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4. Service Tax
Introduction
It is an Indirect Tax levied by the Central Government on certain services. It is
leviable only if there is provision of certain services. It was introduced in 1994-95,
which came into force w.e.f 1st july,1994. The power to levy service tax is exercised
by the parliament. It is administered by the Central Excise Department in India. It
extends to whole of India except the state of Jammu and Kashmir. The services
provided within J and K is not taxable under the Service Tax.
Scope and Extent of Service Tax: - service provider is a person who provides
taxable services, He is liable to pay service tax. It covers individuals, firms,
companies, societies, trusts, government etc.
While charging tax on services, what is important is the location where services are
rendered. The place or location of the office of service provider is not important.
Services provided at the following places are not chargeable to service tax
1. Special Economic Zone(SEZ)
2. Jammu and Kashmir
3. Place outside India (foreign country)
However, following are the 4 exceptions as far as liability of service tax is concerned

1. Service Importer in India: - Where a service is provided by a non-resident or a

person is from outside India, the person receiving such service in India has to
pay service tax.
2. Insurance Company:-In case of Insurance Auxiliary services, provided by an
insurance agent5, service tax is to be paid by the company.
3. Consignor/consignee: - In case of Goods Transport Agency, the consignor /
consignee who makes the payment towards freight, would be Liable to pay
service tax.
4. Mutual Fund:- in case of business auxiliary service of distribution of mutual
fund by an agent of distributor the asset management company or mutual
fund company receiving such service, would be liable to pay service tax.
Amount on which Service tax is payable:
1. The service tax for a particular period is payable on the amount/value of
taxable service received during the period and not on the gross amount
billed.
2. If charges are received in advance, before rendering of the services, service
tax is payable even if services are yet to be provided.
3. Service tax is to be paid on gross value of taxable services. TDS is included in
the charged amount.
Rate of Service Tax:
1. Presently, w.e.f 24/02/2009, service tax is payable @ 10% +20%education
cess+1% Higher Education cess.i.e.10.3%
2. For services rendered between 10/05/07-23-02-09. The rate of service tax
was 12%+2%education cess+1% higher Education cess i.e.12.36%

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2.
3.
4.
5.
6.
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Calculation of service tax:- When the gross amount charged by a service

provider for the service provided is inclusive of service tax payable, the value
of service tax is calculated as under
Service tax = Gross amount received 10.3/110.3
Exemption from service Tax:
1. When gross amount received is upto Rs. 10 lakhs in a year, the small scale
service provider is exempt from service tax. Such exemption is not
applicable to taxable service provided by a person under brand name or
trade name.no CENVAT credit is available if service tax provider opts for
exemption from tax.
2. No service tax on services provided to the UNO or any other international
organization.
3. No service tax on service provided in SEZ.
4. No service tax to Diplomatic Mission& to the officers and their families of
Diplomatic Mission.
5. No service tax on the value of goods and materials sold by the service
provider if there is a documentary proof specifically indicating the value of
goods and materials.
6. No service tax on specified taxable services, received by an exporter and
used for expoet of goods. The srvic tax paid by an exporter on the
services is refunded to the exporter on compliances of conditions.
7. If a government Department or Public authority performs any mandatory
or statutory function under the provision of any law, such activity is purely
in public interest and hence not taxable.
8. However, if such authority or Government Department performs a
services, which in not in the nature of statutory activity, for some
consideration, it is fully taxable
9. Taxable services provided to or by the RBI are exempt from service TAX.
10.If any Bank or financial institution perform s the work of collecting any
duties or taxes, suce services are exempt from payment of Service tax.
Taxable service provided us with different services which are included
under service tax.currently there are 108 services included under the
definition of Taxable Service.
For our exams, we have only 6 services in our syllabusPractising Chartered Accountant
Business Auxiliary services
Commercial Training and coaching
Renting of immovable property
Mandap keeper
Works contract.
Practicing Chartered Accountant:
This service became taxable w.e.f 16/10/98.He is a person who is a member
of the ICAI and is holding a certificate of practice.All services provided by
pracitising C.As in their professional capacity are taxable.
Exempt Services:
a) Services relating to Teaching ,placement etc.
b) Service s in relation to representation before any statutory authority on
behalf of the client.
Business Auxiliary Services:
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This services became taxable w.e.f.01/07/03. Any person who provides

