By CA Manish Gadia 21 st January 2012

By CA Manish Gadia 21 st January, 2012 21. 01. 2012 CA Manish Gadia 1

Coverage • • Point of Taxation Export of Service Import of Service Valuation of Services 21. 01. 2012 CA Manish Gadia 2

Point of Taxation 21. 01. 2012 CA Manish Gadia 3

• Applicable from 1 -4 -11 • Option to assessee to adopt from 1 -7 -11 • POT not applicable Ø If the provision of service are completed or Ø The invoices are issued Ø Up to 31 -3/30 -6 -11 21. 01. 2012 CA Manish Gadia 4

POT at the earliest of Invoice issued within 14 days Date of Invoice Receipt of payment 21. 01. 2012 Not issued with in 14 days Date of Completion of Service CA Manish Gadia 5

Point of Taxation Date of complet invoic ion of e service Point of Taxation Remarks April 20, May 2, May 12, 11 11 11 May 2, 11 Invoice issued in 14 days & before receipt of payment April 20, May 6, May 10, 11 11 11 April 20, 11 Invoice not issued within 14 days & payment received after completion of service April 20, May 2, April 25, 11 11 11 April 25, 11 Invoice issued in 14 days but payment received before invoice April 20, May 6, 11 11 21. 01. 2012 Date on which payment recd April 5, 11 (part) & & April 20, 11 May 2, 11 for respective CA Manish Gadia remaining amounts Invoice not issued in 14 days. Part payment before completion, 6 remaining later

Completion of Service • includes • not only the physical part of providing the service • but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice. 144/13/2011 – ST dated 18 th July, 2011 • auxiliary activities include • activities like measurement, quality testing etc which may be essential pre-requisites for identification of completion of service. • the test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. • however such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice. 21. 01. 2012 CA Manish Gadia 7

Details on Invoice • Within 14 days • Serially numbered • The name, address and the registration number of service provider • The name and address of the person receiving such taxable service • Description, classification and value of taxable service provided or to be provided • 21. 01. 2012 The service tax payable thereon CA Manish Gadia 8

Change in the effective rate of Tax PROVISION OF SERVICE ISSUE RECEIPT OF OF INVOICE PAYMENT APPLICABLE RATE Before After Date of Invoice or Receipt of Payment, whichever is earlier. Before After Date of Issue of Invoice Before After Before Date of Receipt of Payment After Before Date of Invoice or Receipt of Payment, whichever is earlier. After Before After Date of Receipt of Payment After Before Date of Issue of Invoice 21. 01. 2012 CA Manish Gadia 9

Payment of Tax in case of New Services No Service Tax Invoice is issued and payment for such invoice is received before introduction Payment is received before introduction & invoice is issued within 14 days of receipt of payment or Date of provision of Services provision of service, has no relevance whichever is earlier 21. 01. 2012 CA Manish Gadia 10

• Service provided or to be provided continuously under a contract for a period of more than 3 months or as prescribed • POT at the earliest of Ø Issue of Invoice Ø Receipt of Payment Ø Invoice not issued within 14 days Ø Date of Completion of event in terms of a contract, which requires the service receiver to make any payment to service provider 21. 01. 2012 CA Manish Gadia 11

• Following taxable services shall be treated as Continuous Supply of Service Ø Commercial or Industrial Construction Ø Residential Complex Construction Ø Telecommunication Services Ø Internet Telecommunication Services Ø Works Contract Services 21. 01. 2012 CA Manish Gadia 12

• Professionals • Export of Services • Payment under reverse charge Mechanism • Associated Enterprise Ø Provider outside India Ø Provider within India 21. 01. 2012 CA Manish Gadia 13

Professionals • POT shall be on receipt of payment in case of individuals, proprietary firms or partnership firms for providing below-mentioned services Ø Consulting Engineer’s Services Ø Architect’s Services LLP? Ø Interior Decorator’s Services Ø Practicing Chartered Accountant’s Services Ø Practicing Cost Accountant’s Services Ø Practicing Company secretary’s Services Ø Scientific or Technical Consultancy Service Ø Legal Consultancy Services 21. 01. 2012 CA Manish Gadia 14

