Financial Times

Elucidate various bases of Cost Classification

2008-01-16T05:56:00.000-08:00

Costs are classified in different ways to answer different questions asked by the management. Management wants different kinds of information for different purposes. Hence, costs must be classified and arranged to serve the purpose of the management.

Classification is the process of grouping costs according to their common characteristics. There are various ways of classifying costs. Each classification is for a particular purpose. The important bases of cost classification are the following.

1. Nature of Elements

2. Traceability

3. Functions or Operations

4. Variability or Behaviour

5. Controllability

6. Normality

7. Managerial Purposes

1. Nature of Elements:

In a manufacturing concern, the total cost of a product is made of three elements viz., material cost, labour cost and expenses material cost is defined as the cost of commodities supplied to in undertaking. Labour cost means the cost of remuneration of the employees of an undertaking. The expenses are the cost of services provided to an undertaking and the notional cost of the use of owned assets.

2. Traceability:

On the basis of traceability or indentifiability, costs are classified as direct costs and indirect costs. Costs which are clearly, conceniently and economically identifiable to a costing centre or cost unit are called direct costs. Eg. material and labour costs are clearly traceable to particular product because they are common to several products Eg. rent of the factory cannot be traced to a single product, since it is incurred for all products manufactured in the factory.

3. Functions or Operations:

Costs are classified by functions as manufacturing (production) cost, administration cost, selling and distribution cost. Manufacturing costs are incurred to manufacture the products, including direct material, direct labour and indirect production costs.

4. Variability or Behaviour

Costs can be classified in terms of changes in activity or volume as fixed, variable and semi-fixed (or semi variable) costs.

Fixed Costs:

Fixed cost is a cost which does not change in total amount for a given period of time in spite of changes in quantity of output or volume of activity. It is to be incurred irrespective of changes in output or turnover or level of activity.

Fixed cost depends on passage of time. Hence it is also known as period cost, capacity cost or stand by cost. Examples of fixed cost are rent, rates, insurances, salary etc.

Explain the various steps involved in preparing a Cash Flow Statement

2008-01-16T05:53:00.002-08:00

Cash plays a very important role in the entire economic life of a business. Cash Flow Statement is a statement like Fund Flow Statement. A Cash Flow Statement concentrates to transactions that have a direct impact on cash. It deals with the inflow and outflow of cash between two Balance Sheet. That is, it explains the changes in cash position between the two period. Cash Flow mean inflow and outflow of cash during accounting period. From the beginning of the year up to the end of the year cash is received from various sources and spent on various heads. Incoming and outgoing of cash is termed as cash flow. The term cash here stands for cash and bank balances.

When the management is interested to know about the movement of cash and the availability of cash, the cash flow analysis provides this information. Cash Flow Statement is a Statement of recording systematically all inflows and outflows of cash of the accounting period. Thus it shows the sources (inflow) of cash receipts and the purpose for which payments (outflow) are made. It is like a receipts and payments account in a summary form.

Steps in Preparing Cash Flow Statement:

Opening of Accounts for Non-current Items (To find out the hidden information).
Preparation of adjusted P & L Account ( to find out cash from operation or profit, and cash lot in operation or loss).
Comparison of current items (to find out inflow or outflow of cash).
Preparation of Cash Flow Statement.

To prepare Account for all non-current items is easier for preparing items is easier for preparing Cash Flow Statement.

Cash from operation can be prepared by this formula also:

	Decrease in Current Assets	Increase in Current Assets
Net Profit +	Increase in Current -	Decrease in
	Liabilities	Current Liabilities

Cash Flow Statement can be prepared in statement form or account form.

A Specimen Cash Flow Statement

Account form of cash flow statement is normally followed by all.

Cash Flow Statement:

Inflow of Cash		Outflow of Cash
Opening Cash Balance	xxx	Redemption of Pref. Shares	xxx
Cash from Operation	xxx	Redemption of Debentures	xxx
Sales of Assets	xxx	Repayment of Loans	xxx
Issue of Debentures	xxx	Payment of Dividends	xxx
Raising of Loans	xxx	Pay of Tax	xxx
Collection from Debentures	xxx	Cash Lost in Operations	xxx
Refund of tax	Xxx		Xxx

Cash from operation can be calculated in two ways.

1. Cash Sales Method:

Cash Sales – (Cash Purchases + Cash Operations Expenses)

2. Net Profit Method:

It can be prepared in statement form or by Adjusted Profit and Loss Account.

Explain the various steps involved in preparing a Cash Flow Statement

2008-01-16T05:53:00.001-08:00

Steps in Preparing Cash Flow Statement:

Opening of Accounts for Non-current Items (To find out the hidden information).
Preparation of adjusted P & L Account ( to find out cash from operation or profit, and cash lot in operation or loss).
Comparison of current items (to find out inflow or outflow of cash).
Preparation of Cash Flow Statement.

