Service tax is a tax on Services. It is a tax levied on the transaction of certain services specified by the Central Government under the Finance Act, 1994.

It is an indirect tax (like Excise Duty or Sales Tax) which means that normally, the service provider pays the tax and recovers the amount from the recipient of taxable service.

Normally, the ‘person’ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax:

i.   Where taxable services are provided by foreign service providers who does not have establishment in India , the recipient of such  services in India is liable to pay Service Tax

ii.  For the services in relation to Insurance Auxiliary Service by an Insurance Agent , the Service Tax is to be paid by the Insurance Company

iii. For the taxable services provided by a Goods Transport Agency for transport of goods by road, the person who pays or is liable to pay freight is liable to pay Service Tax , if the consignor or consignee falls under any of the seven categories viz. (a) a factory (b) a company (c) a corporation (d) a society (e) a co-operative society (f) a registered dealer of excisable goods (g) a body corporate or a partnership firm

iv. For the taxable services provided by Mutual Fund Distributors in relation to distribution of Mutual Fund the Service Tax is to be paid by the Mutual Fund or the Asset Management Company receiving such service.

Taxable Services have been specified under Section 65(105) of the Finance Act, 1994. All the taxable services as on 01/07/2010 are listed in Annexure-1.

At present, the effective rate of Service Tax is 10.30% on the value of the taxable service. The above effective rate comprises of Service Tax @10% payable on the “gross value of taxable service”, Education Cess @ 2% on the service tax amount, and Secondary and Higher Education Cess @ 1% on the service tax amount.

• The "value of taxable service" means, the gross amount received by the service provider for the taxable service provided or to be provided by him. Taxable value has to be determined as per the provisions of the Section 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006.
• For certain services, a specified percentage of abatement is allowed from the gross amount collected for rendering the services subject to the conditions, inter alia, that CENVAT Credit has not been availed by the service provider and the benefit under the Notification No.12/2003-ST dt. 20.6.2003 has also not been availed.
• There is also a composition scheme for ‘works contract service’, where the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to 4% of the gross amount charged for the works contract. The gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, paid on transfer of property in goods involved in the execution of the said works contract.

The provider of taxable service is required to obtained `registration’ from the Central excise Department.

In terms of Section 69 of the Finance Act,1994 (Chapter V) read with rule 4 of the Service Tax Rules,1994 –

• Every person who has provided a taxable service of value exceeding Rs. 9 lakhs, in the preceding financial year, is required to register with the Central Excise or Service Tax office having jurisdiction over the premises or office of such service provider.
• In case a recipient is liable to pay service tax he also has to obtain registration (No threshold exemption available)

Service providers having centralized accounting or centralized billing system who are located in one or more premises, at their option, may register such premises or office from where centralized billing or centralized accounting systems are located and thus have centralized registration. Commissioner of Central Excise/Service Tax in whose jurisdiction centralized account or billing office of the assessees exists, is empowered to grant centralized registration in terms of Service Tax 4(2) and (3) of Service Tax Rules,1994.

As per sub-rule (4) of rule 4 of the Finance Act, 1994, only one Registration certificate is to be taken even if the person provides more than one service from the same premises for which registration is sought. However, while making application for registration all taxable services provided by the person should be mentioned.

Form G.A.R.7 (previously known as TR6 Challan) should be used to make service tax payments. Payment of service tax may be made at the specified branches of the designated banks.

It is mandatory to pay service tax electronically, using e-payment facility for the assessee who has paid a total service tax (including by way of utilization of CENVAT credit) of rupees ten lakh or more in the preceding financial year.

• Payments through Bank : • For Individuals, Proprietors & Partnership Firms – Quarterly on following dates:-

Payable on Amt. received During the Quarter	Payable by
1st April to 30th June	5th July
1st July to 30th September	5th October
1st October to 31st December	5th January
1st January to 31st March	31st March

• For persons other than Individual, Proprietary Concerns and Partnership Firms.

