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COMPLIANCE MANAGEMENT UNDER SERVICE TAX (PART-I)

Service Tax - By: - Dr. Sanjiv Agarwal - Dated:- 23-10-2015 Last Replied Date:- 29-10-2015 - Compliance Management under Service Tax law is relevant as well as crucial for Service Tax assessees as well as professionals. If compliances are properly made, there will be no room for adjudication, disputes and litigation. This article discusses various legal and procedural compliances / requirements under Service Tax, consequences of non-compliances and managing the same. 1. BACKGROUND OF SERVICE TAX .....

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1994. It was in 2012 only when India moved ahead and migrated to a comprehensive approach with 17 broad categories of negative services which shall be out of tax net w.e.f. 1st July, 2012. The Finance Act, 1994 contains statutory provisions on Service Tax. Presently, the service sector contributes about 67 per cent to India's GDP Service sector is one of the three main economic sectors of Indian economy - the others being manufacturing and agriculture. Service Tax - An Indirect Tax Service .....

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service has been consumed in that territory. 2. WHAT IS SERVICE Service [(Clause 44 of Section 65 (B)] Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- an activity which constitutes merely,-­ (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ia) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause .....

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slative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (c) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is .....

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f, a transaction in money or actionable claim, including the activity carried out- (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner; (b) by a foreman of chit fund for conducting or organizing a chit in any manner. (w.e.f. 14.05.2015) Explanation 3. - For the purposes of this Chapter,- an unincorporated association or a body of persons, as the case may be, and a .....

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n includes declared service but does not include transfer in title of goods or immovable property transaction in money or actionable claim provisions of service by employee to employer deemed sale of goods duties performed by MP/MLA/Members of Municipal Corporation, Panchayats or Local authorities person holding constitutional posts. 3. CHARGING PROVISION (SECTION 65) Section 66B seeks to levy Service Tax at the rate of twelve percent, on the value of taxable services, other than services specif .....

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her person. (f) Tax shall be levied on value of services so provided or agreed to be provided. (g) Collection shall be in prescribed manner. 4. NEGATIVE LIST Meaning of Negative List (Clause 34 of Section 65B/Section 66D) Negative list has been defined under clause 34 of section 65B and such services are specified in section 66D of the Finance Act, 1994, as introduced by the Finance Act, 2012 and amended by Finance Act, 2014 w.e.f. 1-10-2014. Negative list of services would mean the services spe .....

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ter or month, as the case may be, in which the payment is received (Rule 6) (d) Payment of service tax on advance received (section 67) The purpose of these rules is to introduce clarity and certainty in the matter of levy and collection of Service Tax particularly in situations of change in rate of service tax or imposition of service tax on new services. Prior to 1-4-2011, there was lack of clarity as to the date from which the changed rate or a new levy of service tax become payable and taxpa .....

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ates: (i) Date on which service is provided or to be provided (ii) Date of invoice (iii) Date of payment 6. PLACE OF PROVISION OF SERVICES RULES, 2012 To support the negative list approach to taxation of services, section 66C has been introduced by the Finance Act, 2012 w.e.f. 1-7-2012 to provide for determination of place of provision of service . The place of provision of service for the purpose of service tax shall be determined in accordance with the place of Provision of Services Rules 2012 .....

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y means the territory which is outside the taxable territory; [Section 65B(35)] taxable territory means the territory to which the provisions of this Chapter apply; [Section 65B(52)] The territory to which provisions of this Chapter (Chapter V of Finance Act, 1994, as amended) apply has been stipulated in section 64 of the Finance Act, 1994 where in it has been provided that this Chapter extends to whole of India except the state of Jammu & Kashmir . Thus, Taxable territory would means whole .....

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t, 1976; the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and the vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof. Place of Provision of Service Rules, 2012 as amended contains 14 rules and shall be in operation w.e.f. 1-7-2012. These rules .....

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to be the location of service receiver. 4. Place of provision of performance based services. 5. Place of provision of service relating to immovable property. 6. Place of provision of service relating to events. 7. Place of provision of service provided at more than one location. 8. Place of provision of services where provider and receiver are located in taxable territory. 9. Place of provision of specified services. 10. Place of provision or provisions of goods transportation services. 11. Plac .....

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de for service receiver to be one of the persons liable to pay Service Tax. The liability of payment of Service Tax could, therefore be discharged by any one of the following - • Service providers in ordinary course • Service receivers under reverse charge • Jointly by service providers and service receivers (proportional reverse charge) Thus, for specified services as per Notification No. 30/2012-ST dated 20.06.2012 and conditions stipulated therein, payment of Service Tax shall .....

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l tribunals legal services company body corporate director's services services provided by Government/ local authority excluding specified services services provided by persons located in non-taxable territory to persons located in taxable in territory. Aggregator services (w.e.f. 1.3.2015) Manpower supply and security services (w.e.f. 1.4.2015) Lottery selling / marketing agent's services (w.e.f. 1.4.2015) Mutual funds agent / distributor services (w.e.f. 1.4.2015) 8. SCHEME OF CENVAT C .....

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tput services nor there is any condition of input output ratio to be met. There are no prescribed records for CENVAT and the records maintained by the manufacturer or service provider in respect of receipt, disposal, consumption or utilization and inventory of inputs, goods and services shall be acceptable to tax authorities. Transfer of CENVAT Credit shall be permitted in specified cases of transfer of undertaking by way of change in ownership or on account of sale, merger, amalgamation, lease .....

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le and non-taxable/exempt services. (f) Submission of CENVAT Credit details in monthly or quarterly returns (Form ER-1 or ER-3) to the Central Excise Department. (g) Submission of returns by dealers, service providers and input service distributors. 9. COMPLIANCE MANAGEMENT Compliances under any statute have gained importance and more so with tax laws. When it comes to compliance under any tax law - direct or indirect or central or state, assessees have no option but to go all out to comply with .....

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ion of Chief Finance Officer or Chief Risk Officer. In well governed companies, Audit Committee overseas the compliance function. Compliance Management in an business entity is nothing but managing the compliances i.e., ensuring total compliance environment. Compliances also help in undertaking due diligence of entities which may be for any business purpose. Objectives of Compliance Management Risk assessment exercise Business risk profile To determine the past, present and future tax liabilitie .....

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Finance Act, 1994 Determine the place of provision of service as per section 66C of Finance Act, 1994 read with Place of Provision of Services Rules, 2012 Value its taxable service as per section 67 of Finance Act, 1994 read with the Service Tax (Determination of Value ) Rules, 2006 Make the payment of Service Tax as per section 68 of Finance Act, 1994 read with Rule 6 of ST Rules, 1994 Take a registration under Service Tax ( both by service receiver and service provider as the case may be )as p .....

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redits Impact on significant economic events Analysis of tax findings Periodic due diligence Regular reporting on reviews Why Service Tax is Important for Compliance Management ? An important tax for all Major contributor of revenue as well as in GDP Highest tax evasion is in Service Tax only Unsettled Law subject to inconsistent interpretation Being indirect, consequences are fatal Simple but complex in implementation Almost all companies are covered, directly or indirectly Management Reviews u .....

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Compliances Section 75 Interest Section 76 / 77/ 78 Penalties Section 82 Search Section 89 Offences & penalties Section 90 Cognizance of offences Section 91 Power to arrest Reporting for Compliances Applicability of indirect taxes Reporting key exposures on account of various indirect taxes Pending litigation matters - exposure/ disputes Compliance status Examine eligibility of tax credits and export benefits (as applicable) Statutory returns/ records and documentation Identify tax exposures .....

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