse Charge Mechanisam (RCM) – Understanding Service Tax Law Nuances

Dr. Sanjiv Agarwal

Who can be person liable

• Every person providing taxable service (service provider) shall pay tax @ prescribed rate , to be collected in prescribed manner. [section 68(1)]
• Service recipient is a person liable to pay service tax in certain cases [section 68 (2)]
• Defined in rule 2(1)(d) of Service Tax Rules, 1994 and 2(m) of POP Rules, 2012

Person liable to pay service tax u/s 68 read with rule 2(1)(d) of ST Rules, 1994

• Service provider
• Specified service receivers [Rule 2(1)(d)(i)(A to G)]
• Importer of service

 Person  liable to pay Service Tax under Section 68

In case of services covered under Section 68(2) read with 2(1)(d)

Service	Liable to pay service tax
Insurance agent	Service Recipient (i.e. Insurance company)
GTA Specified personsIn other case	Person liable to pay fright GTA
Sponsorship service to body corporate / firm	Recipient of service
Arbitral tribunal / individual advocate/ firm of advocate	Recipient of service
Support service to Govt. / local authority subject to other conditions	Recipient of service
Director’s  services to Companies	Recipient of service  (i.e. Company )
Rent-a-cab service subject to other conditions	Recipient of service
Supply of manpower service subject to other conditions	Recipient of service
Works contract service subject to other conditions	Recipient of service
Services provided from non-taxable territory to any person in  taxable territory	Recipient of service

Registration under Service Tax 

1. Every person who is liable to pay service tax shall take registration under service tax as per section 69 of Finance Act, 1994
2. Service recipient shall obtain registration under service tax as recipient of service, pay service tax and file return
3. Assessees who have to take registration

• Service provider who has provided a taxable services of value exceeding Rs. 9 lakhs in the preceding financial year
• Service receiver liable to pay service tax under reverse charge mechanism u/s 68(2) / rule 2(1)(d)
• Input service distributor
• Importer of service being person liable u/s 68(2)

Service tax payment  – different scenarios

Reverse Charge Mechanism

1. Normally, service tax is payable by person who provides the service
2. Section 68(2) makes provision for reverse charge i.e. making person receiving the service liable to pay tax
3. Authority for reverse charge u/s 68(2) of Finance Act, 1994

Person liable to pay tax – Rule 2(1)(d) of Service Tax Rules, 1994

• W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 )
• The extent to which tax liability has to be discharged by the service receiver is specified in Notification No. 30/2012-ST dated 20.6.2012.

Liability to pay tax under Reverse Charge by Service Receiver

Under Partial Reverse Charge (Proportional / Joint)

• Renting of motor vehicles
• Manpower supply & security services
• Works contracts

Under Full Reverse Charge (100%)

• Insurance related services by agents
• Goods Transportation By Road
• Sponsorship
• Arbitral tribunals
• Legal services
• Company director’s services
• Services provided by Government / local authority excluding specified services
• Services provided by persons located in non-taxable territory to persons located in taxable territory.

Important Points in Reverse Charge Mechanism

• Liabilities of both the service provider and service receiver are statutory and independent of each other
• Liability cannot be shifted by mutual agreement
• Reverse charge will not apply where the service receiver is located in non-taxable territory
• Reverse charge shall not be applicable if provider of service was liable before 1.7.2012
• Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012

• Credit of tax paid can be availed by service recipient if it is input service for him
• The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required)
• Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004
• Service Tax under reverse charge to be paid within 6 months on actual payment (Rule 7 of POT Rules, 2011)
• Small scale benefit is available only to service provider (not to service receiver), if entitled
• Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012
• Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract – Refer Notification No. 30/2012-ST, explanation II)
• Invoice to be prepared as per Rule 4A of Service Tax Rules, 1994
• It is a statutory obligation (not contractual) on the service recipient to pay Service Tax, whether under full or proportional reverse charge
• Service Tax under reverse charge has to be paid only by cash vide GAR Challan No. 7 and it cannot be paid by way of utilization of Cenvat Credit.
• Once paid, Cenvat credit can be taken for paying eligible input service
• Service receiver liable only for his portion

 Important Points in Joint Reverse Charge Mechanism

In respect of manpower supply and security services, works contract services and renting of motor vehicles to carry passenger, reverse charge shall be applicable only when following two conditions are satisfied –

1. service receiver is a business entity registered as a body corporate, and

2. service provider is any one of the following entities –

• Individual
• Hindu undivided family (HUF)
• Firm (including limited liability partnerships)
• Association of persons

If both the above conditions are not satisfied in respect of these three services, Service Tax shall be payable by the service provider in ordinary course.

Joint Reverse Charge Obligations

Service  Provider	Service Receiver	Service Tax Payable by
Individual /HUF/ Partnership firm /AOP	Business entity – body corporate	Joint
Individual /HUF/ Partnership firm /AOP	Individual /HUF/ partnership firm /AOP	100 % by service provider
Business entity –Body Corporate / Company	Individual /HUF/ Partnership firm /AOP	100 % by service provider
Business entity –Body Corporate	Business entity – Body Corporate	100 % by service provider

• For three specified services provided by business entities being company, society, co-operative society, trust etc, reverse charge will not apply.
• Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services
• “Business Entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession
• “Body Corporate” means the meaning assigned to in clause (7) of Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act.
  • Company , corporation and LLP are ‘body corporate’
  • Firm, HUF, Trust and Co-operative society are not ‘body corporate’
  • But firm includes LLP for Service Tax

Reverse Charge Mechanism under various Services

Sr. No	Description of Service	Service Provider	Service Receiver
1.	Services provided by an insurance agent to any person carrying on insurance business	Nil	100%
2.	Services provided by a goods transport agency in respect of transportation  of goods by road	Nil	100%
3.	Services provided by way of sponsorship	Nil	100%
4.	Services provided  by an arbitral tribunal	Nil	100%
5.	Services provided by individual advocate or a firm of advocates by way of legal services	Nil	100%
5A.	in respect of  services  provided or agreed to be provided  by a director of a company to the said company ( w.e.f  7.08.2012)	Nil	100%
6.	Services  provided  by Government or local authority by way of support services excluding,-  1.      renting of immovable property, 2.      postal services 3.      transport of goods / passengers 4.      air craft or vessel	Nil	100%
7.	Hiring of Motor Vehicle (a)  renting of a  motor vehicle  designed to carry passengers on abated value to any person not engaged in the similar line  of business (b) renting of a  motor vehicle         designed to carry passengers on non abated value to any person who is not engaged in the similar  line of business	Nil 60%	100 % 40%
8.	Services provided by way of supply of manpower for any purpose or security services (w.e.f 07.08.2012)	25%	75 %
9.	Services  provided in service portion in execution  of works contract	50%	50%
10.	Services  provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%

 Service Specific Issues under RCM 

Director’s Services

• Vide entry No. 5A of N. No. 30/2012 as amended by N. No. 45 and 46/2012
• Service tax is payable under reverse charge by companies who receive services from their directors who are not in employment
• Sitting fees, commission, bonus, etc. are subject to service tax
• WTDs /MDs /EDs who are under contractual employment with the company and receive salary or remuneration from the company will not be covered – considered as employees of the company
• Director can be appointed either in an individual capacity or as a nominee for company , association or any other entity including Government.
• Interest on loan by director to company, dividend on shares, other professional charges on account of services not rendered as a director (in professional capacity) are not liable to Service Tax
• In case of nominee director, the nominating company who receives fees will be liable to pay service tax.
• The invoice / receipt to be issued by the directors within 30 days
• In case of nominee directors, the invoice will be issued by the nominating company
• In the case of Government nominees, the services shall be deemed to be provided by the Government but liable to be taxed under reverse charge basis

Particulars	Position upto  6.8.2012	Position  w.e.f. 7.8.2012
Individual Director  in his individual capacity	To be registered and  pay service tax	Service tax paid by the company
Nominee Director	Paid by the nominee director’s company	Paid by the nominee director’s company

Manpower Supply Services

• Service is manpower supply service if under command of principal employer
• Cleaning service, piece basis / job basis contract is not manpower supply service
• Service tax will be applicable on salary plus PF, ESI, commission of labour contractor and other chargesž
• Employees sent on deputation are also covered under manpower supply services

Security Services

• Security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity
• CA services are not security services
• Distinction between manpower supply & security services

Rent-a-cab Service

• In case of renting of motor vehicles to carry passengers where abatement is also available, reverse charge basis is proportional depending upon the abatement on the condition that no Cenvat Credit has been availed. The service provider should provide a certificate, either in the invoice itself or separately.
• In case of renting of motor vehicle to carry passengers, reverse charge applies only where service receiver is not engaged in same business.
• Reverse charge will be applicable when renting to a person who is not in similar line of business
• Service receiver will pay on 40% in every case whether abatement is claimed or not
• No Cenvat credit (not an input service)

Goods Transport Service

• Service tax liability arise when consignment note is issued
• GTA will be liable to pay tax only when both service provider and service receiver are individuals
• Tax on 25% (abated value), if GTA does not avail Cenvat Credit, otherwise tax on 100% value

Legal Services

Service Provider	Service Receiver
Individual Advocate   / Firm / LLP	Business entity with turnover > Rs 10 lakhs in preceding financial year
Arbitral Tribunal	Business entity with turnover > Rs 10 lakh in previous financial year

Works Contract Services

Services provided by Government / local authority
1. Reverse charge applicable to all services except specified services
2. Government Department needs to be registered and pay tax on support services of -

• Renting of immovable properties
• Speed post, express parcel, life insurance.
• Transport of goods and/ or passengers
• Services in relation to vessel or aircraft

3. Services to be provided to any business entity located in taxable territory
Invoice/ Bill/ Challan in RCM

Additional information suggested on the invoice –

• Amount of Service Tax based on his share of Service Tax liability, if any, (which service recipient is required to pay to the service provider) – in case of joint or proportionate reverse charge liability.
• Fact that entire amount of Service Tax on the invoice is payable by the service recipient under reverse charge (if so).
• Invoice amount is inclusive / exclusive of applicable Service Tax.
• Alternatively, in case of proportionate reverse charge, service provider should charge Service Tax only on that part of the invoice for which he is liable to pay and wants to recover from the service recipient and mention that balance amount is payable by the service recipient.

 

Handbook on Service Tax VCES, 2013

As you are aware, the Indirect Taxes Committee of ICAI had organised a live webcast on Service Tax Voluntary Compliance Encourage Scheme, 2013 on 16^th December, 2013, the recording of which is available at http://icaitv.com/?p=5073 and http://icaitv.com/?p=5130. The Committee has also published e-newsletter on Service Tax Voluntary Compliance Encourage Scheme, 2013 which was inaugurated by Hon’ble Finance Minister during the said webcast. The same can be downloaded from http://220.227.161.86/31643idtc21782.pdf 

Further, the Committee, continuing with its efforts to update the members and also to partner the Government in its initiative, has come out with Handbook on Service Tax Voluntary Compliance Encourage Scheme, 2013. The Handbook has been hosted on Indirect Taxes Committee page of ICAI website and can be downloaded from http://220.227.161.86/31675idtc-STVCES-2013.pdf.
We once again request you all to give wide publicity of the Scheme and complement the efforts of the Government by sensitizing the assessees and the various service providers with the benefits of the Scheme.
Let us join hands and work together to make the Scheme successful.
Sincerely Yours
CA. Sanjay Agarwal
Chairman
Indirect Taxes Committee

Source- ICAI

SSI Exemption Vs. Co- Owners of Immovable Property

Rishi Chanan, Advocate

There are many cases coming for consideration regarding eligibility of SSI exemption to all co-owners of immovable property individually. The department is of the view that all co-owners fall under the definition of “Person” under Section 65B (37) and acting as association of persons and is of the view that though the immovable property is owned by more than one individual does not mean that individual service provider is also to be treated as more than one service depending upon the numbers of persons who own the property and for the provision of service can also be an “association of persons” even if the recipients of service divide the total consideration and make separate payments to individual owners. As the property is collectively owned the association of persons has to be treated as a single service provider and exemption of SSI can only be given to collective amount.

Following are some measure to deal with this situation:

Suppose, a property is owned by 3 persons with rights upto the extent of 1/3rd individually and having clause that the tenant will give payment to the co-owners as per their extent/ratio to the rights in property. It is emphasized that agreement has to be not made with the intention to receive a rent under a collective firm or association of persons.

1) The benefit of exemption under notification No. 6/2005 ST & 33/2012 ST can’t be denied on the ground that there is no specific provisions in Ntfn. No. 6/2005 ST or Finance Act, 1994 as rescinded by 33/2012 ST which debarres/speaks (i.e silent) about this situation.

2) An individual person has a legal personality and status recognized by virtue of natural persons’ rights and liabilities. A body of natural persons will retain their individual legal status and personality. They can collectively embark upon tasks they choose to undertake. By mere joining hands they do not bring about a different and distinct legal entity or legal personality unless there in intention to do so. For their individual and collective actions they would themselves be liable jointly and severally in their partnership pursuits only and not in the instant situation when they are receiving rent in individual capacity. When they constitute a partnership firm and adopt a firm name for their business, such firm name is not a name of any different and distinct juristic personality but only a convenient collective description of such body of individuals. It is the law alone that can create or recognize a juristic personality distinct from the constituent individuals as in the case of companies. Therefore, merely because definition of ‘person’ would include more than one person as a body of individuals, there is no automatic birth of a juristic person unless specifically so recognized by law with intention to do so.

3) That prior to July 2012, there was no definition of ‘Person’ in Finance Act, 1994. It was only introduced in the Finance Act, 2012. It is a settled law that when an Act does not have the definition of a particular word than it has to be borrow from the other legislations. As per Section 2(31) of Income Tax Act, 1962 the definition of ‘Person’ reads as follows:

2(31) “person” includes –

i) An individual

ii) A hindu undivided family

iii) A company

iv) A firm

v) As association of persons or a body of individuals, whether incorporated or not,

vi) A local authority, and

vii) Every artificial juridical person, not falling within any of the preceding sub-clauses.

Explanation:- For the purpose of this clause, an association of persons or a body of individual or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.

The above definition of “Person” reveals that an association of persons can only be called person when they provide some collective activity. In the instant situation, the co-owners has not collectively given any property on rent, they have only given their 1/3rd share on rent. The co-owners are only liable for service tax on the rent received in the individual capacity, if they are below exemption limit of Rs. 10 Lac because their share in the property is ascertainable. This could not be the case of department that share’s of co-owners in the property are not ascertainable. The Section 26 of Income Tax Act, 1962 stipulates that where a property consisting of building and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, there such persons shall not in respect of such property be assessed as an association of persons. The point in the instant situation is every co-owner has to show his/her renting income individually in its income tax returns as per his definite share and not collectively with separate clauses in agreement.

4) Also, in the numerous cases the Hon’ble CESTAT has held that benefit of SSI exemption has to be given to every owner of the property in a separate manner. The citation of theses decisions are as follows:

2012-TIOL-1272-CESTAT-AHM, 2012-TIOl-1205-CESTAT-AHM, 2013(31) STR 239(Tri-Ahmd), 2013(31) STR 511 (Tri-Ahmd), 2013(31) STR 329 (Tri-Ahmd) & -2013(31) STR 325 (Tri-Ahmd)

5) Also, the there is neither any willful misstatement, concealment nor suppression with an intent to evade service tax in this situation because its a matter of interpretation as tax of renting of immovable property itself was made liable from 2007 by Finance Act, 2010 by retrospective amendment. Hence, no extended period and penalty provisions invocable in this situation.

Moreover, no decision on stay has been come in light which deals with the issue of fight between SSI Exemption and co-owners, of any other bench of CESTAT. If any facts will go to any other Bench of Hon’ble Tribunal then bench has to grant the unconditional stay or will refer the matter to Larger Bench as similar bench of other tribunal has already granted the stay on the same situation.

(Author can be reached at rishichanan@yahoo.com)

 

Issue of Invoice under Service Tax

Dr. Sanjiv Agarwal 

Records as per Service Tax Rules, 1994

According to Rule 5 of Service Tax Rules, 1994, records include computerized data and means the record as maintained by an assessee in accordance with the various laws in force from time to time. Records maintained as such shall be acceptable to Central Excise Officer. Every assessee is required to furnish to the Central Excise Officer at the time of filing his return for the first time a list of all accounts maintained by the assessee in relation to Service Tax including memoranda received from his branch offices. This intimation may be sent alongwith a covering letter while filing the service tax return for the first time.

The assessee should maintain such records as would enable him to -

(i)        calculate value of taxable services as per provisions of section 67;

(ii)      calculate service tax liability correctly;

(iii)    ensure that proper credit of service tax on input services is availed.

Invoice

Rule 4A prescribes that taxable services shall be provided and input credit shall be distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan will also include documents used by service providers of banking services (such as pay-in-slip, debit credit advice etc.) and consignment note issued by goods transport agencies. Rule 4B provides for issuance of a consignment note to a customer by the service provider in respect of goods transport booking services.

These documents should disclose the required information about service provided or agreed to be provided, service provider and receiver of service.

Rule 4A prescribes that taxable services are to be provided or credit has to be distributed on invoice, bill or challan only. Such documents should be serially numbered and shall contain —

(i)        name, address and registration number of service provider,

(ii)      name and address of service receiver,

(iii)    description, classification (omitted w.e.f. 1-7-2012) and value of taxable service, and

(iv)   service tax payable thereon.

In case of banking services, such details like serial number and address of person may not be available. In case of goods transport services, consignment note or any other document containing the prescribed particulars will also be included in such documents. Similar requirement will have to be fulfilled by input service distributors. W.e.f. 1st April, 2005, the invoice/challan/bill etc. have to be issued within 14 days from the completion of provision of services or receipt of payment whichever is earlier (vide Notification No. 7/2005-ST dated 1-3-2005).

Notification No. 23/2005-ST dated 07.06.2005 provided that where any payment towards the value of taxable service is not received and such taxable service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, an invoice, a bill, or as the case may be, a challan shall be issued by a person providing such taxable service, not later than fourteen days from the last day of the said period.

Rule 4A was amended vide Notification No. 3/2011-ST dated 1.3.2011 w.e.f. 1.4.2011, prescribing that invoice or bill or challan shall have to be issued within fourteen days of provision of service or receipt of payment towards the value of such taxable service, whichever is earlier. This implies that service provider need not wait for completion of service but raise services at the stage of provision of service. W.e.f. 1-4-2012, invoice is required to be issued within a period of thirty days (45 days in case of banking companies, NBFC). The service shall be deemed to be provided as per Point of Taxation Rules, 2011.

Consignment Note

Rule 4B provides that any goods transport agency which provides goods transport services shall issue a consignment note to the customers in prescribed proforma containing the following information -

(a)      Serial number

(b)      Name of the consignor and consignee

(c)      Registration number of the goods carriage in which the goods are transported

(d)     Details of goods transported

(e)      Details of the place of origin and destination

(f)       Person liable for paying service tax whether consignor, consignee or the goods transport agency.

