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TMI BlogValuation.X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 wherever Service Tax is char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 67 read with rule 3 of the Service Tax (Determination of the value) Rules 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contract involves an element of sale of goods and provision of service. It is a well settled position of law, dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 of the total amount charged for the works contract (B) maintenance or repair or reconditioning or restoration or servicing of any goods seventy per cent of the total amount charged including such gross amount (C) in case of other works contracts, not included in serial nos. (A) and (B) above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings. six ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rates and the Reserve Bank of India (RBI) reference rate for that currency at that time. Accordingly a separate Rule 2B provides for the manner of determination of value of service in relation to money changing. 8.3.1 Would sale and purchase of foreign currency or money changing not be excluded from the definition of service as being transaction only in money? No. As per Explanation 2 to clause (44) of Section 65B, which defines 'service', activity of conversion of one currency into another for which a separate consideration is charged would not get tantamount to a transaction only in money. In transactions of sale and purchase of foreign currency or money changing since a separate consideration is charged these would not be excluded from the definition of 'service'. 8.3.2 What is the manner of determination of value of service in relation to money changing including sale and purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring 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 restaurant, big or small, covered by the manner of valuation provided in Rule 2C of the Valuation Rules? Yes. Although services provided by any kind of restaurant would be valued in the manner provided in Rule 2C, it may be borne in mind that the following category of restaurants are exempted - ♦ Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage. ♦ Below the threshold exemption. 8.4.2. How is the value of service portion to be determined in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering? The manner of determination of service portion in such an activity is very simple and is given in Rule 2C of the the Service Tax (Determination of Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtion where such supplies are made in any other premises like hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function an abatement of 30% has been provided for in exemption notification no 26/2012-ST dated 20/6/12. For details please refer to serial no. 4 of the table in point no 8.8 below. 8.5 Inclusion or exclusion from value of certain expenditure or costs borne by the service provider. Rule 5 of Service Tax (Determination of Value) Rules, 2012 lays down the details of expenditure and cost borne by the service provider which have to be included or excluded while determining the value of taxable service. 8.5.1 What is the expenditure or costs that are to be included in the value of taxable services as per rule 5 of the Valuation Rules? As per Rule 5 any expenditure or cost that are incurred by the service provider in the course of providing taxable services are treated as consideration for taxable service provided or agreed to be provided and shall be included in the value for the purpose of charging Service Tax on the said service. However, Explanation to sub-rule (1) of Rule 5 clarifies that for the value of telecommunicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules deals with specific situation where certain commission or costs received by the service provider would be included as part of the taxable service. INCLUSIONS ♦ the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker; ♦ the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; ♦ the amount of premium charged by the insurer from the policy holder; ♦ the commission received by the air travel agent from the airline; ♦ the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; ♦ the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer; ♦ the commission or any amount received by the rail travel agent from the Railways or the customer; &dia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to unforeseen actions. ♦ The damages are not related to provisions of service. Examples- ♦ Insurance Companies provide insurance services to the clients for which the premium is charged. The premium charged is a consideration for the insurance service provided. However, in case due to an unforeseen action ,like an accident etc., a compensation is paid by the insurance company to the client then the money would not be included as part of value of taxable service as it is not relatable to the provisions of service but is only in the nature of consequence of provisions of insurance service. ♦ In case a landlord who has rented out his office building to a tenant receives compensation from the tenant for the damage caused to the building by an unforeseen action then such compensation would not form part of the value of taxable service related to tenant of his building as an unforeseen damage caused by the tenant is not relatable to provision of service of renting of the office building. 8.6.3. What is the scope of the exclusion entry relating to subsidies and grants disbursed by the Government, not in the nature or directly influencing the value of service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sale of foreign currency, including money changing, provided by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorized money changer Option to pay an amount calculated at the following rate (a) 0.12 percent, of the gross amount of currency exchanged for an amount upto rupees 100,000, subject to the minimum amount of rupees 30; and (b) rupees 120 and 0.06 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding rupees 100,000 and upto rupees 10,00,000; and (c) rupees 660 and 0.012 per cent. of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000, subject to maximum amount of rupees 6000 The person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year. (7C) Services by distributor or selling agent of promotion, marketing, organizing or in any other manner assisting in organising lottery, Option to pay- (i) Rs. 7000/- on every Rs. 10 Lakh (or part of Rs. 10 Lakh) of aggregate face value of lottery tickets printed by the organising State for a draw (If guaranteed prize payo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcial places meant for residential or lodging purposes 60 Same as above. 7 Services of goods transport agency in relation to transportation of goods. 25 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. 8 Services provided in relation to chit 70 Same as above. 9 Renting of any motor vehicle designed to carry passengers 40 Same as above. 10 Transport of goods in a vessel 50 Same as above. 11 Services by a tour operator in relation to,- (i) a package tour 25 (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 for this purpose indicates that it is inclusive of charges for such a tour. (ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person 10 (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 invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponsible for determining the value of taxable service? Since Service Tax has to be paid by the persons responsible to pay Service Tax on the basis of self-assessment for value of taxable service has to be determined by the person responsible for payment of Service Tax in accordance with the provisions of Section 67 of the Act and rules made there under. 8.9.2 Can the value determined by the person responsible to pay service tax be rejected by the Department? Yes. In terms of the provisions of Section 73 of the Finance Act 1994 and Rule 4 of Service Tax (Determination of value) Rules 2006 the value works out by the service provider or any other person responsible for payment of service tax can be rejected by Central Excise Officer if he has specified that the value so determined is not in accordance with the provisions of the act or the Valuation Rules. In such a situation the Central Excise Officer shall issue a Show Cause Notice to the serviced provider or any other person responsible for payment of Service Tax to Show Cause as to why the value of such taxable service for the purpose of charging service tax should not be fixed on the amount specified in the notice. After giving ..... X X X X Extracts X X X X X X X X Extracts X X X X
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