-CA Surbhi Nahata
Budget 2012 has ushered a new system of taxation of services, which is also popularly known as Negative list. The new changes are a paradigm shift from the existing system, where only services of specified descriptions were taxed. Old scheme (before 30.06.2012) levied tax on 119 prescribed services and every service has a unique code, but new scheme (from 01.07.2012) levies tax on all the services except certain negative listed services.
FEATURES OF THE NEW SYSTEM:
The new and modified system came up with certain new concepts such as:
1. Concept of negative list of service where certain specified services are out of the ambit of taxability( Sec-66D)
2. Concept of place of provision of service (Sec- 66C) – Since provision of service in the taxable territory is an important ingredient of taxability; therefore Central Government is empowered to make rules for determination of place of provision of service.
3. Sec-66E lays down the concept of declared services.
4. In addition to the services specified in the negative list, certain exemptions have also been granted.
5. Sec-66F lays down principle for interpretation where services have to be treated differently for any reason and also for determining the taxability of bundled services.
CHARGEABILITY OF SERVICE TAX (SEC-66B):
There shall be levied a tax, known as service tax at the rate of 14.50 %( Note 1):
*on the value of all the services (except those mentioned in the negative list)
*provided or agreed to be provided (Note 2)
*in the taxable territory (Note 3)
*by one person to another
Note 1 : Budget 2015 has increased the service tax rate from 12.36% to flat 14% w.e.f 01.06.2015, moreover from 15.11.2015 Swachh Bharat Cess at the rate of 0.5% would also be applicable. Therefore, service tax rate is 14.5% from 15.11.2015 onwards.
Note 2 : The phrase ‘agreed to be provided’ are those services which have only been agreed to be provided and are yet not provided. However, these are taxable only when payment is received in advance. Therefore, date on which advance is received will be Point of taxation and accordingly due date.
If any contract is executed for any service to be rendered in future and advance money is also received but thereafter service is not provided in future (i.e. agreement cancel), then how to deal with the situation?
There are 2 outcomes on such a situation:
a) Advance money is forfeited by service provider: In this case, advances received will be taxable as these represent consideration for a service that was agreed to be provided.
b) Advance money refunded by the service provider: In this case service tax is already paid to State Government and so service provider can book credit of equal amount of service tax paid for future adjustments.
Note 3 : The term ‘taxable territory’ will include :
i) land part of India (except Jammu and Kashmir)
ii) Territorial waters of India including air space, water and seabed/subsoil.
iii) Exclusive economic zone/continental shelf for oil rigs.
WHEN DOES LIABILITY TO PAY SERVICE TAX ARISES?
Liability to pay service tax arises on a particular point which is determined by Point of Taxation Rules, 2011. As per these rules point of taxation is:
- The time when the invoice for the service provided or agreed to be provided is issued.
- If the invoice is not issued within prescribed time period of 30 days ( 45 days in case of financial sector) of completion of provision of service then the date of completion of service.
- The date of receipt of payment where payment is received before issuance of invoice /completion of service.
Therefore, liability to pay tax will be:
Date of issue of invoice or date of completion of provision of service or date of receiving payment, whichever is earlier.