To prepare Account for all non-current items is easier for preparing items is easier for preparing Cash Flow Statement.

Cash from operation can be prepared by this formula also:

	Decrease in Current Assets	Increase in Current Assets
Net Profit +	Increase in Current -	Decrease in
	Liabilities	Current Liabilities

Cash Flow Statement can be prepared in statement form or account form.

A Specimen Cash Flow Statement

Account form of cash flow statement is normally followed by all.

Cash Flow Statement:

Inflow of Cash		Outflow of Cash
Opening Cash Balance	xxx	Redemption of Pref. Shares	xxx
Cash from Operation	xxx	Redemption of Debentures	xxx
Sales of Assets	xxx	Repayment of Loans	xxx
Issue of Debentures	xxx	Payment of Dividends	xxx
Raising of Loans	xxx	Pay of Tax	xxx
Collection from Debentures	xxx	Cash Lost in Operations	xxx
Refund of tax	Xxx		Xxx

Cash from operation can be calculated in two ways.

1. Cash Sales Method:

Cash Sales – (Cash Purchases + Cash Operations Expenses)

2. Net Profit Method:

It can be prepared in statement form or by Adjusted Profit and Loss Account.

Elaborate on Objective of Fund Flow Statement

2008-01-16T05:52:00.002-08:00

Fund Flow Statement is a widely used tool in the hands of financial executives for analyzing the financial performance of a concern. Funds keep on moving in a business which itself is based on a going concern concept. In a narrow sense, it means cash only and a funds flow statements prepared on this basis is called as Cash Flow Statement. Such a statement enumerates net effects of the various business transactions on cash and takes into account receipts and disbursements of cash. In a broader sense, the term “Fund” refers to money values in what ever form it may exist. Here “Funds” means all financial resources in the form of men, Materials, Money, Machinery etc. But in a popular sense, the term “Funds”, means working capital, i.e. the excess of current assets over current liabilities. When the funds move inwards or outwards, they cause a flow or rotation of funds. The word “Fund” here means net working capital.

Objective of Fund Flow Statement:

The main purposes of Fund Flow Statement are:

1. To help to understand the changes in assets and assets sources which are not readily evident in the income statement of financial statement.

2. To inform as to how the loans to the business have been used.

3. to point out the financial strengths and weakness of the business.

Format of Fund Flow Statement

Sources		Applications
Fund from operation	-	Fund lost in operations
Non-trading incomes		Non-operating expenses
Issues of shares		Redemption of redeemable preference share
Issue of debentures		Redemption of debentures
Borrowing of loans		Repayment of loans
Acceptance of deposits		Repayment of deposits
Sale of investments		Purchase of long term instruments

Write a note on three Important Profitability Ratios

2008-01-16T05:52:00.001-08:00

Profitability ratios reflect the overall performance of the business. Profit must be compared with other information to evaluate the firm’s profitability. There are 2 types of profitability ratios –

Profit margin ratios, which indicate the relationship between profit and sales. The important profit margin ratios are: -

ü Gross profit margin ratio

ü Net profit margin ratio

Rate of return ratios, which examine the relationship between profit and investment. The important rate of return ratios are: -

ü Return on total assets

ü Earning power

ü Return on equity

Gross profit margin ratio:

This ratio computes the margin earned by the firm after incurring manufacturing costs. It measures the efficiency of the production process and pricing policy of the firm. It is calculated as –

Gross Profit x 100 %
Net sales

Where

Gross profit is the difference between Net Sales and Cost of Goods Sold

The cost of goods sold takes into account costs of labour, material and manufacturing overheads.

Net profit margin ratio :

The net profit margin ratio gives the earnings available for shareholders as a percentage of net sales. It is calculated as –

Net profit x 100 %
Net sales

It measures the overall efficiency of the firm in relation to production, administration, selling, financing, pricing and tax management.

The gross and net profit margin ratios taken together provide an understanding of the firm’s cost and profit structure. It also helps identify the sources of the firm’s efficiency or inefficiency.

Return on total assets :

This ratio measures the degree to which capital is efficiently employed by the firm. It is calculated as –

Net Income (profit)

Average Total Assets

Earning power:

Earning power is a measure of operating profitability. It is calculated as –

Earnings Before Interest And Tax
Average Total Assets

It measures the business performance, which is not affected by interest charges and tax payments and thus focuses on operating performance.

Return on equity:

The return on equity measures the earnings from shareholders’ investment and is calculated as –

Equity Earning
Average Net Worth

Equity earnings refers to profit after tax less preference dividends.

Average net worth refers to (paid-up capital+ reserves and surplus).

