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INDEX
Serial Page
No. TOPICS No.
1 A Brief History 3
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A Brief History
A tax is a financial charge or other levy imposed on an individual or a legal entity
by the state.
Based on how a taxpayer pays a tax, taxes are differentiated into direct taxes and
indirect taxes. A direct tax is one paid directly to the government by the persons on whom
it is imposed. Income Tax is an example of direct tax. An indirect tax is a tax collected by
an intermediary from the person who bears the ultimate economic burden of the tax.
Examples of indirect tax are Sales Tax, VAT, Service Tax, Customs Duty etc.
In 1994, the then government headed by Prime Minister Mr. P.V.Narasimha Rao
realized the significant contribution of services to the GDP and its potential growth in the
future. Hence it decided to impose tax on services. Services have been taxed world over.
However, the difference between many countries taxing services and India is that India
has chosen a selective model of taxation whereas the other countries have adopted a
comprehensive model of taxation. In the comprehensive model all the services are taxed
except a few like medical services, education etc. In the selective model only a few
selected services are taxed by a government notification and rest of the services are
exempted.
Initially only three services viz. telecommunication, general insurance and stock-
broking were taxed. The rate of taxation was 5% of the amount of service provided.
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Progression of tax rate over the years
Year Rate (%) Educational Cess (%) Effective Rate (%)
1994 5 - 5
2003 8 - 8
2004 10 2 10.2
2005 12 2 12.24
2007 12 3 12.36
Service tax was introduced for the first time in the year1994
through the insertion of Chapter V in the Finance Act 1994.
1994
1. General Insurance 1-7-1994
1996
4. Advertising agency 1-11-1996
5. Courier 1-11-1996
6. Pager 1-11-1996
1997
7. Custom house agent 15-6-1997
8. Steamer agent 15-6-1997
9. Air travel agent 15-6-1997
10. Mandap keeper 15-6-1997
11. Consulting Engineer 15-6-1997
12. Manpower recruitment or supply agency 15-6-1997
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13. Clearing & Forwarding Agent 15-6-1997
SL.NO. Nature of service Date of introduction
1998
2000
2001
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32. Facsimile 16-7-2001
33. Insurance Auxiliary(Genl. Insurance) 16-7-2001
SL.NO. Nature of service Date of introduction
2002
2003
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54. Business auxiliary services 1-7-2003
55. Commercial training or coaching 1-7-2003
SL.NO. Nature of service Date of introduction
2004
2005
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77. Cleaning activity 16-6-2005
78. Club or Association 16-6-2005
SL.NO. Nature of service Date of introduction
2006
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97. Sponsorship service 1-5-2006
98. Transport of goods in containers by rail service 1-5-2006
99. Transport of passengers embarking in India for
International journey by air service 1-5-
2006
100. Transport of persons embarking from any port
Or other port in India by cruise ship service 1-5-
2006
2007
101 Telecommunication services 28-02-2007
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Collection of Service Tax
Collection of Service Tax is administered by the Customs & Excise Department.
Following is the procedure foe collecting Service Tax:-
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vi. The Service Provider has to also file returns for the Service Tax collected and paid
by him. Filing of returns takes place twice in a year. For the period April to
September, the last date of filing returns is 25th October while for the period
October to March; the last date is 25th April.
The returns are filed in the form ST-3.
vii. If there is a delay in the payment of Service Tax, a fine of 13% per annum is
applied.
Thus if the bill is of Rs. 1 Lac, then the Service Tax is computed as
100000 * 12.36
=
100 + 12.36
The concept of Input Tax Credit was introduced to avoid cascading effect of
paying Service Tax on Service Tax. It applies to all services under the Service Tax net
provided there is some co-relation between the Service Tax on the input service and the
output service.
For e.g. suppose there is an event management firm. It is managing an event for
which it charges Rs. 10 Lacs from the organizers. This firm hires the services of an
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interior decorator who charges Rs. 1 Lac. At the effective rate of 12.36%, the interior
decorator would raise a bill of Rs. 111000. The event management firm would raise a bill
of Rs. 1110000, i.e. charging the organizers Rs. 110000. But while filing returns it will
claim a credit for Rs. 11000 it paid to the interior decorator. Thus it would avoid paying
Service Tax on Service Tax. At the same time, the government also does not lose any tax.
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Budget Highlights
Service Tax :
• * Exemption limit for small service providers to be raised from Rs400,000 to Rs800,000.
* Extension of service tax to: Tax to be levied on services outsourced for mining
of mineral, oil or gas and renting of immovable property for use in commerce or business
(residential properties, vacant land used for agriculture and similar purposes and land for
sports, entertainment and parking purposes and immovable property for educational or
religious purposes to be excluded).
* Service tax extended to content supplied for use in telecom and advertising purposes,
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asset management services provided by individuals and design services.
* Services involved in optional schemes of a works contract will be levied tax at only 2
per cent of the total contract value.
* Exemption to: Tax exemption to services provided by resident welfare associations
to their members who contribute Rs. 3,000 or less per month; Services provided by
technology business incubators to incubatees whose annual turnover does not exceed Rs.
50 lakh (for three years); and clinical trial of new drugs.
* Department of telecommunications to constitute a committee to study the present duty
structure n telecom industry.
