1. Constitutional & Legal provisions behind levy of Service Tax in India.

Constitutional Validity Article 265 of the Constitution lays down that no tax shall be levied or collected except by the authority of law. Schedule VII divides this subject into three categoriesa) Union list (only Central Government has power of legislation) b) State list (only State Government has power of legislation) c) Concurrent list (both Central and State Government can pass legislation). To enable Parliament to formulate by law principles for determining the modalities of levying the Service Tax by the Central Govt. and collection of the proceeds thereof by the Central Govt. and the State, the amendment vide Constitution (92nd amendment) Act, 2003 has been made. Consequently, new article 268 A has been inserted for Service Tax levy by Union Govt., collected and appropriated by the Union Govt., and amendment of seventh schedule to the constitution, in list I-Union list after entry 92B, entry 92C has been inserted for taxes on services as well as in article 270 of the constitution the clause (1) article 268A has been included.

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2. Formation and function of DGST:

Considering the increasing workload due to the expanding coverage of service tax, it was decided to centralise all the work and entrust the same to a separate unit supervised by a very senior official. Accordingly, the office of Director General (Service Tax) was formed in the year 1997. It is headed by the Director General (Service Tax). The functions and powers of Director General (Service Tax) are : i) ii) To ensure that proper establishment and infrastructure has been created under different central excise/service tax Commissionerates to monitor the collection and assessment of service tax. To study the staff requirement at field level for proper and effective implementation of service tax.

iii) To study as to how the various service taxes are being implemented in the field and to suggest measures as may be necessary to increase revenue collection or to streamline procedures : iv) To undertake study of law and procedures in relation to service tax with a view to simplify the service tax collection and assessment and make suggestions thereon: v) To form a data base regarding the collection of service tax from the date of its inception in 1994 and to monitor the revenue collection from service tax:

vi) To inspect the service tax cells in the Commissionerate to ensure that they are functioning effectively : vii) To undertake any other functions as assigned by the Board from time to time. 2.A. i) The Directorate General of Service Tax has been co-coordinating between the Board and Central Excise Commissionerates. It also monitors the collection and the assessment of Service Tax. The Service Tax Revenue Reports, received from various Central Excise Commissionerates, are complied at the Directorate and the performance of the Commissionerates/Zones in Service Tax collection are being monitored for corrective actions. ii) The Directorate General of Service Tax has been conducting inspection of Central Excise

Commissionerates. During the course of inspection, verification of Service Tax records, maintained by the Commissionerate, is done. Staff of Service Tax Cell are also guided suitably in proper implementation of Service Tax and maintenance of records. A meeting with the Service Tax officers is always conducted in the Commissionerate during inspection. Openhouse meetings are also arranged in the Commissionerates. Problems faced by the assessees in Service Tax compliance are sorted out in the open-house meeting with the members of various service providers associations. iii) The correspondences received from the field formations and service providers are scrutinized and the clarifications sought for are replied to wherever possible. In cases where the doubts/clarification sought involved policy matter, the Board has been apprised for issuing clarification/instruction. iv) This Directorate General has taken up the issue of forming a database regarding registration of the assessee and collection of Service Tax in co-ordination with the Directorate of Systems. v) Presently there are 67 Central Excise Commissionerates and 7 Service tax Commissionerates within the jurisdiction of 23 Central Excise Zones. The 7 Service Tax Commissionerates have been established in Mumbai (2 Commissionerates), Delhi, Kolkata, Chennai, Ahmedabad & Bangalore. Also, there are 5 Large Taxpayer Units (LTUs) located at Mumbai, Bangalore, Delhi, Kolkata and Chennai. xx-0-xx 3. Existing scheme for levy, assessment & collection of Service Tax in India Levy and assessment Service tax is levied on specified services and the responsibility of payment of the tax is generally cast on the service provider but for few exceptions. System of self-assessment of Service Tax Returns by service tax assessees has been introduced w.e.f. 01.04.2001. The jurisdictional Superintendent of Central Excise is authorized to cross verify the correctness of self assessed returns. These tax returns have to be filed half yearly. The Central Excise officers are authorized to conduct surveys to bring the prospective service tax assessees under the tax net. Directorate General of Service Tax at Mumbai oversees the activities at the field level for technical and policy level coordination. Legal provisions The provisions relating to Service Tax were brought into force with effect from 1st July 1994. It extends to the whole of India except the state of Jammu & Kashmir. The chronological list of taxable services with date of their introduction as on 1.5.2011 is given below: The following services were brought under the tax net in the year 1994-95: 1 Telephone 01.07.1994 {This service has been de-notified and grouped as Telecommunication Services w.e.f. 01.06.2007 vide Notfn. .23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)} 01.07.1994 01.07.1994

