Service Tax — Important issues relating to — Clarifications - Service Tax - 20/2002

Service Tax — Important issues relating to — Clarifications Trade Notice No. 20/2002, dated 23-5-2002 of the Delhi-II Commissionerate Attention of the trade and industry is invited to answers to the following of the repeated questions about matters relating to service tax. 1. Is service tax payable on advances? The term Advance is normally taken to mean sums paid before the service has been rendered, thus any sums so received shall not be chargeable to service tax till the actual rendering of the service against this sum contracted for is completed. 2. Is service tax payable when service has been rendered, but no sums have been realized in payment? Rule 7 of the Service Tax Rules, 1994 is very clear on this issue. Service tax is payable only on the value of taxable services realized during a period. 3. Is the amount of Service Tax charged from the client compulsorily to be indicated separately in the Bills/invoices raised on him? Section 12 of the Central Excise Act, 1944, as made applicable to service tax matters vide Section 83 of the Finance Act, 1994, lays down that the sums representing the amounts of service tax chargeable, should be indicated clearly and separately in the bills/invoices. 4. What happens if the amount of service tax indicated separately or otherwise is not collected, but all other dues are realized for having rendered a particular service? The liability to pay the service tax remains with the service provider in the current scenario. Failure to realize or even charge the 5% service tax does not negate this statutory liability. In event of any such failure, the amounts recovered from the client in lieu of having rendered the service/s will be taken to constitute amounts inclusive of service tax. Accordingly the amount of service tax will be determined and required to be deposited to the credit of the Central Government. 5. What happens when both the services have been rendered and the payments for it also realized but as yet no bills have been raised on the client for the service rendered? Conceptually, the important elements involved are :- ¿ Rendering of the service ¿ Determination of the amounts chargeable as payment for the service/s rendered. ¿ Ascertainment of the amount of service tax chargeable/recoverable @ 5% of the gross value of the taxable services rendered and ¿ Receipts of sums involved by the service provider. Thus, if a formal bill/invoice is the only thing that is not yet issued, while the other two elements have finality about them, then the service tax amount involved should be paid to the credit of the Central Government as mandated. If even a final determination of the amounts chargeable as payment for the service rendered has not been made then it is advisable for the assessee to go in for a provisional assessment and make his return in the Form ST-3A. 6. Is service tax an indirect tax? Yes, very much so. Those who avail of the services are the ones who are ultimately required to shoulder the burden of this levy. 7. How can I assist the Department in further strengthening the Service Tax collection mechanism? Help us create a level playing field. It is not an acceptable position that some who abide by the law should become uncompetitive on account of having charged and recovered the service tax involved. Report all instances of defaulters with as complete a detail as possible. The Department will take suitable and timely legal action to bring such offenders to the book. 8. Can the Department ask for more information than what I am submitting to it in the Forms ST-1 and ST-3? Yes, if it is considered essential- that is, when the Department is of the view that there is a strong reason to believe that the returns furnished are not a true and an accurate reflection of reality- then more information can be asked for. This information can be asked for under either Section 71 of the Finance Act, 1994 or Section 14 of the Central Excise Act, 1944. Violation of a notice under Section 71 can attract a penalty up to 50% of the amount of service tax that could have escaped assessment had such a notice not been issued. Violation of a notice under Section 14 can make one liable for prosecution under Section 174 of the Indian Penal code. 9. Is there a penalty for furnishing incorrect/untrue returns? Yes. In such a case, where an assessee has with an intent to evade payment of service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service he may be directed to pay by way of penalty, a sum between 100% to 200% of the amount of service tax sought to be evaded. This would be in addition to service tax and interest, if any, payable by him. 10.Are there any provisions to refrain from the imposition of penalties? Section 80 of the Finance Act, 1994 provides that no penalty shall be imposable for failure to comply with the notice under Section 71, for failure to submit ST-3 return in time, for failure to pay taxes in time or even for suppressing the value of taxable service; if the assessee proves that there was reasonable cause for the said failure. However, penalty for delay in taking up the registration in not possible to be waived. 11. When is the Registration required to be taken by the person rendering a taxable service? Registration is required to be taken within one month of the imposition of the levy for existing service providers. In case, the person starts in market for providing taxable services later than the date of imposition of the levy (new businesses), the date for taking registration should be within one month of the start of the business. 