Service Tax Rules

Last Updated at: October 18, 2019
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service tax GST

Service tax is an indirect tax levied on particular services. The service tax is charged on transactions done at service providers who do more than Rs. 10 lakh in revenue per year, as only these businesses must get a service tax registration. Once they do this, all their customers pay a tax of 15% on their bill. The amount they pay is collected by the service provider and paid to the government. This is why service tax is an indirect tax, which means that the person paying the tax isn’t the one finally giving it to government.

The aim of the service tax is for a government to lower the burden of taxation on businesses and individuals. Service tax came into effect in India in 1994, following the passing of Finance Act, 1994. The taxable services are all included in the specified list under section 65 of Finance Act, 1994. Service tax is levied on most services, barring the few that are included in the negative list, such as education services, activities of a trust, certain coaching classes and cultural events. The negative list is included in section 66D of the Finance Act, 1994.

In accordance with the Finance Act, 1994, the government of India has framed a set of rules to assess and collect service tax in India. Listed below are the rules applicable to service tax in India:

Rule 1: Short Title and Commencement

The centre’s rules to assess service tax payments, returns and collection, called Service Tax Rules, 1994, have been in effect since July 1, 1994.

Rule 2: Definitions

Every commonly used term is defined by the Service Tax rules, including such terms as ‘Act’, ‘assessment’ and ‘person liable for paying service tax’. The ‘Act’, of course, refers to the Finance Act, 2014, while ‘assessment’ refers to the self-assessment of service tax by the assessee, provisional assessment and reassessment, and ‘personal liable for paying service tax’ refers to the recipient of service.

Definitions of ‘quarter’, ‘renting of immovable property’ and ‘security services’ have also been included. The Service Tax Rules define the year into four quarters, January 1 to March 31, April 1 to June 30, July 1 to September 30 and October 1 to December 31. Renting of immovable property refers to services provided by renting of immovable property and security services refer to services relating to security and property.

Register your service tax

Rule 3: Appointment of Officers

Only the Central Board of Excise and Customs can appoint central excise officers. Whereas VAT is a state subject, service tax has always been in the control of the centre.

Rule 4: Registration

All service providers with a turnover of over Rs. 9 lakh in the preceding financial year must seek service tax registration and begin service tax collection if their turnover has crossed Rs. 10 lakh. All service providers liable to pay service tax must apply for registration using Form ST – 1 30 days from the date of crossing the limit.

Rule 4 (A): Information about taxable services to be provided on bill, invoice or challan

All service providers offering taxable services are requred to issue an invoice, bill or challan signed by the person in whose name the registration is, or by a person authorised by this person, containing basic information such as name, address and registration number of the service provider, the name and address of the service recipient, the description and cost of taxable services provided and the amount of service tax to be paid.

Rule 4 (B): Consignment Note

A consignment note must be issued by any service provider providing services related to transportation of goods.

Rule 5: Records

Even computerised records can be submitted and must be accepted by Central Board of Excise and Custom. Of course, this is irrelevant now that even the government requires filings to be done online.

Rule 5 (A): Access to Registered Premises:

All service tax officials are authorised by the commissioner to gain access to premises for any scrutiny and verification. This must be done in order to protect revenues.

Rule 6: Payment of Service Tax

Service tax payments must be done monthly as per Service Tax Rules. It must be paid to the credit of the central government by the 6th of every month, if paid electronically, and 5th of every month, if paid via other means.

Rule 6 (A): Export of Services

Any service provided or agreed to be provided shall be treated as an export of service if the provider of service is located in the taxable territory and the recipient is located outside India. However, service tax does not apply to exports.

Rule 7: Returns

Every service provider shall submit half yearly returns in Form ST-3 or ST-3A together with a copy of the Form TR-6 filled in triplicate by 25th of the month following the half year.

Rule 7 (A): Returns for taxable services provided by transport operators:

Services/goods provided by transport operators shall also furnish returns within a period of six months from the 13th May of 2003, failing which will lead to penalty.

Rule 7 (B): Revision of Returns

As per this rule, an assessee can submit revised returns in Form ST-3 to modify or correct any mistakes within 90 days from the date of submission of return.

Rule 7 (C): Amount to be paid for delay in furnishing returns

As with all fines from government, they can be pretty small. In case of a delay of less than 15 days in submission of returns to the government, an amount of Rs. 500 needs to be paid to the central government. In case the delay is greater than 15 days, you would need to pay Rs. 1000. For every additional month the return is delayed by, you would need to pay an additional Rs. 100.

Rule 8: Appeal to Commissioner of Central Excise

You can appeal to Commissioner of Central Excise in Form ST – 4 under section 85 of the Finance Act, 1994.

Rule 9: Form of Appeals to Appellate Tribunal

You can appeal to the Appellate Tribunal under section 86 of the Finance Act, 1994 by using Form ST-5.

Rule 10: Facilities and Procedure for Large Taxpayers

This section of rules includes the provisions enjoyed by the large taxpayers. A large taxpayer shall submit returns for each of their registered premises. They may also be required to produce all financial records for verification and security when required.

Service tax was initially imposed on a small range of services. However, since 2012, many new services were included. This includes service provided by A/C’d restaurants, short- and long-term lodging offered by hotels and private guest houses.

All service tax payments can be made using GAR-7, which is a challan available at specified bank branches. This challan needs to be furnished with all the necessary information and submitted at a particular bank. This is a bit of an outdated method, though, as service tax payments can also be made online using e-payment facilities on the website of the Central Board of Excise and Custom.

Service tax was earler charged only on cash basis, but this now only applies to individuals. Companies must now pay it on accrual basis. This means that they need to deposit service tax on provision of services.

Service tax was initially imposed on a small range of services. However, since 2012, many new services were included. This includes service provided by A/C’d restaurants, short- and long-term lodging offered by hotels and private guest houses.

All service tax payments can be made using GAR-7, which is a challan available at specified bank branches. This challan needs to be furnished with all the necessary information and submitted at a particular bank. This is a bit of an outdated method, though, as service tax payments can also be made online using e-payment facilities on the website of the Central Board of Excise and Custom.

Service tax was earler charged only on cash basis, but this now only applies to individuals. Companies must now pay it on accrual basis. This means that they need to deposit service tax on provision of services.

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    A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.