2 3

Stock broker General Insurance

Rate of service tax was 5% adv. ---------------------------------------------------------------------------------------------------------The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services viz., 4 5 6 Advertising agencies Courier agencies Radio pager services. 01.11.1996 01.11.1996 01.07.1994 {This service has been de-notified and grouped as Telecommunication Services w.e.f. 01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)}

Rate of service tax was 5%. -------------------------------------------------------------------------------------------------------The Finance Act of 1997 further extended the scope of service tax to cover a larger number of services rendered by the following service providers, from the dates indicated against each of them. (7) (8) (9) Consulting engineers Custom house agents Steamer agents (7 July, 1997) (15th June, 1997) (15th June, 1997)
th th

(10) Clearing & (16 July, 1997) forwarding agents (11) Air travel agents (12) Tour operators (1 July, 1997) 01.09.1997 (exempted upto 31.3.2000 Notification No.52/98, 8th July, 1998, reintroduced w.e.f. 1.4.2000) 16.07.1997 (exempted from 1.3.1999 upto 31.3.2000 Vide Notification No.3/99 Dt.28.2.99, reintroduced w.e.f. 1.4.2000) (7th July, 1997)
st

(13) Rent-a-Cab Operators (14) Manpower recruitment Agency (15) Mandap Keepers

(1st July, 1997)

The services provided by goods transport operators, out door caterers and pandal shamiana contractors were brought under the tax net in the budget 199798, but abolished vide Notification No.49/98, 2nd June,1998. The Service Tax was leviable @ 5% on the 'gross amount' charged by the service provider from the client, from the dates as notified and indicated above.

--------------------------------------------------------------------------------------------------------Following new services were brought under the Service Tax net in the 1998-99 union Budget. These services were notified on 7th October, 1998 and were subjected to levy of Service Tax w.e.f. 16th October, 1998. 16 Architects 17 Interior Decorators 18 Management or Business Consultants 19 Practicing Chartered Accountants 20 Practicing Company Secretaries 21 Practicing Cost Accountants 22 Real Estates Agents/Consultants 23 Credit Rating Agencies 24 Security Agencies 25 Market Research Agencies 26 Underwriters Services 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998 16.10.1998

In case of mechanized slaughter houses, since exempted, vide Notification No.58/98 dtd. 07.10.1998, the rate of Service Tax was used to be a specific rate based on per animals slaughtered. The rate of service tax was 5% on gross amount charged by the service provider. ----------------------------------------------------------------------------------------------------------In the Finance Act2001, the levy of service tax was extended to the following services with effect from 16.07.2001: 27 Scientific and technical consultancy services 28 Photography 29 Convention 30 Telegraph 16.07.2001

16.07.2001 16.07.2001 16.07.2001 {This service has been de-notified and grouped as Telecommunication Services w.e.f. 01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec. 135 of Finance Act,2007 (22 of 2007)}

31 Telex

16.07.2001 {This service has been de-notified & grouped as Telecommunication Services w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)} 16.07.2001 {This service has been de-notified and grouped as Telecommunication Services w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)}

32 Facsimile (fax)

33 Online information and 16.07.2001 database access or retrieval 34 Video Tape Production services 35 Sound recording 36 Broadcasting 37 Insurance auxiliary services in relation to General Insurance 38 Banking and other financial services 39 Port Services (by Major Ports). 40 Authorized Service Stations 41 Leased circuits Services 16.07.2001 16.07.2001 16.07.2001 16.07.2001

16.07.2001 16.07.2001 16.07.2001 16.07.2001{This service has been de-notified and grouped as Telecommunication Services w.e.f.01.06.2007 vide Notfn. No.23/07 ST dated 22.05.07 and Sec.135 of Finance Act,2007 (22 of 2007)}

The rate of service tax was 5% on gross amount charged by the service provider. ------------------------------------------------------------------------------------------------------In the Budget 2002-2003, the following services were added to the tax net with effect from 16.08.2002: 42 Life Insurance services 43 Insurance auxiliary services in relation to Life Insurance 44 Cargo handling 16.08.2002 16.08.2002 16.08.2002

45 Storage and warehousing services 16.08.2002 46 Event Management 47 Cable operators 48 Beauty parlors 49 Health and Fitness centers 50 Fashion designer 51 Rail travel agents. 52 Dry cleaning services. 16.08.2002 16.08.2002 16.08.2002 16.08.2002 16.08.2002 16.08.2002 16.08.2002

Rate of service tax was 5% ( till 13.05.2003) on the gross amount charged by the service provider. ------------------------------------------------------------------------------------------------------In the Budget 2003-04, the following new services along with extension to the existing services were added to the tax net with effect from 01.07.2003: 53 Commercial Training & Coaching centers 54 Technical testing and analysis 55 Technical inspection and certification service. 56 Management, Maintenance or Repair services 57 Erection, Commissioning and Installation Services 58 Business Auxiliary Services 59 Internet caf 60 Franchise Services 61 Foreign Exchange Broker 62 Port Services (Other or Minor Ports) 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 01.07.2003 {extension to port services}

The rate of Service Tax was 5% till 13.05.2003 and from 14.05.2003 the rate was increased to 8% of the gross amount charged by the service provider on all the taxable services till 09.09.2004. In the Budget 2004-05, 10 more services have been introduced in the service tax net along with reintroduction of three existing services w.e.f 10.09.2004 as follows:

63 64 65 66 67 68

Out door Caterers service (reintroduced) Pandal or Shamiana service (re-introduced) Airport Services Transport of Goods by Air Services Business Exhibition Services Construction Services in relation to commercial or Industrial Building Intellectual Property Services Opinion Poll Services TV or Radio Programme Production Services Survey and Exploration of Minerals Services Travel Agents Services other than Rail and Air travel agents Forward Contract Services

10.09.2004 10.09.2004 10.09.2004 10.09.2004 10.09.2004 10.09.2004

69 70 71 72 73 74

10.09.2004 10.09.2004 10.09.2004 10.09.2004 10.09.2004 10.09.2004

The rate of service tax on these services as well as all other services was enhanced from 8% to 10% with effect from 10th September, 2004. Besides this, 2% Education Cess on the amount of service tax was introduced. Thus the effective service tax rate was 10.2% including Education Cess w.e.f 10.09.2004. --------------------------------------------------------------------------------------------------Vide Notfn. No.33/2004 ST. 34/2004-ST and 34/2004-ST, all dated 3.12.2004, the following service was brought under service net with effect from 01.01.2005. 75 Transport of goods by road (earlier 01.01.2005 Goods Transport Operators service re- introduced). The rate of service tax was 10% plus 2% Education Cess. -----------------------------------------------------------------------------------------------------------In the Budget 2005-06, 9 more services were brought under the service tax net with effect from 16.06.2005, as detailed below76 Transport of goods through pipe line or other conduit Services 77 Site Formation & Clearance etc. Services 78 Dredging Services 16.06.2005 16.06.2005 16.06.2005

79 Survey & Mapmaking Services 80 Cleaning Services 81 Membership of Clubs & Associations 82 Packaging Services 83 Mailing list compilation & Mailing Services 84 Construction Services in relation to Residential Complexes

16.06.2005 16.06.2005 16.06.2005 16.06.2005 16.06.2005 16.06.2005

The rate of service tax was 10% plus 2% Education Cess till 17.04.2006 and from 18.04.2006 rate was enhanced to 12% Plus 2 % Education Cess. ---------------------------------------------------------------------------------------------------------In the Budget 2006-07, 15 more services were brought under the service tax net with effect from 01.05.2006 vide Notfn.No.15/2006-ST dated 25.04.2006 and Finance Act, 2006 ( 21 of 2006) as detailed below: 85 Sale of space or time for advertisement 86 Auctioneers Services 87 ATM Operation, maintenance or management Services 88 Business Support Services 89 Credit Card, Debit Card, Charge Card or other payment Card Services 90 Internet Telecommunication Services 91 Public Relations Services 92 Services provided by Recovery Agent 93 Services provided by Registrar to an Issue 94 Services provided by Share Transfer Agent 95 Ship Management Services 96 Sponsorship Services 97 Transport by Cruise ship services 01.05.2006 01.05.2006 01.05.2006 01.05.2006 01.05.2006

01.05.2006 01.05.2006 01.05.2006 01.05.2006 01.05.2006 01.05.2006 01.05.2006 01.05.2006

98 Transport of goods in container by 01.05.2006 rail services (Other than Govt. Railway ) The words other than Govt. Railways have been deleted w.e.f.01.09.2009)

99 Transport of passengers by air on 01.05.2006 international journey services Rate of service tax from 18-04-2006 to 10.05.2007 was 12% plus 2% Education Cess on service tax. With effect from 11.05.2007 the rate of service tax became 12% plus 2% Education Cess on service tax plus 1% Secondary & Higher Education Cess on service tax ( Aggregating to 12.36%) -----------------------------------------------------------------------------------------------------------In the Budget 2007-08, 7 more services were brought under the service tax net with effect from 01.06.2007, and 6 existing services were grouped with Telecommunication Services vide Notfn.No.23/2007-ST dated 22.05.2007 and Finance Act, 2007 ( 22 of 2007), as per the details given below: 100 Asset Management Services 101 Development & Supply of Content Services 102 Designing Services 01.06.2007 01.06.2007

01.06.2007

103 Mining of Mineral, Oil 01.06.2007 or Gas 104 Renting of immovable property services 105 Works Contract Services 106 Telecommunication Services 01.06.2007

01.06.2007 01.06.2007 (This is not a new service but the existing services viz.Telephone services, pager, facsimile, telegraph, leased circuit, telex were grouped under it)