services to a client in the nature of business auxiliary service is liable to pay
tax.
Business Auxiliary service means any service in relation to
a. Promotion / marketing /sale of goods produced or belonging to the client.
b. Promotion /marketing of service provided by the client, including any
service in relation to promotion or marketing of games of chance, lottery ,
lotto etc.
c. Any customer care service provided on behalf of client.
d. Procurement/purchase of goods and services which are inputs for the
client.
e. Services as a commission agent.
Exempt Services :
The commission agent working for sale or purchase of agriculture products
i.e. grains, pulses, cotton, tobacco etc., are exempted from payment of
service tax.
The service of cutting and polishing of gold, precious metals and diamonds
are exempt from service tax.
Services provided by Technology Business Incubators(TBI) and science and
technology Entrepreneurship parks (STEP) are exempt from service tax.
Commercial Training or coaching centre:
This service became taxable w.e.ef. 01/07/03. Commercial Training or
Coaching Centre means any institute or establishment providing commercial
training or coaching, on any subject or field other than sports, with or without
issuance of a certificate and it included coaching classes.
It includes:a) Charitable Trusts providing training
b) Institute that train students for competitive examinations like CET, pre
medical Test etc.
c) A private institution conducting a course and granting degree in
collaboration with foreign university.
d) Institute giving coaching through postal services.
e) If coaching centers send individuals to the places of students for tuition,
such services are chargeable to tax a such individuals are rendering
services on behalf of an institution.
f) If coaching centre is appointed for training to employees in the company,
then payment made by the employer to such centre is chargeable to
service tax.
g) Institute conducting courses courses for improvement in communication
skills, personality development and overall grooming , they are also liable
to pay service tax.
Exempt Services:
1. Coaching for recognized Courses by Recognized institutions: Any Institute
or establishment, which issues a certificate of diploma or degree
recognized by law, are excluded from service tax. It includes universities,
deemed universities or autonomous institutions recognized by University
Grants Commisssion[UGC], Medical council of India, bar council of India
etc.
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2. Coaching for competitive exams by recognized institutions: such coaching

given by recognized institutions is also outside the scope of service tax.
3. Vocational / Recreational Training: services provided by vocational /
recreational training institutes are also outside the scope of service tax.
4. Pre-school coaching or training: coaching to students on class 1 to 9 is
exempt from service tax.
5. Home tuition: individual providing service at the premises of a service
provider is not covered under service tax.
6. In house training by employers: Free training provided by employers to
their employees, is not chargeable to service tax.
7. Training on behalf of ICAI: When such professional institutes five training
to the students undertaking such courses for obtaining degrees from their
institutes, such services are not chargeable to service tax.
4. Rent on Immovable property:
This service became taxable w.e.f. 01/06/07. Renting of immovable property
includes renting, letting, leasing of such property for use in the course of
business or commerce. It includes use of property as factories, office
buildings, ware houses, theatres, and exhibition halls.
Exempt Services :
1. Renting of immovable property by a religious body or to a religious body.
2. Renting of immovable property to an educational body, imparting skill or
knowledge or nay subject other than commercial training or coaching centre.
3. Renting of vacant land solely used for agriculture, farming, forestry, mining
etc.
4. Renting of building used for residential purpose only, including hotels,
boarding houses etc.
Value on which service tax is payable:
Total amount of rent received for valid purpose is chargeable to service tax.
However, the property tax paid to the local bodies is deducted from such rent
received, for calculating service tax.but interest or penalty paid on such
property tax cannot be deducted.
5. Mandap Keepers:
This service became taxable w.e.f. 01/07/97. Mandap keeper means a person
who allows temporary occupation of amandap for a consideration for
organizing any official, social or business function.
Important points :
a) Mandap : It includes all immovable properties let out for organinsing social,
official or business function. It also covers marriage halls, banquet halls,
conference halls, hotels, stadium, gymkhana etc., providing any such facility
within their premises.
b) Dance/Drama/Music Progammes:Renting out hall/premises etc, for the
purpose of holding a dance or drama programme or competition is
chargeable to service tax.
c) Open land/Ground:it is treated as an immovable property and the above
premises let out for consideration for Barrat, Marriage Function or Trade
Fair will attract service tax.
Exemption:
1. When a mandap keeper also provides catering services like supply of food,
in addition to the letting out of the mandap, a deduction /abatement of
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40%of the total amount charged is made to arrive a value of taxable