Payable on the value of taxable services received during a month by 5th of the month immediately following the said calendar month except, month of march for which due date is 31st March.
e.g. April 5th May
May 5th June ...... so on
March 31st March

• Electronic Payments through Internet • For Individuals, Proprietors & Partnership Firms – Quarterly on following dates:-

Payable on Amt. received During the Quarter	Payable by
1st April to 30th June	6th July
1st July to 30th September	6th October
1st October to 31st December	6th January
1st January to 31st March	31st March

• For persons other than Individual, Proprietary Concerns and Partnership Firms.

Payable on the value of taxable services received during a month by 5th of the month immediately following the said calendar month except, month of march for which due date is 31st March.
e.g. April 6th May
May 6th June ...... so on
March 31st March

Every person, liable to pay the service tax in accordance with the provisions of section 68 of the Act or rules made there under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest @13% per annum. Interest is payable for the period from the first day after the due date till the date of payment of any defaulted service Tax amount.

If a person who is liable to pay Service Tax fails to pay service tax, he shall pay in addition to such tax and interest in accordance with the provisions of Section 75 of the Act, a penalty which shall not be less than Rs.200/- for every day during which such failure continues or @2% of such tax per month, whichever is higher. However, the penalty amount payable shall not exceed the amount of Service Tax payable.

ST-3 Return – For all the registered assessee, including Input Service Distributors,

ST-3A Return – The assessee who is making provisional assessment under rule 6(4) of the Service Tax Rules, 1994.

ST-3 Return is required to be filed twice in a financial year – half yearly. Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.

The details in respect of each month/ Quarter, as the case may be, of the period for which the return is filed, should be furnished in the Form ST-3, separately. It should be accompanied by copies of all the GAR-7 Challans for payment of Service Tax during the relevant period.

Yes, under rule 7B of Service Tax Rules, 1994 an assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of ninety days from the date of submission of the return under rule 7.

It is mandatory to file service tax return electronically, using internet facility for the assessee who has paid a total service tax (including by way of utilization of CENVAT credit) of rupees ten lakh or more in the preceding financial year.

Filing of return within the prescribed time limit is compulsory, even if it may be a nil return, failing which penal action is attracted.

A single return is sufficient because the ST-3 Return is designed to capture details of each service separately with in the same return.

If a person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to Rs. Five thousand rupees (Section 77 of the Act)

Apart from above Penalty late filing of return also attracts mandatory late filing fees under Rule7C of Service Tax Rules, 1994

Sl. No.	Period of Delay from the prescribed date	Late filing Fees
1	15 days	Rs.500/-
2	Beyond 15 days but not later than 30 days	Rs.1000/-
3	Beyond 30 days	Rs.1000/- plus Rs. 100/- for every day from the thirty first day till the date of furnishing the said return (not exceeding Rs.2000)

Issue of Invoice/Bill/Challan by a Service Tax assessee is mandatory as per Rule 4A of the Service Tax Rules, 1994. The same should be issued within 14 days from the date of completion of taxable service or receipt of payment towards the service, whichever is earlier. However, if the service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, the Invoice/Bill/Challan shall be issued within 14 days from the last day of the said period.

There is no prescribed format for issue of Invoice. However, the invoice/bill/challan should contain the following information

i.	Serial number.
ii.	Name, address and registration no. of the service provider.
iii.	Name and address of the service receiver.
iv.	Description, classification and value of taxable service being provided or to be provided.
v.	The amount of Service Tax payable (Service Tax and Education cess should be shown separately)

Note: If the service provider is a Banking company, the details at Sl. No (i) and (iii) are not necessary.

In respect of the taxable services relating to the transport of goods by road, provided by the Goods Transport Agency, the service provider should issue a consignment note containing the following information (Rule 4B of the STR, 1994): -

i.	Serial Number
ii.	Name of the consignor and consignee
iii.	Registration no. of the vehicle
iv.	Details of the goods transported
v.	Details of the place of origin & destination
vi.	Person liable for payment of Service Tax (consignor /consignee / GTA)

Yes. It is mandatory to separately indicate the amount of Service Tax charged in the Bills/Invoices/Challans raised on the clients.