W.e.f. 1-3-2006, Service Tax Rules, 1994 were amended vide Service Tax (Amendment) Rules, 2006 vide Notification No. 05/2006-ST dated 1.3.2006 to provide as follows:

• Rule 5(3) makes it obligatory for an assessee to preserve records at least for a period of five years.
• Rule 5(4) makes it obligatory for an assessee to make available records maintained by him to a Central Excise Officer for the purpose of inspection or examination. However, such inspection or examination can be undertaken only after the written approval of the jurisdictional Assistant/Deputy Commissioner. It may also be noted that the assessee is required to make available the records in his registered premises.

 Invoice by service provider under reverse charge – Suggestions

Under reverse charge mechanism, service provider should note to also mention the following particulars -

(i)        amount of Service Tax based on his share of Service Tax liability, if any, (which service recipient is required to pay to the service provider) – in case of joint or proportionate reverse charge liability.

(ii)      fact that entire amount of Service Tax on the invoice is payable by the service recipient under reverse charge (if so).

(iii)    invoice amount is inclusive / exclusive of applicable Service Tax.

(iv)   alternatively, in case of proportionate reverse charge, service provider should charge Service Tax only on that part of the invoice for which he is liable to pay and wants to recover from the service recipient and mention that balance amount is payable by the service recipient.

 

Clarifications on Service Tax Voluntary Compliance Encouragement Scheme (VCES)

Circular No.174/9/2013 – ST, Dated : 25^th November, 2013

Sub: The Service Tax Voluntary Compliance Encouragement Scheme – reg. 

The Service Tax Voluntary Compliance Encouragement Scheme (VCES) has come into effect from 10.5.2013. Most of the issues raised with reference to the Scheme have been clarified by the Board vide circular Nos. 169/4/2013-ST, dated 13.5.2013 and No. 170/5/2013-ST, dated 8.8.2013. These clarifications have also been released in the form of FAQs. Attention is also invited to letter F. No. 137/50/2013-ST, dated 22.8.2013 as regards the action to be taken by the field formations for effective implementation of the Scheme. A number of interactive sessions have also been held at various places to ascertain and address the concerns of trade on any aspect of the Scheme.

2.         In the recently held interactive sessions at Chennai, Delhi and Mumbai, which were chaired by the Hon’ble Finance Minister, the trade had raised certain queries and also expressed some apprehensions. Most of these issues have already been clarified in the aforementioned circulars/FAQs. Certain issues raised in these interactive sessions, which have not been specifically clarified hitherto or clarified adequately, are discussed and clarified as below.

S.No.	Issue raised	Clarification
1	An instance was brought to notice wherein a declaration was returned probably on the ground that it was incomplete.	As has already been directed by the Board, vide the said letter dated 22.8.2013 (para 2.4 of the letter), the designated authority shall ensure that no declaration is returned.  In all cases, declaration should be promptly received and duly acknowledged. Request for clarification should be dealt with promptly. Defects in the application, if any, should be explained to the declarant and possible assistance be provided in rectifying these defects. The effort must be to accept a declaration, as far as possible, and recover the arrears of tax.
2	An apprehension was raised that declarations are being considered for rejection under section 106 (2) of the Finance Act, 2013, even though the “tax dues” pertain to an issue or a period which is different from the issue or the period for which inquiry /investigation or audit was pending as on 1.3.2013.	Section 106(2) prescribes four conditions that would lead to rejection of declaration, namely, (a) an inquiry or investigation in respect of a service tax not levied or not paid or short-levied or short-paid has been initiated by way of,- (i) search of premises under section 82 of the Finance Act,1994 ; or (ii) issuance of summons under section 14 of the Central Excise Act, 1944; or (iii) requiring production of accounts, documents or other evidence under the Finance Act, 1994 or the rules made there under; or (b) an audit has been initiated, and such inquiry, investigation or audit was pending as on the 1st day of March, 2013. These conditions may be construed strictly and narrowly. The concerned Commissioner may ensure that no declaration is rejected on frivolous grounds or by taking a wider interpretation of the conditions enumerated in section 106(2). If the issue or the period of inquiry, investigation or audit is identifiable from summons or any other document, the declaration in respect of such period or issue alone will be liable for rejection under the said provision. Examples: (1) If an inquiry, investigation or audit, pending as  on 1.3.2013 was being carried out for the period from 2008-2011, benefit of VCES would be eligible in respect of ‘tax dues’ for the year 2012, i.e., period not covered by the inquiry, investigation or audit. (2) If an inquiry or investigation, pending as on 1.3.2013 was in respect of a specific issue, say renting of immovable property, benefit of VCES would be eligible in respect of ‘tax dues’ concerning any other issue in respect of which no inquiry or investigation was pending as on 1.3.2013. It is also reiterated that the designated authority, if he has reasons to believe that the declaration is covered by section 106(2), shall give a notice of intention to reject the declaration within 30 days of the date of filing of the declaration stating such reasons to reject the declaration. Commissioners should ensure that this time line is followed scrupulously.
3	Whether benefit of VCES would be available in cases where documents like balance sheet, profit and loss account etc. are called for by department in the inquiries of roving nature, while quoting authority of section 14 of the Central Excise Act in a routine manner.	The designated authority/ Commissioner concerned may take a view on merit, taking into account the facts and circumstances of each case as to whether the inquiry is of roving nature or whether the provisions of section 106 (2) are attracted in such cases.
4	Whether the benefit of the Scheme shall be admissible in respect of any amount covered under the definition of ‘taxes dues’, as defined in the Scheme, if paid by an assesses after the date of the Scheme coming into effect, (i.e., 10.5.2013), but before a declaration is filed	Yes, benefit of the Scheme would be available if such amount is declared under the Scheme subsequently, along with the remaining tax dues, if any, provided that Cenvat credit has not been utilized for payment of such amount. Example: A person has tax dues of Rs 10 lakh. He makes a payment of Rs 2 lakh on 15.5.2013, without making a declaration under VCES. He does not utilize Cenvat credit for paying this amount. Subsequently, he makes declaration under VCES on 1.7.2013. He may declare his tax dues as Rs 10 lakh. Rs 2 lakh paid before making the declaration will be considered as payment under VCES.
5	Whether declaration can be made in such case where service tax pertaining to the period covered by the Scheme along with interest has already been paid by the parties, before the Scheme came into effect, so as to get waiver from penalty and other proceedings?	As no “tax dues” is pending in such case, declaration cannot be filed under VCES. However, there may be a case for taking a lenient view on the issue of penalties under the provision of the Finance Act, 1994. In this regard attention is invited to section 73 (3) and section 80 of the Finance Act, 1994.

 F.No.B1/19/2013-TRU

3. Trade Notice/Public Notice may be issued to the field formations and tax payers. Please acknowledge receipt of this Circular. Hindi version follows.

Yours sincerely,

 (S. Jayaprahasam)

 Technical Officer, TRU

Tel: 011-2309 2037

 

Service Tax on Goods Transport Agency (GTA) – A Guide

1.  Introduction 

It is quite surprising to know that unlike other central taxation laws like Central Excise Act, 1944; Customs Act, 1962; Income Tax Act, 1961; Central Sales Tax Act, 1956; etc; there is no specific act like Service Tax Act. The power to levy service tax is derived by the Central Government vide residual entry No. 97 of Schedule VII of the Constitution of India. Service Tax is levied, collected and administered under Chapter V of the Finance Act, 1994 (hereinafter referred to as the Act). It extends to whole of India except the state of Jammu & Kashmir.

Service Tax is, as the name suggest, a tax on services. It is an indirect tax, akin to excise duty and sales tax, where the incidence of tax is passed on to the consumer. It is significantly different from excise duty and sales tax, where the tax is levied on goods, which are tangible. The taxable event for levy of service tax is the rendering of service, which is intangible.

Since introduction of Service Tax in the year 1994 (when initially only three service were taxable), the concept was based on selective approach, wherein the services specified (positive list) under Section 65(105) of the Act (as amended) were taxable. The Finance Act, 2012 has made a paradigm shift in the taxation of services. In the new concept, popularly known as Negative List approach, all the services provided or agreed to be provided in the taxable territory are taxable, unless they are specified under the negative list entry or otherwise exempted. This has tremendously broadened the scope of levy of service tax. The negative list approach is made applicable w.e.f. 01-07-2012. Section 66B of the Act is the charging section which prescribes the rate of service tax as 12%. After adding the Primary Education Cess of 2% on service tax and Higher Secondary Education Cess of 1% on service tax, the effective rate of service tax, is 12.36%. [Refer Para 10.1]

In this Article, the author has attempted to reply, to some of the queries, in Frequently Asked Questions (FAQ’s) format, related to service tax on ‘Goods Transport Agency Service’ with reference to the new negative list approach. It can be used as a guide to service tax on GTA which is one of the most litigated services.

2. Service Tax on GTA – Background 

The levy of Service Tax on Road Transportation Service has always remained subject matter of uncertainty and litigation. Earlier, The Finance Act, 1997 had levied Service Tax on Goods Transport Operators w.e.f. 16-11-1997 which was subsequently withdrawn after nation-wide strike. Thereafter by the Finance (No. 2) Act, 2004 Service Tax has been imposed on Transport of Goods by Road service rendered by any goods transport agency with effect from 10-09-2004. However, the levy was deferred till further notice again in view of transporters strike. The Government thereafter constituted a committee to study the matter. Taking into account the recommendations of the Committee, Notification Nos. 32 to 35/2004 – ST all dated 03-12-2004 were issued, finally levying tax of Transport of Goods by Road with effect from 01-01-2005.

3. Definitions 

3.1 Who is a GTA – Goods Transport Agency?

As per Section 65B(26) of the Finance Act, 1994; “Goods Transport Agency means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called”. Therefore, issue of Consignment Note (C/N) is integral and mandatory requirement before any road transport can be said to be GTA.

The use of the phrase ‘in relation to’ has extended the scope of the definition of GTA. It includes not only the actual transportation of goods, but any intermediate/ancillary service provided in relation to such transportation, like loading/unloading, packing/unpacking, transshipment, temporary warehousing, etc. If these services are not provided as independent activities but are the means for successful provision of GTA Service, then they are also covered under GTA and abatement allowed.

In the positive list approach, by statutory provision, GTA service was taxable if provided in a ‘goods carriage’ as defined therein. There is no such explicit condition in the negative list approach.

3.2 What is a Consignment Note?

Consignment Note is not defined in the Act. As per Explanation to Rule 4B of Service Tax Rules, 1994; consignment note means a document, issued by a goods transport agency against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered, and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax whether consignor, consignee or the goods transport agency.

3.3 Who is a Courier Agency?

As per section 65B(20) of the Act, “courier agency means any person engaged in the door-to-door transportation of time-sensitive documents, goods or articles utilising the services of a person, either directly or indirectly, to carry or accompany such documents, goods or articles”.

Note: A courier agency is not restricted to transportation of goods by road. It can transport any documents, goods or articles by any mode of transport such as air, road or water.

3.4 Is it mandatory to issue Consignment Note?

Yes, Rule 4B ibid mandates issue of C/N by any goods transport agency which provides service in relation to transport of goods by road in a goods carriage to the recipient of service. In case of default, penalty upto Rs. 10,000/- may be imposed u/s 77 of the Act. However, it is not mandatory for a courier agency to issue a consignment note.

4. Negative List

4.1 Whether each and every transportation of goods by road is taxable for all persons?

No. Services by way of transportation of goods by road are taxable, ONLY IF the same is provided by (i) a goods transportation agency; or  (ii) courier agency.Services of Road Transport provided by all others are not taxable because they are covered by the Negative List u/s 66D(p)(i) of the Act. In other words, if any person is providing service of transportation of goods by road, and is neither covered under the statutory definition of GTA, nor under courier agency, then he is not liable to pay any service tax on such transportation.

5. Reverse Charge on GTA

5.1 We are a Partnership Firm. We purchased Plant & Machinery from Kolkata and paid freight of Rs. 20,000/- to the transporter. Our chartered accountant informed that we are legally required to obtain service tax registration and pay service tax on Rs. 20,000/-!!!! Why? We are not providing any service?

Your C.A. is absolutely correct. Normally, the liability to pay service tax is on the person providing the service. But, by fiction of law, section 68(2) of the Act has empowered the Central Government to notify such services, on which the liability to pay service tax, to the extent specified, shall be shifted from the service provider to the service recipient. This is popularly known as Reverse Charge Mechanism (RCM). Notification No. 30/2012-ST dated 20-06-2012 has been issued which covers GTA service and shifts full (100%) liability of service tax on the service receiver. Any person located in taxable territory, who pays or is liable to pay freight is treated as service receiver.

5.2 Does the same rule apply to individual/proprietorship firm paying freight?

No. As per Entry No. A(ii) of N/No.-30/2012, reverse charge is applicable only when taxable service provided or agreed to be provided  by a goods transport agency in respect of  transportation  of goods by road, where the  person liable to pay freight is,—

a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);
b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;
c) any co-operative society established by or under any law;
d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under;
e) any body corporate established, by or under any law; or
f) any partnership firm whether registered or not under any law including association of persons;
So, it can be clearly seen that an individual/proprietorship firm is not covered in the above ‘specified category’. It means, if the freight is paid (either himself or through his agent) by an individual/proprietorship firm or HUF then the service tax thereon shall be paid by the GTA itself.
Note: N/No.-30/2012 is effective from 01-07-2012. But, even before that, reverse charge was applicable on GTA and instead of ‘person liable to pay freight’, it earlier covered ‘consignor or consignee’ as a specified category, which was slightly different from the current specified category.
ILLUSTRATION:

A goods transportation agency transports a consignment of M.S. Rod from Rourkela to Mumbai. The consignor is a public limited company and the consignee is an unregistered partnership firm. The goods shall be used in construction of a single residential house. As per the agreement, freight shall be payable by the consignee. The consignment note is prepared on ‘TO PAY’ basis. Who is the person liable to pay service tax?

One of the ‘specified category’ is a partnership firm whether registered or not under any law. Here, the person liable to pay freight is a ‘specified category’, so reverse charge is applicable. The service tax shall be paid by the partnership firm. The end use of goods is generally not relevant for taxing GTA service (Except few instances, say when it is provided to the United Nations or a specified international organization, SEZ, etc.)

ILLUSTRATION:

ABC Ltd. sells the goods to XYZ Ltd. The freight for transportation of the goods has been paid by ABC Ltd to the GTA.  The consignment note is prepared on ‘FREIGHT PAID’ basis. ABC Ltd. collects this freight from XYZ Ltd., on actual basis, by separately showing it in the invoice, which is paid by XYZ Ltd., to ABC Ltd. Who is liable for payment of Service Tax?

ABC Ltd. is the person liable to pay freight. It cannot be said to be paying the freight on behalf of XYZ Ltd. ABC Ltd. is only getting reimbursement of the freight paid by it, initially. As such, the liability for payment of service tax will only be on ABC Ltd.

5.3 It means an Individual/Proprietorship Firm can pay any amount of freight to any GTA without any service tax implications?

Yes, if the same is neither a factory, nor a registered dealer under Central Excise Act, 1944.

Practical Issue: As mentioned in Para 2.2, the consignment note should indicate that whether consignor, consignee or the GTA shall be paying service tax on the consignment. It is the duty of the GTA to ascertain, in each case, the person liable to pay freight as per the agreement, check if such person is covered under specified category and accordingly mention the person liable to pay service tax in C/N as per law. In practical situation, it would be very difficult for GTA, especially when freight is to be paid by an individual/proprietorship firm. How can a GTA know that such a person is registered or governed under the Factory Act, 1948 or is a registered dealer of central excise? Should he take certified true copy of such registration certificate for each such person and in case of non-registration, a declaration to such effect?

5.4 We have entered into a contract with a very renowned and big size GTA which is a Public Limited Company for transportation of raw materials to our factory. They are registered with the service tax department. Who is liable to pay service tax?

For application of reverse charge, the size and status of the GTA providing transportation service is irrelevant. Since you are a factory (specified category), paying the freight, you shall discharge the service tax liability.

5.5 What if the service tax is charged separately by the GTA in C/N or Bill?

The reverse charge liability under section 68(2) of the Act is a statutory liability imposed by law. The liability of service provider and service receiver is different and independent of each other. Even when the service provider (GTA) has wrongly charged service tax in bill, the liability of service receiver is not discharged. So, it is suggested that the person paying freight shall deduct service tax charged by the GTA and pay only the freight amount to the GTA. The service tax on GTA shall be deposited directly by the service recipient to the government exchequer.a

5.6 Whether reverse charge is applicable on courier agency?

No, courier agency is not covered under reverse charge. Any person receiving services of a courier agency are not liable to pay service tax on payment of courier charges.

6. Place of Provision of GTA Service 

6.1 What is the place of provision of a service of transportation of goods?

As per Rule 10 of Place of Provision of Services Rules, 2012, Place of provision of a service of transportation of goods is the place of destination of goods, except in the case of services provided by a GTA in respect of transportation of goods by road, in which case the place of provision is the location of the person liable to pay tax (as determined in terms of Rule 2(1)(d) of Service Tax Rules, 1994).

6.2 Who is a person liable to pay tax?

Rule 2(1)(d) of Service Tax Rules, 1994 provides that where a service of transportation of goods is provided by a ‘goods transportation agency’, and due to reverse charge [Refer Para 5.2] , the person liable to pay tax is the person who pays, or is liable to pay freight (either himself or through his agent) for the transportation of goods by road in a goods carriage. But, if the person liable to pay freight is located in non-taxable territory, then the person liable to pay service tax shall be the service provider. [Proviso to Rule 2(1)(d) ibid]

In simple words, in all the cases of transportation of goods by road, by GTA, where the location of the person liable to pay freight is in the state of Jammu & Kashmir or Outside India, the person liable to pay service tax is GTA itself.

ILLUSTRATION:

A goods transportation agency, GTA Ltd. is located in Bhubaneswar. It transports a consignment of steel ingots from Rourkela to a Steel Rolling Mill in Jammu (Non-Taxable Territory). As per the agreement, the freight shall be payable by the rolling mill in Jammu. The consignment note is prepared on ‘TO PAY’ basis. Who is the person liable to pay service tax?

The service tax shall be paid by GTA Ltd. because the person liable to pay freight is located in Jammu which is in non-taxable territory and as per proviso to Rule 2(1)(d) ibid, the person liable to pay tax is the service provider i.e. GTA Ltd.

7. Threshold Exemption

7.1 I have heard that just like basic exemption of Rs. 2 Lacs in Income-tax, there is a threshold exemption of Rs. 10 Lacs in service tax. Is it correct?

Yes, there is threshold exemption of Rs. 10 Lacs available under N/No. – 33/2012-ST, but the same is allowed only to the service provider.  The service recipient liable to pay tax under RCM, on services covered u/s 68(2) has been specifically excluded to avail the threshold exemption.

In strict legal terms, suppose a partnership firm of chartered accountants or advocates is setting up a new office. They paid freight of Rs. 1,501/- to GTA on transportation of furniture & fixtures purchased for the office. For such a trivial transaction, the partnership firm must obtain service tax registration and pay tax thereon and file half yearly return!!! This is quite illogical and harsh requirement, particularly for the small assessee’s, but that’s law.

The trade associations/ chamber of commerce should send representation to the Central Government to allow some threshold exemption to the service recipient liable to pay tax under reverse charge. It would prevent small assessee’s from genuine hardship. This may also save a lot of unknowing defaults resulting into litigations, which could put extra pressure on judiciary.

8. Exemptions – Value / Item Based

8.1 Whether service tax leviable on every consignment by GTA, including local transporting, where the freight charged is very low?

No. Mega Exemption Notification No. 25/2012-ST has exempted low value consignments from the levy of service tax, as follows: (a) Where the gross amount charged for the transportation of goods on a consignment transported in a single goods carriage is upto Rs 1,500/-; or (b) Where the gross amount charged for transportation of all such goods for a single consignee in the goods carriage is upto Rs. 750/-

Note: Many authors have interpreted that the exemption of higher limit of Rs. 1500 is available if the goods carriage is transporting goods of single consignee. But in my view, the higher exemption is available even when the goods carriage is transporting goods of more than one consignee, if the gross amount charged from all the consignee’s for single goods carriage is upto Rs. 1500.

ILLUSTRATION:

A company receives goods from a GTA in a truck. No other goods are loaded in that truck. The company pays freight of Rs. 1500/- to GTA. No service tax is payable by any person on this consignment as it is exempted.

ILLUSTRATION:

A company receives goods from a GTA in a truck. Some other goods not belonging to the company are also loaded in the truck. The company pays freight of Rs. 900/- to GTA. The freight of other goods is Rs. 500/-. Service Tax is not payable by the company on this consignment as the total freight for the truck is Rs. 1400 (<1501) so it is exempted.

ILLUSTRATION:

In the above illustration, if the freight of other goods is Rs. 700/-, then the total freight for the truck is Rs. 1600 (>1500). Freight paid by company is Rs. 900 (>750). So, exemption is not available and the company should pay service tax on Rs. 900/-!!

Practical Issue: What could be the documentary proof that the goods carriage is transporting goods belonging to only single consignee or more than one consignee!! Should the consignor/consignee take a certificate from the GTA that vehicle did not carried any other goods?

8.2 A proprietorship firm trading in steel is registered under central excise as dealer, has paid freight for a quarter as below. What is the service tax liability?

Particulars	Freight Paid	Service Tax
224 trucks @ Rs. 1,450/-	324,800	Exempted
310 trucks @ Rs. 1,600/-	496,000	Taxable
1 Trailer @ Rs. 35,000/-	35,000	Taxable
Total	8,55,800

Here, the proprietorship firm is liable to pay service tax under reverse charge as it is registered under central excise. The consignment in a single vehicle with freight upto Rs. 1,500 is fully exempted. So, service tax on balance Rs. 5,31,000/- @ 3.09% = 16,408/-

8.3 In the above example at Para 8.2, if the proprietorship firm is not registered under central excise, then what are the consequences?

Then, RCM is not applicable and the service tax shall be paid by the respective GTA, after considering the exempted consignments. Assuming that a single GTA is involved in the above case, the GTA is liable to pay tax amounting to Rs. 16,408/-

8.4 Is there any other exemption available on GTA Service?

Yes. N/No. 3/2013-ST dated 01-03-2013 has amended the N/No. 25/2012 w.e.f. 01-04-2013, extending exemption for services provided by a GTA, by way of transport in a goods carriage of;

i. agricultural produce;
ii. foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;
iii. chemical fertilizer and oil cakes;
iv. newspaper or magazines registered with the Registrar of Newspapers;
v. relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
vi. defense or military equipments;”
This amendment is a positive for the FMCG and food companies like Hindustan Unilever, Nestle, ITC, Perfetti, Kellogs, etc. and those manufacturing or trading/dealing or retailers (including departmental stores like Big Bazaar, Vishal Mega Mart, etc.) in these products. It is pertinent to mention that prior to this amendment; the exemption was available on fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage.
8.5 We are wholesale dealers of food items like rice, wheat, sugar, refined oil, mustard oil, jeera, etc. Are we liable to pay service tax on freight paid on transportation of these food items?

No. Neither service receiver, nor service provider (GTA) is liable to pay service tax as the transportation of these items is exempted.

9. Registration of GTA 

9.1 Whether it is compulsory for a GTA to take registration for service tax?

As per section 69(2) of the Act, registration is compulsory, when the aggregate value of taxable services, provided from all the premises, of all descriptions, exceeds Rs. 9 Lacs. So, a GTA need not apply for service tax registration until the limit of Rs. 9 Lac is reached. While calculating the limit of Rs. 9 Lac, the GTA service where reverse charge is applicable is to be excluded.

9.2 Does it mean that a GTA providing all transportation service to persons covered under RCM is not required to obtain service tax registration?

Yes, because he is neither liable to pay tax, nor his aggregate value of taxable services exceed Rs. 9 Lacs. As per circular no. 341/18/2004-ST dated 17-12-2004, according to provisions of section 69 of the Act, requirement of registration is limited to persons liable to pay service tax. Thus those goods transport agencies, which are not liable to pay any service tax, are not required to be registered under the service tax rules.

9.3 Whether it is compulsory for a recipient of GTA service to take registration for service tax?

Yes, if reverse charge is applicable, service recipient becomes liable to pay service tax and section 69(1) of the Act mandates that every person liable to pay tax shall obtain service tax registration. The application shall be made in Form ST-1 within 30 days of arising of liability. The Range Superintendent shall issue the registration certificate in Form ST-2. The half-yearly returns are required to be filed in Form ST-3 by 25^th October/April every year for 1^st & 2^nd Half respectively.

10. Abatement on GTA

10.1 What is abatement on GTA?

The dictionary meaning of abatement is ‘diminution in amount, degree or intensity; moderation’ or reduction. Notification No. 26/2012-ST dated 20-06-2012 has allowed abatement of 75% on GTA. It means that if the value of GTA service (freight) is Rs. 100, service tax is exempted on Rs. 75 and service tax @ 12.36% (including Ed. & SHE Cess) shall be paid only on the balance value of Rs. 25. So, effective rate of service tax on GTA service is 3.09% of total freight.

10.2 Who can avail abatement?

The abatement can be availed by the person liable to pay service tax on GTA. In other words, in case of reverse charge, the service recipient can avail abatement and pay tax @ 3.09% and when reverse charge is not applicable, than the GTA can avail abatement and pay tax @ 3.09%

10.3 What are the conditions for availing abatement?

The abatement is available subject to the condition that the CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

Note: In the positive list approach, due to a lot of litigations and practical difficulty in proving non-availment of cenvat credit by the GTA, the government had allowed unconditional abatement of 75% w.e.f. 01-03-2008 vide N/No. 13/2008-ST, and dropped the similar condition as in Para 10.3. But, it has re-appeared in the negative list regime w.e.f. 01-07-2012 vide N/No. 26/2012-ST!!!

11. Cenvat Credit

11.1 A manufacturing company is paying freight on transportation of raw materials upto its factory. Can it avail abatement and cenvat credit simultaneously?

Yes, any service receiver can avail abatement and pay tax @ 3.09% and still take cenvat credit of such tax, if the GTA service is otherwise eligible as ‘input service’. In case of outward freight, cenvat credit is not available for freight paid beyond the ‘place of removal’. The above condition in Para 10.3 restricting the cenvat credit is for the service provider using any inputs, capital goods or input services for providing such services.

11.2 How can a service recipient ascertain that the GTA has not taken cenvat credit?

The service recipient should obtain a declaration/certificate from the GTA that they have not availed cenvat credit on inputs, capital goods and input services, used for providing the taxable service. In the absence of such a declaration, the Assessing Officer may deny the benefit of abatement and can raise demand. It is suggested that the GTA should have a declaration pre-printed in its consignment note. [Refer Note to Para 10.3]

11.3 A person has cenvat credit balance available for utilization. Can he utilize cenvat credit for payment of service tax on GTA under reverse charge?

No, the service recipient is not allowed to utilize cenvat credit for payment of service tax under reverse charge. [Explanation to Rule 3(4) of Cenvat Credit Rules, 2004]. Thus, the service recipient must directly deposit service tax on GTA through GAR-7 Challan.

11.4 When can a service recipient avail cenvat credit of service tax paid under RCM?

As per 1^st proviso to Rule 4(7) of Cenvat Credit Rules, 2004; the service recipient can avail cenvat credit of an input service, where service tax is paid by him on reverse charge, after making payment of value of input service to the service provider and after payment of service tax thereon. Thus, cenvat credit is not available unless payment of value of input service is made.

11.5 What is the relevant document for availing cenvat credit by service recipient?

The cenvat credit is available to service recipient as the person liable to pay tax on the basis of GAR-7 challan evidencing the payment of service tax. [Rule 9(1)(e) of Service Tax Rules, 1994]

12. Due date for payment of Service Tax

12.1 What is the due date for payment of service tax?

The due date for payment of service tax is determined by Rule 6(1) of Service Tax Rules, 1994, which is summarized as below:

Status of Assessee	Frequency of Payment	Mode of Payment	Due Date as per Rule 6(1)
Individual, proprietary firm or partnership firm (including LLP)	Quarterly	E-Payment Cash/Cheque	6th of the subsequent quarter 5th of the subsequent quarter
For other assessee’s (company, society, trust, etc.)	Monthly	E-Payment Cash/Cheque	6th of the subsequent month 5th of the subsequent month

However, for the month/quarter ending on 31^st March, the due date shall be 31^st March of the same month/quarter. [2^nd proviso to Rule 6(1)]

13. Point of Taxation 

13.1 A company, which is following mercantile system of accounting, is unable to decide due date for the following GTA service received by it during the month of October, 2013

Sr. No.	Date of C/N	Date of receipt of goods	Date of Bill issued by GTA	Date of Payment of Freight
1.	25-09-13	29-09-13	30-09-13	03-10-13
2.	05-10-13	10-10-13	15-10-13	18-10-13
3.	30-10-13	01-11-13	31-10-13	02-11-13
4.	30-10-13	31-10-13	31-10-13	05-11-13

Which is the relevant date for determining the due date for payment of service tax?

As per Rule 6(1) ibid; as summarized above, service tax shall be paid to the credit of Central Government on 6^th/5^th of the month/quarter, as the case may be, immediately following the month/quarter in which the service is deemed to be provided as per the rules framed in this regard. The Point of Taxation Rules, 2011 has been framed which defines ‘point of taxation’ means the point in time when a service shall be deemed to have been provided. In case of service recipients liable to pay tax u/s 68(2) of the Act, due to reverse charge, Rule 7 of the Point of Taxation Rules, 2011 is applicable.

As per Rule 7 ibid, the point of taxation is the date of payment. Therefore, in the above example, the service tax is payable for Sr. No. 1 & 2 for the month of October and the due date shall be 06-11-2013 [E-Payment]. Thus, date of consignment note, receipt of goods and bill date is not relevant. However, if the payment is not made within 6 months from the date of invoice, then the point of taxation shall be the date of completion of service or date of invoice, whichever is earlier.

14. Default on payment – Voluntary Compliance

14.1 We have been paying freight on transportation of goods since very long, without knowing that due to reverse charge, we are liable to pay service tax. We are not registered with the service tax authorities. What should we do?

The Central Government has launched an amnesty scheme known as Service Tax – Voluntary Compliance Encouragement Scheme, 2013 (VCES). It has given this last opportunity to defaulted taxpayer’s whereby complete waiver of interest, penalty and prosecution is ensured to an applicant. Any person who has ‘tax dues’ for the period 01-10-2007 to 31-12-2012, outstanding  as on 01-03-2013, can take the benefit of VCES. An application under VCES can be made on or before 31-12-2013. Outstanding tax can be paid in installments but at least 50% of tax due shall be paid upto 31-12-2013. Balance tax can be paid upto 30-06-2014.

Note: The rate of interest as prescribed u/s 75 of the Act is 18% p.a. and penalty of upto 100% of tax defaulted is imposable u/s 78. Under Section 70, penalty/late fee for late/non-filing of return of service tax is upto Rs. 20,000/- for each return. Prosecution can also be launched in appropriate cases. As reported in the media, the finance minister has instructed the authorities to send notices to about 10 Lac non-filers and stop-filers registered with the department, after the VCES comes to an end.

***

Manoj Agarwal,

Service Tax Consultant,

Ganpati Campus, Lal Building Road,

Rourkela – 769012

E:Mail:  ServiceTaxExpert@yahoo.com

Disclaimer: This article is the property of the author. No one shall use this article for commercial purposes, without the permission of the author. The author shall not be responsible or liable for any thing done or omitted to be done on the basis of this article.

 

Point of taxation [Rule 2(e)] of Service Tax

For the purpose of charging service tax on any service, the incidence of levy is on person rendering of a taxable service which is termed as point of taxation. Usually people have confusion regarding the point in time when a service is deemed to be provided and thereby service tax is to be deposited. Therefore the Rule 2(e) is summarized below:

Where,

*is even if payment might be received after 01.04.2011 but service was provided or billed before the said date will be subject to old rule.

# is that if Invoice is not issued within 14 days of completion of service, then Date of Invoice will be changed to Date of Completion of service

$ is that if Invoice is not issued within 30 days or 45 days in case of banks and financial institutions of completion of service, then Date of Invoice will be changed to Date of Completion of service

Specified Cases:

Reverse Charge Mechanism – Rule 2(1)(d):

Date of Payment, if the payment is received within 6 months. In other cases, the normal rule of taxation will apply.

Export of service:

Date of Payment, if the payment is received within the time limit prescribed by RBI. In other cases, the normal rule of taxation will apply.

Individual/Firms whose aggregate value of taxable service is less than Rs 50 Lakhs in previous year

Date of Payment –  upto taxable service of Rs. 50 Lakhs only.

Individual/Firms providing services of Architect, CA, CS, ICWAI, Legal Consultancy, Consulting Engineer or Interior Decorator:

            Date of Payment

Associated Enterprises (Holds >=20% Share Capital)

            Date of credit in books or date of payment whichever is earlier

Continuous Supply of Services

The persons falling in continuous supply of service [Rule 2(c)] i.e. services provided where contract is of more than 3 months or prescribed by Central Government will be collecting tax on date of completion of service. Date of Completion of service is the milestone fixed by the provider as to when payment for the service becomes due. For eg, in case of telephone service, date of completion of service will be the date when bill is issued to the subscriber for payment of dues.

Date of Payment [Rule 2A]

Now the date of payment of service tax will be date of payment entry in books or date on which amount is credited in bank account, whichever is earlier. But if there is change in the service tax rate or for the first time tax is imposed and the payment in bank is credited after 4 working days, then date of payment shall be date of credit in bank account only.

(Author- Sagar Gupta – Email: casgrgupta@gmail.com)

 

Clarification On Levy Of Service Tax on Education Related Services

Dr. Sanjiv Agarwal

While Service Tax is levied on almost services, barring few listed in negative list and exempted services, there are certain sectors which enjoy the special privileges.  Education is one such sector which enjoy privilege under Service Tax and rightly so. While services in relation to in school and pre-school education are not taxable at all, being in negative list, higher education as a part of a curriculum for obtaining a qualification recognized by law in India is also not taxable. Similarly, there is no Service Tax on any approved vocational course. There is also a specific exemption for services provided to educational institutions in respect of exempted education by way of renting of immovable property and auxiliary services.

It is however, important is bring out the difference between education and coaching or training as what is not taxable is only ‘education’ and ‘commercial coaching’ shall be liable to Service Tax. For example, if a student is studying for graduate course in commerce (B.com) in a college and also simultaneously pursuing coaching for law entrance exam, his B.com education is exempt from Service Tax but his law related coaching would attract Service Tax @ 12.36 percent. Similarly, only Indian courses are not taxable. Any foreign university course would attract Service Tax.

So far as exemption to education related auxiliary services and concerned, it means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge -enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.

Owing to prevailing confusions amongst tax payers and rumors, Ministry of Finance has issued a clarification wherein taxability of various services provided to educational institutes has been clarified. There are many services provided to an educational institution. These are described as auxiliary education services and they have been defined in the exemption itself. Such services provided to an educational institution are exempt from Service Tax. For example, if a school or a college hires a bus from a transport operator in order to ferry students to and from school or college, the transport services provided by the transport operator to the school are exempt by virtue of the specific notification. Similarly, services in relation to hostels, house–keeping, security services, canteen etc shall be exempt from levy of Service Tax.

However, this exemption has a catch. These exemptions are available only for educational institutes and not for commercial coaching institutes. Thus, any coaching or training or tuitions aiding the education would not be able to enjoy this exemption.

Service Tax on Education services – clarification

 

No Recovery proceedings if applied for payment of defaulted Service Tax under VCES, 2013

The Service Tax Voluntary Compliance Encouragement Scheme, 2013 (“VCES, 2013” or “the Scheme”) is not able to get success on many accounts and prospective applicants are scared to opt for VCES as the declarants are being targeted by the Preventive Wing of the Department. It is very important that the department should extend helping hands to the defaulters to pay the service tax, not paid in the past and help the Scheme to flourish in collecting a reasonable sum of money as desired by the Hon’ble Finance Minister while launching the VCES, 2013.

Before the Scheme gets flourish, litigation has started and one of the important related judgement of the Hon’ble Allahabad High Court in the case of Anand Caterers (Petitioner) Vs. Union of India and 3 Others (Respondent) AIT-2013-162-HC, is summarized for your easy digests on following issue:

Issue:

Whether Recovery can be made if Assessee has already applied for payment of defaulted Service tax amount under VCES, 2013?

Facts & Background:

The writ petition is filed against the summoning order dated 31.5.2013 issued by the Superintendent (AE), Central Excise and Service Tax, Noida and Notice dated 7.6.2013 issued by the Deputy Commissioner (AE) Central Excise and Service Tax, Noida and the proceedings under Section 87 of the Finance Act, 1994 (“the Finance Act”) by way of issuing garnishee order.{Relevant Portion of Section 87 is reproduced here in below}

Section 87: Recovery of any amount due to Central Government.

“Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:—

(a)    ………………………………;

(b) (i)  the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;……………………………”

The order dated 7th June, 2013 passed under the said Section required the petitioner to deposit an amount of Rs.60 lacs (Rupees Sixty Lacs) as service tax along with interest in respect of the taxable services provided. The notice has been addressed to the bankers of the petitioner to release the funds held by them on behalf of the petitioner.

The petitioner acknowledged that he is liable to pay service tax and is registered with the service tax authorities. On 31.5.2013 a search was conducted on its business premise in which it was detected that the petitioner is required to pay Rs.60 lacs as service dues. He has challenged the garnishee order on the ground that he has filed an application on 20^th June, 2013 under Section 106 (VCES, 2013), which is operative for the period from 1st October, 2007 to 31st December, 2012 and covers all the liability, outstanding as on 1st March, 2013.

 Since the petitioner has submitted an application under VCES, 2013 vide which it can deposit 50% of the admitted tax due by 31st December, 2013 and the remaining amount by 30th June, 2014, the garnishee order has been illegally and arbitrarily issued without deciding the application.

Held:

The Hon’ble Allahabad High Court has held that when the liability of service tax is admitted and application has been made under the VCES scheme on 20th June, 2013, then no recovery proceedings could be taken until the application is disposed of and which, under Section 107 permits the defaulter to deposit tax in two instalments i.e. to pay 50% by 31st December, 2013 and remaining 50% by 30th June, 2014.

