st 2.1 Prior to 1 July 1994 only the manufacturing sector was subject to indirect tax in the form of Central Excise. This approach placed a disproportionate burden on the sector producing commodities, while service-sector, which contributed about 48.45% of GDP, escaped taxation. The base of tax system was required to be extended specially when present thinking favours lowering of tariff rates together with wide-ranging input-duty relief. There is also a crying need for improving the tax-GDP ratio. Therefore, the Service Tax was imposed in 1994 for the first time on (i) Telephone services, (ii) Services relating to non-life insurance and (iii) Services by Stock Brokers. 2.2 The report of the Chelliah Committee on Tax Reforms had also mentioned services as a potential base for increasing revenue. On these recommendations, the then Union Finance Minister, while introducing the Budget for 1994-95 stated that:- “There is no sound reason for exempting services from taxation, when goods are taxed and many countries treat goods and services alike for tax purposes. The Tax Reforms Committee has recommended the imposition of tax on services as a measure for broadening the base of indirect taxes”. 2.3 Depending on the socio-economic compulsions, each country evolved a taxation system on services adopting either a comprehensive approach or a selective approach. While most of the developed countries tax all the services with very few and limited exemptions, some of the developing countries tax select services only. Hitherto, India has adopted a selective approach to taxation of services. 2.4.1 The legal provisions for the levy and collection of Service Tax were introduced through Finance Bill 1994. Thus, the law relating to Service Tax was enacted vide Chapter V of the Finance Act, 1994 (Sections 64 to 96 thereof) as amended from time to time. Under the charging Section 66 of the Finance Act, 1994 as amended, the Service Tax is levied at a uniform rate on all taxable services (@ 8% with effect from 14.5.2003). Except for certain limited exemptions/ concessions as allowed under Section 93 of the aforesaid Act, there are no general exemptions from Service Tax. 2.4.2 Service Tax is applicable to the whole of India except the State of Jammu and Kashmir. The provisions for Service Tax have been extended to the designated areas in the Continental Shelf and Exclusive Economic Zone of India vide Notification No.1/2002-ST dated 1.3.2002. 2.4.3 A new Chapter “V-A” has been inserted in the Finance Act, 1994 to provide for advance rulings in respect of a question of law or fact regarding the liability to pay Service Tax in relation to a service proposed to be provided, in the manner specified.
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