TAXABLE/NON-TAXABLE SERVICES RECKONER* · Gramin Accident Policy Group Personal Accident Policy for...

SEC./NOT. ACTIVITY TAXABILITY

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SEC./NOT. ACTIVITY TAXABILITY�

4 (Not. 25/ Abandoned, orphaned or homeless children� Non-taxable2012) Advancement of educational programmes or skill (Exempt)

development by entity registered u/s 12AA underIncome-tax Act

65B(44) Access to Amusement facility Taxable(Service)

66D(h) Access to following on payment of Toll Charges Non-taxable

� a road or bridge (Negative List)

� national highways or State highways

66E(a) Access/use/occupation of immovable property Taxable(allowing/granting/permitting)

26 (Not. Accidental Insurance (General Insurance Non-taxable25/2012) Services) : (Exempt)

� Janata Personal Accident Policy

� Pradhan Mantri Suraksha Bima Yojna

� Gramin Accident Policy

� Group Personal Accident Policy for Self-EmployedWomen

65B(44)(a) Actionable Claims� Non-taxable

� Sale of beneficial interest in movable property (Not service)

� Transactions in actionable claims

TAXABLE/NON-TAXABLESERVICES RECKONER*

*A reckoner of Taxable/Non-Taxable services based on Exemptions/Declared Services/Negative ListServices and Definition of Services

�Bold entry states description given in relevant section/notification.

108



65B(44)(a) Actionable Claims � Sale of Secured or Unsecured Taxable uptoDebts service fee or

processing fee

65B(44)(a) Actionable Claim/Money � Activity for consider- Taxable uptoExpl. 2 ation in relation to, or for facilitation of, service fee or

transaction in actionable claim/money consideration

65B(44) Activity carried out without consideration Non-taxable(Not service)

66E(g) Activities in relation to delivery of goods on hire Taxable

purchase or any system of payment by instalments

65B(44) Activity for non-monetary consideration Taxable

66E(h) Activity in relation to movable/immovable pro- Taxable

perty under works contract

66E(i) Activity involving supply of food/beverages Taxable

(service portion only)

16 (Not. Actors in Film/TV Serials Taxable

25/2012)

2 (Not. Acupressure � Health Care Services Taxable

25/2012)

2 (Not. Acupuncture � Health Care Services Taxable25/2012)

66D(a) Administrative Support Services by Government/ Taxable

local authority to business entity

66D(a) Administrative Support Services by Non-taxable

Government/local authority to person (Negative List)

other than a business entity

9 (Not. Admission related services - To negative listed Non-taxable

25/2012) Educational Institution or By such institution to (Exempt)

its students, faculty and staff

65B(44) Admission to entertainment events or access to Taxable

amusement facilities (service; someexemptions)

66D(g) Advertisement� Non-taxable

� Newspaper/Periodicals (Negative List)

� Book (except business directory, yellow pages

trade catalogues)

109 TAXABLE/NON-TAXABLE SERVICES RECKONER



66D(g) Advertisement� Taxable

� Canvassing of

� other than in print media (book/newspaper)

66D(a) Advertisement and Promotion Services by TaxableGovernment/local authority to business entity

66D(a) Advertisement and Promotion Services by Non-taxableGovernment/local authority to person other (Negative List)than a business entity

66D(g) Advertising Agencies preparing advertisements or Taxableearning commission on publication of advertise-ment

6 (Not. Advice, consultancy or assistance in any branch Taxable, but,25/2012) of law � See Legal Services Exempt in

certain cases

23 (Not. Aerial Tramway � Transport of passengers, with Non-taxable25/2012) or without accompanied belongings, by (Exempt)

66D(a) Agency Services (distribution of mutual funds, Taxablebonds, passport applications, collection of telephoneand electricity bills), provided by Department ofPosts to a person other than Government

66D(a) Agency Services provided by Department of Posts Non-taxableto Government (Negative List)

66E(e) Agreeing to : Taxable

� do an act (obligation)

� refrain from an act (obligation)

� tolerate a situation (obligation)

� tolerate an act (obligation)

66E(e) Agreeing to the obligation to refrain from an act, Taxableor to tolerate an act or a situation, or to do an act

66D(d) Agricultural Extension Services Non-taxable(Negative List)

26 (Not. Agricultural Insurance (General Insurance Ser- Non-taxable25/2012) vices) (Exempt)

� Weather Based Crop Insurance

� Approved Modified National Agricultural Insur-ance

DIV. 1 : PRACTICE MANUAL 110



� National Agricultural Insurance Scheme(Rashtriya Krishi Bima Yojana)

� Agricultural Pumpset and Failed Well Insurance

� Pilot Scheme on Seed Crop Insurance

� Coconut Palm Insurance Scheme

66D(d) Agricultural Land � Renting of (for agriculture) Non-taxable(Negative List)

66D(d) Agricultural operations for production of Non-taxableagricultural produce (Negative List)

20 & 21 Agricultural Produce � Domestic Transportation Non-taxable(Not. 25/ of � by Railways or Vessel or Goods Transport (Exempt)2012) Agency

66D(d) Agricultural Produce Marketing Committee or Non-taxableBoard � Services in relation to agriculture or (Negative List)agricultural produce

66D(d) Agricultural Produce Marketing Committee or TaxableBoard � Services not in relation to agriculture oragricultural produce (e.g., renting of immovableproperty)

30 (Not. Agriculture � Job-work services (only intermediate Non-taxable25/2012) production process) (Exempt)

66D(d) Agro Machinery � Renting/Leasing of Non-taxable(Negative List)

25 (Not. Aircraft (Repair or Maintenance) � Services relat- Taxable25/2012) ing thereto provided to Government, local autho-

rity or governmental authority

66D(p) Airlines � Transport of goods from a place outside Non-taxableIndia up to the customs station of clearance in (Negative List)India

66D(p) Airlines � Transport of goods within country or Taxableabroad

23 (Not. Airlines � Transport of passengers � Non-taxable25/2012) � Embarking from, or (Exempt)

� terminating at




airport located in Arunachal Pradesh, Assam,Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,or Tripura or at Bagdogra (West Bengal)

66D(o) Airlines (Domestic or International) � Transport of TaxablePassengers

14 (Not. Airport � Completion, fitting out, repair, Taxable25/2012) maintenance, renovation, or alteration of

14 (Not. Airport � Construction, erection, commissioning, Taxable25/2012) or installation of (Not exempt)

65B(44) Airport � Free telephones (no bills issued) Taxable

20 & 21 Alcoholic Beverages � Domestic Transportation Taxable

(Not. of � by Railways or Vessel or Goods Transport

25/2012) Agency

65B(44), Alcoholic liquor for human consumption � Taxable66D(f) & Production/Processing/Job-work (Intermediate30/2012 production process) or Manufacture thereof

65B(44) Alimony for divorce � Consideration without any Non-taxableactivity (Not service)

2 (Not. Allopathy � Health Care Services Non-taxable25/2012) (Exempt)

66E(a) Allowing access/use/occupation of immovable Taxableproperty

66E(a) Allowing erection of a communication tower on a Taxablebuilding for consideration.

66E(h) Alteration of movable/immovable property under Taxableworks contract

12 (Not. Alteration services � For specified purposes � See Non-taxable25/2012) Entries 12 and 13 for details (Exempt)

66D(a) Amusement facilities organized by Government/ Non-taxablelocal authority (other than for business entity) (Negative List)

65B(44) Amusement parks, amusement arcades - Facilities Taxableother than Rides, Gaming Devices and BowlingAlleys

65B(44) Amusement parks, amusement arcades � Rides, TaxableGaming Devices and Bowling Alleys (Service)




65B(44) Amusement ride in a mall (Standalone) Taxable(Service)

66D(p) Angadia � Courier Agency Taxable

33 (Not. Animals (bovine or non-bovine) � Slaughtering of Non-taxable25/2012) (Exempt)

12 (Not. Antiquity - Construction, erection, commissioning, Non-taxable25/2012) installation, completion, fitting out, repair, main- (Exempt)

tenance, renovation, or alteration of � Service toGovernment/Local Authority/Governmental Au-thority

9A (Not. Any services provided by, � Non-taxable25/2012) (Exempt)

(i) the National Skill Development Corpora-tion set up by the Government of India;

(ii) a Sector Skill Council approved by the Na-tional Skill Development Corporation;

(iii) an assessment agency approved by theSector Skill Council or the National Skill De-velopment Corporation;

(iv) a training partner approved by the Na-tional Skill Development Corporation or theSector Skill Council;

in relation to :

(a) the National Skill DevelopmentProgramme implemented by the National SkillDevelopment Corporation; or

(b) a vocational skill development course un-der the National Skill Certification and Mon-etary Reward Scheme; or

(c) any other Scheme implemented by the Na-tional Skill Development Corporation.

6 (Not. Appearance before any court, tribunal or autho- Taxable, but,25/2012) rity � See Legal Services Exempt in

certain cases

66D(l) Approved Vocational Education Course � Non-taxableApproved by National/State Council for (Negative List)Vocational Training




66D(l) Approved Vocational Education Course - Course Taxable (Not& Entry 9A run by Institute affiliated to National Skill in negative(Not. 25/ Development Corporation list but some2012) exemptions)

6 (Not. Arbitral Tribunal� Non-taxable25/2012) � Services by member of Tribunal to Tribunal (Exempt)

� Services to non-business entity or business en-tity with turnover upto � 10 lakh in precedingfinancial year

6 (Not. Arbitral Tribunal � Services to business entity Taxable25/2012) whose turnover exceeded � 10 lakh in preceding

financial year

12 (Not. Archaeological site or remains of national Non-taxable25/2012) importance or archaeological excavation � (Exempt)

Construction, erection, commissioning, installation,completion, fitting out, repair, maintenance, reno-vation, or alteration of � Service to Government/Local Authority/Governmental Authority

66E(f) Arrangement leading to transfer of goods in a Taxablemanner similar to hiring, leasing, licensing (with-out transfer of right to use)

66E(a) Arrangements in respect of immovable property Taxable(similar to letting/leasing/licensing)

12 (Not. Art Establishment � Construction, erection, com- Taxable25/2012) missioning, installation, completion, fitting out, (Not exempt)

repair, maintenance, renovation, or alteration of �Service to Government/Local Authority/Governmental Authority (whether for commercialuse or non-commercial use)

16 (Not. Artist - Performance - Music/Dance/Theatre - Non-taxable25/2012) Folk or Classical Art - Consideration charged is (Exempt)

upto � 1 lakh

16 (Not. Artist - Taxable25/2012) � Performance - Music/Dance/Theatre - Folk or (Not Exempt)

