R. Venkatakrishnan & Associates Chartered Accountants Offices at Chennai, Bangalore, Hyderabad & Salem Service Tax For Hospitality Industry - R. Mohan B.com, FCA
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Service Tax
For
Hospitality Industry
- R. Mohan B.com, FCA
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
DISCLAIMERDISCLAIMERDISCLAIMERDISCLAIMER
The opinions and views expressed by the author are of his personal views and are subject to differ from that of the Statutory
Authority.
The author is not responsible for any action taken based on this publication.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Background
•Gross Domestic Product consists of goods
and services
•Goods suffer indirect taxes such as Excise,
Customs and VAT
•Service tax was introduced to tax services
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether levy of service tax is
constitutional?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Vide Entry 97 of Schedule VII of the
Constitution of India, the Central
Government levies Service Tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Which is the Regulatory
Authority for Service Tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Central Board of Excise and Customs (CBEC) is
the regulatory Authority
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Which is the Governing Law for
Service Tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�Unlike other tax laws, there is no separate act for Service
tax.
�Finance Act, 1994 as amended from time to time.
�In certain circumstances, the provisions of Central Excise Act
are applicable
�Initially started with 3 services
�Went upto 100+ services
�Widest scope under negative list
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�Service Tax Rules, 1994
�CENVAT Credit Rules, 2004
�Point of Taxation Rules, 2011
�Service Tax (Determination of Value) Rules, 2006
�Place of Provision of Services Rules, 2012
�Service tax Voluntary Compliance Encourage Scheme / Rules,
2013
�Taxation of services : CBEC’s Education Guide
Important Rules / Guidelines
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Why is Finance Act of 2012
significant?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�The word ‘Service’ defined for the first time.
�Negative List scenario introduced w.e.f 1.7.2012
�All services are taxable, subject to Negative List.
�Reverse / Joint charge mechanism introduced
w.e.f. 1.7.2012
�Directors / Officers responsibility prescribed
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
What is Service? – Sec 65B(44)
Any activity carried out by a person for another for
consideration, and includes a declared service,
but shall not include…..
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
What is Service… (cont’d)but shall not include…..
i. An activity which constitutes merely a transfer of title in
goods or immovable property, by way of sale, deemed
sale, gift or in any other manner
ii. An activity which constitutes merely a transaction in
money or actionable claim
iii. A provision of service by an employee to the employer
in the course of or in relation to his employment
iv. Fees taken in any Court or tribunal established under
any law for the time being in force
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Declared Service – Sec 66E
�List specified in the section
�Any change is by amending the section
�Borderline items included here
�Restricted definition
�Refer handout for the list
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Charging Section – Sec. 66
•Tax on all services
•@ 12%
•Other than those specified in negative list
•Provided or agreed to be provided
•In the taxable territory
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Negative List Negative List Negative List Negative List –––– Sec 66DSec 66DSec 66DSec 66D
�Negative List contains list of services which
are not liable for Service Tax.
�List specified in the section itself
�Any change in the list is by way of
amendment of the section
�Refer handout for the list
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Mega ExemptionMega ExemptionMega ExemptionMega Exemption
�Section 93(1) – empowers
�Many exemptions provided on adhoc basis
�Mega exemption under Negative List
�These are taxable services otherwise
�Refer handout for list
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
What is an Exempted What is an Exempted What is an Exempted What is an Exempted Service?Service?Service?Service?
�CCR – Rule 2(e)
�Exempted services means taxable services which are
exempt from the whole of service tax
�Negative list of services
�Abated value of the services subjected to abatement
�But not export of service
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Benefit to Small Service Provider (SSP)
�Service tax need not be charged for taxable
services upto the first 10L
�How it works over the years?
�No CENVAT Credit Can be taken
�This provision is not applicable under Reverse
Charge. Thus, under reverse charged service tax
needs to be paid from Rs 1
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Applicability Test Applicability Test Applicability Test Applicability Test –––– How it works?How it works?How it works?How it works?
�Excluded nature of activities – Section 65B(44) –
Not service – Not taxable
�Negative list of services – Section 66D – Not
taxable
�Mega exemption services – Notification 25/2012
– Not taxable
�Declared services – Section 66E – Specifically
taxable
�Specific exemptions – As per notifications
�All other services – Generally taxable
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether Free service is liable
to Service tax?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
As there is no Consideration, services
carried out free of cost is not
chargeable to service tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
What is What is What is What is Bundled Service?Bundled Service?Bundled Service?Bundled Service?
Bundled Services means a bundle of provision of
more than one service, wherein an element of
provision of one service is combined with element
of provision of another services or services
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Taxation of Bundled ServiceTaxation of Bundled ServiceTaxation of Bundled ServiceTaxation of Bundled Service
i. When two or more services are naturally bundled in ordinary
course of business
Taxation - It will be treated as a single services based on the
service which gives essential character to the bundle.
ii. When two or more services are not naturally bundled in
ordinary course of business
Taxation - It will be treated as a single services based on the
service which results in the highest liability of service tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rates of Service
�Service Tax rate is 12% plus education cess and
SHE Cess.
