Bimal Jain BGM Service Tax 051014

Background Study
Material on Service
Tax
CA Bimal Jain
FCA, FCS, LLB, B.Com (Hons.)
F-30/31/32, Pankaj Grand Plaza,
MayurVihar Phase-1,Delhi-110091
E-mail: bimaljain@hotmail.com
Mobile: +91 9810604563
Website: www.a2ztaxcorp.com
INDEX
Sl. No.
Chapters
Page
No.
Introduction to Service Tax
Applicability of Service Tax
3-5
Charge of Service Tax
Negative List
7-12
Declared Services
13-17
Bundling of Services
18-19
Determination of Place of Provision of Services
20-22
Reverse Charge Mechanism
23-26
Exemptions and abatements
27-47
10
Valuation of Taxable Services
48-53
11
Export of service
12
Point of Taxation Rules
13
Works Contract Services
54
55-59
Chapter 1 Introduction to service tax

Services are one of the major contributors to the development of economy. As per the latest
Economic Survey, the services sector has made a major contribution to the Indian Economy,
growing by 8% annually and contributing to about quarter of employment.
Tax on services was first introduced in the year 1994, through the insertion of Chapter V in the
Finance Act, 1994 (the Finance Act) and levy was confined to three services. Since then, the
Finance Act has been amended every year to bring in more services into the tax net and had
119 services in the tax net till June 30, 2012. The Finance Act, 2012, w.e.f. 1st July, 2012 has
introduced comprehensive approach for levy of service tax to tax services based on what is
popularly known as Negative List of Services. It means, if any activity meets the
characteristics of a service, it is taxable unless specified in the negative list or otherwise
exempted by the mega exemption notification. The negative list comprises of 17 services which
are listed in the Section 66D of the Finance Act.
Chapter 2 - Applicability of Service Tax

Section 64 of the Finance Act deals with the applicability of levy and provides that service tax
will extend to whole of India, except the state of Jammu & Kashmir.
Some important definitions under section 65B of Finance Act are as follows(i)
"India" means,(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the
Constitution;
(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime
zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and
other Maritime Zones Act, 1976; (80 of 1976.)
(c) the seabed and the subsoil underlying the territorial waters;
(d) the air space above its territory and territorial waters; and
(e) the installations, structures and vessels located in the continental shelf of India and the
exclusive economic zone of India, for the purposes of prospecting or extraction or
production of mineral oil and natural gas and supply thereof. [65B (27)]
(ii)
"Taxable territory" means the territory to which the provisions of this Chapter apply.
[65B(52)]
Hence, the taxable territory covers whole of India except the state of Jammu & Kashmir.
(iii)
Non-taxable territory means the territory other than the taxable territory. [65B(35)]
In view of the above, the services provided within the territorial limits of the state of
Jammu & Kashmir will not be liable to service tax irrespective of whether the service
provider is residing in that state or not. However, any person residing in the state of J & K
providing services in other parts of country would be liable to service tax, whereas, the
person having office in other part of country other than J & K and providing service in J &
K, would not be liable to pay service tax.
(iv)
"Service" means any activity carried out by a person for another for consideration, and
includes a declared service, but shall not include(a) an activity which constitutes merely,(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other
manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be sale within the
meaning of clause (29A) of article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation
to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in
force.
Explanation 1.- For the removal of doubts, it is hereby declared that nothing contained
in this clause shall apply to,(A) the functions performed by the Members of Parliament, Members of State
Legislative, Members of Panchayats, Members of Municipalities and Members of other
local authorities who receive any consideration in performing the functions of that
office as such member; or
(B) the duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
(C) the duties performed by any person as a Chairperson or a Member or a Director in a
body established by the Central Government or State Governments or local authority
and who is not deemed as an employee before the commencement of this section.
Explanation 2. - For the purposes of this clause, transaction in money shall not include
any activity relating to the use of money or its conversion by cash or by any other
mode, from one form, currency or denomination, to another form, currency or
denomination for which a separate consideration is charged.
Explanation 3.- For the purposes of this Chapter,(a) an unincorporated association or a body of persons, as the case may be, and a
member thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any of his other
establishment in a non-taxable territory shall be treated as establishments of distinct
persons.
Explanation 4.- A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having an establishment in
that territory;
Chapter 3 Charge of Service Tax

During the period prior to 1.7.2012, the charging of service tax was provided in Section 66
which provided that 12% service tax leviable on the taxable services referred in various subclauses of Section 65(105) which contained all the definitions of taxable services of about 121
services.
Consequent to the amendments made by Finance Act, 2012 which ushered in Negative List of
Taxation of services w.e.f., 1.7.2012, a new charging provision is contained in Section 66B of
the Finance Act which provides that a tax referred to as Service Tax shall be levied at the rate of
12% of the value of all services, other than those services specified in the negative list, provided
or agreed to be provided in the taxable territory by one person to another and collected in such
manner as may be prescribed.
Therefore, it is clear that w.e.f. 1.7.2012, all those activities which get covered under the
definition of service as per Section 65B(44) would be liable to service tax at 12% ad valorem
with exception of those services which are contained in Negative List.
Chapter 4 - Negative List

The term Negative List is defined in Section 65B (34) to mean the services which are listed in
section 66D.
Therefore, we have to refer to the list of services stipulated in Section 66D as being Negative
List of services which are excluded from service tax levy under Section 66B.
The following are the negative list of services stipulated under Section 66D:
(a)
Services provided by Government or local authority:

Under this entry all services provided by the Government or local authority would get
covered except the following services:
(i)
services by the Department of Posts by way of speed post, express parcel post, life
insurance and agency services provided to a person other than Government;
(ii)
services in relation to an aircraft or a vessel, inside or outside the precincts of a
port or an airport;
(iii) transport of goods or passengers; or
(iv)
support services, other than services covered under clauses (i) to (iii) above,
provided to business entities;
(b)
Services by the Reserve Bank of India:
(c)
(d)
Services by a foreign diplomatic mission located in India:

Services relating to agriculture:
Services relating to agriculture by way of(i)
agricultural operations directly related to production of any agricultural produce

including cultivation, harvesting, threshing, plant protection or testing;
(ii) supply of farm labour;
(iii) processes carried out at an agricultural farm including tending, pruning, cutting,
harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting,
grading, cooling or bulk packaging and such like operations which do not alter the
essential characteristics of agricultural produce but make it only marketable for the
primary market;
(iv) renting or leasing of agro machinery or vacant land with or without a structure
incidental to its use;
(v) loading, unloading, packing, storage or warehousing of agricultural produce;
(vi) agricultural extension services;
(vii) services by any Agricultural Produce Marketing Committee or Board or services
provided by a commission agent for sale or purchase of agricultural produce;
6
(e)
(f)
Trading of goods:
Any process amounting to manufacture or production of goods:
The phrase process amounting to manufacture or production of goods is defined in
Section 65B(40) as follows:
(40) "process amounting to manufacture or production of goods" means a process on
which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any
process amounting to manufacture of alcoholic liquors for human consumption, opium,
Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable
under any State Act for the time being in force;
Therefore, any activity would amount to manufacture or production of goods which is
leviable for duty of excise or state excise as the case may be would get covered under this
entry of negative list and would get excluded from service tax levy.
(g)
Selling of space for advertisement in print media

For the purpose of understanding the term advertisement is defined in Section 65B (2)
as follows:
"advertisement" means any form of presentation for promotion of, or bringing awareness
about, any event, idea, immovable property, person, service, goods or actionable claim
through newspaper, television, radio or any other means but does not include any
presentation made in person.
Further the term print media is defined in Section 65B (39a) as follows:
(39a) print media means,
(i) book as defined in sub-section (1) of section 1 of the Press and Registration of Books
Act, 1867, but does not include business directories, yellow pages and trade catalogues
which are primarily meant for commercial purposes;
(ii) newspaper as defined in sub-section (1) of section 1 of the Press and Registration of
Books Act, 1867;
Provision prior to 1st October, 2014
[(g) selling of space or time slots for advertisements other than advertisements broadcast
by radio or television;]
(h)
Service by way of access to a road or a bridge on payment of toll charges:

All payments of toll charges for access of a road or a bridge get covered under this entry
7
and therefore would get excluded from service tax. It should be noted that all toll charges
collected for access to National Highways or State Highways would also get covered under
this entry and therefore not liable to service tax.
But the services provided by a toll collecting agency to authorities such as National
Highway Authority is not covered under this entry.
(i)
Betting, gambling or lottery:

All activities relating to betting, gambling or lottery would not be liable to services as
they are specifically covered under this entry.
As regards the phrase betting or gambling, the same has been defined in Section 65B
(15) as follows:
"betting or gambling" means putting on stake something of value, particularly money,
with consciousness of risk and hope of gain on the outcome of a game or a contest, whose
result may be determined by chance or accident, or on the likelihood of anything occurring
or not occurring.
(j)
Admission to entertainment events or access to amusement facilities:

Under this entry, any amount collected towards admission to entertainment events or
access to amusement facilities would be excluded from service tax levy.
(k)
Transmission or distribution of electricity by an electricity transmission or distribution

utility:
transmission or distribution of electricity provided by electricity transmission or
distribution utility would get covered under the negative list of services and therefore
not liable to service tax.
(l)
Educational services:
Under this entry, the services by way of(i)
Pre-school education and education up to higher secondary school or equivalent;

Under this education starting from pre-school up to higher secondary school is
excluded from levy of service tax.
(ii)
Education as a part of a curriculum for obtaining a qualification recognized by any

law for the time being in force:
All Educational services which is a part of curriculum and which results in

qualification recognized by any law for the time being in force would get covered
under this entry.
Hence, conduct of degree courses by colleges, universities or institutions which lead grant
of qualifications recognized by law would be excluded from service tax levy. However, the
training given by private coaching institutes would not be covered as such training does
not lead to grant of a recognized qualification.
(iii)
Education as a part of an approved vocational education course

The term approved vocational education course has been defined in Section 65B
as follows:
(11) "approved vocational education course" means,(i) a course run by an industrial training institute or an industrial training centre
affiliated to the National Council for Vocational Training or State Council for
Vocational Trainingoffering courses in designated trades notified under the
Apprentices Act, 1961; or
(ii) a Modular Employable Skill Course, approved by the National Council of
Vocational Training, run by a person registered with the Directorate General of
Employment and Training, Union Ministry of Labour and Employment.
Therefore, the education provided as part of approved vocational education
course only get excluded under this entry and any other vocational course would
not be entitled for exemption.
(m) Services by way of renting of residential dwelling for use as residence:

Under this entry, renting of residential dwelling which is used as residence is excluded
from service tax levy.
(n)
Financial Services by way of(i)
(ii)
extending deposits, loans or advances in so far as the consideration is represented

by way of interest or discount. However, if any administrative charges are also
collected along with interest or discount, then such charges would not get covered
under this entry and therefore would be liable to service tax.
inter se sale or purchase of foreign currency amongst banks or authorized dealers of
foreign exchange or amongst banks and such dealers
The exclusion under this entry only covers sale and purchase of foreign exchange
between banks or authorized dealers of foreign exchange or between banks and
such dealers.
(o)
Services relating to transportation of passengers:

