Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION UNIVERSITY

Lucknow

Faculty of Law

RESEARCH PROJECT ON

[CONCEPT OF SERVICE TAX]

For

COURSE ON ‘LAW OF TAXATION-II’

CLASS: B.Com., LL.B (Hons.) 8th Semester

Submitted by

[Santosh Lakhmani]

[37]

Academic Session: 2019-20

Under the Supervision of

Mr. Sagir Ahmad Raza

Prof. in Law

Faculty of Law

1|Page
 Dr. ShakuntalaMisra National Rehabilitation University

INDEX

S.NO TOPIC PAGE.NO REMARK

1. DEFINITION OF SERVICE TAX 4

2. CONCEPT OF SERVICE IN ‘SERVICE TAX’ 5- 6

3. NEGATIVE LIST & SERVICE TAX INVOICES 7

4. IMPOSITION OF SERVICE TAX 8 – 11

5. IMPORTANT PROCEDURE 12-13

6. CONCLUSION 14

7. BIBLIOGRAPHY 15

2|Page
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Mr. Sagir Ahmad
Raza who gave me the golden opportunity to do this wonderful project on the topic
Concept of Service Tax, which also helped me in doing a lot of Research and i came to
know about so many new things I am really thankful to them.
Secondly i would also like to thank my parents and friends who helped me a lot in
finalizing this project within the limited time frame.

3|Page
 DEFINITION OF SERVICE TAX

Definition:
Service tax is a tax levied by the government on service providers on certain
service transactions, but is actually borne by the customers. It is categorized
under Indirect Tax and came into existence under the Finance Act, 1994.

Description: 
In this case, the service provider pays the tax and recovers it from the customer.
Service Tax was earlier levied on a specified list of services, but in the 2012
budget, its scope was increased. Services provided by air-conditioned restaurants
and short term accommodation provided by hotels, inns, etc. were also included
in the list of services.

It is charged to the individual service providers on cash basis, and to companies

on accrual basis. This tax is payable only when the value of services provided in
a financial year is more than Rs 10 lakh.

4|Page
 CONCEPT OF SERVICE IN SERVICE TAX

The meaning of the term service tax is very important from the point of view of both
assess as well as department. This is the first place of reference in case any dispute
comes up; this is the basis of taxability of any activity. If the activity carried out by
assess does not get covered in the definition of service then question of service tax
liability does not arise at all, and if the revenue wish to collect tax from the assess, then
the onus is on the department to prove that the activity carried out by the assess shall
fall within the definition of service. So, one of the most important question which arises
is, which activity should be classified as service??
As per Section-65B,
“Service” means any activity carried out by a person for another for consideration and
includes certain declared services (Declared services are provided in other notes).
However, there are certain activities that are not covered under this definition. They
are:
1. An activity which constitutes merely.
a) A transfer of title in goods or immovable property by way of sale, gift or in any other
manner.
b) Such transfer, delivery or supply of any goods which is deemed to be a sale.
c) A transaction in money or actionable claim.
2. Any service done by an employee to the employer in the course of or in relation to his
employment.
3. Fees taken in any Court or Tribunal established under any law for the time being in
force.
Note 1:

5|Page
The term ‘activity’ means to do something or not to do something that means activity
could be active or passive and would also include forbearance to act i.e. not to do
something. For example: “I will pay you Rs.50000 if you don’t use my house’s design
for some other house”.
Note 2:
The term ‘from one person to another’ signifies that services provided by a person to
self are outside the scope of taxable service. For example: services provided by one
branch of a company to another branch would not amount to service. However, there
are certain exceptions in this rule:
a) An unincorporated association or a body of persons, as the case may be, and a
member thereof shall be treated as distinct persons;
b) An establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of distinct
persons. So any associated activities will be considered a service.
Therefore, in the above example both the branches should be located in the taxable
territory of India.
Note 3:
The term ‘consideration’ means receiving something in return; it can be in the form of
monetary or non-monetary consideration i.e. money, goods (in kind) or some other
service in return. However, kindly note that consideration should exists at the time of
provision of service. For example: A beggar singing in bus , here no consideration exists
at the time of service, hence it is not a service; however, if the same beggar performs at
the concert, then consideration exists and hence it is a service and service tax liability
arises. Therefore, activity without consideration is not a service. Similarly, any
consideration received without activity is also not a service for example: gift, pocket
money.
Note 4:
Transfer of title in goods of immovable property is not a service because goods
transferred by way of sale or deemed sale is liable to VAT and not service tax, similarly
transfer of immovable property by way of sale attracts stamp duty and hence no service
tax. For transactions involving money or actionable claim only the margin or
commission part will be liable to service tax. For example: conversion of Rs.1000
currency note into one rupee coins is not a service, as it is just a normal transaction.
However, if any margin is charged for converting foreign currency in Indian Rupees
then only that margin is subjected to service tax. The transactions not in money

