1. INDIAN TAXATION
4. SERVICE TAX (ST) (AN ENGINEER’S PERSPECTIVE)
I. INTRODUCTION
Service Tax is an Indirect Tax imposed on specified services (refer to the list of specified services in Section VII of this note). Service Tax is imposed
on all States and Union Territories of India except State of Jammu and Kashmir.
With effect from 1 st April, 2011 Service Tax is levied as per the ‘Point of Taxation Rule’ i.e. on date of issue of invoice or date of receipt of payment
whichever is earlier. Moreover, if the invoice is not issued within 14 days after completion of the services, date of completion shall be the point of
taxation.
As per the Budget 2012-2013 Service Tax is declared as 12% plus Education Cess of 2% on Service Tax and Secondary and Higher Education Cess
of 1% on Service Tax making total as 12.36%.
II. REGISTRATION
The modalities of levying the Service Tax are by the Central Govt. of India and collection of the proceeds thereof is by the Central Govt. and the
State. Under section 69 of Finance Act 1994, all service providers liable to pay Service Tax have to register with the Service Tax Department.
If the turnover of service provider exceeds the stipulated limited of ` 10.0 Lacs in the previous or the given financial year, then there is liability
towards registration with the Service Tax Department and payment of Service Tax.
III. INVOICING BY THE SERVICE PROVIDER

Invoice means invoice referred to in Rule 4(A) of the Service Tax Rules, 1994 and shall include any document as referred.

Every service provider offering taxable services is required to issue invoice within a period of 30 days (in case of banking companies, 45 days) of
such taxable services or on receipt of payments towards such taxable services.

Invoice should contain the following:

Name, Address and the Registration Number of the service provider

Name and Address of the receiver of service

Service tax payable thereon

Signed by authorized person

Serially numbered
However, the format of invoice may vary a bit as per the category of service provider which is elaborated in Rule 4(A) of Service Tax, Rule 1994.
IV. RECORDS TO BE MAINTAINED UNDER SERVICE TAX
Records maintained shall be acceptable to Central Excise Officer.
Every assessee is required to furnish to Central Excise Officer at the time of filing his return a list in duplicate of the following:

Providing of Services

Receipt of Input Services

Payment of Input Services

Receipt/ Purchase/ Manufacture/ Storage/ Sale or Delivery as the case may be, in regard to inputs and capital goods

Manufacture or sale of goods

All other financial records maintained in course of business
All such records shall be preserved at least for 5 years.
V. VALUATION OF TAXABLE SERVICE
Summary of Service Tax (Determination of Value) Rules, 2006 (Source: http://www.servicetax.gov.in/value-rules.htm)
Refer to section VI Cenvat Credit on Works Contract Service for a more simplified explanation after completing this section.
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2. Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of Works Contract Service shall
be determined by the service provider in the following manner:

Value of Works Contract Service determined shall be equivalent to the gross amount charged for the Works Contract Service less the value of
transfer of property in goods involved in the execution of the said Works Contract Service.
 Explanation
 Gross amount charged for the Works Contract Service shall not include 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 Service.
 Value of Works Contract Service shall include the following:
1. Labour charges for execution of the works
2. Amount paid to a sub contractor for labour and services
3. Charges for planning, designing and architect’s fees
4. Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the Works Contract Service
5. Cost of consumables such as water, electricity, fuel, used in the execution of the Works Contract Service
6. Cost of establishment of the contractor relatable to supply of labour and services
7. Other similar expenses relatable to supply of labour and services
8. Profit earned by the service provider relatable to supply of labour and services

Where Value Added Tax (VAT) or Sales Tax, as the case may be, has been paid on the actual value of transfer of property in goods involved in
the execution of the Works Contract Service, then such value adopted for the purposes of payment of Value Added Tax (VAT) or Sales Tax, as
the case may be, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining
the value of Works Contract Service.