Service of transportation of passengers, with or without accompanied belongings, by(i) A stage carriage;
(46) "stage carriage" shall have the meaning assigned to it in clause (40) of section 2
of the Motor Vehicles Act, 1988; (59 of 1988.)
Stage Carriage is defined under Section 2 (40) which reads as follows:
stage carriage means a motor vehicle constructed or adapted to carry more
than six passengers excluding the driver for hire or reward at separate fares paid
by or for individual passengers, either for the whole journey or for stages of the
journey;
(ii)
Railways in a class other than (A) first class; or (B) an air-conditioned coach;
Under this entry, all transportation of passenger by Railways except that of first
class or an air conditioned coach would be excluded from service tax levy.
(iii)
Metro, monorail or tramway;

All transportation of passenger service provided by Metro, monorail or
tramway would be excluded from service tax levy.
(iv)
(v)
(vi)
Inland waterways,
Public transport, other than predominantly for tourism purpose, in a vessel
between places located in India; and
Metered cabs, or auto rickshaws;
The services of transportation of passengers provided by metered cabs, or auto
rickshaws is excluded from service tax levy i.e. Radio Taxi chargeable to Service
tax w.e.f 1-10-2014.
Provision prior to 1st October, 2014
[(vi) metered cabs, radio taxis or auto rickshaws;]
(p)
Service relating to transportation of goods:
10
Services by way of transportation of goods(i)
by road except the services of(A) a goods transportation agency; or

(B) a courier agency:
All services by way of transportation of goods is excluded from service tax levy with the
exception of goods transportation agency and courier agency.
(ii)
by an aircraft or a vessel from a place outside India to the first customs station of
landing in India; or
(iii)
by inland waterways
Similar to transportation of passengers by inland waters, the transportation of goods by

inland waters is also excluded from service tax levy.
(q)
Funeral, burial, crematorium or mortuary services including transportation of the

deceased.
Under this entry all services relating to funeral, burial, crematorium or mortuary would
get excluded from service tax. Further, the transportation of the deceased is also covered
under this negative list.
11
Chapter 5 Declared Services

Section 65B(22) "declared service" means any activity carried out by a person for another
person for consideration and declared as such under section 66E;
Section 66E of the Finance Act, 2012 contains the list of nine activities that have been declared
to be services. The said section reads as under:
Declared Services
Section 66E lists the following as being declared services:
(a)
Renting of immovable property;

Under the Negative List Taxation of Services w.e.f., 1.7.2012, all types of renting of
immovable property would be liable to service tax as being a Declared Service.
It is relevant to note that prior to 1.7.2012, the renting of immovable property was
leviable to service tax only if the renting was for use in the course of or for furtherance
of, business or commerce.
(b)
Construction of a complex, building, civil structure or a part thereof, including a complex

or building intended for sale to a buyer, wholly or partly, except where the entire
consideration is received after issuance of completion certificate by the competent
authority.
Construction services under the new regime is a combination of two heading of old
regime
(a) Construction service was already taxable as part of construction of residential complex
service under Section 65(105) (zzzh); and
(b) Service in relation to commercial or industrial construction under Section 65(105) (zzq)
of the Act.
However, under the new entry under declared services, both the above referred headings
have been combined with the following changes:
-
Requirement of more than 12 residential units in a residential complex has been

removed. Now any building with more than one residential unit could be termed
as residential complex.
Reference to commercial or industrial construction has been omitted
12
Hence, all types of construction of buildings would get covered under this heading with
exception of where the entire consideration is received after issuance of completion
certificate by the competent authority.
Explanation (I) defines competent authority as follows:
Explanation II to the above heading provides that the expression "construction" includes
additions, alterations, replacements or remodeling of any existing civil structure;
The above explanation expands the scope of the definition of construction to include
addition, alteration, replacements or re-modeling of any existing civil structure.
(c)
Temporary transfer or permitting the use or enjoyment of any intellectual property

right;
Intellectual property right has not been defined in the Act. The phrase has to be
understood as in normal trade parlance as per which intellectual property right includes
the following:
Copyright
Patents
Trademarks
Designs
Any other similar right to an intangible property
Only temporary transfer of IPR is liable service tax under this heading and therefore all
permanent transfers would get excluded from service tax levy.
(d)
Development, design, programming, customisation, adaptation,

enhancement, implementation of information technology software;
upgradation,
The phrase information technology software is defined in Section 65B as follows:

(28) "information technology software" means any representation of instructions, data,
sound or image, including source code and object code, recorded in a machine readable
form, and capable of being manipulated or providing interactivity to a user, by means of a
computer or an automatic data processing machine or any other device or equipment.
(e)
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or

to do an act;
This entry is unique one in the Declared Services wherein the following activities done by
one person to another person for consideration would be termed as declared service:
13
Agreeing to the obligation to refrain from an act.

Agreeing to the obligation to tolerate an act or a situation.
Agreeing to the obligation to do an act.
It is interesting to note this entry also covers those transactions where one party agrees to
tolerate an act or situation for a consideration.
(f)
Transfer of goods by way of hiring, leasing, licensing or in any such manner without
transfer of right to use such goods;
It is relevant to note that transfer of right to use the goods is one of the transaction of
deemed sale as per clause (d) of article 366(29A) of the Constitution.
What is sought to be termed as declared services is that aspect of transaction where the
goods are transferred by way of hiring, leasing, licensing etc.without involving transfer of
right to use such goods.
(g)
Activities in relation to delivery of goods on hire purchase or any system of payment by

installments;
It is clear from the definition of service in Section 65B(44) that all deemed sale as per
article 366(29A) of the Constitution of India is excluded from the purview of service.
As per clause (c) of Article 366(29A) of the Constitution of India, the delivery of goods on
hire purchase or any system of payment on instalment is a deemed sale, hence such
transactions are not covered under the definition of service.
However, under this entry, the activities or services provided in relation to such delivery
of goods on hire purchase or on instalment payment are sought to be covered.
(h)
Service portion in the execution of a works contract;

Works Contract is one of the transaction which is covered under deemed sale under
Article 366(29A) of the Constitution of India.
However, only service portion in execution of a works contract is specified as declared
service.
In this context, the term works contract is defined in clause (54) of Section 65B:
Section 65B (54) "works contract" means a contract wherein transfer of property in goods
involved in the execution of such contract is leviable to tax as sale of goods and such
contract is for the purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, alteration of any
14
movable or immovable property or for carrying out any other similar activity or a part
thereof in relation to such property;
It is clear from the above that the new definition of works contract is similar to the
definition contained in VAT laws of various states wherein contract includes transfer of
property in goods along with provision of services for certain specified activities in relation
to both movable and immovable properties.
It is relevant to note that only if the said transaction is a composite contract on the basis
that service aspect is inextricably linked to the sale of goods and the actual amount
towards the element of services cannot be segregated on the basis of documents
available, then the nature of such transaction would be determined by the application of
the dominant nature test laid down by the Supreme Court in BSNL vs. UOI 2006 (2) STR
161 (SC).
(i)
Service portion in an activity wherein goods, being food or any other article of human
consumption or any drink (whether or not intoxicating) is supplied in any manner as a
part of the activity.
It is relevant to note that the transaction of supply of food or beverages is covered under
Article 366(29A) of the Constitution of India wherein supply of any goods, being food or
any other article of human consumption or any drink (whether or not intoxicating) in any
manner as part of a service for cash, deferred payment or other valuable consideration is
deemed to be a sale of such goods.
In view of the above, what is being declared as service under this entry is the service
portion of this transaction wherein food or any other article of human consumption or
any drink is subjected to service tax.
In view of the provisions of Article 366(29A) of the Constitution of India, in the above
referred transaction, it cannot be termed as service to the extent of the value of goods
so supplied. The remaining portion however constitutes a service.
As held by the Supreme Court in BSNLs case [2006(2)STR161(SC)], a catering contract
involves provision service along with supply of such goods can be dissected into a contract
of sale of goods and contract of provision of service.
15
Chapter 6 - Bundling of services

The term bundled service is defined in the Explanation to Section 66F to mean a bundle of
provision of various services wherein an element of provision of one service is combined with
an element or elements of provision of any other service or services.
Section 66F and relevant provisions is set out below:
66F. (1) Unless otherwise specified, reference to a service (herein referred to as main service)
shall not include reference to a service which is used for providing main service.
(2) Where a service is capable of differential treatment for any purpose based on its description,
the most specific description shall be preferred over a more general description.
(3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be
determined in the following manner, namely:(a) if various elements of such service are naturally bundled in the ordinary course of business,
it shall be treated as provision of the single service which gives such bundle its essential
character,
Example:-A Tour Operator provides a package tour to his clients which includes transportation,
accommodation at a hotel and local sight-seeing. This is a natural bundling of services in the
ordinary course of business. The service of the tour operator gives the bundle the essential
character and would, therefore, be treated as service of providing tour operator and therefore
the exemption relating to hotel accommodation up to Rs.1,000/- cannot be claimed.
(b) if various elements of such service are not naturally bundled in the ordinary course of
business, it shall be treated as provision of the single service which results in highest liability of
service tax.
Explanation.- For the purposes of sub-section (3), the expression "bundled service" means a
bundle of provision of various services wherein an element of provision of one service is
combined with an element or elements of provision of any other service or services.
If various elements of a bundled service are not naturally bundled in the ordinary course of
business, it shall be treated as provision of a service which attracts the highest amount of
service tax.
Example:
16
A house is given on rent wherein first floor of is used as residence and the ground floor of the
house is as office by a Chartered Accountant. In such a situation, the renting to Chartered
Accountant one for residence and another for Office is not naturally bundled in the ordinary
course of business. Therefore, if a single rent deed is executed it will be treated as a service
comprising entirely of such service which attracts highest liability of service tax. As the renting
for use as residence is excluded from service tax under negative list, while the renting for office
(non-residence) use is chargeable to tax. As the renting for office attracts service tax being the
highest liability amongst the two services bundled together, the entire bundle would be treated
as renting of commercial property and liable to service tax.
17
Chapter 7 Determination of Place of provision of service

The Place of Provision of Service Rules, 2012issurmised as under: Nature of services / activities
Order of Application of the rules
Rule No.
14
Place of provision in general. This

would be applicable where
service does not fit into any other
rule
Services in respect of goods that
are required to be made
physically available by the service
receiver to the service provider,
in order to provide the service
Where services in relation to
goods are provided through
internet other electronic mode
Where goods are temporarily
imported into India for repairs
and are exported after the
repairs without being put to any
use in the taxable territory, other
than that which is required for
such repair;
4(a)
Place of provision /or Summary of the Rules

Where prima facie, service falls under more than
one rule, then rule that occurs later among the
rules that merit equal consideration
Location of the recipient of service.
Where location of service receiver is not
determinable in ordinary course of business,
then location of service provider would be taken.
Place of performance of service.
Ex: Loading, unloading, Cargo handling , CHA
services, technical inspection, certification,
maintenance services etc.
Proviso
to 4(a)
Then location of goods at the time of provision of

service
Proviso
to 4(a)
Place of provision is not where goods are located

or service or performed.
Rule 3, i.e. general rule has to be applied.
Prior to the October 1, 2014:

Where goods are temporarily
imported into India for the
purpose
of
repairs,
reconditioning or re-engineering
for re-export.
Services provided entirely or 4(b)
predominantly in the physical
presence of an individual
(recipient of service or his agent/
representative)
Services directly in relation to 5
immovable property
Location where actual services are actually

performed
Location of immovable property present or

proposed.
18
Nature of services / activities

Rule No.
Other service provided in relation 5
to immovable property
Admission to or organization of 6
event
Ancillary services relating to
events
Provision of services at more 7

than one location
Where both recipient of service 8

and provider is located within
taxable territory.

