Presentation on Service tax at Ernakulam dated 28.07.2013

Presentation

on

Service Tax

Organized By By Indirect Tax Committee of ICAI Dr. Sanjiv Agarwal@ Ernakulam FCA, FCS, 28th July, 2013 Jaipur

© Dr. Sanjiv Agarwal

Certificate Course on Indirect Taxes

SESSION – IV

Service Tax Rules &

Procedures

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This Presentation covers - Service Tax Procedures

Registration Payment Returns

Invoice / documents / records Reverse Charge Interest and Penalties Audit under Service Tax

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Registration under Service TaxRegistration (Section 69 & Rule 4)Every person liable to pay service tax has to take

registration under Service Tax LawAssessees who have to take registration

Service provider who has provided a taxable services of value exceeding Rs. 9 lakhs in the proceeding financial year

Service receiver liable to pay service tax under reverse charge mechanism u/s 68(2)

Input service distributor Importer of service being person liable u/s 68(2)

Application to be filed before Superintendent of Central excise.

To be applied online in Form ST-1 within 30 days from the date on which the service tax is levied

Registration under Service TaxRegistration (Section 69 & Rule 4)

Where assessee is providing more than one taxable services, it should apply only for one registration for all the taxable services.

Superintendent of Central Excise shall after due verification of the application, grant a certificate of registration in Form ST-2 within 7 days from the date of receipt.

If the certificate is not granted within 7 days then registration applied for shall be deemed to have been granted.

Any change in any information / details furnished in ST-1, to be intimated in writing within a period of 30 days.

Registration under Service Tax

Registration (Section 69 & Rule 4)

Where the registered assessee transfers his business to another person, the transferee shall obtain a fresh certificate of registration.

Where assessee ceases to provide taxable services he shall surrender registration forthwith.

Temporary suspension of business or getting no business for the time being does not require surrendering of registration.

Registration under Service TaxSpecified Documents required for RegistrationDocuments required at the time of registration -

Copy of Permanent Account Number (PAN)Proof of ResidenceConstitution of the ApplicantPower of Attorney in respect of authorized person(s)

Documents alongwith ST-1 application to be presented with concerned officer with in 15 days of online application.

Registration under Service TaxCentralized Registration

Where a person liable for paying service tax on a taxable service — provides such service from more than one premises or

offices; or receives such service in more than one premises or offices;

or, is having more than one premises or offices, which are

engaged in relation to such service in any other manner, making such person liable for paying service tax

centralized registration may be taken

For centralized registration, assessee must have-Centralized accounting, orCentralized billing system

New Accounting Codes under new regime ( July – November 2012) Tax Collection 00441089 Other Receipts 00441090 Penalties 00441093 Deduct Refunds 00441094

Restoration of Service Specific Accounting Codes C. No. 165 dated 20.11.2012 / N. No. 48/2012-ST dated 3.12.2012 No change in law; only for statistical analysis New code created for penalty Registration obtained under the positive list approach continue to be

valid Registration under all taxable services to be amended online under

specific head of services For reverse charge, registration should be obtained as service receiver

under respective category. Accounting codes for residual entry

Service Tax 00441480Interest 00441481Penalty 00441485

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Registration under Service Tax

Payment of Service TaxPayment of Service Tax ( Section 68 & Rule 6 ) Every person providing taxable services to pay tax @ 12.36%

including cesses Obligation to pay -

Time limit - By 6th day of the following month / quarter, if deposited

electronically. By 5th day of the following month / quarter, if deposited in

Bank. Tax to be deposited by Form GAR- 7 Challan. Service tax on the services provided in the month of March

shall be paid by 31st March of the same calendar year.

Assessee Frequency

Individuals, LLP and Firms Quarterly

For companies and others Monthly

Payment of Service TaxPayment of Service Tax ( Section 68 & Rule 6 )

Online payment is mandatory where an assessee has paid service tax of Rs. 10 lakh or more including the amount paid by utilization of Cenvat credit in preceding financial year

Date of presentation of cheque to the designated bank deemed to be the date on which service tax has been paid subject to realization of that cheque.

Where the service is not provided / the amount of invoice is renegotiated, assessee may take credit of excess service tax - If the payment has been refunded If the credit note for the revised value has been issued.

Such adjustment should not arise out of interpretation of law, taxability, valuation or applicability of any exemption notification.

Return under Service Tax

Return (Section 70 & Rule 7 )Return to be filed on half yearly basis.Prescribed Form ST-3To be submitted by 25th of the month

following the particular half year.Every return shall be filed electronically.Assessee may submit a revised return in

Form ST-3 within ninety days from the date of submission of the original return. (Rule 7B )

Return under Service Tax

Quarterly Service Tax Returns

April to June, 2012 N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly return

prescribed. Order No. 3/2012 - last date of return was extended upto 25.11.2012

July to September, 2012

N. No. 1/2013-ST, dated 22.02.2013

Circular No. 137 dated 22.02.2013 / Order No. 1 New ST-3 Form is available in offline mode Last date 25th March, 2013; extended to 15th April, 2013; further extended

upto 30th April 2013 vide Order No. 2/2013-ST, dated 12.4.2013 To indicate capacity – as provider / under RCM / under partial RCM Filing of return for second half of 2012-13 – last date is 31.08.2013

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Invoice / Bill / ChallanInvoice / Bill / Challan (Rule 4A of ST Rules, 1994)

Invoice means the invoice referred to in rule 4A of the Service Tax Rules, 1994 and shall include any document as referred.

Every person providing taxable services is required to issue invoice with in a period of 30 days ( in case of banking company, 45 days) of such taxable service / receipt of any payment toward such taxable service.

Bill / Challan should contain - Name, address and the registration number of service provider Name and address of the service receiver Description and value of taxable services Service tax payable thereon

signed by authorized person serially numbered


In case when banking company issues invoice / bill / challan, following are not required -

serial number address of service receiver In case of GTA, invoice is consignment note. Consignment note means -

a document issued by a GTA against the receipt of goods for the purpose of transport of goods by road in a goods carriage serially numbered contains –

name of consigner and consignee registration number of goods carriage in which goods are transport details of goods transported details of place of origin and destination person liable for paying service tax

Consigner Consignee GTA


In case of continuous supply of service - date of invoice (invoice should be raised with in 30 days

of completion of each event)

In case of transportation of passengers - Invoice/ Bill/ Challan shall include ticket Whether or not containing registration number of

service provider and address of recipient of services but should contain other informations required under

the rule.


There is no requirement to issue further invoice for up to rupees one thousand in excess of the amount indicated in the invoice.

Input service distributer to distribute credit by issuing Invoice/ Bill/ Challan which should contain: Name, address and the registration number of the person

providing input services. Serial number ( not required in case of banking company)

and date of Invoice/ Bill/ Challan. Name and address of input service distributer. Name and address of recipient of credit distributed. Amount of the credit distributed.

Invoice/ Bill/ ChallanReverse Charge Mechanism

Additional information suggested on the invoice –

Amount of Service Tax based on his share of Service Tax liability, if any, (which

service recipient is required to pay to the service provider) - in case of joint or

proportionate reverse charge liability.

Fact that entire amount of Service Tax on the invoice is payable by the service

recipient under reverse charge (if so).

Invoice amount is inclusive / exclusive of applicable Service Tax.

Alternatively, in case of proportionate reverse charge, service provider should

charge Service Tax only on that part of the invoice for which he is liable to pay

and wants to recover from the service recipient and mention that balance

amount is payable by the service recipient.

Records under Service Tax

Record (Rule 5 of ST Rules, 1994)

Records include computerized data as maintained in accordance with the various laws.

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 for the first time, a list in duplicate of - all the records prepared or maintained by the assessee for accounting

of transaction in regard to- providing of any services receipt of input services payment of input services Receipt/ purchase/manufacture/storage/sale or delivery as the case may be, in

regard of inputs and capital goods. Other activities such as manufacture and sale of goods , if any.

All other financial records maintained in normal course of business.All such records should be preserved at least for a period of five

years.

