Constitutional & Legal provisions behind levy of
Service Tax in India.
Constitutional Validity
Article 265 of the Constitution lays down that no tax shall be levied or collected except
by the authority of law. Schedule VII divides this subject into three categories-
a) Union list (only Central Government has power of legislation)
b) State list (only State Government has power of legislation)
c) Concurrent list (both Central and State Government can pass legislation).
• To enable parliament to formulate by law principles for determining Service Tax by
the Central Govt. & collection of the proceeds there of by the Central Govt. & the State, the
amendment vide constitution (95th amendment) Act, 2003
• Consequently, new article 268 A has been inserted for Service Tax levy by Union Govt.,
collected and appropriated by the Union Govt., and amendment of seventh schedule to
the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on
services as well as in article 270 of the constitution the clause (1) article 268A has been
included.
Formation and function of DGST:
The office of Director General (Service Tax) has been formed in the year
1997. It is headed by the Director General (Service Tax).
• Functions and powers of Director General (Service Tax) :
i) To ensure that proper establishment and infrastructure has been created under different
central excise Commissionerate to monitor the collection and assessment of service tax.
ii) To study the staff requirement at field level for proper and effective implementation of
service tax.
iii) To study as to how the various service taxes are being implemented in the field and to
suggest measures as may be necessary to increase revenue collection or to streamline
procedures :
iv) To undertake study of law and procedures in relation to service tax with a view to
simplify the service tax collection and assessment and make suggestions thereon:
v) To form a data base regarding the collection of service tax from the date of its inception in
1994 and to monitor the revenue collection from service tax:
vi) To inspect the service tax cells in the Commissionerate to ensure that they are
functioning effectively
vii) To undertake any other functions as assigned by the Board from time to time.
Service Tax
• Service tax is payable @ 10% of the 'gross
amount' charged by the service provider for
providing such taxable service. The Education
Cess is payable @ 2%, and Secondary and
Higher Education Cess payable @ 1% of the
service tax payable.
• Karnataka State:
– Service tax collected (2009-10) Rs4891.79Cr
Registration
• A person liable to pay service tax should file an application for registration within thirty
days from the date on which the service tax on particular taxable service comes into effect
or within thirty days from the commencement of his activity.
• Every service provider of a taxable service is required to take registration by filing the
Form ST-1
• A 'registered' service provider is referred to as an 'assessee'.
• A single registration is sufficient even when an assessee is providing more than one taxable
services. However, he has to mention all the services being provided by him in the
application for registration and the field office shall make suitable entries/endorsements in
the registration certificate.
• A fresh registration is required to be obtained in case of transfer of business to another
person.
• Any registered assessee when ceases to provide the taxable service shall surrender the
registration certificate immediately.
• In case a registered assessee starts providing any new service from the same premises, he
need not apply for a fresh registration. He can simply fill in the Form S.T.1 for necessary
amendments he desires to make in his existing information. The new form may be
submitted to the jurisdictional Superintendent for necessary endorsement of the new
service category in his Registration certificate.
Legal provisions
The provisions relating to Service Tax were brought into force with effect
from 1st July 1994. It extends to whole of India except the state of Jammu &
Kashmir. The services, brought under the tax net in the year 1994-95 ,are
as below:
• (1) Telephone
• (2) Stockbroker
• (3) General Insurance
The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three
more services, viz.,
• (4) Advertising agencies,
• (5) Courier agencies
• (6) Radio pager services.
But tax on these services was made applicable from 1st November, 1996.
Service Tax Exemptions
• The Central Government can grant partial or total exemption by
issuing an exemption notification. But it cannot be granted by the
Government with retrospective effect. The general exemptions are
:
• Small service providers whose turnover is less than Rs 4 lakhs per
annum are exempt from service tax.
• There is no service tax on export of services.
• Services provided to UN and International Agencies and supplies
to SEZ(Special Economic Zones) are exempt from service tax.
• Service tax is not payable on value of goods and material supplied
while providing services. Such exclusion is permissible only if
Cenvat credit on such goods and material is not taken.
Levy and assessment
• Service tax is levied on specified taxable services and the
responsibility of payment of the tax is cast on the service
provider.