At present, threshold exemption limit of Rs. 10 lakhs is provided under service tax law subject to conditions prescribed under Notification granting exemption.

The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty leviable under section 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services.

Duties paid on the inputs, capital goods and the Service Tax paid on the ‘input’ services can be taken as credit. Education Cess paid on the Excise duty and Service Tax can also be taken as credit. However, the credit of such Education Cess availed can be utilized only for payment of Education Cess relating to output service.

SERVICE COVERED WITH EFFECTIVE DATES UNDER THE SERVICE TAX ACT

Effective Date	Service / Service Provider
01.07.1994	Stock Broker, Telephone Service,General Insurance
01.11.1996	Courier Service, Advertising Service, Radio Pager Service
15.06.1997	Custom House Agent, Steamer Agent
01.07.1997	Air Travel Agency, Mandap Keeper
07.07.1997	Consulting Engineer, Manpower Recruitment Agent (Manpower recruitment and Supply Agency w.e.f. 16.06.2005)
16.07.1997	Clearing & Forwarding Agent
16.10.1998	Architect, Interior Decorator, Management Consultant, Practicing Chartered Accountant, Practicing Company Secretary, Practicing Cost Accountant, Private Security Agencies, Real Estate Agent, Market Research Agencies, Credit rating Agencies, Underwriting Agents
01.04.2000	Tour Operators (Also for the period 01.09.1997 to 17.07.1998), Rent-a-Cab-Scheme Operator (Also for the period 16.07.1997 to 27.02.1999).
16.07.2001	Scientific & Technical Consulting, Photography Services, Convention Service, Telex Services, Telegraph Service, Facsimile Services, Online information & Database Access/Retrieval Services Video Tap Production Services, Sound Recording Services, Broad Casting Services, Insurance Auxiliary Services, Specified Banking and Other Financial Services–By Banks & Financial Institution, Port Services, Authorised Service Station, Service to lease circuit line holders
16.08.2002	Specified Banking and Other Financial Services – By Body Corporate , Beauty Parlor, Cargo handling service (Except Export cargo Passenger Luggage and mere transportation of Goods), Cable Operators, Dry Cleaning Services, Event Management, Fashion Designers, Health Club and Fitness Centers, Life Insurance, including insurance auxiliary services relating to Life Insurance, Rail Travel Agent, Storage and Warehousing services (Except for Agriculture produce and cold storage)
01.07.2003	Business auxiliary services, Commercial training and coaching, Commissioning and installation services, Franchise services, Internet café providing internet access, Maintenance and repair (Management, maintenance and repair w.e.f. .01.05.2006), Technical testing and analysis, Technical inspection and certification, Authorised service station for service or repair of light motor vehicles, Forex brokers other than corporate, Port services (Minor ports)
10.09.2004	Sub-brokers, Specified Banking and Other Financial Services – By Commercial concerns, Life Insurance business (only risk cover component), Erection services, Airport services, Transport of goods by air, Business exhibition, Construction services, Intellectual property services, Opinion poll services, Outdoor catering (Also for the period 01.08.1997 to 01.06.1998), T. V. or Radio Program production, Survey and exploration of mineral, Pandal or Shamiana services (Also for the period 01.08.1997 to 01.06.1998), Travel Agents (other than air/rail travel agents), Forward contract services
01.01.2005	Goods Transport Agency
16.06.2005	Transport of goods other than water through pipeline or other conduit, Site formation and clearance, excavation and earthmoving and demolition, Dredging services, Survey and map making, Cleaning activities, Club or association services, Packaging activity, Mailing list compilation and mailing, Construction of complex.
01.05.2006	Registrar to an Issue, Share Transfer Agent, Automated Teller Machine (ATM) operations, maintenance or management services, Recovery services, Sale of space or time for advertisement, Sponsorship services , Transport of passengers by air , Transport of goods in containers by rail , Business support services, Auctioneers’ service, Public relation services, Ship management service, Internet telephony service (Renamed and re grouped as ‘Internet Telecommunication Service w. e. f. 16.05.08), Transport of passengers by cruise ship, Credit card, debit card, charge card or other payment card related service
01.06.2007	Telecommunication services, Services in relation to Mining, Renting of Immovable Property for commercial purposes, Service provided in relation to execution of a works contract, Development and supply of content, Asset management including portfolio management and all forms of fund management provided by service providers other than those providing Banking and Other Financial services, Design services
16.05.2008	Information Technology Service used for business or commerce, Management of investment under ULIP, Services provided by Stock Exchange, Services provided by Commodity Exchange, Processing & Clearing House Services, Supply of tangible goods for use.
01.09.2009	Transport of coastal goods and transport of goods through National Waterways and Inland Water, Transport of goods by rail, Cosmetic and plastic surgery, Legal consultancy service
01.07.2010	Promotion, marketing, organizing or assisting in organizing games of chance including lottery or lotto, Health services provided by hospitals or nursing homes for which payments are made by employers and health insurance companies, Maintenance of medical records of business entity, Brand Ambassador Services, Permitting Commercial use or exploitation of any event, Services provided by Electricity Exchanges, permitting use of copyright in cinematographic films and sound recording, Services provided by builder to the prospective buyers in a residential/commercial complex such as providing preferential location or external or internal development of complexes for extra charges.

