Service Tax Regulations and Calculation

Rule: 3 Appointment of Officers

The Central Board of Excise and Customs could appoint a central excise officer if needed to maintain the rules for taxable services.

Rule 4: Registration

Service tax registration was mandatory for every person who was liable to pay service tax. The registration process had to be done using the application Form ST - 1 within 30 days from the date service tax was charged. Today, businesses register under GST instead — see GST registration.

Rule 4 (A): Taxable service to be provided or credit to be distributed on invoice, bill or challan

Every registered service provider had to issue a signed invoice or bill or a challan to the service receiver which contained the name, address, registration number, name of the recipient, address of the recipient, product description, cost of service provided and the tax amount.

Rule 4 (B): Issue of Consignment Note

While providing services related to goods transportation, the provider had to issue a consignment note.

Rule 5: Records

The Central Board of Excise and Custom had to accept any record that contained computerized data that was maintained and provided by an assessee.

Rule 5 (A): Access to Registered Premises

Any officer with the authorization of the commissioner had access to any premises to complete verification and scrutiny work required for revenue protection.

Rule (6): Payment of Service Tax

Service tax had to be paid by the 5th of every month to the central government if paid physically by cash or another mode. In the case of online submission, it had to be paid by the 6th of every month.

Rule 6 (A) Export of Services

If the service provider was situated in the taxable territory of India and provided services to a recipient situated abroad then such service providing was considered as export of services.

Rule 7: Returns

Every assessee had to file a half-yearly return by the 25th of the following month when the half-year completed for them. The half-yearly return had to be submitted in Form ST-3 or ST-3A with a copy of Form ST-6 in triple copies for the months covered in the half-yearly returns.

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

Transport operators who provided services or goods had to file a six-months return and this was in effect from the 13th May 2003. Not filing such a return led to penalty charges.

Rule 7 (B) Revision of Return

A revised return had to be filed with Form ST-3 to edit or modify or correct any mistakes within 90 days from the return submission date.

Rule 7 (C): Amount to be paid for delay in furnishing the prescribed return

If a late return was filed within 15 days from the prescribed submission date then a penalty of INR 500 had to be paid. If the late return filing got delayed further, then a penalty of INR 1000 had to be paid. If the late return exceeded 30 days from the submission date, then the penalty was INR 1000 + 100/month until it was submitted.

Rule 8: Form of Appeals to Commissioner of Central Excise (Appeals)

Form ST-4 had to be used to appeal to the Commissioner of Central Excise under section 85 of the Finance Act 1994.

Rule 9: Form of Appeals to Appellate Tribunal

Form ST-5 had to be used to appeal to the Appellate Tribunal under section 86 of the Finance Act 1994.

Rule 10: Procedure and facilities for the large taxpayer

The large taxpayers had to submit a separate return for each of their registered premises and could be required to produce records for verification whenever asked.

Service Tax Rate

From June 2016, the final service tax rate applicable was 15% (14% basic rate + 0.5% Swachh Bharat Cess + 0.5% Krishi Kalyan Cess), which did not require submitting an SHEC or Education Cess separately. The tax collected had to be deposited in a bank or online on a monthly or quarterly basis. In the case of excess amount paid by the taxpayer, they could adjust it in the next payment or claim a refund. Swachh Bharat Cess and Krishi Kalyan Cess were levied on any services that fell under service tax liability. This 15% rate remained in force until service tax was replaced by GST on 1 July 2017.

Paying Service Tax In India

Service Tax could be paid by using the G.A.R-7 Challan which could be obtained from the specific branches of certain banks. This challan had to be filled accordingly with all required information and had to be submitted to the particular banks.

Service tax could also be paid online by using the e-payment gateway of the Central Board of Excise and Custom. It was mandatory to have an internet banking facility with the authorized bank to make online service tax payment.

Individual service providers had to pay service tax on a cash basis while companies had to make it on an accrual basis. The companies needed to pay the service tax as soon as they offered services to the recipients.

The partnership firms and individuals needed to pay service tax on a quarterly basis. The societies, companies, and trusts had to pay service tax on a monthly basis.

Filing Service Tax Returns

The registered taxpayers needed to file returns of ST-3 type and the provisional taxpayers filed the ST-3A return. The provisional type of return filing was prescribed under rule 6(4) of Service Tax Rules 1994. ST-3 had to be filed on a half-yearly basis, and it had to be accompanied by a GAR-7 challan.

To file Service Tax returns, the taxpayer first needed to register themselves with ACES (Automation Central Excise and Service Tax). This could be done by visiting the Central Board of Excise and Customs website. Registering with CBEC provided a user ID and password which had to be used to access Form ST-1. The form was filled in online and e-payment made with the chosen bank. Penalties were prescribed as well for failing to file a return by the scheduled deadline. Since 1 July 2017, indirect tax returns are instead filed on the GST portal — see our guide to GST returns.

Penalties Set for Late Filing Of Service Tax

Failing to file a service tax return could lead to penalty charges as scheduled under Section 76, 77 and 78 of Finance Act, 1994.

The conditions for charging penalty were:

• Failing to file the ST-3 return within the due date of every year which was 25th October and 25th April could attract a penalty fee up to INR 2,000 depending on the period of delay.
• If anyone failed to appear before the Central Excise Officer when called for then they had to pay a penalty up to INR 5000 or INR 200 per day from the due date, whichever was higher.
• If a service provider failed to register their services, it drew a penalty up to INR 5,000 as mentioned in section 77 of the Finance Act, 1994.
• Failing to maintain a record as prescribed by Service Tax law could draw a penalty up to INR 5,000.
• Failing to file service tax through online mode by the scheduled date could draw a penalty up to INR 5,000.
• Issuing an incorrect invoice or failing to provide valid evidence for that could draw a penalty of INR 5,000.
• Attempting to suppress the tax payable value or providing a mis-statement of provided services also drew a heavy penalty.

However, as per Section 80 of the Finance Act, 1994, if a person was able to provide sufficient cause to support the non-filing or delayed filing of service tax, then they could be exempted from paying any penalty fees.

Service Tax Exemptions in India

A negative list was also prescribed for the services that were not liable to pay service tax and these services were exempt from paying service tax to the government:

• A small-scale or individual service provider with a yearly income of less than INR 10 lakhs was exempted from paying service tax.
• A service recipient could avoid paying service tax for services if they received a written proof confirming that no duty had been paid for the service and if it was rendered under CENVAT credit rules.
• Services provided to the diplomatic mission or to a diplomat or their family members were not liable to be taxed under service tax rules.
• Port services or goods transport services or containerized transport services or any services received to use for goods export or received by an exporter were non-taxable.
• Any services provided to United Nations or international organizations were non-taxable.
• Services provided to a unit of Special Economic Zone or to a developer of Special Economic Zone were non-taxable.

Issuing Invoice

According to Rule 4A of Service Tax Act, 1994, the service tax collector had to issue an invoice within 14 days from providing the services.

The invoice or bill had to have the following items in it: