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TMI BlogValuation.X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The broad scheme of valuation and provisions of Valuation Rules have been explained through a set of examples, questions and answers below. 8.1. Broad Scheme of Valuation. 8.1.1 How is value of service relevant for the purpose of payment of service tax? In terms of the charging provisions contained in Section 66B , service tax is levied @ 12% on the value of taxable services. Therefore, value of service provided is relevant for determining the amount of service tax payable when a taxable service is provided by a person to another. 8.1.2 What is the value on which service tax is to be paid? The manner of value of service is provided in Section 67 . As per sub-section (1) of Section 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of service is for consideration in money, then the value of taxable service shall be the gross amount charged by the service provider for such service provided or agreed to be provided by him. 8.1.7 What is the meaning of 'gross amount charged'? 'Gross amount charged' has been defined in Explanation (c) of Section 67 to include 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. 8.1.8 What is the manner of determining the value of non-monetary consideration? As per clause (ii) of sub-section (1) of section 67 of the Act where the consideration received is not wholly or partly consisting of money the value of taxable service shall be the equivalent money value of such consideration. If the same is not ascertainable then the value of such consideration is determined under clause (iii) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 also provide simplified compounded mechanism for determination of value of taxable services in specified situations. These specified aspects of determination of value under the Service Tax (Determination of Value) Rules 2006 and the Service Tax Rules, 1994 have been dealt individually with in point nos. 8.2 to 8.7 below. 8.1.10 In addition to the two set of rules explained in point no 8.1.9 above, that have a bearing on the valuation of services, are there any exemption notifications that exempt certain portion of the gross amount charged from levy of service tax or in other words provide for abatements to arrive at the value of taxable services? Yes. Earlier there were a number of exemption notifications that prescribed the abatements for various categories of services. As another measure of simplification now all such abatements for specified category of services have been merged into a single notification no 26/2102 - ST dated 20/6/12 which has been dealt with in point no. 8.8 below. 8.2 Valuation of service portion in execution of a works contract Works contract has been defined in clause (54) of section 65B of the Act. Typically every works contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the execution of the works contract Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract. Profit earned by the service provider relatable to supply of labour and services 8.2.2. Is there any simplified scheme for determining the value of service portion in a works contract? Yes. The scheme is contained in the clause (ii) of rule 2A of the Service Tax (Determination of Value) Rules, 2006 . As per this scheme the value of the service portion, where value has not been determined in the manner as provided in clause (i) of rule 2A (explained in point 8.2.1 above), shall be determined in the manner explained in the table below - Where works contract is for... Value of the service portion shall be... (A) execution of original works forty percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. No. NOTATION AMOUNT (in Rs.) 1 Gross amount received excluding taxes 95,00,000 2 Fair market value of goods supplied by the service receiver excluding taxes 10,00,000 3 Amount charged by service receiver for 2 5,00,000 4 Total amount charged (1 +2-3) 1,00,00,000 5 Value of service portion(40% of 4 in case of original works) 40,00,000 Note: When the service provider pays partially or fully for the materials supplied by the service receiver, gross amount charged would inevitably go higher by that much amount. 8.3 Determination of value of service in relation to money changing In services of money changing including sale and purchase of foreign currency the problem of valuation arises on account of the fact that as per normal trade practice in such services the consideration is inbuilt in the difference between the selling/buying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y goods, being food or any other article of human consumption or any drink (whether or not intoxicating) in any manner as part of a service for cash, deferred payment or other valuable consideration is deemed to be a sale of such goods. Such a service therefore cannot be treated as service to the extent of the value of goods so supplied. The remaining portion however constitutes a service. It is a well settled position of law, declared by the Supreme Court in BSNL's case [2006 (3) TMI 1 (SC)] , that such a contract involving service along with supply of such goods can be dissected into a contract of sale of goods and contract of provision of service. Since normally such an activity is in the nature of composite activity, difficulty arises in determining the value of the service portion. In order to ensure transparency and standardization in the manner of determination of the value of such service provided in a restaurant or as outdoor catering a new rule 2C has been inserted in the Service Tax (Determination of Value) Rules, 2006 by the amendment rules of 2012. This manner of valuation is explained in the points below. 