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Introduction To Service tax Service tax is tax of 21st Century. In India share of GDP in 2006-07 was - Agriculture - 18.5%, Industry - 26.4%, Services - 55.1% (Source - Economic Survey 2006-07). Service tax was imposed on three services w.e.f. 1-7-1994 and its scope is being widened every year.

HIGHLIGHTS OF THE SERVICE TAX Service tax is imposed under Finance Act, 1994 as amended from time to time. There is no Service Tax Act. Service tax is payable @ 12% plus education cess of 2%, plus SAH education cess of 1% (total 12.36%) w.e.f. 11th May 2007 [Section 66]. Service tax was 12.24% from 18-4-2006 to 10-5-2007. Earlier, the rate was 10.2% from 10-9-2004 to 17-4-2006. Service tax is payable on taxable services as defined in various clauses of section 65(105) of Finance Act, 1994. Presently, about 99 services are taxable. Service tax is payable on gross amount charged for taxable service provided or to be provided [Section 67]. If consideration is partly not in money, valuation is required to be done as per Valuation Rules. Tax is payable when advance is received. Small service providers up to eight lakhs are exempt. Export of service is exempt from service tax under Notification No. 6/2005-ST dated 1-3-2005. Services provided in J&K are not taxable [section 64(1)] CENVAT credit is available of inputs, input services and capital goods used for providing taxable output services. In some cases, receiver of service is liable to pay service tax. This is termed as ‘reverse charge’ [Section 68(2)]. Every provider of taxable service should apply for registration in form ST-1 within 30 days from date of levy (in case of new services) and date of commencement of business of providing taxable service In case of existing services [Rule 4(1)]. Registration will be deemed to have been granted if not received within seven days [Rule 4(5)]. Assessee providing service from various premises can have centralised registration [Rule 4(2)] Service provider is required to prepare invoice within 14 days, even in respect of advance received [Rule 4A]. Tax should be paid by 5th of following month (6th in case of e-payment). If assessee is individual or proprietary or partnership firm, tax is payable on quarterly basis. This facility is not available to HUF. In March, tax is payable by 31st March [Rule 6]. If payment of tax is delayed, interest is payable @ 13% [Section 75] Assessee has to submit half yearly return in form ST-3 in triplicate within 25 days of close of half year [Rule 7] Penalty is payable for non-registration, late payment of tax, non-submission of returns etc. Mandatory penalty is payable for suppression of facts, willful misstatement, fraud or collusion [sections 76 to 80] The tax is administered by excise department. Adjudication order is issued by excise officer. First appeal lies with Commissioner (Appeals) [section 85] and second appeal with Appellate Tribunal (Customs, Excise and Service Tax Appellate Tribunal) [Section 86]. Further appeal lies with High Court and Supreme Court.

Nature an levy of service tax Service tax is levied under Entry No. 97 of List I of Seventh Schedule to Constitution of India. The entry reads as follows – 'Any other matter not included in List II, List III and any tax not mentioned in list II or list III'. (These are called 'Residual Powers'.) As per section 65(95) of Finance Act, 1994, 'SERVICE TAX' means tax leviable under the provisions of this Chapter (i.e. Chapter V of Finance Act, 1994). Section 66 (charging section) 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.