service. Service tax is leviable only on 60% of the total amount billed in
such cases. This deduction generally applies to the hotels, clubs who also
act as mandap keeper. Such mandap keeper should not avail any cenvet
credit on inputs and capital goods.
2. The activity of shooting of film or serial cannot be considered as function
and hence renting out of studio premises for such activities is not covered
under service tax.
3. Sales tax, VAT and expenditure Tax are legal taxes, and they are not
included in the value of taxable services.
4. The charges of furniture, decoration etc.provided by the third party (and
not the mandap keeper) are not included in the taxable value of service
taxes.
5. Theatre given on rent for show of the premier of any movie would not
attract service tax as it cannot be termed as official, social or business
function.
6. Art galleries are not functions, exempt from service tax.
7. If any booking is cancelled for mandap, service tax is not payable.
6. Works Contract:
This service became taxable w.e.f. 01/06/07. It means a contract carried out
for the purpose of
a) Erection, installation of plant, machine, equipments or structures;
b) Installation of electrical and electronic devices;
c) Plumbing;
d) Heating,ventilation or air conditioning including pipe work, duct work,
insulation ect.
e) Fire proofing and water proofing;
f) Lift, escalator and elevators;
g) Construction of a new building or a civil structure or a part thereof;
h) Construction of a new residential complex;
i) Turnkey product including engineering, procurement and construction
projects.
Works contract is a composite contract for supply of goods and service.it
is divided in two parts and1. VAT/ sales tax is leviable on transfer of property in goods involved in
execution of works contract, and
2. Service tax is leviable on services provided in relating to the execution
of works contract.
Value
1.
2.
3.
4.
5.

of works contract service shall include

Labour charges for execution of work;
Amount paid to a sub-contractor for labour and services;
Charges for planning, designing and architect fees;
Hire charges paid for machine and tools used for works contracts;
Cost of consumables such as water, electricity, fuel etc. used in the execution
of works contract.
6. Cost of establishment and similar expenses of the contractor related to
supply of labour and service;
Exemptions:
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1. Works contract in respect of specified infrastructure projects like ports, roads,