Also known as the return on net worth, this measure is an important indicator of profitability. It indicates the productivity of the owners’ capital employed. The return on equity is influenced by the firm’s earning power, debt-equity ratio, average cost of debt to the firm and the tax rate.

Differentiate between Management Accounting and Financial Accounting

2008-01-16T05:51:00.003-08:00

Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, government agencies, owners, and other stakeholders. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.

Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company. Managerial accounting provides accounting information to help managers make decisions to manage the business.

Financial accountancy is governed by both local and international accounting standards.

Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. Unlike financial accountancy information (which, for public companies, is public information), management accounting information is used within an organization (typically for decision-making) and is usually confidential and its access available only to a select few.

According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is "the process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non management groups such as shareholders, creditors, regulatory agencies and tax authorities" (CIMA Official Terminology).

The distinctions between financial accounting and management accounting may be summarized as follows:

1. In most of the big business houses, financial accounting is the responsibility within the management accounting. It is the duty of financial accounting to process the mass of unwieldy data and make free the management accountant from the details. The management accounting, in its turn, sorts out the significant figures and channels them for the use in management process. Management accounting offers figures as facts having managerial significance.

2. Financial accounting is more confined to the preparation of accounts from the point of view of outside parties (Eg. Debenture-holders, creditors and shareholders) while management accounting used the information for internal use of management.

3. Financial accounting tries to present statements according to standards laid down by the outside parties while management accounting tries to measure up to the standards laid down by the management which may be much higher than that laid by the outsiders.

4. Financial accounting is made compulsory by law but management accounting is adopted to increase the efficiency without and legal force.

5. Financial accounting lays emphasis on the past while management accounting stresses the future.

6. Financial accounting deals with the whole of the business while management accounting takes up only those divisions of the business which are vital and significant in business activities.

Marginal Costing Vs CVP Analysis

2008-01-16T05:51:00.001-08:00

Marginal Costing

Marginal cost means the same thing as variable cost. The term is not a new one. The accountants concept of marginal cost differs from economists concept of marginal cost Economists define marginal cost as the additional cost of production one additional unit. This shall include an element of fixed cost also. Moreover, the economists marginal cost per unit cannot be uniform with the additional production since the law of diminishing or increasing returns is applicable; whereas the accountants marginal cost shall be constant per unit of output with the additional production.

The Institute of Cost and Works Accountants of India defined marginal cost as, :The amount at any given volume of output by which aggregate costs are changed, if the volume of output is increased of decreased by one unit”. Here a unit may be a single article, a batch of articles, an order, a stage of production capacity, a process or department. To ascertain the marginal cost, we need the following element of cost.

ü Direct Materials

ü Direct Labour

ü Other Direct Expensed, and

ü Total Variable overheads.

That is Marginal Cost = Prime Cost + Total Variable overheads

Marginal Cost = Total Cost – Fixed Cost

Marginal Cost = Increase in total cost

Increase in total units

Fixed costs remain fixed within a frange of production. They are not directly linked to product units. Rather, they are spent on elapse of time. Some portion of the fixed costs may be discretionary, which the management spends on availability of adequate profit. Other portion of fixed costs in non-discretionary which the management cannot avoid in the short run.

So in the short run decisions only incremental to fixed costs are considered. Decisions are based on marginal cost and contribution. Cost, volume and profit (C.V.P.) relationship provides important information to aid decision – making.

Also, managerial decisions are affected by product’s life cycle. This means the various stages through which a product passes, from conception and development through introduction into the market through maturation and finally, withdrawal from market.

Marginal Costing is defined by the ICWA as, the ascertainment by differentiating between fixed costs, and variable costs, of marginal costs and of the effect on profit of change in volume of type of output”. According to Dr. Joseph, “Marginal Costing is a technique of determining the amount of change in the aggregate costs due to an increase of one unit over the existing level of production. As such, it arises from the production of additional increments of output.

Batty defines Marginal Costing as a “Technique of Cost accounting which pays special attention to the behavior of costs with changes in the volume of output”.

Example:

RS.

Variable cost 8,000 @ Rs. 5 40,000/-

Fixed cost 10,000/-

-----------

50,000/-

ii. Standard Costing Vs Variance Analysis:

Standards are set for various activities with reference to resource, time and values on the basis of normally available working facilities and capability of an average employee and machine. Similarly, sales standard is set on the basis of appropriate market survey.

Budgets may be set after deciding upon the standards. In actual circumstances, after budgets are set on the basis of past experience and given resources ignoring the standard requirements.

Standards are nothing but a control device. Deviation from the standards is called variance. Analysis of variances is an effective means of control.