SERVICE TAX IS DESTINATION-BASED CONSUMPTION:-              Service tax is a destination based consumption tax, as per CBE&C Circular No. 56/5/2003 dated 25-4-2003. Service implies existence of two parties - Service tax is attracted when there are two parties. One cannot give service to himself. CENVAT Credit – Assessee is entitled to avail CENVAT credit of excise duty and service tax paid on his inputs, input services and capital goods. RATE OF SERVICE TAX:-									This tax was first time introduced with effect from 1-7-1994 on three services. The rate was 5%. It was subsequently increased to 8% w.e.f. 14-5-2003. It was 10% plus education cess of 2% w.e.f. 10-9-2004 (total 10.2%) during 10-9-2004 to 17-4-2006. Service tax rate was 12% plus education cess of 2% (total 12.24%) during 18-4-2006 till 10-5-2007. Presently (w.e.f. 11-5-2007), service tax is payable @ 12% of value of taxable services referred in section 65(105) of Finance Act, 1994. In addition, education cess of 2% and SAH education cess of 1% is payable. Thus, total service tax is 12.36%. You have to show service tax, education cess and SAH education cess separately in invoice. You cannot just charge 12.36% as 'service tax'. Taxable Event in Service Tax Section 66 (which is a charging section), reads, 'There shall be levied a tax (hereinafter referred to as the service tax) at the rate of ten percent of value of taxable services referred to in sub-clauses (a), (b), - - - (zzzzc) and (zzzzd) of clause (105) of section 65 and collected in such manner as may be prescribed. Opening sentence of section 65(105) as amended w.e.f. 16-6-2005 reads as follows, ‘taxable service’ means any service provided or ‘to be provided'. Thus, following are taxable events - Entering into contract for service - Entering into contract for providing service. Once you enter into a contract, it is certainly 'service to be provided'. (Service tax is actually payable after payment is received, but receipt of advance is not a taxable event. It only defers the liability). Provision of service - This will happen in cases where contract for providing service was entered into before the service became taxable, but service was provided after the service became a 'taxable service'. PERSON LIABLE TO PAY SERVICE TAX:-                                                         In most of the cases, service provider, i.e. person who is providing taxable service is liable to pay service tax. However, in few cases, exceptions have been made and service receiver is made liable to pay service tax. The provision that service receiver is liable to pay service tax is termed as 'Reverse Charge'. THE EXCEPTIONS ARE AS FOLLOWS Services provided to non-resident – In relation to taxable service provided or to be provided by any person from a country other than India and received by any person under section 66A of Finance Act, service tax is payable by recipient of service [Rule 2(1)(d)(iv)] Services of insurance agents – In case of insurance auxiliary service by an insurance agent, the tax will be payable by insurance company (general insurance or life insurance as the case may be). The insurance agent is not liable to register and pay tax. [However, the insurance agent is not entitled to avail exemption available to a small service provider]. Consignor/consignee paying freight, in case of GTA services - In case of services of Goods Transport Agency (GTA), service tax is payable by consignor/consignee who is paying freight [rule 2(1)(d)(v)] [However, the consignor/consignee is not entitled to avail exemption available to a small service provider]. Services of Agents of mutual fund – In case of distributors/agents of mutual funds, the liability will be on the recipient of service, namely, mutual funds [Rule 2(1)(vi)] [However, the mutual fund agent is not entitled to avail exemption available to a small service provider]. Body corporate or firm located in India receiving sponsorship service – In case of sponsorship service provided to a body corporate or firm located in India, the body corporate or firm receiving such sponsorship service will be liable to pay service tax [rule 2(1)(d)(vii) inserted w.e.f. 1-5-2006 and amended w.e.f. 1-4-2007]. If the recipient of sponsorship service is located outside India, service tax is required to be paid by the service provider and not by the recipient. CENVAT CREDIT OF TAX PAID :-                                                                              The Body corporate or firm paying such service tax will be eligible to avail CENVAT credit of the service tax paid, on the basis of TR-6/GAR-7 challan by which the tax is paid [Rule 9(1)(e) of CENVAT Credit Rules, as amended w.e.f. 1-5-2006]. It may be noted that when person receiving service is liable to pay service tax, he is not entitled to exemption which is available to a small service provider. PROCEDURES OF SERVICE TAX Administration of service tax is under Central Excise department. The main procedures to be followed are – Registration Maintenance of records Payment of service tax and Half yearly return. There is no prescribed form of records. The records maintained by assessee including computerized data maintained by assessee in accordance with various other laws are acceptable [rule 5(1)].