Value Added Tax (VAT) is a form of sales tax. It is collected in stages on transactions involving sales of goods. Tax paid on purchases (input tax) is available as set-off against tax payable on sales (output tax). VAT is levied on sales of all taxable goods.

VAT is payable on the profit margin of the Dealer. While computing the tax liability, the tax paid on earlier stage [on purchases] is deducted from the tax payable [on sales] and only the NET amount is paid into the Government Treasury.

A following simple example can be considered for understanding the concept of VAT.

DEALER	Purchase Price	Value Addition	Sale Price	Tax Rate @10%	Setoff or ITC	Net Tax Payable
Manufacturer –1	100	50	150	15	10	5
Manufacturer –2	150	100	250	25	15	10
Distributor	250	200	450	45	5	20
Wholesaler	450	100	550	55	5	10
Retailer to Consumer	550	150	700	70	55	15
Total		600				60

MVAT is chargeable if the sales of goods -

• are made in the State of Maharashtra State
• are made by a VAT dealer in the State
• are made in the course of or in furtherance of a business; and
• are not specifically exempt or zero-rated.

The turnover limit for registration (applicable to Maharashtra state) is as under
Threshold Turnover Limits:

Sr. No.	Category of Dealer	Total turnover of sale to exceed	Turnover of sale or purchase of taxable goods
1	Importer:	Rs.1,00,000/-	Not less than Rs. 10,000/-
2	Others (Including manufacturer, reseller, liquor dealer, works contractors, lessors etc.)	Rs. 5,00,000/-	Not less than Rs. 10,000/-
3	Voluntary Registration	-NA-	- NA-

The dealer can also apply for voluntary registration without attaining prescribed turnover limit by paying registration fees of Rs. 5,000/-.and deposit of Rs. 25,000/-. This deposit is in the nature of advance tax and is to be adjusted against his subsequent tax liability.

The VAT Act has five different categories containing various commodities, which attracts different rate of tax.

The rate schedule in Maharashtra State is as follows:

• All the goods are classified under Schedule A to E
• Schedule `A’ covers goods, which are generally necessities of life. Goods covered by schedule `A’ is free from tax. Some of the items covered by Schedule `A’ are agricultural implements, cattle feed, books, bread, fresh vegetables, milk, sugar, fabrics, plain water etc.
• Schedule `B’ covers jewellery, diamonds and precious stones liable to tax at 1%
• Goods covered by Schedule `C’ are subject to tax @ 5% (4 % till 31/03/2010). Schedule `C’ covers items of daily use or raw material items like drugs, readymade garments, edible oil, utensils, iron and steel goods, non ferrous metal, IT products, oil seeds, paper, ink, chemicals, sweetmeats, farsan, industrial inputs, packing materials etc.
• Schedule `D’ covers liquor which is subject to 20% tax. It also covers various types of motor spirits that are subject to tax from 4% to 34%.
• All items which are not covered in any of the above Schedules are automatically covered in residuary Schedule E. Goods covered by Schedule `E’ is subject to tax at 12.5%.