Location of immovable property present or
proposed.
This rule specifically covers, Experts Estate
agents, Hotel accommodation services, Right to
use immovable property for carrying out
construction, Architect, Interior decorator etc.
Place where the event is held.
Nature of events covered: Cultural, artistic,
sporting,
scientific,
educational,
or
entertainment event, or a celebration,
conference, fair, exhibition, or similar events,
When this rule would apply: Performance of
services covered under Rule 4, 5 and 6 at more
than one location and out of such locations at
least one shall be in non-taxable territory.
What is the place of provision of service:
Location in the taxable territory where the
greatest proportion of the service is provided.
When this rule would apply: where service fall
under Rule 4 to 6, but both provider and
recipient are located in India only.
What is the place of provision of service:
Location of the recipient of service
Services by a banking company, 9

or a financial company, or a nonbanking financial company to
account holders
Online information and database 9
access or retrieval services
Intermediary services
This ensures that mere performance of service

outside India or location of property (goods or
immovable property) outside India does not
make the services non-taxable.
Location of service provider
Account: Means an account bearing interest to
the depositor, and includes a non-resident
external account and a non-resident ordinary
account.
Online database : Providing data or information,
retrievable or otherwise, to any person, in
electronic form through a computer network
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Rule No.

Definition of the Intermediary services amended
by the Notification No 14/2014 dated July 21,
2014 with effect from October 1, 2014
Intermediary means a broker, an agent or any
other person, by whatever name called, who
arranges or facilitates a provision of a service
(main service) or a supply of goods, between
two or more persons, but does not include a
person who provides the main service or supplies
the goods on his account
Provision prior to October 1, 2014
Intermediary means a broker, an agent or any
other person, by whatever name called, who
arranges or facilitates a provision of service
between two or more persons.
Service consisting of hiring of all 9

means of transport other than
(a) Aircraft
(b) Vessels except yachts,

up to a period of one month
Provision prior to October 1,
2014
(d) Service consisting of hiring of
means of transport, upto a
period of one month
Transport of Goods by GTA
10
Location of person liable to pay service tax as

defined in Rule 2(1) (d) of Service Tax Rules, 1994
Transport of Goods by person 10

other than GTA
Destination of goodsThis rule covers Air transport, sea mode of

transport
Passenger transport
Place where the passenger embarks on the

conveyance for a continuous journey
continuous journey a journey for which a
11
20
Rule No.
On board of conveyance during 12

transportation of passengers

single or more than one ticket or invoice is issued
at the same time, either by one service provider
or through one agent acting on behalf of more
than one service provider, and which involves no
stopover between any of the legs of the journey
for which one or more separate tickets or
invoices are issued.
Leg of Journey: Part of the journey that begins
where passengers embark or disembark the
conveyance, or where it is stopped to allow for
its servicing or refueling, and ends where it is
next stopped for any of those purposes
First scheduled point of departure of such
conveyance for the journey
Includes services wholly or partly

consumed on board
21
Chapter 8 Reverse Charge Mechanism

It shall be noted here that Section 68(1) of Finance Act provides that the service provider shall
be the person liable to pay service tax. However, Section 68(2) empowers the Government to
notify services wherein instead of the service provider, the prescribed person (generally the
recipient of service) would be termed as the person liable to pay service tax. This could be
termed as reverse charge mechanism which was in vogue for the past few years, however, its
applicability was restricted to few services like Goods Transport Agency, Sponsorship Services
and import of services as well as other specified services.
Further, a new proviso was inserted to Section 68(2), wherein a new concept of joint charge
mechanism or Partial reverse charge has been introduced and the same was operationalized
by the Central Government by way of notification consequent to enactment of Finance Act,
2012.
Consequent to the above change, a suitable amendment has also been made in the concept of
person liable to pay provided in Rule 2(1)(d) of Service Tax Rules, 1994.
This amendment puts the onus of payment of service tax on reverse charge basis partly on the
service provider and partly on the service receiver.
The manner and extent of service tax payable by the service provider and service receiver in the
case of various services have been specified vide Notification No. 30/2012 dt. 20.06.2012 and is
as follows:
Nature of service
Provider
Recipient
Person liable
Percentage
payable by
Recipient
Insurance agency
Insurance
agent
Any person
carrying an
insurance
business
Recipient
100%
Recovery agents services

Inserted vide Notification
No 10/2014-ST-dated July
11, 2014
Recovery
agent
Banking company
or non banking
financial company
or financial
institution
Recipient
100%
Transportation of goods
by road
GTA
Specified personlocated in taxable

territory
Such specified
person being
recipient
100%
22
Others
GTA
NIL
Other than
GTA
Not liable (See Negative list)
Any person
Body corporate
or partnership
firm in taxable
territory
Recipient
100%
Any Person
Other than above
Provider
NIL
Arbitral
tribunal
Business entity
Recipient
100%
Others
Exempt
Business entity
Recipient
Legal services
Others including
other advocate or
firm of advocates
Exempt
Government
in
or local
respect of services provided authority
or agreed to be provided by
Government
or
local
authority by way of support
services excluding,(1)
renting
of
immovable
property, and (2) services
specified in sub-clauses (i),
(ii) and (iii) of clause (a) of
section 66D of the Finance
Act.
Business Entity
Recipient
100%
Directors Services to the

company or body corporate
Company or body
corporate
Recipient
Company or
100%
Sponsorship services
NIL
Arbitral tribunal
Individual
advocate or
Firm of
advocates
Director of
company or
NIL
100%
NIL
23
body
The word Body Corporate corporate
incorporated
by
the
Notification No 10/2014-STdated July, 11 2014
Any taxable service
Located in
non-taxable
territory
body corporate
Located in
taxable territory
Recipient
100%
Service Tax liabilities of Service Provider and Service Recipient under Joint Charge
Mechanism or Partial Reverse Charge Mechanism:
Nature of service
Renting of motor vehicles designed to carry

passengers
- if abatement claimed
Where abatement is not claimed
Provider
Recipient
Nil
100%
50%
(Prior to 1-102014: 60%)
50%
(Prior to 1-10-2014:
40%)
Supply of Manpower or Security Services
25%
75%
Works contract
50%
50%
24
Chapter 9 Exemptions and abatements

The various exemptions from service tax available under the current scheme of taxation are as
explained hereunder.
Exemptions under negative Service tax could be broadly categorized into following:
a)
b)
c)
d)
e)
Threshold exemption (also known as SSI benefit)

Mega exemption covering various activities or services
Services provided to SEZ units or developers
Exemptions in relation to export of goods
Other miscellaneous exemptions
a)
Threshold exemption (also known as SSI benefit)
Notification No. 33/2012 ST dated 20.06.2012 states that taxable services of aggregate value
not exceeding ten lakh rupees in any financial year would be exempt from service tax.
The definition of aggregate value in the Notification aligns with Point of Taxation Rules, 2011
as follows:
Explanation (B) aggregate value means the sum total of value of taxable services charged in
the first consecutive invoices issued during a financial year but does not include value charged in
invoices issued towards such services which are exempt from whole of service tax leviable
thereon under section 66B of the said Finance Act under any other notification.
Summary of the exemption Notification No. 33/2012-ST dt. 20.06.2012 is as below:
Value of services eligible
for exemption
What is aggregate value
When an assessee is
eligible
Where services are
provided from more
than one premises
When this exemption is
not available
Aggregate value not exceeding Rs. 10 Lakhs (Ten lakh) in any financial
year
Value of taxable services charged in first consecutive invoices.
Value of services which are not taxable as covered under negative list
or exempted from whole of service tax under notification shall not be
included
Where in the preceding financial year the aggregate value of taxable
services does not exceed Rs. 10 Lakhs, in the current year assessee
could avail exemption upto Rs. 10Lakhs
Services provided from all such premises shall be clubbed together to
compute exemption limit.
a) Where services are provide under brand name or trade name
of others
b) Where service tax is payable under reverse charge or joint
25
Restrictions on
availment of Cenvat
Credit
In case of GTA provider
charge in terms of section 68(2)

Cenvat credit shall not be availed on inputs, input services and capital
goods received during the period when this exemption is availed.
Cenvat credit relating to inputs lying in stock or in process on the date
of availment of credit shall be reversed (if availed)
Value of taxable service on which GTA is liable to pay tax shall be
considered. Value on which other person in terms of section68(2) is
liable shall be excluded.
b) Mega exemption covering various activities or services

Various exemption issued under different notifications have been unified (with certain
additions and deletions) and brought under one single notification No. 25/2012-ST dated
20.06.2012 known as Mega exemption. The summary of the mega exemption is tabled
below:
Applicability / Nature Conditions and other aspects
of services
Services to UNO
1
Services provided to the United Nations or a specified international organization
Health care services
Health care services by clinical establishment or an authorized medical practitioner
or para-medics.
*Sl No.
Definition of clinical establishment
clinical establishment means a

hospital,
nursing
home,
clinic,
sanatorium or any other institution by,
whatever name called, that offers
services or facilities requiring diagnosis
or treatment or care for illness, injury,
deformity, abnormality or pregnancy in
any recognised system of medicines in
India, or a place established as an
independent entity or a part of an
establishment to carry out diagnostic or
investigative services of diseases
26
Recognized system of Clinical Establishment (Registration and Regulation) Act,

medicines in India
2010:
"recognised system of medicine" means Allopathy, Yoga,
Naturopathy, Ayurveda, Homoeopathy, Siddha and Unani
System of medicines or any other system of medicine as
may be recognized by the Central Government
Authorised
medical authorised medical practitioner means a medical
practitioner
practitioner registered with any of the councils of the
recognised system of medicines established or recognized
by law in India and includes a medical professional having
the requisite qualification to practice in any recognised
system of medicines in India as per any law for the time
being in force.
Para-medics
Not defined in exemption notification. In terms of the
guidance note , Para medics means
Paramedics are trained health care professionals, for
example nursing staff, physiotherapists, technicians, lab
assistants etc. Services by them in a clinical establishment
would be in the capacity of employee and not provided in
independent capacity and will thus be considered as
services by such clinical establishment. Similar services in
independent capacity are also exempted.
2A
Services provided by (a) Services in respect of preservation of stem cell or
cord blood bank
(b) any other services in relation to such preservation.
(inserted by Notification No 4/2014-ST dated February
17, 2014)
2B
Services provided by Services in respect of treatment or disposal of biooperators
of
the medical waste or the processes incidental thereto
Common Bio-medical
Waste
Treatment (Inserted vide Notification No.06/2014 - Service Tax
Facility to a clinical dated 11th July, 2014)
establishment
Veterinary services
3
Healthcare services for

animals or birds
Charitable institutions
4 & 34 Entity registered under
(b)
section 12AA of the
Income tax Act, 1961
Services provided by veterinary clinics are exempted.