REGISTRATION UNDER SERVICE TAX A 'PERSON LIABLE FOR PAYING SERVICE TAX' has to register with Superintendent of Central Excise under whose jurisdiction your premises fall. He should register within 30 days from date of commencement of the business of providing taxable service. The person will have to apply for registration in form ST-1. If a person is providing more than one taxable service, he may make a single application. He should mention in the application all the taxable services provided by him. [Rule 4(4)]. Applicant should submit following at the time of filing application for registration - (a) copy of PAN (b) proof of residence and (c) constitution of applicant. If application is signed by authorized person, power of attorney would be required. Most important document that is required is copy of Income Tax PAN Number. Copy of memorandum of association or partnership deed and a list of partners/directors should be submitted. The registration certificate will be granted by Superintendent of Central Excise in seven days in form ST-2. STC code i.e. registration number - Registration No., also known as ‘Service Tax Code (STC)’ is a fifteen digit PAN based number. First 10 digits of this number are the same as the PAN of such person. Next two digits are ‘ST’. Next three digits are serial numbers indicating the number of registrations taken by the service taxpayer against a common PAN (Para 2.6 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007.) Premises code - The registration certificate gives details of ‘premises code’ which is given on the basis of Commissionerate + Division + Range + Serial No. The number is given in the registration certificate ST-2 at Sr. No. 5. This number is used for easy identification of location of registration of tax payer – Para 2.6 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007. Changes to be informed in form ST-1within 30 days - Rule 4(5A) is inserted w.e.f. 1-3-2006 provides that if there is any change in information and details submitted in form ST-1 at the time of registration, the same should be informed to jurisdictional AC/DC within thirty days of such changes. The form ST-1 is both for new registration as well as amendment to existing registration certificate. Centralize registration :- In some cases, a person liable for paying service tax on a taxable service - (i) provides such service from more than one premises or offices (e.g. providing banking service or maintenance service from various branches/offices); or (ii) receives such service in more than one premises or offices (e.g. GTA services, sponsorship services provided to body corporate or firm located in India, mutual fund agent’s service, insurance agent’s service etc. where he is liable under reverse charge method); or, (iii) is having more than one premises or offices, which are engaged in relation to such service in any other manner, making such person liable for paying service tax (e.g. import of services where person receiving service is liable u/s 66A). In such cases, such person can obtain Centralised Registration, at his option, if (a) he has centralised billing system or centralised accounting system in respect of such service, and (b) such centralised billing or centralised accounting systems are located in one or more premises. He can register such premises or offices from where centralised billing or centralised accounting systems are located [Rule 4(2) as amended w.e.f. 2-11-2006]. More than one centralised registration of regional/zonal offices at various places is permissible as per MF(DR) circular No. B1/6/2005-TRU dated 27-7-2005 – confirmed in para 2.5 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007. Centralised Registration will be granted by Commissioner in whose jurisdiction the premises or offices, from where centralised billing or accounting is done, are located [rule 4(3) as amended w.e.f. 2-11-2006]. Invoice by service provider Assessee should prepare invoice in respect of his services. The Invoice should be prepared within 14 days from date of completion of taxable service or receipt of payment towards the value of taxable service, whichever is earlier.

Details required to be shown in invoice/bill/challan - As per rule 4A (1), the invoice/challan/Bill should be signed by authorized person of provider of input services, should be serially numbered and should contain following details - a.	Name, address and registration number of person providing taxable service b.	Name and address of person receiving taxable service c.	Description, classification and value of taxable service provided or to be provided and d.	Service tax payable on the taxable service The rule does not make mention of date, but actually, date should be mentioned. Education cess and SAH education cess to be shown separately - Education cess and SAH education cess to be shown separately in the Invoice for complying with requirements of CENVAT Credit Rules to facilitate availment of CENVAT credit by recipient – Para 5.1 CBE&C Circular No. 97/8/2007-ST dated 23-8-2007.

Relaxation in case of banking and financial services - In case of banking and financial services provided by banking company, FI, NBFC or a commercial concern, the invoice/challan need not be serially numbered and name and address of person receiving taxable service need not be contained on the invoice/challan [proviso to rule 4A(1) of Service Tax Rules]. This facility is also available to input service distributors of such type of service providers – Para 5.3 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007. Invoice in case of continuous service - In some cases, service is provided continuously for successive periods of time and value of such taxable service is determined or payable periodically. In such cases, the Invoice or challan shall be issued within 14 days from last date of the period [second proviso to rule 4A (1) of Service Tax Rules amended w.e.f. 16-6-2005]. Services like telephones or Annual Maintenance Services are provided on continuous basis. Billing is done periodically (usually monthly). In such case, invoice should be made within 14 days from close that period. Invoice at end of billing period - In case of some services like services of commission agent, it is impractical to prepare invoice of commission for each sale. Billing is done at end of the agreed period (say month or quarter), which is termed as ‘Billing Period’. In such cases, it can be argued that such services are provided on continuous basis and Billing at end of the period should be acceptable. Rounding up of tax in each invoice not required – Section 37D of Central Excise Act, which is also made applicable to service tax, requires rounding up of tax. However, this is only while making monthly/quarterly payment to Government. Rounding up of duty in each Invoice is not envisaged in section 37D of Central Excise Act. Advance payment from customers - After 13th May 2005, service tax will be payable as soon as advance is received, even if service is provided later. Thus, service tax is payable when advance is received. Invoice will have to be prepared.