Enumerate various sub-fields of accounting

2008-01-16T05:50:00.002-08:00

Various Sub-Fields of Accounting are:

ü Book-Keeping

ü Financial Accounting

ü Management Accounting and Cost Accounting

ü Social Responsibility Accounting

Book Keeping:

It covers procedural aspects of accounting work and embraces recording and classifying functions. Keeping subsidiary and principle books of accounts to record transactions and events as and when they occur, classifying into suitable account-headings form the subject matter of book keeping.

Financial Accounting:

Finalization of accounts, preparation of financial statements, communication of accounting information to the users and interpretation thereof are subject matter of financial accounting.

However, border line between book keeping and financial accounting is very thin. One can even ignore it and use the term financial accounting to mean the whole process. In fact, the term financial accounting is becoming more popular nowadays.

Management Accounting:

It emerged as an accounting sub-field only in the 20^th century. Management accounting shifted focus of accounting from recording and analyzing financial transactions to generating information for management decisions. R. N. Anthony gives a simple definition: “ Management Accounting is concerned with accounting information that is useful to management. It contributed significantly to the expansion of trade and commerce, more generally spreading of capitalism”. Charles T. Horngren nicely distinguished between financial accounting and management accounting. Financial accounting emphasizes the preparation of reports of an organization for external users whereas management accounting emphasizes the preparation of reports for its internal users.

Cost Accounting:

Cost accounting is a special wing of management Accounting I.C.M.A. London gives the following definition: “Cost Accounting is the application of accounting and cost principles, method and techniques in the ascertainment of costs and the analysis of savings and/or excesses as compared with previous experience”. Charles T. Horngren explained that cost accounting is generally indistinguishable from management accounting of managerial accounting.

Write a note on types of Errors and their Rectification

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Rectification of Accounting Errors:

Every businessman is interested in finding out the true profit and correct financial position of his business at the close of the trading period. The effort of the accountant is to prepare the final accounts in such a fashion which exhibits true picture of the business. Accounts are considered to be authentic proof of true financial position of a concern. But in spite of best efforts there are certain transactions which are omitted to be recorded or entered wrongly in the books. Such errors affect the final accounts. An accountant should, therefore, try to locate such errors and rectify them before the preparation of final accounts.

Accountants prepare trial balance to check the correctness of accounts. If total of debit balances does not agree with the total of credit balances, it is a clear-cut indication that certain errors have been committed while recording the transactions in the books of original entry or subsidiary books. It is our utmost duty to locate these errors and rectify them, only then we should proceed for preparing final accounts. We also know that all types of errors are not revealed by trial balance as some of the errors do not effect the total of trial balance. So these cannot be located with the help of trial balance. An accountant should invest his energy to locate both types of errors and rectify them before preparing trading, profit and loss account and balance sheet. Because if these are prepared before rectification these will not give us the correct result and profit and loss disclosed by them, shall not be the actual profit or loss.

All errors of accounting procedure can be classified as follows:

1. Errors of Principle

When a transaction is recorded against the fundamental principles of accounting, it is an error of principle. For example, if revenue expenditure is treated as capital expenditure or vice versa.

2. Clerical Errors

These errors can again be sub-divided as follows:

(i) Errors of omission

When a transaction is either wholly or partially not recorded in the books, it is an error of omission. It may be with regard to omission to enter a transaction in the books of original entry or with regard to omission to post a transaction from the books of original entry to the account concerned in the ledger.

(ii) Errors of commission

When an entry is incorrectly recorded either wholly or partially-incorrect posting, calculation, casting or balancing. Some of the errors of commission effect the trial balance whereas others do not. Errors effecting the trial balance can be revealed by preparing a trial balance.

(iii) Compensating errors

Sometimes an error is counter-balanced by another error in such a way that it is not disclosed by the trial balance. Such errors are called compensating errors.

From the point of view of rectification of the errors, these can be divided into two groups :

(i) Errors affecting one account only, and

(ii) Errors affecting two or more accounts.

Errors affecting one account

Errors which affect can be:

(a) Casting errors;

(b) error of posting;

(cl) balancing; and

(e) omission from trial balance.

Such errors should, first of all, be located and rectified. These are rectified either with the help of journal entry or by giving an explanatory note in the account concerned.

Rectification

Stages of correction of accounting errors

All types of errors in accounts can be rectified at two stages:

(i) before the preparation of the final accounts; and

(ii) after the preparation of final accounts.

Errors rectified within the accounting period

The proper method of correction of an error is to pass journal entry in such a way that it corrects the mistake that has been committed and also gives effect to the entry that should have been passed. But while errors are being rectified before the preparation of final accounts, in certain cases the correction can't be done with the help of journal entry because the errors have been such. Normally, the procedure of rectification, if being done, before the preparation of final accounts is as follows:

(a) Correction of errors affecting one side of one account Such errors do not let the trial balance agree as they effect only one side of one account so these can't be corrected with the help of journal entry, if correction is required before the preparation of final accounts. So required amount is put on debit or credit side of the concerned account, as the case maybe. For example:

(i) Sales book under cast by Rs. 500 in the month of January. The error is only in sales account, in order to correct the sales account, we should record on the credit side of sales account 'By under casting of. sales book for the month of January Rs. 500".I'Explanation:As sales book was under cast by Rs. 500, it means all accounts other than sales account are correct, only credit balance of sales account is less by Rs. 500. So Rs. 500 have been credited in sales account.