Further, the petitioner has demonstrated that he fulfils the eligibility conditions of VCES, 2013 and that unless the application is considered and decided, no proceedings under Section 87 may be allowed to continue. The object of the Service Tax VCES, 2013 may be defeated, if the recovery is allowed to proceed.

——————————

Bimal Jain
FCA, FCS, LLB, B.Com (Hons)

Mobile: +91 9810604563
E-mail: bimaljain@hotmail.com

 

Download Free E-book on Service Tax updated till 21.09.2013

CA Pritam Mahure

Please find attached 7th Edition (VCES Special) of the pdf book on Service Tax (incorporating changes upto 21 September 2013) . The book contains:

-FAQ, Circulars etc issued by CBEC on VCES

- Recent clarification on educational services, arrest etc and case laws

- Forewords by Shri V K Garg (Joint Secretary, TRU)

- Amended Service Tax legal provisions, notifications, Circulars etc.

- Applicable provisions of Constitution of India

In the book, the changes are highlighted in red colour and dates from which the said changes will become applicable are also specified at appropriate places.[Please note that for CA FInal students the amendment upto 30 April 2013 only are applicable for the Nov. 2013 exams.]The Book Contains the following Topics 1. ABOUT THE BOOK
2. NEGATIVE LIST – IN A NUTSHELL
3. EXISTING INDIRECT TAX SYSTEM IN INDIA
4. SERVICE TAX — STATUTORY PROVISIONS
5. APPLICABLE CENTRAL EXCISE PROVISIONS
6. SERVICE TAX RULES, 1994
7. SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006
8. POINT OF TAXATION RULES, 2011
9. PLACE OF PROVISION OF SERVICES RULES, 2012
10. CENVAT CREDIT RULES, 2004
11. SERVICE TAX VCES, 2013
12. Service Tax Voluntary Compliance Encouragement Rules, 2013
13. Notifications
14. CIRCULARS
15. DRAFT CIRCULAR

• Draft circular on staff benefits
• Draft circular on service tax on air transport

16. INSTRUCTIONS/ ORDERS
17. Budget 2013 434
18. Education Guide – CBEC
19. FAQ on VCES –CBEC
Download Free E-book Titled “Service Tax -Negative List Regime”  by CA Pritam Mahure

 

School bus, canteen, hostel & Auxiliary educational services exempt from service tax

Various representations have been received seeking clarifications regarding the levy of service tax on certain services relating to the education sector. Following are the representations received in this regard:

1. Private Schools Correspondents Confederation, Madurai.
2. Tamil Nadu Nursery, Primary, matriculation and Higher Secondary Schools Association, Chennai.
3. Punjab Association, Chennai.
4. Association of Self financing Universities of Rajasthan
5. Unaided Schools’ Forum, Mumbai.
6. Vedavalli Vidyalaya, Wallajapet.
7. Independent Schools Associations, Chandigarh.
8. Mother Teresa Public School, New Delhi.
9. BVM Global, Chennai.
10. Sastra University, Tanjavur.
11. HLC International, Chennai.
12. Sodexo Food Solutions, Mumbai.
13. Federation of Associations of Maharastra, Mumbai.

The matter is covered by two provisions of the Finance Act, 1994. Section 66D of the Finance Act contains a negative list of services and clause (l) thereof reads as under:

“services by way of –

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;

(iii) education as a part of an approved vocational education course;”.

            Further section 93(1) of the Finance Act, 1994, enables the Government to exempt generally or subject to such conditions taxable service of specified description. By virtue of the said power, Government has issued a notification No.25/2012-ST dated 20^th June, 2012, exempting certain services. Sl.no.9 thereof reads as follows:

“Services provided to an educational institution in respect of education exempted from service tax, by way of,-

(a) auxiliary educational services; or

(b) renting of immovable property;”.

As defined in the said notification, “auxiliary educational services” means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge–enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.

By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax. There are many services provided to an educational institution. These have been described as “auxiliary educational services” and they have been defined in the exemption notification. Such services provided to an educational institution are exempt from service tax. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification.

In addition to the services mentioned in the definition of “auxiliary educational services”, other examples would be hostels, housekeeping, security services and canteen, etc.

Thus, the apprehensions conveyed in the representations submitted by certain educational institutions and organizations have no basis whatsoever. These institutions and organizations are requested not to give credence to rumours or mischievous suggestions. If there is any doubt they are requested to approach the Chief Commissioner concerned.

 

Implications of Vat & Service Tax On Builders Collaboration Agreements 

Rakesh Garg, FCA, Author & Consultant

1.  Introduction

Indirect Taxation, namely State VAT and Service Tax, on building contracts has become a complex issue; not only for the stake holders, which are, land owners, builders/ developers and the actual users, but also for the tax professionals. The Revenue Departments are also not very certain and clear about the incidence and manner of taxation and also the point/time of tax. This article is an attempt to discuss various issues in this regard. “Builders Collaboration Contracts (referred as Builder Contracts)” for the purpose of our present discussion means the contracts where Land Owner (LO) offers his land to Builder/Developer (BD)  for construction of residential/commercial complex/units and the latter offers part of the constructed flats/units to LO; and remaining flats are sold by BD to the customers, either during construction or post construction as ready units. Size of complex, which may contain 4 units or 400 units, will not have an effect on our discussion; nonetheless, in big complexes, number of LOs can certainly be more than one, and certain other issues would also crop up. Pure works contracts where LO awards construction contract to the contractor do not involve much complexity; and therefore, not discussed here. Revenue sharing contracts between LO and BD have also been excluded from our present discussion. We have also excluded the aspect of stamp duty, which, generally, is levied at two points: first, at the time when land is transferred by LO to BD as outright sale or under the agreement of power of attorney; and second, at the time of execution of conveyance deed with the actual user. In short, our present discussion is confined to implication of VAT and Service Tax on those contracts where, apart from material and services, value of land is also taking part of the bargain, and the size of the plot is limited to few hundred yards containing, generally, four to ten units.

Let us adapt our discussion in the form of an illustration:

LO enters into a collaboration agreement with BD, wherein -

(Rs. In lacs)

• BD constructs 4 flats/units;
• Out of which, BD gives 2 flats to LO towards consideration of land;
• Remaining 2 flats are kept by BD for further sale in market;
• BD sells 2 flat to PBs during construction for Rs.1200 (600 per flat); sale deed also executed for Rs.1200;
• Out of 2 flats, LO sells 1 flat to another Prospective Buyer (PB) during construction;
• Value of land is Rs.2000 and value of construction is Rs.400 (Rs.100 per floor);
• Since BD receives land worth Rs.1000 (2000*2/4) and gives Rs.200 as value of construction for 2 floors (100 per floor); it is further agreed that BD will give Rs.800 to LO towards land or as value for transfer of construction rights;
• Circle rate in Delhi, per flat, of land : Rs.500; and for construction : Rs.100;
• Agreements to sell between BD and PBs specify that value of land is Rs.500 and value of construction is Rs.100.
• Break-up of value of construction of Rs.400 is:-
  • Material with proportionate overheads & profit                      -   Rs. 240
  • Labour & Services with proportionate overheads &profit     -    Rs. 120
  • Permissions and sanctions (treated as services)                      -    Rs.   40
  • Total Expenses                                                                                  -    Rs. 400
  • Proportion of expenses towards LO and BD portion                -    50 : 50

(for sale to PB)

• It is assumed that total material consists of 1/3 iron & steel taxable @5%; and  2/3 other materials taxable @12.5%: thus average VAT rate comes to 10%;
• VAT input tax credit is assumed at Rs.16 (10% of 66% of 240);
• It is also assumed that majority of the contract is executed by BD himself, and thus, Cenvat Credit is only Rs.2;
• Total Investment of BD comes to : Rs.800 paid to LO (+) Construction value of all four flats being Rs.400 (=) Rs.1200.

2.         Background

Before coming to the taxability part, it is necessary to look at the history of the same. In a case before the Division Bench of the Supreme Court in K. Raheja Development Corporation vs. State of Karnataka (2005) 141 STC 298 (hereinafter referred as Raheja case), the owners of the land were also engaged in the business of constructing apartments/complexes, and for this purpose, they entered into agreements of sale with the intended purchasers. It was held by the Supreme Court that even an owner of the property might also be said to be carrying on a works contract if the builder enters into an agreement to construct with the intended purchasers. However, if the agreement is entered into after the unit is already constructed, then there would be no works contract. But so long as the agreement is entered into before the construction is complete, it would be a works contract. [It may, however, be noted that in this case the builder entered into two separate agreements with the intended purchasers : one for sale of land and another for sale of buildings; and, thus, in another way, the builder constructed the property on the land owned (or to be owned) by the prospective purchasers.]

However, the Raheja case has been referred to the larger bench in the case of Larsen & Toubro Limited vs. State of Karnataka (2008) 17 VST 460 (SC); but, without grant of any stay by the Apex Court.

Relying upon the judgment in Raheja case, many State VAT Departments, including Delhi, U.P. and Haryana, have initiated imposition of VAT on the material involved in the transfer of residential and commercial complexes by considering the activity as works contracts. Similarly, steps were also taken to impose service tax by way of amendment in the Finance Act, 1994.

The Bombay High Court in the case of Maharashtra Chamber of Housing Industry vs. State of Maharashtra (Writ Petition no. 2568 of 2007 dated 10.4.2012) (2012) 51 VST 1 (Bom) also examined this issue. The Court observed that since works contracts have numerous variations, it was not possible to accept the contention of the appellant either as a matter of first principle or as a matter of interpretation that a contract for work in the course of which, title was transferred to the flat purchaser, would cease to be a works contract. The Court further made a note from the judgment by the Supreme Court in the case of Builders’ Association vs. U.O.I. (1989) 73 STC 370 (SC), that the doctrine of accretion is itself subject to a contract to the contrary. Analyzing various clauses of the agreement under the Maharashtra Ownership Flats Act, 1963 (MOFA), the High Court held that it was in the nature of works contract. The High Court also held that the explanation (b)(ii) to Section 2(24) of Maharashtra VAT Act, which reads, “‘works contract’ includes an agreement for carrying out for cash, deferred payment or other valuable consideration the building, construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, modification, repair or commissioning of any movable or immovable property”, is constitutionally valid and within the legislative competence of the State Legislature.

The Court also approved the composition scheme under the Maharashtra VAT Act which applies to the registered dealers who undertake construction of flats, dwellings, buildings or premises and transfer them in pursuance of an agreement along with land or interest underlying the land, at 1% of the agreement amount specified in the agreement or the value specified for the purpose of Stamp Duty under the Bombay Stamp Act, 1958 whichever is higher, subject to certain conditions.

3.         Delhi VAT on Builders Contracts

3.1          Taxability / Incidence of tax

In accordance with Raheja case, builder contract, where agreement is executed with intended buyers before completion of the building, falls within the definition of works contract. Under the Delhi VAT, the term “works contract” has been defined under section 2(1)(zo) as,

“works contract” includes any agreement for carrying out for cash or for deferred payment or for valuable consideration, the building construction, manufacture, processing, fabrication, erection, installation, fitting out, improvement, repair or commissioning of any moveable or immovable property.

Other States also have similar definition in their respective State VAT Laws.

Analyzing the activity in detail in view of Raheja case, it can be fairly stated that BD executes works contract for two separate persons, that is, -
    (A)      Works Contract for the LO: where BD constructs the units for a consideration in the form of share in the land; and
    (B)       Works contract for PB, if BD receives payment (or enters into agreement of sale) from PB before completion of the construction.

So far as activity stated at (A), it is always a works contract activity (unless, it can be termed as barter transaction, discussed later); whereas activity referred to at (B) has become taxable with the decision in Raheja case. Supposing, the Raheja case is overruled by the larger bench, then no VAT will be payable qua this activity.

Valuable Consideration – Barter Transaction

As per the Courts, valuable consideration includes cash, money, cheques, bill of exchange, promissory notes, shares and like instruments. Whether exchange of goods (barter) constitutes a valid sale? It had been a matter of great controversy and the Courts had expressed different views in this regard. While discussing the basic elements of “sale”, the Apex Court in the case of Devi Dass Gopal Krishnan vs. State of Punjab (1967) 20 STC 430 (SC) opined that cash or other valuable consideration is essential for completion of a sale. In the absence of cash or deferred payment, it is exchange of goods (barter), and not a sale.

In CST vs. Ram Kumar Agarwal (1967) 19 STC 400 (All), gold was paid as a price of jewellery. The jeweller purchased gold from the market, prepared ornaments, and transferred to the customer against the gold. It was held that exchange of goods was “barter” and not a “sale”. It was also observed that it was immaterial whether gold was given before the preparation or at the time of transfer of jewellery. In another case, the dealer collected kansa, melted it and returned to the customer after deducting certain percentage in weight and collected labour charges extra: the Court held it as a barter transaction and not as sale. [CST vs. Kansari Udyog (1979) 43 STC 176 (MP)]. However, contrary views were observed in the case of VP Vadivel Achari vs. State of Madras (1969) 23 STC 273 (Mad), where gold was exchanged for new jewellery; it was held to be a “sale” since gold, handed over to assessee, could easily be converted into money.

Where goods are sold partly for goods and partly for money, it is a transaction of sale. For example, fifty two bullocks, valued at $ 6 a piece, were exchanged for 100 quarters of barley at $ 2 per quarter, the difference to be made in cash: the contract was held as  sale. [Aldridge vs. John. (1887) 7 E & B 885; LJ QB 296; Sheldon vs. Cox (1824) 3 & C 420]. Similarly, in the case CIT vs. M. & G. Stores AIR 1968 SC 200, an old car was returned and difference was paid in cash: while explaining the word “price”, the Supreme Court held that it was a transaction of sale. Likewise, where machinery was transferred against allotment of shares, it was considered as sale since transfer of shares was a mode of payment of price and discharge of liability. [Premier Electro Mechanical Fabricator vs. State of T.N. (1984) 55 STC 371 (Mad) followed in State of T.N. vs. T.M.T. Drill (P) Ltd. (1991) 82 STC 59 (Mad); I.B.P. Co. Ltd. vs. Asstt. CCT (2000) 118 STC 33 (WBTT)]  

In another case, the Madras High Court held that even barter or exchange of goods might be considered as sale under the Act, provided there is transfer of property in the goods. [Vishweshwasadars Gokuldas vs. Govt. of Madras (1962) 13 STC 113 (Mad)]

In the case of Dhampur Sugar Mills Ltd. vs. CTT (2006) 147 STC 57 (SC), a company, which owned a sugar mill, executed a deed of licence in favour of the dealer. In terms of the deed and performance guarantee deed, the dealer was to pay the company a fixed sum per annum by way of licence fee for the use of the entire sugar mill complex in the shape of molasses. At the end of every licence year, the value of the molasses had to be ascertained on the basis of the rates notified by the Government and any excess or shortage towards the amount of licence fee was to be made good by either party. The question was whether sales tax under the U.P. Trade Tax Act, was exigible in relation to the transfer of molasses under the deed of licence. It was held that the mode and manner in which the licence fee was to be paid was not the subject-matter of the deed of licence. The deed of licence did not contain any provision that the dealer was required to transfer to the company the molasses produced by it, in lieu of the licence fee. Further, an adjustment of price in a case of this nature would come within the purview of the term “other valuable consideration” in as much as the dealer and the company were fully aware that they had to fulfill their respective terms and obligations, i.e., (i) payment of licence fee on monetary terms, and (ii) payment of price of molasses supplied by the appellant to the company which was again in monetary terms. Thus, it was held that the transaction could not be termed as “barter”.

Therefore, looking at the afore-stated pronouncements, it would be difficult to plead before the courts with success that exchange of land with value of construction is merely a barter transaction.

3.2          Measure of tax

Determination of VAT in case of works contract depends upon the provisions under the State VAT Act. In general, three methods have been laid for computation of State VAT:

(1)  Regular Scheme – Labour & Services are determined on actual basis;

(2)  Regular Scheme – Labour & Services are computed on percentage basis;

(3)  Composition Scheme.

Under the regular scheme, determination of turnover and output VAT of works contract transaction is as under: -

i	Gross Turnover – Work executed during the tax period	………….
ii	Less : Cost of land and labour & services	………….
	[Either on actual basis or at percentage basis]
iii	Taxable value of material (Taxable Turnover)	………….
iv	Computation of Output Tax on (iii)
	Declared goods     @ 5% …………….  Tax …………
	Other goods           @12.5%………..  Tax …………	………….

Provisions under the Delhi VAT Act:

As per section 2(1)(zd)(vii), the term “sale price”, in relation to works contract means the amount of valuable consideration paid or payable to a dealer for the execution of the works contract.

As per section 5(2) of the Act, in the case of turnover arising from the execution of a works contract, the amount included in taxable turnover is the total consideration paid or payable to the dealer under the contract excluding the charges towards labour, services and other like charges, subject to such conditions as may be prescribed:

Provided that where the amount of charges towards labour, services and other like charges is not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated at the prescribed percentages.

As per Rule 3(1) of the DVAT Rules, in case of turnover arising from the execution of the works contract, the amount representing the taxable turnover shall be the value at the time of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract and shall exclude -

(i)        the charges towards labour, services and other like charges; and

(ii)       the charges towards cost of land, if any, in civil works contracts,

subject to the dealer’s maintaining proper records such as invoice, voucher, challan or any other document evidencing payment of referred charges to the satisfaction of the Commissioner.

As per its Explanation, the term “civil works contracts” for the purpose of this rule shall include, inter-alia, construction of building or complexes – residential or commercial.

As per rule 3(2), the charges towards labour, services, etc. shall include: –

         i.            Labour charges for execution of works;
ii.            Charges for planning and architects fees;
iii.            Charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
iv.            Cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract;
v.            Cost of establishment of contractor including cost of marketing, finance expenses and security deposits to the extent relatable to supply of labour & services;
vi.            Other similar expenses relatable to supply of labour and services;
vii.            Profits earned by contractor to the extent it is relatable to supply of labour and services subject to furnishing of a profit and loss account of the works sites.

Two methods for determination of labour, services and other charges have been specified under the Delhi VAT Rules, as under:

(A)       Actual Basis              (B)      Percentage Basis

(A)          Actual Basis

If labour and services are determined on actual basis, the contractor shall maintain the records in a manner so as to easily quantify the value of material, amount of direct labour and services and proportionate amount of indirect labour and services. Scope of “labour and services” is not confined to wages and salaries; but it extends to the other charges of the nature of expenses stated in seven clauses of Rule 3(2) discussed above.

Deduction towards cost of land in civil works contracts:

Since sales tax/VAT cannot be levied on transfer of the immovable property, rules have been framed to identify the cost of land in the total value of a flat or apartment and to allow deduction thereof.

As per Rule 3(3)(a), in the case of works contract of civil nature where the payment of charges towards the cost of land, if any, is not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated –

• In the case of construction of commercial buildings or complexes: @ 50% of the total value of the contract.
• In other cases: @ 30% of the total value of the contract.