The one per cent additional " Education Cess " on all taxes over and above the
existing two per cent is uncalled for. So is the increase in the rate of dividend
distribution tax by 2.5 per cent to 15 per cent. Large allocations are being made for
agri sector year after year. But not enough is done to ensure effective utilisation of the
funds. On the positive side is the reduction in customs duty on several items including
coal and steel. Introduction of MAT on IT companies has come as surprise.
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taxpayer assistance and a new tax culture of voluntary compliance. . The twin goal of
revenue maximization introduction of the culture of voluntary tax compliance also throw
up major challenge before the service tax administration in the country.
Service tax is envisaged as the tax of the future. Well synchronized taxation on
manufacturing, trade (domestic & international) and service without giving rise to
cascading effect of taxation would be an ideal worth pursuing in the immediate future.
This would bring in VAT in its truest sense.
Advanced economies of Western Europe, North America and Far East have share
of service sector in their GDP ranging from 60% to 80%. The growth in absolute
quantum of GDP and proportion of Service-sector in GDP holds promise for larger
revenue generation without increasing the existing level of taxation
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1. Target of Service Tax collection for f.y. 2007-08 to be exceeded
2. Intensify the field survey operations to ensure that all taxable service assessees are
brought into the tax net and Service Tax due from them are collected without hitch.
3. Action plan for the f.y. 2007-08 to be implemented and monitored by various levels
of supervisory officers on a monthly basis.
4. The statutory change to prosecute frequent offenders/tax evaders is needed in the Act.
5. Design and implement an Electronic Tax Administration (ETA) system for service tax
so that service tax could be administered as first e-tax of the country.
6. Attend to all major court cases relating to Service Tax law for early decision.
Deploy adequate staff to attend to the service tax work and provide infrastructure and
conveyance to implement service tax law effectively.
VAT, CST and a Roadmap towards GST: Agreement reached with State Governments to
phase out CST; rate to be reduced from 4% to 3% with effect from April 1, 2007;
Rs.5,495 crore provided for compensation for losses, if any, on account of VAT and also
on account of CST; a roadmap for introducing a national level Goods and Services Tax
(GST) with effect from April 1, 2010 to be prepared.
FORM ST- 1
[Application form for registration under Section 69 of the Finance Act, 1994 (32 of 1994)]
New Registration
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(b) Address of the applicant
(a) Whether PAN has been issued by the Income Tax Department
Yes No
(i) Proprietorship
(ii) Partnership
(vii) Others
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(b) Name, Address and Phone Number of Proprietor/Partner/Director
(i) Name
(ii) Address
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(i) Registration of a single premise
(iii) Road/Street/Lane
(v) Block/Taluk/Sub-Division/Town
(vii)City/District
(viii)State/Union Territory
(ix) PIN
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(xi) Fax No.
(xii)E-mail Address
(c) In case of application for Centralized Registration, furnish address of all the
premises from where taxable services are provided or intended to be provided
(FORMAT AS PER 5(b) ABOVE)
(d) In case of application for Input Service Distributor, furnish address of all the
premises to which credit of input services is distributed or intended to be
distributed (FORMAT AS PER 5(b) ABOVE)
6. Address of the premises or office paying service tax under centralised billing or
centralised accounting under sub-rule (2) and (3A) of rule 4 of the Service Tax
Rules, 1994.
Address
S.No. Description of service Relevant clause of section 65 of the Finance Act, 1994, to be
indicated, if possible
(1) (2) (3)
DECLARATION
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Date from which amendments are made: _______________
Date:
Place:
ACKNOWLEDGEMENT
(To be given in the event Registration Certificate is not issued at the time of receipt of
application for Registration)
(As desired, the New Registration Certificate will be sent by E-MAIL/ mail/handed
over to you in person on______________)
Date:
FORM ST-2
[Certificate of registration under Section 69 of The Finance Act, 1994 (32 of 1994)]
1. PAN No.
(Registration Number)
3. Taxable Services
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(i) Name of Premises / Building
(iii) Road/Street/Lane
(v) Block/Taluk/Sub-Division/Town
(vii)City/District
(viii)State/Union Territory
5. PREMISES
CODE
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DEPARTMENT BASED ON THE COMMISSIONERATE+DIVISION+ RANGE+ SL NO]
Note:
1. In case the registrant starts providing any other taxable service (other than those
mentioned above), he shall intimate the department.
2. In case the registrant starts billing from other premises (other than those mentioned
above), he shall intimate the department.
3. These intimations and any other information which registrant wishes to bring to the
notice of the department can be submitted on-line by the registrant after logging
on to web-site.
FORM ST-3
FINANCIAL YEAR____________
[April-September]
[October-March]
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1. Name of the assessee
(1)________________________________
(2)________________________________
(3)________________________________
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received in
advance
towards
taxable
service(s) to
be provided
Amount
Billed-
gross
Amount
billed for
exempted
services
other than
export
Amount
billed for
exported
services,
without
payment of
tax
Amount
billed for
services on
which tax is
to be paid
Abatement
claimed-
Value
Notification
number of
Abatement
Notification
number of
exemption
Provisional
Assessment
order no.
Service tax
payable
Education
cess
payable
Service tax
paid in cash
Challan
Number
Challan
date
Service tax
paid
through
cenvat
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credit
Education
cess paid in
cash
Education
cess paid
through
education
cess credit
(To be repeated for every category of service provided /received, and for every registered
premises separately)
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