• POT shall be on receipt of payment for services exported • if the payment for exports is not received within the period specified by the RBI • then the point of taxation shall be as per normal rule of POT • if the services are exported on 1 st August, 2011 and up to 31 st July, 2012 payment is not received, then the service tax liability would be counted as due in the month of August 2011 • What about Payment of Interest? • Later on receipt of payment refund is available? 21. 01. 2012 CA Manish Gadia 15

Amount is Ascertainable At the time of Performance 21. 01. 2012 Amount is not ascertainable Receipt Issue of Invoice Whichever is earlier CA Manish Gadia 16

§ § Adjustment u/r 6(3) assessee is allowed to adjust against his subsequent period's liability the excess service tax paid for services which is not wholly or partially Provided or amount is renegotiated § provided he has refunded the amount charged along with Service Tax § Issue Credit Note § to the client 21. 01. 2012 CA Manish Gadia 17

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Export Of Service Rules Export of Services Immovable Property Place of Performance Location of recipient [Rule 3(1)(i)] [Rule 3(1)(ii)] [Rule 3(1)(iii)] Provided in relation to Wholly / Partly an Immovable property performed outside situated outside India In relation to business Other than business Recipient of Service is located outside India at the time of provision of service Recipient has office in India than order for provision from service is made from outside India 21. 01. 2012 CA Manish Gadia 19

Location of Goods • Location of goods or immovable property in respect of following Services Ø management, maintenance or repair Ø technical testing and From analysis, and 1. 4. 2011 Ø technical inspection and recategorised certification under 3(iii) 21. 01. 2012 CA Manish Gadia 20

Australia 21. 01. 2012 CA Manish Gadia India 21

Supply of Tangible Goods for Use Australia India 21. 01. 2012 31 -01 -2010 CA Manish Gadia 22

Services Criterion prior to 1 st Criterion w. e. f. April, 2011 Special Services provided by Builders Location of Recipient Location of Immovable Property Credit Rating Agency Place of Performance Location of Recipient Market Research Agency Place of Performance Location of Recipient Technical Testing and Analysis Place of Performance Location of Recipient TPT of Goods by Aircraft Place of Performance Location of Recipient GTA Place of Performance Location of Recipient Opinion Poll Agency Place of Performance Location of Recipient TPT of Goods by Rail Place of Performance Location of Recipient Rail Travel Agent Location of Recipient Place of Performance Health Check up and Treatment 21. 01. 2012 Location of Recipient Place of Performance CA Manish Gadia 1 st 23

Export Of Service Rules Provided from India wef 01. 03. 2007 • • Such service is delivered and used outside India. And Omitted wef 27. 2. 2010 Payment for such service Provided out side India is received by the service provider in convertible foreign exchange. wef 01. 06. 2007 21. 01. 2012 CA Manish Gadia 24

India Includes (W. E. F. 19 -8 -2009) 21. 01. 2012 CA Manish Gadia 25

Payment of Tax • May Export the Services without Payment of Service Tax • Rebate of Service Tax 21. 01. 2012 CA Manish Gadia 26

Important Judicial Rulings 21. 01. 2012 CA Manish Gadia 27

Export (Courier) • TNT India Pvt. Ltd. versus CST, Banglore [2007 (7) S. T. R. 142 (Tri. - Bang. )] • U. B. Xpress (South) (P. ) Ltd. Vs. Commissioner of Central Excise, Coimbatore. [2008 (15) STT 242] (AHD-CESTAT) • PROFESSIONAL COURIERS Versus COMMR. OF SERVICE TAX, CHENNAI [2008 (10) S. T. R. 125 (Tri. - Chennai)] 21. 01. 2012 CA Manish Gadia 28

Export (BAS) • BLUE STAR LTD. versus CCE, BANGALORE [2008 (11) S. T. R. 23 (Tri. - Bang. ) • ABS INDIA LTD. Versus CST, BANGALORE [2009 (13) S. T. R. 65 (Tri. - Bang. ) 21. 01. 2012 CA Manish Gadia 29

