Nature and Evaluation of Service Tax

Nature of service tax

As per section 65 (95) of finance act , 1994 ,’sevice tax ‘ means tax leviable under the provision. Section 66 of Finance Act, 1994 is the charing section of service tax. Section 66 provides that there shall be levied a tax (service tax) @12% of the value of taxable service referred to in various clauses of section 65(105).It will be collected in a manner as may be prescribed. Though the tariff rate is 12%, the effective rate is 10% w.e.f 24-2-2009.Thus; total service tax payable is 10.30%w.e.f.24-2-2009.

In respect of each type of service , it is necessary to determine two things namely

(a) Taxable Service and

(b) Value of taxable service.

Taxable Service — As per section 66 of Finance Act, 1994, service tax is payable on taxable service. Service 65(105) of Finance Act 1994 defines what “taxable service” is. The definition is different for each class of service, e.g. in case of stock broker, any service provided by stock broker to investor in connection with sale or purchase of securities listed on a recognized stock exchange will be “taxable service”.

Service tax can be collected by service provider from service recever — Service tax is on indirect tax. Though liability is on provider, the tax can be collected by him from service receiver.

Excise and service tax are independent taxes– Though excise and service tax are administered by same department ,both are independent taxes. Payment of excise is not same thing as paying service tax . ,it was held that service tax is payable on charges of erection and commissioning even if assessee has paid excise duty on entire value of contract including erection and commissioning charges.

Service tax is destination —based consumption tax — Service is a destination based consumption tax, as per CBE & C circular No. 56/5/2003 dated 25-4-2003.

No service tax if transaction is sale of goods —Service tax is not leviable on a transaction treated as sale of goods and subjected to levy of sales tax/VAT . Its has been held that service tax and VAT (sales tax) are mutually exclusive , In case of composite contract , VAT cannot be imposed on portion relating to value of service.

Evaluation of Service Tax in India

In the year 1994-1995, Dr. Manmohan Singh, the Union Finance Minister , in his budget introduced the new concept of Service tax and stated as under :

  1. There is no sound reason for exempting services from taxation , where goods are taxed and many countries treat goods and services alike for tax purpose ,therefore , propose to make a modest effort in this direction by imposing a tax on services of ‘telephone’, ‘non life insurance’ and ‘stock brokers’
  2. Thus the service tax was levied under the Finance Act 1994.
  3. It was first introduced for the first time on 3 services with a nominal rate of 5% advalorem
  4. Subsequent Finance Acts have added more and services to be taxes for service tax purpose
  5. As such today there are more than 100 services are chargeable to service tax

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