�In specific cases Abatement is Provided
�Egs: For Sale of Food in Restaurant 60%
abatement is provided i.e., charged on at 40%
�No Service Tax on actual expenses charged on
‘Pure Agent’ basis.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rates of Service… cont’d
�Under Reverse charge service tax is charged at
12.36%. However, the liability to pay tax shifts to the
recipient of service either fully or partially
�Cum duty principle can be followed (12.36/112.36)
Note: Service Tax, Education Cess and SHE Cess
should be separately shown in the invoice.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
LETS HAVE
EXERCISE – 1
Which are Taxable Services?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. M/s. ABC Enterprises manages the
entire marriage of Mr. X and charges
Rs.100 per visitor?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Mr. Shastry carries our pooja in a
temple premises and gets a monthly
retainer fees paid. In addition to this,
he also carries out religious functions
for many individual families.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Bangalore Education Trust is running a
school and charges its students tuition
fees, laboratory fees and few other charges
on periodical basis.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Karunya Trust is a animal care
organization. It takes care of pets of
general public for any limited period and
charges them a per day charge.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Mr. Y is a don in the making. He
carries out smuggling, killing and many
other illegal activities for a ransom or a
fee.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Sony Entertainment Pvt. Ltd. starts a
training Institute to promote singing
for kids between 5-15 years
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Mr. X provides cheque discounting
facility, wherein cheques of more than
10,000 are discounted for a service fee of
Rs. 30
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Mr Z supplies labour to Tumkur Flower
Association, wherein on a daily basis they
are required to prepare bouquets which
are sent to Bangalore
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Rohit shetty was paid Rs. 10 cr by Actor
Surya for not producing the Hindi Version of
Singam 2
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. TCS were contracted by Indian
Government to design and develop
software called e-Aadhar. This software
would contain all the personal and
professional details of India’s population
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Q. Q. Q. X, a Bangalorean residing in Mumbai
died because of a road accident in
Mumbai. For his final rites his body was
sent to Bangalore from Mumbai via
Air India
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Ms. Katrina sends ‘Rakhi’ to his
brother who resides in U.K via Fedex on
the eve of “Raksha Bandhan”
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Q. Q. Q. Mr. K has started foreign money
exchange service wherein on request from
the clients he will arrange for conversion
of foreign exchange from Reserve Bank of
India for a commission of 2%
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Q. Q. Q. Mr. Q starts a Barber Shop on Goa
Beach.
His charges are as follows
�Haircut – Rs. 40
�Shaving – Rs 20
�Hair Massage – Rs. 30
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
QQQQ. Best Pvt Ltd has started the following
service in Bangalore
1. Picking and dropping ITPL accountants
for Rs. 1000 p.m
2. Collecting and distributing lunch boxes
for accountants in ITPL for a fee of Rs. 300
p.m
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
QQQQ. Wonderla has opened a resort cum
amusement park in Whitefield. Entry
fee for 2 Day & 1 Night is Rs. 1,999
per person. Charges for resort and
amusement park is clearly demarked
on the entrance tickets
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Mr. A, an individual, is running a trading
organization under the name and style of
A & Associates. He also runs another
business of A1 Taxi Services. For his
trading organization he uses the taxi
services of A1 taxis.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
PROCEDURESPROCEDURESPROCEDURESPROCEDURES
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- RegistrationRegistrationRegistrationRegistration
�To be registered within 30 days
�Decentralized registration is possible
�Application in ST – 1 – No registration fee
�PAN must
�PAN based STC (Service Tax Code) No.
�Documents required for registration –
Address Proof, Charter of the entity
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- ContractingContractingContractingContracting
�Check up the applicability before contracting
�Provide in the contract – “Service tax as
applicable, presently @ 12.36%”
�“Service tax not applicable” / “Service tax
inclusive”
�Mention the ST registration number
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- BillingBillingBillingBilling
�Mention separately – Even though it is an
‘Inclusive of ST’ contract.
�Mention ST registration number in the invoice
�No special invoice format.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- AccountingAccountingAccountingAccounting
�ST billed to be accounted separately
�ST account to tally with the returns – Monthly
reconciliation
�Total turnover for the financial year as per Service
tax returns should tally with the signed financials
�Check whether your accounting software is
enabled for service tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- Due date for PaymentDue date for PaymentDue date for PaymentDue date for Payment
�ST is payable on Accrual basis
Category of AssesseeCategory of AssesseeCategory of AssesseeCategory of Assessee
Periodicity Periodicity Periodicity Periodicity
of Paymentof Paymentof Paymentof Payment
Payment through Payment through Payment through Payment through
Internet BankingInternet BankingInternet BankingInternet BankingOthersOthersOthersOthers
Individuals/ Proprietary firms and partnership firms whose aggregate value of taxable turnover is less than 50L
Every calendar quarter
6th of the month immediately following the said quarter
5th of the month immediately following the said quarter
Individuals or Proprietary firms and partnership firms whose aggregate value of taxable turnover is more than 50L
Every calendar month
6th of the month immediately following the said month
5th of the month immediately following the said month
Others Every calendar month
6th of the month
immediately
following the said
month
5th of the month immediately following the said month
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- Mode of payment Mode of payment Mode of payment Mode of payment
�Payable on 31st March for the month of March�Payment to be paid through GAR 7 challan�If the assessee has paid service tax of Rs 10L ormore in the preceding F.Y then service tax needs tobe paid Online
Note: Service tax along with Education and SHE cess
should be separately shown while making the
payment . Interest also to be shown separately.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- Head of PaymentHead of PaymentHead of PaymentHead of Payment
�From 1st July, 2012, instructions were issued tomake all the payments under new code known as‘Not in Negative List’.