Export (Foreign Currency) • National Engg. Industries Ltd. Versus CCE, JAIPUR [2008 (11) S. T. R. 156 (Tri. - Del. )] • Nipuna Services Ltd. Vs. Commissioner of Central Excise, Cus and ST (A-II) Hyderabad. [2009 (14) STR 706] (Tri-Bang). • M/S Suprasesh General Insurance Services & Brokers Pvt Ltd Vs Commissioner Of Service Tax, Chennai [2009 -TIOL-338 CESTAT-MAD] 21. 01. 2012 CA Manish Gadia 30

Export (Performance) • CST, Ahmedabad Vs M/S B A Research India Ltd [2009 -TIOL-1981 -CESTAT -AHM] 21. 01. 2012 CA Manish Gadia 31

Import Of Service Import of Services Immovable Property Place of Performance Location of recipient [Rule 3(i)] [Rule 3(ii)] [Rule 3(iii)] Provided in relation to Wholly / Partly Recipient of Service an Immovable property performed in India is located in India for situated in India use in relation to Recipient is an individual and such Business or Commerce service is received by him otherwise than for the purpose of use in any business or commerce, he will not be taxed under 21. 01. 2012 CA Manish Gadia 32 reverse charge mechanism

Location of Goods • Location of goods or immovable property in respect of following Services Ø management, maintenance or repair Ø technical testing and From analysis, and 1. 4. 2011 Ø technical inspection and recategorised certification under 3(iii) 21. 01. 2012 CA Manish Gadia 33 33

Australia 21. 01. 2012 CA Manish Gadia India 34

Supply of Tangible Goods for Use Australia India 21. 01. 2012 19 -3 -2011 CA Manish Gadia 35

Services Criterion prior to 1 st Criterion w. e. f. April, 2011 Special Services provided by Builders Location of Recipient Location of Immovable Property Credit Rating Agency Place of Performance Location of Recipient Market Research Agency Place of Performance Location of Recipient Technical Testing and Analysis Place of Performance Location of Recipient TPT of Goods by Aircraft Place of Performance Location of Recipient GTA Place of Performance Location of Recipient Opinion Poll Agency Place of Performance Location of Recipient TPT of Goods by Rail Place of Performance Location of Recipient Rail Travel Agent Location of Recipient Place of Performance Health Check up and Treatment 21. 01. 2012 Location of Recipient Place of Performance CA Manish Gadia 1 st 36

India Includes (W. E. F. 7 -7 -2009) 21. 01. 2012 CA Manish Gadia 37

Does not cover • Air transport of passengers embarking in India for International journey • Transport of persons by a cruise ship embarking in any port in India 21. 01. 2012 CA Manish Gadia 38 38

Reverse Charge Mechanism • Recipient Shall make an application for registration • Not applicable otherwise than for the purpose of use in any business or commerce • When to pay service tax • Not output service for CENVAT 21. 01. 2012 CA Manish Gadia 39

Issues M/s Phantom Ltd. desires to have ECB from a foreign bank. It directly approaches foreign bank to provide support in ECB matters. ECB is issued on 20 th June 2005. For this M/s Phantom pays some fees to foreign bank. • Similarly M/s Phantom raises another ECB in July 2007. • Is M/s Phantom is liable to pay service tax under reverse charge mechanism, if yes for which period? 21. 01. 2012 19 -3 -2011 CA Manish Gadia 40 40

Where a person is carrying on a business through a PE in India and through another PE outside India, such PE shall be treated as separate persons for the purposes of this section. -A person carrying on a business through a branch/agency in any country shall be treated as having a BE in that country 66 A (2) • Indian branch of the foreign bank approaches M/s Phantom for said ECB issue. Foreign bank arranges to share its fees with Indian branch, in this case, whether service tax will be payable under reverse charge mechanism, if Yes, by whom? 21. 01. 2012 19 -3 -2011 CA Manish Gadia 41 41

• Payment of Service tax under Import of Service Rules would be eligible for credit under Cenvat Credit Rule? If we refer to Rule 3(1)(ix) of CENVAT Credit Rules, 2004, it refers to “the service tax leviable under section 66” and not section 66 A. Please clarify. File No. 137/72/2008 -CX. 4 it must be kept in mind that taking of credit and its utilization is a substantive right of a taxpayer under value added taxation scheme. Therefore, in the absence of a clear legal prohibition, this right cannot be denied. File No. 354/148/2009 -TRU 21. 01. 2012 19 -3 -2011 CA Manish Gadia 42 42

