8 Important Provisions Relating to Collection and Payment of Service Tax in India

Service Tax @ 10% should be shown separately in the Invoice/Bill and Invoice should indicate service tax registration number.

Service Tax Rules, 1994 describe who is person responsible for collecting service tax, e.g. in case of brokerage on sale/purchase of securities in listed stock exchange, every stock exchange broker is person responsible for collecting tax.

Normally, person who provides the service is responsible for collecting the tax. However, in few cases exceptions have been made and service receiver is made liable to pay service tax.

This is brown as ‘Reverse Charge’ method, e.g., in case of C & F agents, person who engages the C & F agent is responsible for collecting the service tax. In case of goods transport, person availing the services of goods transport is liable.

The exceptions are:

(i) Services provided to non-resident:

In relation to taxable service provided or to be provided by any person from a country other than India and received by any person under section 66A of Finance Act.

(ii) Service of Insurance Agent:

In case of insurance auxiliary service by an insurance agent, the tax will be payable by insurance company (general insurance or life insurance as the case may be).

The insurance agent is not liable to register and pay tax. However, the insurance agent is not entitled to avail exemption available to a small service provider.

(iii) Consignor/consignee paying freight, in case of GTA service:

In case of services of Goods Transport Agency (GTA), service tax is payable by consignor/consignee who is paying freight [rule 2(l)(d)(v)] [However, the consignor/consignee is not entitled to avail exemption available to a small service provider.]

(iv) Services of Agents of mutual fund:

In case of distributors/agents of mutual funds, the liability will be on the recipient of service, namely, mutual funds [Rule 2(1) (vi)] [However, the mutual fund agent is into entitled to avail exemption available to a small service provider].

(v) Body Corporate or firm located in India receiving sponsorship service:

In case of sponsorship service provided to a body corporate or firm located in India, the body corporate or firm receiving such sponsorship service will be liable to pay service tax [rule 2(1)(d)(vii). If the recipient of sponsorship service is located outside India, service tax is required to be paid by the service provider and not by the recipient.

(2) Registration:

A person liable to pay service tax is required to get registered within 30 days from the date on which service tax is payable or commencement of business whichever is later.

Certain other persons (like small service providers and input service distributor) may also be required to get register even though they may not be liable for payment of tax.

(3) Invoices & Other Record:

These must contain the following details

(i) Serial number

(ii) Name, address and registration number of all the services.

(iii) Name and address of service receiver

(iv) Description, classification and value of taxable services.

(v) Service Tax and Education Cess payable

(vi) Signature of person providing services or authorized signatory

(4) Deposit of Tax:

The tax is to be paid on the 5th day of the next calender month (subject to monthly or quarterly liability) in GAR-7 challan. Effective from 01/10/2006, any person who has paid service tax exceeding Rs. 10 Lakh in 2009-10 has to pay service tax electronically. The account head is 1004. The tax paid should be rounded off in rupees.

(5) Returns:

Returns have to be filed on half yearly basis within 25 days of the next month (i.e. 25th October and 25th April) in triplicate form ST-3. A “Nil” returns is also required to be filed. A revised return can be filed within a period of 60 days from the date of filing of original return.

(6) Assessments:

Service tax law provides for self assessment by the assessee through the filing of returns. However the service department has a power to recover service tax when there is under payment of tax.

Such may be detected either on verification of returns, on the basis of cross check from existing dealers, on detailed audit of accounts or on the basis of market intelligence.

(7) Refund of tax:

The claim of the refund of excess service tax is fairly cumbersome and assessee must comply with the following conditions

(i) Application must be in Form R

(ii) Application must be filed with one year from the end of the financial year.

(iii) It should be supported by the proof that the incidence of tax is not passed on to other person.

(8) Interest and Penalty:

A simple interest @13% p.a. is required to be paid when the tax is not paid within due date. In addition to this, a penalty could be levied which would be not less than Rs. 100 per day or 1% per month whichever is higher, restricted to the amount of tax. Penalty could also be levied for the contravention of the provisions or the rules of the act and suppressing the value of taxable services.