Rate of service tax was 12% plus 2% Education Cess plus 1% Secondary Higher Education cess ( Aggregating to 12.36%) ----------------------------------------------------------------------------------------------------------In the Budget 2007-08, the scope of service tax was extended to cover 6 more services with effect from 16.05.2008 vide Notfn.No.18/2008-ST dated 10.05.2008 and Finance Act, 2008 ( 18 of 2008), as per the details given below: 107 Services of Clearing & Processing House 108 Registered or Recognised Associations services in relation to sale or purchase of goods and forward contract 109 Information Technology Services 16.05.2008 16.05.2008

16.05.2008

110 Investment Management Services under ULIP 111 Services of Recognised Stock Exchange 112 Supply of tangible goods services

16.05.2008 16.05.2008 16.05.2008

Rate of service tax w.e.f.11.05.2007 was12% + 2% (of service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess. From 24.02.2009, Rate of service tax became 10% + 2% (of service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess (aggregating to 10.30%). In budget 2009, following three new services have been brought under service tax net vide Finance (No.02) Act, 2009 (33 of 2009) and taxed w.e.f.01.09.2009 vide Notification No. 26/2009 ST dated 19.08.2009. 113 Cosmetic or Plastic Surgery Services 114 Transport of Coastal goods, Goods through National Waterways or Goods through Inland Waterways 115 Legal Consultancy Services 01.09.2009 01.09.2009 01.09.2009

From 24.02.2009, Rate of service tax became 10% + 2% (of service tax) education Cess + 1% (of service tax) Secondary Higher Education Cess (aggregating to 10.30%) --------------------------------------------------------------------------------------------------------------------In the Budget 2010 vide Finance (14/2010) Act, 2010, the scope of service tax was extended to cover 8 more services w.e.f.01.07.2010 vide Notification No.24/2010 ST dated 22.06.2010 as per details given below. 116 117 118 119 120 121 122 123 Promotion, marketing or organizing of games of chance including lottery, bingo etc. services Health services undertaken by Hospitals or Medical establishments Maintenance of Medical Records services Promotion of Brand of Goods/Services etc. Services of Permitting Commercial Use or Exploitation of any event Electricity Exchange Services Copyright Services Services provided by Builder in relation to preferential location, internal/external development etc. Services of Air-conditioned restaurants having license to service alcoholic beverages in relation to service of food or beverages. Services of providing of accommodation in hotels / inns/ cubs/ guest houses/ campsite for a continuous period of less than three months 01.07.2010 01.07.2010 01.07.2010 01.07.2010 01.07.2010 01.07.2010 01.07.2010 01.07.2010

124

1.5.2011

125

1.5.2011

From 24.02.2009, Rate of service tax became 10% + 2% (of service tax) education Cess + 1% ( of service tax) Secondary Higher Education Cess (aggregating to 10.30%) Note- As on 1.05.2011, 119 Services are under service tax net. Six services among listed above at Sr. No. 1,6,30,31,32 and 41 have been merged with Telecommunication Service with effect from 01.06.2007) -----------------------------------------------------------------------------------------------------------Administrative mechanism. Service Tax is administered by the Central Excise & Service tax Commissionerates and the Service Tax Commissionerates working under the Central Board of Excise & Customs, Department of Revenue, Ministry of Finance, Government of India. LTUs are also collecting Service Tax in respect of the Large Tax Paying units registered with them. The unique feature of Service Tax is reliance on collection of tax, primarily through voluntary compliance. Government has from the very beginning adopted a flexible approach concerning Service Tax administration so that the assessees and the general public gain faith and trust in the tax measure so that voluntary tax compliance, one of the avowed objectives of the Citizens Charter, is achieved. Substantive and procedural liberalization measures, adopted over the years for this purpose, are clear manifestations of the above approach. Following are some of the measures adopted in that direction: (i) Under Section 67 of the Finance Act, 1994, Service Tax is levied on the gross or aggregate amount charged by the service provider on the receiver. Rule 6(1) of the Service Tax Rules, 1994 has provided that Service Tax shall be paid to the credit of the Government account in respect of the services deemed to be provided as per the rules framed in this regard. Point of Taxation Rules, 2011 has provided the point in time when a service shall be deemed to have been provided; Rule 3 of the said rule provides that for the purposes of these rules, unless otherwise provided, point of taxation shall be,(a) the time when the invoice for the service provided or to be provided is issued: Provided that where the invoice is not issued within 14 days of the provision of the service, the point of taxation shall be date of such completion. (b) In a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment to the extent of such payment. Explanation For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance. Rule 4. Determination of point of taxation in case of change in effective rate of tax. Notwithstanding anything contained in rule 3, the point of taxation in cases where there is a change in effective rate of tax in respect of a service, shall be determined in the following manner, namely:(a) In case a taxable service has been provided before the change in effective rate of tax,(i) Where the invoice for the same has been issued and the payment received after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier; or