(ii) Discount allowed to Marshall Rs. 50, not posted to discount account. It means that the amount of Rs. 50 which should have been debited in discount account has not been debited, so the debit side of discount account has been reduced by the same amount. We should debit Rs. 50 in discount account now, which was omitted previously and the discount account shall be corrected.

(iil) Goods sold to X wrongly debited in sales account.

This error is effecting only sales account as the amount which should have been posted on the credit side has been wrongly placed on debit side of the same account.

For rectifying it, we should put double the amount of transaction on the credit side of sales account by writing "By sales to X wrongly debited previously."

(iv) Amount of Rs. 500 paid to Y, not debited to his personal account. This error of effecting the personal account of Y only and its debit side is less by Rs. 500 because of omission to post the amount paid. We shall now write on its debit side. "To cash (omitted to be posted) Rs. 500.

Correction of errors affecting two sides of two or more accounts

As these errors affect two or more accounts, rectification of such errors, if being done before the preparation of final accounts can often be done with the help of a journal entry. While correcting these errors the amount is debited in one account/accounts whereas similar amount is credited to some other account/ accounts.

Correction of errors in next accounting period

As stated earlier, that it is advisable to locate and rectify the errors before preparing the final accounts for the year. But in certain cases when after considerable search, the accountant fails to locate the errors and he is in a hurry to prepare the final accounts, of the business for filing the return for sales tax or income tax purposes, he transfers the amount of difference of trial balance to a newly opened 'Suspense Account'. In the next accounting period, as and when the errors are located these are corrected with reference to suspense account. When all the errors are discovered and rectified the suspense account shall be closed automatically. We should not forget here that only those errors which effect the totals of trial balance can be corrected with the help of suspense account. Those errors which do not effect the trial balance can't be corrected with the help of suspense account. For example, if it is found that debit total of trial balance was less by Rs. 500 for the reason that Wilson's account was not debited with Rs. 500, the following rectifying entry is required to be passed.

Effect of Errors of Final Accounts:

1. Errors effecting profit and loss account

It is important to note the effect that an en-or shall have on net profit of the firm. One point to remember here is that only those accounts which are transferred to trading and profit and loss account at the time of preparation of final accounts effect the net profit. It means that only mistakes in nominal accounts and goods account will effect the net profit. Error in the these accounts will either increase or decrease the net profit.

How the errors or their rectification effect the profit-following rules are helpful in understanding it :

(I) If because of an error a nominal account has been given some debit the profit will decrease or losses will increase, and when it is rectified the profits will increase and the losses will decrease. For example, machinery is overhauled for Rs. 10,000 but the amount debited to machinery repairs account -this error will reduce the profit. In rectifying entry the amount shall be transferred to machinery account from machinery repairs account, and it will increase the profits.

(il) If because of an error the amount is omitted from recording on the debit side of a nominal account-it results in increase of profits or decrease in losses. The rectification of this error shall have reverse effect, which means the profit will be reduced and losses will be increased. For example, rent paid to landlord but the amount has been debited to personal account of landlord-it will increase the profit as the expense on rent is reduced. When the error is rectified, we will post the necessary amount in rent account which will increase the expenditure on rent and so profits will be reduced.

(iil) Profit will increase or losses will decrease if a nominal account is wrongly credited. With the rectification of this error, the profits will decrease and losses will increase. For example, investments were sold and the amount was credited to sales account. This error will increase profits (or reduce losses) when the same error is rectified the amount shall be transferred from sales account to investments account due to which sales will be reduced which will result in decrease in profits (or increase in losses).

(iv) Profit will decrease or losses will increase if an account is omitted from posting in the credit side of a nominal or goods account. When the same will be rectified it will increase the profit or reduce the losses.

For example, commission received is omitted to be posted to the credit of commission account. This error will decrease profits ( or increase losses) as an income is not credited to profit and loss account. When the error will be rectified, it will have reverse effect on profit and loss as an additional income will be credited to profit and loss account so the profit will increase ( or the losses will decrease).

If due to any error the profit or losses are effected, it will have its effect on capital account also because profits are credited and losses are debited in the capital account and so the capital shall also increase or decrease. As capital is shown on the liabilities side of balance sheet so any error in nominal account will effect balance sheet as well. So we can say that an error in nominal account or goods account effects profit and loss account as well as balance sheet.