6|Page
includes: Issue of pay-orders/bank drafts, debt collection services/credit control services
etc., therefore they will be regarded as a service.
Note 5:
Services provided by employee to employer in the course of employment is not a
service, however if an employee provides any service outside the ambit of employment,
then it will be a service. For example: if an employee provides his services on contract
basis to an associate company of the employer, then that is a service outsides his regular
employment services, hence it would be classified as a service and liable to service tax.

Note 6:
Activities performed by MPs, MLAs, President, Governor, Diplomats ,
Chairman/member/director in a body established by Central Government/State
Government/Local authority , are not services and outside the scope of service tax.

NEGATIVE LIST

Budget 2012 revamped the taxation provisions for services by introducing a new system
of taxation of services in India. In the new system all services, except those specified in
the negative list, are subject to taxation. Earlier the levy of service tax was based on
positive list—specified 119 taxable services.[
As per clause (34) of section 65B of the Finance Act, 1994, the term "Negative List"
means the services which are listed in section 66D.

SERVICE TAX INVOICES

Rule 4A prescribes that taxable services shall be provided and input credit shall be
distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan
will also include documents used by service providers of banking services (such as pay-
in-slip, debit credit advice etc.) and consignment note issued by goods transport

7|Page
agencies. Rule 4B provides for issuance of a consignment note to a customer by the
service provider in respect of goods transport booking services .

IMPOSITION OF SERVICE TAX ON SERVICES RENDERED BY AGENTS

By the issue of Notification No. 17/96-Service Tax dt. 6.6.97, service tax has been
imposed on Custom House Agents and Steamer Agents w.e.f. 15.6.97. The service Tax is
imposed under the provisions of Chapter V of the Finance Act, 1994 (32 of 1994), as
amended.

CUSTOM HOUSE AGENTS

In the context of these two services, certain points have been raised for clarification
which are discussed below:

 The expression “Custom House Agent” has been defined to mean a person
licensed, temporarily or otherwise, under the regulations made under sub-
section (2) of Section 146 of the Custom Act, 1962. A person is permitted to
operate as a Custom House Agent, temporarily under regulation 8(1) and
permanently Regulations, 1984.
 As per the Finance Act, 1997, the taxable service rendered by a Custom House
Agent means any service provided to a client by a Custom House Agent in
relation to the entry or departure of conveyances or the import or export of
goods. The value of the taxable service in relation to the service provided by a
Custom House Agent to a client has agent from the client for services rendered in
any manner in relation to import or export of goods. The service tax is chargeable
@ 5% on the value of the taxable service.
 2.3 The services rendered by the Custom House Agent are not merely limited to
the clearing of the import and export consignment. The CHA also renders the

8|Page
 service of loading/ unloading of import or export goods from /at the premises of
the exporter / importer, the packing, weighment, measurement of the export
goods, the transportation of the export goods to the customs station or the import
goods from the customs station to the importer’s premises, carrying out of
various statutory and other formalities such as payment of expenses on account
of octroi, destuffing/pelletisation, terminal handling, fumigation, drawback/
DEEC processing, survey / amendment fees, dock fees, repairing and
examination charges, landing and container charges, statutory labour charges,
testing fees, drug control formalities, sorting / marking / stamping / sealing on
behalf of the exporter / importer. The Custom House Agent also incurs various
other expenses such as crane / fork lift charges, taxi charges, photostat and fax
charges, bank collection charges, courier service charges, and miscellaneous
other expenses on account of the exporter / importer. For all the above charges,
the CHA is ordinarily reimbursed by the importer / exporter for whom the above
services are rendered. Apart from the above charges, the CHA also charges the
client for his service under the head / nomenclature of ‘agency and attendance
charges’ or similar kind of heads which is purported to be his service charge in
respect of the services rendered in relation to the import / export goods.
 It is clarified that in relation to Custom House Agent, the service tax is to be
computed only on the gross service charges, by whatever head / nomenclature,
billed by the Custom House Agent to the client. It is informed that the practice
obtaining is to show the charges for services as ” agency commission”, “charges”,
“agency and attendance charges”, “agency charges” and some similar
descriptions. The service tax will be computed only with reference to such
charges. In other words, payments made by CHA on behalf of the client, such as
statutory levies (cess, Customs duties, port dues, etc.) and various other
reimbursable expenses incurred are not to be included for computing the service
tax.
 In many cases, the Customs House Agent undertakes “turnkey” imports and
exports where a lump sum amount is charged from the client for undertaking
various services. In these cases, the lump sum amount covers not only the
“agency commission” fee but also other expenses and no separate break-up is
given in respect of these expenses. It has been decided that in such cases, the
value of the taxable service shall be 15% of the lumpsum amount charged to the
client. The Custom House Agents are required to show the service charges as
15% of such lumpsum amount of the bills and Service Tax of 5% will be
chargeable on the above 15%.