(ii) Where the invoice has also been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or (iii) Where the payment is also received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment; (b) In case a taxable service has been provided after the change in effective rate of tax,(i) Where the payment for the invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or (ii) Where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or (iii) Where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice. Explanation for the purposes of this rule, change in effective rate of tax shall include a change in the portion of value on which tax is payable in terms of a notification issued under the provisions of Finance Act, 1994 or rules made thereunder. (for details Point of Taxation Rules, 2011 may be referred) (ii) Corporate assessees are given the liberty to pay tax on the value of taxable th service, provided by them in a month, by the 6 of the following month if tax is th deposited electronically and 5 of the following month if tax is deposited in any other manner. Further, in case the assessee is individual or proprietary firm or partnership firm, tax payment is required to be made only once in a quarter i.e by 6th of the th following quarter if tax is deposited electronically and 5 of the following quarter if tax is deposited in any other manner. (iii) The process of registration of assessees has been considerably simplified.

(iv) No separate accounts have been prescribed for the purposes of Service Tax. It has been provided that accounts being maintained by the assessees under any other law in force would be sufficient. This has placed the Department at considerable inconvenience to itself, so as to minimize difficulties for the assessees. (v) The Finance Act, 2001 has introduced self assessment for service tax returns; thereby sparing the assessees from the rigours of routine scrutiny and assessment. (vi) Frequency of filing the returns in the form of ST 3 or ST3A as the case may be is minimized. Filing of Statutory return has been made half yearly and by the 25th of the month following the half-year ending on 31st arch and 30th September. This is in replacement of the monthly/quarterly returns prescribed earlier. (vii) Penal provisions do exist in respect of Service Tax also. Failure to obtain registrations, failure to pay the tax, failure to furnish the prescribed returns, suppression of the correct value of the taxable services and failure to comply with notice do attract penal provisions as prescribed. But, it is specifically provided that

no penalty is imposable on the assessee for any of the above failures, if the assessee proves that there was reasonable cause for the failure. This provision has been inserted to take care of the genuine difficulties of the new assessees. (viii) Service Tax Credit Rules, 2002, have been replaced by the CENVAT Credit Rules, 2004, introduced by the Finance Act, 2004, where under CENVAT credit has been extended across the sectors i.e. goods and services.

4.

Analysis of Service Tax Revenue

SERVICE TAX REVENUE (ALL INDIA FROM 1994-95 TO 2009-10) 1. The Service Tax collections have shown a steady rise since its inception in 1994. The tax collections have grown manifolds since 1994-95 i.e from Rs. 410 crores in 1994-95 to Rs.71174.58 crores in 2010-11. 2. The target for the year 2010-11 actual realisation was Rs.71174.58 Crores, Rs.1774.58 Crores (2.56%) was Rs.69400 Crores and showing increase the of

3 The total number of taxable services have also increased from 3 in 1994 to 119 as on 1st May, 2011. 4. There is a substantial growth in the assessee base from 3943 numbers in 1994-95. The revenue and assessee statistics from the year 1994-95 onwards onwards is given in the Table-1 below: Table 1 Financial Year Revnue % Growth Rs. Crores over previous year 410 846 1022 1515 1787 2072 Base Year 106 21 48 18 16 No. of Services under tax net 3 6 6 18 26 26 No. of Assessees % Growth over previous year Base Year 23.41 187.34 228.93 133.70 7.45

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00

3943 4866 13982 45991 107479 115495

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

2612 3305 4125 7890 14196 23053 37482 51133 60702 58319

23 26 25 91 80 62 63 36 19 -3.93

26 41 52 62 75 84 99 100 106 117

122326 187577 232048 403856 774988 846155 940641 1073075 1204570 1307286

5.91 53.34 23.71 74.04 91.89 9.18 11.17 14.08 8.78 8.53

(Revenue as reported by Pr.CCA and Number of assesses as reported by Zones) 1.4 Zone wise performance in Service Tax revenue collection as reported by the Chief Commissioners of all the Zones and comparison thereof with previous year is as per Table-2 below. Table 2 ZONE WISE SERVICE TAX COLLECTION FOR F.Y. 2008-09 & 2009-10 (Source: reports received from Commissionerates /Zones) (Revenue in crores) SR. NO. 1 2 3 4 5 NAME OF THE ZONE AHMEDABAD BANGALORE BHOPAL BHUBANESHWAR CHANDIGARH REV. 2008-09 2017.58 3455.56 1148.91 817.23 948.23 NO. OF ASSESSEES 62636 71836 49396 16805 43540 REV. 2009-10 1975.44 3175.00 1046.25 784.50 680.96 NO. OF ASSESSEES 64419 77489 53346 18986 45464

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

CHENNAI KERALA COIMBATORE DELHI SHILLONG HYDERABAD JAIPUR KOLKATA LUCKNOW MYSORE MEERUT MUMBAI-I MUMBAI-II NAGPUR PUNE RANCHI VADODARA VISHAKHAPATNAM LTU GRAND TOTAL