�These instructions were later changed andassessee were asked to make payment under theold code itself.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- DocumentationDocumentationDocumentationDocumentation
�No special documents or registers
�Only regular invoice, books of accounts sufficient with
separate account for ST
�Cenvat Credit Register – Rule 9(5) of CCR
�Copies of original purchase bills for claiming of credit to be
retained safely
�Preserve records for 5 years
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures Procedures Procedures Procedures ---- ReturnsReturnsReturnsReturns
�ST-3 Returns to be filed. �Compulsory E- return�Return for all types of services�Half yearly return by 25th of the month following the particular half-year (25th April and 25th October)�Only one Revised Return is possible�Revised return needs to be filed within 90 days of the date of filling
Note: Service tax returns for the period Oct’12 – Mar’13
needs to be filled by 31st August 2013. Excel utility for the
same is yet to be made available by the department
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures - Payment of Interest & Penalty
�Interest for delay in payment of service tax –18% p.a.�Interest calculations are on daily basis�Penalty @ 2% per month or Rs.200 per day whichever is higher, subject to the max. of ST
�Penalty for late filling of service tax returns –Max of Rs. 20,000 irrespective of the tax amount (except NIL returns)
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Procedures - Payment of Interest
& Penalty... Cont’dPeriod Of Delay Late Fee
15 days from the date prescribed
for submission of the return
Rs. 500
Beyond 15 days but not later than
30 days from the date prescribed
for submission of the return
Rs. 1,000
Beyond 30 days from the date
prescribed for submission of the
return
An amount of Rs.1000 plus Rs.100
for every day from the 31st day till
the date of furnishing the said
return, subject to a maximum of
Rs.20,000/-
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
CENVAT CREDITCENVAT CREDITCENVAT CREDITCENVAT CREDIT
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Credits Under Credits Under Credits Under Credits Under Service Tax Service Tax Service Tax Service Tax –––– General ProvisionsGeneral ProvisionsGeneral ProvisionsGeneral Provisions
�Available as per CENVAT Rules.
�Definition of ‘input service’-Rule 2(l)
�Includes – All input services
�Office repairs & renovation, advertisement,
sales promotion, market research, storage,
accounting, auditing, finance, recruitment,
coaching and training, business exhibition, legal
services, inward and outward transportation…
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Credits Under Credits Under Credits Under Credits Under Service Tax Service Tax Service Tax Service Tax –––– General ProvisionsGeneral ProvisionsGeneral ProvisionsGeneral Provisions
× Excludes – Specified services
× Works contract for construction of building or
civil structure
× Rent a cab service
× Repair & Maintenance of vehicles
× Insurance of vehicles
× Services in relation to personal use or
consumption by employees
× Outward transportation beyond the place of
removal
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Credits Under Credits Under Credits Under Credits Under Service Tax Service Tax Service Tax Service Tax –––– ConditionsConditionsConditionsConditions
�Provisions of CCR
�Credit can be claimed on accrual basis
x Exception – Credit on reverse charge
�If not paid to service provider within 90 days,
Credit to be reversed
�Documents to be preserved
�Cenvat credit register to be maintained
�Input credit documents to be without any defect
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Credits Under Credits Under Credits Under Credits Under Service Tax Service Tax Service Tax Service Tax –––– Partial creditPartial creditPartial creditPartial credit
�Rule 6(3) of CCR
�Three types of service providers
1. Providing only exempted services
2. Providing only taxable services
3. Providing taxable and exempted services
�Type 1 – No cenvat credit
�Type 2 – Cenvat credit for all allowable inputs
�Type 3 – Partial credit mechanism
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Partial credit mechanismPartial credit mechanismPartial credit mechanismPartial credit mechanism
�Available for Type 3 service providers
�Emphasis on relativity / utilisation of input services
to / for output services
�Input services can be used for three purposes
�(i) Utilised wholly for taxable services
�(ii) Utilised wholly for exempted services
�(iii) Utilised partly for taxable and partly for
exempted services (Common inputs)
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Partial credit mechanismPartial credit mechanismPartial credit mechanismPartial credit mechanism
�Maintain separate account for utilisation of input
service for taxable and exempted services
�Use those input services falling under (i)
�Do not use those input services falling under (ii)
�Partial rebate those input services falling under (iii)
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Partial credit mechanismPartial credit mechanismPartial credit mechanismPartial credit mechanism
�Formula for partial credit calculation
Taxable value of services
Input tax credit x _________________
(Taxable + exempted value of services)
�Provisional calculation during the year
�Final calculation after the end of the year
�Adjustment of excess / short by 30th June
�After 30th June interest @ 24% p.a.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
LETS HAVE
EXERCISE – 2
Simulation for CENVAT Credit
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Holiday Hotels Limited, buys groceries,
fruits and commodities which are used in
the preparation of food. For the
transportation of these inputs, the
company pays transportation charges to
the transporter who charges service tax.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. XYZ Limited is a legal consulting
company and uses courier services to
send many couriers to its clients. There
is a service tax charge charged by the
courier agency on the courier charges.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Karnataka Government has started a
project called “TechKannada”. Through this
project, IT training will be provided to MLA’s
and other government officials on a regular
basis. For this project the Government has
hired services of various free -lancers. These
professionals are charging service tax for
providing their services.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. TTD hotels has decided it diversify their
business by venturing into Amusement Parks.