Following sales transactions are exempt from payment of MVAT

• Interstate sale is exempt from payment of sales tax under MVAT Act since it is liable to tax under C.S.T Act.
• Sales of fuels and lubricants to foreign aircrafts.
• Inter-se sales between Special Economic Zones, developers of SEZ, 100% EOU, Software Technology Parks and Electronic Hardware Technology Park Units.
• Sales to any class of dealers specified in the Import and Export Policy notified by the Government of India.
• the State Government may, by general or special order, exempt fully or partially sales to the Canteen Stores Department or the Indian Naval Canteen Services.
• the State Government, by general order, has exempted fully the transfer of property in goods involved in the processing of textiles covered in column 3 of the first schedule to the Additional duties of excise(Goods of special importance) act, 1957.
• Sales affected by manufacturing units under exemption mode in backward area are exempt.

Other than normal business sales, following receipts are also liable to VAT:

• Sales to staff or sales from vending machines;
• Sales of business assets (e.g. Equipment, furniture, commercial vehicles)
• Sales under Hire-purchase agreement or lease of goods
• Sales under Works Contract Agreements

It is the VAT chargeable on all the taxable sales made by a VAT dealer.

It is VAT charged on purchases of goods. A dealer registered for VAT can normally claim a credit for the VAT charged on most business purchases.

Every registered dealer has to file correct, complete and self-consistent return. Its form, its date and periodicity are prescribed by rules.

A periodicity of the filing of returns is as follows:

Sr. No.	Category of dealers	Periodicity of Return	Due date of filing of Return
1	Retail Dealers under Composition Scheme	Half-Yearly	21st October
2	Dealers Other than Composition dealers: a. Those dealers whose tax liability for the previous year has not exceeded Rs. 1 lac or not entitled to refund upto Rs. 10 lacs in previous year.	Half-Yearly	21st October
	b. Those dealers whose tax liability during previous year was more than Rs. 1 Lac but not exceeded Rs. 10 Lacs, or Entitlement to Refund was more then Rs. 10 lacs but not exceeding Rs. 1 crore	Quarterly	Within 21st from the end of the quarter
	c. Those dealers whose tax liability during previous year has exceeded Rs. 10 lacs, or Entitlement to Refund exceeded Rs. 1 crore.	Monthly	21st of the next month
3	New dealer in 1st Year	Quarterly	Within 21st from the end of the quarter

Note: Tax liability should be computed after considering CST and Set off.

Details of Form to be filed by various dealers

Serial No. (1)	Form No. (2)	Description of the Return-cum-challan and of dealers. (3)
1	231	For dealers, other than (i) dealers who have opted for composition of tax, whether for part of the business or the entire business, (ii) dealers executing works contracts, whether as part of the business or as the entire business, (iii) dealers engaged in transfer of the right to use any goods for any purpose, whether as part of the business or as the entire business, (iv) dealers under the Package Scheme of Incentives, and (v) Notified oil companies.
2	232	All dealers who have opted for composition of tax whose entire turnover is under composition other than,- (i) works contractors opting for composition, and (ii) dealers opting for composition for part of the business.
3	233	All dealers who are (i) executing works contracts, whether as part of the business or the entire business and whether or not the business or part of the business is under composition, (ii) engaged in the activity of transfer of the right to use any goods for any purpose whether as part of the business or the entire business, and (iii) dealers whose part of the business is under composition.
4	234	All dealers under Package Scheme of Incentives who are holding a valid certificate of entitlement.
5	235	Notified oil companies

Set-off can be claimed in respect of following purchases made in the state of Maharashtra:

• Raw material purchased for production
• Fuel
• Goods purchased for trading
• Other purchases debited to profit and loss account such as printing and stationery etc.
• Capital goods and its spare parts, components and accessories (However, set-off on office equipments and furniture & fixtures shall be available after retention at prescribed percentage)