• System of self-assessment of Service Tax Returns by service
tax assessees has been introduced w.e.f. 01.04.2001.
• The jurisdictional Superintendent of Central Excise is
authorized to cross verify the correctness of self assessed
returns. Tax returns are expected to be filed half yearly.
• Central Excise officers are authorized to conduct surveys to
bring the prospective service tax assessees under the tax
net.
• Service Tax is administered by the Central Excise Commissionerates
working under the Central Board of Excise & Customs, Department of
Revenue, Ministry of Finance, Government of India.
• The unique feature of Service Tax is reliance on collection of tax,
primarily through voluntary compliance.
• Corporate assessees are given the liberty to pay tax on the value of
taxable service, provided by them in a month, by the 25th of the
following month to enable them to finalize the accounts. Further, the
individual assessees are required to pay the levy only once in a quarter.
• The Finance Act’2001 has introduced self assessment for service tax
returns; thereby sparing the assessees from the rigours of routine
scrutiny and assessment.
• Service Tax Credit Rules, 2002, have been replaced by the CENVAT Credit
Rules, 2004, introduced by the Finance Act, 2004, where under CENVAT
credit has been extended across the sectors i.e. goods and services.
Validity
• Constitutional validity upheld – Advertising Services
– Service tax is not on advertisement but on advertising services provided in
connection with advertisement
– Petition challenging of service tax on advertisement services was dismissed. Levy of
service tax on this category of service was held to be constitutionally valid
– Addition Advertising Vs Union of India [1998] 98 ELT 14 (Guj.).
• Constitutional validity of service tax on advertising agency upheld
– Tax is levied on the services provided by the advertising agency in relation to
advertisement and it is not the tax on the advertisement
– Service tax levied on advertising agents do not fall under Entry 55 of State List ( List
II ) of Constitution
– Levy held to be valid and in accordance with the provisions of the Constitution.
– Advertising Club Vs Central Board of Excise & Customs [2001] 131 ELT 35 (Madras).
Validity
• Constitutional validity upheld and case remanded back for disposal on
merit
– Constitutional validity of levy of service tax on advertising agency upheld- Held
it is not violative to the fundamental right
– Petitioner claimed that service provided by him are not covered under the
definition of taxable services
• Constitution Validity Upheld – Photography services
– Constitutional validity of service tax on services provided by photography studio
or agency held to be valid and within the competence of the Government
– Also held that the double taxation can not be a ground for invalidating a fiscal
statute
– No discrimination by not imposing service tax on free lancers
– Kerala Colour Lab Association Vs Union of India [2003] 156 ELT 17 (Ker.) (HC)
Validity
• Constitutional Validity upheld – Tour operator &
Rent-a-Cab
– Held that the stage carriage operators, contract carriage
operators, cab/maxi cab operators and rent a cab scheme
operators are liable to pay service tax
– Provisions making the above services taxable and within
the legislative competence of the Government
– All writ petitions filed in this regard accordingly dismissed.
– Secy. Federation of Bus Operator Association of T.N. Vs
Union of India [2001] 134 ELT 618 (Madras-HC)
Validity
• Constitutional Validity Upheld – Outdoor
Caterer
– Levy of tax on the said service held to be within
the legislative competence of the Government
and otherwise constitutionally valid and in order
– It does not violates Article 14 of the Constitution.
– Tamilnadu Hotels Associations Vs Union of India
[2001] 133 ELT 265 (Madras HC)
Annual Maintenance Contract
• Sales Tax and Service Tax cannot be levied on
the same item. Once sales tax is levied, there
cannot be levied a service tax.
• Not applicable to works contract/composite
contract
• Xerox Modicorp. Ltd. vs. State of Karnataka
142 STC 209 (S.C.)
• IDEA mobile communication Ltd. vs. CCE
Trivandrum [2006] 6 STJ 209 (Tri.-Bangalore)
Medical / Hospital
• Dispensing of medicines in the course of
Treatment – Not sale of goods
• Commissioner of Sales Tax U.P. vs. Dr. Sukh Deo 23 STC 385
(S.C.)
• Material Consumed In the Course of the
Execution of the Contract – Cannot be said to
be sale
– Pest Control India Ltd., vs. UOI & Others 75 STC
188 (Patna)