Further, in the case of works contract of civil nature where only a part of the total constructed area is being transferred, the charges towards the cost of land shall be calculated on a pro-rata basis by applying the following formula: -

Proportionate Super Area   X   Indexed Cost of Acquisition of Land

Total Plot Area           X         Floor Area Ratio

“Proportionate super area” for the purpose of this clause means the covered area booked for transfer and the proportionate common constructed area attributable to it. “Indexed cost of acquisition” shall be calculated as per section 48 of the Income Tax Act, 1961.

Moreover, where only a part of total constructed area is being transferred, the deduction towards labour, services and other like charges mentioned in rule 3(1) shall be calculated on a pro-rata basis. Further, the tax shall be payable by the contractor during the tax period in which the property in goods is transferred. [Rule 3(3)(c) & (d) of Delhi VAT Rules]

Many States have not framed rules in respect of determination of value of land. This may, however, be computed as per the cost to the builder. Many a time, it also happens that land was acquired way back and there is significant appreciation in the value of land up to the date of sale deed with PB. In such cases, State like Haryana has stated that the value of land can be determined on the basis of Municipal Circle Rate.

It may be added that the Delhi (Prevention of Under Valuation of Instruments) Rules, 2007 (hereinafter referred as “circle rates”) has laid twin circle rates, depending upon the location of the property, for the purpose of registration of conveyance deed : one for the land; and another for the construction.

(B)           Percentage Basis

Where amount of charges towards labour, services and other like charges are not ascertainable from the books of accounts of the dealer, the amount of such charges shall be calculated on the basis of percentages specified in the rule 3(2) of DVAT rules. Builder contracts fall within the following clause: -

Sl. No.	Type of contract	Percentage of total value of the contract
6	Civil works [excluding the cost of land transferred, if any]	25%

(C)           Composition Scheme

Under the Delhi VAT Act, in relation to builders contracts, following composition schemes are applicable with effect from 01.04.2013:-

S.N.	Nature of the Contract	Scheme A	Scheme B
1	Construction, of complex, building, a civil structure or a part thereof, including residential unit or complex or building, for sale whether wholly or partly, to a buyer before construction is complete, where value of land is included in total consideration. (Excluding contracts where entire consideration is received after issuance of completion certificate by competent authority).	1%	3%
2	Other construction/building contracts	3%	6%
Scheme A: The contractor shall (i) not purchase or procure goods from any place outside Delhi at any time during the period for which he opts to avail this Scheme; and (ii) not sell or supply goods to any place outside Delhi at any time during the  period for which he opts to avail this Scheme. However, he may procure his own plant & machinery and equipments from outside Delhi, meant exclusively for use in execution of the works contract by him.Scheme B: The contractor shall be entitled to make purchases of goods required for the execution of the contract in the course of inter-State trade or commerce on the strength of his certificate of registration against declaration in Form C or by way of inward transfer of stocks from other States against Form F or by way of imports from other countries solely for the purposes of utilizing the same in the execution of works contract in Delhi only. However, the dealer shall use the material/goods imported or procured from outside Delhi strictly for use in execution of the works contract transactions.
Apart from various other restrictions, the composition dealer is not eligible for input tax credit on purchases made within Delhi. He cannot also issue tax invoices. Further, he can purchase goods from unregistered dealers only to the extent of 2% of his total purchase turnover during the year or Rs. 25 lakhs, whichever is lower.

Composition schemes for works contracts are different from State to State. For example, in Haryana, rate of composition tax is 4% with the benefit of eligibility of input tax credit on local purchases and central purchase against Form C.

3.2.1      Booking/Sale of flat during construction

In a collaboration agreement, BD’s share in the property could be sold prior to completion, but at various stages of construction. Sometimes, BD sells the flat when the project has just started, and sometimes when the flat is almost complete. The question generally arises as to at which value of construction, VAT shall be paid; that is, on the total value of flat or on the value received after the date of booking? The DVAT Department in a clarification has stated that if the unit is sold prior to the completion, the tax would be levied on the sale value of the unit minus the available deductions.

3.3   Time of turnover / Point of taxation

Works contracts are generally taxable at the time of incorporation of goods in the contract. As per 4(c) of the DVAT Rules, read with section 12(4) of the Act, the amount of turnover or turnover of purchases arising in the tax period in the case of a sale or purchase occurring by means of transfer of property in goods (whether as goods or in some other form) under a works contract executed or under execution in the tax period, is the consideration received or receivable by the dealer for such transfer of property in goods (whether as goods or in some other form) during the relevant tax period.

3.3.1      Works contract executed by BD for LO

In this case, the entire land is received by the BD in advance, before commencement of construction. Therefore, time of turnover would be the execution of agreement between LO and BD; and tax would be payable at that time itself on total construction value.

3.3.2      Works contract executed by BD for PB

Here, incidence of DVAT would arise at the time of execution of agreement with PB. Till that time, no VAT is payable by BD. After the execution of agreement with PB, DVAT would be payable at the time of receipt of consideration from PB or when the installment becomes due, depending upon method of accounting.

3.3.3      Cancellation of booking by PB

If booking of the flat is cancelled during the construction thereof, and subsequently the construction is carried by the BD for itself, the sale shall be treated cancelled in accordance with section 8(1)(a) of the DVAT Act, and the BS would be entitled to adjust/refund the tax already paid. However, if the same flat is again sold to another PB during construction, then it would be taxable under the DVAT, as discussed earlier.

3.4          Liability of BD – Computation of Delhi VAT – Illustration given in Para 1

Met-hod	Description	Output VAT-LO	Output VAT-PB	Input Tax	Net Liability	Liability (% of Investment)
(1)	(2)	(3)	(4)	(5)	(6)	(7)
I	Percentage Method (Services 25%; Land-30%)
	· LO-10% of 75% of (400)/2	15	63	16	62	5.18
	· PB -10% of 75% of 70% of 1200
II	Hybrid Method (Services-Actual; Land 30%)
	· LO-10% of (240)/2 [50% material pertains to LO]	12	76	16	72	6.01
	· PB -10% of [(70% of 1200) – (160)/2]
III	Hybrid Method (Services-%; Land-Actual)
	· LO-10% of 75% of 200	15	15	16	14	1.18
	· PB -10% of 75% of (1200-1000)
IV	Composition Method
	· LO-3% of 200	6	12	0	18	4.33
	· PB -1% of 1200

The above illustration does not discuss various complex situations, such as, sale deed is executed for a higher price : In such case, the differential value, wherever necessary, can be proportionately divided amongst the value of land, material and services. To illustrate, sale deed is executed for Rs.1600 instead of Rs.1200. Then, the differential Rs.400 will be added in the ratio of:- Land-1000 : Material-120 : Services-80 [All three figures have been halved since additional consideration has been received in relation to portion sold to PB]

In case of sale by BD to PB, where deduction for land is claimed on actual basis, ascertainment of land value is a difficult task. It is also known fact that wherever projects are located in the prime localities, value of land may even account for at 80% to 90% of the total flat/unit value. As per the DVAT Rules, BD is also eligible for deduction towards the cost of land on actual basis, which in the opinion of author, can be determined by applying any of the following method, depending upon facts of the case,-

• Rate arrived at based upon sale agreement between LO and BD for sale of land; or
• Value of land disclosed in the sale agreement between BD and PB; or
• Amount paid by BD to LO towards the land rights (plus) value of construction transferred by BD to LO; or
• Indexed cost of land determined as per the Income Tax Act.

State like Haryana has stated that where value of land cannot be ascertained, Municipal Circle Rates may be applied for the purpose of determination of Haryana VAT.

Note: These methods are suggestive in nature, and the users/stake holders must examine them before applying to their own case.

4.         Service Tax on Builder Contracts

4.1          Taxability / Incidence of tax

Up to 31.07.2012, builders contracts were taxable as part of construction of residential complex service under clause (zzzh) of section 65(105) of the Act and as part of service in relation to commercial or industrial construction under clause (zzq) of the same section 65, through an explanation inserted with effect from 01.07.2010. Presently, under the negative list scheme, this activity has been defined under clause (b) of section 66E of the Finance Act, which covers services provided by builders or developers or any other person, where building complexes, civil structure or part thereof are offered for sale but payment for such building or complex or part thereof is received before the issuance of completion certificate by a competent authority.

The term ‘complex’ has not been defined under the Finance Act. However, clause no. 14 of the mega exemption notification no. 25/2012-ST dated 20.06.2012 exempts, inter-alia, the services provided by way of construction, erection, commissioning, or installation of original works pertaining to “a single residential unit otherwise than as a part of a residential complex”. The term “residential complex” has been defined under clause 2(zc) of the notification, which means any complex comprising of a building or buildings, having more than one single residential unit. As per clause 2(ze) of the notification, “single residential unit” means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family.

Therefore, under the erstwhile provisions up to 30.06.2012, the term residential complex meant any complex comprising of a building or buildings having more than twelve residential units; whereas effective from 01.07.2012, more than one single residential unit would be considered as residential complex. Therefore, at present, construction of all residential complexes (having more than one unit) is subject to service tax.

In accordance with Para 6.2 of the Service Tax Education Guide:-

In the activity of complex construction, two transactions are identifiable:

(a)           Sale of land by the landowner which is not a taxable service; and

(b)           Construction service provided by the builder/developer.

The builder/developer receives consideration for the construction service provided by him, from two categories of service receivers:

(a)           From landowner: in the form of land/development rights; and

(b)           From other buyers: normally in cash.

Construction service provided by the builder/developer is taxable in case any part of the payment/development rights of the land has been received by the builder/ developer before issuance of completion certificate, and thus service tax would be payable by builder/developers even for the flats given to the land owner.

Value, in the case of flats given to the LO will be the value of the land when the same is transferred and the point of taxation will also be determined accordingly.

Therefore, BD provides two services while carrying out building activity: -
  (A)        Construction (Works Contract) Service for the LO: where BD constructs the complex for a consideration in the form of share in the land; and
  (B)         Complex construction service if BD receives payment from the customer before the issuance of completion certificate by a competent authority.

In general, complex construction is also a works contract, which is also observed by the Supreme Court in Raheja case; and it may be stated that whereas works contract is a genesis, complex construction is its species. However, for the purpose of service tax, works contract transactions are specified in clause (h) of section 66E, whereas construction of complex, building or civil structure has been specified in clause (b) of section 66E. By declaring them as separate services, the legislature has made a remarkable distinction between these two services.

Therefore, activity of construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly (except where entire consideration is received after issuance of certificate of completion by a competent authority), would fall within the ambit of clause (b) of section 66E of the Finance Act.

It may further be noted that so far as activity stated at (A), it was always a works contract service; whereas activity stated at (B) has become taxable with the decision in Raheja case. Nevertheless, with the incorporation of suitable provisions under the Statue, the charge of service tax in the latter case, at present, is not dependent upon the fate of Raheja Case.

4.2          Measure of tax

4.2.1      Works Contract activity

In accordance with rule 2A of Service Tax (Determination of Value) Rules, 2006 value of service portion in the execution of a works contract, referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-

(i)        Actual Basis:

Value of service portion in the execution of a works contract shall be equivalent to: – Gross amount charged for the works contract ( – ) Value of property in goods transferred in the execution of the said works contract.

Where VAT or sales tax has been paid/payable on the actual value of property in goods transferred in the execution of works contract, then, such value adopted for the purposes of payment of VAT or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

For the purposes of this clause,-

(a)       gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b)       value of works contract service shall include, -

(i)      labour charges for execution of the works;

(ii)     amount paid to a sub-contractor for labour and services;

(iii)    charges for planning, designing and architect’s fees;

(iv)    charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v)     cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi)    cost of establishment of contractor relatable to supply of labour and services;

(vii)   other similar expenses relatable to supply of labour and services; and

(viii)  profit earned by the service provider relatable to supply of labour and services.

(ii)       Percentage Basis:

 Where the value has not been determined under clause (i), then the service portion involved in the execution of the works contract (relating to original works, which shall also include construction of buildings) shall be determined @ 40% of the total amount charged for the works contract.

“Total amount” means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting: -

(i)            the amount charged for such goods or services, if any; and

(ii)           the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

4.2.2      Complex construction activity

In relation to complex construction service specified in clause (b) of section 66E, abatement/taxable value has been prescribed vide Notification No. 26/2012-ST dated 20.6.2012 as amended vide Notification No. 2/2013-ST dated 1.3.2013. Taxable value in case of complex construction service would be arrived at by applying following percentage to the amount charged by the builder -

S.N.	Description	%	Conditions
12.	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority,-		(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; and(ii) The value of land is included in the amount charged from the service receiver.
	(i)   for residential unit having carpet area upto 2000 square feet or where amount charged is less than rupees one crore;	25%
	(ii)   for other than the (i) above.	30%

It may be noted that claiming abatement for computation of taxable services is not mandatory, and the service provider may compute the amount of taxable services by using actual method. However, no separate rules, similar to Rule 2A in relation to works contract (discussed earlier), have been laid down for complex construction service. Therefore, in the opinion of author, the service provider may deduct the value of land and material incorporated on actual basis from the total consideration. By considering the contract as works contract, he may also deduct the land value on actual basis, and material value in terms of Rule 2A of the Determination Rules.

4.3          Point of taxation

The general rule for determination of point of taxation in service tax is: Earlier of (a) Raising of an invoice; and (b) Receipt of payment.

4.3.1      Service rendered by BD to LO

Here, the entire land is received by BD in advance, before commencement of cons-truction. Therefore, point of taxation would be the date of execution of agreement between LO and BD; and service tax would be payable at that time itself on total construction value.

4.3.2      Service rendered by BD to PB

In this case, charge of service tax shall be execution of agreement with PB. Till that time, no tax is payable by BD. After the execution of agreement with PB, service tax would be payable at the time receipt of consideration from PB or when the installment becomes due, whichever is earlier.

4.3.3      Cancellation of booking by PB

If the booking of the flat is cancelled during the construction thereof, and subsequently the construction is carried by the BD for itself, the service shall be treated as cancelled since returned deposits are in the nature of a returned consideration; and, thus, BD would be entitled for refund of service tax already paid in accordance with the law in this regard. However, where certain amount is forfeited by BD, such forfeited amount would be taxable as provision of service.

4.4          Liability of BD – Computation of Service Tax – Illustration given in Para 1

Method	Description	Output ST-LO	Output ST-PB	Cenvat	Net Liability	Liability (% of Investment)
(1)	(2)	(3)	(4)	(5)	(6)	(7)
I	Percentage Method
	LO-Works Contract (Rule 2A -%): 12.36% of 40% of 200	10	44	2	52	4.33
	PB-Complex: 12.36% of 30% of 1200
II	Hybrid Method [LO (Services)-Actual; PB- 30%]
	LO-Works Contract (Rule 2A -Actual): 12.36% of (160)/2	10	44	2	52	4.33
	PB-Complex: 12.36% of 30% of 1200
III	Hybrid Method (Services-%; Land-Actual)
	LO-Works Contract (Rule 2A -%): 12.36% of 40% of 200	10	10	2	18	1.45
	PB-Works Contract; Land on actuals (see note) : 12.36% of 40% of (1200-1000)

Note: In the above illustration at Method Number III, instead of following the abatement method, value of land has been reduced at its actual value since claiming of abatement is not mandatory; which certainly could be a matter of litigation. It is assumed that in the absence of abatement method, the person can determine the value of service on the actual method, unless there are specific rules in this regard. Nevertheless, for the purpose of valuation of services, total consideration shall exclude values of land and material involved therein, which are dominantly involved in the complex construction service.

In the case of K. Damodaraswamy Naidy vs. State of Tamil Nadu (2000) 117 STC 001 (SC), five judges bench of the apex court, in relation to the taxability of composite charges received by the hotels, opined that the composite charge that the hotel owner levied for lodging and boarding had to be split up and only the element thereof that related to the supply of meals could be subjected to the sales tax. The Court held that sales tax could not be levied on the composite charge for boarding and lodging unless the State made Rules which set down formulae for determining the supply component on the composite charge. It was further held that it was not for the assessing authority to split up the composite price into two and make the one part taxable; that is, only the State could promulgate rules to indicate how to treat the composite charges for lodging and boarding and set out formulae for splitting of the two.

The said judgment squarely applies to our case, and unless rules are framed by the Government, the tax payer (unless challenges the levy itself based upon this judgment) can adopt a fair and reasonable method for valuation of service. Here, the value of land can be determined on the basis of its valuation at the time of agreement with LO or agreement of sale with PB; or some other fair and reasonable basis. After deducting the value of land, the remaining consideration comes within the purview of works contract, involving material and service; and therefore, may be taxable as per Rule 2A of the Determination Rules: either on actual basis or on percentage basis.

5.         Conclusion

Even after having a lengthy discussion on the subject, it is difficult to conclude the topic with certainty and authority. We have taken a fairly simpler illustration, wherein various complex situations have not been considered. The measure of tax would further be complex if the discussion on the amount of conveyance/sale deed, which varies from customer to customer even in the same building and at the same time, is also initiated. Further, the exact taxation would depend upon the terms of the collaboration agreement between the parties, which might vary from case to case.

Moreover, looking at the impact of service tax and VAT simultaneously, double taxation certainly tortures the stake holders. For example, in case of works contracts for construction of building (without land), if calculated by percentage method, service tax is payable on 40% of the total value of the contract, and DVAT on 75% : therefore, both taxes taking together comes to 115% of the total value, that is, at more than 100% of the total value. Further, in case of construction of residential complex (with land), service tax is payable on 30% (or 25%) of the total value of the contract and DVAT is paid on 52.5% (100 * 70% * 75%) : therefore, total taxes comes to 82.5% of the total value. Comparing these two types of contract, we may observe that the builder gets rebate of 32.5% (115 – 82.5) of the total value towards land, which, however, in Delhi would not be less than 50% to 80% of the total project cost. Thus, in a way, the builder is paying VAT and/or Service Tax on the value of land.

The Revenue should realize that it can tax material and services portion respectively; whereas, the value of land, particularly in the metro cities, has the maximum involvement in this activity. The variance in the total price of a flat/unit is mainly due to land rates. For example, a flat of 500 sq. yards with same amenities would price for Rs.10 crores in south Delhi and Rs.5 Crores in east Delhi. The land rate may also vary within the same colony, depending upon its location. Value of material and services would, by and large, remain the same everywhere. To arrive at the value of taxable service for complex construction services under section 66E(b) of the Act, Service Tax allows abatement of 70% toward the value of land and material. In our illustration, in east Delhi, taxable value of services would be Rs.1.5 crores, whereas, in south Delhi, it would be Rs.3 crores. Similarly, Delhi VAT allows abatement of 30% towards value of land in case of residential properties, irrespective of its location. It is certainly an attempt to levy service tax and Delhi VAT, respectively, on the value of land, which is out of their jurisdiction. This is the reason, why everyone is eagerly waiting for implementation of GST.

This activity is also facing different treatment under different statutes, even by the same Government. Both, VAT and the stamp duty, are collected by the State Government; and for the purpose of collection thereof, it has got different charging provisions: that is, for the purpose of levy of VAT, land is deemed to be sold during the construction itself; and for the purpose levy of stamp duty, land is treated to be sold along with construction, as a ready unit.

