Service Tax Reforms in India

DAMODARAM SANJIVAYYA NATIONAL LAW
UNIVERSITY, VISAKHAPATNAM
ASSIGNMENT ON
SERVICE TAX REFORMS IN INDIA
SUBJECT
PRINCIPLES OF TAXATION LAW- II
SUBMITTED TO
MS. NILIMA PANDA
FACULTY OF LAW
DSNLU
SUBMITTED BY
MUGDHA TOMAR, NIDHI KUMARI, SONIA THOMAS, SUPRIYA KUMARI,

SHIVANSHU PANDEY, PURNESH UPADHYAY
(8TH SEMESTER)
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TABLE OF CONTENTS
Contents
CERTIFICATE ............................................................................................................................................. 5
ACKNOWLEDGEMENT ............................................................................................................................ 6
AIM AND OBJECTIVE OF THE PROJECT .............................................................................................. 7
NATURE OF PROJECT .............................................................................................................................. 7
SOURCES OF DATA .................................................................................................................................. 7
SCOPE AND LIMITATION ........................................................................................................................ 7
RESEARCH METHODOLOGY ................................................................................................................. 7
MODE OF CITATION................................................................................................................................. 7
CHAPTER: 1 ................................................................................................................................................ 8
SERVICE TAX REFORMS IN INDIA ....................................................................................................... 8
CHAPTER: 2 .............................................................................................................................................. 17
COMPARISON OF SERVICE TAX REFORMS OF INDIA WITH SIX DIFFERENT COUNTRIES... 17
CHAPTER: 3 .............................................................................................................................................. 26
QUANTITATIVE ANALYSIS .................................................................................................................. 26
CHAPTER: 4 .............................................................................................................................................. 31
SERVICE TAX REGIME STRUCTURE SIMILARITIES ....................................................................... 31
CHAPTER: 5 .............................................................................................................................................. 37
REVENUE MOBILIZATION.................................................................................................................... 37
CHAPTER: 6 .............................................................................................................................................. 43
CASE LAWS .............................................................................................................................................. 43
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TABLE OF CASES
1. Delhi Chit Fund Association v. UOI, 2013 (30) S.T.R. 347 (Del.)
2. RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran, 2012 (26) S.T.R. 289 (S.C.)
3. Kishore K.S. v. Cherthala Municipality, 2011 (24) S.T.R. 538 (Ker.)
4. TirupatiDevasthanams v. Superintendent of Customs, Service Tax, 2013 (30) S.T.R. 27
(A.P.)
5. Indian Coffee Workers Co-operative Society Limited v. CCE & ST, [2014] 68 STR
338 (All.)
6. CCE & ST v. GargAviations Limited, [2014] 35 STR 441 (All.)
7. CCE v. Nahar Industrial Enterprises Ltd., 2010 (19) STR 166 (P & H)
8. Mayo College General Council v. CCEx, (Appeals) 2012 (28) STR 225 (Raj)
9. Wipro Ltd. v. Union of India, 2013 (29) S.T.R. 545 (Del.)
10. Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, 2013 (29)
S.T.R. 9 (Del.)
11. CIT v. Rajasthan Urban Infrastructure, 2013 (31) STR 642 (Raj.)
12. A.C.L. Education Centre (P) Ltd. v. UOI, 2014 (33) S.T.R. 609 (All.)
13. Chitra Builders Private Ltd. v. Addl. Commr. ofCCEx. & ST, 2013 (Mad.)
14. Infinity Infotech Parks Ltd. v. UOI, 2013 (31) STR 653 (Cal.)
15. KandraRameshbabu Naidu v. Superintendent (A.E.), S.T., 2014 (34) S.T.R. 16 (Bom.)
16. N.B.C. Corporation Ltd. v. Commissioner of Service Tax, 2014 (33) S.T.R. 113 (Del.)
17. CCE & ST v. Adecco Flexione Workforce Solutions Ltd., 2012 (26) S.T.R 3 (Kar)
18. CCE (A) v. KVR Construction, 2012 (26) STR 195 (Kar.)
19. AnkleshwarTaluka ONGC Land Loosers Travellers Co. OP. v. C.C.E., 2013 (29) STR
352 (Guj.)
20. C.C.E. & S.T. (LTU), Bangalore v. Dell Intl. Services India P. Ltd., 2014 (33) S.T.R.
362 (Kar.)
21. Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India, 2013 (29)
S.T.R. 9 (Del.).
22. CCE & ST v. Adecco Flexione Workforce Solutions Ltd., 2012 (26) S.T.R 3 (Kar).
23. Commissioner of Service Tax v. Lincoln Helios (India) Ltd., 2011 (23) S.T.R. 112
(Kar.)
24. RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran, 2012 (26) S.T.R. 289 (S.C.)
25. Infotech Software dealers Association (ISODA) v. Union of India,2010 (20) STR 289
(Mad.)
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26. CCE v. P. C. Paulose, 2010 (19) STR 487 (Ker.)
27. KandraRameshbabu Naidu v. Superintendent (A.E.) Service Tax, LAWS(BOM)-2014-
3-3
28. Volkswagen India (Pvt.) Ltd Vs. Commissioner Of C. Ex., Pune-I, 2014 (34) S.T.R.
135 (Tri. - Mumbai)
29. SenBrothers v. Commissioner Of Central Excise, Bolpur, 2014 (33) S.T.R. 704
30. Siyaram City Cabs Ltd v. Siyaram City Cabs Ltd., 2014 (34) S.T.R. 101
31. CCE v. Idea Mobile Communications Ltd.,2010 (19) STR 18 (Ker.)
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CERTIFICATE
This is to certify that the assignment work titled Service Tax Reform in Indiahas
been made by Mugdha Tomar, Nidhi Kumari, Sonia Thomas, Supriya Kumari,Shivanshu
Pandey and Purnesh Upadhyay, as a part of completion of the 8th Semester and is carried out
under my guidance and is an original piece of work.
Ms. Nilima Panda
Faculty of Law,
DSNLU
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ACKNOWLEDGEMENT
We would like to express my very special thanks of gratitude to Ms. Nilima Panda,
for giving us a golden opportunity to do a wonderful assignment on such topic which helped
us in doing a lot of research and we came to know many things about the Service Tax and its
gradual reform in India. We are really thankful to her for giving such an important topic which
gave us immense knowledge about this particular area in the subject of Principles of Taxation
Law.
Secondly, we would also like to thank our friends who helped us a lot in finishing this
assignment within a stipulated time. We are making this assignment not only for marks but to
also increase our knowledge.
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AIM AND OBJECTIVE OF THE PROJECT
The aim of this assignment is to perform a comprehensive study and analysis of the
reforms taking place in the area of service tax. The assignment also aims at analyzing as to
what are the different categories in which there is a reformation that has taken place in the
area of taxation law relating to service tax. Also, how the reformation in such field has been
beneficial shall be studied in this project.
NATURE OF PROJECT
The assignment is analytical as well as descriptive in nature. However the majority of
the project is analytical in nature.
SOURCES OF DATA
Primary as well secondary sources of data have been used to write this project. A host
of leading textbooks on taxation law as well as articles from leading journals have been
referred. Case Reporters like All India Reporter, and Supreme Court Cases etc. have also been
used.Internet sites have also been referred for the completion of the assignment.
SCOPE AND LIMITATION

The scope of this project is limited to an analysis of the reformation of the service tax
sector in India.The scope of the assignment shall also extend to various Acts for a better
understanding of the assignment.
RESEARCH METHODOLOGY
This assignment through Doctrinal research not only tries to understand the
reformation of service tax sector in India but also as to understand the effect of the same in
India. The various aspects of this condition shall be dealt in length with the help of various
definitions and case laws.
MODE OF CITATION
Bluebook Nineteenth Edition shall be referred as a mode of citation throughout the
completion of the project.
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CHAPTER: 1
SERVICE TAX REFORMS IN INDIA

-MugdhaTomar
Introduction:
Service tax is a tax which is payable on services provided by the service provider. Just
like excise duty is payable on goods manufactured, in the same way service tax is payable on
service provided. Service tax is payable by the provider of the service to the Government of
India, but the service provider can also collect this tax from the consumer of service i.e. the
recipient of service and deposit it with the Government.
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
services, brought under the tax net in the year 1994-95 were:
a. Telephone
b. Stockbroker
c. General Insurance
Thereafter the Finance Acts of the forthcoming years extended the scope of service tax
and covered a large number of services. By 2012, there were about 128 taxable services. 1
Meaning of Service:
Service was not defined prior to 1st July 2012. In fact in the case of Magus
ConstructionPvt. Ltd. v. Union of India,2 the Assam High Court defined service as follows:
An act of helpful activity, an act of doing something useful, rendering

assistance or help. Service does not involve supply of goods; service rather
connotes transformation of use/user of goods as a result of voluntary intervention of
service provider and is an intangible commodity in the form of human effort. To
have service, there must be a service provider rendering services to some other
person (s), who shall be recipient of such service.
But now service has been defined in Sec.65B(BB) of Chapter V of the Finance Act,
1994.Servicemeans any activity carried out by a person for another for consideration, and
includes a declared service, but shall not include-
1
http://www.caaa.in/Image/sertax.pdf
2
2008 (11) S.T.R. 225 (Gau)
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a. an activity which constitutes merely,
i. a transfer of title in goods or immovable property, by way of sale, gift or in any
other manner; or
ii. such transfer, delivery or supply of any goods which is deemed to be a sale
within the meaning of clause (29A) of Article 366 of the Constitution; or
iii. a transaction in money or actionable claim;
b. a provision of service by an employee to the employer in the course of or in relation
to his employment;
c. fees taken in any Court or tribunal established under any law for the time being in
force.3
HISTORY OF SERVICE TAX IN INDIA
The levy of service tax can be traced back to recommendations made in early 1990s
bythe Tax Reforms Committee headed by Professor Dr.Raja J. Chelliah. The Committee
recommended imposition of tax on selected services.
Based on the above recommendations (after certain modifications),
Dr.ManmohanSingh, the Union Finance Minister, in his budget speech for the year 1994-95
introduced the new concept of service tax and stated that there is no sound reason for
exempting services from taxation, when goods are taxed and many countries treat goods and
3
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services alike for tax purposes. The Tax Reforms Committee has also recommended
imposition of tax on services as a measure for broadening the base of indirect taxes. I,
therefore propose to make a modest effort in this direction by imposing a tax on services of
telephones, non-life insurance and stock brokers. Thus initially service tax was imposed on 3
services.
Successive finance ministers widened the service tax net in their budgets. As on 2012,
there were about 128 services in the net of service tax. The number of taxable services has
also not only increased, the rate of service tax which was 5% in the year 1994 has also taken a
leap to the 12%. The tax collections have also grown manifold since 1994- 95 i.e. from Rs.410
crores in 1994-95 to Rs. 97,389 crore in 2011-12.45
SCHEME OF TAXATION:
Service has been defined in clause (44) of section 65B of the Act. Section 66B
specifies the charge of service tax which is essentially that service tax shall be levied on all
services provided or agreed to be provided in a taxable territory, other than services specified
in the negative list.The negative list of services is contained in section 66D of the Act.Since
provision of service in the taxable territory is an important ingredient oftaxability, section 66C
empowers the Central Government to make rules fordetermination of place of provision of
service. Under these provisions the Placeof Provision of Services Rules, 2012 have been
made.
To remove some ambiguities certain activities have been specifically defined

bydescription as services and are referred as Declared Services (listed in section66E).In
addition to the services specified in the negative list, certain exemptions havebeen given. Most
of the exemptions have been consolidated in a single megaexemption for ease of
reference.Principles have been laid down in section 66F of the Act for interpretationwherever
services have to be treated differentially for any reason and also fordetermining the taxability
of bundled services.The system of valuation of services for levy of service tax and of
availment andutilization of CENVAT credits essentially remains the same with only
incidentalchanges required for the new system of taxation
CONSTITUTIONAL PROVISIONS BEHIND LEVY OF SERVICE TAX:
4
5
http://taxguru.in/service-tax/service-tax-india-history-meaning-service.html
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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 categories
a) 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 principles for determining the modalities of levying

the Service Tax by the Central Govt. & collection of the proceeds there of by the Central
Govt. & the State, the amendment vide constitution (95th amendment) Act, 2003 was made.
Consequently, new article 268 A was 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 was inserted for taxes on services.
LEGISLATIONS GOVERNING SERVICE TAX

