Tax on services has been in vogue in India since 1994 when it was introduced for the first time. But the manner of levy of service tax has been completely overhauled since July 2012, with advent of Negative List based service tax regime. The rate of service tax is 14% w.e.f. 1.6.2015. Further, Swachh Bharat Cess (SBC) and Krishi Kalyan Cess (KKC) @ 0.5% have also been imposed and hence effective total tax rate has become 15%.
The taxable event, which attracts the levy of Service Tax is service provided or agreed to be provided. As in the case of goods, even service exports do not attract tax liability in consonance with the policy of the Government, ie, export only the goods or services but not the taxes/duties. All services do not attract the levy of service tax. There are certain activities mentioned in the negative list (s 66D), which are deliberately kept outside the purview of the levy of service tax.
Prior to 1.7.2012, interestingly the expression ‘service’ was not defined in the Act but there were several definitions of individual type of services (about 120 categories). The Finance Act, 2012 brought in a definition of ‘service’ for the first time, which is quite comprehensive and would exclude only certain types of activities. As per the present definition, any activity may be considered as a service. Even inaction or passivity can be treated as service, thereby attracting the levy of service tax.
Earlier, classification of service was matter of intense dispute. However, introduction of negative list appears to have sounded a death knell for the disputes involving classification of services but one should also keep in mind the bundled services concept which is applicable to composite services, which are either naturally bundled or otherwise.
Service tax is leviable on value of all the services, the valuation of taxable services becomes important for the reason that the service tax liability is determined based on the value of taxable service. The value is arrived normally on gross basis and is on the amounts charged for the taxable services provided. Consideration also includes non monetary portions or even exchange, such as land for building in Joint Development. There are alternatives rates of service tax are provided subject to some conditions. Exemptions are also granted for some specified services by way of exempting value of service either fully or partially.
Compliances under service tax begin with registration. Every person who is liable to pay service tax has to take registration under service tax. For small service provider, an optional exemption has been granted providing for not to pay service tax up to a threshold limits of ₹ 10 lakhs of taxable turnover.
A tax credit scheme also provided in law called as Cenvat Credit, in that service provider providing taxable services is entitled to avail cenvat credit of the service tax paid on input services in addition to the excise duty paid on inputs and/or capital goods provided they are used for providing such taxable service. This credit can be used by the service provider to set off the liability on his services.
Service Tax liability has to be discharged on a monthly or quarterly basis depending on the nature of the tax payers (for persons other than individual, partnership firm including LLP, it is on monthly basis). Tax can be paid by utilizing the credit available with assessee. However, liability under reverse charge/joint charge needs to be paid in cash only.
Service Tax Law empowers the Central Government to grant exemption on specific services or persons, in public interest. The mega exemption Notification No. 25/2012-ST, dt. 20.6.2012 is relevant in this regard, apart from other exemption notifications. Further the Finance Act, 2012 has introduced s 66D containing negative list of services, which do not attract the levy of service tax. Basically, the activities which are either sovereign in nature or fall in the realm of State subject in the Constitution or which are considered as falling within the realm of fundamental rights do find place in the negative list.
Service tax law also includes various provisions pertaining to interest, penalty, demand and refund of service tax with some procedural compliance. Further litigation and disputes can be settled at initial stages by certain process which could be extended to tribunal and court at subsequent levels.