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F.No.B.11/1/2002-TRU
Government of India
Ministry of Finance
Department of Revenue
1st August, 2002
Subject: Tax
on 10 New Services to be effective from 2002- Instructions regarding.
- Kindly refer
to section 149 of the Finance Act, 2002 (20 of 2002) which, inter-alia,
provides for the levy of service tax on 10 new services.
- It has been decided that the levy and collection of service
tax on the new services shall be effective from 16.8.2002 (Vide
notification No.8 /2002-ST, dated 1.8.2002)
- As you are aware, certain legislative amendments were made in
sections 73, 75, 78, 82, 83, 94 and 95 of the Finance Act, 1994
vide section 149 of the Finance Act, 2002. All these changes
will now be effective from 16.8.2002. The Service Tax Rules, 1994
have also been amended. Notification No.12/2002-ST
dated 1.8.2002 has been issued in this regard. These amendments
are also effective from 16.8.2002.
- Legislative changes: The following changes were made
in the Finance Act, 1994 by the Finance Act, 2002.
4.1 Section 73 has been amended to provide for relevant
dates for computation of the period of limitation for issue of
show cause notice for recovery of service tax in cases when return
is filed, when no return is filed, when assessment is provisional
and when any sum has erroneously been refunded.
4.2 Section 75 has been amended to provide for charging
of interest at the rate of fifteen percent per annum (instead
of the twenty four percent per annum) for delayed payment of service
tax.
4.3 Section 78 has been amended to empower the Assistant
Commissioner/Dy. Commissioner to impose penalty without prior
approval of the Commissioner of Central Excise in cases where
the value of taxable service suppressed/furnished does not exceed
Rs. 2 lakh. Hitherto this limit was Rs 25,000.
4.4 Section 82 has been amended to provide specifically
for the power to seize documents relevant to any proceedings under
the service tax law.
4.5 Section 83 has been amended to make section 11D of
the Central Excise Act applicable to service tax. Accordingly,
if any amount is recovered by any person as “service tax”, then
such person bound to pay it to the Government. The law provides
for its recovery in case of his failure to do so.
4.6 Section 94 has been amended to empower the Government
to make rules to allow credit of service tax paid on the services
consumed for providing a taxable service in case where the services
consumed and the service provided fall in the same category of
taxable service.
4.7 Section 95 has been amended to empower the Government
to remove the difficulties arising in implementation of service
tax levy on new services by order in the official gazette within
a period of two years from the date on which the levy on new service
comes into effect.
- Amendment in the definition of “ banking and other financial services”
and “banking services”
5.1 The definition of “banking and other
financial service” has been amended to extend the levy of service
tax to body corporate other than those already specified earlier,
providing specified services. The levy on body corporate, which
have come into tax net as a consequence to this amendment, will
be effective only from 16.8.2002. It may be noted that as a result
of this amendment, all body corporate providing the specified
“banking and other financial service” will come under the tax
net. Earlier, it was clarified vide Ministry’s instructions
F. No. B-11/1/2001 dated 9.7.2001 that asset management companies
are not NBFC. Hence they would not come under the purview of service
tax. This instruction stands amended now as Asset Management Companies
being “body corporate” will henceforth be liable to pay service
tax. Similarly all merchant bankers, portfolio managers, foreign
exchange brokers etc who are “body corporate” will henceforth
be liable to pay service tax.
5.2 The definition of “banking company” has also
been amended to assign it the meaning as given in clause (a) of
section 45A of the Reserve bank of India Act. This amendment has
been made to clarify the doubts, which were raised about the applicability
of service tax levy on banking and other financial services provided
by the State Bank of India and its subsidiary banks under the
erstwhile definition of “banking company”.
- Retrospective amendment
in the provisions relating to “broadcasting service”
6.1 Vide section 148 (1) of the Finance Act 2002,
the definitions of “broadcasting” and “taxable service” in relation
to broadcasting service have been amended retrospectively with
effect from 16.7.2001 in order to clarify the scope of service
beyond doubt. Further a definition of “broadcasting agency or
organisation” has been inserted with effect from 16.7.2001. It
is now incorporated in the definition itself that in case of foreign
broadcasting channels, broadcasting would include the activity
of selling of time slots or obtaining sponsorship for broadcasting
of any programme or collecting the broadcasting charges on behalf
of such channel by its branch office or subsidiary or representative
in India or any agent or any other person acting on their behalf.
6.2 Attention is invited to section 148 (2) of the Finance
Act. This has mandated that the broadcasting agencies, who did
not pay service tax earlier, would have to pay all dues within
thirty days from the date on which the Finance Bill 2002 received
the assent of the President (i.e. 11.5.2002), otherwise they will
have to pay dues along with the interest. The Commissioner would
have no doubt taken the necessary action accordingly. If any recoveries
are still pending, the same may kindly be brought to the notice
of the Ministry by the Commissioner concerned within a fortnight.
- Service Tax Credit Rules,
1994
7.1 The Service Tax Credit Rules 2002 have been made to
allow credit within the same category of service. These
rules also specifies the procedural requirement to be fulfilled
for availing credit of service tax. Notification No. 14/2002-ST
refers. These rules broadly envisage the following procedures/conditions
for availing credit.
| (i) |
“input service” and “output
service” service should fall in the same category of service
i.e. they should fall in the same sub-clause of clause 90
of section 65 of the Finance Act 1994. |
| (ii) |
credit will be available only
in respect of such “input service” for which the bill/invoice
is issued on or after 16.8 2002. |
| (iii) |
credit can be availed on invoice/challan/bill
issued by the input service provider indicating clearly
the serial number, the registration no, address of the service
provider, value of taxable service and amount service tax
payable/paid. For instance, credit of service tax will be
available to a consulting engineer in respect of the service
provided to him by another consulting engineer. To give
another illustration, an event manager can not claim credit
of the service tax paid by a videographer. |
| (iv) |
the person availing credit shall
be responsible to ensure the correctness of credit availed
and he shall maintain proper accounting records in this
regard indicating the details of description and value of
input service, service tax paid on input service, the details
of service provider with service tax registration number
and the service tax creditutilized for payment of service
tax on final service. |
| (v) |
he shall submit information
in prescribed proforma to the jurisdictional officer along
with ST-3 return. |
| (vi) |
in case of wrong availment of
credit or cases where it is discovered later on that service
tax has not been paid, service tax credit will be recoverable
and penal provisions of section 73, 75, 76 and 78
would be applicable. For instance, a service provider issued
a bill for a service rendered. He also shows the ST amount
payable. However, in the actual term, he did not pay this
to the government for any reason, whatsoever. In that event
the output service provider will have to reverse the credit.
He can not take this plea that the credit is due to him
as he was not at fault. |
- Amendments in Service Tax Rules, 1994
8.1 In relation to “insurance auxiliary services relating
to life insurance” provided by the insurance agents, it has been
prescribed that the service tax shall be paid by the Insurance
Company (Insurer). Notification No. 12/2002-ST refers. Accordingly
in case of insurance agents, service tax in respect of their services
will have to be paid by the life insurance companies.
8.2 As per the provisions existing hitherto, in the
case of a service provider who is a non resident or from outside
India and does not have an office in India the service tax has
to be paid either by such service provider or by a person authorized
by him. However, it is reported that difficulties arise in collecting
service tax from such service provider as they leave the country
after rendering the service. To smoothen the tax collection, it
has now been prescribed in the Service Tax Rules that in such
cases the service receiver in India would be liable to pay service
tax on behalf of the service provider (refer notification No.
12/2002-ST).
8.3 On delay in payment of service tax, penalty and
interest is chargeable. As regards the issue as to which date
should be deemed to be the date of payment of service tax, there
are divergent views. In some cases the date on which the
service tax is credited to the government account is being treated
as the date on which service tax has been paid. Even though
the assessee deposits cheque on or before the stipulated date,
the government account is credited after a few days of deposit
of cheque. It has now been decided that the date of presentation
of cheque will deemed to be the date on which service tax has
been paid to the credit of the Central Government provided the
cheque is not dishonoured in the course of clearing Notification
No.12 /2002-ST refers.
8.4 Amendment in Form ST-3: Certain amendments have been
made in the ST-3 form in view of introduction of credit within
the same service. Notification No. 12/2002- ST refers.
- Presently, practicing chartered accountants, cost accountants
and company secretaries are liable to pay service tax on the specified
services provided in their professional capacity as mentioned
in the notification No. 59/98-ST dated 16.10.98. However this
exemption has been misinterpreted to mean that even if a CA/CS/Cost
Accountants provides other taxable services such as management
consultancy, or manpower recruitment service, he is not liable
to pay service tax. This is not the correct interpretation. To
clarify all doubts, an Explanation has been added in the notification
No. 59/98-ST dated 16.10.98. This Explanation makes it clear that
in case a CA/CS/Cost Accountants provides other taxable services,
service tax will have to be paid as such taxable service (notification
No.15 /2002-ST refers).
- Notification No. 6/99-ST dated 9.4.1999 exempts the service
tax on such taxable services where payment is received in Indiain
foreign convertible currency. While referring to taxable services,
this notification has a reference to clause (72) of section 65
of the Finance Act, 1994. Consequent to amendment made in section
65 vide the Finance Act 2002, the taxable service are now defined
in clause (90). The notification No. 6/99-ST dated 9.4.1999 has
been amended to incorporate reference to clause (90) in place
of existing reference to clause (72) (notification No. 13/2002-STrefers)
- Extension of service tax to ten more services: In
regard to the new services, which will be subject to service tax
from the 16 th July, 2002, certain issues have been brought to
notice during the course of discussion with the departmental officials
or the concerned Associations. These have been discussed and clarified
in the Annexures appended as per details below.
The section referred to hereinafter are the sections or clauses
of the Finance Act, 1994 as amended by the Finance Act, 2002.
Reference to sub-clause or clause means clause or sub-clause of
section 65 (1) of the Finance Act, 1994 as amended by the Finance
Act, 2002.
11.1 The new assessee are required to file for service
tax registration No. in form ST-1 to the jurisdictional superintendent
within thirty days from 16.8.2002. The ST-1 form is enclosed herewith
(Annexure
XI). In case of failure to take registration within the stipulated
time of thirty days, the assessee would be liable to pay a mandatory
penalty of five hundred rupees.
- The Commissioners are requested to issue suitable trade notices
for the benefit of the new assesses detailing the scope and coverage
of the new services, gist of the service tax procedures and formalities
to be complied with by the assessees, formats of the application
form for registration, service tax returns, etc., the manner of
payment of service tax, the banks through which service tax payments
can be made and other relevant aspects.
- In case of any doubts or difficulties arising in the implementation
of service tax on the new services, which require clarification
at the Board’s level, the Commissioners are requested to bring
the same to the notice of the undersigned immediately along with
their suggestions/views for resolving these difficulties.
(T.R.Rustagi)
Joint Secretary (TRU)
Telephone: 309 2687
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