They have contracted Shobha Builders for
planning and constructing the layout. Shobha
Developers are providing the required
material and services for carrying out the
construction. The total contract value agreed
is Rs. 10 cr exclusive of VAT and Service tax.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Mr. Tiny, a consultant whose turnover is 5L
until December’13. In the month of January,
he obtained an unexpected new contract for
which he received an advance of Rs. 20L. In
the month of January he received the bill for
his December training cost on which service
tax is charged. Whether Input credit can be
claimed on the same.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Compute the Service Tax output Liability for July’2013
Income details for July 2013Income details for July 2013Income details for July 2013Income details for July 2013
Restaurant Sales – Rs. 2,50,000Banquet Sales – Rs. 90,000Room Revenue – Rs. 7,000Laundry Income – Rs 18,000Telephone and Fax Revenue – 2,000Renting of immovable property – Rs. 3,00,000.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Particulars
total
turnover
taxable
turnover
tax on the
above
Restaurant Sales 2,50,000 1,00,000 12,360
Banquet Sales 90,000 63,000 7,787
Room Revenue 7,000 4,200 519
Laundry Income 18,000 18,000 2,225
Telephone and Fax
Revenue 2,000 2,000 247
Rentg of Imm Prop 3,00,000 3,00,000 37,080
6,67,000 60,218
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Compute the eligible % for CENVAT Credit for the F.Y 2013-2014 for ABC Hotels
Income details for F.Y 2012Income details for F.Y 2012Income details for F.Y 2012Income details for F.Y 2012----2013201320132013
Restaurant Sales – Rs. 1,70,000Banquet Sales – Rs. 50,000Room Revenue – Rs. 3,000Laundry Income – Rs 20,000Telephone and Fax Revenue – 2,000Renting of immovable property – Rs. 50,000.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Particulars
total
turnover Taxable Exempted
Restaurant Sales 1,70,000 68,000 1,02,000
Banquet Sales 50,000 35,000 15,000
Room Revenue 3,000 1,800 1,200
Laundry Income 20,000 20,000
Telephone and Fax Revenue 2,000 2,000
Rentg of Imm Prop 50,000 50,000
2,95,000 1,76,800 1,18,200
60% 40%
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Toys Audio Pvt Ltd is into manufacturing and servicing of Audio Systems, Speakers, etc.
During the F.Y 12-13 the total turnover was Rs. 150L.Local Sales - 60L Interstate Sales – 30LTaxable services – 60L
For For For For the F.Y the F.Y the F.Y the F.Y 13131313----14 14 14 14 the following the following the following the following are are are are expensesexpensesexpensesexpensesStatutory Audit Fees – 1L Advocate Fees paid to Individual – 2LTelephone expenses - 20,000Courier expense – 2,000Technician Fees – 2LAudio Consultant (Small Service Provider) – 30,000Consultancy services incurred against taxable output services – 25L
Which are the services for which input credit can be claimed and to what Which are the services for which input credit can be claimed and to what Which are the services for which input credit can be claimed and to what Which are the services for which input credit can be claimed and to what extentextentextentextent
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Eligible % of Input Credit
Taxable Sales 60 40%
Exempted Sales 90 60%
150
audit fees 1,00,000 12.36% 4,944
advocate fees paid to individual 2,00,000 12.36% 9,888
Telephone expenses 20,000 12.36% 989
Courier Expenses 2,000 12.36% 99
Technician Fees 2,00,000 12.36% 9,888
Audio Consultant 30,000 0.00% -
Consultancy services 25,00,000 12.36% 3,09,000
3,34,808
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q.Q.Q.Q. Compute the Service Tax payable for July’2013
Eligible % of Input Credit for 2012-2013 – 60%
Income details for July 2013Income details for July 2013Income details for July 2013Income details for July 2013
�Restaurant Sales for Food – Rs. 2,25,000�Restaurant Sales for Beverage – Rs. 1,25,000�Restaurant Sales for Liquor – Rs. 75,000�Banquet Sales – Rs. 40,000�Room Revenue – Rs. 50,000�Rental Income – Rs. 40,000�Profit on Sale of Foreign Currency –10,000�Scrap Sales – Rs. 5,000�Boutique sales – Rs 10,000�Service Income from hire of Accessories - 20,000 cont’dcont’dcont’dcont’d
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Note:Note:Note:Note:•Restaurant food Sales includes in room dining for Rs. 15,000•Service tax on Works Contract Service CG – Rs. 2,000•Service tax on invoice raised by boutique designer – Rs. 1,000•Service tax on Security charges for Let out premise – Rs. 5,000•Other common Input Credit Details – 5,000
•Opening Input Credit of Rs. 3,000•Ineligible input credit for June – 1,000
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Particulars total turnover taxable turnover service tax
Restaurant Sales - Food 2,10,000 84,000 10,382
Restaurant Sales - Beverage 1,25,000 50,000 6,180
Restaurant Sales - Liquor 75,000 30,000 3,708
Banquet Sales 40,000 28,000 3,461
Room Revenue 50,000 30,000 3,708
Rental Income 40,000 40,000 4,944
profit on sale of fcq 10,000 10,000 1,236
service income 20,000 20,000 2,472
36,091
Less: Security 5,000
input 3,000
opening 3,000
25,091
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Point of Taxation
Rules, 2011
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011
�From 1.4.2011 (1.7.2011), ST is payable on receipt or accrual,
whichever is earlier.
