Valuation of taxable services under service tax
Principles of Valuation of Taxable Service – Section 67 of the Finance Act, 1994 provides for the valuation of taxable service, and determination of value of taxable services depends on mode of consideration as exhibited in the following three options.
(i) Where the provision of service is for a consideration in money – gross amount charged by the service provider for such service provided or to be provided by him
(ii) Where the provision of service is for a consideration not wholly or partly consisting of money – such amount in money, with the addition of service tax charged, as is equivalent to the consideration
(iii) Where the provision of service is for a consideration which is not ascertainable – the amount as may be determined in the prescribed manner
If the gross amount charged is inclusive of service tax – Service tax is payable on receipt of the amount of services irrespective of the realization of service tax amount. If the billing is done inclusive of service tax (Consider billing 100 (inclusive) realizations 100 (inclusive)), the assessee can claim that the bill amount should be bifurcated into value and service tax components. Accordingly the service tax payable shall be (10.30 × 100/110.30)
Meaning of ‘gross amount charged’ – ‘gross amount charged’ has been defined in explanation (c) of section 67 to include 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 debited or credited, as the 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 enterprises.
Date of determination of value of rate of tax, value of taxable services and rate of exchange – the rate of service tax, value of taxable services and rate of exchange as prevalent at the time when the taxable service has been provided or agreed to be provided if any, shall be considered for the purpose of calculation of service tax.It is not necessary that consideration must be received from recipient of services. Service tax shall be levied even if consideration has been received from any other person for such taxable services provided.
Valuation of service portion in execution of a works contract – is the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.
|Gross amount includes||Gross amount does not include|
|Labour charges for execution of works||Value of transfer of property in goods involved in the execution of the said works contract|
|Amount paid to a sub-contractor for labour and services|
|charges for planning, designing and architect’s fees|
|Charges for obtaining on hire or otherwise, machinery and tools used for the execution of works contract|
|Cost of consumables such as water, electricity, fuel used in the execution of works contract.|
|Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses|
|Profit earned by service provider relatable to supply of labour and services.||Value added tax or sales tax, as the case may be paid, if any, on transfer of property in goods involved in the execution of the said works contract.|
A simplified scheme for determining the value of service portion in a works contract
|When work contract is for…..||Value of the service portion shall be….|
|a) Execution of original works||40% of total amount charged for the works contract|
|b) Maintenance or repair or reconditioning or restoration or servicing of any goods||70% of total amount charged for the works contract|
|c) In case of other works contract excluding (a) and (b) above, including contracts for maintenance , repair and completion and finishing services such as glazing,plastering,flooring,wall tiling and installation of electrical fitting.||60% of total amount charged for the works contract.|
Valuation of service in relation to money changing
As per definition of ‘service’, activity of conversion of one currency into another for which a separate consideration is charged would not get tantamount to a transaction only in money. In transaction of sale and purchase of foreign currency or money changing, since a separate consideration is charged these would not be excluded from the definition of ‘service’.
If a currency is exchanged from or to Indian rs then as per rule 2 b of the valuation rules, the value of taxable services shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency. For example if US$ 1000 are sold by a customer @ rs 55 US$ and RBI reference rate for US$ is rs 55.73 then the taxable value shall be rs. 730 (1000*.73).
If RBI reference rate for currency is not available then value shall be 1% of the gross amount of Indian rs provided or received by the person charging money.
And if foreign currency is exchanged for another foreign currency then in such situations the value of taxable services shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting the one of currencies into Indian rs. on that day at reference rate provided by RBI.
Valuation of taxable services involved in the supply of foods and drinks in a restaurant or as outdoor catering
|Value of service portion in an activity wherein goods, being food or any other article of human consumption or any drink is supplied in any manner…..||Shall be…. % of total amount charged :|
|In a restaurant||40%|
|As part of outdoor catering||60%|
Valuation of telecommunication services
The value of telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided. Thus, in case of service provided by way of recharge coupons or prepaid cards or like the value shall be the gross amount charged from the subscriber or ultimate user of the service and not the amount paid by the distributor or any such intermediary to the telegraph authority.