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Instruction No. 01/2002, Dated 1st Aug 2002

F.No.B.11/1/2002-TRU
Government of India
Ministry of Finance
Department of Revenue

1st August, 2002

Subject:  Tax on 10 New Services to be effective from 2002- Instructions regarding.  

         Kindly refer to section 149 of the Finance Act, 2002 (20 of 2002) which, inter-alia, provides for the levy of service tax on 10 new services.           

2.            It has been decided that the levy and collection of service tax on the new services shall be effective from 16.8.2002 (Vide notification No.8 /2002-ST, dated 1.8.2002) 

3.            As you are aware, certain legislative amendments were made in sections 73, 75, 78, 82, 83, 94 and 95 of the Finance Act, 1994 vide section 149 of the Finance Act, 2002. All these changes will now be effective from 16.8.2002. The Service Tax Rules, 1994 have also been amended.    Notification No.12/2002-ST dated 1.8.2002 has been issued in this regard. These amendments are also effective from 16.8.2002.  

4.          Legislative changes: The following changes were made in the Finance Act, 1994 by the Finance Act, 2002.  

4.1         Section 73 has been amended to provide for relevant dates for computation of the period of limitation for issue of show cause notice for recovery of service tax in cases when return is filed, when no return is filed, when assessment is provisional and when any sum has erroneously been refunded.  

4.2         Section 75 has been amended to provide for charging of interest at the rate of fifteen percent per annum (instead of the twenty four percent per annum) for delayed payment of service tax.        

4.3        Section 78 has been amended to empower the Assistant Commissioner/Dy. Commissioner to impose penalty without prior approval of the Commissioner of Central Excise in cases where the value of taxable service suppressed/furnished does not exceed Rs. 2 lakh. Hitherto this limit was Rs 25,000.  

4.4        Section 82 has been amended to provide specifically for the power to seize documents relevant to any proceedings under the service tax law.   

4.5           Section 83 has been amended to make section 11D of the Central Excise Act applicable to service tax. Accordingly, if any amount is recovered by any person as “service tax”, then such person bound to pay it to the Government. The law provides for its recovery in case of his failure to do so. 

4.6              Section 94 has been amended to empower the Government to make rules to allow credit of service tax paid on the services consumed for providing a taxable service in case where the services consumed and the service provided fall in the same category of taxable service.  

4.7              Section 95 has been amended to empower the Government to remove the difficulties arising in implementation of service tax levy on new services by order in the official gazette within a period of two years from the date on which the levy on new service comes into effect. 

5.         Amendment in the definition of “ banking and other financial services” and “banking services”        

5.1      The definition of  “banking and other financial service” has been amended to extend the levy of service tax to body corporate other than those already specified earlier, providing specified services. The levy on body corporate, which have come into tax net as a consequence to this amendment, will be effective only from 16.8.2002. It may be noted that as a result of this amendment, all body corporate providing the specified “banking and other financial service” will come under the tax net.  Earlier, it was clarified vide Ministry’s instructions F. No. B-11/1/2001 dated 9.7.2001 that asset management companies are not NBFC. Hence they would not come under the purview of service tax. This instruction stands amended now as Asset Management Companies being “body corporate” will henceforth be liable to pay service tax. Similarly all merchant bankers, portfolio managers, foreign exchange brokers etc who are “body corporate” will henceforth be liable to pay service tax.   

5.2           The definition of “banking company” has also been amended to assign it the meaning as given in clause (a) of section 45A of the Reserve bank of India Act. This amendment has been made to clarify the doubts, which were raised about the applicability of service tax levy on banking and other financial services provided by the State Bank of India and its subsidiary banks under the erstwhile definition of  “banking company”.  

6.            Retrospective amendment in the provisions relating to “broadcasting service”  

6.1         Vide section 148 (1) of the Finance Act 2002, the definitions of “broadcasting” and “taxable service” in relation to broadcasting service have been amended retrospectively with effect from 16.7.2001 in order to clarify the scope of service beyond doubt. Further a definition of “broadcasting agency or organisation” has been inserted with effect from 16.7.2001. It is now incorporated in the definition itself that in case of foreign broadcasting channels, broadcasting would include the activity of selling of time slots or obtaining sponsorship for broadcasting of any programme or collecting the broadcasting charges on behalf of such channel by its branch office or subsidiary or representative in India or any agent or any other person acting on their behalf.  

6.2       Attention is invited to section 148 (2) of the Finance Act. This has mandated that the broadcasting agencies, who did not pay service tax earlier, would have to pay all dues within thirty days from the date on which the Finance Bill 2002 received the assent of the President (i.e. 11.5.2002), otherwise they will have to pay dues along with the interest. The Commissioner would have no doubt taken the necessary action accordingly. If any recoveries are still pending, the same may kindly be brought to the notice of the Ministry by the Commissioner concerned within a fortnight.  

7.           Service Tax Credit Rules, 1994  

7.1           The Service Tax Credit Rules 2002 have been made to allow credit within the same category of service. These  rules also specifies the procedural requirement to be fulfilled for availing credit of service tax.  Notification No. 14/2002-ST refers. These rules broadly envisage the following procedures/conditions for availing credit.  