�If the invoice is not issued within the time allowed under law
(Rule 4A of STR), then the date of accrual is the date of
completion of service
�Date of payment means the date of entry in the books or the
date of credit in the bank account whichever is earlier.
�In the case of ‘continuous supply of service’ – date of
completion as per the contract
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011
�If the advance is received for fees and expenses, then
scientific segregation to be done
�Documentation with the client is important (Not self-made
document)
�Under RCM the date of payment is the only criteria (Rule7)
�Under RCM, if the payment is not made within six months of
the date of invoice, no effect of this rule
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011Point of Taxation Rules, 2011
�In the case of IPR, at the time of payment or invoice,
whichever is earlier.
�Best judgment of CEO
�Invoice raised prior to 1.4.2012 / 1.4.2011 (10.3%) and
payment received after 1.4.2012 (12.36%) – Delhi CA
Society’s case.
�Rate of exchange – Section 67A
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Place of Provision
of Services
Rules, 2012
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012
�Replaces Import and Export Rules
�Default Rule 3 – Location of the service receiver
�Rule 4 – Related to goods – Place of performance of the
service
�Rule 4 – Physical presence of the service receiver – Place of
performance of the service
�Rule 5 – Immovable property – Location of the property
(Present or future)
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012
�Rule 6 – Event, conference, exhibition etc., - Where
the event is held
�Rule 7 – More than one location incl taxable
territory – location where greatest proportion of
service is rendered
�Rule 8 – Location of provider and receiver in
taxable territory – location of receiver
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012Place of Provision of Service Rules, 2012
�Rule 9 – Location of service provider in the case of –
Banking, financial, NBFC, Online information, Intermediary
services, hiring of transport upto one month
�Rule 10 – Transportation of goods – destination of goods
– exception GTA
�Rule 11 – Passenger transportation – Place of embarking
�Rule 12 – On Board conveyance – First point of departure
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Reverse Charge
Mechanism
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
LEGAL PROVISIONSLEGAL PROVISIONSLEGAL PROVISIONSLEGAL PROVISIONS
�Proviso to Section 68(2) inserted w.e.f. 1.7.2012
�Rule 2(1)(d) – Person liable for paying service tax
�Notification No.30/2012 & 45/2012
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
STEPS FOR APPROACHSTEPS FOR APPROACHSTEPS FOR APPROACHSTEPS FOR APPROACH
�As service receiver & as service provider
�Whether services are covered
�Legal status of the service provider
�Legal status of the service receiver
�Applicability based on such legal status
�Proportion of tax for each person
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
AS A SERVICE RECEIVERAS A SERVICE RECEIVERAS A SERVICE RECEIVERAS A SERVICE RECEIVER
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
AS A SERVICE PROVIDERAS A SERVICE PROVIDERAS A SERVICE PROVIDERAS A SERVICE PROVIDER
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
CERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONS
�No threshold exemption
�Different valuation method for works contract
�Wider definition of security services
�Confusion on manpower supply services
�Services by directors
�Exemptions for metered taxis, radio taxis and
auto rickshaws
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
CERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONS
�Accounting through sub-ledgers
�Non eligibility of CENVAT credit for payment
�Due based on date of payment and not date of
invoice / accounting
�CENVAT credit only after payment
�Correct proportion of tax
�Effect of excess charge – for both persons
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
CERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONSCERTAIN REFLECTIONS
�Failure to deduct by Service receiver
�Failure by service provider to pay his proportion
of tax
�Individual Vs Business entity
�Body corporate Vs Company
�Firm and LLP
�Amendment of registration certificate
�Accounting code in Challan
�Does not apply to services rendered prior to
1.7.2012
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Exercise 3
Simulation for
Reverse Charge
Mechanism
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. HolidayQ Pvt Ltd. Intends to file a suit against
‘Radio Two’, a popular English Radio channel in
Bangalore for defaming the hotel service on Air. To
know whether they can file such suit, HolidayQ
approaches ABC & Co, a firm of consultants. For this
service, ABC & Co charges Rs. 10,000
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Lakeview Hotel Pvt Ltd. Had filed an appeal
with the Commissioner of Service tax in relation
to a earlier years refund case. The appeal was
rejected by the Commissioner. To challenge this,
the hotel approached M/s PQR, Chartered
Accountants, wherein Mr. Q, the partner will
represent the hotel at the CESTAT. For one
appearance the fee is Rs. 40,000
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. XYZ Hotels Pvt Ltd., approached ICICI
Bank for a loan of Rs. 50 Cr. ICICI agreed to
give the loan only on the condition that Mr.
A, manager at ICICI, should be appointed as
a Nominee director at XYZ Hotel.
Subsequently Mr. A is appointed as a
Director and is paid sitting fees of Rs.
10,000 for every meeting
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. T, director of the company travels to
Australia for a Business Trip. As per the company
policy Mr. T will be paid a per diem of $100
everyday during his stay in Australia. Mr. T
spends on an average $70 per day and the rest is
shown as an Income in his income tax returns
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. R, non executive director of UV Hotels Pvt
Ltd, arranges a business meet for foreign
investors at KP Restaurant. The meet is followed
with dinner, expenses for the same is paid by
Mr. R. The food bill was raised on Mr. R’s name.