2. Errors effecting balance sheet only

If an error is committed in a real or personal account, it will effect assets, liabilities, debtors or creditors of the firm and as a result it will have its impact on balance sheet alone. because these items are shown in balance sheet only and balance sheet is prepared after the profit and loss account has been prepared. So if there is any error in cash account, bank account, asset or liability account it will effect only balance sheet.

Explain various type of Journals

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Types of Journals:

In actual practice, Journalisation does not mean recording of transactions in only one format of journal. The transactions are categorized as per their nature and, for each type of transaction, a separate journal is available where the same has to be recorded. These journals can be of the following:

a.	Purchases Day Book	:	It records credit purchase of merchandise.
b.	Sales Day Book	:	It records credit sale of goods.
c.	Return Outward Book	:	It records goods returned to the supplier(s).
d.	Return Inward Book	:	It records goods returned by the customer
e.	Bills Receivable Book	:	It records bills accepted by customers
f.	Bills payable Book	:	It records bills raised by suppliers.
g.	Cash Book	:	It records cash (and bank) receipts and payments.
h.	Journal Proper	:	It records all residual transactions.

a. Purchase Day Book:

It records credit purchase of raw materials (in case of a manufacturing concern), or of goods traded (in case of trading concern). In the illustration given above, only the transaction of January 3 can be recorded in this book as below.

Sales Day Book:

Date

Particulars

Voucher No.

Ledger Folio

Amount

Rs.

Jan 3

M/s……….

Purchased goods

85,000

From this purchase day book, the amount of Rs. 85,000 will be posted subsequently in the secondary book. i.e. ledger. This will be discussed in the next unit.

b. Return Outward Book:

It is also known as purchases return book. It records goods returned to the suppliers. Goods may be returned to the suppliers either because of excess supplies or because of defective supplies.

Examples: Goods returned to the supplier MN Ltd. Consisting of 10 packets of Vanaspati Oil costing Rs. 43 per packet because of defective container design.

Return Outward Book:

Date

Particulars

Voucher No.

Ledger Folio

Amount

Rs.

Jan 15

M/s MN Ltd.

10 Packets of Vanaspati

Oil @ Rs. 43 per packet

430

d. Return Inward Book:

Also known as the sales return book. It records goods returned by customers. Normally customers are given a time during which they can return the goods for any valid reason.

Example: A customer M/s AB & Co., returned 5 pieces of T.V. sets sent in excess of order. The selling price of each T.V. Set was Rs. 11,000.

Return Outward Book:

Date

Particulars

Voucher No.

Ledger Folio

Amount

Rs.

Jan 15

M/s AB & Co. Ltd.

5 Pcs. Of TV Sets @ Rs. 11,000 each returned

55,000

The above entry in the return inward book will be posted in the ledger by debiting the return inwards Account and crediting the Customer’s Account.

This will be discussed in the next chapter.

e & f. Bills Receivable and Bills Payable Book:

A bill of exchange is documentary evidence in writing, containing an unconditional order signed by the marker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. A bill of exchange accepted by a customer is called bills Receivable and a bill of exchange drawn by a supplier on the business entity is called Bills payable. These books record bills accepted by customers and drawn by suppliers date-wise. These books help a business unit ti easily find out which bill has become matured on a particular date and, therefore, it becomes easier to keep track of the bills.

The format of these books are as below:

Bill Receivable Book:

Date of receipt	V. No.	Party from whom received	Date of Bill	Due Date	Place of payment	Amount Rs.	L.F.

Bill Payable Book:

Date of acceptance	Drawn	Date of Bill	Due Date	Place of Payment	Amount Rs.	L.F.

g . Cash Book:

It records daily cash (including bank) receipts and payments. Its unique feature is that it serves the purpose of both a book of prime entry and a book of secondary entry. In other words, the cash book is a journal as well as ledger. The simplest form of the cash book is a single column cash book which records only cash (no bank) receipts and payments. The double column cash book has two amount columns on either side – one for cash and the other for bank account (which is quite common) , a separate column should be devoted to each bank account. The highest form of cash book is a triple column cash book – one column for cash, the second column for bank and the third column for discount. A typical triple column cash looks like below:

Dr. Cr.

Date

Particulars

V. No.

L.F.

Cash

Bank

Discount

Date

Particulars

V. No.

L. F.

Cash

Bank

Discounts

The cash book is divided vertically into two equal sides – the left hand side (called the debit side) shows cash and bank receipts and discounts allowed, and the right hand side (called the credit side) shows cash and bank disbursements and discounts received. The ledger folio Indicates the folio number of the secondary book where a particular item is subsequently posted to complete the dual effect.