Payment of Service Tax on Works Contract Service under composition scheme


Rule 2A(ii) of Service Tax (Determination of Value) Rules, 2006, makes provision for valuation of Works Contract Service under
composition scheme.
Under Composition Scheme, Service Tax is payable at a specified percentage of ‘total amount’ .i.e. total value of Works Contract Service
including value of free material supplied by customer either under same contract or under different contract.
The percentages on which the Service Tax shall be charged under composite scheme w.e.f. 08/05/2013 are as follows:
1
Original works (i.e. new construction, erection,
commissioning, installation)
40%
2
Maintenance or repair or reconditioning or restoration or
servicing of any goods
70%
3
Other Works Contracts (other than 1 and 2 including
60%
maintenance, repair, completion and finishing services
such as glazing, plastering, floor and wall tiling,
installation of electrical fittings) of an immovable property
4
If Construction Contract is for residential complex (need
not be Works Contract Service) includes value of
land plus (a) the carpet area of residential unit is less than
2,000 Sq. Ft and (b) the amount charged for residential
unit is less than Rs one crore (Abatement scheme under Sr
No. 12(i) of Notification No. 26/2012-St dated 20-6-2012
as amended on 1-3-2013). Note that 25% rate applies
when both conditions are fulfilled
25%
5
If Construction Contract (need not be Works Contract
Service) includes value of land and (a) the carpet area is
2,000 Sq. Ft or more or (b) where the amount charged is
Rs one crore or more (Abatement scheme under Sr No.
12(ii) of Notification No. 26/2012-St dated 20-6-2012 as
amended on 8-5-2013). Note that 30% rate applies even if
one of the conditions is satisfied
30%
6
If Construction Contract (need not be Works Contract) is
for industrial or commercial construction and includes
value of land (Abatement scheme under Sr No. 12(ii) of
Notification No. 26/2012-St dated 20-6-2012 as amended
on 1-3-2013)
30%
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3. VI. CENVAT CREDIT ON WORKS CONTRACT SERVICE
Background of Service Tax on Works Contract Services
(A more simplified explanation to section V Valuation of Taxable Services)

Works Contract Service is composite contract of goods and services. Sales Tax (VAT) is imposed on value of goods involved in Works Contract
and Service Tax is imposed on value of services. In this regards:

Service portion in the execution of a Works Contract Service is ‘declared service’. Tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a Works Contract Service is ‘deemed sale of goods’. Such ‘deemed sale of
goods’ has been excluded from definition of ‘service’.

For the purpose of Service Tax, the term ‘Works Contract Service’ has been defined as follows:

‘Works contract’ means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale
of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part
thereof in relation to such property.
Cenvat Credit
 The assessee can avail Cenvat Credit of Input Services and Capital Goods.
 Pay Service Tax under rule 2A(ii) ‘Composition Scheme’ on 40%, 60%, 70% of total value of Works Contract Service. The assessee can avail
Cenvat Credit of Input Services and Capital Goods. The 25%, 30%, 40%, 60%, 70% of value is value of service. The balance amount (on which
Service Tax is not paid) shall be deemed to be value of ‘Exempted Goods’. In effect, the assessee can avail only 25%, 30%, 40%, 60%, 70% of
Cenvat Credit of common Input Services and balance Cenvat Credit is required to be reversed.
VII. RESTRICTIONS ON AVAILING CENVAT CREDIT ON WORKS CONTRACT SERVICE

In case of Works Contract Service (and also service of construction of residential/commercial flats and buildings), Cenvat Credit of Service Tax
paid on Input Services and Excise Duty paid on Capital Goods will be available. However, Cenvat credit of input goods is not available in respect
of construction of residential complex or commercial/industrial building where land price is included, whether or not transaction is covered under
Works Contract Service. It is made clear that Cenvat Credit cannot be availed of Excise Duty paid on goods say building material like cement,
steel, tiles, fittings etc., the property of which is transferred to customer.

Value of Works Contract Service not of composite nature is exclusive of VAT/Sales Tax payable by service provider (which is deemed as sales
of goods), hence there is no question of Cenvat Credit in case of VAT/Sales Tax on value of services. However, the Cenvat Credit can be availed
under Input Tax Credit.

Value in case of trading - As per Explanation I(c) to rule 6(3D) of Cenvat Credit Rules, in case of trading, ‘Value’ for purpose of rule 6(3) and
6(3A) of Cenvat Credit Rules shall be the difference between the sale price and the cost of goods sold (determined as per the generally accepted
accounting principles without including the expenses incurred towards their purchase) or 10% of cost of goods sold, whichever is more.

The provider of taxable service shall not take Cenvat credit of duties or cess paid on any inputs, used in or in relation to the said works contract,
under the provisions of Cenvat Credit Rules.
Summary of Cenvat Credit

100% Cenvat Credit can be availed in case of Excise Duty paid on capital goods.

100% Cenvat credit can be availed in case of Service Tax paid on Input Services used exclusively for providing output (taxable) services.