Classical Art : (i) Services as Brand Ambassadors

or (ii) Consideration charged exceeds � 1 lakh

��Western Music/Dance or Modern Theatres or

Painters/Sculpture Makers




18 (Not. Ashram, etc. - For residential or lodging purposes - Non-taxable25/2012) With �declared tariff� below � 1,000 per day (Exempt)

65B(44) Artist � performing on street � Passerby dropping Non-taxablemoney without any obligation to pay any (Not service)consideration

1 (Not. Asia Pacific Telecommunity (Specified Inter- Non-taxable25/2012) national Organisation) � Services provided to (Exempt)

1 (Not. Asian African Legal Consultative Committee Non-taxable25/2012) (Specified International Organisation) � Services (Exempt)

provided to

1 (Not. Asian Development Bank (Specified International Non-taxable25/2012) Organisation) � Services provided to (Exempt)

29 (Not. Authorised person (Providing access to stock Non-taxable25/2012) exchange or commodity exchange as an agent) � (Exempt)

Services to a stock-broker or a member ofcommodity Exchange

66D(o) Auto Rickshaws � Transport of Passengers Non-taxable(Negative List)

66D(e) Auxiliary services in relation to futures/forwards/ Taxablederivatives

66D(i) Auxiliary Services relating to betting/gambling/ Taxablelottery

65B(44) Awards for : Non-taxable

� contribution over a life-time (Not service)

� single achievement without any reciprocity

47 (Not. Award Function � Admission to, if consideration Non-taxable25/2012) for admission is upto � 500 per person (Exempt)

47 (Not. Award Function � Admission to, if consideration Taxable25/2012) for admission exceeds � 500 per person, or, (Not exempt)

Services by way of Organization of

2 (Not. Ayurveda � Health Care Services Non-taxable25/2012) (Exempt)

66D(o) Baggage Charges (Where transport of Passengers Non-taxableis covered in negative list) (Negative List)

23 (Not. Baggage Charges (Where transport of Passengers Non-taxable25/2012) is exempt) (Exempt)




66D(o) Baggage Charges (Where transport of Passengers Taxableis not covered in negative list)

23 (Not. Baggage Charges (Where transport of Passengers Taxable25/2012) is not exempt)

47 (Not. Ballet (in open or otherwise) � Admission to, Non-taxable

25/2012) irrespective of amount charged (Exempt)

47 (Not. Ballet (in open or otherwise) � Organization of, Taxable

25/2012) and related services (Not Exempt)

66E(f)/ Bank Lockers � Hiring of Taxable66E(a)

29 (Not. Banking � Rural Area � Services of Business Non-taxable25/2012) Facilitator or business correspondent � To a (Exempt)

banking company

66D(b) Banking and Other Financial Services by RBI Non-taxable(Negative List)

66D(b)/(n) Banking and Other Financial Services other than Taxableby RBI

65B(44)(a) Banking services � Making of draft/Pay-order for Taxable uptoconsideration consideration

38 (Not. Bathrooms � Public Conveniences � Services by Non-taxable25/2012) way of (Exempt)

66D(i) Betting, gambling or lottery Non-taxable

(Except activity covered under 65B(44), Expl. 2) (NegativeList)

66D(n) Bill/Invoice/Cheque discounting � Interest/ Non-taxableDiscount (Negative List)

2B (Not. Bio-medical Waste Treatment Facility (Common) Non-taxable25/2012) � Services provided by operators thereof, to (Exempt)

a clinical establishment

66D(l) Boarding Schools � Entire Package (education, Non-taxablefood, residence, etc.) (Negative List)

66D(a) Book Post (Postal Department) Non-taxable(Negative List)

35 (Not. Books, publications or any other knowledge- Non-taxable25/2012) enhancing content or material � lending of � by (Exempt)

public libraries




66D(a) BOT/BOOT agreements � Grant of building/ Taxabledevelopment rights by Government to (Not inbusiness entity Negative List)

65B(44) BOT/BOOT agreements � Services by Concessio- Taxable, exceptnaire to users by way of access to such tolls fallingfacility u/s 66D(h)

65B(44) Bowling alleys (Amusement parks, amusement Taxablearcades, water parks, theme parks or such other (Service)places)

16 (Not. Brand Ambassador � Artist in any art forms Taxable25/2012)

66D(d) Breeding of Fish (Pisciculture) Non-taxable(Negative List)

13 (Not. Bridge � For transport of general public � Cons- Non-taxable25/2012) truction, erection, commissioning, installation, (Exempt)

completion, fitting out, repair, maintenance, reno-vation, or alteration of

66E(b) Builder/Developer � Providing flats to land- Taxableowners towards grant of land-development rights

66E(b) Builders Taxable

66E(b) Builders � Sale of flat after issuance of completion Non-taxablecertificate (Not service)

66D(d) Bulk packaging of agricultural produce Non-taxable(Negative List)

66D(p) Bullock Carts/Camel Carts, etc. � Transport of Non-taxablegoods (Negative List)

13 (Not. Burial � Structure for (Deceased) � Construction, Non-taxable25/2012) erection, commissioning, installation, completion, (Exempt)

fitting out, repair, maintenance, renovation, oralteration of

66D(q) Burial Services Non-taxable(Negative List)

31 (Not. Business exhibition � Held outside India � Non-taxable25/2012) Organization of (Exempt)

29 (Not. Business Facilitator or business correspondent � Non-taxable25/2012) in Rural Area � Services to a banking or insurance (Exempt)

company




23 (Not. Cable Car � Transport of passengers, with or Non-taxable25/2012) without accompanied belongings, by (Exempt)

66D(m) Campsite � Renting of Not falls withinnegative list

18 (Not. Campsite � Renting of � For residential or lodging Non-taxable25/2012) purposes � with �declared tariff� below � 1,000 per (Exempt)

day

66D(l) Campus Placement Services Taxable

12 (Not. Canal � Construction, erection, commissioning, Non-taxable25/2012) installation, completion, fitting out, repair, main- (Exempt)

tenance, renovation, or alteration of � Service toGovernment/Local Authority/Governmental Au-thority

19A (Not. Canteen maintained in a factory covered under Non-taxable

25/2012) Factories Act and having AC or central air- (Exempt)

heating at any time during the year � Serving

of food or beverages by

30 (Not. Carrying out an intermediate production process Non-taxable25/2012) as job work in relation to� (Exempt)

(a) agriculture, printing or textile processing;

(b) cut and polished diamonds and gemstones; orplain and studded jewellery of gold and other pre-cious metals, falling under Chapter 71 of the Cen-tral Excise Tariff Act, 1985 (5 of 1986);

(c) any goods excluding alcoholic liquor for hu-man consumption, on which appropriate duty ispayable by the principal manufacturer; or

(d) processes of electroplating, zinc plating, anod-izing, heat treatment, powder coating, painting in-cluding spray painting or auto black, during thecourse of manufacture of parts of cycles or sewingmachines upto an aggregate value of taxable ser-vice of the specified processes of one hundred andfifty lakh rupees in a financial year subject to thecondition that such aggregate value had not ex-ceeded one hundred and fifty lakh rupees duringthe preceding financial year;

[See also paras 2(b) and 2(z)]




9 (Not. Catering Services (including any mid-day Non-taxable25/2012) meals scheme sponsored by Government) - To (Exempt)

Negative listed Educational Institution or By suchinstitution to its students, faculty and staff

66E(i) Catering services (service portion only) Taxable

26 (Not. Cattle Insurance (General Insurance Services) Non-taxable25/2012) � Central Sector Scheme on Cattle Insurance (Exempt)

� Cattle Insurance under Swarnajayanti GramSwarozgar Yojna (earlier known as IntegratedRural Development Programme)

65B(44)(a) Certificate of deposits � Taxable uptoTrading/Issuance/Subscription � Transaction in servicemoney charges

4 (Not. Charitable Activities � By Entity registered u/s Non-taxable25/2012) 12AA under Income-tax Act (Exempt)

34 (Not. Charitable Activities � Services received from a Non-taxable25/2012) person located in non-taxable territory by Entity (Exempt)

registered u/s 12AA of IT Act � For use in provid-ing charitable activities

65B(44) Charities � Free � Without consideration Non-taxable(Not service)

65B(44) Charities � In consideration of any activity (e.g, Taxabledisplay of advertisement of grantor of charity in aspecified manner)

23 (Not. Charter � Contract Carriage � Transport of Taxable25/2012) passengers

66D(o) Charter Vessels � Transport of Passengers Taxable

20 & 21 Chemical Fertilizer � Domestic Transportation of � Non-taxable(Not. 25/ by Railways or Vessel or Goods Transport Agency (Exempt)2012)

65B(44)(a) Chit funds - Activity of foreman for conducting or Taxable*Expl. 2 organising chits - Consideration charged

65B(44)(a) Chit Funds � Simple � No consideration charged Non-taxable(Not service)


*The Delhi High Court judgment in Delhi Chit Fund Association v. UOI [2013] 32 taxmann.com 332 (Delhi)stands nullified.



47 (Not. Cinematographic film � Admission to, Non-taxable

25/2012) irrespective of amount charged (theatre) (Exempt)

47 (Not. Circus � Admission to, irrespective of amount Non-taxable

25/2012) charged (Exempt)

47 (Not. Circus � Organization of, and related services Taxable

25/2012) (Not Exempt)

66E(b) Civil Construction Taxable

12 (Not. Civil structure � Construction, erection, commis- Taxable25/2012) sioning, installation, completion, fitting out, repair,

maintenance, renovation, or alteration of � Serviceto Government/Local Authority/GovernmentalAuthority � for commercial or non-commercial use

13 (Not. Civil structure � JNNURM or Rajiv Awaas Yojna � Non-taxable25/2012) Construction, erection, commissioning, installa- (Exempt)

tion, completion, fitting out, repair, maintenance,renovation, or alteration of

16 (Not. Classical Artists - Performance - Music/Dance/ Non-taxable25/2012) Theatre - Consideration charged is upto � 1 lakh (Exempt)

16 (Not. Classical Artists - Performance - Music/Dance/ Taxable25/2012) Theatre : (i) Services as Brand Ambassadors or (Not exempt)

(ii) Consideration charged exceeds � 1 lakh

66D(d) Cleaning of agricultural produce Non-taxable(Negative List)

66D(d) Cleaning of Wheat carried out outside Farm Non-taxable(Negative List)

9 (Not. Cleaning Services � To a negative listed educati- Non-taxable

25/2012) onal institution and performed in such institution (Exempt)

66D(e) Clearing and Forwarding Agent�s services Not falls withinnegative list

2 (Not. Clinic � Health Care Services Non-taxable25/2012) (Exempt)

12 (Not. Clinical Establishment � Construction, erection, Taxable25/2012) commissioning, installation, completion, fitting (Not exempt)

out, repair, maintenance, renovation, or alterationof � Service to Government/Local Authority/Gov-ernmental Authority (whether for commercial useor non-commercial use)


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PERIOD OF LIMITATION

DESCRIPTION OF SECTION/ TIME-LIMIT/DUE DATE FORM

OBLIGATION RULE NO.