Since the levy is somewhat new, and in the absence of appropriate assistance in the form of clarifications by the Authorities or the judicial pronouncements, the builders are always in the sate of confusion while discharging their obligations and making compliances. Being an indirect tax, if VAT and Service Tax are not recovered from the customers in time, at the time of making sale or rendering of service, it becomes the cost of the dealer/service provider; and if any additional demand is raised after few years along with interest and penalty, many of the persons would have no option but to shut down their businesses; which is not the appropriate manner of taxation. Do the Governments want the stake-holders to carry on their businesses with such amount of uncertainties? Taxation on this infrastructural activity certainly needs early attention of the Governments and Revenue Authorities for the systematic growth of this sector; and thus, our economy.

(Author may be reached at ssarca.rgarg@gmail.com)

————-

Disclaimer:

This Paper contains personal views of the author and has been prepared for academic use only. The taxability would also depend upon the contents and nature of agreement between the parties. Since these views might not be acceptable to the Authorities, the readers/stake-holders are advised to understand the implications of discussion contained therein.

 

No Service Tax on value of goods supplied free by service recipient under construction services

R.K Rengaraj

The value of goods supplied or provided free by a service recipient under construction of commercial or industrial complex service, do not comprise the Gross amount under Notn.no.15/2004. Landmark judgment.

Introduction: 

In a landmark judgment, the larger bench of the Hon’ble Tribunal, New Delhi has held in the case of Ms Bhayana Builders (P) Ltd., & Others Vs CST, Delhi & Others 2013 (9) TMI 294 CESTAT New Delhi that value of free supplies by service recipient do not comprise the gross amount charged under notification No.15/2004 under Construction of Commercial or Industrial Complex service.  Etymologically the words supplied and provided are closely associated words. Provided also means to supply; furnish. Supply bears a similar connotation. The word used is structurally associated (in the Explanation) with the earlier two words and the three words are employed to define the meaning of the expression gross amount charged, an expression that occurs in the preamble to Notification No. 15/2004-ST. The  issue on valuation was referred to this bench in view of the earlier conflicting decisions in two division benches  in the case of Ms.Cemex Engineers Vs. Commissioner of Service Tax 2011-TIOL-866-CESTAT-BANG and Ms.Jaihind Projects Vs CST, Ahmedabad 2010 (10) –TMI-926 CESTAT Ahmedabad.

Relevant Legal provisions:

After the amendment w.e.f. 18.04.2006, Section 67 of the Finance Act reads:

“SECTION 67. Valuation of taxable services for charging service tax. — (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall, —

(i)         in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;

(ii)         in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration;

(iii)        in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.

(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.

(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.

(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.

Explanation. — For the purposes of this section, —

(a)        “consideration” includes any amount that is payable for the taxable services provided or to be provided;

[(b)        *  *  * ]

(c)        “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise].]”

Exemption Notification No. 15/2004-ST dated 10.09.2004. 

“13.5 The gross value charged by the building contractors include the material cost, namely, the cost of cement, steel, fittings and fixtures, tiles etc. Under the Cenvat Credit Rules, 2004, the service provider can take credit of excise duty paid on such inputs. However, it has been pointed out that these materials are normally procured from the market and are not covered under the duty paying documents. Further, a general exemption is available to goods sold during the course of providing service (Notification No. 12/2003-S.T.) but the exemption is subject to the condition of availability of documentary proof specially indicating the value of the goods sold. In case of a composite contract, bifurcation of value of goods sold is often difficult. Considering these facts, an abatement of 67% has been provided in case of composite contracts where the gross amount charged includes the value of material cost. (refer Notification No. 15/2004-S.T., dated 10-9-2004). This would, however, be optional subject to the condition that no credit of input goods, capital goods and no benefit (under Notification No. 12/2003-S.T.) of exemption towards cost of goods are availed”.

Department’s views:

Revenue relied on the decision in M/s N.M. Goel and Co. vs. Sales Tax Officer, Rajnandgaon and Another (1989) 1 SCC 335 . Also reliance was placed on the judgment of the Supreme Court  in Bharat Sanchar Nigam Limited vs. Union of India 2006 (2) STR 161 (SC) and the decision of this Tribunal in Naresh Kumar & Co. Pvt. Ltd. vs. Commr.  of  Service Tax, Kolkata 2008 (11) STR 578 (Tri. Kolkata) to contend that where there is a nexus between the expenses incurred and the service provided, the value of such expenditure should also be included in the value of the service.  These judgments, in our considered view do not assist resolution of the issue referred.  There could be no dispute that free supplies by the recipient for use in construction services have a nexus; and an integral nexus for that matter with the construction activity. The essential question is however whether such free supplies by the recipient would constitute consideration accruing to the economic benefit of the service provider so as to be includible in the “gross amount charged” for the service provided, for the purpose of computation of the taxable value under Section 67; or as a case may be ought to be included in the “gross amount charged” for availing the benefits under Notification No. 15/2004-ST, as comprehended within the meaning of the expression “used” in the Explanation thereto.

The Appellants have strongly quoted the principles applied in “ejusdem generis” and “noscitur” in a plethora of decisions.  Elaborating on the noscitur principle it is contended that the expression “used” in the Explanation to Notification No. 15/2004-ST (to explain the meaning of “gross amount charged”, an expression in the preamble to the Notification), cannot be construed, in so far as language permits, as be inconsistent with the meaning of the expression “gross amount charged” in the preamble to the Notification.  In substance, the contention is that the Notification exempts service tax to the extent of the tax leviable on 67% of the “gross amount charged”, in relation to construction service; Section 67 (a provision dealing with valuation of taxable services for charging tax) enacts that the value of any taxable service shall be the “gross amount charged”; and “gross amount charged” under Section 67 would not include the value of free supplies.  We have also concluded that that is the position; that implicit in this legislative architecture (of Section 67) is the concept that any value to constitute a consideration, whether monetary or otherwise should have flown or should flow from a service recipient to a service provider and should accrue to the benefit of the later; and that this is a precondition of taxability under Section 67.   On this syllogism, in defining to explain the meaning of “gross amount charged”, the Explanation could not be construed as expanding the scope of “gross amount charged” in the preamble to the Notification, is the contention.

Revenue contended that even if one of the literal meanings of the expression used, namely free supplies used is considered as the legal meaning as well, construction service providers may not be handicapped as they may seek benefits under Notification No. 12/2003-ST. In our view however the fact that the assessee have an alternative recourse to avoiding the rigour cannot be the criterion for interpreting the Explanation. This contention by Revenue proceeds on a fallacious comprehension of Notification No. 12/2003-ST.

The benefits under this Notification are only in respect of the value of goods and materials sold by a service provider to the recipient of a taxable service. In the case of free supplies by the recipient there is no sale or transfer of title in the goods and materials in favour of the service provider, at any point of time. Therefore when free supplied goods and materials are incorporated into the construction would be no sale by the provider to the recipient either. Notification No. 12/2003-ST would therefore be inapplicable.
Board Circular dated 16.02.2006 (a circular issued subsequent to the introduction of the Explanation in Notification No. 15/2004-ST) and in the context of an identical Explanation introduced in Notification No. 18/2005-ST, clarified that gross amount charged shall include the value of goods and materials supplied. This circular constitutes contemporanea expositio of the meaning of the Explanation in Notification No. 18/2005-ST.

Conclusion: The question was well answered by the larger bench in the following way:

Goods and materials, supplied/ provided/ used by the service provider for incorporation in the construction, which belong to the provider and for which the service recipient is charged towards the value of such supply/ provision / use and the corresponding value whereof was received by the service provider, to accrue to his benefit, whether independently specified as attributable to the specific material/ goods incorporated or otherwise, would alone constitute the gross amount charged.,  This is not to say that an exemption Notification cannot enjoin a condition that the value of free supplies must also go into the gross amount charged for valuation of the taxable service.  If such intention is to be effectuated the phraseology must be specific and denuded of ambiguity.

(a)           The value of goods and materials supplied free of cost by a service recipient to the provider of the taxable construction service, being neither monetary or non-monetary consideration paid by or flowing from the service recipient, accruing to the benefit of service provider, would be outside the taxable value or the gross amount charged, within the meaning of the later expression in Section 67 of the Finance Act, 1994; and

(b)           Value of free supplies by service recipient do not comprise the gross amount charged under Notification No. 15/2004-ST, including the Explanation thereto as introduced by Notification No. 4/2005-ST.

And hence commodities like steel, cement etc., supplied by the ultimate service receiver do not constitute the term “consideration” as these materials are delivered again to the service recipient in a construction industry and therefore such free supplies do not comprise the gross amount for valuation purpose.

The author can be reached at renga42002@yahoo.co.in

R.K Rengaraj M.Com., MBA., LL.B

 

Service Tax Voluntary Compliance Encouragement Scheme (VCES)

CA Tarannum Khatri

VCES means gift to taxpayers by finance minister. Voluntary pay your tax and get many benefits.
Period: 1^st October  2007 to 31^st  December  2012
Eligibility:

• The person who has not received notice or order of determination u/s 72, 73 or 73A on or before 1^st march 2013 is eligible under the scheme.
• If any person has filed service tax return but does not pay tax, he will be not eligible for the scheme.
• If any inquiry, investigation or audit has been initiated  and pending as on 1^st march 13,

Assesses can not avail the scheme. If it is initiated after 1^st march, he can avail the scheme.

• If any notice or order of determination has been issued for any period between October 07 to December 12, declaration cannot be made on same issue for any subsequent period. But if show cause notice has been issued prior to October  07, declaration can be made on same issue.

Payment of tax:
Up to 31^stdecember, 2013 : minimum 50% tax payment else not eligible for the scheme
Up to 30^th June , 2014 : balance without interest
Up to 31^st December 2014 :  balance with interest (all payments without penalty and prosecution)
Other points :

• If any person has not obtained registration under service tax, he will be required to take registration before making such declaration. He will get immunity from penalty for not having registration.
• If taxpayer has received show cause notice for particular period during October  07 to December  12, he can file declaration for period not covered by notice.
• Mere general communication for taxpayers’ business by department will not make him ineligible for scheme. If it is for inquiry, investigation or for audit which is pending as on 1^st march 13, taxpayer will be ineligible.
• If taxpayer has two units with separate service tax registration number, the eligibility for scheme will be determined separately for each unit.
• Taxpayer can make declaration for tax dues concerning an issue which is not a part of audit para.
• If any person has paid  his tax dues but has not filed  return, he is not eligible for the scheme to avoid penalty for late return filling.
• If any person has paid tax dues for part of the period of the scheme and paid other part of the tax dues under VCES  scheme, he will eligible for immunity from interest and penalty on tax dues which he has paid under scheme. Let say if any person has paid 20 lacks for the period 1^st October  07 to 31^st December  11 on 1^st jan 2013 and 25 lacks on 31^st august  2013 under VCES  scheme for the  period 1^st January  12 to 31^st December 12. He will be entitled for immunity from interest and penalty for 25 lacks which he has paid under  vces.
• If there is any mistake in declaration, Taxpayer can amend the declaration and correct it after approaching authority and submit it before 31^st December  2013.
• Declaration can be rejected after giving opportunity to be heard to taxpayer if designated authority finds declaration wrong. Taxpayer may get show cause notice for the tax dues thereafter. So it is good for taxpayer that he shows right tax liability.
• Tax under VCES  should be paid in cash.

 

Too early to comment on Success of VCES : Govt.

Voluntary Compliance Encouragement Scheme for Service Tax DefaultersThe Service Tax Voluntary Compliance Encouragement Scheme (VCES) has been brought into effect from 10.05.2013 to encourage voluntary compliance and broaden the service tax base by waiver of interest, penalty and any other consequences to a stop filer, non-filer or non-registrant or any other service provider who is eligible to make declaration under the Scheme on making a true declaration by 31st December, 2013, of his tax dues for the period from October 2007 to December 2012 and paying at least 50% of the declared tax dues on or before the 31st December, 2013. Remaining tax dues shall be paid on or before 30th June, 2014 without interest. Any tax dues remaining unpaid on 30th June, 2014 shall be paid by 31st December, 2014 alongwith interest for the period of delay after 30th June, 2014. Since the scheme envisages payment in two instalments, the first of which should be by 31.12.2013, it is too early to estimate the success of the scheme. The scheme is being publicized centrally in the electronic and print media. Field formations have been instructed to increase awareness about the scheme in their jurisdiction by holding meetings with trade associations, opening Help Desks and asking designated authorities to assist assessees who seek clarifications under this scheme.
This was stated by Minister of State for Finance, Shri J.D. Seelam in a written reply to a question in Lok Sabha today.

 

ST-3 Filing Due Date for Oct 12 to Mar 13 extended to 10th September, 2013

CBEC  extends the date of submission of the Form ST-3 for the period from 1st October 2012 to 31st March 2013, from 31st August, 2013 to 10th September, 2013 vide Order No. 4/2013-ST. Extension of time has been made due to difficulties faced by some assessees in uploading the offline utilities.

—————–

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

***

New Delhi, dated the 30^th August, 2013

Order No: 4/2013-Service Tax

In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules, 1994, the Central Board of Excise & Customs hereby extends the date of submission of the  Form ST-3  for the period from 1^st October 2012 to 31^st March 2013, from 31^st August, 2013 to  10^th September, 2013.

The circumstances of a special nature, which have given rise to this extension of time, are as follows:

“ Difficulties have been faced by  assessees in uploading the offline utilities”.

F.No.137/99/2011-Service Tax

 

Implications of Service Tax on Printing Newspapers, journals & periodicals

CA Anuj Mehta

After reading my article on Implication of Service Tax on the Printing Industry. A common question which has been raised by the professionals & common public is that WHETHER SERVICE TAX IS APPLICABLE ON Printing Newspapers, journals & periodicals on behalf  of other person?

And I feel that on this issue there is need to through some light as this issue can be the “seed” for future litigation.

In this context, the question that arises is whether the consideration received for undertaking the said process on behalf of other person (i.e. Newspaper Co.) would be liable for payment of Service Tax under the Negative List regime w.e.f. 1 July 2012?

At this juncture it is important to note that ‘Newspapers, journals and periodicals are covered under Central Excise Tariff Entry 49021010, 49021020, 49029010 and 49029020  respectively. The rate of duty column for them is ‘Blank’.

In the new regime of service tax, ‘service’ has been defined in clause (44) of Section 65B of the Finance Act, 1994 (Act). Section 66B specifies the charge of service tax which is levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list. The negative list of services is contained in section 66D of the Act

As per clause (f) of section 66D of the Act ‘processes amounting to manufacture or production of goods’ is a service covered under ‘Negative list’.

The expression “process amounting to manufacture or production of goods” is defined in section 65B (40) of the act are as follows:

 “a process on which duties of excise are leviable under section 3 of the Central Excise act 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotic on which duties of excise are leviable under any State Act for time being in force.”

Thus, the ‘processes on which duties of excise are leviable under section 3 of the Central Excise Act, 1944′ are excluded from the purview of service tax.

It may be noted that “the charging Section 3 of the Act comes into play only when the goods are excisable goods under Section 2(d) of the Act falling under any of the tariff entry in the Schedule to the Tariff Act and are manufactured goods in the terms of Section 2(f) of the Act”.

Given the above, if answer to both the following questions is in the affirmative, then Service Tax will not be leviable on the aforesaid process:

   Q.1Whether process of printing Newspaper, journals, and periodicals amounts to ‘manufacture’?

Manufacture means: “some input material undergoing into a process and resulting into a different commercial commodity having different identity & utility from its input.

The expression “manufacture” has been defined in sec2 (f) of the act, according to which it includes any process –

(i)                Incidental or ancillary to the completion of a manufactured product;

(ii)             Which is specified in relation to any goods in, the section or chapter notes of the schedule to the Central Excise tariff act, 1985 as amounting to manufacture Or

(iii)           Which in relation to the goods specified in the Third Schedule[MRP goods etc], involves packing or repacking of such goods in unit container or labeling or re-labeling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer (Deemed Manufacture )

In the instant case, if we look at printing of ‘Newspapers, journals and periodicals in reference of above definitions we can easily say that “printed Newspapers, journals, and periodicals  amounts to a manufacturing activity” As printed Newspapers, journals and periodicals  having a different identity & utility from its input i.e. plain paper.

Thus answer to the question is affirmative/yes. Now let us analyses the second question.

      Now, most important question need to be answered is as follows:

Q.2 Whether the process amounts to manufacture of ‘excisable goods’?

“Excisable goods” are defined in the Central Excise Act, 1944 [section 2(d)] as “goods” specified in the schedules to the Central Excise Tariff Act, 1985 which are subject to a duty of excise.

The first part lays down that excisable goods are those which are specified in the First Schedule. The second part is that such goods are subject to a duty of excise.

A PER the First Schedule viz. Chapter 49 of Central Excise Tariff reveals that the rate of duty column is ‘BLANK’ for tariff item 490210 & 49029 . which represents  item such as Newspapers, journals & periodicals. Now the question arose Whether the goods for which the rate column is ‘BLANK’ can be said to be goods ‘subject to duty’ and in turn ‘excisable goods”

  In this regard, analysis is as under:

Sr.	Particulars
a.	As far as the items where rate of duty is mentioned, the said goods are subject to duty of excise (even if exempted by a notification) and thus qualify as ‘excisable goods’.
b.	As regards the items wherein the rate of duty is mentioned as NIL, the said goods are ‘excisable goods’ in view of the judgment of the Apex Court in the case of Vazir Sultan Tobacco.
c.	As regards the items for which rate of duty column is BLANK [such as Newspapers, journals and periodicals under chapter 49 having taiff item i.e 490210 &490290,it has been held that if the rate column for certain goods is BLANK then the said goods are ‘non-excisable’. In the context of electricity (which is also specified in Central Excise Tariff however the rate of duty column is left BLANK) the Mumbai Tribunal in the case of Ballarpur Industries Ltd Vs CESTAT MUM (2006) observed that in view of the fact that there is no duty specified in the schedule to Central Excise Tariff Act for electricity, the same cannot be considered either as excisable goods or as exempted goods.   Given the above, the ‘Printing newspapers, journals,& periodicals would not qualify as ‘excisable goods’ as per section 2(d) of Central Excise Act, 1944.

        Thus, answer to the second question is in negative.

 Therefore, one can  conclude that although the process undertaken is “manufacture” as defined in section 2(f) of the CEA, 1944, but  it does not result into manufacture of ‘excisable goods‘ as defined in section 2(d) of the CEA, 1944 on which duties of excise are leviable under section 3 of the Central Excise Act, 1944.

Conclusion: Thus Based on aforesaid discussion now we can conclude that printing newspapers, journals, and periodicals not ‘excisable goods’. Thus service tax is applicable in all such cases.

Anuj Mehta
ACA, B.Com
Mobile: +91 9712286097
E-mail: amehtaca4u@gmail.com

DISCLAIMER: This article is provided purely for your information only and you should check other information sources before taking any action based on any of the content in this article. Neither the authors nor website hosting the article make any warranty as to the quality or currency of the information contained in any of the site’s articles.