Mr. R in turn gets the expenses reimbursed from
the company.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. KT, a prominent engineer of BDA was
provided a Guest house facility by the authority.
For this guest house, “MAC security agency” is
providing security services. On a monthly basis,
an invoice for Rs. 15,000 in the favour of BDA is
raised by MAC and payment for the same is
made by BDA
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. I, an insurance agent from GIC, arranges for
fire insurance policy for ST Hotels Pvt. Ltd. Mr. I is
also practicing as an insurance consultant after
office hours. For suggesting a good fire insurance
policies to ST Hotels, Mr. I charges Rs. 5,000 as an
insurance consultant fee
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. Sidda after being elected as the chief
ministers decides to provide all its minsters with
a BMW Car. This car is rented out from a local
dealer for a period of 5 years. Rental invoice for
the same is raised on a monthly basis.
What if the driver for the same is also provided
by the local dealer?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Auditors of TRK hotels have commenced the
statutory audit for the F.Y 2012-2013. For travelling to
the hotel for audit, the auditors have arranged for a
cab facility. The total transportation cost is initially
paid by the auditor and then reimbursed from the
hotel after is audit is over.
Whether there will be any change in provisions if the
above cost is included in the audit bill as out of pocket
expenses.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. ‘Vget’ Hotel Pvt Ltd. has decided to revamp
its operations by shifting from a Normal Hotel
to a Business Hotel. To execute this they have
incurred heavy expenses for changing the room
set up to a Business Centre/Conference room
set up. Also they have applied for conversion of
their company to LLP.
For the revamping, they are incurring various
civil work costs.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. M/s JTFS, Chartered Accountants have been
requested by its Client JTR Hotels for either of the
below arrangements.
1. Mr. K an employee of CA firm will visit the JTR hotels
twice in a week and review their accounts and issue a
report containing his observations; or
2. Mr. K will be placed full time at JTR and report to the
Manager (Accounts). In addition to reviewing the
accounts and issuing observations, he will also attend
to other work given to him by the Manager (Accounts)
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Mr. TKT, a travel agent in Malaysia has
entered into an agreement with ‘KLF Hotel Pvt
Ltd’ in India. As per the agreement, the agent
will promote the hotel in Malaysia and would
book rooms for Visitors who are travelling to
India. For these services, the agent is charging
5% commission on a monthly basis based on the
number of rooms booked by him.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Certain new
provisions
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Certain new provisionsCertain new provisionsCertain new provisionsCertain new provisions
�Attachment of property pending cases�Power to arrest is introduced – S.90 With the permission of Commissioner, a service tax evader can be arrested�New Penalty for officers of company – S.78A�If the following are proved in relation to a company
�Evasion of service tax�Issuance of invoice in violation of Rules�Availment and utilisation of CENVAT credit without receipt of goods or services�Failure to pay service tax collected beyond six months from the date it became due
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Certain new provisions Certain new provisions Certain new provisions Certain new provisions –––– Cont’d.,Cont’d.,Cont’d.,Cont’d.,
�Then the following officers are liable for penalty
�Any director
�Manager
�Secretary
�Other officer of the company,
�Who was responsible at the time of
contravention
�Was knowingly concerned about the
contravention
�Penalty upto a maximum of Rs.1 Lakh
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
SERVICE TAX FOR
HOSPITALITY INDUSTRY
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Various Category of output ServicesVarious Category of output ServicesVarious Category of output ServicesVarious Category of output Services
�Renting of rooms for a period less than 3
months with a daily rent in excess of
Rs.1,000/- Taxed at 60%
�Restaurant Services– Taxed at 40%
�Banquets – Taxed @ 70%
�Taxi Services – Taxed @ 40%
�Other services – Taxed fully
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Renting of Hotel, Inn, Guest Renting of Hotel, Inn, Guest Renting of Hotel, Inn, Guest Renting of Hotel, Inn, Guest HouseHouseHouseHouse
& & & &
Restaurant Services Restaurant Services Restaurant Services Restaurant Services
& & & &
Banquet ServicesBanquet ServicesBanquet ServicesBanquet Services
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. On what rate, service tax is charged?
Case 1: Case 1: Case 1: Case 1:
Declared tariff – 900
Actual room rent charged – 800
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
NIL
Service tax is not applicable as the declared
tariff is less than Rs. 1000
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. On what rate, service tax is charged?
Case 2: Case 2: Case 2: Case 2:
Declared tariff – 1,200
Actual room rent charged – 1,100
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rs 1,100
As the actual amount charged is Rs. 1,100
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. On what rate, service tax is charged?