Advance Ruling - Section 96C Any time before start of activity in FormApplication - relation to which advance ruling has AAR(ST-1)Filing of been sought [Fee : � 2,500] Quadruplicate

Advance Ruling - Section 96C Within 30 days from the date of No specifiedApplication - application formatWithdrawal of

Advance Ruling - Section 96D Within 90 days of the receipt of the No specifiedPronouncement application format of rulingof

Appeal - To Section 85 Within 2 months from receipt of Form ST-4Commissioner impugned order(Appeals) - By Condonation : Upto 1 monthassessee (No condonation beyond that)

Appeal - To Section 84 Review by Principal Commissioner or No formatCommissioner Commissioner : Within 3 months from specified,(Appeals) - By receipt of impugned order [No probably,Department condonation] Form ST-4

Filing of appeal : Within 1 month fromreceipt of review order [Condonationupto 1 month (3 months for orderspassed before 28-5-2012)]

Appeal - To Section 86 Within 3 months from receipt of Form ST-5Tribunal - By impugned orderassessee Condonation : Without limit

Appeal - To Section 86 Within 4 months from receipt of Form ST-7Tribunal - By impugned orderDepartment Condonation : Without limit

Appeal - To Section 86 Within 45 days of receipt of notice of Form ST-6Tribunal - Memo- filing of appeal from CESTATrandum of Cross Condonation : Without limitobjections byRespondent

285


Appeal - To CESTAT Within 1 month of filing of appeal No formatTribunal - Paper (Procedure) Condonation : Without limitbook - Filing of Rules, 1982 -

Rule 16

Appeal - To CESTAT Within 1 month from date of filing of No formatTribunal - (Procedure) reply to appeal by respondentRejoinder by Rules, 1982 - Condonation : Without limitappellant - Rule 15AFiling of

Appeal - To CESTAT Within 1 month from date of service No formatTribunal - Reply (Procedure) of appeal to Respondentto appeal by Rules, 1982 - Condonation : Without limitRespondent - Rule 15AFiling of

Appeal - To High Section 35G Within 180 days of receipt of order by Code of CivilCourt (excluding of Excise Act appellant Procedurematters involving Condonation : Without limittaxability, valua-tion or rate ofservice tax)

Appeal - To Section 35L Within 60 days of receipt of impugned Code of CivilSupreme Court of Excise Act order by the appellant Procedure/(directly from Condonation : Without limit Supreme CourtTribunal in Rulesmatters involvingtaxability, valua-tion or rate ofservice tax) (orfrom High Court)

Appeal - To Article 136 of Within 60 days from date of refusal of Code of CivilSupreme Court - Constitution grant of certificate of appeal by High Procedure/Special Leave to Court, or, 90 days in other cases Supreme CourtAppeal Condonation : Without limit Rules

Assessment - Rule 6(5) of Along with Half-yearly Return Form ST-3AProvisional - ST Rules, 1994 (month-wise)Memorandum

Composition Rules 6(7), (7A), Option to be exercised No specifiedSchemes � (7B) and (7C) However, in case of distributor or format, but,1. Rule 6(7) [Air of ST Rules, selling agent of lottery, option under option, oncetravel agent]; 1994 Rule 6(7C) must be exercised within exercised,2. 6(7A) [Life one month of providing such service cannot be with-Insurance]; or beginning of each financial year drawn during3. 6(7B) [Foreign remaining partCurrency/Money of that financialChanger]' year.4. 6(7C) [Distri-butor or sellingagent of lottery]


OBLIGATION RULE NO.



Export of Rule 6A of Payment must be received in conver- N.A.Services ST Rules, 1994 tible foreign exchange within 6 months

or extended period, otherwise, servicewould be treated as exempted serviceand Cenvat Credit would have to bereversed under Rule 6 of Cenvat CreditRules, 2004

Goods Transport Rule 4B of ST Issued on receipt of goods for transpor- No formatAgency - Consign- Rules, 1994 tation except where services are wholly specified, par-ment Note - exempt ticulars asIssue of required in Rule

4B must bethere

Invoice - Invoice, Rule 4A of ST 30 days of providing of service or No formatBill or Challan - Rules, 1994 receipt of consideration, whichever is specified, par-Issue of earlier (**45 days in case of banks, etc.) ticulars as

In case of continuous supply of service, required in Ruledate of completion of service is each 4A must bedate specified in contract mandating there. Invoice

payment. may be digitallysigned

Large Tax-payer - Rule 10 of ST At least 30 days notice in advance No specifiedOpting out of Rules, 1994 format

Payment - Rule 6(1A) of Within 15 days from date of making SimpleAdvance ST Rules, 1994 advance payment. applicationPayment -Intimation for

Payment - Service Rule 6 of ST In case of e-payment : 6th of next GAR-7 ChallanTax - Assessee Rules, 1994 month - Monthly - based on PoT E-payment[other than Indivi- Any other case : 5th of next month - mandatoryduals or sole pro- Monthly - based on PoT except whereprietary or part- For month ending 31st March : 31st otherwise per-nership firm or March (all cases even e-payment) mitted byLLPs] - Company, AC/DCetc.

Payment - Service Rule 6 of ST In case of e-payment : 6th of next GAR-7 ChallanTax - Assessee Rules, 1994 month - Quarterly - based on PoT E-paymentbeing Individuals Any other case : 5th of next month - mandatoryor sole proprietary Quarterly - based on PoT except whereor partnership For quarter ending 31st March : 31st otherwise per-firm or LLPs - March (all cases even e-payment) mitted byTurnover in pre- AC/DCceding F.Y.exceeds � 50lakhs


OBLIGATION RULE NO.

287 PERIOD OF LIMITATION


Payment - Service Rule 6 of ST In case of e-payment : 6th of next GAR-7 ChallanTax - Assessee Rules, 1994 - month - Quarterly - based on value E-paymentbeing Individuals Proviso 3rd of received during quarter mandatory,or sole proprietary Rule 6(1) Any other case : 5th of next month - except whereor partnership optional Quarterly - based on value received otherwise per-firm or LLPs - during quarter mitted byTurnover in pre- For quarter ending 31st March : 31st AC/DCceding F.Y. Upto March (all cases even e-payment)� 50 lakhs

Records - Com- Rule 5 of ST To be preserved for 5 years immedia- No specifiedputerised or Rules, 1994 tely after the financial year to which format -otherwise such records pertain Records kept

under any laware acceptableRecords maybe preservedunder digitalsignature

Rectification of Section 74 Within two years of the date on which No specifiedMistake Apparent such order was passed formatfrom record

Refund - Claim of Section 11B 1 year from relevant date Form Rof Excise Act [Relevant date is date of export, date

of payment, etc.]

Registration - Rule 4(1) of Within 30 days (if not applied for ST-1Centralized ST Rules, 1994 separately)

Registration - Rule 4(1) of New Business : within 30 days of ST-1Fresh ST Rules, 1994 commencement

Service becomes taxable for first time :within 30 days of charge of ST

Registration - Rule 4(5) of 2 days from receipt of duly complete ST-2Grant of Certifi- ST Rules, 1994 application (as per circular/Notf.)cate If not granted, it is deemed to be

granted within 2 days[Service Tax Rules, 1994, still providefor time-limit of 7 days]

Registration - Rule 4(5A) of Within 30 days from such change ST-1Intimation of ST Rules, 1994change in Infor-mation or addi-tional information


OBLIGATION RULE NO.



Return - Export To be filed for Period 1st April to 30th Sept. : 15th Form EXP-2of goods - GTA claiming Octoberservice received exemption Period 1st Oct. to 31st March : 15thunder reverse under Not. Aprilcharge by 31/2012Exporter - Half-yearly

Return - Filing of - Rule 7 of ST Period 1st April to 30th Sept. : 25th ST-3by assessee Rules, 1994 October [E-filing

Period 1st Oct. to 31st March : 25th Mandatory]April

Return - Filing Service Tax Period 1st April to 30th Sept. : 31st ST-3of - by Input (Registration October [E-filingService Distri- of Special Period 1st Oct. to 31st March : 30th Mandatory]butor Category of April

Persons)Rules, 2005read withRule 9(9) ofCenvat CreditRules

Return - Revision Rule 7B of Within 90 days from date of submis- ST-3 [E-filingof - by assessee ST Rules sion of original return Mandatory]

Return - Revision Rule 9(11) of Within 60 days from date of submis- ST-3of - by Input Cenvat Credit sion of original return [E-filingService Distri- Rules Mandatory]butor

Returns - Filing Rule 5 of ST Along with first return (one-time) No specifiedof List of Records Rules, 1994 [Computerised records are acceptable] formatin duplicate

Revision - Appli- Section 35EE Within 3 months from date of receipt Form EA - 8cation to Central of Excise Act of order of Commissioner (Appeals)Government that is appealed against

Condonation : Upto 3 months

Show-cause Section 73 Evasion Cases : Upto 5 years from rele- No formatnotice - Issuance vant date (extended period)of Any other case : Upto 18 months from

relevant dateRelevant date : Date of filing of return,or, due date of filing of return (if noreturn is filed), or, date of payment ofservice tax

Show-cause Section 73 Non-mandatory time-limit of 6 months No formatnotice - Adjudica- in non-evasion cases; and 1 year intion of evasion cases


OBLIGATION RULE NO.



Settlement of Section 32E of After filing of proper returns, receipt of Form SC(ST)-1Cases - Applica- Excise Act notice, payment of admitted liability (Quintuplicate)tion - Filing of and expiry of 180 days after date of

seizure [Fee : � 1,000]

Settlement of Section 32E of Not permissible Not permissibleCases - Applica- Excise Acttion - Withdrawalof

Settlement of Section 32F of Within 7 days of receipt of application No formatCases - Issue of Excise ActNotice byCommission toapplicant

Settlement of Section 32F of Within 14 days from date of notice No formatCases - Accep- Excise Acttance or Rejec-tion of Applica-tion

Settlement of Section 32F Within 7 days from date of order No formatCases - Settle- of Excise Act allowing application to be proceededment Commission withcalls for Reportfrom PrincipalCommissioner orCommissioner

Settlement of Section 32F Within 30 days of receipt of communi- No formatCases - Commi- of Excise Act cation from Settlement Commissionssioner furnishedreport to Settle-ment Commission

Settlement of Section 32F Within 15 days of receipt of report No formatCases - Ordering of Excise Act from Principal Commissioner orfurther inquiry Commissionerby PrincipalCommissioner orCommissioner(Investigation)

Settlement of Section 32F Within 90 days from receipt of No formatCases - Report of of Excise Act communication from Settlementfurther inquiry Commissionby PrincipalCommissioner orCommissioner(Investigation)

Settlement of Section 32F Within 9 months from the last day of No format butCases - Passing of of Excise Act the month in which the application order mustfinal orders by was received. specify terms ofSettlement Extension : This period may be exten- settlementCommission ded by 3 months.


OBLIGATION RULE NO.



SEZ Unit/Dev.� Not. No. (i) Declaration for claiming exemption Form A-1Services provided 12/2013-ST (a) Submit for verification toto � Ab initio specified officer of SEZ � Any timeexemption for (b) After verification, submit toservices AC/DC having jurisdiction � Withinexclusively used 15 days of verification by specifiedfor authorised officer (else, authorisation would notoperations be valid from date of verification; it

would be valid from date ofsubmission of Form A-1)

(ii) Authorisation for procurement of Form A-2services by a SEZ Unit/Developer �Within 15 working days of date ofsubmission of Form A-1

Form A-3


OBLIGATION RULE NO.

(iii) Quarterly statement of specifiedservices received by it without paymentof service tax � Before jurisdictionalSuperintendent of Central Excise � By30th of the month following the particu-lar quarter

SEZ Unit/Dev.� Not. No. Claim for refund of service tax paid Form A-4Services provided 12/2013-ST � Within 1 year from the end of theto � Refund month in which actual payment ofof ST paid service tax was made by such Developer

or SEZ Unit to the registered serviceprovider or such extended period asAC/DC shall permit


D:\VSODHANI-15MAY\MGST15MAY\MGST-15 Server Corr. Mg 14-5-13\D.S. 21-5-15\D.S. 23-5-15\Rel. D.S. 25-5-15\O.P> 26-5-15 352

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Section 67 makes the following provisions for the valuation of taxable services �

��-�� %��./��

Subject to the provisions of this Chapter, where service tax is chargeable on anytaxable service with reference to its value, then such value shall be �

(i) in a case where the provision of Value = Gross amount charged by the serviceservice is for a consideration in provider for �such service� provided or to bemoney provided by him;

Note : The words �such service� show that theconsideration must have direct link with theservice. Any sum charged other than for �suchservice� cannot form part of the value.

(ii) in a case where the provision of Value = Such amount in money as, with theservice is for a consideration not addition of service tax charged, is equivalentwholly or partly consisting of money to the consideration.

Note : In this case, the consideration shall bedeemed inclusive of service tax.

(iii) in a case where the provision Value = Amount as may be determined in pre-of service is for a consideration scribed manner viz. Value as per Rule 3 of thewhich is not ascertainable Service Tax (Determination of Value) Rules,

2006.

��' (�� 0�&��

(I) GENERAL [Explanation (a)(i)] : �Consideration� includes any amount that ispayable for the taxable services provided or to be provided. The meaning and scopeof consideration has already been discussed in Chapter 2.

� VALUATION OF SERVICES

352


(II) Inclusion of reimbursable expenditure or costs recovered from service recipient[Explanation (a)(ii) to Section 67, W.E.F. 14-5-2015] : Any reimbursable expendi-ture or cost �

(i) incurred by the service provider and

(ii) charged, in the course of providing or agreeing to provide a taxable service,

shall form part of consideration, �

(a) except in such circumstances, and

(b) subject to such conditions,

as may be prescribed.

Rule making authority [Section 94(2)(aa), as amended w.e.f. 14-5-2015] : Section94(2)(aa) empowers the Central Government to make rules for �

(i) the determination of the amount and value of taxable service,

(ii) the manner thereof, and

(iii) the circumstances and conditions under which an amount shall not be aconsideration, under section 67.

Note : These amendments by the Finance Act, 2015 seek to validate Rule 5(1) andRule 5(2) of the Service Tax (Determination of Value) Rules, 2006 (Rule 5(1) wasearlier struck down by Delhi High Court). The said rules are discussed later.

Extent of inclusion of reimbursements : Reimbursements are includible in value�

(i) only as per Rule 5(1) and 5(2) and

(ii) that too, only if the same is charged from service recipient (obviously, only ifnot already included in gross amount charged, liable to service tax)

(iii) such amount must be charged in course of providing a "taxable" service.

(III) Lottery Distributor or Selling Agent � Commission/Fee + Amount/Dis-count retained to form part of consideration [Explanation (a)(iii) to Section 67,w.e.f. 14-5-2015]:

� Any amount retained by the lottery distributor or selling agent from gross saleamount of lottery ticket

� in addition to the fee or commission, if any, or, as the case may be,

� the discount received, that is to say, the difference in the face value of lotteryticket and the price at which the distributor or selling agent gets such ticket,

shall form part of consideration.

Example : A lottery distributor buys ticket at � 90 as against a face value of � 100. Inthis case, the consideration would be � 10, which would be deemed as inclusive ofservice tax.

353 CH. 4 : VALUATION OF SERVICES Para 4.1


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Where the gross amount charged by a service provider, for the service provided orto be provided is inclusive of service tax payable, the value of such taxable serviceshall be such amount as, with the addition of tax payable, is equal to the gross amountcharged i.e.,

Cum-tax gross amount chargedValue of service = × 100

(100 + Rate of Service Tax)

Example : Services are provided for a consideration inclusive of service tax of� 1,14,000 Here, -

� Value = � 1,14,000 × 100 ÷ 114 = � 1,00,000.

� ST = � 1,14,000 × 14 ÷ 114 = � 14,000.

��1��''�*#��(�$�5�,�(��# �(�6��

(a) Sum may be received at any time � Section 67(3) : The gross amount chargedfor the taxable service shall include any amount received towards the taxableservice �

� before,

� during or

� after

provision of such service.

(b) �Gross amount charged� may be received in any form [Explanation 3(c)] :Gross amount charged includes 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 credited or debited to any account, whether called �Sus-pense account� or by any other name, in the books of account of aperson liable to pay service tax, where the transaction of taxable ser-vice is with any associated enterprise.

��)�-��(��# �(�'�&��'��%�� ./��

Subject to the provisions of sub-sections (1), (2) and (3), the value shall be deter-mined in such manner as may be prescribed i.e., as per provisions of the Service Tax(Determination of Value) Rules, 2006.

Para 4.1 DIV. 2 : BASIC CONCEPTS 354


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It was held in T.V.S. Motor Company Ltd. v. CCE [2012] 37 STT 232 (Chennai -CESTAT) that where the price set out in the Consultancy Agreement is net of allduties, taxes and other Government charges which, where applicable, were payablein addition to the price; then, consideration inclusive of income-tax deducted atsource shall be taxable value for the purpose of the Act in the hands of the servicerecipient. Since the price of contract was net of taxes, the tax payable in India was toform part of contract price. Thus, consideration charged for the service providedshall include income-tax deducted at source as per terms of contract.

Example : A Ltd. has received services from a foreign company. Under the agree-ment, they are liable to pay know-how charges tax-free. TDS @ 40% is liable to bemade under Income-tax law. Say �

(1) sum paid tax-free : � 588 ;

(2) Rate of TDS : 41.2%

(3) Service tax : 14%.

In this case, �

1. TDS is sum received : Tax deducted at source is sum received by the personon whose behalf tax is deducted (section 198 of the Income-tax Act, 1961)and, is therefore, a part of consideration paid.

2. Grossing up : The consideration/sum paid shall be calculated by way of statu-tory grossing up specified in section 195A of the Income-tax Act, 1961 as fol-lows :

a. Grossed up sum = Sum paid (net of tax) ÷ (100 � TDS rate)

b. Here, grossed up sum = � 588 ÷ (100 � 41.2)% = � 1,000.

3. Value : Therefore, the value of taxable service received is � 1,000.

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(a) Consideration in kind : Say, Mr. Sharma provides services to Mr. Ram againstpayment of � 1,42,000 in cash (inclusive of all taxes) and motor car valuing � 2lakh. In case where service provider is in receipt of consideration in kind, theamount received (in all) and value of consideration received is regarded asinclusive of service tax, as per section 67(1)(ii).

Hence, total consideration (inclusive of service tax) = � 1,42,000 + 2,00,000 =� 3,42,000.

Value of services = � 3,42,000 × 100 ÷ 114 = � 3,00,000; and service tax @ 14%thereon = � 42,000.

(b) Electricity supplied by client is not consideration in kind : Say, Mr. Ramprovided repair and maintenance services of equipments belonging to A Ltd.,which are used in manufacture of oxygen. The repair and maintenance workwas carried out at factory of A Ltd. using electricity belonging to A Ltd. The



charges for services are fixed at � 1,00,000, while value of electricity used isestimated at � 10,000. The Department argues that the value of electricity isconsideration in kind and is liable to service tax in hands of Mr. Ram.

On similar facts, it was held in Inox Air Products Ltd. v. CCE&C [2012] 24taxmann.com 114 (Bom.) that electricity supplied free of cost by customerfor use by service provider in provision of operating and maintenance ser-vices cannot be regarded as a consideration in kind received by assessee and,hence, it is not includible in taxable value of services provided. This is so be-cause such electricity doesn�t result in any benefit accruing to assessee. Infact, such electricity is consumed in manufacture of final product of A Ltd.viz. Oxygen. Hence, the value of services, in this case, is � 1,00,000.

(c) Security services to include all payments made to employees of securitypersonnel : A security agency provides a security guard to a complex, who ispaid salary @ � 10,000 p.m. by the owner of the complex, along with ESI/PFpayments of � 1,000 p.m. The security agency gets � 500 p.m. over and abovethe aforesaid sums as consideration for its services. In this case, it was held inSecurity Agencies Association v. Union of India [2013] 29 taxmann.com345 (Ker.) that in case of security agency, security agency is �Employer� ofsecurity personnel deployed to cater to requirements of service receivers, forwhich service receivers effect payment to service providers. Master and Ser-vant relationship is between security agency and security personnel engagedand not between service receivers and security personnel.

Thus, for services provided by security agency to complex owners the valueof services = � 10,000 p.m. Salary + � 1,000 p.m. towards statutory payments+ � 500 p.m. to security agency = � 11,500 p.m. The assessee (security agency)would be liable to pay service tax on � 11,500 p.m.

However, services provided by security guard (employee) to security agency(employer) would not be service under section 65B(44) and would not, there-fore, be liable to service tax.

(d) Telecommunication services � Bill handling charges includible : Handlingof payment of mobile bills by telecom operator is a part of telecommunica-tion services provided by it and, therefore, charging for handling paymentsare includible in value of telecommunication services. - Everything Every-where Ltd., formerly T-Mobile (UK) Ltd. v. Commissioners for Her Majesty�sRevenue and Customs [2012] 37 STT 763 (ECJ)

(e) Value of FoC (Free of Cost) Supplies/freebies provided by recipient notincludible in value of services [G.D. Builders vs. Union of India [2013] 40taxmann.com 415 (Delhi) & Bhayana Builders (P.) Ltd. v. CST [2013] 38taxmann.com 221 (New Delhi - CESTAT) (LB)] :

(i) Value of free supplies by service recipient not includible : Value of goodsand materials supplied free of cost by a service recipient to provider oftaxable construction service is neither monetary nor non-monetary con-sideration paid by or flowing from service recipient, accruing to benefit of



service provider. Hence, it is outside �gross amount charged�, as used insection 67 of Finance Act, 1994 and not includible in taxable value ofservices as such.

Example : Where �

� �A� agrees to supply services to �B� at a specified rate at �B�s� premises(say � 100); and

� �B� agrees to allow �A� use of its computer facilities, stationery andsafety equipment to perform the services and also agrees to transport�A� to �B�s� location and to provide accommodation and boarding duringthe period of �A�s� performance of the service (say, cost incurred � 20)

then,�

� the provision of the use of such facilities or meals is not part of theprice paid by �B� to �A�, as it is not payment to or of any value to �A� in returnfor his supply;

� rather, these are conditions of the contract that define the supplymade by �A� and are used in providing the services rather than constitut-ing supplies to �A� in return for the services; and

� accordingly, � 20 will not form part of the taxable value of theservices provided. The value of taxable services shall be � 100.

However, if contract required �A� to himself make provision for all thesefacilities/arrangements and the consideration to �A� was a compositeconsideration including the value of such facilities/arrangements (i.e.expenditure of � 20 on aforesaid items is borne by A and A is paid = � 100+ � 20 = � 120), then the entire consideration � 120 could legitimately formthe value liable to tax.

(ii) Abatement/Exemption may provide for inclusion of such free suppliesin value as a condition : Exemption/Abatements are granted by CentralGovernment and same may be granted subject to conditions. In incorpo-rating conditions for grant of exemption, the Government is at liberty todefine what components should comprise the gross value charged forproviding a taxable service. Therefore, exemption/abatement operatingsubject to inclusion of value of free supplies by buyer in total value oftaxable services is valid.

(f) Professional/Technical Service - No TDS on service tax portion, if indicatedseparately in contract [CIT v. Rajasthan Urban Infrastructure [2013] 37taxmann.com 154 (Rajasthan)] : If as per the terms of the agreement betweenthe payer and payee, amount of service tax is to be paid separately and was notincluded in the fees for professional services or technical services, no TDS isrequired to be made on service tax component u/s 194J of Income-tax Act.



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Subject to the provisions of section 67, the value of taxable service, where suchvalue is not ascertainable, shall be determined by the service provider in the follow-ing manner �

(1) Value = Sum charged for similar service : the value of such taxable serviceshall be �

� equivalent to the gross amount charged by the service provider

� to provide similar service

� to any other person

� in the ordinary course of trade and

� the gross amount charged is the sole consideration;

Example : Mr. A provides private coaching during a period of 1 month to astudent without any payment. In return, the student works for Mr. A for aperiod of 1 month without payment. Here, the consideration is notascertainable and value = fees charged by Mr. A for providing similar coach-ing.

(2) Value not less than cost : where the value cannot be determined in accor-dance with (1) above, the service provider shall �

� determine the equivalent money value of such consideration

� which shall, in no case be less than the cost of provision of such taxableservice.

Not less than cost � Meaning of : The expression �not less than cost� would notmean that value will be cost. It means that value should not be below cost.

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The provisions in this regard are as follows �

(1) Power of inquiry : The Central Excise Officer may satisfy himself as to theaccuracy of any information furnished or document presented for valuationand any provision of Rule 3 shall not be construed so as to as restrict or callinto question such power of that officer.

(2) SCN : Where the Central Excise Officer is satisfied that the value so deter-mined by the service provider is not in accordance with the provisions of theAct or these rules, he shall issue a notice to such service provider to showcause why the value of such taxable service for the purpose of charging ser-vice tax should not be fixed at the amount specified in the notice.

(3) Determination of Value : The Central Excise Officer shall, -

(a) after providing reasonable opportunity of being heard,



(b) determine the value of such taxable service for the purpose of chargingservice tax

(c) in accordance with the provisions of the Act and these rules.

Value can be rejected under Rule 4 only after rejecting agreement showing consid-eration for services � Rule 3(b) can be applied only when section 67(1)(i) and Rule

3(a) are inapplicable �Core Minerals v. CST [2014] 36 STR 533 (Madras)]

FACTS

� Assessee was engaged in providing mining services and had entered into twoagreements with client : (a) for providing mining services, where charges forservices were fixed on per ton basis; (b) for purchasing minerals from client.

� Assessee paid service tax on charges received under mining services agreement.

� Department found that assessee had incurred certain expenses (such as, OverBurden Removal; Hire Charges; Mining Expenses, Power and Fuel; Wages; etc.),which were not included in value and, accordingly, resorted to Rule 3(b) forvaluation based on cost of providing services.

� Assessee argued that without rejecting agreement and without following proce-

dure under Rule 4, value could not have been rejected.

HELD

� Department has to first come to conclusion that provisions of Section 67(1)(i) will notapply to facts, before proceeding to contend that there is an element of undervalu-ation. There is no provision in service tax law that calls upon assessee to prove costof services in any particular manner. In any event, Rule 4 provides for procedure forrejection of value, which had not been followed.

� If a specific amount is charged by service provider under services agreement, thatagreement has to be tested in terms of Section 67(1)(i). Applying Rule 3(b), overlook-ing provisions of Section 67(1)(i), may not be justified. Rule 3(b) will come into playonly when value of such taxable service cannot be determined under Rule 3(a).Department must give reasons to show how Rule 3 will come into play when there isa specific agreement for providing services, indicating value.

"�"� �� !��%��

Rule 5(1) provides that where any expenditure or costs are incurred by the serviceprovider in the course of providing taxable service, all such expenditure or costs �

(a) shall be treated as consideration for the taxable service provided or to beprovided and

(b) shall be included in the value for the purpose of charging service tax on thesaid service.



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The value of the taxable service �

� is total amount of consideration consisting of all components of the taxableservice and

� it is immaterial that the details of individual components of the total consider-ation are indicated separately in the invoice.

Concept � Service cannot be provided in vacuum : The concept behind inclusionof such amounts is that services cannot be provided in vacuum. A service providercannot claim that he provided services without electricity, telephone, salary of hisemployees, etc. for which he claims separate sums from his client. In fact, servicescannot be provided without them. Hence, any goods or services used/consumed inproviding services would form part of value.

��)��"�0�&�� '�� ./��

It was held in Intercontinental Consultants & Technorats (P.) Ltd. v. Union of India[2013] 38 STT 75 (Delhi) that quantification of value of service can never exceedgross amount charged by service provider for service provided by him. The expen-diture or costs incurred by service provider in course of providing taxable servicecan never be considered as gross amount charged. Hence, rule 5(1) providing forinclusion of value of expenditure or costs incurred by service provider had trav-elled beyond scope of section 67 and was ultra vires. Definitions of �consideration�and �gross amount charged� in section 67 also did not cover �expenditure or costs�incurred by service provider thereunder. Accordingly, rule 5(1) was struck down.

Now, after insertion of Explanation (a)(ii) to section 67, said rule 5(1) stands vali-dated and the doctrine of eclipse would apply i.e., what was invalid before thisamendment became valid after amendment, as the shadow of being ultra viresstands removed by this amendment.

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Example 1 : Advertisement by real estate agent � Includible in value : X contractswith Y, a real estate agent to sell his house and thereupon Y gives an advertisementin television. Y billed X � 1 lakh including charges for television advertisement of� 10,000. Here, consideration for the service provided is what X pays to Y. Y does notact as an agent on behalf of X when obtaining the television advertisement even ifthe cost of television advertisement is mentioned separately in the invoice issued byX. Advertising service is an input service for the estate agent in order to enable orfacilitate him to perform his services as an estate agent. Hence, value of services =� 1 lakh.

Example 2 : Reimbursement of travelling expenses, etc. : In the course of provid-ing a taxable service, a service provider incurs costs such as travelling expenses,postage, telephone, etc., of � 5,000 and indicates these items separately on the in-



voice issued to the recipient of service. Here, the service provider is not acting as anagent of the recipient of service but procures such inputs or input service on hisown account for providing the taxable service. Such expenses do not become reim-bursable expenditure merely because they are indicated separately in the invoiceissued by the service provider to the recipient of service. Hence, � 5,000 shall formpart of the value.

Example 3 : Telephone charges, Travel Tickets, etc. : A contracts with B, an archi-tect for building a house. During the course of providing the taxable service, B in-curs expenses such as telephone charges, air travel tickets, hotel accommodation,etc., of � 7,000 to enable him to effectively perform the provision of services to A.Here, in whatever form B recovers such expenditure from A, whether as a sepa-rately itemised expense or as part of an inclusive overall fee, service tax is payableon the total amount charged by B. Value of the taxable service for charging servicetax is what A pays to B. Hence, � 7,000 shall form part of the value.

Example 4 : Taxi Services : Company X provides a taxable service of rent-a-cab byproviding chauffeur-driven cars for overseas visitors. The chauffeur is given a lumpsum amount of � 10,000 to cover his food and overnight accommodation and anyother incidental expenses such as parking fees by the Company X during the tour.At the end of the tour, the chauffeur returns the balance of the amount of � 2,000with a statement of his expenses of � 8,000 and the relevant bills. Company X chargesthese amounts from the recipients of service. Here, the cost incurred by the chauf-feur and billed to the recipient of service constitutes part of gross amount chargedfor the provision of services by the Company X. Hence, � 8,000 shall be included inthe value of the taxable services.

Example 5 : Value of material consumed : For providing beauty treatment ser-vices, a parlour uses materials such as cosmetics and toilet preparations. Here, -

� cosmetics and toilet preparations used in providing beauty treatment are apart of the service; it doesn�t constitute a separate sale, because the partiesnever intended to have separate rights arising out of sale. Further, beautytreatment services cannot be provided without use of cosmetics, etc. Theyform �input� used in providing the output service.

� Hence, they are includible in the value of taxable service in view of section 67read with Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.

Similarly, materials and papers consumed in providing photography service are apart of that service and includible in the taxable value of that service.

Example 6 : Hotel service charges : A Hotel charges 10% of the bill amount asservice charges. Here, Gross amount charged means the total sum charged by theassessee for provision of services. Hence, 10% service charges shall form part of thevalue liable to service tax under section 67 read with Rule 5(1) of the Service Tax(Determination of Value) Rules, 2006.

Example 7 : Labour contractors : M/s. R are a labour contractor of manpower toM/s. S. They charge to the principal employer for the wages of their labour which



amounts to � 1,20,000 plus their service charge of � 12,000 for arranging the labour.Here, gross amount charged means the total sum charged by the assessee for provi-sion of services. Hence, expenditure incurred by assessee for costs and servicesshall form part of the value liable to service tax under section 67 read with Rule 5(1)of the Service Tax (Determination of Value) Rules, 2006. In this case, employees areof M/s. R. Hence, the whole of the sum viz. wages paid to the labour as well as sumcharged for arranging the labour viz. 120000 + 12000 = � 1,32,000 shall be value.

Incentives paid over by assessee-agent to various dealers of principal � PureAgent � Said incentives not includible in value of commission agent services ofassessee [UOI v. Raj Wines [2015] 49 GST 638 (Chhattisgarh)]

FACTS

� Assessee was marketing and promoting Liquor/Beer manufactured by M/s.SBL and getting amounts in name of (a) Primary claim/Retail Scheme; (b)Commission; (c) Merchandise Expenses, Fixed Office Expenses and Otherexpenses (label Reg. & Brand Reg., Courier, NOC & Excise on breakages).

� Department demanded service tax on all items.

� Tribunal set aside demand in respect of Primary claim/Retail Scheme (item (a))on ground that it was paid over by assessee to retailers on behalf of M/s. SBLfor achieving certain quota of sales and later reimbursed by M/s. SBL as a pureagent. Tribunal confirmed balance demand for items (b) and (c).

HELD

� Since it was found that amounts were paid to/by assessee as a pure agent ofSBL, hence, amounts under Primary claim/Retail Scheme were not taxable inhands of the assessee agent.

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The value of the telecommunication service shall be the gross amount paid by theperson to whom telecommunication service is actually provided.

For example, if a telecom company (say, BSNL) provides SIM Card to its distribu-tors at � 483 and the same is sold by such distributors at MRP � 500, then, -

� since telecom service is provided to ultimate consumer viz. subscriber ; and

� subscriber pays � 500,

� hence, gross amount charged (inclusive of service tax) = � 500 ; and

� BSNL will pay service tax on value = � 500 × 100 ÷ 114 = � 438.596

Exemption in respect of commission earned by distributor/selling agent of SIMCards [Entry 29(f) of the Notification No. 25/2012-ST] : Services by a selling agentor a distributor of SIM cards or recharge coupon vouchers are exempted from ser-vice tax. Thus, in the example aforesaid, the commission of � 17 (� 500 � � 483)retained by the distributor shall be exempt.



"�%�� !��%��

The provisions of Rule 5(2) are subject to the provisions of Rule 5(1) i.e., Rule 5(1)will have priority over Rule 5(2).

As per this Rule, the expenditure or costs incurred by the service provider as a pureagent of the recipient of service, shall be excluded from the value of the taxableservice if all the following conditions are satisfied, namely :-

(a) the service provider acts as a pure agent of the recipient of service when hemakes payment to third party for the goods or services procured;

(b) the recipient of service receives and uses the goods or services so procured bythe service provider in his capacity as pure agent of the recipient of service;

(c) the recipient of service is liable to make payment to the third party;

(d) the recipient of service authorises1 the service provider to make payment onhis behalf;

(e) the recipient of service knows that the goods and services for which paymenthas been made by the service provider shall be provided by the third party;

(f) the payment made by the service provider on behalf of the recipient of ser-vice has been separately indicated in the invoice issued by the service pro-vider to the recipient of service;

(g) the service provider recovers from the recipient of service only such amountas has been paid by him to the third party; and

(h) the goods or services procured by the service provider from the third party asa pure agent of the recipient of service are in addition to the services he pro-vides on his own account.

Pure agent [Explanation 2] : Pure agent means a person who �

(a) enters into a contractual agreement1 with the recipient of service to act as hispure agent to incur expenditure or costs in the course of providing taxableservice;

(b) neither intends to hold nor holds any title to the goods or services so procuredor provided as pure agent of the recipient of service;

(c) does not use such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services.

Analysis : Thus, if service provider �

� uses goods/services so procured ; or

� recovers amount higher than actual cost incurred by him,

then, he will not be regarded as pure agent and amount so recovered, in full, shall beincluded in the value of services by virtue of Rule 5(1) above.


1. The authorisation or contract referred to herein need not be written/express always. They may beimplied/oral, as well. Therefore, if a chartered accountant pays income-tax on behalf of his client whilefiling return of income, such income-tax will not form part of value of his services, even if there is nowritten contract, as �pure agency� is implied. � Authors.

D:\VSODHANI-15MAY\MGST15MAY\MGST-23 Server Corr. MG 9-5-13\D.S. 21-5-2015\D.S. 23-5-2015\Rel. D.S. 25-5-15 639

CENVAT CREDIT FORSERVICE PROVIDER -EXEMPTED SERVICES

��

�Exempted service� means a-

(1) taxable service, which is exempt from the whole of the service tax leviablethereon; or

(2) service, on which no service tax is leviable under section 66B of the FinanceAct; or

(3) taxable service whose part of value is exempted on the condition that -

� no credit of inputs and input services,

� used for providing such taxable service,

� shall be taken;

but shall not include a service -

� which is exported

� in terms of rule 6A of the Service Tax Rules, 1994.

Analysis :

� Not only 100% exempt services but, services not chargeable to tax viz. -

(i) service covered under negative list u/s 66D of Finance Act, 1994 (e.g.trading of goods or securities);

(ii) services not provided within taxable territory (i.e., services provided inJ&K or outside India)

shall be �exempted service�.

� But, if services provided outside India are exported as per Rule 6A, it will notbe exempt service and credit will be available in respect thereof.

� Services partly exempted in value i.e., abatements, shall be deemed asexempted service, if abatement is subject to condition of non-taking of crediton inputs as well as input services.

��

639


� But, if abatement is unconditional or is conditional upon not taking credit oneither "inputs" or "input services" but not both, then, same shall not beregarded as exempt service.

� Services partly exempted in value i.e., abatements (e.g. 40% abatement fromvalue of � 500) shall be deemed as exempted service to the extent of such 40%i.e., � 200, if exemption is subject to condition of non-taking of credit on inputsand services.

� Activity not amounting to service cannot be regarded as �exempted service�.However, since it cannot also be regarded as �output service�, credit wouldnot be available.

Example 1 : Services of transport of passengers by air in respect of which an abate-ment of 60% of the gross amount has been availed and necessary conditions foravailing abatement (viz. no credit on inputs and capital goods) have been fulfilled. Inthis case, abatement is exempted service only if it is conditional upto non-availmentof credit of 'inputs� AND 'input services�. Here, abatement is conditional upon non-availment of credit of 'inputs� and 'capital goods� only; hence, it is not exemptedservice.

Example 2 : Services of transport of passengers by a radio taxi in respect of whichan abatement of 60% of the gross amount has been availed and necessary condi-tions for availing abatement (viz. no credit on inputs, input services and capital goods)have been fulfilled. In this case, abatement is exempted service only if it is condi-tional upto non-availment of credit of �inputs� AND 'input services�. Here, abatementis conditional upon non-availment of credit of 'inputs� as well as 'input services�(along with 'capital goods�); hence, it is exempted service.

�� !�� ! ��"��#

(1) General Bar on credit of input/input services used for exempted services[Rule 6(1)]: The CENVAT credit shall not be allowed -

(a) on such quantity of input used for provision of exempted services, or

(b) input service used for provision of exempted services.

Credit is allowed only if service provider keeps separate accounts as mentionedin Rule 6(2).

(2) Requirement to maintain separate accounts for exempted services and tax-able services [Rule 6(2)] : Where a provider of output service -

(a) avails of CENVAT credit in respect of any inputs or input services and

(b) provides �

� output service which are chargeable to tax

� as well as, exempted services,

Para 16.2 DIV. 4 : CENVAT CREDIT 640


then, the provider of output service shall maintain separate accounts for the follow-ing and shall be allowed credit as follows -

Separate accounts to be kept and Separate accounts to be kept andCREDIT ALLOWED FOR CREDIT NOT ALLOWED FOR

In case of the receipt, consumption and inventory the receipt, consumption and inven-inputs of inputs used for the provision of out- tory of inputs used for the provision

put services excluding exempted of exempted services.services;

In case of the receipt and use of input services for the receipt and use of input servicesinput services the provision of output services exclud- for the provision of exempted ser-

ing exempted services, vices.

OPTION not to maintain separate accounts : However, a service provider mayopt not to maintain separate accounts in which case Rules 6(3), 6(3A) to 6(3D) shallapply.

(3) Capital goods - Credit not available if exclusively used for exemptedservices [Rule 6(4)] : No CENVAT credit shall be allowed on capital goods which areused exclusively in providing exempted services.

Certain issues :

Case Whether credit admissible ?

1. Capital goods used in provision of taxable& exempted services both

2. Capital goods used exclusively in taxableservices whose part of value is exempted onthe condition that no credit of inputs andinput services, used for providing such tax-able service, shall be taken

3. Input services e.g., transportation, Erection& Commissioning, Maintenance, Insuranceetc. relating to capital goods, if such capitalgoods are used for providing taxable as wellas exempt services, both

Yes. Denial is attracted only when capitalgoods are used exclusively in provision ofexempted services.

No. As per CBEC, exempted Service underRule 2(e) specifically includes such services.Hence, no credit allowed on capital goods.What this would effectively mean is that de-nial of input and input service credit wouldautomatically amount to denial of credit oncapital goods.

No. Rule 6(4) applies to capital goods only.Any input service used in relation to capitalgoods is just an �input service� to which re-strictions under Rule 6(1)/6(2)/6(3), etc. ap-ply. Thus, credit will not be allowed in rela-tion to input services used in or in relationto exempted services. [Circular No. 1/2009,dated 5-5-2009]

641 CH. 16 : EXEMPTED SERVICES Para 16.2


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(1) Three Options available - Reversal of credit on inputs/input services [Rule6(3)] : The provider of output service, opting not to maintain separate accounts,shall follow any one of the following conditions, as applicable to him, namely:-

6(3) Option Computation of amount payable

(i) Fixed � In case of transportation of goods or passengers bypercentage rail, amount payable = 2% of value of the exempted

reversal services.

� In any other case, amount payable = 7% of VALUEof exempted services (before 1-6-2015, it was 6%)

� In case of abatement in value of services i.e., if anypart of value of a taxable service has been exemptedon the condition that no CENVAT credit of inputsand input services, used for providing such taxableservice, shall be taken, then, sum payable = 7% ofvalue so exempted. i.e., if service tax is payable on70% of value i.e., abatement is 30%, then, 7% shallbe computed on 30% value so exempted.

� 7% not subject to any cess [Author/s] : Since pay-ment @ 7% of value of exempted services [or 6% incase of exempted goods) is not duty/tax but a re-versal towards Credit availed, hence, no cesses canbe charged thereon.

(ii) Pro rata reversal Pay an amount as determined under Rule 6(3A) for inputand input services both (discussed later)

(iii) Separate A/cs for � Maintain separate accounts for receipt, consump-input & pro rata for tion and inventory of inputs and take credit on in-

input service puts as provided in Rule 6(2) ; and

� Pay amount determined under Rule 6(3A) in respectof input services.

(2) Option applies to assessee as a whole for whole financial year : If the providerof output service, avails any of the option under this sub-rule, he shall exercise suchoption for all exempted services provided by him, and such option shall not be with-drawn during the remaining part of the financial year. Thus, a single assessee can-not opt for more than one option during a single financial year.

(3) Aforesaid payment means �credit not taken� [Rule 6(3D)] : Payment of amountRule 6(3)�

� shall be deemed to be CENVAT credit not taken for purpose of an exemptionnotification



� wherein any exemption is granted on the condition that no CENVAT credit ofinputs and input services shall be taken.

Thus, if aforesaid payment is made, then, conditional abatement/exemption maybe availed.

(4) No credit in certain cases even if payment under aforesaid options made :

(a) input/input service exclusively used in exempted services : No credit isallowed on inputs or input services used for provision of exempted services ;and

(b) non-inputs/non-input services : No CENVAT credit shall be taken on theduty or tax paid on any goods and services that are not inputs or input ser-vices.

(5) Value - Manner of computation [Explanation I] : For Rule 6(3) and (3A), valueshall be�

Case Value

Services Value is computed as per section 67 and rules made there-under.

Services - Composition In case of a taxable service, when option available underScheme Rule 6(7), (7A), (7B) or (7C) of Service Tax Rules, 1994, has

been availed, Value = Tax calculated under option availed÷ Rate of Service Tax (i.e., 14%; before 1-6-2015 : 12.36%)

Trading (Trading is covered Amount payable = Higher of the following two -under negative list, hence, � Sale price (excluding year-end discounts, etc.) - COGS, orexempted service) � 10% of COGS.

Cost of goods sold (COGS)�

� determined as per generally accepted accounting principles(viz. FIFO/LIFO or one-to-one correlation) without includ-ing the expenses incurred towards their purchase.

� Further, taxes for which set off or credit is available or arerefundable/refunded are not included.

Trading of securities Amount payable = Higher of the following two -

� Sale price - Purchase price (of the securities traded) or

� 1% of purchase price of the securities traded.

Services by way of extending Value shall not include consideration insofar as it is representeddeposits, loans or advances by way of interest or discount.

(6) Special provision in case of bank, financial institution & NBFC - Reversal @50% of credit taken each month [Rule 6(3B)] :

(a) Assessee : A banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extend-ing deposits, loans or advances.

643 CH. 16 : EXEMPTED SERVICES Para 16.3


(b) Amount payable : Assessee shall pay for every month an amount equal to50% of the CENVAT credit availed on inputs and input services in that month.

(c) Overriding effect : This provision has overriding effect over Rules 6(1) to 6(3)i.e., banks, etc. need not maintain separate accounts or pay amounts as peroptions under Rule 6(3).

(7) Timing of making aforesaid reversals : Amount mentioned in Rule 6(3), (3A) or(3B), unless specified otherwise, shall be paid by the provider of output service -

(a) by debiting the CENVAT credit or otherwise

(b) on or before the 5th day of the following month/quarter*. However, for month/quarter* ending March, such payment shall be made on or before 31st March.

*Quarterly payment is made in case of a service provider who is an individual orproprietary firm or partnership firm.

Recovery if aforesaid reversals not paid : If the provider of output service fails topay the amount payable as above, it shall be recovered, in the manner as providedin rule 14, for recovery of CENVAT credit wrongly taken.

(8) Whether amount paid/reversed under Rule 6 can be availed as credit bybuyer/client?

(a) Recovery from buyer : Even if amount of reversal/payment made under Rule6 is recovered from the buyer/client, the provisions of section 73B (providingfor payment to Government of any sum collected in name of tax) shall notapply, as the amount of reversal viz. tax stands already paid to Government.Such amount is shown as �payment under Rule 6� in the invoice.

(b) Credit not allowed to buyer : The CENVAT credit of the said amount paid orreversed under Rule 6 cannot be taken by the buyer since such payment isnot a payment of duty/tax in terms of Rule 3(1) i.e., it is not one of the duties/taxes listed in Rule 3(1). - [Circular No. 870/8/2008-CX., dated 16-5-2008]

Author : In fact sum paid under Rule 6 is not a tax on exempted services, but, is areversal of credit taken on inputs/input services used therein.

Example 1 - Exempted as well as taxable services : Mr. H, a service provider, hasprovided services of ��1,00,00,000. Out of this, ��70,00,000 are taxable output ser-vices and ��30,00,000 are exempt output services. Mr. Happy has opted not to main-tain separate inventory and accounts and pay prescribed amount on value ofexempt output services. Service tax paid on his input services is ��6,00,000.

In this case, since Mr. H has taken option to pay prescribed amount on value ofexempted services viz. 7% on value of services under Rule 6(3)(i), hence, he can availfull credit. The payment required to be made by him shall be (amounts �) �

(a) Credit of service tax on input services = 6,00,000

(b) Payment under Rule 6 of the CCR = 7% of 30 lakh = 2,10,000

(c) Service Tax on Output services = 14% of 70 lakh = 9,80,000

(d) Total Payment to be made (on due date) = (a) + (b) = 11,90,000

(e) Net payment in cash = (d) � (a) = 5,90,000


D:\VSODHANI-15MAY\MGST15MAY\MGST-27 Server Corr. D.S. 22-5-2015\O.P> 23-5-15\Rel. D.S. 25-5-2015 748

��

The provisions have already been discussed in chapter on �payment of service tax�,which may be referred to.

��

(1) Offences liable to penalty upto ��10,000, or, ��200 per day of default, which-ever is higher � Failure to produce documents, etc. or appear in summon : Anyperson who fails to �

(i) furnish information called by an officer in accordance with the provisions ofthis Chapter or rules made thereunder; or

(ii) produce documents called for by a Central Excise Officer in accordance withthe provisions of this Chapter or rules made thereunder; or

(iii) appear before the Central Excise Officer, when issued with a summon forappearance to give evidence or to produce a document in an inquiry,

Quantum of Penalty : Aforesaid person shall be liable to a penalty which may ex-tend to�

� ��10,000 or

� ��200 for every day during which such failure continues starting with the firstday after the due date, till the date of actual compliance,

whichever is higher.

(2) Offences liable to penalty upto ��10,000 : The following failures shall be liableto penalty of upto ��10,000 viz. where -

(a) failure to maintain records : any person fails to keep, maintain or retainbooks of account and other documents as required in accordance with theprovisions of this Chapter or the rules made thereunder;

�� PENALTIES AND OFFENCES

748


(b) failure to make e-payment even if required : any person is required to paytax electronically, through internet banking, fails to pay the tax electronically;

(c) default in relation to invoice : any person issues invoice in accordance withthe provisions of the Act or rules made thereunder, with incorrect or incom-plete details or fails to account for an invoice in his books of account ;

(d) failure to take registration : Any person who is liable to pay service tax, orrequired to take registration, fails to take registration u/s 69 or rules madethereunder ;

(e) any other default - Residual : any person contravenes any of the provisionsof this Chapter or any rules made thereunder for which no penalty is sepa-rately provided in this Chapter.

No Waiver of penalty � But, penalty itself is discretionary [Section 80 omittedw.e.f. 14-5-2015] : Section 80, which provided that no penalty shall be imposable onthe assessee for any failure referred to in section 77 if the assessee proves that therewas reasonable cause for the said failure, has been omitted. Consequently, the pen-alty u/s 77 cannot be waived. However, the language used in section 77 is "may" and"extend to", which suggest that the quantum of penalty specified in this section is notmandatory and is discretionary. The said discretion would extend, in an appropriatecase, to a discretion as to non-levy of penalty altogether.

�� !�"�� #$"$�!�"��

(1) Section applies only in case of fraud, etc. : Where any service tax has not beenlevied or paid or has been short-levied or short- paid or erroneously refunded, byreason of�

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules madethereunder with the intent to evade payment of service tax,

the person who has been served notice under proviso to section 73(1) (i.e., noticeinvoking extended period of limitation) shall, in addition to the service tax andinterest specified in the notice, be also liable to pay a penalty under this section.

(2) Quantum of Penalty � 100% : The penalty under this section shall be equal to100% of the amount of such service tax (i.e., service tax specified in the notice.)

Penalty is mandatory : The use of the word "shall" suggests that this penalty ismandatory and cannot be reduced below service tax except as otherwise providedin this section itself in the subsequent points.