Although service tax was introduced in the year 1994, till date there is no
independentlegislation on service tax. The list of legislations governing service tax are given
hereunder -
I. The Finance Act, 1994 (Chapter- V, Sections 64 to 96)

The statutory provisions relating to levy of service tax on services in contained in
Chapter V of the Finance Act, 1994.
II. The Finance Act, 2003 (Chapter - VA, Sections 96A to 96I)
Chapter VA deals with advance rulings.
III. Service Tax Rules, 1994

Service tax Rules deals with the procedural aspects of registration; taxable service to
be provided on the invoice, bill or challan; maintenance of records; procedure for payment of
service tax; submission of returns; form of appeals to Commissioner of Central Excise
(Appeals), Appellate Tribunal and procedure and facilities for large taxpayers.
IV. Service tax (Advance rulings) Rules, 2003

These Rules deal with the procedure for obtaining an advance ruling.
V. CENVAT credit Rules, 2004
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According to the CENVAT Credit Rules, a manufacturer or producer of final products
or a provider of taxable service can take credit i.e. CENVAT credit of excise duty, additional
duty of excise, national calamity contingent duty, service tax etc. paid on any input or capital
goods received in the factory for manufactureof final product or premises of the provider of
output service and any inputservice received by the manufacturer of final product or by the
provider of output services.
VI. Service tax (Registration of Special Category of Persons) Rules, 2005

These Rules provide for registration by certain category of persons.
VII. Service Tax (Determination of Value) Rules, 2006

These Rules prescribe the manner in determining the value of taxable services
incertain cases.
VIII. Dispute Resolution Scheme Rules, 2008

According to these Rules, a declaration may be made by the assessee in respect of the
tax arrears and the amount payable and any sum payable under the Scheme should be paid in
cash. On being satisfied, the designated authority will issue a certificate for full and final
settlement of tax arrears.
IX. Service Tax (Provisional Attachment of Property) Rules, 2008

These Rules deal with the procedure for provisional attachment of property when
proceedings for recovery of tax are pending before the authorities. The provisional attachment
of property should be to the extent it requires to protect the interest of revenue, i.e. the value
of property attached should be equivalent to the amount of pending revenue. The movable
property of a person should be attached only if the immovable property available for
attachment is not sufficient to protect the interest of revenue. These Rules will not be
applicable to attachment of personal property of Proprietor or Partners or Directors. Once the
property has been attached provisionally, then the attached property should not be subject to
mortgage, lease, delivery or any other dealings without the prior approval of the
Commissioner of Central Excise. The order of provisional attachment will be valid only for a
period of 6 months and upto a maximum period of 2 years after sufficient extension. Finally
the provisional attachment will ceaseto have effect when the concerned person has paid the
pending revenue along with interest thereon.
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X. The Service Tax (Publication of Names) Rules, 2008
These Rules deal with publication of names and particulars of persons who have
contravened the provisions relating to service tax with the intent of evading payment of
service tax and persons who have been adjudged to pay but has not paid any amount, payable
under the Finance Act.
XI. Point of Taxation Rules, 2011

These rules have been issued for the purpose of collection of service tax and
determination of rate of service tax.
XII. Place of provision of services Rules, 2012

These Rules specify the manner to determine the taxing jurisdiction for a service.
XIII. Service Tax (Settlement of Cases) Rules, 2012
WHAT IS A NEGATIVE LIST?

In terms of Section 66B of the Act, service tax will be leviable on all services provided
in the taxable territory by a person to another for a consideration other than the services
specified in the negative list. The services specified in the negative list therefore go out of the
ambit of chargeability of service tax. The negative list of service is specified in the Act itself
in Section 66D. Movement towards the negative list will result in reducing nearly 290
definitions and descriptions in the Act to 54, and the exemptions from the existing 88 to 10.
A negative list of services implies two things: firstly, a list of services which will not
be subject to service tax; secondly, other than the services mentioned in the negative list, all
other services will become taxable which fall within the definition of the supply of services.
This can be contrasted from the present method of taxation that has detailed description for
each taxable service and all other unspecified services are not liable to tax. The latter method
of taxation is also referred to as taxation by way of a positive list. The selective taxation of
services by way of incremental additions over the years served well in the past in
acclimatizing both the tax payers and tax administrators to the new levy. However, with
considerable expansion of the list, the administrative challenge has multiplied manifold.
Service tax has now gained considerable maturity and many practitioners of the subject
believe that incremental approach to taxation is not suitable for providing a stable system for
taxation of services that is at the threshold of getting subsumed into a comprehensive GST.
Some of the considerations that have gone into the negative list of services are-
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i. Administrative considerations: taxation of Government, difficult to tax sectors e.g.
margin-based financial services
ii. Under contractual obligations: Specified international bodies and diplomatic missions
iii. Welfare considerations: welfare of vulnerable sections of society, essential education,
public health; public transport, services by non-profit entities, religious services,
promotion of art, culture and sports
iv. Economic considerations: transport of export goods, services meant for agriculture,
animal husbandry and infrastructure development
v. Explicit activities in the nature of services, which are within the taxing powers of
States: betting and lotteries, tolls.6
RATES OF SERVICE TAX:

In2015:
While presenting the 2015 Union budget of India, the Finance Minister had increased
the Service Tax Rate from 12.36% to 14%. This new rate of Service Tax @ 14% was
applicable from 1st June 2015. Moreover from 15th Nov 2015, Swachh Bharat Cess @ 0.5%
also got applicable. Therefore the effective rate of Service Tax is currently at 14.5% with
effect from 15th Nov 2015.
In 2016:
Budget 2016 has proposed to impose a Cess, called the KrishiKalyanCess, @ 0.5% on
all taxable services. The new effective service taxcould henceforth be 15%. The proceeds of
KrishiKalyanCess would be exclusively used for financing initiatives relating to improvement
of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June
2016.
The KrishiKalyanCess shall be in addition to any cess or service tax leviable on such
taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time
being in force. The proceeds of the KrishiKalyanCess shall first be credited to the
Consolidated Fund of India and the Central Government may, after due appropriation made by
Parliament by law in this behalf, utilise such sums of money of the KrishiKalyanCess for such
specified purposes.
The Service Tax laws enacted under Chapter V of the Finance Act, 1994 have been amended
vide Union Budget 2016-17. Set out below are the amendments effective from 1 April 2016:
6
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Service Tax Law (Finance Act, 1994)
Senior Advocates shall be liable to pay Service Tax on legal services.

Transport of passengers, with or without belongings, by ropeway, cable car or aerial
tramway shall now attract Service Tax.
Agents and distributors of Mutual Funds shall be liable to pay Service Tax.
Service Tax Rules, 1994
One Person Companies (OPC) with a turnover of up to INR 50 Lacs in the previous
year shall be entitled to:
o Quarterly payment of Service Tax; and
o Payment of Service Tax on receipt basis.
HUFs shall be entitled to pay Service Tax on quarterly basis.
CENVAT Credit Rules, 2004
Invoices issued by service providers for removal of inputs and capital goods shall be
construed to be valid documentation for availing CENVAT Credit.
CENVAT Credit of Service Tax paid on upfront charges for assignment of natural
resources such as Mining Rights, spectrum sale etc. shall be available periodically over
the period of assignment.
Reverse Charge Payment
All the services, except certain specified services rendered by Government or local
authorities have now been brought under the reverse charge mechanism.
Abatement:
Abatement for tour operators, solely engaged in arranging booking of accommodation

has been retained at 90%. Abatement for other tour operators, has been kept at 70%.
Abatement in relation to foreman of chit funds has been kept at 30% of the value
subject to them not availing CENVAT credit on inputs, input services and capital
goods.
A uniform abatement of 70% for construction of complex is now applicable.
Railways permitted to avail CENVAT Credit of input services while payment
continues on abated value.
CENVAT Credit of input services for transportation of goods by vessels is permitted,
while payment continues on abated value.
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Abatement of 60% has been prescribed for transportation of household items by Goods
Transport Agency (GTA), as against general abatement of 70%.7
GOODS & SERVICES TAX BILL:
The Goods and Services Tax Bill or GST Bill, officially known as The Constitution
(One Hundred and Twenty-Second Amendment) Bill, 2014, proposes a national Value added
Tax to be implemented in India8from June 2016.9"Goods and Services Tax" would be a
comprehensive indirect tax on manufacture, sale and consumption of goods and services
throughout India, to replace taxes levied by the Central and State governments. Goods and
services tax would be levied and collected at each stage of sale or purchase of goods or
services based on the input tax credit method. This method allows GST-registered businesses
to claimtax credit to the value of GST they paid on purchase of goods or services as part of
their normal commercial activity. Taxable goods and services are not distinguished from one
another and are taxed at a single rate in a supply chain till the goods or services reach the
consumer. Administrative responsibility would generally rest with a single authority to levy
tax on goods and services.10Exports would be zero-rated and imports would be levied the
same taxes as domestic goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in the
reform of indirect taxation in India. Amalgamating several Central and State taxes into a
single tax would mitigate cascading or double taxation, facilitating a common national market.
The simplicity of the tax should lead to easier administration and enforcement.From the
consumer point of view, the biggest advantage would be in terms of a reduction in the overall
tax burden on goods, which is currently estimated at 25%-30%.11
As India is a federal republic GST would be implemented concurrently by the central

government and by state governments.12
7
http://www.mondaq.com/india/x/479844/sales+taxes+VAT+GST/Service+Tax+Changes+Effective+1+April+2
016
8
http://goodsandservicetax.com/gst/showthread.php?79-Executive-Summary-(Report-of-Task-Force-on-
Implementation-of-GST)&goto=nextnewest
9
http://www.taxmanagementindia.com/wnew/detail_rss_feed.asp?ID=1226
10
http://www.idtc.icai.org/download/BGM-on-GST-march-15.pdf
11
http://sites.google.com/site/gstbharatcoin/
12
ttp://www.123gst.com/introductory-resources/first-discussion-paper-on-goods-and-services-tax-in-
india/frequently-asked-questions-faqs/09-dual-gst
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CHAPTER: 2
COMPARISON OF SERVICE TAX REFORMS OF INDIA WITH SIX