Records under CCR, 2004

Suggested Documents and Accounts

Cash Book / Bank Book / Journal Book

Cash, Bank and Journal vouchers (debit and credit)

Sales bills or invoices and registers (showing Service Tax separately)

Purchase bills and registers

Invoices or challans for input credit distribution

Other subsidiary records, ledgers and registers as may be necessary to keep proper

record of Service Tax charged, received, deposited, paid, input services consumed

for rendering output service or manufacturing goods to claim Cenvat Credit, etc.

Record / register of receipt and consumption of input, input services and capital

goods and tax paid thereon, output Cenvat Credit claimed and balance to claim

Cenvat Credit.

Files containing service agreements entered into with clients or customers.

Changes in Reverse ChargeAuthority for reverse charge u/s 68(2) of Finance Act, 2012

Person liable to pay tax – Rule 2(1)(d) of Service Tax Rules, 1994

W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 )

The extent to which tax liability has to be discharged by the service receiver specified in the notification.

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Reverse Charge Mechanism

Credit of tax paid can be availed by service recipient if it is input service

The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required)

Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004

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Under Partial Reverse Charge (Proportional)

Renting of motor vehicles Manpower supply & security services Works contracts

Under Full Reverse Charge (100%)

Insurance related services by agents goods transportation by road sponsorship arbitral tribunals legal services company director's services services provided by Government / local authority excluding

specified services services provided by persons located in non-taxable territory

to persons located in taxable territory. 23

Liability to pay tax under Reverse Charge by Service Receiver

Governed by Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 1.7.2012

Liabilities of both the service provider and service receiver are independent of each other

Reverse charge will not apply where the service receiver is located in non-taxable territory

For three specified services provided by business entities being company, society, cooperative society, trust etc, reverse charge will not apply.

Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services

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Small scale benefit is available only to service provider (not to service receiver), if entitled

Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012

Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II)

Liability to pay Service Tax for ongoing contracts will be as per Point of Taxation Rules, 2011

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In case of proportional reverse charge (manpower supply & security, works contract and motor vehicle hire to carry passengers), it is advisable that service provider should charge Service Tax only on his portion of Service Tax in the invoice and mention that Service Tax on balance amount is payable by service receiver.

It is the statutory obligation on the service recipient to pay Service Tax, whether under full or proportional reverse charge

Service Tax under reverse charge has to be paid by cash

vide GAR Challan No. 7 and it cannot be paid by way of utilization of Cenvat Credit. 26


In case of renting of motor vehicles to carry passengers where abatement is also available, reverse charge basis is proportional depending upon the abatement on the condition that no Cenvat Credit has been availed. The service provider should provide a certificate, either in the invoice itself or separately.

In case of renting of motor vehicle to carry passengers, reverse charge applies only where the motor vehicle is provided with driver and service receiver is not engaged in same business.

In case of director's services, the service provider should not be employed (whole time) director. Employees are not covered under the scope of Service Tax. 27


In respect of manpower supply and security services, works contract services and renting of motor vehicles to carry passenger, reverse charge shall be applicable only when following two conditions are satisfied –

service receiver is a business entity registered as a body corporate, and

service provider is any one of the following entities – Individual Hindu undivided family (HUF) Firm (including limited liability partnerships) Association of persons

If both the above conditions are not satisfied in respect of these three services, Service Tax shall be payable by the service provider in ordinary course.

Security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity

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Service Provider Service Receiver

Individual Advocate / Firm / LLP **Business entity with turnover > Rs 10 lakhs in preceding financial year

Arbitral Tribunal **Business entity with turnover > Rs 10 lakh in previous financial year

** Business entity may be an individual also

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Reverse Charge for Legal Services

Reverse Charge Mechanism under various services

Sr. No Description of Service Service provider Service receiver

1. Services provided by an insurance agent to any person carrying on insurance business

Nil 100%

2. Services provided by a goods transport agency in respect of transportation of goods by road

Nil 100%

3. Services provided by way of sponsorship

Nil 100%

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Sr.No Description of Service Service provider Service receiver

4. Services provided by an arbitral tribunal Nil 100%

5. Services provided by individual advocate or a firm of advocates by way of legal services

Nil 100%

5A. in respect of services provided or agreed to be provided by a director of a company to the said company ( w.e.f 7.08.2012)

Nil 100%

6. Services provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, (2) postal services (3) transport of goods / passengers (4) air craft or vessel

Nil 100%

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7. Hiring of Motor Vehicle (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business(b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

Nil

60%

100 %

40%

8. Services provided by way of supply of manpower for any purpose or security services ( w.e.f 07.08.2012)

25% 75 %

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9. Services provided in service portion in execution of works contract 50% 50%

10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Nil 100%

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Service Provider Service Receiver Service Tax Payable by

Individual /HUF/ Partnership firm /AOP

Business entity – body corporate

Joint


Individual /HUF/ partnership firm /AOP

100 % by service provider

Business entity –Body Corporate / Company



Business entity –Body Corporate

Business entity – Body Corporate


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Reverse Charge Obligations for three Specified Services

Interest Under Service Tax

Interest on delayed Payment of Service Tax (Section 75)

Person who fails to deposit the tax or any part thereof within the period prescribed shall pay interest.

Interest rate - In case turnover is below 60 lakh - 15% p.a.In other cases - 18% p.a.

Penalties under Service Tax

Sections / Rules Defaults Penalties

Section 70 Belated filing of return For Delay of 15 days – Rs.500/-

For Delay between 16-30 days – Rs.1000/-

For Delay beyond 30 days – Rs. 1000/- + Rs.

100 per day (subject to maximum amount Rs.

20,000/-)

Section 76 Failure to pay Service

Tax

Not less than Rs. 100/- for every day during

which such failure continues or at the rate

one percent of such tax per month, whichever

is higher ; Maximum penalty shall not exceed

50% of service tax payable

Penalties under Service TaxSections / Rules Defaults Penalties

Section 77 (1) (a) Failure to obtain registration Extend up to Rs. 10,000/-

Section 77 (1) (b) Failure to keep, maintain or retain

books of account

Extend up to Rs. 5,000/-

Section 77 (1) (c) Failure to furnish information

called by officer as per Provision/

Rule

Rs. 200/- per day of default or up

to Rs. 10,000/-, whichever is

higher.

Section 77 (1) (d) failure to pay Service Tax

electronically

Up to Rs. 5,000/- per default

Section 77 (1) (e) Issuance of invoice with incorrect/

incomplete details of failure to

account for

Maximum upto Rs. 5,000/-

Section 77 (1) (2) For any other contravention Maximum upto Rs. 5,000/-

Penalties under Service TaxSections / Rules Defaults Penalties

Section 78 Suppression Not less than up to the

amount of tax due.

50% of the service tax if

records are maintained

In case of Service Tax is

paid along with interest

within 30 days (90 days in

case of assessees with

turnover upto Rs.

60lakhs) of order, 25% of

tax determined.

Section 78A Offences by directors etc. of

company

Up to Rs. 1,00,000/-

Audit under Service TaxPrinciples of Audit Audit to be conducted in a systematic and

comprehensive manner.Emphasis on scrutiny of records maintained in the normal

course of business.Audit effort based on materiality principle — higher the

potential risk, greater the intensity of scrutiny.Recording of all audit findings.Audit is clearly distinct from anti-evasion activity. Audit

can uncover non-compliance only to the extent of their reflection in the books of accounts.

Discussing audit findings before finalizing the audit to reduce audit paras as well as legal risks.

Protecting the interest of legitimate revenue.

Audit under Service TaxSpecial Audit (Section 72A) Special audit can be conducted on the directions of Commissioner of

Central Excise (not by an officer below that rank)

Commissioner directing such audit can do so if he has reasons to believe that any person liable to pay tax has committed certain action or deeds.

Audit can be in respect of any person liable to pay service tax. Such person-

Has failed to declare or determine the value of taxable service correctly. Has availed and utilized credit of duty or tax paid, which is not in the normal

limits compared with the capital, goods, used or other relevant and appropriate factors or by means of fraud, collusion, or any willful misstatement or suppression of facts.

Has operation in multiple locations and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises.

Direction can be given to get his/its accounts audited for the period and scope as specified by the Commissioner.

Such audit shall be conducted by a practicing chartered accountant or cost accountant.

Audit under Service TaxSpecial Audit (Section 72A)

The audit report, duly signed and certified shall be submitted to Commissioner ( not to assessee) within stipulated time frame unless extension is sought and granted.