749 CH. 23 : PENALTIES & OFFENCES Para 23.3


(3) Penalty reduced to 15% of tax, if tax, interest and reduced penalty also paidwithin 30 days of receipt of notice � Proceedings deemed to be concluded [Section73, second proviso, clause (i) read with third proviso] : Where service tax and inter-est is paid within a period of thirty days of the date of service of notice under theproviso to section 73(1), the penalty payable shall be 15% such service tax and pro-ceedings in respect of such service tax, interest and penalty shall be deemed to beconcluded. The benefit of reduced penalty under the second proviso shall be avail-able only if the amount of such reduced penalty is also paid within such period.

(4) Penalty reduced to 25% of tax, if tax, interest and reduced penalty also paidwithin 30 days of receipt of order [Section 73, second proviso, clause (ii) read withthird proviso] : Where service tax and interest is paid within a period of thirty daysof the date of receipt of the order of the Central Excise Officer determining theamount of service tax under sub-section (2) of section 73 (i.e., adjudication order),the penalty payable shall be 25% of the service tax so determined. The benefit ofreduced penalty under the second proviso shall be available only if the amount ofsuch reduced penalty is also paid within such period.

Increase in penalty on appeal, etc. � Time-limit to avail benefit of reduced penaltyin relation to 'increase' in penalty to be counted from date of appellate order [Sec-tion 78(3)] : Where �

(a) the amount of service tax or

(b) penalty is increased by the

Commissioner (Appeals), the Appellate Tribunal or the court over and above theamount as determined u/s 73(2) [i.e., in the adjudication order], the time withinwhich the interest and the reduced penalty is payable under clause (ii) of the secondproviso to sub-section (1) (i.e., this point (4)) in relation to such increased amountof service tax shall be counted from the date of the order of the Commissioner(Appeals), the Appellate Tribunal or the court.

Whether benefit of 25% is available when duty is paid within 30 days of appel-late order ? : The payment is to be made within 30 days from date of order u/s73(2). The CBEC has clarified vide Circular No. 898/18/09-CX, dated 15-9-2009and it has been held in CCE v. Castrol India Ltd. [2012] 286 ELT 194 (Bom.) thatsuch benefit is not available after expiry of said 30 days, and appellate authoritiescannot extend such benefit, if payment is made within 30 days from receipt of �ap-pellate order�. However, as held in CCE v. Rita Dyeing & Printing Mills (P.) Ltd.[2012] 25 taxmann.com 336 (Guj.) and also by Punjab and Haryana/Delhi HighCourts that it is mandatory to give option to pay 25% penalty in adjudication orderand if option to pay 25% penalty under section 78 within 30 days is not given byDepartment, such option can be given at appellate stage.

Service tax may be paid in part as well � Points (3) and (4) above [Author/s] : Itappears that service tax may be paid in part, to the extent admitted by the assesseeand this benefit would be available for that part. For example, notice amount is ��5lakh (alleging fraud, etc.) �

Para 23.3 DIV. 5 : PROCEDURES 750


(a) the assessee admits � 1 lakh. Here, he can pay � 1 lakh plus interest and pen-alty � 15,000 within 30 days from receipt of notice and proceedings in relationto such � 1 lakh service tax will conclude.

(b) For the balance � 4 lakh, the Central Excise Officer shall pass an order u/s73(2). At this stage, if the assessee admits � 1,50,000 more, then, he can pay �1,50,000 plus interest and � 37,500 (25% of � 1,50,000) as penalty within 30days from receipt of adjudication order.

(c) For the balance � 2,50,000, the litigation would follow and if assessee loses, hewill have to pay penalty of � 2,50,000 (100% of service tax).

(5) Penalty to change with change in service tax on appeal, etc. � Assessee liable topay increased penalty without any order [Section 78(2)] : Where the Commissioner(Appeals), the Appellate Tribunal or the court, as the case may be, modifies the amountof service tax determined u/s 73(2) (i.e., in the adjudication order), then �

(a) the amount of penalty payable under this section and the interest payablethereon under section 75 shall stand modified accordingly, and

(b) after taking into account the amount of service tax so modified, the personwho is liable to pay such amount of service tax, shall also be liable to pay theamount of penalty and interest so modified.

(6) Transitional Provisions [Section 78B and First Proviso to section 78] :

(a) Transactions recorded in specified records between 8-4-2011 to 14-5-2015 �Penalty cannot exceed 50% of service tax [First proviso to section 78] : Inrespect of the cases where the details relating to such transactions are re-corded in the specified record for the period 8-4-2011 to 14-5-2015 (both daysinclusive), the penalty shall be 50% of the service tax so determined.

�Specified records� means records including computerised data as are re-quired to be maintained by an assessee in accordance with any law for thetime being in force or where there is no such requirement, the invoices re-corded by the assessee in the books of account shall be considered as thespecified records.

(b) Amended section would apply to notices issued on or after 14-5-2015 or or-ders passed on or after 14-5-2015 � Period of 30 days to be reckoned from14-5-2015 [Section 78B] : Where no notice has been served under sectionbefore 14-5-2015; or Where notice has been served under section 73 but noorder has been passed u/s 73(2) before 14-5-2015, then, in respect of suchcases, the provisions of section 76 or section 78, as the case may be, as amendedby the Finance Act, 2015 shall be applicable. In these cases, the period of thirtydays for the purpose of closure of proceedings on the payment of service taxand interest, shall be counted from 14-5-2015.

(7) Quantum of penalty under old section 78 read with omitted section 73(4A) : Ifdetails of transactions were available in specified records, penalty was : (a) 1% p.m.of service tax subject to maximum of 25% of tax, if tax with interest and penalty waspaid prior to issuance of notice; (b) 25% of tax, if tax with interest and penalty was



paid within 30 days (90 days in case of assessees having turnover upto 60 lakhs)from receipt of adjudication order; and (c) 50% of tax, in any other case. However, ifdetails of transactions were not available in specified records, the penalty was 100%of tax in all cases.

(8) Section 76 v. Section 78 : In view of amended position of law, section 76 wouldapply to non-evasion cases and section 78 would apply to evasion cases. Since bothsections are mutually exclusive, hence, penalty cannot be levied under both sec-tions. However, penalties u/s 77 and 78A are not barred. Further, in case charge ofsuppression, etc. is set aside in appeal, penalty u/s 78 would be deleted and penaltyu/s 76 would be directed to be levied by appellate authority/court.

(9) Some relevant points/aspects in relation to this penalty UOI v. Rajasthan Spin-ning & Weaving Mills [2009 (238) E.L.T. 3 (S.C.)] and CCEx. v. Pepsi Foods Ltd.[2010 (260) E.L.T. 481 (S.C.)] :

(a) Penalty is leviable only in cases of evasion. Thus, if evasion is proved, then,penalty is leviable even if service tax has been paid before issuance of SCN orthere is a very short-delay in payment of service tax.

(b) No discretion as to non-levy or lower levy of penalty : If section 78 is appli-cable (i.e., there is evasion of service tax by assessee), penalty is to be levied -

(i) mandatorily (i.e., adjudicating authority has no discretion to not levypenalty) ; and

(ii) at the quantum specified in this section (i.e., the adjudicating authorityhas no discretion to levy penalty lower than that specified in this sec-tion).

(c) Guilty mind or �mens rea� required for levy of penalty - No penalty in caseof bona fide reason behind non-levy, etc. : Since penalty is leviable only incase of evasion i.e., where there is deliberate non-payment, non-levy, etc., hence,no penalty is leviable where non-levy, etc. arose due to bona fide view of as-sessee without any intent to evade payment of service tax.

Mens rea not required in case of other penalties : Any infraction of law, whetherintentional or unintentional is liable to penalty as specified. Thus, except in case ofpenalty under section 78 (which provides for intention to evade as a necessary in-gredient to levy penalty), other penalties are leviable irrespective of mens rea i.e.,guilty mind.

Section 78 doesn�t apply to demand u/s 73A [Author] : Any sum collected in nameof service tax and payable under section 73A is governed by sections 73A and 73B(interest), which are separate codes. The penalty u/s 78 is applicable only todemands made u/s 73 and is not applicable to sums payable u/s 73A.

No penalty if fraud, collusion, etc. not proved, even if extended period has beeninvoked and assessee has accepted same [CCE v. Jyoti Structure Ltd. [2014] 309 ELT209 (Bom.)] : Even if Revenue has invoked extended period of limitation forconfirmation of demand and even if same has been accepted by assessee for paymentof duty, penalty cannot be levied without first proving fraud, collusion, etc.

Para 23.3 DIV. 5 : PROCEDURES 752


No evasion penalty when two views possible or there is difference of opinion[Surana Industries Ltd. v. CCE [2015] 318 ELT 367 (SC)] : Where there is adifference of opinion in members of Tribunal giving rise to reference to ThirdMember, or, where there is difference of opinion between experts indicating possibil-ity of two views, evasion penalty under Section 11AC cannot be imposed.

No penalty under Section 78, when interpretation of law and retrospective amend-ments are involved : Where entire dispute arose out of interpretation of provisionsof Act, its successive amendments and insertion of new provisions retrospectively; itcould hardly be said that there was wilful evasion to pay tax or not to comply withprovisions of Act. Assessees were of bona fide belief that they are not liable to payService Tax and hence, penalty was not leviable. - CCE v. CESTAT [2014] 43taxmann.com 13 (Madras)

��#�� %��&��

As per section 78A where a company has committed any of the following contraven-tions, namely :�

(a) evasion of service tax; or

(b) issuance of invoice, bill or, as the case may be, a challan without provision oftaxable service in violation of the rules made under the provisions of thisChapter; or

(c) availment and utilisation of credit of taxes or duty without actual receipt oftaxable service or excisable goods either fully or partially in violation of the rulesmade under the provisions of this Chapter; or

(d) failure to pay any amount collected as service tax to the credit of the CentralGovernment beyond a period of six months from the date on which suchpayment becomes due,

then �

� any director, manager, secretary or other officer of such company,

� who �

� at the time of such contravention was in charge of, and was responsible to,the company for the conduct of business of such company and

� was knowingly concerned with such contravention,

shall be liable to a penalty which may extend to � 1 lakh.

Analysis : Thus, this section makes provision for personal penalty on director whenaforesaid offences have been committed by a company. It is notable that penalty isleviable on director only if such director was knowingly involved in the contraventionof law i.e., mens rea is required for levy of this penalty. This section does not apply forpersonal penalty on partners of a firm or members of AOP or members of HUF, etc.


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