DIFFERENT COUNTRIES
-Sonia Thomas
Developing countries attempting to become fully integrated in the world economy will
probably need a higher tax level if they are to pursue a government role closer to that of
industrial countries, which, on average, enjoy twice the tax revenue. Developing countries will
need to reduce sharply their reliance on foreign trade taxes, without at the same time creating
economic disincentives, especially in raising more revenue from personal income tax. To meet
these challenges, policymakers in these countries will have to get their policy priorities right
and have the political will to implement the necessary reforms. Tax administrations must be
strengthened to accompany the needed policy changes.
As trade barriers come down and capital becomes more mobile, the formulation of sound tax
policy poses significant challenges for developing countries. The need to replace foreign trade
taxes with domestic taxes will be accompanied by growing concerns about profit diversion by
foreign investors, which weak provisions against tax abuse in the tax laws as well as
inadequate technical training of tax auditors in many developing countries are currently
unable to deter. A concerted effort to eliminate these deficiencies is therefore of the utmost
urgency.
Tax competition is another policy challenge in a world of liberalized capital movement. The
effectiveness of tax incentivesin the absence of other necessary fundamentalsis highly
questionable. A tax system that is riddled with such incentives will inevitably provide fertile
grounds for rent-seeking activities. To allow their emerging markets to take proper root,
developing countries would be well advised to refrain from reliance on poorly targeted tax
incentives as the main vehicle for investment promotion.
Finally, personal income taxes have been contributing very little to total tax revenue in many
developing countries. Apart from structural, policy, and administrative considerations, the
ease with which income received by individuals can be invested abroad significantly
contributes to this outcome. Taxing this income is therefore a daunting challenge for
developing countries. This has been particularly problematic in several Latin American
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countries that have largely stopped taxing financial income to encourage financial capital to
remain in the country.
Progressivity of the Tax Structure in India with Countries
There have been many discussions regarding the indicators of measuring the extent of
progressivism of any countries tax structure. Regardless to say, one indicator of the same is
the composition of the direct and indirect taxes in the country. Direct taxes are levied on the
income of individuals and corporations i.e. the tax payer directly pays the tax to the
government without sharing the tax burden. On the other hand, indirect taxes are regressive15
in nature, taxing the poor and the rich in the same manner. Hence, a tax structure is said to be
progressive16 if people with higher incomes pay a higher proportion of their income in taxes.
Hence a countrys dependence on direct taxes tends to measure the level of tax progressivity
in the system. In reality, marginal rates do not always materialise due to factors like tax
evasion, exemption, avoidance and the outcome of a tax system thus depends on all sorts of
factors in addition to the nominal tax rates.13
Share of General Consumption Taxes
For the purpose of this study, we have incorporated sales tax and VAT as general
consumption taxes. It is to be noted that consumption taxes are generally regressive in nature
as they tax the poor and the rich alike. The lesser the composition of these taxes, the more
progressive is the tax system.
This regressive element is highly evident from the data. On the other hand, the Federal Govt.
of USA and Japan levies comparatively low taxes on general consumption, VAT being absent
in the former. In the countries studied, apart from Malaysia, the other developing countries
have already introduced VAT, which has reduced the effect of multiple taxes. From the
discussion, it is evident that progressivism in the Indian Tax system is far below the
international levels. The obvious implications of which have been identified below:
High revenue accrued from indirect taxes in India implies that a vast percentage of the
young population in India (in the age group 20 to 24) end up paying higher taxes
instead of availing the social benefits of education, health etc. On the other hand, a
lower percentage of the population at the higher end of the age pyramid ends up
paying less direct tax.
13
A publication by: Centre for Budget and Governance Accountability, A Discussion Paper by Centre for Budget
and Governance Accountability, An International Comparison of Tax Regimes,
http://www.cbgaindia.org/files/working_papers/Working%20Paper%20on%20International%20Comparison%20
of%20Tax%20Regimes.pdf, last visited on 07/04/15 at 11:15 p.m.
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The economic problem of income inequality in the country is aggravated by the
regressive nature of the Indian tax structure.
India loses a huge volume of tax revenue due to its low corporate tax base and high tax
exemptions in the corporate sector.
As previously pointed out in the reports of Comptroller General of India, tax

administration in India is inefficient coupled with lack of computerization and
unskilled tax officials.14
In the context of administrative reforms in the Indirect Tax system, the Audit addresses
system deficiencies associated with Central Excise, Service Tax and Customs.
The payment of duty through CENVAT14 rather than by cash is excessive indicating
possible misuse of CENVAT credit facility. Hence suitable measures have to be
undertaken to counter this problem.
Further, many products escape from stockyards without paying cutting and bending
duties, resulting in loss of indirect tax revenue. Thus there is need to amend the
procedures needed for regulation.
Audit has further observed that in certain cases the production declared on which duty was
paid was substantially lower than the declared capacities. Thus the government is required to
set up an internal control for proper monitoring of the investigation units. With regard to
proper administration in the service tax, the observations and recommendations of the Audit
are as follows:
The internal control mechanism existing in the department to bring unregistered

service providers into taxable arena was ineffective and inadequate. Hence a large
number of unregistered service providers are escaping thereby leading to a substantial
amount of tax evasion.
Further the government needs to continually monitor the data on assessee base and
revenues collected and investigate the reasons for decline in revenue from a particular
service despite increase in the registered tax base, to ensure that the decline is not due
to tax evasion.
14
VAT Newsletter Important VAT, GST and sales tax news from around the world, Issue No. 9, December 2015,
http://www.ey.com/Publication/vwLUAssets/EY-vat-newsletter-important-vat-gst-and-sales-tax-news-from-
around-the-world-issue-no-9-december-2015/$FILE/EY-vat-newsletter-important-vat-gst-and-sales-tax-news-
from-around-the-world-issue-no-9-december-2015.pdf, last visited on 07/04/2016 at 11:15 p.m.
19 | P a g e
Additionally, the internal control mechanism to verify the correctness of the returns
filed was inadequate and several cases of short levy of service tax by suppression of
the value of services.15
MAJOR REFORM INITIATIVES IN TAX ADMINISTRATION IN

INDIA16
The first major reform came in 1969; the existing Physical Control over factories of
production under Central Excise was dispensed with and a new procedure called SRP (Self
Removal Procedure) was introduced. Later in 1986, the Modified VAT (MODVAT) was
introduced to reduce the cascading effect of multiple taxes. Significant reforms in Indirect Tax
Administration came about in 1991 when Customs duties were lowered, the import
restrictions were eased and tax laws and procedures were simplified. Service Tax was
introduced in 1994 and has since become the fastest growing component of indirect taxes. The
winds of liberalisation also led CBEC to change its focus and functioning to a more
facilitative role. The importance of providing taxpayer services as an integral part of its
workflow began to be recognised and Help Desks/ Regional Advisory Committees for tax-
payer facilitation were launched. 23 Report of the High Powered Committee
SERVICE TAX ADMINISTRATION REGIME IN USA17

The US is a federal republic with state and local governments that fiercely defend their
autonomy. At present, there is no federal tax on goods and services, although fringe
presidential candidates from the Republican party have posited one.
Most states and several local governments levy a sales tax on goods at rates that vary widely
across the nation. Some states exempt 'essentials' like food, medicine and clothing from sales
tax.
There are only two political parties of consequence. The Republicans view themselves as the
party in favor of small government and low taxes and are labeled by the Democrats as pro
rich. The Democrats see themselves as the champion for the middle class, the working poor
and minorities and in turn are labeled by the Republicans as 'tax and spend' liberals.
15
Ibid
16
http://www.cbec.gov.in/resources//htdocs-cbec/deptt_offcr/drishti%20-%20new.pdf, last visited on 07/04/2016
at 11:15 p.m.
17
https://www.treasury.gov/resource-center/tax-policy/Pages/default.aspx, last visited on 07/04/2016 at 11:15
p.m.
20 | P a g e
GST being a tax on expenditure is regressive where a greater proportion is borne by people
with lower incomes. For this reason, Democrats would not favor it. Republicans being the
champion for low taxes would find it difficult to drum up support for a new tax unless it is
packaged together with a drastically lower income tax, etc.
The India GST case is structured more around efficient tax collection, reduction in corruption,
easy inter-state movement of goods, etc.
SERVICE TAX ADMINISTRATION REGIME IN CHINA18

Chinas Ministry of Finance and State Administration of Taxation on 30 October 2015 issued
Caishui [2015] No. 118 (Circular 118), which extends the zero-rate VAT regime to more
services provided to foreign entities. The following services provided to overseas clients by
domestic entities or individuals shall be eligible for zero VAT rate:
The production and distribution of radio, film and television programs.

Technology transfer services, software services, circuit design and testing services,
information system services, business process services and contract energy
management services for subjects located overseas.
Offshore service outsourcing business, including information technology outsourcing,
business process outsourcing and knowledge process outsourcing, as prescribed in
Attachment I of Caishui [2013] No. 106 (Circular 106),( i.e., notice regarding the
launch of VAT pilot arrangements applicable to the railway transportation and postal
service industries) (please refer to CTIE2013047 for details of Circular 106).
Tax calculation policies for export of services that zero VAT rate applies
Domestic entities or individuals that calculate VAT payable based on a simplified

method shall apply VAT exemption policy (no input VAT allowed).
Domestic entities or individuals that calculate VAT payable based on a general method
shall apply the following tax calculation methods:
Manufacturing enterprises shall apply the VAT exemption, credit and refund (ECR)
policy.
18
http://www.chinatax.gov.cn/2013/n2925/n2956/index.html, last visited on 07/04/2016 at 11:15 p.m.
21 | P a g e
Foreign trade enterprises shall apply the VAT ECR policy for export of services
purchased from third parties.
Applicable VAT refund rates
Applicable VAT refund rates of the abovementioned export services shall be the applicable
VAT rates for the same services as prescribed in items 1 to 3 of Article 12 of Circular 106.
Taxpayers should provide valid foreign exchange collection documents and export documents
for the application of export tax refunds.
Observation
The services eligible for either the zero VAT rate or VAT exemption are effectively exempt
from output VAT. However, under the zero VAT policy, export services are exempt from
output VAT, but the input VAT attributable to export services can be credited or refunded.
Before the effectiveness of Circular 118, only research and development services and design
services provided to overseas clients are categorized as being eligible for the zero VAT policy.
The issuance of Circular 118 further clarifies that the three types of abovementioned services
shall be eligible for the zero VAT rate, which shall enhance the competitive strengths of the
relevant Chinese service providers as their tax burden of qualifying export services shall be
reduced. This would definitely increase the ability of Chinese service providers to compete
with foreign companies in the global market.
SERVICE TAX ADMINISTRATION REGIME IN PHILIPPINES19

The Philippine Court of Tax Appeals, in Manulife vs. Commissioner of Internal Revenue,
CTA No. 8701, held that a Canadian insurance company and financial services provider is
entitled to PHP6.2 million (about US$132,000) in underutilized VAT credit certificates on
zero-rated receipts of PHP420 million (about US$8.95 million) for the 2011 tax year.
SERVICE TAX ADMINISTRATION REGIME IN EUROPEAN UNION20