3620.48 1009.78 932.91 10178.93 279.92 2190.72 914.59 2744.61 769.49 661.51 1145.74 20205.11 350.13 761.88 2393.24 636.26 980.57 859.48 1935.58 60958.44

69191 23386 61743 144699 12399 40947 53303 51966 46490 24059 36439

3335.02 907.12 765.95 9895.07 299.39 2039.34 817.14 2712.79 704.90 604.49 1082.45

70475 24158 64286 156811 13303 45578 56370 64996 54438 23636 45890 188843 4375 52340 83075 27303 39810 31379 516 1307286

178328 18440.84 3810 48511 73920 24392 38576 27654 544 315.80 725.04 2184.01 655.99 963.11 814.03 3202.84

1204570 58127.47

Note:There is a minor variation between the revenue figures provided by the Zones and those reported by the Pr. C.C.A.

1.5 Commissionerate wise performance in Service Tax revenue collection as reported by the Chief Commissioners of all the Zones, for the year 2007-08 & 2008-09 is given in Table-3 below. Table 3 COMMISSIONERATE WISE SERVICE TAX COLLECTION FOR F. Y. 2008-09 & 2009-10 ( Source : Reports received from the Commissionerates /Zones ) Sr. No. Commissionerate GAR-7 No. of GAR-7 No. of Revenue Assessees Revenue Assessees 2008-09 2009-10 (Rs. (Rs. In crores) In crores)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

AHMEDABAD SERVICE TAX AHMEDABAD-III RAJKOT BHAVNAGAR BANGALORE SERVICE TAX BHOPAL INDORE RAIPUR BHUBANESHWAR-I BHUBANESHWAR-II CHANDIGARH JALANDHAR LUDHIANA CHENNAI-SERVICE TAX CHENNAI-III PONDICHERRY COCHIN (KERAL) CALICUT THIRUVANANTHAPURAM COIMBATORE MADURAI SALEM THIRUNELVELI THIRUCHIRAPALI DELHI-SERVICE TAX ROHTAK PUNCHKULA

999.31 204.01 703.30 110.96 3455.56 354.91 459.78 334.22 452.16 365.07 635.85 122.32 190.06 3367.86 126.14 126.48 507.26 208.82 293.70 317.72 115.60 115.37 136.59 247.63 9906.05 160.49 112.39

25959 7614 18982 10081 71836 16438 20770 12188 12049 4756 18066 8764 16710 56082 7956 5153 9739 7058 6589 22163 9737 10904 10000 8939 129137 7834 7728

919.37 198.12 762.15 95.80 3175.00 352.41 330.99 362.85 458.42 326.08 408.91 98.79 173.26 3071.90 115.61 147.51 456.07 203.69 247.36 249.32 92.26 118.93 126.44 179.00 9662.15 120.07 112.85

26222 8225 19544 10428 77489 15748 24086 13512 14870 4116 16931 9140 19393 57008 8537 4930 10220 7312 6626 22163 10211 11631 10574 9707 142645 8843 5323

28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64.

SHILLONG DIBRUGARH GUWAHATI HYDERABAD-I HYDERABAD-II HYDERABAD-III HYDERABAD-IV JAIPUR-I JAIPUR-II KOLKATA-SERVICE TAX BOLPUR HALDIA SILIGURI LUCKNOW ALLAHABAD KANPUR MANGALORE BELGAUM MYSORE MEERUT-I MEERUT-II NOIDA GHAZIABAD MUMBAI-SERVICE TAX RAIGAD NAGPUR NASIK AURANGABAD PUNE-I PUNE-II ( Kolhapur ) PUNE-III GOA RANCHI JAMSHEDPUR PATNA VADODARA-I VADODARA-II

165.38 62.14 52.40 68.70 1646.47 205.87 269.68 647.61 266.98 2437.24 145.64 124.47 37.26 419.91 104.59 244.99 256.16 320.42 84.93 230.67 131.01 652.81 131.25 20205.11 350.13 321.75 210.09 230.04 347.34 180.42 1648.70 216.78 201.36 232.60 202.30 260.58 255.14

2987 2724 6688 3610 23821 8242 5274 35451 17852 38952 5841 2823 4350 13193 11437 21860 5695 12417 5947 14385 9205 5897 6952 178328 3810 18763 14971 14777 11549 11742 41979 8650 8064 6008 10320 8344 10476

98.69 71.62 129.08 56.83 1527.46 185.16 269.89 596.83 220.31 2421.43 153.36 97.29 40.71 327.60 128.60 248.70 238.49 283.71 82.29 270.29 102.41 574.54 135.21 18440.84 315.80 359.81 166.65 198.58 364.82 160.36 1450.69 208.14 286.38 198.93 170.68 246.95 183.71

3277 2731 7295 3919 26043 9311 6305 37644 18726 51899 6161 2782 4154 18841 12381 23216 5843 11865 5928 16938 10396 11745 6811 188843 4375 20624 15866 15850 15701 12047 45761 9566 9128 6526 11649 8672 10422

65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77.