Term Veterinary clinics are not specifically defined.
Services by way of charitable activities provided by such
entities are exempted.
27
Services received from person located in non-taxable

territory for the purpose of providing charitable activities
Definition of Charitable activities:
(i) public health by way of (a)
care or counseling of (i) terminally ill persons or persons with severe
physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons
addicted to a dependence-forming substance such as narcotics drugs or alcohol; or
(b)
public awareness of preventive health, family planning or prevention of HIV
infection;
(ii) advancement of religion or spirituality;
(iii) advancement of educational programmes or skill development relating to,(a)
abandoned, orphaned or homeless children;
(b)
physically or mentally abused and traumatized persons;
(c)
prisoners; or
(d)
persons over the age of 65 years residing in a rural area;
(iv) preservation of environment including watershed, forests and wildlife; or
(v) advancement of any other object of general public utility up to a value of,(a)
eighteen lakh and seventy five thousand rupees for the year 2012-13
subject to the condition that total value of such activities had not exceeded twenty
five lakhs rupees during 2011-12;
(b)
twenty five lakh rupees in any other financial year subject to the condition
that total value of such activities had not exceeded twenty five lakhs rupees during
the preceding financial year;
Religious activity
5
5A
Service exempt from tax are:

a) Services of renting of precincts of a religious place meant for general public
b) Conduct of religious ceremony
Services by a Services by a specified organization in respect of a religious
Specified
pilgrimage facilitated by the Ministry of External Affairs of the
Organization
Government of India, under bilateral arrangement.(Inserted by
Notification No 17/2014-ST dated August 20, 2014)
Religious place means a place which is primarily meant for
conduct of prayers or worship pertaining to a religion,
meditation, or spirituality
Legal services and services by Arbitral Tribunal

6
Services
Tribunal
of
Arbitral Exempt from tax if provided to following category of

persons:
a) person other than business entity. In other words
receipt of services from arbitral tribunal by any person
28
for activity other than business or profession

b) business entity with a turnover up to Rs. 10 Lac. in the
preceding financial year
Legal services
Exempt from tax if provided to following category of
persons:
a) An advocate or partnership firm of advocates
providing legal services
b) Person other than business entity. In other words
receipt of services from arbitral tribunal by any person
for activity other than business or profession
b) Business entity with a turnover up to Rs. 10 Lac. in the
preceding financial year
Testing or analysis of newly developed drugs: Exemption in respect of testing or analysis of
newly developed drugs is withdrawn by the Finance Act 2014. (w.e.f. 11th July 2014)
7
Services provider
Clinical research organisation approved to conduct
clinical trials by the Drug Controller General of India
Nature of services Technical testing or analysis of newly developed drugs,
exempt from tax
including vaccines and herbal remedies, on human
participants
Education
9
Services provided:
(a) by an educational institution to its students, faculty and staff;
(b) to an educational institution, by way of,(i)
transportation of students, faculty and staff;
(ii)
catering, including any mid-day meals scheme sponsored by the
Government;
(iii) security or cleaning or house-keeping services performed in such
educational institution;
(iv) services relating to admission to, or conduct of examination by, such
institution.
Provisions prior to the amendment are as follows: Following services provided to an educational institution in respect of education
which is exempt from tax (other words educational activities covered under
negative list) are exempt:
(a) auxiliary educational services; or
(b) renting of immovable property;
auxiliary educational services means any services relating to imparting any skill,
knowledge, education or development of course content or any other knowledge
enhancement activity, whether for the students or the faculty, or any other services
which educational institutions ordinarily carry out themselves but may obtain as
outsourced services from any other person, including services relating to admission
to such institution, conduct of examination, catering for the students under any
29
mid-day meals scheme sponsored by Government, or transportation of students,

faculty or staff of such institution
9A
Any services provided bya) the National Skill Development Corporation set up by the Government of
India;
b) a Sector Skill Council approved by the National Skill Development
Corporation
c) an assessment agency or a training partner approved by the Sector
Skill Council or the National Skill Development Corporation,
d) a training partner approved by the National Skill Development
Corporation or the Sector Skill Council in relation to
i) the National Skill Development Programme implemented by the
National Skill Development Corporation; or
ii) a vocational skill development course under the National Skill
Certification and Monetary Reward Scheme; or
iii) any other Scheme implemented by the National Skill Development
Corporation.
Art, Culture and Sports

8
Training or coaching in recreational activities relating to arts, culture or sports
10 (a)
10 (b)
Recipient of service
Recognized sports body
Provider
Nature of services
Player, referee, umpire, coach or team manager

participation in a sporting event organized by a
recognized sports body
Recognized sports body
Another Recognised sports body
Any service
Provider
Recipient of service
Nature of services
30
Recognized sports body means

(i) the Indian Olympic Association,
(ii) Sports Authority of India,
(iii) a national sports federation recognised by the Ministry of Sports and Youth
Affairs of the Central Government, and its affiliate federations,
(iv) national sports promotion organisationsrecognised by the Ministry of Sports
and Youth Affairs of the Central Government,
(v) the International Olympic Association or a federation recognised by the
International Olympic Association or
(vi) a federation or a body which regulates a sport at international level and its
affiliated federations or bodies regulating a sport in India
11
Sponsor ship of following sporting events:

(a) by a national sports federation, or its affiliated federations, where the
participating teams or individuals represent any district, state or zone;
(b) by Association of Indian Universities, Inter-University Sports Board, School
Games Federation of India, All India Sports Council for the Deaf, Paralympic
Committee of India or Special Olympics Bharat;
(c) by Central Civil Services Cultural and Sports Board;
(d) as part of national games, by Indian Olympic Association;
(e) under Panchayat YuvaKreedaAur Khel Abhiyaan (PYKKA) Scheme
16
Service provider
Nature of services
Construction activities
12
Service recipient
Performing artist in folk or classical art forms of (i)

music, or (ii) dance, or (iii) theatre
Any service other than services provided by such artist
as a brand ambassador
Government/ Local authority/Governmental Authority
31
Nature
exempt
of
service Construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance, renovation,
or alteration of following:
a) a civil structure or any other original works meant
predominantly for use other than for commerce,
industry, or any other business or profession;
(b) a historical monument, archaeological site or
remains of national importance, archaeological
excavation, or antiquity specified under the Ancient
Monuments and Archaeological Sites and Remains Act,
1958 (24 of 1958);
(c) a structure meant predominantly for use as (i) an
educational, (ii) a clinical, or (iii) an art or cultural
establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water supply (ii)
water treatment, or (iii) sewerage treatment or disposal;
or
(f) a residential complex predominantly meant for selfuse or the use of employees government / local
authority etc. or for use of MPs, MLAs, Member of
municipality/panchyatsetc covered under Explanation 1
to Section65B(44)
13
Provider
Recipient
Nature of services
Nature
exempt
Any person
Any person
Construction, erection, commissioning, installation,
completion, fitting out, repair, maintenance, renovation,
or alteration
of activities a) a road, bridge, tunnel, or terminal for road
transportation for use by general public;
(b) a civil structure or any other original works
pertaining to a scheme under Jawaharlal Nehru National
Urban Renewal Mission or Rajiv AwaasYojana;
(c) a building owned by an entity registered under
section 12AA of the Income tax Act, 1961(43 of 1961)
and meant predominantly for religious use by general
public;
(d) a pollution control or effluent treatment plant,
except located as a part of a factory; or
32
(e) a structure meant for funeral, burial or cremation of

deceased;
14
Provider
Recipient
Nature of services
Nature
exempt
of
Any person
Any person
Construction, erection, commissioning, or installation of
original works pertaining
activities a) an airport, port or railways, including monorail or
metro;
(b) a single residential unit otherwise than as a part of a
residential complex;
(c)
low-cost houses up to a carpet area of 60 square
metres per house in a housing project approved by
competent authority empowered under the Scheme of
Affordable Housing in Partnership framed by the
Ministry of Housing and Urban Poverty Alleviation,
Government of India;
(d) post-harvest storage infrastructure for agricultural
produce including a cold storages for such purposes; or
(e) mechanised food grain handling system, machinery
or equipment for units processing agricultural produce
as food stuff excluding alcoholic beverages
29 (h)
Sub-contractor
sub-contractor providing services by way of works

contract to another contractor providing works contract
services which are exempt
Transfer of copy right

15
Temporary transfer of copyright relating to Original literary, dramatic, musical,
artistic works or cinematograph films is exempt from tax
News agencies/ Journalist
17
Services of collecting or providing news by an independent journalist, Press Trust of
India or United News of India is exempt
Hotel / guest house & Restaurant services
18
Services by a hotel, inn, guest house, club or campsite, by whatever name called,
for residential or lodging purposes, having declared tariff of a unit of
accommodation below one thousand rupees per day or equivalent (Amended vide
Notification No. 6/2014-ST dated July 11, 2014).
Provisions prior to the amendment are as follows:
33
Services by way of renting of a hotel, inn, guest house, club, campsite or other
commercial places meant for residential or lodging purposes, having declared tariff
of a unit of accommodation below rupees one thousand per day or equivalent
19
19A
Services by restaurant or eating joints not having the following facilities is exempt
from tax:
i) The facility of air-conditioning or central air-heating in any part of the
establishment, at any time during the year,
In other words only those restaurants having air condition facility would be taxable
Serving of food or beverages by a canteen maintained in a factory covered under
the Factories Act, 1948 having the facility of air-conditioning or central airheating at any time during the year.
Transportation of goods
20
Mode of transport
rail or a vessel from one place in India to another place
Nature of goods (a) relief materials meant for victims of natural or mancovered
under made disasters, calamities, accidents or mishap;
exemption
(b) defence or military equipment,
(c) newspaper or magazines registered with the Registrar
of Newspapers;
(d) railway equipments or materials;
(e) agricultural produce;
(f) foodstuff including flours, tea, coffee, jaggery, sugar,
milk products, salt and edible oil, excluding alcoholic
beverages; or
(g) chemical fertilizer, organic manure and oilcakes;
(h) cotton, ginned or baled.
21
Mode of transport
Transport of by goods by road by GTA
34
Nature of exemption
(a) Agriculture produce,

(b)Transport of any goods where gross amount charged
for the transportation of goods on a consignment
transported in a single goods carriage does not exceed Rs.
1500/(c) transport of any goods, where gross amount charged
for transportation of all such goods for a single consignee
in the goods carriage does not exceed Rs.750/(d) foodstuff including flours, tea, coffee, jaggery, sugar,
milk products, salt and edible oil, excluding alcoholic
beverages;
(e) chemical fertilizer, organic manure and oilcakes;
(f) newspaper or magazines registered with the Registrar
of Newspapers;
(g) relief materials meant for victims of natural or manmade disasters, calamities, accidents or mishap; or
(h) defense or military equipments

(i) Cotton ginned or baled.
22 (b)
Services by way of giving on hire of a means of transportation of goods to a GTA
Passenger Transport
23(a)
Mode of transport
By air
Nature of exemption Exemption to transport of passengers by air embarking
from or terminating in an airport located in the state of
Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, or Tripura or at Bagdogra located in
West Bengal
23 (b)
Mode of transport
Road transport
Nature of exemption Transportation of passenger by a non-airconditioned
contract carriage other than radio taxi, excluding tourism,
conducted tour, charter or hire (Amended vide Notification
No. 6/2014-ST dated July 11, 2014).
Provisions prior to the amendment are as follows:
Transport of passenger by a contract carriage. However,
tourism, conducted tour, charter or hire are not covered
under exemption
23 (c)
22(a)
Transport of passengers by ropeway, cable car or aerial tramway