 

Service Tax Amnesty Scheme (VCES) : A Big Eye Opener

Mriganki Jain

Chapter VI, Service tax

Service Tax has become the king in the sphere of the taxation in the mere future. Daily amendments and notifications at the same time, has regarded it as most complicated law and generated huge litigation. Due to its complexity there has been lack of clarity about the applicability of the service tax and the tax payers find themselves incompetent to decide whether they fall under the ambit of service tax and hence most of them did not deposit the tax on a bona fide belief that they are not liable for any service tax due to exemptions or otherwise as the case may be. Thus the Government with time had come out with the new scheme known as VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, under section 94, through the enactment of the Finance Bill, 2013 i.e. May 10, 2013.

The Hon’ble Finance Minister of India Mr. P. Chidambaram in his budget speech mentioned that there are nearly 17, 00,000 registered assesses under the service tax but only about 7, 00,000 assesses file their service tax returns. In such state amnesty scheme is an open gate to all the tax payers / assesses who have failed to pay as on 1^st March 2013, service tax liability, education cess, relating to the period 1^st October 2007 to 31^st December 2012, or had not filed return or stopped filling return or have not made a truthful declaration in their return for the same period of time.

ELIGIBILITY as per chapter VI sec 96, of service tax:

• Any person can declare his tax dues, in respect of which NO notice or an order of determination under sec 72 or sec 73 or sec 73A of The Finance Act has been issued or made before the 1^st day of March, 2013.
• Provided that the person who has furnished return u/s 70 of the chapter and disclosed his true liability, but has not paid the disclosed amount of service tax or any part thereof , shall NOT be eligible to make declaration for the period covered by the said return:
• Provided further that where a notice or an order of determination has been issued to a person in respect of any period on any issue, NO declaration shall be made of his tax dues on the same issue for any subsequent event.
• Where a declaration has been made by a person against whom,-

1. An enquiry or investigation in respect of a service tax not levied or not paid or short- levied or short-paid.

• Search of premises under section 82, of the chapter; or
• Issuance of summons under section 14 of the Central Excise Act, 1944, as made applicable to the chapter under section 83 thereof; or
• Requiring production of accounts, documents or other evidence under the chapter

2. An audit has been initiated.

And such enquiry , investigation or audit is pending as on the 1^st day of March 2013, then the designated authority shall by an order, and for reasons to be recorded in writing, reject such declaration.

DECLARATION & PAYMENT of tax dues:

A person may make a declaration to the designated authority on or before the 31^st day of December, 2013 in the form VCES-1.

 The declarant shall, on or before the 31^st day of December, 2013, pay not less than 50% of the tax dues so declared and submit proof of such payment to the designated authority.

The tax dues or part thereof remaining to be paid after the payment made shall be paid by the declarant on or before the 30^th day of June, 2014.

Provided that where the declarant fails to pay said taxes on or before the due date, he shall pay the same on or before the 31^st day of December, 2014 along with the interest thereon, for the period of delay starting from the 1^st day of July, 014

Provided further that any service tax which becomes due or payable by the declarant for the month of January, 2013 and subsequent months shall be paid by him along with interest for delay in payment thereof.

The declarant shall furnish the details of payment along with a copy of acknowledgement In Form VCES-2, to the designated authority.

DISCHARGE (Compliance) Certificate

On application to the designated authority, enclosing evidences of complete payment of tax dues, including interest (if any) for delayed payment under this scheme, the designated officer will issue an     “ACKNOWLEDGEMENT OF DISCHARGE” in Form VCES-3, as compliance.

IMMUNITY

On obtaining the acknowledgement of discharge, for the default disclosed, immunity is granted from:

• PENALTY
• INTEREST
• ANY OTHER PROCEEDING

IMPORTANT POINTS TO BE NOTED:

1. Tax paid under VCES is not refundable
2. As per Rule 6(2) of the VCES Rules, Cenvat Credit shall not be utilized for payment of tax dues under the scheme.
3. If the declaration made under VCES is found substantially incorrect by the Commissioner of central Excise, then show cause notice is to be served for recovery of tax dues paid or short paid within a period of one year from the date of declaration.

In the overall view the scheme is little confusing whether it is to benefit the defaulters or is like Bait to them. In total most of the defaulters haven’t disclosed their true Faces till date.

Disclaimer

Information given here is collected or created to the best of my knowledge and ability about the subject. It is not meant to be treated as professional guidance for your specific case or situation.

Mriganki Jain – Mriganki.jain@gmail.com

 

Online version of Service Tax return (ST-3) for October’12 to March’13

 The online version of the Service Tax return (ST-3) for the period October’12 to March’13 is now available for e-filing in ACES. Assessees can also use the offline utility by downloading the latest version from http://acesdownload.nic.in/ or from ‘DOWNLOADS’ Section of ACES website. Assessees whose ST 3 returns for the period October’12 to March’13 for “Banking and other Financial services” got rejected are requested to use the latest version of ST 3, either online or off-line to file their return. The last date of e-filing of ST 3 for the period October, 2012 to March, 2013 is 31st August, 2013. To avoid congestion and inconvenience on the last date assessees are advised to start e-filing the returns immediately and not to wait till the end of the month.

FAQ FOR ST3 RETURN FOR THE PERIOD OCT, 2012 – MAR, 2013

I. GENERAL

 The ST-3 Return for the period, Oct, 2012- Mar, 2013 is a quarterly or half-yearly?
It is a half yearly return.

Is there any change in the Format of ST3 return for the return period Oct, 2012 -March, 2013 when compared to July – Sept, 2012 return?
Yes. July – Sept, 2012 return was quarterly and Oct – March, 2013 is half yearly and accordingly the format is displayed in ACES
What is the last date for filing return for the period Oct, 2012 – March, 2013?
31st August, 2013 is the last date for filing the return for Oct – Mar, 2013 period.
What are the special and additional features available for filing the return for the return period Oct – Mar, 2013 from the Quarterly returns?
a. It is in half yearly format.
b. The return form will guide the user through, by way of more tooltips and messages in the required fields.
c. It can be filed online or using the offline utility.
d. Systems generated e-Mails will be sent to the Assessees on the Status of the uploaded return i.e. whether Filed or Rejected.
e. In case the return is accepted by the system with errors, System generated e-Mail will be sent to the Assessees intimating them to log on to the ACES website to see the list of errors so that they can file revised return within the stipulated time period of 90 days from the date of filing the Original return.
f. There are changes in the internal validations and more checks have been built in at the stage of filling up the return and also while validating the return. This is to prevent filing of returns with serious errors.
g. Time for filing Revised Return continues to be 90 days from the date of filing of the Original Return. The return can be revised only once during this period.
Is the new ST-3 return for the period, Oct – Mar, 2013 available in both online or offline modes?
Yes, it is available in both offline and online format.
What are the different methods of filing ST3 return in ACES?
a. You can file your returns online after logging into ACES www.aces.gov.in using your user-id and password.
b. You can also prepare your return off-line using Excel Downloadable Utility and then uploading the XML file so generated.
c. Return can also be field with the help of XML Schema, the third party software.
I got my Service Tax registration on or after 01.07.2012 with the service description ‘Other Than in the Negative List’. Can I file the return now?
Yes, returns can be filed. However, it is suggested that necessary amendment application should be filed for updating the Registration data. Assessees registered / amended their registration on or after 01.07.2012 with the service description ‘All Taxable Services – Other than in the Negative List’ are required to file amendment their Registration online by deleting the said description and adding the relevant description(s) of Taxable Services available in the drop-down list in the online Amend ST1 Form.
How can I e-file the ST3 return on-line?
a. After logging into the ACES, click on the RET module displayed in the menu item at home page.
b. Select Fill ST-3 to get the Form ST3 on the screen. Select the required option. Navigation path is Login as Assessee > RET> Fill ST-3> Fill.
c. After filling all the details, in the last page, click on ‘Save’ button.
d. A confirmation view screen will display the return in its entirety. Verify the correctness of details entered. Once it is confirmed that the entered details are in order, click on ‘Submit’ button.
e. If any modification is required, click on ‘Modify’ button. The first entry screen will be displayed. Modification can be carried out in all fields. If it is desired that the details are to be entered afresh, click on ‘Cancel’ button.
In case of disruption while entering my return, is it possible for me to retrieve the entered details and complete the return at a later point of time or is it necessary that I have to fill and file the return at one go?
In the online version of ST-3 returns, in the event of disruption or loss of connectivity, there is auto save facility and the data entered in the return are automatically saved up to the page which have been saved by using the ‘Next’ button. But the data entered in a page, which has not been saved will be lost. If the user wishes to complete the return, the auto-saved returns can be retrieved, completed partially/fully using Complete ST3 option under RET> Fill ST3 > Complete ST3.
How to navigate between fields/pages on the screen?
Navigation would be as follows:
(i) Moving across fields: After entry in the desired field, tab key can be used. On pressing tab, you will be taken to the next field of the section for data entry.
(ii) Moving across pages:
a. After you have filled the data in a given page, you can move to the next page by clicking ‘Next’ button.
b. Before moving to the next page, on clicking ‘Next’ button, the system will automatically validate all the entries of that page. If data is not correctly filled in, the errors in the page will be displayed.
c. In case of mandatory validations, the user will be able to proceed only after the errors displayed, are rectified.
d. In case of other minor errors, the user will be alerted about the errors and will be given an option to correct or to proceed without correcting the errors.
e. When ‘Next’ button is clicked, the user will be taken to the next sheet.
f. Similarly, ‘Previous’ button can be used for moving to previous page for the purpose of view or correction.
How to fill up the data in e-return?
a. All the fields marked with asterisk (*) are mandatory and the same have to be filled in each sheet before proceeding further.
b. Wherever required, data must be in correct format. For example, Challan No. should be a 20 digit number consisting of, 7 digit BSR Code, 8 digit date of tender in the format and 5 digit Sl.No. For example “12345670112200812345″.
c. Only whole numbers should be entered in columns where Amount is to be entered
How to Add or Delete Rows in various screens?
The procedure is as follows:
(i) Adding new rows: Sections such as Taxable Services, Notification for Exemption / Abatement availed, Challan Details sections, Tax Rate Tables etc, allow the users to enter multiple rows of data in a tabular form. You can click on ‘Add’ button to add more rows. To add more than one row, you must have filled data in the mandatory fields of the previous row.
(ii) Delete rows: Rows that have been added in the section, can be removed by checking the ‘Select’ box(es) and clicking ‘Delete’. All rows cannot be deleted since at least a minimum of one row of details should be present.
While filling return an error message is displayed by the system, what should I do?
Error messages are grouped into two categories: Mandatory validations and Warnings.
(i) Mandatory validations: These are major errors and you cannot proceed without correcting them e.g. Period of the return is left blank or when both the Original or Revised options, are selected as Yes.
(ii) Warnings: These are also major errors and should be corrected as per the error message. However, the system allows filing of the returns without correcting the errors. The returns containing these errors are marked for Review and correction by the departmental officers and they may contact the assessee for further clarification, information or documents to correct the errors.
What are the comments in red at the top of the confirmation page for my return while filing the return online?
The comments in red at the top of the confirmation page shows the errors found in the Return. These issues should be corrected by assessee by modifying the return details before submission.
What if I am not able to correct the issues as highlighted in the last page of the return?
If you do not correct the issues marked in red, then these returns with errors like ‘Challan Number mentioned does not exist in the database’ or ‘There is difference between Payable and Paid amount of Tax / Cess’ etc. are marked for Review & Correction process.The assessee can also view these errors and subsequently file a revised return to correct these errors.
How will I know if I have filed my returns correctly?
In ACES you can view and verify the return submitted by you using RET-> View Original ST-3.
What is downloadable utility?
Downloadable utility is an offline utility of ST3 return, which can be downloaded to your computer when the same is connected to the internet, but it can be filled in offline, without connecting to the internet. After filling in the relevant data, the xml should be generated. Thereafter, the computer should again be connected to the internet and the XMLfile of the return be uploaded on-line to ACES.
How to download the Excel utility for ST3 return for the period Oct – Mar, 2013?
The Excel utility for ST3 return for the period Oct – Mar, 2013 can be downloaded from http://acesdownload.nic.in. It can also be accessed from ‘DOWNLOADS’ section of ACES website http://www.aces.gov.in or after logging in, under the navigational path RET-> e-Filing -> Download e-Filing Utility.
What are the pre-requisites for filling data in this utility?
Following are prerequisites for filling data in the offline utility:
a. The version of Microsoft Excel in your system should be Microsoft Office Excel 2003 and above.
b. Make sure that you have downloaded the latest Excel Utility from ACES website / application to your computer, applicable for the return period for which you are filling the return.
c. Please enable the Macros (if disabled) as per the following instructions:

1. On the Tools menu, point to Macro, and then click Security.
2. Click on either Medium or High to select the ‘Security Level’.
3. On the Trusted Publishers tab, select the Trust all installed add-ins and templates check box.

d. Please make sure that your computer system Date is correct.
e. The Computer should have a file Compression software to unzip Excel Utility File.

Do I need to download utility each time I file a return or Can I use the earlier one downloaded?
Yes. It is advisable that you download the latest version of utility from the ACES website before filling the same.
What are the steps for filing Return through offline utility?
The steps are as follows:
a. Fill up the Return data: Navigate to each field of every section in the sheet to provide applicable data in correct format. (Formats will get reflected while filling data.).
b. Validating Sheets: Click on the ‘Validate this sheet’ button to ensure that the sheet has been properly filled and also data has been furnished in proper format. If there are some errors on the sheet, the Utility will prompt you about the same. In such cases, the offline utility will not allow you to proceed further until you rectify the errors.
c. Generate XML: There is ‘Validate Return and Generate XML’ button on the last sheet for validating all the entries in your return. If you click on this button, Utility will validate all the sheets one by one and also perform inter-sheet validations. After validation, an XML file will be generated. In case there is some error identified on some sheet, the utility will prompt you about the same and lead you to the respective sheet(s).
d. Both files are saved in the same folder of your system where Efiling Utility is placed/ saved (while downloading the e-filing utility).
e. Upload XML file to ACES application: For uploading the XML generated by the E-filing Utility, login to ACES application and access menu option to upload generated xml file. On Upload screen provide the required information and browse to select the relevant XML file and submit the form.
How do I file NIL return in offline utility?
There is no NIL Return filing option in the ST3 return. You have to fill up the mandatory fields, generate XML and upload it with the relevant details for the return period like how a normal return is uploaded.
Where do I find the row wise guidance to fill up the return?
The instruction for this is available in the Excel Utility under Instructions Section.
How to generate XML file after filling the sheets in the offline utility?
a. Once all the relevant fields in the return have been filled, click on ‘Validate Return and Generate XML’ button. System will, then, validate all the sheets and generate a XML file.
b. After generating the XML file, the Utility will display the name of the XML file and the location where it has been saved.
c. In case some error is identified on some sheets, the utility will prompt you about the same and lead you to the respective sheet(s).
d. Utility will list the errors as below and ask you before generating XML file: “Do you want to Submit Return and generate the XML with following errors” If you select Yes, then XML file will be generated with the filled-in data.
e. For rectifying these errors, select answer as No.
f. After generating the XML file, the Utility will prompt you about the name and location of the file so saved. The name format of the XML file generated will be:
RegistrationNumber_Date_Time.xml e.g. AAABC7865XSD001_31-Jul-1344016PM.xml
How do I upload my offline return?
a. Login to ACES application and access RET -> e Filing -> Upload File to upload generated xml file of ST3 Return.
b. On Upload screen, fill in all the required fields like Financial Year, Return for the period and Return Type.
c. Click on ‘Browse’ to select the XML file, Save and then submit for uploading.
Premises Code will be auto fetched by the system after uploading and need not be entered in the form
What does the status of return mean?
The Status of XML file implies the status of offline returns uploaded into the system and results thereof, which can be either Uploaded or Filed or Rejected

1. Uploaded: Denotes that return is uploaded and under processing by the system. You should view again after some time.
2. Filed: Denotes that uploaded return is accepted by the system.
3. Rejected: Denotes that the return could not be processed due to errors and is rejected and the assessee return is not filed with the department in this case.

You can view the status of theXML uploaded using offline utility through: RET-> e Filing -> View Status.

How do I check the status of the return or the XML uploaded?
The status of the uploaded XML file (return) can be checked by accessing RET>efiling> View XML status after logging in ACES.
How to ascertain the errors if the return is rejected?
The reasons for rejection can be viewed by accessing RET -> efiling -> View XML status after logging in ACES. A hyperlink is provided on the Return No. by clicking on which, the reasons for rejection can be viewed.
When will I know the status of the XML uploaded?
The result of the acceptance or otherwise of the return filed offline will be known in one business day.
What are the reasons for which the returns get rejected?
There are a few mandatory validations as listed below and if incorrect entries are made, the return would be rejected:
a. Incorrect selection of return type whether it is Original or Revised return.
b. Incorrect Registration Number.
c. If a non-LTU assessee selected as ‘Yes’ in ‘A6.1′ and vice versa.
d. Wrong selection of Constitution.
e. Incorrect category of Registrant.
f. Incorrect Rates of Tax / EDU Cess / SHE Cess.
g. Higher amount entered in Challan Details Section as against the actual amount deposited.
h. Technical Error – Tampering of XML file generated before uploading, use of special characters in the return, error at the time of generation of XML file etc.
What to do when my return is rejected?
When you click on the hyperlink on the rejected Return No., the reasons of rejection are displayed. Please correct the error(s) in the return and after generating a new xml file, upload the same once again.
While uploading the XML file in ACES, an error appeared “File corrupt. Regenerate and upload the file again”. Since regenerating the XML is time consuming task, please help how we can regenerate with less effort?
This error appears only when user has tampered XML file generated by the utility. Please ensure that you upload the original XML file generated by the utility without tampering/opening for modification.
Do I get any intimation in case of rejection of return?
Yes, an e-mail will be automatically sent to the registered e-mail ID available in the ACES registration database. Please ensure that the e-mail ID in the ACES registration database is updated.
Can I view the return, after filing?
Yes, the returns filed can be viewed by accessing RET > View Original ST3.
How do I file Revised return?
You can revise your ST-3 return once within 90 days from the date of filing the original return, by clicking on RET > Fill ST3 > Revise ST-3 from your login. You should also ensure that in the ST3 Return, under A1, it should be correctly selected as Yes under Revised Return option.
Will I get an acknowledgment after filing the return?
On successful submission of the return, an acknowledgement with a number in the format: (Registration Number::Type of return::Month and Year of the return) will be generated. This number becomes a reference number (Source Document number) for subsequent correspondence with the department in respect of the return.
Are the instructions for the return period Oct, 2012 – Mar, 2013 available?
Yes. Please go through the Instruction sheet and Guidelines given in the new excel utility, ‘Whats New’ and ‘Help’ sections of ACES Website. In case of doubts relating to offline utility or the ACES software application, you may e-mail to ACES Service Desk at aces.servicedesk@icegate.gov.in or call toll-free 1800 425 4251. For any other queries on legal/procedural matters, please contact your jurisdictional Central Excise or Service Tax officer.
II. BASIC DETAILS SECTION

How do I get the form as an LTU assessee in offline utility?
There is an option for LTU in the first sheet. If you are filing return as LTU (Large Tax Paying Unit), then select the option as Yes.