In case of common Input Services covered under ‘Composite or Abetment Scheme’, on the basis of constitutional deeming provision, it can be
argued that only difference between sale price and purchase price should be taken as value of exempted services and then rule 6 should apply.
VIII. GENERAL EXPEMTION FROM SERVICE TAX
 Export of Services
 Services to United Nation Agencies
 Service providers within Special Economic Zone (SEZ)
 Service provided to Foreign Diplomatic Missions, family members of the Diplomatic Missions
 Services provided by the Reserve Bank of India
 Service providers with turnover less than ` 10.0 Lacs in the last or a given financial year
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4. IX. LIST OF TAXABLE SERVICES
(Source http://tax-india.com/service-tax/list-of-taxable-services-in-india/)
Service Tax Profiles (in alphabetical order)
S.No Service Category
1
Advertising Agency Service
2
Advertisement- sale of space or time services
3
Air travel agent’s services
4.
Airport services
5.
Architect’s Services (http://www.servicetax.gov.in/st-profiles/architet-sevice.htm)
6.
Asset Management Services By Individuals
7.
ATM operation, maintenance or management services
8.
Auction Service
9.
Authorised Service Stations for motor vehicles servicing or repairs
10.
Banking and other financial services
11.
Beauty treatment Services
12.
Brand Promotion Services
13.
Broadcasting Services
14.
Business Auxiliary Service
15.
Business Exhibition Service
16.
Business Support Service
17.
Cable Operator’s services
18.
Cargo handling Services (http://www.servicetax.gov.in/st-profiles/cargo-handling.htm)
19.
Chartered Accountant’s (practising) services
20.
Cleaning Services
21.
Clearing and forwarding agent’s services (http://www.servicetax.gov.in/st-profiles/clearingfwding-agent.htm)
22.
Clearing & processing house services
23.
Club’s or Association’s membership services
24
Commercial training or coaching services
25.
Commercial use or exploitation of any event service
26.
Commodity exchange service (http://www.servicetax.gov.in/st-profiles/commdtyexchange.htm)
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5. 27.
Company secretary’s (practicing) services
28.
Construction of residential complex service (http://www.servicetax.gov.in/stprofiles/constructn-res.complex.htm)
29.
Construction or renovation of commercial / industrial buildings / pipelines / conduits
services (http://www.servicetax.gov.in/st-profiles/constructn-comml-indus.htm)
30.
Construction Services – Preferential Location and Development
(http://www.servicetax.gov.in/st-profiles/constructn-pref-loctn-dev.htm)
31.
Consulting
engineer’s
service
(http://www.servicetax.gov.in/st-profiles/consulting-
enggr.htm)
32.
Convention services
33.
Copyright Services
34.
Cosmetic or Plastic Surgery Service
35.
Cost accountant’s (practicing) services
36.
Courier Services
37.
Credit card, debit card, charge card or other payment cards related services
38.
Credit rating agency’s services
39.
Custom house agent’s services (http://www.servicetax.gov.in/st-profiles/cus-hse-agent.htm)
40.
Design services (http://www.servicetax.gov.in/st-profiles/design-services.htm
41.
Development & supply of content for telecommunication, advertising and on-line
information services
42.
Dredging services (http://www.servicetax.gov.in/st-profiles/dredging-services.htm)
43.
Dry cleaning services
44.
Electricity Exchange services
45.
Erection, commissioning or installation service
46.
Event management Service
47.
Fashion Designer Service
48.
Foreign Exchange broking services
49.
Forward Contract Service
50.
Franchise Services
51.
Health club and fitness centre services
52.
Health Services
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6. 53.
Information Technology software services
54.
Insurance auxiliary services concerning general insurance business
55.
Insurance auxiliary services concerning Life Insurance business
56.
Insurance business services (General Insurance)
57.
Insurance business services (Life Insurance)
58.
Intellectual property services
59.
Interior decorator’s services
60.
Internet café’s services
61.
Internet telecommunication services
62.
Investment management service under ULIP
63.
Legal consultancy services
64.
Lottery and other Games of Chance Services
65.
Mailing list compilation and mailing services
66.
Management or business consultant’s services
67.
Management, maintenance or repair services for goods, equipments or properties
68.
Mandap keeper’s services
69.
Manpower recruitment or supply agency’s services
70.
Market research agency’s services
71.
Medical records maintenance service
72.
Mining service
73.
On-line information and database access and/or retrieval services
74.
Opinion poll service
75.
Outdoor caterer
76.
Packaging services
77.
Pandal or shamiana services
78.
Photography services
79.
Port services by major ports
80.
Port services by other ports (minor ports)
81.
Programme (T. V. or Radio) services
82.
Public Relation Service
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7. 83.
Rail travel agent’s services
84.
Real estate agent’s services
85.
Recovery agent’s services
86.
Registrar to an issue services
87.
Rent-a-cab services
88.
Renting of immovable property services
89.
Scientific or Technical Consultancy Services
90.
Security agency’s services
91.
Share transfer agent service
92.
Ship management services
93.
Site formation and clearance, excavation and earthmoving and demolition services
94.
Sound recording services
95.
Sponsorship service
96.
Steamer agent’s services
97.
Stock broking services
98.
Stock exchange service
99.
Storage and warehousing services
100. Supply of tangible goods services
101. Survey and exploration of mineral services
102. Survey and map making services
103. Technical inspection and certification services
104. Technical testing and analysis services
105. Telecommunication services
106. Tour operator’s services
107. Transport of coastal goods and transport of goods through national water way/inland water
service
108. Transport of goods by air services
109. Transport of goods by road
110. Transport of goods by rail service
111. Transport of goods through pipeline / conduit services
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8. 112. Travel agent’s (other than air or rail) services
113. Travel by air services
114. Travel by cruise ship service
115. Underwriters services
116. Video tape production services
117. Works contract Services
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