airports, Raiways,transport terminals, Bridges,Tunnels and Dams.
2. Pure Job work, not involving any transfer of property in goods.
3. Payment of service tax at the rate of 4% of total value of works contract
under composite scheme.[provided no CENVAT credit is applied and Vat or
sales tax paid on transfer of property in goods should not be included in the
gross amount charged.]
CENVAT CREDIT (Basic Theory)
It means deduction from service tax liability, for the amount paid as service Tax
[and Education Cess] on input services. The interest and penalty amounts paid
cannot be considered for deduction.
Important terms:
1. Exempt services : It means the services which are exempt from service tax.
2. Input services : It means any services used by a provider of taxable service
for providing final service or in relation to the manufacture of final products.
It includes services used
A] in relation to setting up, modernisation and repairs of a factory ;
B] In relation to advertisement, market research, procurement of inputs;
C] In relation to activities of business such as accounting, auditing, financing,
credit rating, share registry, security etc.
3. Output services : it means any taxable service provided by the provider of
taxable service to a customer, client or any other person.If a person liable for
paying service tax, does not provide any taxable service or does not
manufacture funal products, the service for which he is liable to pay service
tax is considered as output services.However,Goods transporting Agency
services are excluded from the scope of output services.
4. Provider of Taxable Service : It includes a person liable for paying service
Tax. Service provider can avail credit or deduction of service tax paid on input
services and eligible capital goods used for providing output services .Such
credit or deduction can be made while paying servie tax due on his output
services.
5. Capital Goods; It means assets or equipments used in the factory where
final products are produced but does not include any equipment used in
office or for providing output service. Assets include tools, spoons and forks
of bare metal, machinery, electronic equipment, moulds and dies, tubes and
pipes and fittings, storage tanks etc.
Registration under Service Tax :
Registration is identification of an assessee, identification is necessary to pay
service tax,file returns and to follow various legal procedures. A person liable to pay
service tax must apply for registration before he starts making payment of service
tax and file return.He should apply in advance for registration which is given within
7 days. Failure to obtain registration would attract penalty upto Rs. 5,000 or Rs. 200
per day during which failure continues whichever is higher. Following points are
relevant
1. Period: when a person commences business of providing a taxable service,
he is required to register himself within 30 days of commencement of
business.
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2. Procedure: A person should file an application in Form ST-1, He should

attach certain address of business, constitution of business etc.
3. Multiple Service : Only one certificate is taken even if the person provides
more than one service from same premises. All taxable services should be
mentioned while applying for registration.
4. PAN Card: Having permanent Account Number [PAN] from I-T department is
must for obtaining service tax registration number. It will be known as STP
code.
Filling of Returns:
1. A service tax assessee has to file the following returnsA] ST-3 Return: for all registered assessees, including input service
distributors.
B] ST-3A return : For the assessee who makes provisional assessement .
2. Due Date:ST-3 is filed twice in a financial year. Return for half year ending
30th sept. is required to be filed by 25th Oct. and Return for half year ending
31st Mar. is required to be filed by 25th April. Even if it is a Nil return, it must
be filed.
3. Attachment : All instruction for filling return are mentioned in the form and it
is accompanied by copies of all GAR-7 challans for payment of service Tax
during the same period. All details of each service are given separately in the
same return.
4. Revised Return: An assessee may submits a revised return in Form ST-3 to
correct a mistake, within a period of ninety days from the date of submission
of original return.
5. Penalty: if a person fails to furnish returns, penalty is payable.
Service tax is paid on Quarterly basis by individuals and Firms. Due dates for
payments are
1. For Quart. Ended
30th June :by 5th July
2. For Quart. Ended
30th sept.: by 5th Oct.
3. For Quart. Ended
31st Dec. :by 5th Jan.
4. For Quart.ended
31st mar. :by 31st mar.

PROBLEMS
Q.1 Value of taxable services Rs. 4000/- Bill is drawn for Rs. 4,412[4,000+412]
including service tax. However, amount paid by the customer is only Rs.4,000.
Calculate amount of service tax.
Q.2 Mr. Yogesh rendered a taxable service to a client.a bill for Rs. 66,180/-was
raised. Rs. 25,000 was received from client on 1.5.2011 and the balance on 1.7.09.
No service tax was separately charged in the bill .
Is he liable to service tax?when and how much is the liability?
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Q.3 Mr. Aftab gives the following information relating to the services provided to
various clients for the half year ending 30.9.09:
1. Bill, raised for services rendered (excluding service tax)Rs. 6,75,000 out of
which bills for Rs.75000 was raised to an approved international institution.
2. Payment for bills Rs. 50,000 were not received till 30.9.11.
3. Amount of Rs. 50,000 [excl.service tax] received as an advance from Jay ltd.
On 20-09-2011 to whom services were not provided yet.
Other bills are duly received.
Calculate amount of service tax payable upto 30.09.2011
Q.4 Mr. Prasad, a chartered Accountant raised an invoice of Rs. 33,000[inclu.service
tax] on a client. But amount received is only Rs. 28,000 as a full and final
settlement.
How much service tax Mr. Prasad has to pay ?
Q.5 MR. Dilip a practicing chartered Accountant receives the following fees for
services rendered. Calculate his service tax liability :[Total Receipts excluding
service tax]:
1. Company Law consutation
Rs.60,000
2. Auditing services
Rs.80,000
3. Audit of RBI
Rs. 2,00,000
4. Certification services
Rs.80,000
5. Statutory Representation
Rs. 74,000
6. From teaching and from placement institute
Rs. 20,000
Q.6 M/s Prasad and co. has received the following fees during the quarter ended
30/06/11 compute service tax liability [given figures are excluding service tax]:
1. Fees from statutory audits in kerala
Rs. 20,000
2. Fees from Audit services In Egland(Exported)
Rs. 50,000
3. Consultancy services done in J And K
Rs. 8,000
4. appeal fess for statutory representation
Rs. 20,000
5.Tax consutancy in Mumbai
Rs. 25,000
Q.7 Mr. Abhijit, a commission agent has provided the services of Rs. 1,00,000 [excl.
service tax] to a food processing company for the following activities
1. Commission for procuring sugarcane and other crops Rs. 60,000.
2. Commission for providing glass bottles Rs. 40,000.
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Compute the service tax liability.

Q..8 M/s MultiPurpose services provides following services to Chintamani
Jewellers and charges the following remuneration [excl. service tax].
Compute its service tax liability.
1. Purchase of diamonds & gold
Rs. 20,000
2. Cutting and polishing diamonds & gold
Rs. 10,000
3. Sale of such ornaments including advertisement
Rs. 50,000
4. Recovery of dues from customer, if any
Rs. 5,000
Q.9 Swanand Commerce Classes has received following fees[excl.service tax] from
students.
Compute its service tax liability:
1. Tution fees from students
Rs. 40,000
2. Postal coaching fees including postage [Rs.200]
Rs. 8,000
3. Cost of standard text books of syllabus
Rs. 8,000
4. Cost of study material prepared by the classes
Rs. 15,000
5. Cost of stationery and practice books/home work books
Rs. 12,000
6. Fees for dance and singing where students get training
For T.V programmes [optional]
Rs. 10,000
7. Swanand sir goes for Home tution when students fail to attend
His classes his extra fees from students-[including conveyance& refreshment]
Rs. 10,000
Q.10 Mr. mangesh has given his commercial property to the bank on a monthly rent
of
Rs. 1,00,000 [excl. service tax]. Explain whether Mr. Mangesh is liable to pay
servie tax.
Q.11 social banquet services charges Rs. 2,00,000 for a social function. The
following is the break-up of such charges.
1. For mandap interiors
Rs. 60,000
2. For electricity and furniture
Rs. 50,000
3. For Vat and Exp. Tax
Rs. 10,000
4. For dance and music facility
Rs. 10,000
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5. For others services and arrangements

Rs. 70,000
Calculate service tax liability.
Q.12 Matunga gymkhanca charges Rs. 2,00,000 for a business meeting. Details of
charges are as under .
1. for hall conducting the seminar
Rs. 80,000
2. for catering service including lunch
Rs. 40,000
3. For other facilities
Rs. 80,000
Compute service tax payable, if any.
Q.13 A works contractor submits the following details relating to a works contract.
Compute gross charges for the contract and net charges for the contract.
1. amount charged for works contract
Rs. 10,400
2. VAT paid
Rs. 400
3. Value of Transfer of property in goods involved in works contract
Rs. 7,000
4. Value of property in goods involved in works contract but not yet
Rs. 500
transferred.
Q.14 M/s Matoshree Builders has given the following details of the works contract.
Gross amount for the works contract
Rs. 8,00,000
Vat on the above goods
Rs. 40,000
Value of goods transferred during execution of contract
Rs. 3,00,000
Compute the service tax payable if a) the composition scheme is opted-b) the
composition scheme is not opted.
Q.15 Mr. Ramesh is classified as a mandap keeper and liable to service tax. You are
required to findout the amount of service tax which Mr. Ramesh should collect and
pay to government.
1. Receipts from official and social function
Rs. 6,00,000
2. Receipts from conference hall
Rs. 3,00,000
3. Receipts from Religious function
Rs. 2,00,000
4. Receipts from catering services
Rs. 5,00,000
Input service received:
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1. Paid professional fees to a charetered Accountant for maintenance of

books of accounts and audit Rs. 55150(inclusive of service tax)
2. Telephone bills paid Rs. 8,824(inclusive of service tax)
Assume-he opts for abatement for the above mentioned period. /HE
doesnt opt Abatement.
Q.16. Calculate the net service tax payable under the provision of the service Tax
relating to determination of the value of services in the execution of works contract
from the following particulars.
1. Gross amount for the works contract(excluding VAT)
1,00,000
2. Value of goods and materials sold in the execution of works contract
70,000
3. CENVATCredit on (2) above
1,000
4. Service tax paid on input services
1,000
5. CENVAT Credit on capital goods issued in provision of works contract service
1,000
6. Service tax rate.
10.30%
Make suitable assumption and provide explanations where required.
Q.17 Mr. Tiger is a practicing chartered Accountant. From the following particulars
for period April to September,2011, calculate the service tax payable @10% and
education cess @3%
Receipt (excluding service Tax):
Fees for statutory Certification
70,000
Fees for statutory Audits
6,00,000
Fees for Tax Audits
4,00,000
Fees for investigation under Companies Act
80,000
Fees for share valuation received in advance(work to be done in jan.10)
50,000
Fees in foreign currency from a U.S. client
2,00,000
(eligible for exemption under export of service rules)
Royalty for books on Accountancy
1,00,000
Q.18 M/s BAS, a public relations raised an invoice for Rs. 22,06,000 on MAS. Another
publlice relations firm for publicity work done for IPL(a client of MAS).MAS paid a
part amount of Rs. 11,13,000. Discuss the service tax liability, if any.

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Q.19 Gharwala has rented out the following properties. Compute the service tax
payable by him.
1. Leave and licence fee for a warehouse
Rs. 2,00,000
2. Rent for a shop in a mall
Rs. 3,00,000
3. Rent for a residential-cum-commercial complex
Rs. 5,00,000
4. Rent from an industrial estate
5. (including Rs. 1,00,000 for generators etc.)
Rs. 10,00,000
6. Rent from a hostel for working women
Rs. 1,00,000
7. Rent for office of the Reserve Bank of India
Rs.1,50,000
Q.20 M/s BQ. A hotel intends to charge Rs. 8,00,000 for a marriage function. The
break-up of charges1. For halls for conducting the wedding ceremony
Rs. 1,80,000
2. For catering (including alcohol Rs. 50,000)
Rs. 4,00,000
3. For furniture
Rs. 1,40,000
4. VAT and Expenditure Tax
Rs. 80,000
5. Compute the service tax payable, if any.
Q.21 Commercial Coaching Institute received the following amount s for various
services:
Classroom coaching
Rs. 4,00,000
Postal coaching (including re-imbursement for postage Rs. 5,000)
Rs. 3,00,000
Provision of standard text-books priced at
Rs. 20,000
Guide for Exam preparation and Revision
Rs. 2,00,000
It has a preschool coaching Division having 100 students
Fees received from themRs.1,50,000
It has another division (CA-Camp) for providing computer training to the students
(200 in all) of the inst. Of C.A. of India. The institute pays to the institute Rs. 750 per
students.
Compute the service tax payable, if any.

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