Services by way of giving on hire a motor vehicle meant to carry more than twelve
passengers to a state transport undertaking,
Insurance related
35
26
Following general insurances are exempt from tax

(a)
Hut Insurance Scheme;
(b) Cattle Insurance under Swarnajaynti Gram SwarozgarYojna (earlier known as

Integrated Rural Development Programme);
(c)
Scheme for Insurance of Tribals;
(d) Janata Personal Accident Policy and Gramin Accident Policy;

(e)
Group Personal Accident Policy for Self-Employed Women;
(f)
Agricultural Pumpset and Failed Well Insurance;
(g)
premia collected on export credit insurance;
(h) Weather Based Crop Insurance Scheme or the Modified National Agricultural
Insurance Scheme, approved by the Government of India and implemented by the
Ministry of Agriculture;
(i)
Jan ArogyaBima Policy;
(j)
National Agricultural Insurance Scheme (RashtriyaKrishiBimaYojana);
(k)
Pilot Scheme on Seed Crop Insurance;
(l)
Central Sector Scheme on Cattle Insurance;
(m) Universal Health Insurance Scheme;

(n) RashtriyaSwasthyaBimaYojana; or
(o)
26A
Coconut Palm Insurance Scheme;
Life Insurance Services provided under following schemes (a) JanashreeBimaYojana or

(b) AamAadmiBimaYojana or
(c) life micro-insurance product as approved by the Insurance Regulatory and
Development Authority, having maximum amount of cover of Rs 50,000/(Inserted vide Notification No. 6/2014-ST dated July 11, 2014).
36
Services by Employees State Insurance corporation
Clubs / Associations, etc. - unincorporated body or a non-profit entity registered under any
law
Nature of entity Nature of exemption / Amount exempted
28(a)
Trade union
28(b)
Other
associations
Services to its own members by way of reimbursement of

charges or share of contribution
Services to its own members by way of reimbursement of
/ charges or share of contribution for the provision of carrying out
36
clubs
any activity which is exempt from the levy of service tax
28(c)
Resident
Upto an amount of Rs.5000/- per month for sourcing of goods or
welfare
services from a third person for the common use of its members
association of a in a housing society or a residential complex
residential
complex
Services to Government or local authority
25(a)
water supply, public health, sanitation conservancy, solid waste management or
slum improvement and up gradation,
25(b)
Repair or maintenance of a vessel
Job work related exemptions
30
Following activities of production or processing on jobwork is exempt from service
tax
(a)
agriculture, printing or textile processing;
(b)
cut and polished diamonds and gemstones; or plain and studded jewellery of gold
and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act,
1985 (5 of 1986);
(c)
any goods on which appropriate duty is payable by the principal manufacturer; or
(d)
processes of electroplating, zinc plating, anodizing, heat treatment, powder
coating, painting including spray painting or auto black, during the course of
manufacture of parts of cycles or sewing machines upto an aggregate value of
taxable service of the specified processes of one hundred and fifty lakh rupees in a
financial year subject to the condition that such aggregate value had not exceeded
one hundred and fifty lakh rupees during the preceding financial year;
Service of Incubatees
27
Services provided by an incubatee up to a total turnover of fifty lakh rupees in a
financial year subject to the following conditions, namely :(a)
the total turnover had not exceeded fifty lakh rupees during the preceding
financial year; and
(b) a period of three years has not been elapsed from the date of entering into
an agreement as an incubatee;
incubatee means an entrepreneur located within the premises of a Technology
Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP)
recognised by the National Science and Technology Entrepreneurship Development
Board (NSTEDB) of the Department of Science and Technology, Government of
India and who has entered into an agreement with the TBI or the STEP to enable
himself to develop and produce hi-tech and innovative products
Other exemptions
29
Services by following persons are exempt from tax:
a)
sub-broker or an authorised person to a stock broker;
37
(b)
authorised person to a member of a commodity exchange;
(c)
mutual fund agent to a mutual fund or asset management company;
(d) distributor to a mutual fund or asset management company;

(e)
selling or marketing agent of lottery tickets to a distributer or a selling agent;
(f)
selling agent or a distributer of SIM cards or recharge coupon vouchers;
(g) business facilitator or a business correspondent to a banking company or an

insurance company, in a rural area; or
(h)
sub-contractor providing services by way of works contract to another
contractor providing works contract services which are exempt (also covered under
construction heading)
31
32
Services by an organiser to any person in respect of a business exhibition held

outside India
Services by way of making telephone calls from (a) departmentally run public telephone;
(b) guaranteed public telephone operating only for local calls; or
(c)free telephone at airport and hospital where no bills are being issued;
33
34
Services by way of slaughtering of animals

Services received from a provider of service located in a non- taxable territory
(import of service) by (a) Government, a local authority, a governmental authority or an individual in
relation to any purpose other than commerce, industry or any other business or
profession;
(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of
1961) for the purposes of providing charitable activities; or
(c) a person located in a non-taxable territory;
35
37
38
39
Services of public libraries by way of lending of books, publications or any other

knowledge - enhancing content or material
Services by way of transfer of a going concern, as a whole or an independent part
thereof
Services by way of public conveniences such as provision of facilities of bathroom,
washrooms, lavatories, urinal or toilets
Services by a governmental authority by way of any activity in relation to any
function entrusted to a municipality under article 243 W of the Constitution
governmental authority means a board, or an authority or any other body
established with 90% or more participation by way of equity or control by
Government and set up by an Act of the Parliament or a State Legislature to carry
out any function entrusted to a municipality under article 243W of the Constitution
38
40
Services in respect of rice by way of loading, unloading, packing, storage or

warehousing of rice, cotton, ginned and baled.(Amended vide Notification No.
6/2014-ST dated July 11, 2014).
Provisions prior to the amendment are as follows:Services by way of loading,
unloading, packing, storage or warehousing of rice
41
42
Services received by the Reserve Bank of India, from outside India in relation to
management of foreign exchange reserves (Inserted vide Notification No. 6/2014ST dated July 11, 2014).
Services provided by a tour operator to a foreign tourist in relation to a tour
conducted wholly outside India. (Inserted vide Notification No. 6/2014-ST dated
July 11, 2014).
(c) Services provided to SEZ units or developers
(Notification No. 12/2013-ST dated 1.07.2013)
Nature of
exemption
How it works
C
D
How to determine whether service is wholly consumed with in SEZ

In respect of services relating to immovable property and
Location of
performance based services (referred to in Rule 4 & 5 of
immovable property
Place of Provision of Service Rules, 2012)
or performance of
service within SEZ
Other Services
If SEZ unit or developer
All services received by such unit or developer shall be
does not have any other
deemed to be wholly consumed within SEZ.
operations other than SEZ
operations
All services received by such unit or developer would
be directly exempt from service tax.
Where SEZ unit or
Not considered as wholly consumed within SEZ
developer has any other
operations outside SEZ
How to compute refund
(Export turnover of goods + Services of SEZ Unit/Developer)
Service tax paid on services other than wholly consumed Services (both for SEZ and
Exemption to specified services received by a unit located in a

SEZ or the developer of SEZ and used for the authorized
operations
i. Services wholly consumed within SEZ- directly exempt
ii. Services not wholly consumed within SEZ- recipient of service
(SEZ unit or developer) shall claim refund
39
DTA) / Total Turnover

A)
refund amount means the maximum refund that is admissible for the
period;
(B)
export turnover of goods means the value of final products and
intermediate products cleared during the relevant period and exported;
(C)
export turnover of services means the value of the export service
calculated in the following manner, namely :Export turnover of services = payments received during the relevant period for
export services + export services whose provision has been completed for which
payment had been received in advance in any period prior to the relevant period advances received for export services for which the provision of service has not
been completed during the relevant period;
(D)
total turnover means sum total of the value of-
(a)
all excisable goods cleared during the relevant period including exempted
goods, dutiable goods and excisable goods exported;
(b)
export turnover of services determined in terms of clause (C) and the value
of all other services, during the relevant period;
Conditions
For the purpose of claiming ab initio exemption, the unit of a SEZ or developer
shall furnish a declaration in Form A-1, verified by the Specified Officer of the
SEZ, in addition to the list of specified services;
Central Excise Officer would issue authorization in Form A-2, within fifteen
working days from the date of receipt of Form A-1.
Authorization shall be valid from the date on which Form A-1 is verified by the
Specified Officer of SEZ. However, if Form A-1 is furnished after a period of 15
days from the date of its verification by the Specified Officer, the authorization
shall have validity from the date on which it is furnished. the unit of a SEZ or
developer claiming the exemption shall declare that the specified services on
which exemption and/ or refund is claimed, have been used for the authorized
operations;
the unit of a SEZ or developer claiming the exemption by way of refund, should
have paid the amount indicated in the invoice, bill or as the case may be,
challan, including the service tax payable, to the person liable to pay the said
tax or the amount of service tax payable under reverse charge, as the case may
be, under the provisions of the said Act;
no CENVAT credit of service tax paid on the specified services used for the
40
authorized operations in a SEZ has been taken under the CENVAT Credit Rules,
2004;
No refund shall be available on services wholly consumed for operations in the
Domestic Tariff Area (DTA) worked out in the same manner as clauses (i) and
(ii) of the explanation to condition (a);
Exemption or refund of service tax paid on the specified services other than
wholly consumed services used for the authorised operations in a SEZ shall not
be claimed except under this notification;
The unit of a SEZ or developer, who intends to avail exemption and or refund
under this notification, shall maintain proper account of receipt and use of the
specified services on which exemption is claimed, for authorised operations in
the SEZ.
d) Exemptions in relation to export of goods
Sl.
No.
1.
Notification #
Nature of exemption
Conditions and other particulars
31/2012 ST
The exporter shall have to produce the

consignment note, by whatever name
called, issued in his name.
2.
31/2012 ST
3.
42/2012 ST
Transport of export
goods by GTA from place
of clearance to an inland
container
depot,
a
container freight station,
a port or airport, as the
case may be, from where
the goods are exported
transport of the export
goods
by
goods
transport agency in a
goods carriage from any
container freight station
or
inland
container
depot to the port or
airport, as the case may
be, from where the
goods are exported;
Service provided by a
commission
agent
located outside India and
engaged
under
a
contract or agreement or
any other document by
the exporter in India, to
1) The exporter shall declare the amount

of commission paid or payable to the
commission agent in the shipping bill or
bill of export, as the case may be.
(2) The exemption shall be limited to the
service tax calculated on a value of ten per
41
act on behalf of the cent of the free on board value of export

exporter, to cause sale of goods for which the said service has been
goods exported by him.
used.
(3) The exemption shall not be available
on the export of canalised item, project
export, or export financed under lines of
credit extended by the Government of
India or EXIM Bank, or export made by
Indian partner in a company with equity
participation in an overseas joint venture
or wholly owned subsidiary.
(4) The exporter shall submit with the halfyearly return after certification of the
same as specified in clause (g) of the
proviso
(i) the original documents showing actual
payment of commission to the
commission agent; and
(ii) a copy of the agreement or contract
entered into between the commission
agent located outside India and the
exporter in relation to sale of export goods
outside India :
e) Miscellaneous Exemption
Sl.
No.
1.
Notification No.
29/2012-S.T.,
20-6-2012
2.
27/2012-S.T.,
20-6-2012
3.
32/2012-S.T.,
20-6-2012
Nature of exemption
dated Exemption from payment of service tax on renting services