8.4.1 Are services provided by any kind of restaur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers? In terms of the Explanation to Rule 2C of the Valuation Rules any goods meant for human consumption classifiable under chapters 1 - 22 of Central Excise Tariff are not 'inputs' for provision of such service. Cenvat Credit is, therefore, not available on these items. Availability of Cenvat credit on other inputs, input services and capital goods would be subject to the provisions of the Cenvat Credit Rules, 2004 including the provisions relating to reversal of credits contained in rule 6 of the said rules. It may be noted the sale of food in the restaurant would amount to clearance of exempt goods and thus the provisions of Rule 6 of Cenvat Credit Rules will be applicable. 8.4.4 Would Rule 2C of the Valuation Rules also apply to determination of value of service portion in cases of supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function? No. Rule 2C applies only in cases of restaurants and outdoor catering. For valuation of service portion where such supplies are made in any other premises like hotel, conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the service provider to the recipient of service; the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. 8.5.3 What is the meaning of pure agent? Pure agent has been defined in Explanation to sub-rule 2 of Rule (5) of the Valuation Rules as a person who- enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; does not use such goods or services so procured; and receives only the actual amount incurred to procure such goods or services. 8.6 Cases in which commission, costs etc. received by the service provider will be included or excluded. Rule 6 of the Valuation Rules deals with specific situation where certain commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if shown separately on the ticket, or the invoice for such ticket, issued to the passenger; accidental damages due to unforeseen action not relatable to the provision of service; subsidies or grants disbursed by the Government, not in the nature of directly influencing the value of service. (italics indicate the additions made in the Service Tax (Determination of Value) Second Amendment, Rules, 2012) 8.6.1. Does the interest for delayed payment for provision of a service includable in the taxable value? No. In terms of clause (iv) of Sub-rule 2 of Rule 6 delayed payments of any consideration for provision of service is excluded from the value of taxable service. 8.6.2. What is the scope of the exclusion entry related to accidental damages due to unforeseen actions not relatable to the provisions of service? This inclusion has been inserted vide the Serviced Tax (Determination of Value) Second Amendment Rules, 2012. In terms of this exclusion accidental damages are not to be included in the value of service provided the following two conditions are specified: The damages are due to unforeseen actions. The damages are not relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Conditions (7) Services provided by an air travel agent Pay an amount calculated at the rate of 0.6% of the basic fare (i.e. that part of the fare on which commission is normally paid to the travel agent by the airlines) in the case of domestic bookings, and at the rate of 1.2% of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter Option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances (7A) An insurer carrying on life insurance business Option to pay tax (i) on the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of policy holder, if such amount is intimated to the policy holder at the time of providing of service; (ii) in all other cases 3% of the gross amount of premium charged in the first year and 1.5% of the premium charged in the subsequent years. Option sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch of the service tax leviable, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (3) of the following Table, of the amount charged (or in some cases of specified amount) by such service provider for providing the said taxable service, unless specified otherwise, subject to the relevant conditions specified in the corresponding entry in column (4) of the said Table: Table Sl. No. Description of taxable service % Conditions (1) (2) (3) (4) 1 Services in relation to financial leasing including hire purchase 10 Nil. 2 Transport of goods by rail 30 Nil. 3 Transport of passengers, with or without accompanied belongings by rail 30 Nil. 4 Bundled service by way of supply of food or any other article of human ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the CENVAT Credit Rules, 2004 . ( ii ) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. ( iii ) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. (iii) services other than those specified in (i) and (ii) above 40 (i) 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 . (ii) The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour. 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 25 (i) CENVAT credit on inp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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