SURAT-I SURAT-II DAMAN VAPI GUNTUR VISHAKHAPATNAM -I VISHAKHAPATNAM-II THIRUPATI LTU BANGLORE LTU CHENNAI LTU DELHI LTU KOLKATA LTU MUMBAI

298.59 46.44 74.46 45.36 226.52 292.99 250.93 89.04 770.20 771.07 115.12 0 279.19

9102 2721 5447 2486 10947 5144 5040 6523 147 258 14 0 125 1204570

329.74 58.50 99.35 44.86 262.84 318.42 163.56 69.21 896.00 804.24 843.94 0 658.66

9303 3033 5794 2586 13886 5548 5081 6864 161 298 20 0 37

GRAND TOTAL 60958.44

58127.47 1307286

COMPARISION OF SERVICE WISE REVENUE

Challenges before the Service Tax Administration in India

Service tax administration in India has before it multi-dimensional challenges. Some of them are related to the very nature and growth of service sector in the economy and others relate to procedural aspects of the service tax collection. The growth of service sector at a high rate offers opportunities as well as challenges to bring under the tax net hitherto uncovered services. This offers tremendous revenue potential to the Government. It is expected that in due course Service Tax would reduce the tax burden on international trade (Customs duty) and domestic manufacturing sector (Excise duty). So a planned growth of service tax would be commensurate with the goals of economic liberalization and globalization. This process requires levy of taxes on new services without substantial rise in the rate or cost of collection. The proposed Goods and Service Tax is a part of the tax reforms that centre around evolving an efficient and harmonized consumption tax system in the country. Presently, there are parallel systems of indirect taxation at the Central and State level. The existing Service Tax System poses an imminent challenge, to reform its synergies, to eventually harmonize itself in the GST regime, as and when it is rolled out. Successful integration of goods and service tax, would give India a world-class tax system and will bring in improved tax collection. In a way, it will boost our economy and enable us to compete at the global front. As a result, our system will eventually match the international standard in the sphere of indirect taxation. It will also end the long standing distortions of differential treatments to the manufacturing and service sectors. The effort to prepare for a smooth integration with the GST without any hardship to public is a big challenge, that need to be handled at the field as well policy level.

No doubt, the twin goal of revenue maximization and introduction of the culture of voluntary tax compliance also throw up major challenge before the service tax administration in the country. The Department has taken several steps to upgrade the skill of the officers handling Service Tax and equip them with necessary expertise. Training programmes on the issues related to Service Tax are regularly conducted for the Departmental officers. A Manual for scrutiny of Service Tax Returns has been prepared by the CBEC to enable the Departmental officers to carry out the scrutiny of Service Tax returns in a methodical and systematic manner. At the same time, the Govt. has also taken several facilitation measures for the tax payers. To assist them in the filing of Service Tax returns, Service Tax Returns Preparer (STRP) Scheme has been launched in 2009. To enable them to understand the basic issues related to Service Tax, a booklet on Frequently Asked Questions (FAQ) on Service Tax has been published and the FAQ has also been put up on the Departmental website. Open House sessions, Seminars etc. are also organized by the field formations to helpthe assesses and solve their problems. ****

6.

Electronic Tax Administration

1.1 The Directorate General of Systems & Data Management has developed a web based software named as AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX (ACES) which automates various processes of Central Excise & Service Tax for Assesses and Department and gives complete end to end solution. The ACES can be used for: (i) (ii) (iii) (iv) Online registration and amendment of registration details; Electronic filing of documents such as Returns, Claims, Intimations and permissions; Online tracking of the status of applications, claims and permissions; Online facility to view documents like registration Certificate, Returns, Show Cause Notices, Order-In-Originals etc.

This web based software is available at www.aces.gov.in 1.2 As per the proviso to amended Rule 6 (2) of Service Tax Rules, 1994, where an assessee has paid a total service tax of rupees ten lakh or more including the amount paid by utilisation of CENVAT credit, in the preceding financial year, he shall deposit the service tax liable to be paid by him electronically, through internet banking. This has been made effective from 01.04.2010 vide Notification No.01/2010 ST dated 19.02.2010. 1.3 As per the proviso to amended Rule 7 (2) of Service Tax Rules, 1994, where an assessee has paid a total service tax of rupees ten lakh or more including the amount paid by utilisation of CENVAT credit, in the preceding financial year, he shall file the return electronically. This has been made effective from 01.04.2010 vide Notification No.01/2010 ST dated 19.02.2010.

****

7.

Audit and Inspections

Inspection: Directorate General of Service Tax (DGST) conducts inspections of Service Tax work in Central Excise Commissionerates & Service tax

Commissionerates all over the country. Inspections in the past have prompted the Commissionerates to streamline the service tax administration system. In pursuance of the Boards letter No.137/311/2007-CX.3 dated 15.12.2007, the DGST is conducting the inspection of the Commissionerates having service tax revenue of Rs.500 Crore and above per annum. Accordingly, 8 Commissionerates each were inspected by the DGST during 2008-09, 2009-10 and 2010-11. Audit: The service tax is envisaged to be administered on self-assessment basis. Legal provisions for facilitating such self-assessment have been made in the Finance Act, 2001. This underlines the need for strengthening the audit mechanism to prevent tax evasion/avoidance. The Director General of Audit, Central Board of Excise & Customs New Delhi published SERVICE TAX AUDIT MANUAL 2003 on 01.10.2003 containing the entire procedure to be followed by the officers of the Department while conducting audit of the Service Tax providers. All Commissionerates have also been directed to conduct the internal audit of assessees records as per the instructions of the Board. This audit drive has resulted in the augmentation of revenue. During 200910 total 12989 audits were conducted in India by 549 audit groups. These audits, resulted in detection of short payment to the tune of Rs. 7873.84 Crores and a recovery of Rs.1083.43 Crores. It is necessary that all available resources and efforts are mobilized by the field formations for audit of the registered assesses as per the norms decided by the Board. -x-x-0-x-x8. Future growth path for service tax in India. Service tax is envisaged as the tax of the future. Well synchronized taxation on manufacturing, trade (domestic & international) and service without giving rise to cascading effect of taxation would be an ideal worth pursuing in the immediate future. This would bring in VAT in its truest sense, though the ultimate objection usher in the regime of Goods and Service Tax (GST). Continued growth in GDP accompanied by higher rate of growth in service sector promises new & wider avenues of taxation to the Government. If the tax on services reduces the degree of intensity of taxation on manufacturing and trade without forcing the Government to compromise on the revenue needs, then one of the basic objectives of taxing the service sector would be achieved. Voluntary tax compliance on the part of taxpayers demands prudent accounting practices and transparency in the conduct of their business. Marginal rates of taxation would be conducive in this process. Many new services may be brought under the tax net in future. The inclusion of all value added services in the tax net would yield larger amount of revenue and make the existing tax structure more elastic. Advanced economies of Western Europe, North America and Far East have share of service sector in their GDP ranging from 60% to 80%. The growth in

absolute quantum of GDP and proportion of Service-sector in GDP holds promise for larger revenue generation without increasing the existing level of taxation Future Course of Action The following items of works have to be attended to urgently to improve the administration of Service Tax in the country. 1. Target (Budget estimate) of Rs.82000 crores Service Tax collection for f.y.

2011-12 to be exceeded. 2. Intensify the field survey operations to ensure that all taxable service

assessees are brought into the tax net and Service Tax due from them are collected without hitch. 3. While the basic tenet of voluntary compliance of Service Tax law has to be

adhered to, recalcitrant/ habitual evaders of Service Tax have to be booked for appropriate action under the law. There could be no leniency in this regard. 4. Effective use of Audit and Anti-evasion as tools for ensuring the compliance

on the part of the assessee and curbing the instances of irregularities and tax evasion. With the launch of ACES greater emphasis will be on training the staff in computer skills necessary to carry out effective, systematic and result oriented analysis of data available in the system, to achieve their person. 5. The statutory change to prosecute frequent offenders/tax evaders is needed in

the Act. 6. Effectively implement an Electronic Tax Administration (ETA) system for

service tax so that service tax could be administered as a pioneer e-tax of the country. The Directorate General of Systems & Data Management has developed a web based software named as AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX (ACES) which automates various processes of Central Excise & Service Tax for Assesses and Department and gives complete end to end solution. This web based software is available at www.aces.gov.in 7. Concentrate on liquidation of Service Tax arrears and issue necessary

clarifications to the field officers so that arrears linked up with disputed interpretations of the provisions of the law could be easily resolved. 8. 9. Attend to all major court cases relating to Service Tax law for early decision. Deploy adequate staff to attend to the service tax work and provide

infrastructure and conveyance to implement service tax law effectively.

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Telephone Directory, DGST

EPABX LINES : 022- 2410 2584 / 86 / 89 Email address - dgst@sify.com/ dgst@rediffmail.com FAX : 022- 2417 8515 / 2410 2587

Sr. Name No. 1 2 3 4 5 6 7

Designation

Tel. No. 2410 2585 (D) 2418 1417

Smt. Sanghamitra Panda Director General Shri C.P. Srivastava Shri Raju Sakthivel Smt. Smita Dolas Shri Rakesh Ladwal Shri S.K. Mahto Shri S.B.Samant

Additional Director General 2418 1418 Joint Director Additional Director Deputy Director Deputy Director Assistant Director 2418 1420 2411 5812 2418 1421 2411 2639 2418 1419

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