Case 3: Case 3: Case 3: Case 3:
Declared tariff – 1200Actual room rent charged – 900
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rs 900
As the actual amount charged is Rs. 900
Even though the room actual amount charged is
less than 1000, as the declared tariff is more than
1000, service tax will be applicable
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service Bundled Service Bundled Service Bundled Service –––– Ex.1Ex.1Ex.1Ex.1
Complimentary breakfast or lunch provided with
the Room Stay. What is the rate of Service Tax?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service Bundled Service Bundled Service Bundled Service –––– Ex.1Ex.1Ex.1Ex.1
As the Essential character is accommodation
service. Thus, this will be taxed under
accommodation service at 60%
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service – Ex 2
ABC Hotels provides a 4D/3N package with
the facility of breakfast. What is the nature of
Service
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service – Ex 2
This is the case of natural bundling of service
in the ordinary course of Business wherein
hotel accommodation gives the bundle the
essential character and therefore will be taxed
under accommodation service
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service – Ex 3
KPM Hotels undertakes a booking for a
conference of 100 delegates on a lump sum
package with the following facilities
�Accommodation for the delegates
�Breakfast for the delegates
�Tea and Coffee during conference
�Access to fitness room for the delegates
�Availability of conference room
�Business Centre
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Bundled Service – Ex 3
�The above services are chargeable to different tax
rates
�None of them are able to provide the essential
character of service.
�However, the above service can be described as
convention centre and to be taxed at full rate
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Q. Q. Q. Whether Service Tax is applicable on no-show
charges, retention charges, penalties etc charged
to the customer
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�No show, retention charges, penalties etc are
charged for non – fulfillment of the commitment of
the guest.
�Service tax will be applicable as It is a forfeited
deposits.
�Represent consideration for the agreement that
was entered into for provision of service.
�No abatement
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Whether Service Tax is applicable on
damages recovered on account of
damage to property by the customer
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�Valuation rule exclude amount received in the
nature of accidental damages due to unforeseen
action not relatable to the provision of service
�Thus such amount recovered will not attract tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Guest House facilities to employeesGuest House facilities to employeesGuest House facilities to employeesGuest House facilities to employees
It’s a transaction between employer and employee in
the course of employment. Hence, no taxable services
are rendered by the company concerned
Further, it is a Perk which is part of salary hence
excluded from the definition of service.
If a branch / division is charged for the facilities used
by the employees of the branch / division, then there
is no tax on self-service.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Q. Whether Guest House facilities provided
to
Non-employees is Taxable?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�Employees of various group companies stay in the said
guest house and bills are raised on the group companies.
�Taxable service of short term accommodation is
provided by one person to another person.
�Tax is payable even if the amount recovered is on cost
basis.
�If it is provided free of cost, there is no monetary
consideration and hence no service / service tax.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Guest House / Rooms provided free
of cost to selected people
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�Services are provided free of cost for commercial
purposes
�There is no monetary consideration
�There is no service tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Group discount / Quantity discountGroup discount / Quantity discountGroup discount / Quantity discountGroup discount / Quantity discount
�In case of quantity discounts given for providing
high volume business, service tax will be payable
only on the amount received by hotel on such short
term accommodation.
�If a credit note is issued at the end of the year for
volume, then Service tax credit can also be
extended.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether Service Tax is to be
charged on Room Service
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Under the erstwhile regime, services provided by a restaurant
with an air-conditioned facility and a license to serve liquor on
its premises (and not in a hotel’s rooms) attracted Service Tax.
Furthermore, it was clarified in Circular 139/8/2011 – TRU dated
10 May 2011 that food served in a room would not be liable to
Service Tax under “accommodation services” or “restaurant
services.”
From 1 July 2012, the list of declared services includes a “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.”
Hence, under the Negative List regime, dining in a hotel room
should qualify as a taxable service.
cont’d
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rule 2C of the Valuation Rules stipulates that the value of a service portion in any activity involving
supply of food, drink, etc., in a restaurant is 40% of the total amount charged.
Whether the valuation mechanism under Rule 2C can be applied to food and beverages provided in room, or whether in-room dining could attract Service Tax on full value (since identification of actual value of
service may be difficult)
We are of the view that service tax needs to be charged at full rate for food & beverage supplied in
room service. In other words, “no abatement”
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether Service tax is to be
charged on take away or parcel
services
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Circular dated 28.02.2011 clarified that on mere sale
of food by way of pick – up or home delivery, no
service tax would be attracted.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether Service tax is to be Whether Service tax is to be Whether Service tax is to be Whether Service tax is to be
charged on Service Chargescharged on Service Chargescharged on Service Chargescharged on Service Charges
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
�No service tax is not to be charged on service
charges as the amount received doesn’t constitute
any consideration for the hotel.
�However, if any % of amount is retained by the
hotel and balance is distributed to the waiters then
service tax needs to be charged on service charges
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
If service tax on service charge is
applicable then at what % will it
be charged?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
If service tax is applicable on service charges, then service tax will be charged at
12.36%
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether Luxury Tax should Included
for the purpose of determining the
room rent
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
For the purpose of service tax luxury tax has
to be excluded from the taxable value
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether recovery of electricity,
water charges, maintenance will
form part of value of taxable
services?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Recovery of Electricity, Water charges will form
part of value of taxable services on or after 1st July,
2012. However, it was held in Econ Hinjewadi
Infrstructure(P) Ltd v/s CCE (Mum – CESTAT) that
electricity is goods, thus service tax will should not
be charged on the same
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether the service provider
can claim the benefit of
Property Tax paid on the
Immovable property
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Yes, the service provider can reduce the
amount of property tax paid from the
taxable value of service and charge tax only
on the balance portion of tax
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Rent a cab Services/Renting of Motor
Vehicle to a person not engaged in
similar line of business
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Ex. for Renting of Motor Vehicle
Mr. X and Firm Y are both engaged in the business
of renting of motor vehicle. Mr. X does not own
any motor vehicle, but Firm Y owns 5 cars. Mr. X
takes 2 cars from Firm Y on hire, and then rents it
out to Mr. Z. In this case, both Mr X and Firm Y
will be treated as a provider of renting of motor
vehicle service
Note: Ownership of vehicle is not a requirement
for renting out motor Vehicle
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Is it compulsory that the service
provider should be in the business of
renting of Motor Vehicle
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
No, there is not stipulation that the service
provider shall be engaged in business of
renting of motor vehicle.