How do I fill up the LTU City?
The LTU City need not be filled up and will be auto fetched by the system after uploading.
A6 – How to select the LTU option?
Assessees, falling under the jurisdiction of any Large Tax Payers Unit (LTU) must select ‘Yes’ in ‘A6.1′. Also, ‘A6.2 – ‘ will be fetched from the registration database of the Assessee, when the XML file is uploaded, and it will be reflected when the return is viewed. These fields are auto-populated in the online version.
What are the fields which are populated by the system and need not be entered while filling up the offline utility?
The auto fetched fields after uploading are:
a. Name of the Assessee.
b. LTU City in case of LTUs
c. Premises Code.
Is the RC No. field case sensitive?
No. Even if the RC No. is entered in lower case, the same will be automatically converted into Upper case.
When I try to enter Premises Code, I am not allowed. What do I do?
Premises Code will be auto fetched by the system after uploading and need not be entered in the form.
A1 – What is to be selected for the type of return?
One of the options (ORIGINAL / REVISED) can be selected, as applicable to the Assessee, for filing the return.
A2 – What to enter in this field?
15 digits PAN-based or Temp-based STC number (Registration No.) should be entered.
A3 – Name of the Assessee?
This field is disabled for any entry by the assessee in the offline Utility. Based on the registration number entered, the name will be fetched from the registration database of the assessee, when the XML file is uploaded, and it will be displayed when the return is viewed. This field is auto-populated in the online version.
What A4 & A5 fields are meant for?
These fields are meant for the Financial Year and Period of Return required to be entered/selected by the Assessee.
A7 – How to find out Premises Code?
This field need not be entered by the Assessee. It will be fetched from the registration database of the assessee when the XML file is uploaded and it will be reflected when the return is viewed. This field is auto-populated in the online version.
A8 – Constitution of the Assessee?
The Assessee has to select the appropriate category applicable to them and as already furnished in form ST-1. When ‘, ‘or ‘ is selected in the ” field system will display the ST3 return with payable/paid sheets in quarterly format and for other category of Constitution the payable/paid sheets in monthly format
A9 – List of Taxable Services – How to select many services?
To add more than one service, click on the ‘Add Service’ button. Similarly, if any service has been wrongly selected, it can be deleted by clicking on the ‘Red colour cell’ and then click on the ‘Delete Service’ button.
How to fill up Service wise details?
When the taxable services applicable are selected, the service-wise payable screens will be populated and displayed for filling up the data.
Is there any provision to enter specific rate of Tax?
Yes. Table is available in ‘B1.16 / B2.16′ for entering details of services liable to specific Rate of Tax. The rates applicable can be entered along with the taxable units chargeable, in this table. The system will calculate & populate the Service Tax payable
Is Cess payable on the Tax calculated under specific rate of tax?
Yes. EDU Cess at 2% and SHE Cess at 1% on Net Service Tax payable has to be paid. If the Cess rates are entered by the Assessee, the system will calculate & populate the amount of EDU/SHE Cess payable under ‘B1.20′ and ‘B1.21′.
What is R & D Cess deduction?
Notification No. 14/2012 ST dated 17.03.2012 provides for exemption of R & D Cess payable on import of Technology.
How to enter the value of services imported?
This can be entered under ‘B2.5′.
III. PAYABLE SECTION

A10 – Category of Registrant/ Partial Reverse Charge: What is Partial Reverse Charge?
a. The details are available in the Notification No. 30/2012-ST dated 20-06-2012, effective from 01-07-2012, made applicable to certain specified services.
b. Service Provider has to select ‘A10.1′.
c. If the Assessee is liable to pay tax under Partial Reverse Charge as Provider, he will have to select ‘Yes’ under ‘A10.1′ and ‘A10.3′ and select the percentage from ‘A10.5′.
d. Service Receiver has to select ‘A10.2′.
e. If the Assessee is liable to pay tax under Partial Reverse Charge as Receiver, he will have to select ‘Yes’ under ‘A10.2′ and ‘A10.4′ and select the percentage from ‘A10.6′.
*Note: Please refer to latest Notification(s) in this regard.

How to enter the details of exemptions, if any availed, under particular Notification No.?
For entering details of any exemption availed under a Notification and entering the amount of exemption claimed, the below mentioned steps have to be followed:
a. ‘A11.1′ – This field should be selected as ‘YES’.
b. ‘A11.2′ – After selecting ‘YES’ in ‘A11.1′ this field will be enabled. A drop down list of Notification No.(s) / Sl. No will be enabled and displayed in ‘A11.2′, relevant for the selected service. The Assessee can select the Exemption Notification No. / Sl. No. to be availed by him. The assessee should select the Notifications and Sl.Nos. from the drop-down only and should not enter the numbers. Entering of text / No’s is not allowed in these fields.
How to avail abatement?
a. ‘A12.1′ – This field should be selected as ‘YES’.
b. ‘A12.2′ – After selecting ‘YES’ in ‘A12.1′, this field will be enabled. A drop down list of Notification No(s) / Sl No will be enabled and displayed in A12.2, relevant for the selected service. The Assessee can select the Abatement Notification No / Sl No availed by him. The assessee should select the Notifications and Sl.No’s from the drop-down only and should not enter the numbers. Entering of text / No’s is not allowed in these fields.
What to fill up in B1.1 to B1.6?
The texts in the rows are self-explanatory and for further details, you may go through the Instruction sheet available in the notified statutory Form ST-3 vide Notification No: 01/2013-Service Tax dated 06th March 2013. For any further clarification on these fields, the jurisdictional Superintendent/Assistant Commissioner/Deputy Commissioner may be approached.
How to fill up B1.8/B1.11?
If the Assessee desires to fill up any amount in these fields, they should have selected the applicable Notifications from ‘A11/A12′. Otherwise ‘B1.8/B1.11′ cannot be filled.
How to fill up B1.15 / B2.15, Service Tax Rate-wise Break up of NET TAXABLE VALUE for ADV rate?
When various Tax Rates are filled up in this table against certain taxable value, the total of such rate-wise values should be equal to the ‘NET TAXABLE VALUE’ arrived in ‘B1.14′. For further details, the illustrations pasted in ACES Website under Help section, may please be referred.
‘B1.15/B2.15′ is meant only for filling up ad valorem rates of Tax applicable only
How do I fill up specific rate of Tax as a provider of ‘Foreign Exchange Broker Service’ / ‘Lottery Ticket Selling Agents’?
Specific illustrations are given for the said services and are available in ACES Website under Help section.
How Cess payable amount has to be calculated on Service Tax payable whether before deducting R&D cess or on Net Service Tax payable after deducting R&D cess?
EDU Cess and SHE Cess are calculated @ 2% and 1% respectively, on the Net Service Tax payable amount arrived at ‘B1.19/B 2.19′ after deduction of R&D Cess.
If my tax liability is to the extent of 25% of the Value and tax rate is 12%, can I pay tax at 3% for the full value?
No. The extent of tax liability on certain specified percentage of value is prescribed in the Notifications issued for computing the Taxable value. This does not change or modify the % of tax liability. The Rate of Tax remains the same as 12% only. If an incorrect rate is entered by the user, the return will be rejected on uploading, during the XML processing.
If I am eligible to avail abatement from the value to the extent of 60% and liable to pay tax on the 40% of the value, can I pay tax @ 4.8% on the unabated value instead of 12%, as the ultimate tax payment amount is going to be the same?
No. The law provides for abatement from Value. However, tax is liable to be paid only at the prescribed rates. In the issue in question, 40% of the value should be computed and tax should be paid on that abated value @ 12%. If an incorrect rate is entered by the user, the return will be rejected on uploading, during the XML processing.

IV. ADVANCE PAYMENT SECTION

Where do I enter the advance amount of Tax deposited?
It should be entered in the table under part ‘C’ meant for Service Tax payable in advance. Any Challan No. entered in this section should be entered again in ‘H1′ also.

V. PAID SECTION

What is meant by book adjustment in the case of specified Govt. Departments?
This is meant for those Central Govt. Departments who are liable to pay Service Tax for the services provided by them but the payment of the same is effected by way of ‘Adjustment of entries’ and not by Cash.

How to enter the amount of late fee paid for delayed filing of returns?
A separate row no. ‘G10′ has been provided for this purpose in the return.
How to calculate the late fee for delayed filing of the return?
New provision has been made in ACES to identify the delayed filling of returns, no. of days of delay beyond the due date and the late fee payable. After the returns are successfully filed, these details will be populated and displayed in the view option for Assessee, as provided in Rule 7C of Service Tax Rules, 1994.
Can I enter the payment of Arrears by CENVAT adjustment?
Yes. This amount can be entered in PART ‘G’.
VI. CHALLAN DETAILS SECTION

How to enter multiple Challans in ST-3?
Multiple Challans can be entered in the Challan Details Section in ‘H1, H2′ and Advance Payment details in Section C with Add Challan facility available therein.

What Challan details have to be entered in H1?
If any payment of Tax / Cess / Other Payments have been made by cash, all relevant challan nos. shall be entered in this table with their amounts which is mandatory. Even if they are entered in their respective sections, all Challan No’s should be entered in ‘H1′.
VII. CENVAT SECTION

What is the restriction for entering an amount in I3.1.2.6 /I3.2.2.6/I3.3.2.6 and such other specific fields?
If any amount is entered in these fields, the details of the same should be given in the text field provided therein.

Can I enter EDU Cess and SHE Cess combined together in CENVAT section?
No. Separate tables have been provided for entries of credit taken and utilized on EDU Cess& SHE Cess.
Can I enter EDU Cess and SHE Cess combined together in CENVAT section?
No. Separate tables have been provided for entries of credit taken and utilized on EDU Cess& SHE Cess.
VIII. ISD SECTION

Can I add ISD as new category of registrant at the time of filling up the return?
No. Such Assessee will have to file amendment application in ACES to add ISD as a category and only after that they can file the return.

IX. CFC SECTION

What is CFC?
CFC refers to Certified Facilitation Centres. For more details on this, Click here – https://www.aces.gov.in/CFC.jsp

Is there provision to enter the details of Certified Facilitation Centre (CFC)?
Yes. This has been provided at ‘PART L’ in the Distributor sheet of the ST3 return.
Where to find the FAQs on CFC?
The FAQs on CFC are available in the ACES homepage under CFC menu option. Click here -   https://www.aces.gov.in/CFC_FAQ.jsp

 

Reimbursement of Expenditure & Service Tax

Posted In Service Tax | Articles | 

Reimbursement of Expenditure & Service Tax

An analysis of judgement in Sercon India (P.) Ltd. Vs. Commissioner (Adjudication) Service Tax

[(2013) 32-taxmann-390 (Delhi)]

Statutory Provisions:-

Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, reads as:

(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

Sec. 35F of the Central Excise Act, 1944 has been made applicable to the service tax matters by Sec. 83. Where the appeal is proposed to be filed against an order enhancing the service tax liability, the appellants needs to pre-deposit the disputed amount of service tax, interest and penalty as demanded in the order.

 Facts and issues involved:-

Sercon India (P) Ltd. is engaged in providing consulting engineer services and receives payments not only for its service but also for reimbursed expenses incurred by it such as air travel, hotel stay, etc. It was paying service tax in respect of amounts received by it for services rendered to its clients. It was not paying any service tax in respect of the expenses incurred by it, which was reimbursed by the clients.

CESTAT, a demand of service tax of approximately Rs. 3.57 crores raised against the Sercon India (P) Ltd. by invoking the provisions of Rule 5(1) of the Service Tax (Determination of value) Rules 2006. A penalty of Rs. 4 crores was imposed on the Sercon India (P) Ltd.. As against this, the Tribunal has directed that the Sercon India (P) Ltd. should deposit a sum of Rs. 1 crore in three instalments, namely, Rs. 40 lacs by 20.02.2013, Rs. 30 lacs by 20.03.2013 and Rs. 30 lacs by 10.04.2013. The Sercon India (P) Ltd. deposited the first instalment of Rs. 40 lacs. The Sercon India (P) Ltd. was seeking waiver of deposit of the balance amount of Rs. 60 lacs.

As per the financial statements of the Sercon India (P) Ltd., total revenue, on account of transactions between 01.10.2002 and 31.03.2007, came to approximately Rs. 57.58 crores. Out of this, the billing for professional service was a figure of approximately Rs. 33 crores. The expenditure for which the reimbursement was claimed and billed by the Sercon India (P) Ltd. was to an extent of approximately Rs. 14.58 crores (though the actual amount received as reimbursement was approximately Rs. 14.22 crores). The balance figure of approximately Rs. 10 crores was stated to be ‘contra entries’. These contra entries, according to the learned counsel for the Sercon India (P) Ltd., merely inflated the figure of receipts, but in reality, the actual receipts did not increase by Rs. 10 crores inasmuch as there were contra entries indicating direct costs of the same amount of Rs. 10 crores.

Sercon India (P) Ltd. challenged Rule 5(1) in a Writ Petition.

    Courts Observations:-

Court observed that, prima facie, the issue of levying and charging service tax on reimbursable expenditure has been settled by the decision of this Court in Intercontinental Consultants & Technocrats (P.) Ltd. (supra). Therefore, prima facie, the amount of Rs. 14.22 crores, which has been actually received by the petitioner from its clients towards reimbursement of expenses, could not be the subject matter of service tax.

    Final Verdict/High Court Judgement:-

High Court allowed the writ petition by directing that the pre-deposit of Rs. 40 lacs be regarded as sufficient compliance of the provisions of Sec.35F of the Central Excise Act, 1944 read with Sec. 83 of the Finance Act, 1994 for hearing the petitioner’s appeal which is pending before the Tribunal. The Sercon India (P) Ltd. shall not be required to deposit any further amount till the disposal of the appeal.

    Conclusion:-

When an appeal is filed, it means that assessment proceeding is not over. As the assessment proceeding is not over, the assessee is not required to pay any duty or penalty. Therefore, Section 35F requires mere pre deposit of duty/penalty amount and not payment of duty/penalty amount. It is settled that payment under Section 35F or any payment pending appellate proceeding, with or without order of appellate authority is not a “payment of duty”. In fact, there cannot be a liability to pay duty, when assessment proceedings are pending before appellate authority.

The issue of taxability of out-of-pocket expenses has always been a matter of litigation. Before April 2006, there was no specific provision to this effect and, by way of clarification only, expenses recovered on actuals were excluded from the taxable value. From April 2006 onwards , with the introduction of Valuation Rules, industry has been paying service tax on all expenses that are not incurred as pure agent.

In coming para’s lets discuss about nature of out of pocket expenses.

Any out of pocket expenses incurred for attending the assignment like traveling expenses, boarding and lodging expense, and other miscellaneous expenses while on tour for client or customer, which are reimbursed by the client or customer, cannot be considered as service charges, fees or remuneration. It is just like traveling expenses of employees working for employer while on tour.

If such expenses are also included within the meaning of salary or fees, it will lead to anomalous situations.  For an example, if the expenses are directly made by the client they will not be fees but if the expenses are incurred by the professionals and reimbursed by the client then it will be considered as fees. The difference created only because of difference in time and manner of payment, is not at all logical, reasonable or justified.  Therefore, it cannot be said that the expenses incurred by the professionals who are reimbursed by the client is a part of fees.

When a reimbursement is claimed, it means that there is some other person who has provided some service or supply. The claimant has received some goods or services from other persons who supplied goods or rendered services. Therefore, the claimant is not a service provider but the person from whom service is availed is the service provider. The claimant has availed such service for and on account of the client and not on his own account. Therefore, in such a case a service is provided by another service provider to the main client through the middle service provider.

Example: A CA takes project for verification of assets of a steel plant on the following basis:  Fees for supervision and certification Rs. 5,00,000/- Reimbursement of recruitment service Providers  on actual basis fro manpower Supplied by recruitment service Providers  for the assignment.

Or

The Steel plant to avail services of Recruitment Service provider for verification purposes and to arrange for manpower for verification under supervision of CA.
In both cases services of recruitment service Providers are availed by the Steel Plant. The CA while obtaining bill of Recruitment Service provider and paying to him must clearly mention that the supply of manpower is to Steel plant and on account of steel plant.

In this case there is a separate service provide Recruitment Service provider. He will charge service tax, if applicable.

Now suppose in the above case CA agrees to render service to Steel Plant for a consideration of Rs. 15,00,000 inclusive for manpower required. He may provide his own assistants and / or avail manpower from other CA’s or Recruitment Service provider.

In such a case there will be no claim for reimbursement from plant. The entire amount of Rs, fifteen lakh will be his fees for verification of assets. If such service falls in taxable category, then tax will be levied on full service. If a tax is levied on services availed from other CA’s or RSP, then CA will claim CENVAT for input services.

Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. of India [(2012) 12-TMI-150 (Del.)] held that the Rule providing service tax on reimbursement is ultra vires the main provisions of the Service Tax law contained in the Chapter V of the Finance Act ,1994,  particularly sections 66 , 67 and 94. Court held that imposing Service Tax on reimbursements is not in the scheme of law and such a provision is ultra vires the Act itself. In this judgment, the court held that what is to be taxed is the gross amount charged by the service provider ‘for such service’. The words ‘such service’ are important for taxation. It is only the value of ‘such service’ which can be taxed and nothing else. The value of service, to be taxed, can, therefore, never exceed the gross amount charged by the service provider for such service provided. Thus, there can be no Service Tax on reimbursements as such reimbursements (say, travelling, accommodation etc.) as it would amount to double taxation.

 

Clarifications on Services Provided by Restaurants

Posted In Service Tax | Articles | No Comments »

CA Sushant Maheshwari

There is lot of Confusion regarding Services provided by Restaurants .I would like to clarify regarding certain issues:

Issue No 1 : Is the VAT imposed by States required to be included for the Purpose of Service Tax?

Answer: For the Purpose of Service Tax State VAT has to be excluded from the Taxable Value

Issue No 2: Is the Serving of Food And/or Beverages by way of Room Service liable for Service Tax?

Answer: When the Food is served in the Room Service Tax cannot be charged under the Restaurant service as the service is not provided in the premises of the air-conditioned restaurant with a licence to serve Liquor.Also the same cannot be charged under the short term accommodation head if the bill for the food will be raised separately and it does not form the part of declared Tarrif.

Issue No: 3  Will the other services provided by restaurant in other parts of Hotel such as Swimming Pool etc attached to a restaurant be also liable to Service Tax?

Answer: Any Services provided by a restaurant in other parts of the Hotel attached to a restaurant are also liable for Service Tax as these area also become the extensions of the Restaurant.

 Issue No: 4 If there are more than one restaurants belonging to the same entity in a complex ,out of which only one or more satisfy both the criteria relating to air conditioning and licence to serve liquor ,will the other restaurants be also liable to pay Service Tax?

Answer: Service Tax is leviable on the restaurants which satisfies two conditions:

1) It should have the facility of air conditioning in any part of establishment .

2) It should have licence to serve alcoholic beverages .

If within the same entity there are more than one restaurants which are clearly demarcated and separately named the ones satisfying both the conditions is only liable to pay service Tax.