On 25 September 2015, the Commission issued a press release announcing the launch of a
public consultation to help identify ways to simplify VAT payment procedures for cross-
border e-commerce transactions in the EU. In May 2015, the Commission published details of
its strategy to create a Digital Single Market .
19
http://www.bir.gov.ph/index.php/rulings-and-legal-matters/tax-guide-on-philippine-taxation.html, last visited
on 07/04/2016 at 11:15 p.m.
20
http://ec.europa.eu/taxation_customs/taxation/gen_info/tax_policy/index_en.htm, last visited on 07/04/2016 at
11:15 p.m.
22 | P a g e
From a VAT perspective, the Commission undertook to make legislative proposals in 2016 to
reduce the administrative burden on businesses arising from the different VAT regimes
applicable to cross-border sales, including:
Extending the current mini one-stop shop regime to cover cross-border online sales
of physical goods (i.e., distance sales)
Introducing a common EU-wide VAT threshold to help online start-ups and small
businesses
Allowing cross-border businesses to be audited only by their home country for VAT
purposes
Removing the VAT exemption for the importation of small consignments from
suppliers in third countries (i.e., low-value consignment relief)
Against this background, the consultation seeks the views of businesses and other interested
parties on:
The current VAT rules for business-toconsumer (B2C) cross-border supplies of goods
and services
The implementation of the 2015 changes to the EU VAT place-of-supply rules for
B2C supplies of digital services and the Mini One Stop Shop.
The Commission has published an updated document reflecting the various VAT rates applied
in the EU Member States as at 1 September 2015.
SERVICE TAX ADMINISTRATION REGIME IN SLOVAKIA21

On 1 October 2015, an amendment to the VAT Act No. 222/2004 Coll., as amended, was
approved by the Slovak parliament. Its final version awaits the approval of the president. The
amendment introduces several changes that will come into force in two stages.
Cash accounting scheme
As we previously informed you in the tax alert issued in April 2015, a VAT cash-
accounting scheme is being incorporated into the Slovak VAT Act for VAT payers with
limited turnovers. Taxpayers whose annual turnover does not exceed 100,000 (originally
proposed as 75,000) may opt for the scheme, under which they declare output VAT only
after receipt of customer payments. The same applies to input VAT deduction, which can be
claimed only after the taxpayer has paid for a supply. The change will also significantly
21
https://www.oecd.org/tax/tax-policy/37154700.pdf, last visited on 07/04/2016 at 11:15 p.m.
23 | P a g e
impact a larger group of taxpayers if they enter into business transactions as customers of
taxpayers opting into the scheme.
Extension of the scope of goods subject to reduced 10% VAT rate
The range of goods subject to the reduced 10% VAT rate was extended. This applies for
particular food products such as meat, fish, milk and bread. This change was incorporated into
Annex No. 7 of the Slovak VAT Act. It includes the codes of foods to which the reduced rate
applies.
Introduction of reverse-charge mechanism for construction services
The reverse-charge mechanism should also apply to supplies of construction under a contract
of work (or similar type of contract) and to the supply of goods with installation or assembly if
the assembly or installation as a whole represents a construction service. The main aim of this
change is to limit the financial problems of companies operating in the construction industry,
resulting from the insolvency or poor payment discipline of their customers, and to eliminate
VAT fraud in the construction sector. The reverse-charge mechanism also applies to cases
where the recipient of the construction services mainly performs transactions not subject to
VAT, but is already registered for VAT purposes for some particular reasons (e.g., legal
entities incorporated for non-business purposes and public authorities). These recipients will
pay VAT on construction services purchased, regardless of whether they are used for taxable
activities.
The scope of reverse-charge mechanism for goods is being extended to all goods supplied by
non-established taxpayers in Slovakia. As we have already informed you, locally established
taxable customers should start to apply a reverse charge on goods from non-established
suppliers in Slovakia. Distance selling will be the only exception.
Changes effective from 1 April 2016: Taxpayers will be obliged to separately report
simplified invoices if the total amount of deductible VAT from simplified invoices for the tax
period is 3,000 or more. These invoices are reported in the VAT ledger in section B3 in
aggregate amounts. This (simplified) regulation, as opposed to the previously accepted
reporting of the aggregate value of simplified invoices (instead of each single invoice), is a
reaction to occurrences of tax evasion revealed by the tax authorities. Currently, it is not clear
where a simplified invoice exceeding the threshold will be reported (in section B2 or in
section B3 after its adjustments which will enable reporting of the invoices item by item).
Taxpayers should prepare for changes in information systems.
24 | P a g e
SERVICE TAX ADMINISTRATION REGIME IN NAMIBIA22
On 22 September 2015, the Namibian minister of finance tabled the ValueAdded Tax (VAT)
Amendment Bill and the Income Tax Amendment Bill to the National Assembly. The
proposed amendments have widereaching implications for many residents and nonresidents.
The amendments to the Namibian VAT Act take effect on the first calendar day of the month
following the month in which the VAT Amendment Act is published in the Government
Gazette. The compulsory VAT registration threshold will be increased from NAD200,000 to
NAD500,000 (approximately US$14,398 to US$35,995)23.
Voluntary VAT registration will only be considered where:
There is a reasonable expectation that taxable supplies will be made for consideration
after a period of time.
There is a reasonable expectation that future taxable supplies will exceed NAD200,000
in a 12-month period.
The commissioner of inland revenue may cancel a voluntary VAT registration in
certain circumstances
A voluntary VAT registration will be allocated a six-month VAT period unless, upon
written application, the commissioner of inland revenue has allowed a different VAT
period
Provision has been made such that the Commissioner of Inland Revenue may require security
or impose additional conditions before allowing the import of goods on an import VAT
account. The Commissioner of Inland Revenue may cancel the registration of an import VAT
account in certain circumstances.
22
http://www.mof.gov.na/inland-revenue, last visited on 07/04/2016 at 11:15 p.m.
23
http://www.pkf.com/media/1960410/namibia%20pkf%20tax%20guide%202013.pdf, last visited on
07/04/2016 at 11:15 p.m.
25 | P a g e
CHAPTER: 3
QUANTITATIVE ANALYSIS
-Nidhi Kumari
Indtroduction
This particular portion of the research paper deals with the quantative analysis of the service
tax. With the help of graphs and tables various aspects of service tax is put forward. It shows
the role and contribution of service tax in the Indian economy. The paper analyses what
importance does service tax holds in the economy of India. It shows role of service tax in
collection of revenue, as percentage of GDP and various such other aspects. Also, the
significance of service tax has been highlighted in this research work by the way of several
graphical and tabular diagrams.
26 | P a g e
Graph 1 : Major sources of government tax revenue and contribution of service tax in it
Table 1 : Revenue collection from indirect taxes
Table 1 above depicts the relative performance of various indirect tax components in terms of
revenue and relative to GDP growth for the period FY2009 to FY2013. All the components
showed varied growth during the five years.
The role of service tax is specifically put, and the fluctuation in service tax revenue can be seen.
The collection of revenue has been increasing with the increasing years, yet there has been a
27 | P a g e
downfall in the year 2009-10 when comapred to its previus year 2008-09.
Graph 2 : Service Tax as percentage of GDP
Graph 2 depicts the role of service tax in contributing to GDP. The percentage of service tax
as GDP is shown in this graphical picture.
Graph 3 : Growth of Service Tax
28 | P a g e
Graph 3 shows the growth of service tax. It highlights that how service tax has grown over the
years and depicts its significance.
Table 2 : Growth of Service Tax Revenue
The share of service tax in gross tax revenues increased from 10.07 per cent to 12.79 per
cent, as shown in table 2, during FY2008-09 to FY2012-13. During FY2012-13, service
tax revenues grew by close to 36 per cent over the previous year. Service tax revenues
expressed as a percentage of GDP touched a high of 1.31 per cent in FY2012-13.
Graph 4 : Percentage of non-filers under service tax
29 | P a g e
Table 3 : Tax base in service tax (FY2009-13)
No of taxable No. of ST Per cent growth over No. of assessees

FY
services Registrations previous year who filed returns
2008-09 106 12,26,100 _ 7,641
2009-10 109 13,39,812 9.27 55,405

2010-11 117 14,94,449 11.54 1,79,344
2011-12 119 16,76,105 12.16 7,06,535
2012-13 * 18,71,939 11.68 6,08,013
Table 3 above depicts data on the number of persons registered with the Service Tax Department for
the period FY2008-09 to 2012-13. The number of registered persons increased by about 50 per cent
in this period. Those filing statutory returns had been rising steadily up to 2012. However, in 2013,
the number of taxpayers who filed returns fell short of the previous years figure by approximately 1
lakh. Further, only 33 per cent of registered persons filed returns in 2013. The sharp fall is a matter of
concern and needs to be investigated analytically.
30 | P a g e
CHAPTER: 4
SERVICE TAX REGIME STRUCTURE SIMILARITIES