Audit u/s 72A shall be conducted irrespective of any other audit being carried out of the accounts of such person under any other law in force.

An opportunity of being heard shall be provided to the auditee. Such audit covers all or any unit (i.e. factory, office, warehouse, godown,

depot, distributors or any other place ) of the assessee/person. Show cause notice or pre-decision hearing is a must before any order is

pronounced based on special audit. Direction of special audit is a non- appealable order. Revenue department shall bear the audit expenses and audit fees

payable to the special auditor. There is no prescribed format or manner of audit report but shall vary

depending upon scope of audit, terms of reference and audit findings. Commissioner may decide to accept or reject or consider partly the audit

report.

Visits by officers under Service Tax

Access to Registered Premises (Rule 5A of ST Rules, 1994)

Central excise officers / audit party are empowered to pay visits to the premises of the assessees.

Such visits shall be subject to the following rules: All visit to the premises of service tax assessees will be made by

central excise officers only after giving a notice in writing explaining therein the purpose of such visit.

The officers will clearly indicate the documents which may be required by them during their visits.

Records include records as per Rule 5, trial balance and Income Tax audit report

No such visits will be made without giving a clear notice of 15 days to the assessee.

Such visits will be made only with the prior approval of the Commissioner.

Selection Criteria for Audit

S. No. Quantum of annual duty payment (in cash + CENVAT Credit)

Frequency of audit

1 Taxpayers paying more than Rs. 50 lakhs

Every year

2 Taxpayers paying between Rs. 25 lakhs and Rs. 50 lakhs

Once in two years

3 Taxpayers paying between Rs. 10 lakhs and Rs. 25 lakhs

Once in five years

4 Taxpayers paying below Rs.10 lakhs 2% of the total number every year

(Vide Circular No. 381/145 dated 6.6.2006)

Audit under Service TaxEffective Handling of Audit

The audited financial statements, directors’ reports, cost audit report,

Income tax audit reports, and the notes to accounts may be asked.

Assessee should not refuse to produce books and records as this could lead

to penal action going beyond limitation period citing suppression.

The advance intimation of same is generally given by department. The

written confirmation of timeline of audit is also given.

The responsible team should be formed in office to answer to the queries of

audit team.

The access to books and records may be allowed only during office hours.

No books should be allowed to be removed from premises. If they seek to

take records, it should be done under a written request and

acknowledgement.

Audit under Service TaxEffective Handling of Audit

Documents should be furnished only for the period under audit.

The delivery of books and records to them should be acknowledged by departmental

officers.

No SCN / summons can be issued or demand raised nor assessment can be made

during audit.

The assessee can make his views known to the audit team in advance prior to raising

audit objections.

The audit team can only make factual observations and should not draw conclusion on

points of law.

After audit is over, auditor may be discouraged from coming to auditee's premises.

Questioning for long hours under stress and duress should be brought to the notice of

higher authorities.

Trade formulas and secrets should be given only on written request from auditors.

Audit under Service Tax

Effective Handling of Audit

Assessees should not panic and react blindly by complying with the departmental officer’s instructions during audit.

The auditee could refer the matters to a professional, and seek advice, when the audit team is raising a number of issues or verify claims made by audit team.

When a number of records are continuously asked by audit team, it is better to get an internal review of records done so that auditee knows where it stands as far as compliances are concerned.

Audit under Service Tax

In SKP Securities Ltd. v. Deputy Director (RA- IDT) (2013) 29 STR 337; (2013) 39 STT 327 (Calcutta), it was held –Scope of Rule 5A includes members of audit team,

auditor or accountant authorized by Commissioner Rule 5A(2) does not empower the CAG to audit

accounts of any assessee. Section 94(2) does not empower the Central

Government of frame rules for such audit. Condition precedent to order for special audit is

reason to believe that person liable to Service Tax is within circumstances stipulated in section 72A (wrong declaration of value of taxable service, misutilisation of credit of tax etc).

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THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]

Presentation on Service tax at Ernakulam dated 28.07.2013

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Transcript of Presentation on Service tax at Ernakulam dated 28.07.2013