Payment of service tax A person liable to pay tax shall pay the same in prescribed manner [section 68(1)]. The service tax is payable 5th (6th in case of e-payment) of the month following the month in which payments are received toward value of taxable services except in March [rule 6(1) of Service Tax Rules]. If the assessee is an individual or proprietary firm or partnership firm, the tax is payable on quarterly basis within 5 days (within 6 days if e-payment is made) at the end of quarter except in March. (Rule 6). This facility is not available to HUF firm in view of clear wording of the provision. Exception in March - Exception has been made in case of March. Service tax on value of taxable services received during month of March or quarter of March is required to be paid by 31st March.

Assessee may find it difficult to accurately estimate the amounts he is going to receive from his customers in last two days. Hence, he may pay excess amount up to Rs 50,000; which can be adjusted in subsequent month/quarter, as per rule 6(4B) inserted w.e.f. 1-3-2007.

Payment of tax on amounts actually received - Rule 6(1) makes it clear that the liability is to pay service tax on payments towards value taxable services actually received. Thus, service tax is not payable on amounts charged in the bills/invoice, but on amounts actually received.

Returns Every assessee has to submit half yearly return in form ST-3 in triplicate within 25 days of the end of the half-year. 'Half year' means 1st April to 30th September and 1st October to 31st March of financial year. The return should be accompanied by TR-6/GAR-7 challans, evidencing payment of duty. Details in respect of each service are to be provided separately. However, service tax payment details and CENVAT credit details are common and combined. There is no column to show excess amount paid, if any. Presumably, this will have to be intimated by a separate letter and/or given in the ST-3 form as a 'remark' or 'note'. Last date for filing return is a bank holiday - If last day of payment and filing return is a public holiday, tax can be paid and return can be submitted on next working day - CBE&C circular No. 63/12/2003-ST dated 14-10-2003. Revised return - Rule 7B of Service Tax Rules has been inserted w.e.f. 1-3-2007 to allow an assessee to rectify mistakes and file revised return within 60 days from the date of filing of the original return. Rule 9(11) of CENVAT Credit Rules (inserted w.e.f. 1-3-2007) allows an assessee to rectify mistakes and file revised return within 60 days from the date of filing of original return. This provision applies only to service providers and not to manufacturers. What is to be done if mistake comes to notice after 60 days? – There is no provision for submission of revised return after 60 days. In such cases, if assessee finds that he has made some mistake, he should pay the amount by TR-6/GAR-7 challan and inform department suitably. If he has paid excess amount by mistake, he is required to file refund claim. He cannot adjust excess payment on his own, except in cases where it has been specifically permitted. If he has not taken CENVAT credit of certain inputs, input services or capital goods, he can avail it in subsequent period, since there is no time limit for availing CENVAT credit. This will be reflected in his return for that subsequent period, as in normal course. Electronic filing of return - Department has introduced e-filing of service tax return on experimental basis from April, 2003. It is optional. The procedure has been described in CBE&C circular No. 52/1/2003-ST dated 11-3-2003. Guidelines are also issued in question answer form on CBE&C website. The facility is available to all service providers. Late fee and penalty for filing late return - Section 70(1), as amended by Finance Act, 2007 w.e.f. 11-5-2007, makes provision for late filing of return with late fee which can be up to Rs 2,000. Late fee payable will be prescribed by Central Government by issuing a notification. The late fee payable is as follows – (a) Delay Up to 15 days – Rs 500 (b) Beyond 15 days and up to 30 days – Rs 1,000 (b) Delay beyond 30 days – Rs 1,000 plus Rs 100 per day of delay beyond 30 days, from 31st day maximum Rs 2,000- rule 7C inserted w.e.f. 12-5-2007. Department is required to accept late return even if late fee is not paid – In case of returns filed late, the appropriate late fees should be paid at the time of filing the return, without waiting for any communication or notice from the department. Mere non-submission of evidence of payment of late fee along with the return is, however, not a ground for refusal to allow filing of the return – para 6.4 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007.