-Supriya Kumari
There have been many discussions regarding the indicators of measuring the extent of
progressivism of any countries tax structure. Regardless to say, one indicator of the same is the
composition of the direct and indirect taxes in the country. Direct taxes are levied on the income
of individuals and corporations i.e. the tax payer directly pays the tax to the government without
sharing the tax burden. On the other hand, indirect taxes are regressive in nature, taxing the poor
and the rich in the same manner. Hence, a tax structure is said to be progressive if people with
higher incomes pay a higher proportion of their income in taxes. Hence a countrys dependence
on direct taxes tends to measure the level of tax progressivity in the system. In reality, marginal
rates do not always materialise due to factors like tax evasion, exemption, avoidance and the
outcome of a tax system thus depends on all sorts of factors in addition to the nominal tax rates.
A roundup of VAT/GST structure of some of the major economies and taking stock as to rate of
tax, threshold limits, exemptions, zero-rated transactions etc. would provide a guidance and
allow legislators of jurisdictions, planning to introduce new tax regime or replace existing
structure with revised structure, to learn from other consumption tax systems and adopt the best
practice in laying the groundwork.
European Union
European Economic Community adopted VAT throughout Europe, replacing cascading multi-
stage turnover tax, owing to the ease with which it handled cross-border transactions and
facilitated development of a common market. Council Directive 2006/112/EC adopted in 2007
codifies the provisions implementing the common system of VAT and Council Regulation No
282/2011 lays down binding implementing measures to ensure uniform application of the VAT
Directive. The VAT Directive sets the framework for the VAT structure in the EU, but it gives
national governments freedom to set the number and level of rates they choose and transport
provisions of VAT Directives into national legislation, subject to below basic rules:
31 | P a g e
Supply of all goods and services in the course of business by a taxable person within EU is
subject to VAT at a standard rate not lower than 15%24 , unless specifically exempt. EU member
25
states can opt to apply one or two reduced rates not less than 5% for supplies of goods or
services, such as foodstuff, water supplies, pharmaceutical, books, and admission to
cultural/amusement/sporting services, social services, medical services and equipments,
agricultural inputs etc., listed in Annex III of the VAT Directive. Member states may continue to
charge any lower rates, including zero rates, which were in place on 1 January 1991, though they
cannot introduce any new rate under 5%.
Activities and supplies in public interest, such as medical care, services linked to welfare and
social security work by public entities or charitable organizations, certain education and cultural
services; specific financial and insurance services; certain supplies of land and buildings; export
of goods, intra-EU supplies etc.26 are exempt from VAT, whereas in comparison of Tax regime
structure similarities in India,
In India, GST was conceived in 2004 by the Task Force on implementation of the Fiscal
27
Responsibility and Budget Management Act, 2003 (Kelkar Committee) while analysing,
prevailing indirect tax system both at Central and State level. The Kelkar Committee observed
that a tax reform of nationwide dual GST which would comprehensively tax the consumption of
almost all goods and services in the economy would be able to achieve a common market,
widen the tax base, improve the revenue productivity of domestic indirect taxes and enhance
welfare through efficient resource allocation. The existing Indian Indirect tax structure empowers
levy of taxes by Central government on manufacturing of goods and supply of services like
Customs duties, Central Excise duty, Service tax etc. and State governments on goods at point of
sale such as state VAT, Entry Tax, etc. Multiplicity of taxes and tax base being fragmented
between Centre and States have resulted in a complex system of interconnected legislations
leading to substantial distortions, cascading of taxes and adversely effecting growth in Gross
Domestic Production (GDP). Some of the limitations of the prevailing Indirect tax structure are:
24
Article 96 and Article 97 of VAT Directives. As per Council Directive 2010/88/EU dated 7 December 2010,
standard rate shall be not lower than 15% until 31 December 2015
25
Article 98 (1), Article 98 (2) and Article 99 of VAT Directives
26
Article 132 to Article 153 of VAT Directives
27
Headed by Dr. Vijay L. Kelkar published its report on July 2004
32 | P a g e
Central Value Added Tax (CENVAT) structure does not tax value addition post the stage of
production,
CENVAT portion of input goods remains included in the value of goods to be taxed under State
VAT contributing to that extent a cascading effect on account of CENVAT element.
No integration of VAT on input goods with service tax on services at the State level thereby
causing cascading effect of service tax. The proposed GST is consumption type VAT where only
final consumption is treated as the final use of a good. GST is expected to integrate taxes on
goods and services across all supply chain for availing set-off and capture value addition at each
stage. A continuous chain of set-off is expected to be established from the original producer's/
service provider's level up to the retailer's level which would eliminate the burden of all
cascading effects. Suppliers at each stage would be permitted to set-off the GST paid on the
purchase of input goods and services against GST to be paid on the supply of goods and services.
Canada
In Canada, GST is applicable on supply of most goods and services including real property and
intangible personal property and is governed by Excise Tax Act. Canada has a federal
government like in India and a federal GST was introduced in 1991 replacing the existing federal
sales tax imposed on manufacturers and certain licensed wholesalers at a general rate of 13.5%.
However, all provinces continued with the provincial retail sales tax thereby having two levels of
levy. The harmonized sales tax is imposed in provinces that have harmonized their provincial
sales tax with the GST and is a combination of a federal component and a provincial component
applicable generally on same base of property and services as the GST. In the remaining
provinces, GST is imposed on taxable goods and services alongwith provincial sales tax or a
retail sales tax. The three territories, Northwest Territories, Nunavut and Yukon and Province of
Alberta charge GST at the rate of 5%. Most goods and services supplied in or imported into
Canada are taxable supplies and are subject to GST at the rate of 5% or HST in the range of 13%
to 15% federal component of 5% and provincial component of 8 to 10% with certain exceptions
based on policy decisions such as:
33 | P a g e
Exports and supplies of goods and services relating to basic needs of individuals such as drugs
and biological, medical and assistive devices, basic groceries, agriculture and fishing,
transportation and travel etc. are taxed at the rate of 0%.28
Supplies of goods and services supporting public needs such as certain real property,
healthcare, educational, child and personal care, legal aid, public sector bodies, financial
services, ferry,road,bridge tolls etc. are exempted from GST.
Whereas in IndiaVAT/GST reform has proved to be a robust source of tax revenue in all
jurisdictions. Notwithstanding that VAT/GST has emerged successful and supreme over the
other forms of indirect taxation, these jurisdictions are continuously working towards reforming
structural issues such as in December 2010,29 European Commission published a Green Paper on
the future of VAT and argued that there were numerous shortcomings in the current VAT
system which create obstacles to the Internal Market, cause burdens for businesses and prevent
Member States from benefitting from the true potential of this tax and also pointed out the
system is susceptible to fraud. Businesses are reported to find VAT model in European Union
very complicated on account of huge diversity in application of exemptions and reduced rates
among member states causing distortion in competitiveness and additional compliance costs
(reported to be around 11%)30 borne by businesses that conduct cross-border trade when
compared to those businesses that only trade domestically. In Canada, businesses are reported to
be facing challenges under GST on account of interpretation issues and multiple provinces
having variety of tax rates.
Aligned with the federal structure of the Indian government, GST model is proposed to be a dual
structure like in Canada to be levied and collected by the Union government referred to as
Central GST and respective State governments referred to as State GST. This dual GST model
would be implemented and governed by one CGST/IGST statute applicable across the country,
SGST statutes for each State, common rules determining valuation, place of supply, place of
origin etc. This would imply that the Centre and the States would have concurrent jurisdiction for
the entire value chain and the basic principles of law such as chargeability, definition of taxable
28
Schedule VI [Subsection 123(1)] of Excise Tax Act
29
Green Paper: On the Future of VAT, COM (2010) 695 final, 1 December 2010. Responses to the Green Paper
were invited by 31 May 2011
30
European Commission: Feasibility and economic evaluation study; AXUD/2013/DE/319 dated 30 June 2015
34 | P a g e
event and taxable person, measure of levy including valuation provisions, basis of classification,
etc. shall be uniform across State statutes. It has been reported that draft laws are already ready
and under internal discussions. Also, various allied rules are in the process of being drafted and
finalized. Based on the federal character of Indian government, fiscal powers are also equitably
distributed between Central government and State governments31. As per the current scheme of
Constitution of India, 1949, only Central government has been empowered to levy duties on
manufacturing of goods and taxes on supply of services. Therefore, in order to introduce a
national GST in India a Constitutional amendment empowering the states to levy and collect
taxes would be a pre-requisite. Therefore, to address these issues and give concurrent taxing
powers to both the Union and States, the Government introduced Constitution (115th
Amendment) Bill, 2011 (GST Bill) in the Lower House of Parliament on 22 March 2011 seeking
to amend the Constitution of India, 1949 for the introduction of GST in India based on the model
proposed by the Empowered Committee.
Case Laws
Rajiv Gandhi Memorial College of Aeronautics vs. CCE
Service Tax - Stay or Dispensation of pre-deposit Commercial Training or Coaching service The
applicants are not issuing any certificate/diploma/degree recognized by law - They are only
providing the coaching and training in the area of aircraft maintenance and training only for the
practical experience .Prima facie the applicant does not fall under the exclusion category of the
services . Applicant does not have a case for complete waiver of pre-deposit - Rs 6 lakhs ordered
as pre-deposit.
Reliance Infratel Ltd Vs. CST
Service tax Sec. - 67 of FA, 1994 - Amounts of Rs. 1210 Crores and Rs. 283 Crores given by
M/s RCOM to appellant by way of expenses towards setting up and also by way of payments to
vendors for supply of materials, When such payments have been made before the appellant firm
came into existence, it is not understood as to how this amount can be treated as consideration
received for the services rendered by the appellant , it is seen from the books of accounts that the
said amounts have been repaid by the appellant during the same FY, if advances were received
31
Article 246 of the Constitution of India, 1949
35 | P a g e
towards services rendered, the same would get adjusted in the bills received perusal of invoices
also does not reflect adjustment of these amounts in any manner only payment made towards
services provided can be brought under the ambit of consideration received and not any other
amount ,At best, the interest saved by the appellant by securing interest-free loans from the
holding company can be considered as a consideration for the services rendered and not the loans
per se. If service tax liability is computed on such interest amount, it works out to approximately
Rs. 12 crore. Appellant directed to make pre-deposit of Rs. 12 Crores for obtaining stay.
Bharati Tele-Ventures Ltd Vs. CCE
ST - Service tax has to be paid on the gross amount charged for the supply of SIM cards -
decision of Bombay High Court has to be considered as per incuriam benefit of Notification
No.12/2003-ST not available, rate of tax that should apply in respect of ST is the rate prevalent
at the time of rendering of the service and not the rate prevalent at the time of receipt of
consideration or the rate prevalent on the date of payment of tax as that would create
uncertainties ,if adjudicating authority has held that normal period of limitation applies because
records were audited by department, same logic should apply in respect of demands raised in
respect of application of rate of tax on the balance of talk time available in respect of pre-paid
SIM cards, re-charge coupons and the rental advance, penalty u/s 76 of FA, 1994 upheld but no
penalty u/s 78 as no suppression proved interest payable appeal disposed of.
36 | P a g e
CHAPTER: 5
REVENUE MOBILIZATION
-By Shivanshu Pandey
Revenue mobilization means to receive or collect money from internal and external
source of government.The constitution of India has made elaborate provisions for both the States
and The Union, relating to the distribution of taxes and non- taxes. In India the arrangement of
the distribution of financial resources, is generally perceived to be not equitable due to the
imbalance between revenue raising powers and expenditureresponsibilities. Most of the buoyant
sources of revenue, such as customs duty, corporation tax, etc., are in the purview of Central
government for the stated reasons of administrativeefficiency. But the fiscalresponsibilities in
meeting huge expenditures remained with the State Governments. Revenue mobilization is
depicts in the form of revenue receipt by the government of India (Income tax department of
India) on yearly basis.
Total Revenue Receipt
Revenue receipts includes proceeds of taxes and other duties levied by the Centre,
interest and dividend on investments made by the government, fees and other receipts for
services rendered by the government. These imply the governments cash inflow. The Data
contains State wise Total revenue receipt as percentage of GSDP.
Mode of Revenue Mobilization in Service Tax in India
There is no separate Act or Statute for levy of Service Tax. Service Tax is applicable to
whole of India except Jammu and Kashmir. The Sources for services tax are as follows:
1. The Finance Act 1994

2. Rules On Service Tax
3. Notifications
4. Circulars or Office Letters or instructions on Service Tax
5. Orders on Service Tax
6. Trade Notices.
37 | P a g e
In any Welfare State, it is the prime responsibility of the Government to fulfill the
increasing developmental needs of the country and its people by way of public expenditure. India
being a developing economy is striving to fulfill the obligations of a Welfare State within its
limited resources. The Government's primary sources of revenue are direct and indirect taxes.
While most of the developed countries tax all the services with very few and limited
exemptions, some of the developing countries tax select services only. Hitherto, India has
adopted a selective approach to taxation of services.32
Need for Decentralized Revenue Mobilization in Developing Countries like India
Several factors in a citys political, administrative, cultural, social and economic history
canaffect the relationship of local government and the citizenry, and hence its ability to
generaterevenues and administer services. These include the legal and policy framework, and
socio-culturaltraditions that indicate preferences or priorities and the ability to pay.
As a critical part of decentralization reforms, many countries are devolving revenue and
expenditure responsibilities to local, including municipal, governments. Local governments,
therefore, face the challenge of mobilizing appropriate levels of revenue mainly from local tax
32
Economic Survey 2012-2014. Accessed from www.businessradar.com. Accessed on 04-04-2016 at 08:36 PM.
38 | P a g e
collection to enable effective service provision and better address poverty and inequality issues.
One source of potential revenue is property taxes and business licenses.
The legal and policy framework enables decentralization to happen. Many emerging
anddeveloping countries seek to decentralize their governments on the basis of
constitutionalprovisions or amendments, government legislation such as laws of decentralization
or localgovernment acts, and/or relevant decentralization policies. What is critical is that the
legaland policy framework ensures and provides local government the authority to mobilize
andmanage their revenues, and realigns the political and institutional framework at local
andnational levels to support this.
India is a Federal state. Power is divided between the Union and the states. The functions
have been classified as exclusively for the centre, exclusively for the state and both for the centre
and the states.
The constitution provided a way to distribute the revenues from captain taxes collected
by the centre among the states. To ensure a fair and judicious balance between the respective
shares of the centre and states. Article 280 of our constitution empowers the President of India to
set up a Finance Commission every five years.
In India, Taxes are divided into Six Groups:
I. Taxes Levied, Collected and Retained by the Centre:

These taxes are belonging to the centre exclusively. In other words, no part of the
proceeds of these taxes can be assigned to the states. The following taxes fall under this
category:
a. Corporation Tax (Corporate tax)

b. Customs Duties
c. Surcharge on Income Tax
d. Taxes on capital value of assets of individual and companies.
e. Fees on matters of the Union List.
II. Taxes Levied by the Centre but Collected and Appropriated by the States:
39 | P a g e
The following taxes are included in this category:
i. Stamp duties on bills of exchange, cheques, promissory notes and others.

ii. Excise duties on medicinal and toilet preparation containing alcohol.
There taxes which form part of the union list are levied by the centre but (a) collected by
the states within which such duties are levied; and (b) collected by the centre when such duties
are levied within any Union Territory.
III. Taxes Levied and Collected by the Centre but Assigned to the States:
This category includes the following duties and taxes:
i. Duties on succession to property (other than agricultural land).

ii. Estate duty on property (other than agricultural land).
iii. Terminal taxes on goods and passengers carried by railways, sea and airways.
iv. Taxes on railway fares a freights.
v. Taxes on transaction in stock exchanges and future markets (other than stamp duties).
vi. Taxes on the sale or purchase of newspapers and taxes on advertisements published in
them.
vii. Taxes on the sale or purchase of goods in course of inter-state trade or commerce (other
than newspaper).
viii. Taxes on the consignment of goods in the course of inter-state trade or commerce.
The net proceeds of these duties and taxes are assigned to states in accordance with the
principles laid down by the parliament.
IV. Taxes Levied and Collected by the Centre and Compulsorily Distributed between
the Centre and the States:
Taxes on income (other than agricultural income and corporation tax) shall be levied and
collected by the centre but compulsorily distributed between the centre and the states in such
manner as prescribed by the president on the recommendations of the Finance Commission. The
obligatory sharing of income tax is provided by Article 270 of the Constitution.
V. Taxes Levied and Collected by the Centre and may be distributed between the
Centre and the States:
40 | P a g e
Under this category falls the excise duties included in the Union list except those on
medicinal and toilet preparations. These are levied and collected by the centre. The net proceeds
of such duties can be paid to states out of the consolidated Fund of India only if the parliament so
provides.
Further, the principles of distribution shall also be laid down by the parliament. It is to be
noted that sharing of the proceeds, of income tax is obligatory, while that of excise duties is
permissible.
VI. Taxes Levied and Collected and Retained by States:

The following taxes and duties exclusively belong to states. They are mentioned in the
State list. Every state is entitled to levy, collect and appropriate these taxes. The taxes are
i. Duty on succession to agricultural land.

ii. Estate duty on agricultural land.
iii. Land revenue.
iv. Tax on agricultural income.
v. Tax on land and buildings.
vi. Capitation taxes.
vii. Tax on mineral rights.
viii. Tax on the consumption or sale of electricity.
ix. Tax on vehicles.
x. Tax on the sales and purchase of goods (other than newspaper) for e.g. Sales tax.
xi. Tolls
xii. Tax on professions, trades and employment.
ANALYSIS OF SERVICE TAX MOBILIZATION
IN INDIA IN RECENT YEARS
Services being the biggest component of the Indian economy, revenue from service
tax will for the first time overtake that from excise and customs in 2014-15.The levy was first
41 | P a g e
introduced in 1994. The government has budgeted Rs 2.15 lakh crore from service tax in 2014-
15, ahead of Rs 2.01 lakh crore from customs and Rs 2 lakh crore from central excise.
Three years back, in 2010-11, service tax was just about half the level of these other
important indirect taxes that accounted for a nearly a third of total tax collections. Since then
service tax has grown at a compounded average annual rate of 31% to cross Rs 2 lakh crore.The
spurt came in 2012-13 when the government shifted to taxation of services on the basis of a
negative list. That is, all services were taxed unless specifically excluded. This cleared the
confusion over whether a service was taxable or not. Service tax collections rose 36% in 2012-
13.Of course, customs and excise collections have also grown at a slower pace in recent years
because of the slowdown in the economy. Lower imports have hit customs collections and
subdued manufacturing has eroded excise collections.Imports barely rose in 2012-13 and were
down 7.81% in April-January from a year ago. Manufacturing is set to contract 0.2% in the
current fiscal after muted 1.1% growth in the last financial year.
Services were first taxed two decades ago beginning with a 5% levy on telephones, non-
life insurance and stock brokers. Currently services are taxed at 12%."Over the years, while
attempts have been made to widen the base for domestic indirect taxes, the services sector has
not been subjected to taxation.Yet this sector accounts for about 40% of our GDP and is showing
strong growth, Manmohan Singh, then finance minister, had said in his 1994-95 budget
speech.The share of services in the economy has since increased to more than 60%. Its share in
gross tax collection in 2014-15 will be 15.6%.However, there some doubts about the strong
30.6% growth in service tax assumed in 2014-15.
42 | P a g e
CHAPTER: 6
CASE LAWS
-Purnesh Upadhyay
There are number of cases in Service Tax which can be reproduced here. There have been
number of issues dealt by the Courts and Tribunals in India. Each of the case given here has been
dealt according to their issues.
1. Can service tax be levied on the services rendered in connection with a chit fund
business?
Delhi Chit Fund Association v. UOI33
The High Court inferred that since in a chit fund business, the subscription is tendered in
any one forms of money as defined under section 65B(33), it would be a transaction in money
and would fall in the exclusionary part of the definition. Otherwise also, in view of Explanation 2
read along with the exclusionary part, the services rendered by the foreman of the chit business
for which a separate consideration is charged would be out of the clutches of the definition.
Thus, either way, the services of a foreman of a chit business do not constitute a taxable service.
Consequently, the High Court quashed Notification No. 26/2012-S.T. dated 20.06.2012 to the
extent of the entry in serial No. 8 thereof.
2. Can the service tax liability created under law be shifted by virtue of a clause in the
contract entered into between the service provider and the service recipient?
RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran34
The Supreme Court observed that on reading the agreement between the parties, it could
be inferred that service provider (contractor) had accepted the liability to pay service tax, since it
arose out of discharge of its obligations under the contract. With regard to the submission of
shifting of service tax liability, the Supreme Court held that service tax is an indirect tax which
33
2013 (30) S.T.R. 347 (Del.)
34
2012 (26) S.T.R. 289 (S.C.)
43 | P a g e
may be passed on. Thus, assessee can contract to shift its liability. The Finance Act, 1994 is
relevant only between assessee and the tax authorities and is irrelevant in determining rights and
liabilities between service provider and service recipient as agreed in a contract between them.
There is nothing in law to prevent them from entering into agreement regarding burden of tax
arising under the contract between them.
3. In case where rooms have been rented out by Municipality, can it pass the burden of
service tax to the service receivers i.e. tenants?
Kishore K.S. v. Cherthala Municipality35
In this case, the High Court rejected the contentions of the assessee and observed as
under:
a. As regards the contention that there was no mention of the service tax liability in the
contract, the Court held that this is a statutory right of the service provider/Municipality
by virtue of the provisions under law to pass it on to the tenants. It is another matter that
they may decide not to pass it on fully or partly. It is not open to the petitioners to
challenge the validity of the demand for service tax, in view of the fact that service tax is
an indirect tax and the law provides that it can be passed on to the beneficiary. Hence, the
service tax can be passed on by the service provider i.e., Municipality.
b. The word State in Article 289 does not embrace within its scope the Municipalities.
Hence, when service tax is levied on the Municipality there is no violation of Article 289.
Moreover, Municipality has also not raised the contention that there was a violation of
Article 289.
The High Court held that Municipality can pass on the burden of service tax to the tenants.
4. Whether the activity of running guest houses for the pilgrims is liable to service tax?
TirupatiDevasthanams v. Superintendent of Customs, Service Tax36
The High Court observed that as per erstwhile section 65(105) (zzzzw) of the Finance
Act, 1994, service provided to any person by a hotel, inn, guest house, club or camp-site, by
35
2011 (24) S.T.R. 538 (Ker.)
36
2013 (30) S.T.R. 27 (A.P.)
44 | P a g e
whatever name called, for providing of accommodation for a continuous period of less than three
months is a taxable service. Therefore, the High Court held that since the petitioner was running
guest houses by whatever name called, whether it was a shelter for pilgrims or any other name, it
was providing the taxable services and was thus liable to pay service tax.
5. Whether supply of food, edibles and beverages provided to the customers,

employees and guests using canteen or guest house of the other person, results in
outdoor caterer service?
Indian Coffee Workers Co-operative Society Limited v. CCE & ST37
NTPC and LANCO have engaged the services of the assessee as a caterer to supply food,
edibles etc. to persons who use the facility of the canteen (within their own establishments.)
Hence, the HC opined that since the assessee provides the services as a caterer at a place other
than his own to another person, he is an outdoor caterer and the charge of service tax is attracted.
Note: The meaning of outdoor caterer is not relevant under current position of law. The given
service is covered under declared service [Sec 66E(i)].
6. Whether the course completion certificate/ training offered by approved Flying

Training Institute and Aircraft Engineering Institutes is recognized by law (for
being eligible for exemption from service tax) if such certificate is only for the
purpose of eligibility for obtaining ultimate license /approval for certifying
repair/maintenance/airworthiness of aircrafts?
CCE & ST v. GargAviations Limited38
In the given case the certificate/ training/ qualification offered by approved Institutes
(approval granted by DGCA) is recognized under Aircraft Act and Rules. A successful candidate
from an approved institute would be entitled to enforce the right,conferred on him by the Act/
Rules in a Court of law. Hence these courses has been conferred some value in the eyes of law,
even if it be only for the purpose of eligibility for obtaining ultimate license/ approval for
certifying repair/ maintenance/ airworthiness of aircrafts. The appeal filed by the Revenue would
37
[2014] 68 STR 338 (All.)
38
[2014] 35 STR 441 (All.)
45 | P a g e
not give rise to any substantial question of law. Hence, the appeal filed was dismissed and the
assessee was held not to be liable to pay service tax.
Note: The expression recognized by law is a very wide one. The legislature has not used the
expression conferred by law or conferred by statute. Thus, even if the certificate/ degree/
diploma/ qualification is not the product of a statute but has approval of some kind in 'law', it
would be exempt.
7. Whether service tax is chargeable on the buffer subsidy provided by the

