Master Circular on service tax

[Dinesh Kumar Agrawal]

Service tax in India is an evolving law which was introduced for the first time in 1994 initially on 3 specified services. Since then, every year a few services have been brought within the service tax net and as of now 100 services are taxable. Over the years, CBEC and field formations have issued numerous circulars clarifying the scope of taxable services or prescribing the procedure to ensure uniformity in the assessment practice. However, subsequent changes in the law have rendered a number of circulars redundant or contradictory. 

Based on the recommendations of the Rustagi Committee, the CBEC has issued two master circulars (i) Circular No. 96/7/2007-ST dated 23 August 2007 on technical issues pertaining to the scope of the taxable services, and (ii) Circular No. 97/8/2007 dated 23 August 2007 on procedural issues in the service tax. Aforesaid two circulars supersede all earlier circulars/clarifications/instructions except three Section 37B orders which pertain to instructions on the services of goods transport agency, storage facility and third party inspection and certification service. 

Generally circulars are binding on the department as it imparts consistency and uniformity in the tax administration. However, in the both circulars it has been specifically mentioned that in case of contradictions between the circulars and legal provisions, the latter will prevail. Salient features of both circulars are given below:

 Circular No. 96/7/2007-ST dated 23 August 2007 

For the ease of reference, a unique coding system has been followed which indicates number of clarifications issued on a particular taxable service. Code 996-998 pertains to import, export and valuation of taxable services respectively and code 999 pertains to miscellaneous clarifications. 31 clarifications pertaining to 18 taxable services have been incorporated in the circulars.

 It has been clarified that taxable services provided by a sub-contractor to a taxable service provider is taxable and taxable service provider can avail the cenvat credit on such input service provided by the sub-contractor. Earlier, sub-contractors were not liable to pay service tax if main contractor had paid service tax on the taxable services. Some other important clarifications are summarized as below: 

Ø Surcharge for delayed payment of telephone bills is not taxable

Ø Canvassing advertisements for publishing is taxable under business auxiliary service

Ø 'Express cargo service' or 'door to door transportation of goods' and 'Angadia service' is taxable under courier service

Ø Self-employed professionally qualified engineer is covered within the meaning of consulting engineers

Ø Considerations received by educational institutions for campus interview/ recruitments are taxable under manpower recruitment or supply agency

Ø Temporary supply of manpower by agencies is covered under manpower recruitment or supply agency

Ø Letting out of halls/rooms etc by hotels for any official, social or business functions or temporary occupation of hall for holding dance, drama or music is covered under mandap keeper service

Ø Buying and selling of foreign currency is not a taxable service

Ø 'Entry and exit load' charged by Assets Management Company is not taxable

Ø the depository services provided by CDSL including Electronic Access to Securities Information (EASI) for a fee are liable to service tax under Banking and other Financial Services

Ø Simple Chit Funds, where no consideration is paid or received is not a taxable service

Ø Business Chit Funds, where promoter charge a consideration is a taxable service

Ø Consideration received by authorised agents/service stations from the manufacturers for providing free service to vehicles is taxable

Ø Repair and service of heavy vehicles including trucks is not taxable

Ø Service tax on sale of spare parts or use thereof during servicing of a vehicle will depend upon facts of each case

Ø storage and warehousing of empty containers is liable to service tax

Ø Commission received by the distributors from the mutual fund is taxable under business auxiliary service

Ø Maintenance or repair of software is taxable under management, maintenance or repair service

Ø Resident welfare co-operative society is eligible for exemption of notification No. 8/2007-ST dated 1 March 2007

Ø Construction work undertaken by the builder / promoter / developer without engaging the services of a contractor is not taxable under construction of complex service

Ø Sovereign/public authorities performing statutory functions and charging statutory fee is not taxable

Circular No. 97/8/2007 dated 23 August 2007

Efficient and effective tax administration requires laying down specific rules and procedures. Chapter V of the Finance Act, 1994, the Service Tax Rules, 1994, the Service Tax (Registration of Special Category of Persons) Rules, 2005 and the Cenvat Credit Rules, 2004 prescribes certain procedures for registration, payment of tax, maintenance of records and filing of periodical returns which has been consolidated in the circular. Some important procedure/clarifications are summarized as below:

Ø Threshold limit for service tax exemption is Rs 8 Lakh of the aggregate value of taxable service

Ø Service providers achieving turnover of Rs 7 Lakhs of the aggregate value of taxable service are required to obtain registration

Ø Only one single registration is required even if more than one taxable service is provided

Ø Centralised registration can be obtained if taxable service is provided from more than one premises or received in more than one premises

Ø Service tax is to be paid monthly and in the case of individual/proprietorship firm quarterly by 5^th of the succeeding month

Ø E-payment of service tax of Rs 50 Lakh or more in the year is mandatory and for others optional. In case of e-payments, tax can be paid by 6^th instead of 5^th of the succeeding month (refer Notification No 39/2007-ST dated 12 Sep 2007)

Ø Flexibility is provided to the goods transport agency in case vehicle number is not known at the time of issuance of consignment note or en-route transshipment of goods

Ø Any amount collected by any person as service tax is to be deposited with the Government

Ø Service tax audit for service tax payers and input credit distributors

Ø Prescribes monetary limits for adjudication of service tax cases

With respect to the availment/utilisation of cenvat credit on input/input service under the Cenvat Credit Rules, 2004, the circular has clarified that:

Ø The consignor or the consignee liable to pay service tax on goods transport by road has to pay service tax in cash and not by utilizing cenvat credit

Ø Inward transportation of input and capital goods is an input service and eligible for the cenvat credit of the tax paid thereon as goods transport agency

Ø The cenvat credit of the service tax paid on the transportation of final goods (Outward transportation) is admissible provided the freight charge is an integral part of the price of goods and the property in goods is transferred at the destination/delivery

Ø Cenvat credit of service tax paid in respect of mobile telephone service is admissible

Ø The input service distributor can distribute the eligible credit to any unit of the manufacturer or any premises/office of taxable service provider