Service Tax is levied on the notified services. It is a union levy administered by the Central Excise Department and governed by Chapter V of Finance Act, 1994 (the Act) as amended from time to time. The rate of service tax till 9 September, 2004 was 8 per cent and from 10 September, 2004, it was increased to 10 per cent. Education cess at 2 per cent is levied on service tax amount from 10 September, 2004. The effective rate of service tax works out to 10.2 per cent. Service tax is charged on the gross value of services and is generally payable on receipt basis. It is an indirect tax – it is payable by the service provider but it is ordinarily recovered from the recipient of services. The law requires separate mention of service tax amount in the invoices. Ordinarily, every person/ company liable to pay service tax is required to register itself with Service Tax Authorities and comply with procedural requirements like paying taxes, filing returns, etc. However, in case of non-residents, who do not have any office in India and who are liable to pay service tax in India, this burden is shifted to the recipient of service with effect from 16 August, 2002.
There is a basic exemption limit, which means that service tax shall be exempted for service providers providing taxable services up to this exemption limit. A mechanism for credit of input Service Tax and Central Excise duty on specified inputs and capital goods is also in place.

Any service for which payment was received in convertible foreign exchange in India and which was not repatriated or sent outside India was exempt from levy of service tax up to 28 February, 2003. But this exemption was withdrawn with effect from 1 March, 2003, although export of services continued to remain tax-free even after such a withdrawal. This exemption was reinstated with effect from 20 November, 2003 as a stop-gap arrangement till the government could satisfactorily determine “what constitutes export of services”. The government has now notified the new “Export of Service Rules 2005” which defines as to what constitute “export of services”. These rules are effective from 15 March, 2005. Consequently, the exemption from service tax on payments received in convertible foreign exchange has now been removed with effect from 15 March, 2005.

When two or more services are bundled together it would be classifiable under the category, which gives essential character to the service. Classification rules are in place from 14 May 2003. If in case of composite activities, one or more of the activities are liable to service tax and the others are not liable to service tax, service tax would ordinarily be payable only on the charges received for the services to which service tax is applicable, provided charges for each activity can be separately identified / determined and it is not incidental to the main service. There are no rules for such identification / allocation and, therefore, such allocation, if required, must be made on a reasonable basis.

Service tax is a comparatively new levy in India and very few judicial precedents are available on the subject. The language of the law is quite broad and generic and uses terms like “directly or indirectly” and “in any manner” which raise a number of issues regarding scope of specific category of service. Revenue authorities have been issuing explanatory circulars from time to time in relation to specific issues. Yet, there is, considerable ambiguity in the applicability of the service tax law to various services. 

Globus Tax Consultants provide the following services in this field

• Compliance with law and procedures.
• Exemption, Refund & Rebate, Audit/ Preventive checks.
• Replying to Departmental queries/ SCN.
• Appeals with various competent authorities