Government for storage of free sale sugar by the assessee?
CCE v. Nahar Industrial Enterprises Ltd.39
The High Court noted that apparently, service tax could be levied only if service of
storage and warehousing was provided. Nobody can provide service to himself. In the instant
case, the assessee stored the goods owned by him. After the expiry of storage period, he was free
to sell them to the buyers of its own choice. He had stored goods in compliance with the
directions of the Government of India issued under the Sugar Development Fund Act, 1982. He
had received subsidy not on account of services rendered to Government of India, but had
received compensation on account of loss of interest, cost of insurance etc. incurred on account
of maintenance of stock. Hence, the High Court held the act of assessee could not be called as
rendering of services.
8. A society, running renowned schools, allows other schools to use a specific name, its
logo and motto and receives a non-refundable amount and annual fee as a
consideration. Whether this amounts to a taxable service?
Mayo College General Council v. CCEx40
The High Court held that when the petitioner permitted other schools to use their name,
logo as also motto, it clearly tantamounted to providing franchise service to the said schools
and if the petitioner realized the franchise or collaboration fees from the franchise schools,
the petitioner was duty bound to pay service tax to the department.
39
2010 (19) STR 166 (P & H)
40
(Appeals) 2012 (28) STR 225 (Raj)
46 | P a g e
9. Whether filing of declaration of description, value etc. of input services used in
providing IT enabled services (Call Centre/BPO services) exported outside India,
after the date of export of services will disentitle an exporter from rebate of service
tax paid on such input services?
Wipro Ltd. v. Union of India41
The High Court noted that the appellant was also required to describe value and specify
the amount of service tax payable on input services actually required to be used in providing
taxable service to be exported. The High Court opined that except the description of the input
services, the appellant could not provide the value and amount of service tax payable as any
estimation was ruled out by the use of the word "actually required" and the bill/invoice for the
input services were received by the appellant only after the calls were attended to. Further, the
High Court also observed that one-to-one matching of input services with exported services was
impossible since every phone call was export of taxable service but the invoices in respect of the
input-services were received only at regular intervals, viz. monthly or fortnightly etc. Thus, the
High Court was of the view that in the very nature of things, and considering the peculiar
features of the appellant's business, it was difficult to comply with the requirement "prior" to the
date of the export. Furthermore, the
High Court elaborated that if particulars in declaration were furnished to service tax
authorities within a reasonable time after export, along with necessary documentary evidence,
and were found to be correct and authenticated, object/purpose of filing of declaration would be
satisfied. The High Court, therefore, allowed the rebate claims filed by the appellants and held
that the condition of the notification must be capable of being complied with as if it could not be
complied with, there would be no purpose behind it.
10. Whether expenditure like travel, hotel stay, transportation and the like incurred by
service provider in course of providing taxable service should be treated as
consideration for taxable service and included in value for charging service tax?
Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India42
41
2013 (29) S.T.R. 545 (Del.)
47 | P a g e
The High Court further observed that rule 5(1) may also result in double taxation, if
expenses like air travel tickets, had already been subjected to service tax. The High Court was of
the view that double taxation can be imposed only when it is clearly provided for and intended. It
can never be enforced by implication. The High Court, therefore, held that rule 5(1) of the Rules
runs counter and is repugnant to sections 66 and 67 of the Act and to that extent it is ultra vires
the Finance Act, 1994.
11. Whether tax is to be deducted at source under section 194J of the Income-tax Act,
1961 on the amount of service tax if it is paid separately and is not included in the
fees for professional services/technical services?
CIT v. Rajasthan Urban Infrastructure43
The High Court held that if as per the terms of the agreement between the payer and the
payee, the amount of service tax is to be paid separately and is not included in the fees for
professional services or technical services, the service tax component would not be subject to
TDS under section 194J of the Income-tax Act, 1961.
12. Is rule 5A(2) of the Service Tax Rules, 1994 ultra vires the Finance Act, 1994?
A.C.L. Education Centre (P) Ltd. v. UOI44
The High Court held that section 5A(2) is not ultra vires. It is in consonance with section
72A of the Finance Act, 1994.
13. Is it justified to recover service tax during search without passing appropriate
assessment order?
Chitra Builders Private Ltd. v. Addl. Commr.ofCCEx. & ST45
The Court observed that it is a well settled position in law that no tax can be collected
from the assessee, without an appropriate assessment order being passed by the authority
concerned and by following the procedures established by law. However, in the present case, no
42
2013 (29) S.T.R. 9 (Del.)
43
2013 (31) STR 642 (Raj.)
44
2014 (33) S.T.R. 609 (All.)
45
2013 (Mad.)
48 | P a g e
such procedures had been followed. Further, although Department had stated that the said
amount had been paid voluntarily by the petitioner in respect of its service tax liability; it had
failed to show that the petitioner was actually liable to pay service tax. Thus, the High Court
elucidated that the amount collected by Department, from the petitioner, during the search
conducted, could not be held to be valid in the eye of law, and directed the Department to return
to the petitioner the sum of 2crores, collected from it, during the search conducted.
14. Can extended period of limitation be invoked for mere contravention of statutory
provisions without the intent to evade service tax being proved?
Infinity Infotech Parks Ltd. v. UOI46
The High Court held that mere contravention of provision of Chapter V or rules framed
thereunder does not enable the service tax authorities to invoke the extended period of limitation.
The contravention necessarily has to be with the intent to evade payment of service tax.
15. Would service tax collected but not deposited prior to 10.05.2013 be taken into
consideration while calculating the amount of 50 lakh as contemplated by clause (ii)
of section 89(1) of the Finance Act, 1994?
KandraRameshbabu Naidu v. Superintendent (A.E.), S.T.47
The High Court held that since the said offence is a continuing offence, entire amount of
service tax outstanding [which is required to be deposited with the Central Government] as on
10.05.2013, would be taken into consideration while calculating the amount of 50 lakh as
contemplated by section 89(1) (ii) of the Finance Act, 1994.
16. Whether best judgment assessment under section 72 of the Finance Act, 1994 is an
ex- parte assessment procedure?
N.B.C. Corporation Ltd. v. Commissioner of Service Tax48
46
2013 (31) STR 653 (Cal.)
47
2014 (34) S.T.R. 16 (Bom.)
48
2014 (33) S.T.R. 113 (Del.)
49 | P a g e
The High Court held that section 72 could per se not be considered as an ex parte
assessment procedure as ordinarily understood under the Income-tax Act, 1961. Section 72
mandates that the assessee must appear and must furnish books of account, documents and
material to the Central Excise Officer before he passes the best judgment assessment order. Thus,
said order is not akin to an ex parte order. Such an order will be akin to an ex parte order, when
the assessee fails to produce records and the Central Excise Officer has to proceed on other
information or data which may be available.
17. Whether penalty is payable even if service tax and interest has been paid before
issue of the show cause notice?
CCE & ST v. Adecco Flexione Workforce Solutions Ltd.49
The Karnataka High Court held that the authorities had no authority to initiate
proceedings for recovery of penalty under section 76 when the tax payer paid service tax along
with interest for delayed payments promptly. As per section 73(3), no notice shall be served
against persons who had paid tax with interest; the authorities can initiate proceedings against
defaulters who had not paid tax and not to harass persons who had paid tax with interest on their
own. If the notices were issued contrary to this section, the person who had issued notice should
be punishable and not the person to whom it was issued.
18. Can an amount paid under the mistaken belief that the service is liable to service tax
when the same is actually exempt, be considered as service tax paid?
CCE (A) v. KVR Construction50
The High Court of Karnataka, distinguishing the landmark judgment by Supreme Court
in the case of Mafatlal Industries v. UOI 1997 (89) E.L.T. 247 (S.C.) relating to refund of
duty/tax, held that service tax paid mistakenly under construction service although actually
exempt, is payment made without authority of law. Therefore, mere payment of amount would
not make it service tax' payable by the assessee. The High Court opined that once there was lack
of authority to collect such service tax from the assessee, it would not give authority to the
49
2012 (26) S.T.R 3 (Kar)
50
2012 (26) STR 195 (Kar.)
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Department to retain such amount and validate it. Further, provisions of section 11B of the
Central Excise Act, 1944 apply to a claim of refund of excise duty/service tax only, and could
not be extended to any other amounts collected without authority of law. In view of the above,
the High Court held that refund of an amount mistakenly paid as service tax could not be rejected
on ground of limitation under section 11 B of the Central Excise Act, 1944.
19. In a case where the assessee has acted bona fide, can penalty be imposed for the
delay in payment of service tax arising on account of confusion regarding tax
liability and divergent views due to conflicting court decisions?
AnkleshwarTaluka ONGC Land Loosers Travellers Co. OP. v. C.C.E.51
The High Court held that even if the appellants were aware of the levy of service tax and
were not paying the amount on the ground of dispute with the ONGC, there could be no
justification in levying the penalty in absence of any fraud, misrepresentation, collusion or
willful misstatement or suppression. Moreover, when the entire issue for levying of the tax was
debatable, that also would surely provide legitimate ground not to impose the penalty.
20. Can the Committee of Commissioners review its decision taken earlier under section
86(2A) of the Finance Act, 1994, at the instance of Chief Commissioner?
C.C.E. & S.T. (LTU), Bangalore v. Dell Intl. Services India P. Ltd.52
The Karnataka High Court held that once the Committee of Commissioners, on a careful
examination of the order of the Commissioner (Appeals), did not differ in their opinion against
the said order of the Commissioner (Appeals) and decide to accept the said order, the matter ends
there. The said decision is final and binding on the Chief Commissioner also. The Chief
Commissioner is not vested with any power to call upon the Committee of Commissioners to
review its order so that he could take decision to prefer an appeal. Such a procedure is not
contemplated under law and is without jurisdiction.
51
2013 (29) STR 352 (Guj.)
52
2014 (33) S.T.R. 362 (Kar.)
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21. Whether expenditure like travel, hotel stay, transportation and the like incurred by
service provider in course of providing taxable service should be treated as
consideration for taxable service and included in value for charging service tax?
Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India53
The High Court elaborated that power to make rules could not exceed or go beyond the
section which provides for charge or collection of service tax. The High Court clarified that even
though section 94 prescribes to lay every rule framed by Central Government before each House
of Parliament, which have power to modify them; the same cannot add any greater force to the
Rules than what they ordinarily have as species of subordinate legislation. The High Court,
therefore, held that rule 5(1) of the Rules runs counter and is repugnant to sections 66 and 67 of
the Act and to that extent it is ultra vires the Finance Act, 1994.
22. Assessee contested the issue of SCN as they had already paid the service tax along
with interest for delayed payment of service tax.
CCE & ST v. Adecco Flexione Workforce Solutions Ltd.54
The assessee had paid both the service tax and interest for delayed payment before issue
of show cause notice under the Act. Section 73(3) of the Finance Act, 1994 categorically stated
that if the payment of service tax and interest has been intimated to the authorities in writing, the
authorities should not serve any notice for the amount so paid. But to the above, the authorities
initiated the proceedings against the assessee for recovery of penalty under section 76.
The Karnataka High Court held that the authorities had no authority to initiate
proceedings for recovery of penalty under section 76 when the tax payer paid service tax along
with interest for delayed payments promptly. As per section 73(3), no notice shall be served
against persons who had paid tax with interest; the authorities can initiate proceedings against
defaulters who had not paid tax and not to harass persons who had paid tax with interest on their
own. If the notices were issued contrary to this section, the person who had issued notice should
be punishable and not the person to whom it was issued.
53
2013 (29) S.T.R. 9 (Del.).
54
2012 (26) S.T.R 3 (Kar).
52 | P a g e
23. Is the service tax and excise liability mutually exclusive?
Commissioner of Service Tax v. Lincoln Helios (India) Ltd.55
The assessee undertook not only manufacture and sale of its products, but also erection
and commissioning of the finished products. The customer was charged for the services rendered
as well as the value of the manufactured products. The assessee paid the excise duty on whole
value including that for services, but did not pay the service tax on the value of services on the
ground that there could not be levy of tax under two parliamentary legislations on the same
transaction.
The High Court held that the excise duty is levied on the aspect of manufacture and
service tax is levied on the aspect of services rendered. Hence, it would not amount to payment
of tax twice and the assessee is liable to pay service tax on the value of services.
24. Whether the service tax liability created under law can be shifted by a clause
entered in the contract?
RashtriyaIspat Nigam Ltd. v. Dewan Chand Ram Saran56
With regard to the submission of shifting of tax liability, Supreme Court held that service
tax is indirect tax which may be passed on. Thus, assessee can contract to shift their liability. it is
irrelevant to determine rights and liabilities between service provider and recipient as agreed in
contract between them. There is nothing in law to prevent them from entering into agreement
regarding burden of tax arising under contract between them.
Note: In present context, liability to pay service tax does not lie on service recipient under
clearing and forwarding agents services. However, the principle derived in the above judgment
that service tax liability can be shifted by one party on to the other by way of contractual clause
still holds good.
25. Levy of the Service Tax on software.
Infotech Software dealers Association(ISODA) v. Union of India,57
55
2011 (23) S.T.R. 112 (Kar.)
56
2012 (26) S.T.R. 289 (S.C.)
53 | P a g e
The High Court in this case held that though software is though goods, but the transection
may not in cases amount to sale. In this case only right to use the software with copyright was
given to the customer against the consideration. Thus in this case since the data in the software is
sold will only amount to service not sale.
26. Collect entrance fee from visitors to Airport S 65(105)(zzm) of the Finance Act, 1994
CCE v. P. C. Paulose58
Assessee, under a license given by the Calicut Airport Authority to collect entrance fee
from visitors to airport became the service provider, though he was only acting as an agent under
the license agreement with the Airport Authority. And was liable to pay service tax
27. Related to Penal and Prosecution under Section 89(1).
KandraRameshbabu Naidu v. Superintendent (A.E.) Service Tax59
The assesse was arrested on 22.01.2014 as he had collected service tax but had not paid
the same to the credit to the central government from 2011-12 to 2013-14.The assesse contended
that the calculation Rs. 50 lacs for penal and prosecution provision u/s 89(1) which is amended
by Finance Act, 2013 w.e.f. 10.5.2013 shall be calculated from11.06.2013 to 21.01.2014 which
is 6 months before arrested date pleading that the amendment in finance Act, 2013 cant be
applied retrospectively.
The High Court in this matter held that since the default was continuing one the amount
of 50 lacs shall be computed from actual date and assesse shall be liable to penal and prosecution
u/s 89(1).
28. Whenever the services are received from abroad the service tax has to paid under
reverse charge mechanism, as import of service.
Volkswagen India (Pvt.) Ltd Vs. Commissioner Of C. Ex., Pune-I60
57
2010 (20) STR 289 (Mad.)
58
2010 (19) STR 487 (Ker.)
59
LAWS(BOM)-2014-3-3
60
2014 (34) S.T.R. 135 (Tri. - Mumbai)
54 | P a g e
The appellant is a manufacturer of passenger vehicles in India. It entered into an 'Inter
Company Employment Agreement' with its holding company namely Volkswagen AG, a
company registered in Germany. The Indian company requires people with specialized skill and
experience. As per the inter Company Employment Agreement these personnel are relieved by
the other group company and are put at the disposal of the appellant and they function as whole
timeemployees of the appellant Indian company and work solely under the control, direction or
supervision of the appellant in accordance with its policies, rules and guidelines generally
applicable to the employees of the appellant company during the period of such employment.
The company had also entered into individual agreements with each of such employee. The
department considered the inter Company Employment Agreement as supply of manpower
and demanded service tax from the Indian company, under reverse charge basis.
The tribunal held that the global employees working under the appellant are working as
their employees and having employee-employer relationship. It is further held that there is no
supply of manpower service rendered to the appellant by the foreign/holding company. The
method of disbursement of salary cannot determine the nature of transaction.
29. If such assessee pays the service tax along with interest, and intimates the same to
the Central Excise officer then show cause notice need not be issued by the
department.
SenBrothersv. Commissioner Of Central Excise, Bolpur61
The Appellant is engaged in providing taxable services under the category of commercial
or industrial construction service and manpower recruitment agency service. On scrutiny of the
balance sheet, ledger account and half-yearly challan as well as ST-3 returns for the years 2006-
07 and 2007-08, it was observed that the appellant had rendered services under aforesaid
categories, has not reflected the actual amount of taxable service received from the service
recipient in their ST-3 return or any other statutory document. Accordingly the differential
amount of Service Tax of Rs. 15,42,052/- was demanded and confirmed by the adjudicating
authority along with the interest at the appropriate rate. The adjudicating authority imposed
penalty u/s.76 (Penalty for failure to pay service tax) and penalty u/s.78 (Penalty for suppressing,
61
2014 (33) S.T.R. 704
55 | P a g e
etc. of value of taxable services). The assessee went on appeal beforethe
Commissioner(Appeals). The Commissioner(Appeals) dropped the penalty u/s.78, but upheld the
penalty under Section 76(Penalty for non-payment of Service Tax). Hence the assessee preferred
second appeal before the Tribunal.
The tribunal held that, It is not in dispute in this case that the appellant had discharged
the entire Service Tax liability and interest thereof before the issuance of show cause notice. The
issue is regarding the imposition of penalty on the appellant under Section 76 of the Finance Act,
1994. I find that once the appellant has already discharged Service Tax liability and the interest
thereon and no additional liability has been adjudged in the adjudication proceedings, provisions
of Section 73(3) will be applicable in this case and there was no necessity of issuing any show
cause notice to the appellant. In such cases no penalty is imposable by virtue of Explanation 2 to
sub-section (3) of Section 73 of the Finance Act, 1994.
30. There were differences between the figures as reported in the service tax return and
balance sheet. (Financial Statements). The department adopted a higher figure as
shown in the balance sheet.
Siyaram City Cabs Ltd v.Siyaram City Cabs Ltd.62
There is no dispute that there was audit finding demonstrating difference in figures
shown in the service tax return and balance sheet. When the appellant did not avail opportunity
to reconcile the figures and guide the authorities below as to which figure shall govern the
appellant, there is no necessity to remand the matter for further opportunity. Accordingly, service
tax demand is confirmed.
31. SIM Card is a service and does not fall under the definition of goods.
CCE v. Idea Mobile Communications Ltd.63
SIM card is a computer chip necessity for receiving signals and thereby enabling the
connectivity through the mobile tower. Hence, it is an integral part required to provide mobile
service to the customer. Also, SIM card has no intrinsic value or purpose other than use Inmobile
62
2014 (34) S.T.R. 101
63
2010 (19) STR 18 (Ker.)
56 | P a g e
phone for receiving mobile telephone service from the service provider like goods sold or
intended to be sold to the customer, but supplied as part of service. Consequently, it held that the
value of SIM card supplied by the assessee would form part of the value taxable service liable to
service tax.
57 | P a g e

