PAYMENT OF SERVICE TAX: POINTS TO REMEMBER

[Dr. Sanjiv Agarwal]

Provision relating to Payment (Section 68)

Section 68 contains statutory provisions relating to payment of service tax. According to Section 68, following provisions exist:

(1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed.

(2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax theron shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.

Section 68 is only a payment or recovery provision and levy provision cannot be interpreted or influenced by the collection section. Section 68 was amended significantly by the Finance Act, 1998 to the effect that ‘collection of tax’ had been replaced by ‘payment of tax’. It means that even if the assessee is not able to collect the portion of tax, he shall be liable to make the payment of Service Tax on the amount received and he will be liable for paying the Service Tax in relation to such taxable service.

As per Section 68(1), the responsibility of paying the Service Tax vests with the person who is providing the taxable service except in cases where person liable to pay tax is not a service provider as per section 68(2).

Charge of Service Tax (Section 66)

Finance Act, 2006 has amended the rate of service tax, w.e.f. 18th April, 2006.

Section 66 is the charging provision which states that there shall be levied a tax at the rate of twelve per cent (five per cent up to 13-5-2003; eight per cent from 14-5-2003 to 9-9-2004; ten per cent from 10-9-2004 upto 17-4-2006) of the value of the taxable services as referred to in Section 65(105). The rate of service tax has been enhanced from 10 per cent to 12 per cent by the Finance Act, 2006 w.e.f. 18.4.2006. The effective rate of Service Tax has been concerned to 10 per cent by Notification No. 8/2009-ST dated 24-2-2009. Thus it will be 10.30 per cent w.e.f. 24-2-2009 inclusive of cess. A 2 per cent education cess thereupon was also levied.

The effective rate of Service Tax was reduced to 10 per cent by Notification No. 8/2009-ST dated 24-2-2009. Thus, it will be 10.30 per cent w.e.f. 24-2-2009 inclusive of both cesses.

Education Cess

An Education Cess levied on all taxable services shall be chargeable @ 2% of the amount of service tax. The cess paid on input services shall be available as credit for payment of cess on output services. Education cess is in nature of a surcharge and is not a permanent levy. It is temporary in nature.

Secondary and Higher Education Cess

A cess @ one per cent has been imposed on services liable to service tax. It shall be levied on the service tax payable on such services. The cess paid on input services shall be available as credit for payment of cess on output service. It will come into force from the date of Finance Act, 2007.

Payment of Service Tax by Cheque

Rule 7 of Central Government Account (Receipts and Payments) Rules, 1983 provide that government dues which includes taxes, could be credited directly into any authorized bank branch by assessees/taxpayers and that such payments can be made by cash or cheque/draft also.

It has been clarified that as per RBI instructions, when the payment is made either in cash or by the demand draft, the immediate credit has to be taken. However, when a cheque is tendered, the money still remains in assessees account and is not transferred to the bank. It is only when the cheque is cleared by the clearing house of the bank that the money gets deposited in the bank. Till the date of clearance the money is not credited to the designated bank, i.e., the money is not credited to the Government of Indias account as provided under Rule 6 of Services Tax Rules. In view of this, the payment of duly by cheque may not be treated as discharge of duty by due date unless the cheque is encashed and the amount is credited in the account of Government of India. (Refer Trade Notice No. 72/2001 dated 30-7-2001 issued by Cochin Commissionerate).

Service Tax (Amendment) Rules, 2002 provide that in case of payment by cheque, the date of presentation of cheque shall be deemed to be the date of payment of tax subject to realization, in such case, the date of presentation of cheque shall 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. Also refer Circular No. 86/2003–Customs dated 3-10-2003.

GAR – 7 Challan

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. The details of such banks and branches may be obtained from the nearest Central Excise Office/Service Tax Office.

GAR-7 Challan is a new single copy challan form GAR-7 which has been introduced under electronic accounting system in Central Excise and Service Tax in which after realization of cheques etc. assessees will be provided a counterfoil of the challan duly receipted by receiving branch on proof of payment. For this challan identification number is required. Challan Identification Number (CIN) has three parts.

• Seven digit BSR code of the bank branch where tax is deposited

• Date of Deposit (DD/MM/YY) of tax

• Serial Number of Challan

E-payment of Central Excise and Service Tax

E-payment is a mode of payment in addition to the conventional methods of payment offered by the banks under specific security norms of Reserve Bank ofIndia. This scheme facilitates anytime, anywhere payment and an instant cyber receipt is generated once the transaction is complete. It provides the convenience of making online payment of Central Excise and Service Tax through Bank’s Internet banking service.

Payment of Tax in Designated Banks

It should also be noted that payment of Service Tax should be made in the designated branches of the bank because payment of tax into non-designated banks would not amount to paying Service Tax.

However, in Shaman Marketing Research Association v. Commissioner of Central Excise, Mumbai-V 2003 -TMI - 92 – (CEGAT, MUMBAI), where Service Tax was paid in Union Bank of India instead of State Bank of India, it was held that appellants should have been guided to pay the Service Tax in appropriate bank. When tax was already paid to one of the designated banks, order demanding tax again with interest and imposing penalty was set aside. The lower authorities should have got the matter regularized by transfer of amount from one authorized bank to other instead of issuing the impugned orders asking the assessee to pay tax again along with interest.

Rounding off of Tax Amount

The amount of Service Tax payable by assessees or service providers is required to be rounded off to the nearest rupee as per the provisions of Section 37D of the Central Excise Act, 1944. If the amount of tax payable is less than fifty paise (i.e. up to 49 paise), it will be ignored and where it is fifty paise or more, it will be rounded off to the next rupee. Section 37D applies to Service Tax also. This has also been clarified vide [Circular No. 53/2/2003-ST dated 27-3-2003]

Accounting Codes for Services

Each service has been assigned a code (ECC code) for depositing the tax

Assessees are required to mention proper service code while tendering the payment to get proper and timely credit. Service tax assessees should quote new heads of accounts along with eight-digit serial code numbers as allotted by Controller General of Accounts, CBEC. The new eight-digit code numbers have been issued vide office memorandum dated 13-2-2003. With this, old account numbers have been withdrawn and need not be used. In case an assessee has mentioned wrong accounting code, he need not make another payment but the Department would sort out the matter with public accounts office. This was clarified vide Circular No. 58/07/2003-CX(ST) dated 20-5-2003.

Consequences of Non-payment/Delay in Payment

As per Section 75, if a person defaults in making the payment of Service Tax within stipulated time, he was liable to pay simple interest @15 per cent p.a. for the period during which the payment was delayed (prior to 10.9.2004). Notification No. 26/2004-ST dated 10-9-2004 has fixed the rate of interest @13 per cent per annum w.e.f. 10-9-2004. The rate of interest has been enhanced to 18 per cent p.a. w.e.f. 1.4.2011 vide Notification No. 14/2011-ST, dated 1.3.2011. Interest payments are mandatory in nature and the same cannot be waived.

  

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