• Travel Agent is engaged in travel and tourism. It is registered as an air travel agent and a tour operator. It sells outbound tour packages to Indian customers say to US, Europe for a lumpsum of say Rs. 1, 000/- (a part of which is received in convertible foreign exchange in India from the travellers’ foreign currency say to the extent of Rs. 50000/-). Would Travel agent be entitled to any export exemption in respect of the above transaction? 21. 01. 2012 19 -3 -2011 117/11/2009 -ST CA Manish Gadia 43 43

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Value of Taxable Service Consideration for service is Wholly in money Gross amount charged Not wholly/partly in money Consideration in money + Money Value of Consideration in kind Service Tax payable Similar does not mean identical but it means corresponding to or resembling to in many respects 21. 01. 2012 Not ascertainable a. Gross amount charged to provide similar service to any other person Value cannot be determined in accordance with (a), Equivalent money value of such consideration which shall, be 45 CAS -4 CA Manish Gadia at least equal to the cost

Some Explanations • Consideration includes any amount that is payable for the taxable services provided or to be provided. • Money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value. • Gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise. 21. 01. 2012 CA Manish Gadia 46

Value for work contract service Ø Excludes: v Value of transfer of property in goods v VAT/sales tax paid Gannon Dunkerley & Co. Ø Includes v. State of Rajasthan [1993] 66 Taxman 229(SC) v Labour charges v sub-contractor for labour & Services v planning, designing and architect’s fees v hire Charges of machinery and tools v Cost of consumables such as water, electricity, fuel. v Cost of establishment of the contractor v Other similar expenses relatable to supply of labour v Profit earned relatable to supply of labour and services 21. 01. 2012 CA Manish Gadia 47

Service Tax on Forex Dealer • the gross amount of currency exchanged for an Amount in Rs. Minimum Up to 100, 000 25 100, 000 to 10, 000 Rs. 100 Maximum 0. 1% Rs 100+ 0. 05% Above 10, 000 5, 000 21. 01. 2012 Rs. 550+ 0. 01% CA Manish Gadia 48

Foreign Currency • RBI reference rate is available units of foreign currency exchanged multiplied by the difference in the RBI reference rate for that currency for that day and the buying rate or the selling rate. • RBI reference rate is not available the value will be 1% of amount in Indian National Rupees that has been bought or sold. • Neither of the currencies exchanged is INR the value shall be equal to 1% of the lesser of the two amounts 21. 01. 2012 CA Manish Gadia 49

Transport of passenger by Air Service Sr Particulars No 1 2 3 Existing From 1 st April, 2011 Domestic (Economy) Rs. 100 Per Rs. 150 Per Journey Domestic (other than Rs. 100 Per 10% on Value Economy) Journey of Ticket International (Economy) Rs. 500 Per Rs. 750 Per Journey 21. 01. 2012 How to Disclose in the Return CA Manish Gadia 50

Composition Schemes Air Travel Agent Life Insurance 21. 01. 2012 CA Manish Gadia 51

Optional Composition Scheme Rate of Tax: 4% on the gross amount charged Gross amount Charged = Value of Goods used + Value of service – VAT/CST - Cost of M/C & Tools used CENVAT Inputs: No Input Service: Yes Capital Goods: Yes 21. 01. 2012 CA Manish Gadia 52

Gross amount charged is inclusive of Service Tax When the service provided is inclusive of service tax payable, the value of such taxable service would be: Value of = Gross amount charged * 100 taxable service 110. 30 21. 01. 2012 Gem Star Enterprises P. Ltd v. CCE & C, Calicut 2007 (7) STR 342 (Tri. - Bang. ) CA Manish Gadia 53

Power of CEO Ø call for information and documents Ø by issuing Show Cause notice Ø to satisfy himself Ø After giving reasonable opportunity of being heard Ø he may determine the value of taxable service Ø AC/DC written instruction for verification Ø Show cause notice after commissioner approval 21. 01. 2012 Para 4. 1. 6 of F. No. CA Manish Gadia – TRU 19 -4 -6 B 1/4/2006 54