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Whether the purpose of Renting out is
Relevant?
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
No, the purpose of renting out is not relevant
as it can be rented out for any purpose
ranging from private journeys or for
commercial trips
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Out of 17 Lakh registered assessees, only 7 Lakh file returns
� Others are not filing returns
� Possible that most of them may have tax dues, but not paid
� Difficult for Govt to track such large No. of assessees and collect potential tax dues
� In order to bring them back into tax net, one time amnesty scheme
� A person who has never paid tax dues for the past, can pay now and can avail amnesty.
� Can be used by few others also.
Background
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Name – Service tax voluntary compliance encouragement scheme, 2013 (SVCES 2013)
� Introduced for the first time in service tax history
� Current special scheme for slashing of penalty to 25% is continuing and is independent of this scheme.
Features
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Applicable to all types of persons who are◦ Unregistered and not paid tax at all
◦ Registered but not declared tax at all
◦ Registered but not declared tax partly
Applicability
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Will also cover instances where there was short payment due to◦ Difference in valuation of service◦ Clerical error◦ Excess / wrong CENVAT credit availed due to any reason◦ Due to interpretation issues◦ Audit etc., completed by the Department in the past, but has not found out the non payment◦ Non payment of tax on import of services◦ Non payment of tax under new reverse charge w.e.f. 1.7.2012
Scope of Applicable
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Covers tax dues for the period from 1.10.2007 to 31.12.2012
� Immunity from interest, penalty and other proceedings, once the declared taxes are paid.
APPLICABILITY – Time & Extent
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
Default of payment is notnotnotnot found out by the Dept till 31.1.2013. – It means � No Show cause notice has been issued
� No search has been conducted
� No communication seeking any type of information has been sent
� No investigation procedure has been conducted
� No order has been issued determining the tax payable
� No audit is under process
Exclusions
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Where return was already filed declaring the tax payable, but tax remains unpaid.
� Where the Department has already detected a non payment on a specific issue, for some part of the period, this scheme cannot be used for the balance period for the same issue.
� For any taxes due from 1.1.2013 for the same issues.
Ineligibility
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Prepare the calculations, get it verified and check the applicability of the scheme
� Assessee to make an application
� Last date for making application – 31.12.13
� 50% of the declared tax should be paid before 31.12.13
� Without payment of this 50% also, declaration can be filed earlier to 31.12.13. But the tax should be subsequently paid before 31.12.13
� Balance 50% to be paid on or before 30.6.14
Procedure
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� It is also possible to pay the balance 50% tax by 31.12.14, along with interest of 18% p.a.
� Interest is applicable from 1.7.14 only.
� It is possible to make payment on various dates in installments, but the entire payments should be made within the specific dates.
� After payment of all the taxes, the Department will issue a certificate of discharge.
Remittance of Taxes
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� No refund shall be issued for any taxes paid under this scheme.
� When the declared taxes are not paid, it is recoverable along with interest. But penalty is not applicable.
� When the declaration is substantiallysubstantiallysubstantiallysubstantially false, a show cause notice will be issued and declaration can be rejected by the Department.
� In such a case, penalty proceedings will be applicable
� But the show cause notice should be issued within one year from the date of filing the declaration.
Other Issues
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� If any other show cause notice etc., is issued, between March 1st & December 31st - whether an assessee can avail this option?
� Status if the Department rejects the application of the assessee, for reasons other than false declaration? Whether penalty is not applicable, because it is a voluntary declaration?
� Whether the scheme is available to a person, who is registered, paid all the taxes, but not filed returns, either for some period or all periods? (To save penalty for non filing of returns).
Scheme Requires Clarity
On..
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� Amendment to declaration - After making the declaration, whether a person can increase or decrease the declaration amount?
� Withdrawal - After making the declaration, whether a person can withdraw the declaration for genuine reasons?
Clarifications Required on..
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� After declaring, if the Department rejects the application, what happens?◦ Tax is definitely payable.
◦ Interest will also become payable
◦ The Department will also levy penalty stating that it is not a voluntary disclosure, but for this scheme and may levy penalty under various sections
◦ But all these can be challenged by the assessee.
Issues – Rejection of Application
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� No time limit specified for the Department to reject the application.
� However, such rejection cannot happen after the certificate of discharge is issued.
Closure
R. Venkatakrishnan & Associates
Chartered Accountants
Offices at Chennai, Bangalore, Hyderabad & Salem
� The Government is being approached with queries for seeking clarifications on this scheme
� Will have to wait and watch
Clarifications in pipeline
R. Venkatakrishnan & Associates
Chartered Accountants
Chennai
+91 44 24618778 / 24618740
Bangalore
+91 80 23418753
Hyderabad
+91 40 66620039 / 27611565
Salem
+91 42 74554458
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