12. How do I get myself registered with the Service Tax Unit? ¿ Apply in the Form "ST-1" to Superintendent Service Tax Service Tax Unit III Floor Rama Palace, Ajronda More (Near Neelam Flyover) Faridabad - 121 008, Haryana. (Telephone : 5222262) ¿ Where an assessee is providing a taxable service from more than one premises or where he has multiple offices but also has a centralized billing system in respect of such service rendered to clients, he may opt for registering only the premises or office from where such centralized billing is done. ¿ Where an assessee is providing taxable service from more than one premises or office and has a centralized accounting system in respect of such service rendered the Commissioner of Central Excise may permit such assessee to registering only the premises or office from where such centralized accounting is done, if he is satisfied that such registration shall not be detrimental to the interest of revenue. ¿ Where an assessee is providing more than one taxable service, he may make a single application, mentioning therein all the taxable services provided by him, to the concerned Superintendent of Central Excise at the Service Tax unit. ¿ When applying for a registration, kindly also mentions the date of start of business. If the PAN number is not available as on date, please append a copy of the receipt given as a token of having applied for the PAN. Where a registered assessee transfers his business to another person, the transferee shall obtain a fresh certificate of registration. ¿ Whenever a registered assessee transfers his business to another person, the transferee shall obtain a fresh certificate of registration. ¿ Your Registration Certificate will be promptly given in the Form "ST-2", within 7 days. ¿ Amendments to the Registration Certificate can be made in case of minor changes like change in name of the firm, change in the address of the registered premises etc. In all other cases, a fresh registration may be applied for in the form ST-1 and the earlier Registration Certificate may be submitted for cancellation. ¿ Registration is granted free of cost. ¿ Where an assessee is providing a taxable service from more than one premises or offices, and does not have any centralized billing system- he has to make separate applications for registration in respect of each such premises or offices to the concerned Superintendent of Central Excise at the Service Tax Unit. 13. What is the procedure for collection and payment of Service tax? ¿ Collect 5% of the gross value of taxable services rendered as the Service Tax. ¿ Pay the Service Tax to the designated Punjab National Bank Branches at Faridabad, using the TR-6 challan. Remember to indicate your accounting code and Registration Number correctly. ¿ For Residents, the service tax on the value of taxable services received during any calendar month shall be paid by the 25th of the month immediately following the said calendar month- except if the assessee is an individual or proprietary firm or partnership firm. In the latter case the due dates for the payment of service tax are the following :- 25th July, 25th October, 25th January, 25th April ¿ In the case of a person who is a non-resident or is from outside India, does not have any office in India and is also liable to pay service tax on taxable services provided in India. The service tax thereon shall be paid by such person or on his behalf by any other person authorised by him, who shall submit to the Commissioner of Central Excise in whose jurisdiction the taxable services have been rendered, a return, containing the following details :- (a) Name and address; (b) name and address of the client to whom the taxable services were rendered; (c) nature of taxable services rendered; (d) period for which taxable services rendered; (e) value of the taxable services rendered; (f) service tax liability on the taxable services rendered, along with a copy of the bill raised on the client, to whom services have been rendered, a copy of the contract or agreement regarding the provision of such services to the client, and a demand draft payable to the Commissioner of Central Excise towards his service tax liability; and the return along with the demand draft shall be submitted within a period of 30 days from the date of raising of the bill on the client for the taxable services rendered ¿ There are no fees to be paid when submitting the ST-3 return. It may be submitted in person or sent to the Service Tax Unit by Registered A.D. ¿ When submitted in person, kindly insist on obtaining a dated acknowledgement of the fact of submission of your ST-3 return. 14. What is the interest chargeable on the delayed payments of service tax? Every person, liable to pay the service tax, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at the rate of twenty-four per cent per annum for the period by which such crediting of the tax or any part thereof is delayed. 15. What are the records and returns that an assessee has to maintain and make? ¿ Every assessee shall submit a half-yearly return in Form 'ST-3', along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly return. ¿ Every assessee shall submit the half-yearly return by the 25th of the month following the particular half-year- due dates 25th October and 25th April. ¿ No separate accounts have been prescribed for the purposes of Service Tax. It has been provided that accounts being maintained by the assessee under any other law in force would be sufficient. The records (including computerized data) as maintained by an assessee in accordance with the various laws in force from time to time shall be acceptable. ¿ Every assessee shall 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. 16. What are the penalties imposable for various violations under the Finance Act, 1994? ¿ Failure to register with the Service Tax Unit in time (within one month of the date of notification of the service as a taxable service or within one month of the date of the start of business, whichever is later)- PENALTY - Rs. 500/-. ¿ Failure to pay service tax in time- PENALTY- Rs. 100/- to Rs. 200/- per day, subject to the maximum amount of the tax paid. ¿ Failure to submit returns in time- PENALTY - up to Rs. 1000/-. The Trade/Industry associations are requested to give wide publicity to the contents to this trade notice among their constituent Members.