Applicability of service tax
As per section 66B of finance act, 1994, service tax is applicable only on the taxable services. And here taxable services means:
- Provided or agreed to be provided by a person to another
- In the taxable territory
- And should not be specified in the negative list
As per charging section of finance act, 1994
- Service tax rate is 12% on all taxable services
- Service tax shall be charged on all services except specified in negative list
- Service tax shall be levied on the services provided or agreed to be provided in taxable territory from one person to another person
Implication of the phrase “Provided or agreed to be provided”
- Services which have only been agreed to be provided but are yet to be provided are taxable
- Receipt of advances for services agreed to be provided become taxable before the actual provision of service
- Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.
The liability to pay the service tax on taxable services arises as per the point of taxation rules, 2011 which is as follows:
- The time when the invoice for the service provided or agreed to be provided is issued,
- If invoice is not issued within prescribed time period( 30 days except for specified financial sector where it is 45 days) of completion of provision of service then the date of completion of service,
- The date of receipt of payment where payment is received before issuance of invoice or completion of service
Therefore agreements to provide taxable services will become liable to pay tax only on issuance of invoice or date of completion of service if invoice is not issued within prescribed period of completion or on receipt of payment.
Implication of the phrase “Provided in the taxable territory”
- Taxable territory has been defined in section 65B of the Act as the territory to which the Act applies i.e. the whole of territory of India other than the State of Jammu and Kashmir.
- “India” includes not only the land mass but its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976.
the sea-bed and the subsoil underlying the territorial waters; the air space above its territory and territorial waters; and the installations structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof.
Implication of the phrase “specified in Negative List”
- In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list. The services specified in the negative list therefore go out of the ambit of chargeability of service tax. The negative list of service is specified in the Act itself in Section 66 D. there are seventeen heads of services that have been specified in the negative list.