to the extent of corporation tax or municipal taxes paid on
such building.
dated Exemption from service tax for official use of a foreign
diplomatic mission or consular post in India for personnel use
of diplomatic agents or career consular officers, subject to
conditions and procedures as detailed in notifications
dated Exemption from service tax on services provided or to be
provided, by a Technology Business Incubator (TBI) or a
Science and Technology Entrepreneurship Park (STEP)
recognized by the National Science and Technology
Entrepreneurship Development Board (NSTEDB) of the
Department of Science and Technology, Government of
42
India,
Abatements:
Notification No. 26/2012 ST dated 20.06.2012 provides the following abatements to various
services:
Sl.
No.
Description of taxable
service
Percentage on
which tax
payable
Conditions
(1)
(2)
(3)
(4)
Services in relation to financial

leasing including hire purchase
10
Nil.
(a) The amount charged shall be an amount, forming or representing as interest, i.e. the
difference between the installments paid towards repayment of the lease amount and the
principal amount contained in such installments;
(b) the exemption shall not apply to an amount, other than an amount forming or
representing as interest, charged by the service provider such as lease management fee,
processing fee, documentation charges and administrative fee, which shall be added to
the amount calculated in terms of (a) above.
2
Transport of goods by rail
30
Nil.
Transport of passengers,
with
or
without
accompanied belongings
by rail
30
Nil.
Bundled service by way of

supply of food or any other
article
of
human
consumption or any drink,
in a premises ( including
hotel, convention center,
club, pandal, shamiana or
any other place, specially
arranged for organizing a
function) together with
renting of such premises
70
(i) CENVAT credit on any goods classifiable

under Chapters 1 to 22 of the Central Excise
Tariff Act, 1985 (5 of 1986) used for
providing the taxable service, has not been
taken under the provisions of the CENVAT
Credit Rules, 2004.
The amount charged shall be the sum total of the gross amount charged and the fair market
value of all goods and services supplied in or in relation to the supply of food or any other
article of human consumption or any drink (whether or not intoxicating) and whether or not
43
supplied under the same contract or any other contract, after deducting(i) the amount charged for such goods or services supplied to the service provider, if any; and
(ii) the value added tax or sales tax, if any, levied thereon:
Provided that the fair market value of goods and services so supplied may be determined in
accordance with the generally accepted accounting principles.
5
Transport of passengers by
air, with or without
accompanied belongings
40
CENVAT credit on inputs and capital goods,

used for providing the taxable service, has
not been taken under the provisions of the
CENVAT Credit Rules, 2004.
Renting of hotels, inns,

guest
houses,
clubs,
campsites
or
other
commercial places meant
for residential or lodging
purposes.
60
Same as above.
Services of goods transport

agency in relation to
transportation of goods.
25
CENVAT credit on inputs, capital goods and

input services, used for providing the
taxable service, has not been taken by the
service provider under the provisions of the
CENVAT Credit Rules, 2004.
Services
provided
relation to chit
70
CENVAT credit on inputs, capital goods

and input services, used for providing the
taxable service, has not been taken under
the provisions of the CENVAT Credit Rules,
2004.
Renting of any motorcab
40
(i) CENVAT credit on inputs and capital

goods, used for providing the taxable
service, has not been taken under the
provisions of the CENVAT Credit Rules,
2004;
in
(ii) CENVAT credit on input service of

renting of motorcab has been taken under
2004, in the following manner:
(a) Full CENVAT credit of such input
service received from a person who is
paying service tax on forty percent of
44
the value; or
(b) Up to forty percent CENVAT credit
of such input service received from a
person who is paying service tax on
full value;
(iii) CENVAT credit on input services other
than those specified in (ii) above, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004
(w.e.f 1st October 2014)
9A
Transport of passengers,
with
or
without
accompanied belongings,
by a contract carriage
other than motorcab
10
Transport of goods in a 40 (Prior to 1st

October 2014 vessel
50%)
11
Services by a tour operator

in relation to,(i) a package tour
40
25
CENVAT credit on inputs, capital goods and

input services, used for providing the
taxable service, has not been taken under
2004]
Same as above.
(i) CENVAT credit on inputs, capital goods

and input services other than the input
service of a tour operator, used for
Credit Rules, 2004.
(ii) The bill issued for this purpose indicates
that it is inclusive of charges for such a
tour.
45
(ii) a tour, if the tour

operator
is
providing
services solely of arranging
or
booking
accommodation for any
person in relation to a tour
10

Credit Rules, 2004.
(ii) The invoice, bill or challan issued
indicates that it is towards the charges for
such accommodation.
(iii) This exemption shall not apply in such
cases where the invoice, bill or challan
issued by the tour operator, in relation to a
tour, only includes the service charges for
arranging or booking accommodation for
any person and does not include the cost of
such accommodation.
(iii) any services other than

specified at (i) and (ii)
above.
40

Credit Rules, 2004.
(ii)The bill issued indicates that the amount
charged in the bill is the gross amount
charged for such a tour.
12.
Construction of a
complex, building, civil
structure or a part
thereof, intended for a
sale to a buyer, wholly or
partly, except where
entire consideration is
received after issuance of
completion certificate by
the competent
authority,-
(i) CENVAT credit on inputs used for

providing the taxable service has not been
Credit Rules, 2004.
(ii)The value of land is included in the
amount charged from the service receiver.
(a) for a residential unit

satisfying both the
following conditions,
46
namely:
(i)the carpet area of the
unit is less than 2000
square feet; and
(ii)the amount charged
for the unit is less than
rupees one crore
(b) other than (a) above
25
30
The amount charged shall be the sum total of the amount charged for the service including the
fair market value of all goods and services supplied by the recipient(s) in or in relation to the
service, whether or not supplied under the same contract or any other contract, after
deducting(i) the amount charged for such goods or services supplied to the service provider, if any; and
Provided that the fair market value of goods and services so supplied may be determined in
accordance with the generally accepted accounting principles.
47
Chapter 10 Valuation of taxable services

Section 67 provides for the valuation of taxable services for charging service tax. Once the
service provider is certain of his liability and has classified the service in accordance with the
various clauses of Section 65, he must value the service in order to pay the service tax
accordingly.
Prior to 18.4.2006, Section 67 provided that the value of services shall be the gross amount
charged by the service provider for the services rendered by him.
However, consequent to substitution of Section 67, valuation of services has been drastically
amended to provide that:
Where Service tax is chargeable with reference to value,(i) Where the provision of service is for a consideration in money, be the gross amount
charged by the service provider for such service provided or to be provided by him;
(ii) Where the provision of service is for a consideration not wholly or partly consisting
of money, be such amount in money, with the addition of service tax charged, is
equivalent to the consideration;
(iii) In a case where the provision of service is for a consideration which is not
ascertainable, be the amount as may be determined in the prescribed manner.
The Explanation clause provides the method in which the some important terms are to be
construed, viz.,
Consideration includes any amount that is payable for the taxable services provided or
to be provided.
Gross amount charged includes payment received 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, as the case may be, to any account,
whether called Suspense account or by any other name, in the books of account of a
person liable to pay service tax, where the transaction of taxable service is with any
associated enterprise..
The concept of cum-duty has been statutorily recognized now as and when the service tax is
charged on inclusive basis, gross amount charged shall be deemed to have included the service
tax amount payable. [67(2)]
48
With effect from 19.4.2006, under the provisions of Section 67, new Valuation Rules, have been
issued vide Notification 12/2006-ST dated 19.4.2006 known as Service Tax (Determination of
Value) Rules, 2006.
The various items which are to be included, excluded or deducted under each head of taxable
service is provided in the Service Tax (Determination of value) Rules, 2006. There are 6 Rules
contained in the above Rules and certain new sub rules have been inserted w.e.f. 1.7.2012 and
salient features of these Rules as amended with effect from 01.07.2012 vide Notification No.
24/2012-ST dated 06.06.2012 are given below:
Valuation of services involved in execution of works contract:
Rule 2A provides for the Determination of value of services involved in the execution of a
works contract:
(i) Value of the works contract shall be:
[Gross amount charged] (Minus) [Value of transfer of property in goods involved in execution
of works contract]
The explanation provides that for the purposes of this Rule, the value of the works contract
shall not include
a. The VAT or sales tax paid or payable on the transfer of goods used in the execution of the
works contract.
b. The Rule further provides the values which are to be included in the value of the works
contract, viz.,
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Labour charges incurred for the execution of such contract;

The amount paid to a sub-contractor for labour and services;
The charges for planning, designing and architects fees;
The charges for hiring or otherwise obtaining machinery and tools used for the
execution of the works contract;
The cost of various consumables such as water, electricity, fuel, used for the
The cost of establishment of the contractor that is relatable to the supply of labour
and services;
Other similar expenses relatable to the supply of labour and services;
Profit earned by the service provider in relation to supply of labour and services.
c. Where value added tax or sales tax has been paid or payable on the actual value of
property in goods transferred in the execution of the works contract,the value adopted for
49
the payment of VAT or sales tax shall be considered to be the value of transfer of such
goods.
(ii) States that where the value has not been determined under clause (i), the service tax would
be payable in the following manner:-
Nature of works
Valuation
Original works
40% of the total amount charged
Maintenance, repair, reconditioning etc of goods
Other works including maintenance, repair,

completion and finishing services such as glazing,
plastering, floor and wall tiling, installation of
electrical fittings of an immovable property

(prior to 1st October 2014 - 60%)
Condition: No Credit of inputs shall be availed
Explanation 1 defines original works and total amount