• Set-off can be claimed only by registered dealers. However w.e.f. 08.09.2006, it is provided that purchases of capital assets after 01st April of the relevant year in which registration is obtained then set-off will be available on such purchases though at the time of such purchases the dealer was not registered. Similarly on purchase of other goods also set-off will be available if they are not sold/consumed etc till date of registration.
• Set-off can be claimed in respect of taxes paid on goods purchased for trading, manufacturing, works contract or leasing.
• Set-off can be claimed only in respect of goods purchased under Tax-Invoice and only of the tax charged separately in tax invoice.
• Setoff shall not exceed the amount of tax actually paid on purchases.
• Set-off can be claimed in respect of Entry tax paid if any.
• Setoff to be adjusted against VAT/ CST payable for same period. Excess set off in a particular period in same Year shall be carried forward to next period in same year.
• No set-off can be claimed in respect of CST paid on purchases i. e. Set-off cannot be claimed in respect of interstate purchases.
• In case where turnover of sale is less than 50% of the Total receipt, setoff would be allowed only on purchases of those goods and packing material which are sold and not on entire purchases.

Reduction in set-off in respect of certain purchases are prescribed

Nature of goods	What Amount of Set-off?
Fuel	Set-off granted after retaining 3%
In case where goods manufactured is tax free	In respect of capital goods full set-off and on other purchases after retaining 3% (w.e.f. 01-06-2008 @ 2%)
Resell of tax free goods	Set-off in respect of tax paid on packing material purchased for packing tax free goods granted after retaining 3% (w.e.f. 01-06-2008 @ 2%)
Stock transfer of taxable goods in other state a. Goods transferred covered by Schedule B i.e. Bullion etc. b. Other Goods	a. Setoff granted after retention at 1%. b. Setoff granted after retention at3% (w.e.f. 01-06-2008 @ 2%).
Works Contract dealer paying taxes under composition scheme a. Composition paid at 8% b. Composition paid at 5%	a. Set-off granted after retaining 36% of the taxes paid on purchases used for Works contract. b. Set-off granted after retaining @ 4% of the corresponding purchases (w.e.f. 21.06.2006)
Retail dealer of liquor selling goods below MRP	Set-off = Tax paid on purchases*Selling price/ MRP
Office equipment and, Furniture & Fixture	Setoff granted after retention @ 3%
Dealer executing a contract of processing of textiles	Setoff granted after retention @ 3% (w.e.f. 01-06-2008 @ 2%) for the purchases of goods used in respect of which property transferred, packing material and other purchases including capital assets.

No set-off can be claimed in respect of following purchases of goods (Negative List):

• Motor Vehicles treated as capital asset and their parts, components and accessories. (Dealers in Motor Vehicles or Leasing of Motor Vehicles entitled to set-off)
• Motor Spirits unless resold or stock transferred.
• Crude oil, if used by Refinery for refining.
• Dealer principally engaged in job-work or labour work and not engaged in manufacturing of goods for sale by him and obtained waste/scrap goods, which is sold, then no set-off.
• Incorporeal or intangible goods like Trademark, Patents, Copyrights, and Simcards etc. not eligible for setoff. However, Import licences, Exim scrips, export permit/Licence/Quota and DEPB and Software purchased for resale are eligible for setoff. The copyrights will be eligible for setoff if they are resold within 12 months from the date of purchase.
• Purchases effected by way of Works Contract (WC) where the contract is for erection of immovable property.
• Purchases of Building Materials, which are not resold but are used in the construction activity.
• Purchases of Indian made foreign liquor or country liquor if the dealer has opted for composition.

A dealer registered under VAT may issue to the purchaser a `Tax Invoice’. It should contain following particulars.

• The words “Tax Invoice” in bold letters at the top or at any prominent place.
• The name, address and registration certificate number of the selling dealers.
• The name and address of the purchasing dealer.
• Invoice number and date.
• Description of the goods, the quantity or as the case may be, number and price of the goods sold and the amount of tax charged thereon indicated separately.
• Signed by the selling dealer, or his servant, manager or agent duly authorized by him.
• The Tax Invoice shall contain Certificate as prescribed by Rule 77.