(i)“input service” and “output service” service should fall in the same category of service i.e. they should fall in the same sub-clause of clause 90 of section 65 of the Finance Act 1994.
(ii)credit will be available only in respect of such “input service” for which the bill/invoice is issued on or after 16.8 2002.
(iii)credit can be availed on invoice/challan/bill issued by the input service provider indicating clearly the serial number, the registration no, address of the service provider, value of taxable service and amount service tax payable/paid. For instance, credit of service tax will be available to a consulting engineer in respect of the service provided to him by another consulting engineer. To give another illustration, an event manager can not claim credit of the service tax paid by a videographer.
(iv)the person availing credit shall be responsible to ensure the correctness of credit availed and he shall maintain proper accounting records in this regard indicating the details of description and value of input service, service tax paid on input service, the details of service provider with service tax registration number and the service tax credit utilized for payment of service tax on final service.
(v)he shall submit information in prescribed proforma to the jurisdictional officer along with ST-3 return.
(vi)in case of wrong availment of credit or cases where it is discovered later on that service tax has not been paid, service tax credit will be recoverable and penal provisions of section 73, 75, 76 and 78 would be applicable. For instance, a service provider issued a bill for a service rendered. He also shows the ST amount payable. However, in the actual term, he did not pay this to the government for any reason, whatsoever. In that event the output service provider will have to reverse the credit. He can not take this plea that the credit is due to him as he was not at fault.

8.         Amendments in Service Tax Rules, 1994     

8.1       In relation to “insurance auxiliary services relating to life insurance” provided by the insurance agents, it has been prescribed that the service tax shall be paid by the Insurance Company (Insurer). Notification No. 12/2002-ST refers. Accordingly in case of insurance agents, service tax in respect of their services will have to be paid by the life insurance companies.   

8.2      As per the provisions existing hitherto, in the case of a service provider who is a non resident or from outside India and does not have an office in India the service tax has to be paid either by such service provider or by a person authorized by him. However, it is reported that difficulties arise in collecting service tax from such service provider as they leave the country after rendering the service.   To smoothen the tax collection, it has now been prescribed in the Service Tax Rules that in such cases the service receiver in India would be liable to pay service tax on behalf of the service provider (refer notification No. 12/2002-ST).   

8.3    On delay in payment of service tax, penalty and interest is chargeable. As regards the issue as to which date should be deemed to be the date of payment of service tax, there are divergent views.  In some cases the date on which the service tax is credited to the government account is being treated as the date on which service tax has been paid.  Even though the assessee deposits cheque on or before the stipulated date, the government   account is credited after a few days of deposit of cheque.   It has now been decided that the date of presentation of cheque will deemed to be the date on which service tax has been paid to the credit of the Central Government provided the cheque is not dishonoured in the course of clearing Notification No.12 /2002-ST refers.  

8.4     Amendment in Form ST-3: Certain amendments have been made in the ST-3 form in view of introduction of credit within the same service. Notification No. 12/2002- ST refers.  

9.     Presently, practicing chartered accountants, cost accountants and company secretaries are liable to pay service tax on the specified services provided in their professional capacity as mentioned in the notification No. 59/98-ST dated 16.10.98. However this exemption has been misinterpreted to mean that even if a CA/CS/Cost Accountants provides other taxable services such as management consultancy, or manpower recruitment service, he is not liable to pay service tax. This is not the correct interpretation. To clarify all doubts, an Explanation has been added in the notification No. 59/98-ST dated 16.10.98. This Explanation makes it clear that in case a CA/CS/Cost Accountants provides other taxable services, service tax will have to be paid as such taxable service (notification No.15 /2002-ST refers).  

10.       Notification No. 6/99-ST dated 9.4.1999 exempts the service tax on such taxable services where payment is received in India in foreign convertible currency. While referring to taxable services, this notification has a reference to clause (72) of section 65 of the Finance Act, 1994. Consequent to amendment made in section 65 vide the Finance Act 2002, the taxable service are now defined in clause (90). The notification No. 6/99-ST dated 9.4.1999 has been amended to incorporate reference to clause (90) in place of existing reference to clause (72) (notification No. 13/2002-STrefers)   

11.    Extension of service tax to ten more services:  In regard to the new services, which will be subject to service tax from the 16 th July, 2002, certain issues have been brought to notice during the course of discussion with the departmental officials or the concerned Associations. These have been discussed and clarified in the Annexures appended as per details below.  

(i)Life insurance, including insurance auxiliary service relating to life insurance.(Annexure I)
(ii)Cargo handling service(Annexure II)
(iii)Storage and warehousing services(Annexure III)
(iv)Event Management(Annexure IV)
(v)Rail Travel Agent(Annexure V)
(vi)Health club & fitness centres(Annexure VI)
(vii)Beauty parlours(Annerure VII)
(viii)Fashion Designers(Annexure VIII)
(ix)Cable Operators(Annexure IX)
(x)Dry cleaning service(Annexure X)

The          The section referred to hereinafter are the sections or clauses of the Finance Act, 1994 as amended by the Finance Act, 2002. Reference to sub-clause or clause means clause or sub-clause of section 65 (1) of the Finance Act, 1994 as amended by the Finance Act, 2002.  

11.1  The new assessee are required to file for service tax registration No. in form ST-1 to the jurisdictional superintendent within thirty days from 16.8.2002. The ST-1 form is enclosed herewith (Annexure XI). In case of failure to take registration within the stipulated time of thirty days, the assessee would be liable to pay a mandatory penalty of five hundred rupees.  

12.   The Commissioners are requested to issue suitable trade notices for the benefit of the new assesses detailing the scope and coverage of the new services, gist of the service tax procedures and formalities to be complied with by the assessees, formats of the application form for registration, service tax returns, etc., the manner of payment of service tax, the banks through which service tax payments can be made and other relevant aspects.  

13.    In case of any doubts or difficulties arising in the implementation of service tax on the new services, which require clarification at the Board’s level, the Commissioners are requested to bring the same to the notice of the undersigned immediately along with their suggestions/views for resolving these difficulties.  

(T.R.Rustagi)
Joint Secretary (TRU)
Telephone: 309 2687

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