Explanation 2 clarifies that the provider of taxable service would not be eligible to avail Cenvat
Credit of duties or cess paid on any inputs, used in or in relation to the said works contract.
Rule 2 B. Valuation for Foreign Currency dealer or Money Changers:
Itprovides for the manner of calculation of taxable value for assessees rendering services of
purchase or sale of foreign currency, including money changing as follows:
For a currency, when exchanged from, or to, Indian Rupees (INR), the value will be the
difference in the buying rate or the selling rate, and the Reserve Bank of India (RBI) reference
rate for that currency for that time, multiplied by the total units of currency.
It is provided that where the RBI reference rate for a currency is not available, the value shall be
1% of the gross amount of Indian Rupees provided or received, by the person changing the
money. It is also provided that where neither of the currencies exchanged is Indian Rupee, the
value shall be 1% of the lesser of the two amounts the person changing the money would have
received by converting any of the two currencies into Indian Rupee on that day at the reference
rate provided by RBI.
50
Rule 2C. Valuation of service portion involved in supply of food in a restaurant or as outdoor
catering:
It provides for determining the value of the service portion of involved in the supply of food or
any other article of human consumption or any drink in a restaurant or as outdoor catering as
follows:
Nature of Services
Valuation
Service portion in an activity of supply of food or drink

at a restaurant
40% of the total amount
Service portion in an activity of supply of food or drink

as outdoor catering
60% of the total amount
The term total amount has been explained to mean Sum total of the gross amount charged and the fair market value of all goods and services
supplied in or in relation to the supply of food or any other article of human consumption or
any drink(whether or not intoxicating), whether or not supplied under the same contract or any
other contract, after deducting(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon.
A second explanation imposes the condition that no Cenvat shall be availed on inputs
classifiable under Chapters 1 to 22.
Rule 3 provides that in a case where the value cannot be ascertained, the same shall be
determined either by considering the gross amount charged completely in money by the
service provider to another person for the similar service or where this is not possible, the
equivalent value of the consideration has to be determined and such value cannot be less than
the cost of the service provided.
Rule 4 provides that the Central Excise officer shall have the authority to satisfy himself as to
whether the information or documents that are presented for valuation are accurate. Further,
it is provided that such officer may issue a show cause notice to the assessee if he is satisfied
that the value determined is not in accordance with the Act or these Rules. The Central Excise
Officer also has the power to determine the value of taxable service after providing a
reasonable opportunity to the assessee of being heard.
Rule 5 provides for the Inclusion in or exclusion from the value of certain expenditure or costs.
51
Sub-rule (1) provides that any expenditure or costs are incurred by the service provider
in the course of providing taxable service, all such expenditure or costs shall be treated
as consideration for the taxable service provided or to be provided and shall be included
in the value for the purpose of charging service tax on the said service.
However, sub-rule (2) provides that subject to the provisions of sub-rule (1), the
expenditure or costs incurred by the service provider as a pure agent of the recipient
of service, shall be excluded from the value of the taxable service subject to certain
conditions.
Explanation 1 to the above Rule defines pure agent to mean a person who
(a) enters into a contractual agreement with the recipient of service to act as his
pure agent to incur expenditure or costs in the course of providing taxable
service;
(b) neither intends to hold nor holds any title to the goods or services so
procured or 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.
The conditions required to be fulfilled for exclusion of expenses and costs are as follows:
(i)
the service provider acts as a pure agent of the recipient of service when
he makes payment to third party for the goods or services procured;
(ii)
the recipient of service receives and uses the goods or services so
procured by the service provider in his capacity as pure agent of the
recipient of service;
(iii) the recipient of service is liable to make payment to the third party;
(iv) the recipient of service authorizes the service provider to make payment
on his behalf;
(v)
the recipient of service knows that the goods and services for which
payment has been made by the service provider shall be provided by the
third party;
(vi) the payment made by the service provider on behalf of the recipient of
service has been separately indicated in the invoice issued by the service
provider to the recipient of service;
(vii) the service provider recovers from the recipient of service only such
amount as has been paid by him to the third party; and
(viii) the goods or services procured by the service provider from the third
party as a pure agent of the recipient of service are in addition to the
services he provides on his own account.
52
Explanation 2 to the above Rule states that the value of the taxable service is the total
amount of consideration consisting of all components of the taxable service and it is
immaterial that the details of individual components of the total consideration are
indicated separately in the invoice.
Rule 6 gives an exhaustive list of the cases in which the commission, costs, etc will be
included or excluded subject to the provisions of Section 67.
53
Chapter 11- Export of services

A new Rule 6A has been inserted in Service Tax Rules, 1994 for export of service.
(1)a provision of service shall be treated as export of service when,(a) the provider of service is located in the taxable territory ,
(b) the recipient of service is located outside India,
(c) the service is not a service specified in the section 66D of the Act,
(d) the place of provision of the service is outside India,
(e) the payment for such service has been received by the provider of service in convertible
foreign exchange, and
(f) the provider of service and recipient of service are not merely establishments of a distinct
person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act
(2) Where any service is exported, the Central Government may, by notification, grant rebate of
service tax or duty paid on input services or inputs, as the case may be, used in providing such
service and the rebate shall be allowed subject to such safeguards, conditions and limitations,
as may be specified, by the Central Government, by notification.
54
Chapter 12 - Point of Taxation Rules

Point of Taxation Rules, 2011
A. Background:
Unlike supply of goods / sale of goods, it would be difficult to ascertain when a provision of
particular service is completed. In this connection, Point of Taxation Rules is framed to provide
the point when the services shall be deemed to have been provided under various situations.
B. Broad scope of these Rules:
The Point of Taxation Rules, 2011 provide basis for determination of the point when a particular
service shall be deemed to be provided, what is the rate of tax that shall be adopted when
there is a change of rate or tax. Apart from the above, these rules also provide for
determination of point of taxation in certain specific transactions such as, continuous supply of
services, services relating to intangible property, services which are brought to tax from specific
date, services with associated enterprises.
Rule 2
Definitionssome definitions modified from 01-04-2012
Rule 3
Determination of Point of Taxation as a general rule and in case of continuous

supply of services
Rule 4
Determination of POT in case of change in effective rate of tax
Rule 5
Determination of POT where tax is being levied on the new service
Rule 6
Determination of POT in case of continuous supply of services..OMITTED from 0104-2012
Rule 7
Determination of POT in case of specified services .. MODIFIED from 01-04-2012
Rule 8
Determination of POT where service in the case of copyright, trademarks, designs or

patents
Rule
8A
Determination of POT on Best Judgment Basis New Rule from 01-04-2012
Rule 9
Transitional Provisions
55
C. Cases where Point of taxation rules would not be applicable or applied with modifications:
It shall be noted that in terms of Rule 7 of these rules, in certain persons, the point of taxation
shall be determined as below:
a. Persons liable to pay service tax under Section 68(2): Services for which the recipient or
other person shall be liable to pay service tax in terms of section 68(2) - Ex. Import of
services, GTA, sponsorship services, works contract etc.
Where recipient is liable to pay service tax under reverse charge mechanism, the date of
payment is relevant. If the payment is not made within a period of 6 months from the
date of invoice, the point of taxation shall be determined as per Rule 3 of the Point of
Taxation Rules, 2011.
W.e.f. 1st October 2014, where the payment is not made within a period of three
months of the date of invoice, the point of taxation shall be the date immediately
following the said period of three months.
Since the above proviso would be effective from 1st October, 2014, a transition rule for
the same has been prescribed under new Rule 10 of the POT Rules, which is as follows:
Notwithstanding anything contained in the first proviso to Rule 7, if the invoice in
respect of a service, for which point of taxation is determinable under Rule 7 has been
issued before the 1st day of October, 2014 but payment has not been made as on the
said day, the point of taxation shall,
(a) if payment is made within a period of six months of the date of invoice, be the date
on which payment is made;
(b) if payment is not made within a period of six months of the date of invoice, be
determined as if rule 7 and this rule do not exist.
Moreover, in case of associated enterprises, where the person providing the service is
located outside India, the point of taxation shall be the date of debit in the books of
account of the person receiving the service or date of making the payment whichever is
earlier.
b. Services received from associated enterprises: In case of transactions involving
provision of taxable services by one associated enterprises to another associated
enterprises, the point of taxation of services are as detailed below:
Location of
Service
Location of
Recipient of
Point when taxable

56
provider
In India
Service
In India
In India
Outside India
Outside India
In India
Point of taxation as applicable under Rule 3 (i.e. date of

invoice or payment etc.) would be applicable.
Not taxable where the place of provision of service is
outside India. In other cases, Rule 3 shall be applied.
Earliest of the below is considered to be point of taxation:
a. date on which the payment has been made, or
b. The date of debit in books of accounts of the person
liable to pay service tax.
D. How to determine Date of payment

Nature of event
Date of payment in
general
Date of payment
Earliest of following dates:
a) Dates on which the payment is entered in the books of
account or
b) is credited to the bank account of the person liable to pay tax
Where there is change Date of credit into bank account where following conditions are
in effective rate or fulfilled:
services taxed for first (i) Such change in effective rate of tax or when a service is taxed for
time
the first time is during the period between such entry in books of
accounts and its credit in the bank account;
(ii) The credit in the bank account is after four working days from the
date when there is change in effective rate of tax or a service is taxed
for the first time; and
(iii)The payment is made by way of an instrument which is credited to
a bank account
E. Point of taxation as applicable in general
A.
B.
Services other Event earliest of the following:

than
Date of invoice
continuous
Date of completion of service if invoice is not issued within 30
supply
of
days from the date of completion of service.
service
Date of receipt of advance- to the extent of advance received.
Continuous
Event earliest of the following:
supply
of
Date of invoice
services
Date of completion of service if invoice is not issued within 30
days from the date of completion of service.
Date of receipt of advance- to the extent of advance received.
57
Date of completion of service shall be completion of event on the

basis of which payments to service provider is determined
Meaning
of
a) Service provided continuously or on recurrent basis, under a
Continuous
contract, for a period exceeding three months with the
supply
of
obligation for payment periodically or from time to time, or
service
b) The services notified by the Central Government, to be a
continuous supply of service
Services
(a) Telecommunication service
notified
by
(b) service portion in execution of Works contract
[Notification No. 38/2012-S.T., dated 20-6-2012]
Central
Government
F. Point of taxation where there is change in effective rate of tax:
Meaning of change in effective rate
Where there is a revision in rate of tax, or change in portion of value on which tax shall be
payable (change in the abatement rates), such changes shall be termed as change in effective
rate.
Point of taxation in case of change in effective rate
Where during the course of provision of services, if there is any change in effective rate of tax
(i.e. either increase or decrease of rate of tax) and then POT will be determined in the manner
as explained below:
Date of Service
28/4/2013
05-10-2013
Change of Rate from 10% to 12%: 1-5-2013

Date of Invoice Date of Payment
Rate of Tax Date on Which Liability arises
05-09-2013
25/6/2013
12%
05-09-2013
28/4/2013
25/6/2013
10%
28/4/2013
05-09-2013
26/4/2013
10%
26/4/2013
28/4/2013
28/4/2013
05-09-2013
25/6/2013
16/4/2013
28/4/2013
12%
10%
12%
25/6/2013
16/4/2013
05-09-2013
G. Point of taxation in case of New Services

In case when the new services are brought into tax net for the first time then in such cases the
point of taxation shall be determined in a manner as explained below:
58
S. No.
Date
of
New Date of Invoice
Service Taxable
Date of Payment Taxable/Not

Received
Taxable
1.
1st July
14th July
30th June
Not Taxable
2.
1st July
15th July
1st July
Taxable
3.
1st July
30th June
30th June
Not Taxable
4.
1st July
1st July
2nd July
Taxable
H. Point of taxation for services relating to Copyright and other intellectual property services
Applicability
to
Payment
of
Royalties and
other
payments
pertaining to:
- copyrights,
- trademarks,
- designs or
patents
When Applicable
Where the whole amount of the consideration for the provision of service is
not ascertainable at the time when service
was performed, and
use or the benefit of these services by recipient of service or other person (a
person other than the provider) gives rise to
any
payment
of
consideration
subsequently.
Point when taxable

Each time when the
payment in respect of
such use or the benefit
is received Or
Date on which invoice
is issued by the
provider
Whichever is earlier
59
Chapter 13 Works Contract Services

