Valuation of Taxable Services - Service Tax Practice Manual / Ready Reckoner - Service Tax

Valuation of Taxable Services General Provisions - Sec. 67(1) Section 67 has been replaced with effect from 18-4-2006 by the Finance Act, 2006. All the previous circulars on valuation have been withdrawn - Circular / Letter No. F. No. b1/4/2006 - TRU dated 19-4-2006 and new rules notified as Service Tax (Determination of Value) Rules, 2006. Date for determination of rate of tax, value of taxable services rate of exchange As per sec.67A, rate of tax, value of taxable services rate of exchange, as the case may be, as applicable at the time when taxable service has been provided or agreed to be provided. Here rate of exchange means determined in accordance with such rules as may be prescribed . When the gross amount charged in money shall be taken The gross amount charged on the bill shall be the value of taxable services provided the consideration is charged in money and no other consideration is being received in lieu of such money for such services. When the value of consideration is included in the money value Where the consideration is not charged wholly or partly in money then the value of taxable services shall be: - Money value plus value of consideration other than money. Examples of considerations other than money 1 Services are provided in lieu of other services or material or facilities provided by the receiver of such services. 2 Value of inputs / material supplied by the receiver of such services, so that the value of taxable services depressed. When the value shall be determined with reference to Service Tax (Determination of Value) Rules, 2006 As per section 67 , the value shall be determined in accordance with the provisions of this section only. However in following cases the value shall be determined with reference to valuation rules: - - Where the value of taxable service is not ascertainable - Any other cases, as may be prescribed in the valuation rules Manner of determination of value as per Valuation Rules (where value of taxable service is not ascertainable) -The value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration. -Where the value cannot be determined in accordance with above the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service. Inclusion / Exclusion from value of certain expenditure or costs 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. Rejection of value The Central Excise Office shall, after providing reasonable opportunity of being heard, determine the value in accordance with the provisions of the Act and these rules. Meaning of Gross Amount Section 67(3) provides that, 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. Meaning of Consideration Explanation (a) to the Section 67 states that, [ consideration includes- (i) any amount that is payable for the taxable services provided or to be provided; (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.] ( Substituted vide THE FINANCE ACT, 2015 w.e.f. 14th May 2015 ) Meaning of Money [omitted w.e.f. 1.7.2012] Explanation (b) to the Section 67 states that, money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; ============== B. Valuation where gross amount includes service tax - Sec. 67(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. To illustrate the provision, suppose Mr. A receive gross amount ₹ 1, 00,000 for the services rendered by him, than the value of taxable service shall be calculated as: 1,00,000 x 100 Value of taxable services = ------------------ (100 + rate of tax) 1,00,000 x 100 Where effective rate of tax is 15% (inclusive of cess) = ------------------ 115 Meaning of Gross Amount Charged Explanation (c) to the Section 67 states that, 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 ============== Guidance Note 8 of the Education Guide [CBEC] - Valuation With the introduction of system of taxation of services based on the negative list there has been no fundamental change in the manner of valuation of service for the purpose of payment of service tax. The broad scheme remains the same barring some marginal changes carried out to align the scheme of valuation of taxable services and the Service Tax (Determination of Value) Rules, 2006 with the new system of taxation. Broadly these changes in the Valuation Rules are as follows:- As compared to the existing two schemes for valuation of works contract services -one under the rule 2A of the Valuation Rules and second under the Works Contract (Composition Scheme for Payment of Service Tax) Rules 2007 has been replaced with a unified scheme under the new rule 2A of Service Tax (Determination of Value) Rules, 2006 . A new Rule 2C has been inserted for determining the value of service involved in supply of food or any other article of human consumption or any drinks in a restaurant or as outdoor catering. The existing scheme of determination of value of such services through prescribed abatements in various exemption notifications has been done away with. There are certain changes in rule 6 of the Service Tax (Determination of Value) Rules, 2006 . All notifications that prescribed the abatements for working out the taxable value from the gross amount charged have been merged into one single exemption notification i.e., notification no. 26/2012- ST dated 20/6/12.