PROVISIONAL ASSESSMENT Assessee can make request in writing for provisional assessment to Assistant/Deputy Commissioner. Provisions of Central Excise Rules in respect of provisional assessment are applicable, but there is no requirement of any bond [rule 6(4)]. Of course, reason has to be stated why he is not able to correctly determine his tax liability. After such request is made, assessee has to submit memorandum in form ST-3A showing difference between service taxes collected and deposited. Application for provisional assessment should be made to Assistant/Deputy Commissioner. Provisional assessment can be finalized by Assistant/Deputy Commissioner after calling further documents as may be necessary. - Rule 6(4), 6(5) and 6(6) of Service Tax Rules, 1994. INPUT SERVICE DISTRIBUTOR A manufacturer or service provider may have head office/regional office at different place/s. The services may be received at head office/regional office, but ultimately, these will be indirectly used for manufacture or providing output service. Provision has been made to avail CENVAT credit of services received and paid for at head office/regional office. Such head office/regional office will be registered with central Excise and it will have to issue invoice on the manufacturer or producer or service provider. EXPORT OF SERVICES If service is exported, there is no service tax liability. If the service is exported, the CENVAT credit is not required to be reversed. Assessee can utilise credit for payment of service tax on other services. However, if this is not possible, he can get refund. Service tax is required to be exempted only if there is actual export of service. 'Export of Services Rules, 2005' has been notified w.e.f. 15-3-2005. The rules make it clear that exemption from services/rebate of service tax and excise duty paid is admissible only if there is 'export of service' as defined in these rules. Mere receipt of payment in free foreign exchange will not be sufficient to treat the service as 'export service'. WHEN YOU BUY AND SELL SERVICES Service tax (sales) that is adjustable against service tax credit (purchases) is also called availing input credit. Let us look at an example.

A person/firm providing a service that comes under the service tax category has to pay service tax. Service tax is to be shown separately in the invoice and is payable based on the payment realized and not on the total amount shown in the invoice. Similarly, when you buy a service that falls under service tax category, you avail service tax credit based on the payment made. So, you pay service tax on the services that you sell and get credit on the service tax payable when you buy a service.

SELF ADJUSTMENT OF EXCESS TAX PAID IN EARLIER PERIOD Facility of self-adjustment of excess service tax paid has been allowed to all assessee vide rule 6(4A) subject to the following conditions prescribed in rule 6(4B) of Service Tax Rules inserted w.e.f. 1-3-2007. Self adjustment only in case of reasons like calculation mistake, exact amount not known etc. - Self-adjustment of excess credit is not allowed on account of reasons like interpretation of law, taxability, classification, valuation or applicability of any exemption notification [rule 6(4B)(i)]. In such cases, refund application should be filed and self adjustment is not permissible. Thus, self-adjustment is possible only in cases like – (a) Excess payment since exact amount to be paid could not be calculated (b) when tax is to be paid by 31st March and calculation of exact amount is practically impossible (c) calculation mistakes. Adjustment up to Rs 50,000 only permissible - Excess amount paid and proposed to be adjusted should not exceed Rs. 50,000 for the relevant month or quarter [rule 6(4B)(iii)]. Adjustment in subsequent month/quarter - Adjustment can be made in the succeeding month or quarter [rule 6(4A)] [Rule does not say that adjustment can be made in subsequent month or quarter only. As per section 13 of General Clauses Act, unless there is anything repugnant to the subject or context, the word singular includes plural and vice versa. Hence, it can be argued that adjustment can be made in any subsequent month/s or quarter/s]. Inform details of adjustment within 15 days - The details of self-adjustment should be intimated to the Superintendent of Central Excise within a period of 15 days from the date of adjustment [rule 6(4B)(iv)] [[It can be argued that this is directory provision and not mandatory provision, since in many cases, it is impossible to inform in 15 days. In such cases, information at the time of filing return should be sufficient]. Adjustment in case of service tax on renting of immovable property - In case of service tax on renting of immovable property, abatement is available in case of property tax paid to local authorities. If such tax is paid at a later date, self-adjustment in service tax payable is permissible within one year from date of payment of tax, without any monetary limit. Assessee should inform Superintendent within 15 days of making adjustment [rule 6(4C) of Service tax Rules].

Assessees having centralized registration - Assessee who have centralised registration can adjust the excess service tax paid on their own without any monetary limit provided the excess amount paid is on account of delayed receipt of details of payments from branch offices [rule 6(4B)(ii)]. Adjustment if service not provided partly or fully - If excess tax is paid, in respect of service which is not provided either wholly or partly for any reason, the excess service tax paid can be adjusted against service tax payable for subsequent period, if the value of services and tax thereon is refunded to the person from whom it was received. [Rule 6(3)]. Such adjustment is permissible only when refund is on account of services not provided. Thus, if the person refunds on account of giving some discount to client, this provision does not apply. ADJUSTING 100% CREDIT & 20% CREDIT If your input service (Purchase) can be directly related to the output service (Sales) then you can use 100% credit adjustment on the service tax payable. For example: If you are providing a consultancy service over the phone, then you can use the input credit from the telephone charges to adjust against 100% of the service tax payable on your consultancy service. If the input service is not solely used for the output service, then 20% credit adjustment is applicable. Input service tax credit can be adjusted to both output service tax and output cess (surcharge on tax). But input cess credit can be adjusted only towards output cess.