Value of Taxable Service ØInclusions: v. All expenditure or costs v. Telecommunication ØExclusion: v. All expenditure or cost incurred by service provider as a pure agent subject to certain conditions 21. 01. 2012 CA Manish Gadia 55

Pure Agent Øenters into a contractual agreement Øneither intends to hold nor holds any title to the goods or services Ødoes not use such goods or services so procured Øreceives only the actual amount 21. 01. 2012 CA Manish Gadia 56

Exclusion from Value of Taxable Service Ø Conditions for exclusion from the value v acts as a pure agent while making payment v recipient of service receives and uses the goods or services so procured v recipient of service is liable to make payment to the third party v authorises v Knows payment has been made v separately indicated in the invoice v Actual amount to be recovered v are in addition to the services he provides 21. 01. 2012 CA Manish Gadia 57

Commission, costs, etc. , will be included or excluded ØCases which were listed in Rule 6(1) & (2) were almost similar, except v. The cost of unexposed film, unrecorded magnetic tape sold v. The cost of sale of material sold Notification No. 12/2003 ST 20 -621. 01. 2012 03 BSNL V. UOI 2006 (2) STR CA Manish Gadia 161 (SC) Imagic Creative P. Ltd V. CCT 2008 (9) STR 337 (SC) 58

Value where Taxable Service provided from outside • value of service would be actual amount of consideration charged for the service provided or to be provided. • Where the services listed in Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are performed partly in India. • value of service would be = total consideration paid by the recipient + the value of service partly performed outside India. 21. 01. 2012 CA Manish Gadia 59

Issues 21. 01. 2012 CA Manish Gadia 60

Issues Ø Vivah charitable trust provides Hall for marriages on rental basis and issues receipt of Rs, 25, 000 towards rental for marriage function and Rs. 75, 000/- towards donation to the corpus of the trust. The trustees of the trust now wants to know on which amount it should pay the service tax? 21. 01. 2012 Cultural Society of angamally V. CCE Chochin 2007 (8) STR 25 CA Manish Gadia (Tri-Bang) 61

Issues Ø Online Stock Broking Ltd. (OSBL) is a brokerage house. OSBL charges following charges to its clients and such charges were separately disclosed in the bill or invoice issued to their clients. Brokerage 0. 500% Other Charges 0. 005% Transaction Charges 0. 010% Stamp Duty & STT 0. 076% Up to 17. 04. 2006, Company was paying service tax only on Brokerage. Management wants to know, out of the above component, which component would now attract service tax? 21. 01. 2012 First Securities Pvt. Ltd. V. CST, Bangalore 2007 (7) STR 690 (Tri-Bang) CA Manish Gadia 62

Issues Aditya College of Competitive Exams Vs CCE, Visakhapatnam [2009(16) STR 154 (Tri. Bang)] Ø Smart Coaching Classes provides coaching to Standard V to Standard X. They incur expenditure towards books, class bag & food. Theses charges they recover separately from every student, while they recover coaching fees. Management is of the view that service tax would be attracted only on the coaching fees and not on the charges recovered for books, bag & food Circular No. 59/8/2003 ST. , Dt 20 -6 -03 21. 01. 2012 CA Manish Gadia 63

• Issue M/s Tyrevala is engaged in the business of retreading old used tyres. During the course of retreading, material such as tread rubber, vulcanizing solution is used. M/s Tyrevala collected Rs. 10 Lakhs towards retreading charges from its customers which included Rs. 6 Lakhs towards material used in retreading. What will be the Service Tax liability of Tyrevala? Chkita Rajni Udyam Vs CCE, Cus &ST, Mysore [2009(16)STR 172 (Tri. Bang) 21. 01. 2012 CA Manish Gadia 64

Questions 21. 01. 2012 19 -3 -2011 CA Manish Gadia 65 65

Opinions or views are like wrist watches. Every watch shows different time from others. But every one believes that their time is right! 21. 01. 2012 CA Manish Gadia 66

CA Manish Gadia Ph : (022) 61919200 Email: manish@gmj. co. in 21. 01. 2012 CA Manish Gadia 67