Service Tax Reforms in India

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Service Tax Reforms in India

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DAMODARAM SANJIVAYYA NATIONAL LAW

SERVICE TAX REFORMS IN INDIA

PRINCIPLES OF TAXATION LAW- II

MUGDHA TOMAR, NIDHI KUMARI, SONIA THOMAS, SUPRIYA KUMARI,

Ms. Nilima Panda

SCOPE AND LIMITATION

SERVICE TAX REFORMS IN INDIA

An act of helpful activity, an act of doing something useful, rendering

HISTORY OF SERVICE TAX IN INDIA

To remove some ambiguities certain activities have been specifically defined

CONSTITUTIONAL PROVISIONS BEHIND LEVY OF SERVICE TAX:

To enable parliament to formulate principles for determining the modalities of levying

LEGISLATIONS GOVERNING SERVICE TAX

I. The Finance Act, 1994 (Chapter- V, Sections 64 to 96)

III. Service Tax Rules, 1994

IV. Service tax (Advance rulings) Rules, 2003

V. CENVAT credit Rules, 2004

VI. Service tax (Registration of Special Category of Persons) Rules, 2005

VII. Service Tax (Determination of Value) Rules, 2006

VIII. Dispute Resolution Scheme Rules, 2008

IX. Service Tax (Provisional Attachment of Property) Rules, 2008

XI. Point of Taxation Rules, 2011

XII. Place of provision of services Rules, 2012

XIII. Service Tax (Settlement of Cases) Rules, 2012

WHAT IS A NEGATIVE LIST?

RATES OF SERVICE TAX:

Senior Advocates shall be liable to pay Service Tax on legal services.

Abatement for tour operators, solely engaged in arranging booking of accommodation

As India is a federal republic GST would be implemented concurrently by the central

COMPARISON OF SERVICE TAX REFORMS OF INDIA WITH SIX

Progressivity of the Tax Structure in India with Countries

Share of General Consumption Taxes

As previously pointed out in the reports of Comptroller General of India, tax

The internal control mechanism existing in the department to bring unregistered

MAJOR REFORM INITIATIVES IN TAX ADMINISTRATION IN

SERVICE TAX ADMINISTRATION REGIME IN USA17

SERVICE TAX ADMINISTRATION REGIME IN CHINA18

The production and distribution of radio, film and television programs.

Domestic entities or individuals that calculate VAT payable based on a simplified

SERVICE TAX ADMINISTRATION REGIME IN PHILIPPINES19

SERVICE TAX ADMINISTRATION REGIME IN EUROPEAN UNION20

SERVICE TAX ADMINISTRATION REGIME IN SLOVAKIA21

Cash accounting scheme

Extension of the scope of goods subject to reduced 10% VAT rate

Introduction of reverse-charge mechanism for construction services

Voluntary VAT registration will only be considered where:

Table 1 : Revenue collection from indirect taxes

Graph 2 : Service Tax as percentage of GDP

Graph 3 : Growth of Service Tax

Table 2 : Growth of Service Tax Revenue

Graph 4 : Percentage of non-filers under service tax

No of taxable No. of ST Per cent growth over No. of assessees

2008-09 106 12,26,100 _ 7,641

2009-10 109 13,39,812 9.27 55,405

SERVICE TAX REGIME STRUCTURE SIMILARITIES

Rajiv Gandhi Memorial College of Aeronautics vs. CCE

Reliance Infratel Ltd Vs. CST

Bharati Tele-Ventures Ltd Vs. CCE

Total Revenue Receipt

Mode of Revenue Mobilization in Service Tax in India

1. The Finance Act 1994

Need for Decentralized Revenue Mobilization in Developing Countries like India

In India, Taxes are divided into Six Groups:

I. Taxes Levied, Collected and Retained by the Centre: