Frequently Asked Questions
 
Q1. Is there a “Service Tax Act” ?
A1. The service tax is being imposed and scope is enhanced by amending Finance Act, 1994 from time to time. Therefore there is no ‘Service Tax Act’
 
Q2. What is the rate of Service Tax?
A2. Section 66 (which is a charging section) states that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of 10% of value of taxable services referred in section 65(105).

This tax was first time introduced with effect from 1-7-1994 on three services. The rate was 5%. It was subsequently increased to 8% w.e.f. 14-5-2003.

Presently, service tax rate is 10% plus education cess of 2% w.e.f. 10-9-2004.

An education cess of 2% of service tax has been imposed vide section 95 of Finance (No. 2) Act, 2004, w.e.f. 10-9-2004. Thus, total tax will be 10.2% (10% service tax plus education cess equal to 2% of service tax payable).

TAX PAYABLE COULD BE 80% OF ABOVE IF YOU AVAIL CENVAT OF INPUT SERVICES - You are eligible to avail Cenvat credit of all input services. If you have sufficient input credit, your tax liability can be only 8% of service tax plus education cess i.e. 8.16%. If all your output services are taxable and if your input service tax credit is high, the tax liability may further go down.

LOWER RATES IN SOME CASES - In case of some services, service tax is payable at lower rates. The lower rate is applicable if the service provider does not avail Cenvat credit of inputs and capital goods. He can avail Cenvat credit on input services. Some important exemptions are as follows - Mandap keeper providing full catering services (60%) * Outdoor caterer providing full meals (50%) * Goods Transport Agency (GTA) (25%) * Construction Service (33%) * Pandal and shamiana contractor providing full catering service (70%) * Rent-a-cab operator (40%) * Tour operator (40%) * Tour operator only arranging booking accommodation (10%). These are discussed later in greater details.

EDUCATION CESS - Legally, you have to show service tax and education cess separately in invoice. You cannot just charge 10.2% as ‘service tax’. In that case, department can ask you to pay further 0.2% amount.

You should also pay it by showing separate account head inTR-6 challan, indicating appropriate code.
 
Q3. At what amount the Service Tax is payable?

A3. Service tax is payable on gross amount charged by service provider for ‘such’ service rendered by him [section 67, which is a valuation section].

The word ‘such’ means that service tax is payable only on the amount charged for service which defined as ‘taxable service’. Tax cannot be levied on any other amount charged to customer.

Service Tax is payable on value of taxable service and not on entire value of contract.

 
Q4.How can an NGO apply for the registration ?
A4. NGO will have to apply for registration in form ST-1. An acknowledgement will be given on duplicate copy of ST-1 form by Superintendent of Central Excise, in whose jurisdiction the person operates.
 
Q5. What are the documents required by an NGO at the time of registration under the Service Tax ?
A5. The most important document that is required is copy of Income Tax PAN number. Other details like proof of address, list of partners/directors may be asked, but really these are not statutorily prescribed.

If PAN number is not available, copy of application for PAN should be submitted. Temporary registration may be granted.
 
Q6. When the Service Tax is required to be paid?
A6. The service tax on value of taxable services received during the calendar month should be paid by 5th of the next month. [Till 31-3-2005, tax was payable by 25th of following month]

If the assessee is an individual or proprietary firm or partnership firm, the tax is payable on quarterly basis within 5 days at the end of quarter (rule 6). This facility is not available to HUF firm in view of clear wording of the provision.

Exception has been made in case of March. Service tax on value of taxable services received during month of March or quarter of March is required to be paid by 31st March.

Assessee may find it difficult to accurately estimate the amounts he is going to receive from his customers in last two days. In Central Excise there is a provision of current account (termed as ‘Personal Ledger Account’). Hence, even if excess amount is paid, it will be to credit of current account and can be utilised next month. There is no similar provision in service tax. Let us hope some clarification is issued by department.
 

Q7. How do NGO pay the service tax ?

A7. The tax is payable by a TR-6 Challan in the bank where excise duty is accepted in that Commissionerate. The major account head is ‘044’. In addition, separate accounting code has been given to each service.

Yellow colour TR-6 challans should be used to minimise wrong classification of revenue - Cochin Commissionerate TN 126/96, dated 13.11.1996.

The tax paid should be rounded off in rupees.

It is necessary to show education cess separately in invoice. In TR-6 challan, account head of education cess is 00440297, which should be shown separately.

Account codes of various services are given below for ready reference.

Description of service
Sub-clause of section 65(105)
Accounting code for Tax
Accounting Code for Other Receipts (like interest, penalty)
Advertising agency
(e)
00440013
00440016
Air travel agent
(l)
00440032
00440033
Airport Services
(zzm)
00440258
00440259
Architect
(p)
00440072
00440073
Authorised service station (Light motor vehicle)
(zzj)
00440181
00440182
Authorised service station (Motor car/Two-wheelers)
(zo)
00440181
00440182
Banking and Financial services
(zm)
00440173
00440174
Beauty treatment
(zq)
00440209
00440210
Broadcasting
(zk)
00440165
00440166
Business auxiliary services
(zzb)
00440225
00440226
Business exhibition
(zzo)
00440254
00440255
Cable Operator
(zs)
00440217
00440218
Cargo handling
(zr)
00440189
00440190
Chartered Accountant’s Services
(s)
00440092
00440093
Clearing & Forwarding Agent
(j)
00440045
00440046
Commercial training or coaching
(zzc)
00440229
00440230
Company Secretary Services
(u)
00440100
00440101
Computer network (On-line information and data base access or retrieval)
(zh)
00440153
00440154
Construction (commercial and industrial buildings or civil structures)
(zzq)
00440290
00440291
Consulting Engineer
(g)
00440057
00440058
Convention
(zc)
00440133
00440134
Cost Accountant Services
(t)
00440096
00440097
Courier
(f)
00440014
00440018
Credit rating agency
(x)
00440088
00440089
Custom house agent
(h)
00440026
00440027
Dry cleaning
(zt)
00440221
00440222
Erection, Commissioning or installation
(zzd)
00440233
00440234
Event management
(zu)
00440197
00440198
Facsimile (FAX)
(zg)
00440149
00440150
Fashion designing
(zv)
00440213
00440214
Foreign exchange broking
(zzk)
00440173
Forward contract
(zzy)
00440282
00440283
Franchise
(zze)
00440237
00440238
General insurance
(d)
00440005
00440006
Health and fitness
(zw)
00440205
00440206
Insurance Auxiliary
(zy)
00440169
00440170
Insurance Auxiliary (Genl. Insurance)
(zl)
00440169
 
Intellectual property
(zzr)
00440278
00440279
Interior decorator
(q)
00440076
00440077
Internet access
(zzf)
00440241
00440242
Leased circuit
(zd)
00440137
00440138
Life insurance
(zx)
00440185
00440186
Maintenance or repair
(zzg)
00440245
00440246
Management Consultant
(r)
00440116
00440117
Mandap keeper
(m)
00440035
00440036
Manpower recruitment agency
(k)
00440060
00440061
Market research agency
(y)
00440112
00440113
On-line information and data base access or retrieval services
(zh)
See under Computer network
Opinion poll
(zzs)
00440274
00440275
Other Ports
(zzl)
00440177
00440178
Outdoor Caterer
(zzt)
00440051
00440052
Pager
(c)
00440015
00440020
Pandal or Shamiana
(zzw)
00440054
00440055
Photography
(zb)
00440129
00440130
Port
(zn)
00440177
00440178
Programme Producer (of TV of Radio programmes)
(zzu)
00440286
00440287
Rail travel agent
(zz)
00440201
00440202
Real estate agent
(v)
00440104
00440105
Rent-a-Cab operator
(o)
00440048
00440049
Scientific and technical consultancy
(za)
00440125
00440126
Security agency
(w)
00440108
00440109
Sound recording
(zj)
00440161
004400162
Steamer agent
(i)
00440029
00440030
Stock-broking
(a)
00440008
00440009
Storage and warehousing
(zza)
00440193
00440194
Survey and exploration of mineral
(zzv)
00440270
00440271
Technical inspection and certification
(zzi)
00440249
00440250
Technical testing and analysis
(zzh)
00440249
00440250
Telegraph
(ze)
00440141
00440142
Telephone
(b)
00440003
Telex
(zf)
00440145
00440146
Tour operator
(n)
00440063

00440064
Transport of goods by air
(zzn)
00440266
00440267
Transport of goods by road
(zzp)
00440262
00440263
Travel agent (other than air travel agent and rail travel agent)
(zzx)
00440294
00440295
Underwriter
(z)
00440084
00440085
Video production agency
(zi)
00440157
00440158
 
Education Cess of all Taxable Services - Major Head - 0044 - Service tax. Minor Head - Education Cess - 504. Account Code - 00440297.
 
Q8. How do NGO calculate their tax liability ?

A8. The liability to pay service tax on taxable services is only on the amount actually received. Thus, service tax is not payable on basis of amounts charged in the bills/invoice, but only on amounts actually received during the relevant period.

If you have given some credit note after getting payment, you can adjust that if corresponding service tax is also refunded to customer/client. Legally, the adjustment is possible only if full or part of services were not provided to customer/client.

Practically, it is very common to give some discount/reduction while settling the Bill. Assessee is required to pay only on the amount received from customer and not on amount billed to customer.

‘providing service’ is a taxable event. Tax liability arises when service is provided. Once we remember this basic concept, many doubts get automatically cleared.

Preparation of ‘Proforma Bill’ is not taxable, if service has not been provided.

However, once service is provided, tax becomes payable even if you do not prepare invoice or bill or challan, as preparation of Invoice or Bill is not a ‘taxable event’.

Note that service tax is actually payable only after you receive payment from customer/client. Even then, receipt of payment is not a taxable event. It only defers your tax liability.

 
Q9. Whether an NGO is required to pay service tax in case the service is provided prior to the imposition of service tax but the payment upon it is received after the imposition of the service tax?
A9. It may happen that an NGO may provide service prior to imposition of service tax, but the payment may come after the service becomes taxable. In such case, NGO is not required to pay service tax on such payment received in respect of earlier period [second proviso to rule 6(1)].
 
Q10. I am not resident in India, but I am providing taxable service in India. How can I register when I do not have any office or even PAN number in India ?
A10. Registration is not required if service is provided by non-resident or a person who is from outside India if he does not have any office in India. However, service tax is still payable if services are rendered in India. The service tax will be payable by person receiving taxable service in India. [Rule 2(1)(d)(iv)]. In such case, person receiving the service
 
Q11. What returns have to be submitted by an NGO assessee and when?
A11. The assessee has to submit half yearly return in form ST-3 in triplicate within 25 days of the end of the half-year. ‘Half year’ means 1st April to 30th September and 1st October to 31st March of financial year. The return should be accompanied by TR-6 challans, evidencing payment of duty.
 
Q12. What is penalty for filing late return ?

A12. If return of Service tax is not filed within prescribed period. Penalty is leviable under section 77, which can be upto Rs. 1,000. The penalty can be waived u/s 80, if assessee proves that failure was due to reasonable cause. If assessee is providing more than one service, there is only one penalty for delay in filing return and not separate penalties for each taxable service - CBE&C circular No. 76/6/2004-ST, dated 3-3-2004.