9|Page
  Some times, CHAs sub-contract their work to CHAs located in other stations. In
such cases, it is possible that the sub-contracting CHA raises the bill on the main
CHA who in turn raises the bill to the client. It has been decided that in such
cases, the sub-contracting CHA will not be required to pay service tax on the bills
raised by him on the main CHA, The service tax will be payable by the CHA who
provides the actual service to the client and raises the bill to the client.
 A CHA may have various branch offices located at different stations but all these
branch offices do not raise the bills and only the main or central office will be
raising the bills. In such cases, only the central office should be registered with
the Department.
 Sometimes, the bills raised by the CHA are not entirely paid by the client and the
CHA is forced to give discounts. In such cases where the final bill raised is lower
than the initial bill, it may be mentioned that the law provides for claiming of
refund of excess service tax paid within six months from the date of payment of
tax. If the CHA can produce evidence of having charged less services fee, he may
claim refund of excess service tax paid, if any, as per the provisions of law.

STEAMER AGENTS

 The expression ‘Steamer Agents’ has been defined to mean any person who
undertakes, either directly or indirectly.

a. to perform any service in connection with the ships’ husbandry or dispatch

including the rendering of administrative work related thereto; or
b. to book, advertise or canvass for cargo for or on behalf of a shipping line; or
c. to provide container feeder services for or on behalf of a shipping line;
 The taxable service provided by a steamer agent to a shipping line, is the service
provided by a Steamer Agent in relation to a ships’ husbandry or dispatch or
any administrative work related thereto as well as the booking, advertising or
canvassing of cargo, including container feeder services. The value or the taxable
service in relation to service provided by a steamer agent to a shipping line,
shall be the gross amount charged by such agent from the shipping line for
services in relation to a ship’s husbandry or dispatch or any administrative work
related thereto or in relation to the booking, advertising or canvassing of cargo,
container feeder services including the commission paid to such agent.
 Steamer Agents incur various types of expenses on behalf of the shipping line
such as pilottage and berth hire charges, Indian Coast light dues paid to the port
authorities, cargo expenses paid to port authorities and transporters such as

10 | P a g e
 CONCOR / railways, private transporters, chartered accountants fee, income
tax, brokerage paid on export cargo, ship handling expenses paid to stevedoring
agents. For all the above charges the Steamer Agent is ordinarily reimbursed by
the Shipping line. Further, the Steamer Agent bill the principals i.e. the shipping
line, for two types of service charges. One is called the husbandry fee which they
charge for a ships’ husbandry. The second is the agency commission which is
paid by the shipping line on the import and export cargo. These commissions
are usually paid as a percentage of the net ocean freight (basic freight) which is
clearly indicated in the agreement entered into between the Steamer Agent and
shipping line.
 It is clarified that in relation to the Steamer Agent, the service charges will
constitute the husbandry fee as well as the agency commission on import /
export cargo. Other expenses incurred by the Steamer Agent on behalf of the
shipping line shall not be taken into account.
 It has been represented that the accounting for purposes of service tax should be
on per voyage, per vessel basis and further that the registration for service tax
purposes should be done only of their seaport offices. It has been decided that
only such sea port offices of the Steamer Agent should be registered for service
tax purpose which are raising the bill to the shipping lines. The branch offices in
ICDs which are just sales offices and do not raise any bills to the shipping line,
need not be registered. This is for the reasons that billing is done by the sea port
offices and not the branch offices.

11 | P a g e
 IMPORTANT PROCEDURE

Rules relating to levy of service tax on other services are already in existence. The
procedure to be followed for the registration, maintenance of documents, filing of
returns and manner in which the service tax is to be paid, is given below:
a. Registration
When an assessee provides taxable services from more than one premises or
office, he shall make separate application for registration in respect of each such
premise or office.
When a registered assessee transfers his business to another person, the
transferee shall obtain a fresh certificate of registration.
When a registered assessee ceases to carry on the activity for which he is
registered, he shall surrender his registration certificate immediately to the
Central Excise authorities.
b. Payment of Service Tax
The Service Tax collected during any calendar month shall be paid to the credit
of the Central Government by 15th of the following month in form TR-6 challan
(yellow colour) e.g., for the month of June 1997, it should be credited latest by

12 | P a g e
 15th of July, 1997. The head of account for the above 2 services will be intimated
shortly.
Any person, responsible for collecting the service tax who fails to collect the tax
shall, notwithstanding such failure, be liable to pay such tax to the credit of the
Central Govt. within 75 days from the end of the month in which the service was
rendered.
c. Interest on Delayed Payment of Service Tax
If any assess fails to pay or credit the Service Tax or any part thereof in time, he
shall pay simple interest @1.5% for every month or part of a month by which
such payment / crediting of the tax or any part thereof is delayed.
d. Filling of Quarterly Returns
A Quarterly Return in Form ST-3 (in triplicate) should be filed within 15 days of
the end of the preceding quarter, i.e. latest by 15th July, 15th October, 15th
January and 15th April for the quarters ending June, September, December and
March respectively.
e. Penalty for failure to collect or pay Service Tax
i. If any person responsible for collecting Service Tax fails to collect such tax, he
shall be penalised a sum equal to the amount of Service Tax which he failed to
collect, besides paying the actual amount of tax and the interest thereon.
ii. If any person, fails to pay the Service Tax to the credit of the Central Govt. in
time after having collected the service tax, he shall pay a penalty of Rs. 100/-
which may extend to Rs. 200/- per day during which such failure continues,
besides paying the actual service tax and the interest thereon. However, the
penalty in this case shall not exceed the amount of Service Tax that he failed to
pay.
Note: The amount of Service Tax collected should be separately shown on the invoice
for the service provided.
f. Penalty for failure to furnish the Quarterly Return:
If a person fails to furnish the Quarterly Return (including “Nil” return) in form
ST-3 in time, i.e.. by 15th July, 15th October, 15th January and 15th April for the
quarters ending June, September, December and March respectively, he shall be
penalised with a sum of Rs. 100/- extendable to Rs. 200/- for every day during
which the failure continues.

13 | P a g e
 g. Penalty for suppressing value of taxable service
If any person is found concealing or supperssing the value of taxable service or
has furnished inaccurate value, etc., such person shall be penalised a sum upto
twice the amount of service tax sought to be evaded by reasons of suppression,
concealment, etc. besides paying the actual service tax and interest, if any.
Apart from the above penalties, persons committing offences under Chapter V of
the finance Act, 1994 would also be liable to prosecution in certain cases.
h. Records
Every assessee shall furnish to the Central Excise Officer at the time of filing his
quarterly return for the first time a list of all accounts maintained by the assessee
in relation to service tax including memoranda received from his branch offices.

CONCLUSION
Service tax Exemptions under various notifications under Central Excise and Service
Tax are helpful in reducing the cost of production or cost of service as the case may be.
However, proper care has to be taken by the assess for availing the benefit of various
notifications since Central Excise law is very much procedure oriented. A small mistake
may lead in stringent penalty and interest under the law and the entire purpose of cost
reduction will get defeated. Cases of ignorance and negligence were observed. The
Service Tax Law has undergone a major change on 01.07.2012. Since introduction from
service tax from 1994, scope of service was expanding every year. In other words only
listed services were taxable. Tax was payable only after the payment is received from
customer / client. ‘Service’ was not defined in the Act. The definition of each service was
vague but broad. Often disputes and litigations were observed about taxability of the
particular activity and classification of the activity under a particular head. Concept of
Declared Services and Bundled Services have been introduced. Place of Provision of
Service Rules has been introduced. The scope of Reverse Charge Mechanism, i.e.
shifting of liability and responsibility of service tax on the recipient of services is
widened. Mainly the tax evasion prone services such as Manpower Supply Agency
Services, Security Services, Works Contract Services, Rent a Cab Services provided by
Individuals, Partnership Firms are brought under Reverse Charge Mechanism and now

14 | P a g e
the service tax on these services is collected from Body Corporate. The new provisions
under Service Tax also provide avenues for cost reduction.

BIBLIOGRAPHY

The content has been taken from:-

BOOKS:-

 Goods and Service Tax and Custom Duty BY Dr. H.C. Mehrotra & Prof. V. P.
Agarwal

WEB:-

 THE ECONOMIC TIMES

15 | P a g e
  Wikipedia
 Slide share.com

16 | P a g e