ASSESSABLE VALUE Service tax is calculated on the assessable value. The assessable value is the service charge value minus abatement and expenses.

ABATEMENT :                                                                                                                            The government has given a deduction on the value to be considered for service tax on a few categories of services. For example, some categories of services include material value. A caterer has to procure materials to prepare food products and sell services. Service tax is charged on the total amount for the service and does not include the rate of the materials procured. Hence a deduction is provided. This deduction from the service charges to be considered for service tax is called abatement. Abatement is either a percentage of the service charges or a lump sum value. a. Charge of Service	  Rs. 10,000/-	    b. If an abatement of 30% is applied, then abatement 	  Rs. 3,000/-	    c. Here, the assessable value is (a-b)	  Rs. 7,000/-	       Therefore, service tax @ 12 % on Rs.7, 000/-	  Rs. 840/-

How much do I pay A seller provides a service to a buyer and bills the buyer for the service. The bill is inclusive of the service tax. The seller does not have to pay service tax on the total bill amount but only on the payment received. Example: Charge of Service 	Rs 10000 Service Tax	Rs 1200 Secondary Cess	Rs 12 Total bill	Rs 11236 WHERE DO I PAY? The service tax amount is to be paid in Form GAR – 7 Challan in a bank designated by the Commissionerate of Service Tax. For a particular area there is a Focal bank, with branch and code. This is the designated bank. Service tax payments will be accepted in all the branches of the bank, which are connected with the focal branch. The list of the banks and their branches accepting service tax payments is available with the Commissionerate of Service Tax. If your company is a corporate company, service tax is payable on a monthly basis by the 5th of the following month. For example, Service tax has to be paid by 5th January for the month of December. Non-corporate like individuals, proprietary firms, partnership firms and so on, have to pay service tax for the fiscal quarter. The payment is to be made by the 5th day of the month following the quarter. For example, service tax for the quarter ending 30th June is to be paid by 5th July. For the corporate and non-corporate bodies, service tax for the month of March is payable by 31st of March. Corporate and non–corporate organizations have to file service tax half-yearly with details in Form ST-3 and Input Credit Form (Form 5) to the Commissionerate of Service Tax. The filing of returns should be within 5 days from the last day of the fiscal half-year. For the fiscal half-year ending-date of 30th September, the last day for filing service-tax returns is 5th October. Copies of all GAR – 7 issued during the period must be attached. CALCULATION OF SERVICE TAX BY BACK CALCULATIONS The gross amount charged can be taken as inclusive of service tax and the 'value' and 'service' tax is to be calculated by back calculations. For example, if Bill amount is Rs. 1,000 and service tax is not shown separately in Invoice, the tax payable calculated by a simple mathematical formula is as follows - Assessable Value = (Cum tax price)/(1 + rate of tax) Assume that Assessable Value (AV) is equal to 'Z'. AV = 1.000Z

Duty@12.36% =  0.1236 * Z

Sub-Total =  1.1236 * Z

Now:

1.1236* Z = 1,000

Hence, 'Z' = 1,000/1.1236

i.e. Z = 890.00

Thus, 'Z', i.e. Assessable Value is Rs 890 and service tax @ 12% will be Rs 106.79. Education cess @ 2% of service tax will be Rs 2.14. SAH education cess is Rs 1.07. Thus, total tax will be Rs 110.00.

TAX PAYABLE ONLY ON AMOUNT ACTUALLY RECEIVED :- Rule 6(1) of Service Tax Rules makes it clear that service tax is payable on value of taxable services received. Thus, if service provider does not receive any payment from his customer, there is no liability of service tax. Service tax is payable only on ‘value of taxable service’ actually 'received', and not on amount 'billed'. AMOUNT NEED NOT BE 'CHARGED' BY SERVICE PROVIDER - MONEY PAID TO THIRD PARTY MAY ALSO BE INCLUDIBLE It is not necessary that the money should be paid to service provider himself. Amount paid even to third party is includible in 'value' of service if it is for provision of service and at the instance of service provider.