Section 65B (22) "Declared Service" means any activity carried out by a person for
another person for consideration and declared as such under section 66E;
Section 66E of the Finance Act, 2012 contains the list of nine activities that have been
declared to be services.
Declared Services
Section 66E lists the following as being declared services:
(a)
Renting of immovable property;
(b)
Construction of a complex, building, civil structure or a part thereof, including a

complex or building intended for sale to a buyer, wholly or partly, except where the
entire consideration is received after issuance of completion certificate by the
competent authority.
(c)
Temporary transfer or permitting the use or enjoyment of any intellectual property

right;
(d)
Development, design, programming, customization, adaptation, upgradation,

enhancement, implementation of information technology software;
(e)
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation,

or to do an act;
(f)
Transfer of goods by way of hiring, leasing, licensing or in any such manner without
transfer of right to use such goods;
(g)
Activities in relation to delivery of goods on hire purchase or any system of payment

by installments;
(h)
Service portion in the execution of a works contract;
(i)
Service portion in an activity wherein goods, being food or any other article of
human consumption or any drink (whether or not intoxicating) is supplied in any
manner as a part of the activity.
Service portion in the execution of a works contract:

Works Contract is one of the transaction which is covered under deemed sale under
Article 366(29A) of the Constitution of India.
However, only service portion in execution of a works contract is specified as declared
service.
In this context, the term works contract is defined in clause (54) of Section 65B:
60
Section 65B (54) "works contract" means a contract wherein transfer of property in goods
involved in the execution of such contract is leviable to tax as sale of goods and such
contract is for the purpose of carrying out construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance, renovation, alteration of any
movable or immovable property or for carrying out any other similar activity or a part
thereof in relation to such property;
It is clear from the above that the new definition of works contract is similar to the
definition contained in VAT laws of various states wherein contract includes transfer of
property in goods along with provision of services for certain specified activities in
relation to both movable and immovable properties.
It is relevant to note that only if the said transaction is a composite contract on the basis
that service aspect is inextricably linked to the sale of goods and the actual amount
towards the element of services cannot be segregated on the basis of documents
available, then the nature of such transaction would be determined by the application of
the dominant nature test laid down by the Supreme Court in BSNL vs. UOI 2006 (2) STR
161 (SC).
Valuation of services involved in execution of Works contract:
Rule 2A of the Service Tax Determination of Value Rules, 2006 provides the method of
Determination of value of services involved in the execution of a works contract:
(i) Value of the works contract shall be:
[Gross amount charged] (Minus) [Value of transfer of property in goods involved in
execution of works contract]
The explanation provides that for the purposes of this Rule, the value of the works
contract shall not include
d.
The VAT or sales tax paid or payable on the transfer of goods used in the execution
of the works contract.
e.
The Rule further provides the values which are to be included in the value of the
works contract, viz.,
(i) Labour charges incurred for the execution of such contract;
(j) The amount paid to a sub-contractor for labour and services;
(k) The charges for planning, designing and architects fees;
(l) The charges for hiring or otherwise obtaining machinery and tools used for the
61
(m) The cost of various consumables such as water, electricity, fuel, used for the
(n) The cost of establishment of the contractor that is relatable to the supply of
labour and services;
(o) Other similar expenses relatable to the supply of labour and services;
(p) Profit earned by the service provider in relation to supply of labour and services.
Where value added tax or sales tax has been paid or payable on the actual value of
property in goods transferred in the execution of the works contract, the value
adopted for the payment of VAT or sales tax shall be considered to be the value of
transfer of such goods.
f.
(ii) States that where the value has not been determined under clause (i), the service tax
would be payable in the following manner:Nature of works
Valuation
(A)
Original works
(B)
Maintenance, repair, reconditioning etc

of goods
(C)
Other works including maintenance,

repair, completion and finishing services
such as glazing, plastering, floor and
wall tiling, installation of electrical
fittings of an immovable property

(w.e.f. 1st October 2014 70%)
Condition: No Credit of inputs shall be availed

Provision in respect of (B) & (C) above upto September 30, 2014
Explanation 1: - Defines original works and total amount
Explanation 2: - Clarifies that the provider of taxable service would not be eligible to avail
Cenvat Credit of duties or cess paid on any inputs, used in or in relation to the said works
contract.
62
Partial Reverse Charge Mechanism:

In case provisioning of works contract services by any specified person to a business
entity registered as a body corporate, located in the taxable territory than it would be
covered under partial reverse charge mechanism.
Specified person means an individual or a Hindu Undivided Family or a partnership firm,
whether registered or not, including association of persons, located in the taxable
territory.
Under partial reverse charge mechanism the Service Provider and the Service Recipients
are jointly liable to pay service taxes thereon vide Notification No. 30/2012-ST-Dated June
20, 2012.
Service Tax liabilities of Service Provider and Service Recipient under Joint Charge
Mechanism or Partial Reverse Charge Mechanism as under:
Nature of service
Service Provider
50%
Works contract
Service
Recipient
50%
Relevant Abatements pertaining to Works Contract/ Construction Services vide

Notification No. 26/2012-ST-dated June 20, 2012 duly amended by the Notification No
2/2013-ST-dated March 1, 2013 and the Notification No 9/2013-ST-dated May 8, 2013
Sl
12
Description of taxable service
Percentage
on which tax
payable
Construction of a complex, building,

civil structure or a part thereof,
intended for a sale to a buyer,
wholly or partly, except where
entire consideration is received
after issuance of completion
certificate by the competent
authority,-
(i) CENVAT credit on inputs

used for providing the
taxable service has not been
taken under the provisions
of the CENVAT Credit Rules,
2004.
(ii)The value of land is
included in the amount
charged from the service
receiver.
(a) for a residential unit satisfying

both the following conditions,
namely:
(i)the carpet area of the unit is less
Conditions
25
63
than 2000 square feet; and

(ii)the amount charged for the unit
is less than rupees one crore
(b) other than (a) above
30
The amount charged shall be the sum total of the amount charged for the service
including the fair market value of all goods and services supplied by the recipient(s) in or
in relation to the service, whether or not supplied under the same contract or any other
contract, after deducting(i) the amount charged for such goods or services supplied to the service provider, if any;
and
Provided that the fair market value of goods and services so supplied may be determined
in accordance with the generally accepted accounting principles.
Relevant Service pertaining to Works Contracts exempted under the Mega Exemption
Notification 25/2012-ST-dated June 20, 2012:
Construction activities
12
Service recipient
Nature
exempt
of
Government/ Local authority/Governmental

Authority
service Construction,
erection,
commissioning,
installation, completion, fitting out, repair,
maintenance, renovation, or alteration of
following:
a) a civil structure or any other original works
meant predominantly for use other than for
commerce, industry, or any other business or
profession;
(b) a historical monument, archaeological site
or
remains
of
national
importance,
archaeological excavation, or antiquity
specified under the Ancient Monuments and
Archaeological Sites and Remains Act, 1958 (24
of 1958);
(c) a structure meant predominantly for use as
64
(i) an educational, (ii) a clinical, or (iii) an art or

cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) water
supply (ii) water treatment, or (iii) sewerage
treatment or disposal; or
(f) a residential complex predominantly meant
for self-use or the use of employees
government / local authority etc. or for use of
MPs, MLAs, Member of municipality/panchyats
etc covered under Explanation 1 to
Section65B(44)
13
Provider
Recipient
Nature of services
Nature
exempt
Any person
Any person
Construction,
erection,
commissioning,
installation, completion, fitting out, repair,
maintenance, renovation, or alteration
of activities a) a road, bridge, tunnel, or terminal for road

transportation for use by general public;
(b) a civil structure or any other original works
pertaining to a scheme under Jawaharlal Nehru
National Urban Renewal Mission or Rajiv
AwaasYojana;
(c) a building owned by an entity registered
under section 12AA of the Income tax Act,
1961(43 of 1961) and meant predominantly for
religious use by general public;
(d) a pollution control or effluent treatment
plant, except located as a part of a factory; or
(e) a structure meant for funeral, burial or
cremation of deceased;
14
Provider
Recipient
Nature of services
Nature
exempt
of
Any person
Any person
Construction, erection, commissioning, or
installation of original works pertaining
activities b) an airport, port or railways, including
65
monorail or metro;
(b) a single residential unit otherwise than as a
part of a residential complex;
(c) low-cost houses up to a carpet area of 60
square metres per house in a housing project
approved by competent authority empowered
under the Scheme of Affordable Housing in
Partnership framed by the Ministry of Housing
and Urban Poverty Alleviation, Government of
India;
(d)
post-harvest storage infrastructure for
agricultural produce including a cold storages
for such purposes; or
(e) mechanised food grain handling system,
machinery or equipment for units processing
agricultural produce as food stuff excluding
alcoholic beverages
29(h)
Sub-contractor
sub-contractor providing services by way of

works contract to another contractor providing
works contract services which are exempt
Disclaimer: The contents of this document are solely for informational purpose. It does not
constitute professional advice or recommendation of firm. Neither the authors nor firm and its
affiliates accepts any liabilities for any loss or damage of any kind arising out of any information
in this document nor for any actions taken in reliance thereon.
Readers are advised to consult the professional for understanding applicability of this newsletter
in the respective scenarios. While due care has been taken in preparing this document, the
existence of mistakes and omissions herein is not ruled out. No part of this document should be
distributed or copied (except for personal, non-commercial use) without our written permission.
66

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Background Study

Introduction to Service Tax

Applicability of Service Tax

Charge of Service Tax

Determination of Place of Provision of Services

Reverse Charge Mechanism

Exemptions and abatements

Valuation of Taxable Services

Point of Taxation Rules

Works Contract Services

Chapter 1 Introduction to service tax

Chapter 2 - Applicability of Service Tax

Chapter 3 Charge of Service Tax

Chapter 4 - Negative List

Services provided by Government or local authority:

Services by the Reserve Bank of India:

Services by a foreign diplomatic mission located in India:

agricultural operations directly related to production of any agricultural produce

Selling of space for advertisement in print media

Service by way of access to a road or a bridge on payment of toll charges:

Betting, gambling or lottery:

Admission to entertainment events or access to amusement facilities:

Transmission or distribution of electricity by an electricity transmission or distribution

Pre-school education and education up to higher secondary school or equivalent;

Education as a part of a curriculum for obtaining a qualification recognized by any

All Educational services which is a part of curriculum and which results in

Education as a part of an approved vocational education course

(m) Services by way of renting of residential dwelling for use as residence:

Financial Services by way of(i)

extending deposits, loans or advances in so far as the consideration is represented

Services relating to transportation of passengers:

Metro, monorail or tramway;

Service relating to transportation of goods:

Services by way of transportation of goods(i)

by road except the services of(A) a goods transportation agency; or

Similar to transportation of passengers by inland waters, the transportation of goods by

Funeral, burial, crematorium or mortuary services including transportation of the

Chapter 5 Declared Services

Renting of immovable property;

Construction of a complex, building, civil structure or a part thereof, including a complex

Requirement of more than 12 residential units in a residential complex has been

Temporary transfer or permitting the use or enjoyment of any intellectual property

Development, design, programming, customisation, adaptation,

The phrase information technology software is defined in Section 65B as follows:

Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or

Agreeing to the obligation to refrain from an act.

Activities in relation to delivery of goods on hire purchase or any system of payment by

Service portion in the execution of a works contract;

Chapter 6 - Bundling of services

Chapter 7 Determination of Place of provision of service

Place of provision in general. This

Place of provision /or Summary of the Rules

Then location of goods at the time of provision of

Place of provision is not where goods are located

Prior to the October 1, 2014:

Location where actual services are actually

Location of immovable property present or

Nature of services / activities

Provision of services at more 7