The importance of cash book is paramount. The final balance at the end of an accounting period in the cash column indicates the cash balance in hand and the same should actually tally with the physical cash balance. If physical cash balance does not tally exactly with the balance of the cash book, an inquiry must be made into the discrepancy. There may be a possibility of defalcation of cash. In case of a statutory audit of banks, the first step of audit is cash verification. The auditors are supposed to visit the branch on the first day of the accounting year, before the bank opens its operations for the day. Cash is physically counted – either fully or through test checks – and the auditors should satisfy themselves about the authenticity of the cash balance shown in the cash book.

Elaborate on Basic Accounting Concepts

2008-01-16T05:48:00.000-08:00

Basic Accounting Concepts:-

1. The Entity Concepts:

A business is an artificial entity distinct from its proprietor(s). A business entity is an economies unit which owns its assets and has its own obligations. The owner(s) may have personal bank accounts, real estate, and other assets, but these will not be considered as assets of the business. A business entity may be in the form of a sole proprietorship concern, partnership, or a corporate entity. In case of a sole proprietary form of business, the sole proprietor is considered fully responsible for the welfare of the entity and, in the eyes of law, the sole proprietor and the business are not considered to have a separate existence. For accounting purposes, however, they are separate entities. A partnership form of business has more than one owner who have “agreed to share profits of a business carried on by all or an of them acting for all”. A corporate entity is a separate legal entity, entirely divorced from its owners (called equity shareholders). A sole proprietorship business normally comes to an end with the expiry of the owner, a partnership firm may cease to operate or, at least, there will be reconstruction of the agreement of the expiry of an owner (called partner) but a corporate entity is not disturbed at all on the expiry of any equity shareholder.

2. Money Measurement Concepts:

Each transaction and event must be expressible in monetary terms. If an event cannot be expressed in monetary terms. It cannot be considered for accounting purpose. Foe example, if you successfully pass a Distance Learning Programme of a university, it will give you a great deal of Satisfaction. But the satisfaction cannot be expressed in monetary terms. Hence such an event is not fit for accounting. On the other hand, if you are robbed of Rs. 1,000 in a train journey, the loss suffered can definitely be expressed in monetary terms. This concepts implies that the legal currency of a country should be used for such measurement.

3. The Cost Concepts:

Assets such as land, buildings, plant and machinery etc. and obligations, such as loans, public deposits, should be recorded at historical cost (i.e., cost as on acquisition). For example, the land purchased by a business entity two years back at a cost of Rs. 10 lakh should be shown, as per the cost concept, at the same amount even today when the current price of the land may have increased five-fold. Thus, the greatest limitation of this concepts is tat it distorts the true worth of an asset by sticking to its original cost.

4. The Going Concern Concepts:

One common argument put forward by the proponents of cost concept is that the assets are shown at its original cost (net of depression) because these are meant for use for a long period of time and not for immediate resale. Therefore, the cost concept rests on the assumption that an entity would continue its operation for a long time. An entity is said to be a going concern if it has neither the intention nor the necessity of the liquidation or considered as one of the fundamental accounting assumptions. The valuation principle of assets and liabilities depend on this concept. If an entity is not a going concern, its assets and liabilities are to be valued in an altogether different manner.

5. The Accrual Concepts:

It suggests that incomes and expenses should be recognized as and when they are earned and incurred, irrespective of whether the money is received or pain in connection thereof. This concept is used by all businesses that disclose their financial statements to various interested parties. In fact, the Companies Act, 1956 provides that accrual concept has to be maintained for practically all purposes. The alternative to the accrual basis of accounting is called ash basis of accounting. The law in India provides that in cases where accrual concept cannot be followed under and circumstances, cash basis may be followed.

6. The Matching Concepts:

The inherent concept involved in accrual accounting is called matching concept. Revenue earned in an accounting year is offset(matched) with all the expenses incurred during the same period to generate that revenue, thus providing a measure of the overall profitability of the economic activity. Thus, matching concept is very vital to measure the financial results of a business. The timing of incurring expensed and earning revenues does not always match. For example, in case of a seasonal business, majority of sales may take place only in four months of a year whereas fixed expenses like salaries, rent etc. are incurred throughout the year. Matching concept suggests that the expenses incurred to generate revenue are to be matched against that revenue to find out the profitability.

place liable to search is closed, any person residing in or in charge of such place shall, on demand of the officer executing

2008-01-12T05:49:00.002-08:00

Indian Service Tax

Searches

As per Section 82 of Finance Act of 1994, Commissioner of Central Excise may authorise any Assistant Commissioner or Deputy Commissioner to search premises, if he has reason to believe that any documents or books or things will be useful or relevant are secreted in any place. In this connection, the provisions of Code of Criminal Procedure, 1973 shall apply. The procedure is briefly summarised as under:

That whenever any place liable to search is closed, any person residing in or in charge of such place shall, on demand of the officer executing the search warrant and on production of the warrant, allow him entry thereto and afford all reasonable facilities for a search therein.
If entry into such place cannot be so obtained, the officer executing the warrant may break open any outer or inner door or window of any house or place if, after notification of his authority and purposes and demand of admittance duly made, he cannot otherwise obtain admittance.
Where any person in or about the place to be searched is reasonably suspected of concealing about his person any articles for which search should be made, such person should be searched. However, if such a person is a woman, the search shall be made by another woman with strict regard to decency.
Before making a search, the officer about to make it, shall call upon two or more respectable inhabitants of the locality in which the place to be searched is situated, to attend and witness the searches and may issue an order in writing to them or any of them so to do.
The search shall be made in pursuance of the persons called as witness and the list of the things seized in the course of a search and of the place in which they are respectively found shall be prepared by such officer and signed by the witnesses.
The occupant of the place searched or some other person in his behalf shall in every instance be permitted to attend during the search and a copy of the list prepared as mentioned in the above para and signed by the said witness shall be delivered to such occupant or persons.
When any person is searched as mentioned above, a list of all things takenover shall be prepared and a copy thereof delivered to such person.

being faced by the Field Formations/Service Providers in collecting/paying

2008-01-12T05:49:00.001-08:00

Indian Service Tax

Rounding Off Of Service Tax

Cir. 53/2/2003-ST, 27/3/2003

Sub: Rounding of Service Tax to the multiples of a Rupee

Instances have come to the notice of Board with regard to difficulties " being faced by the Field Formations/Service Providers in collecting/paying the service tax in amounts less than a rupee or in multiple thereof.

Attention is invited to the provisions of Section 37 -D of the Central Excise Act, 1944 which has been made applicable to Service Tax Law by virtue of Section 83 of Finance Act, 1994 (as amended), provide that the amount of service tax, interest, penalty, fine or any other sum payable and the amount of refund or any other sum due, under the provisions shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be I increased to one rupee and if such part is less than fifty paise it shall be ignored.

Review of Order-in-Revision passed by Commissioner of Central Excise in respect of Service Tax matters

2008-01-12T05:48:00.002-08:00

Indian Service Tax

Review

Order-in-Revision

Cir. No. 43/6/2002-ST, Date: 31/5/2002

Sub:- Review of Order-in-Revision passed by Commissioner of Central Excise in respect of Service Tax matters.

Your attention is invited to the amended provision contained in sub-section (2) of Section 86 of the Finance Act, 1994 relating to Service Tax. The said subsection empowers the Board to direct the Commissioner of Central Excise to appeal to the Appellate Tribunal against the order passed by Commissioner of Central Excise under Section 84 of the Act.

2. References have been received from some Chief Commissioners and Commissioners regarding the need for outlining the procedure for review of these Orders-in-Revision.

3. In this regard, I am directed to convey that the same procedure as is in practice in respect of review under Section 35E of the Central Excise Act or Section 129D of the Customs Act will be followed in respect of Service Tax also. The jurisdictional Chief Commissioners will examine the legality and propriety of Order-in-Revision passed by the Commissioner of Central Excise under Section 84 of Finance Act, 1944, and in deserving cases, will send review proposal to the Board alongwith Draft Review Order, and the case records within 45 daysofpassing of the Order-in-Revision.

4. It is further clarified that Board will wait for proposals for review from Chief Commissioners in respect of Orders-in-Revision passed by Commissioners of Central Excise. Commissioners should, therefore, invariably, endorse a copy of Order-in-Revision passed by them to the jurisdictional Chief Commissioner of Central Excise.

submit copies of challans manually to the department after e-filing his return, evidencing payment of duties, after indicating his 15 digit STP code

2008-01-12T05:48:00.001-08:00

Indian Service Tax

Returns

4.Filing of Returns:

(Q. 4.1) How to file Service Tax Returns on what interval and with whom?

Ans. The Service Tax assessees are required to file a half yearly return in Form ST-3 or ST-3A as applicable in duplicate, to the Superintendent, Central Excise, dealing with Service Tax work. The return is to be filed within 25 days from the last day of the half year it relates to and should be accompanied by copies of all TR-6 challans issued in the relevant period. Thus, returns for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.

(Q. 4.2) What is e-filing of Service Tax returns?

Ans. E-filing is a facility for the electronic filing of Service Tax returns by the assessee from his office, residence or any other place of choice, through the Internet, by using a computer. ,The assessee can go to the e-filing site 'Home Page' by typing the address http:// servicetaxefiling.nic.in in the address bar of the browser.

(Q. 4.3) Who can e-file their returns?

Ans. Assessees having a 15 digit STP code and falling under the following categories can avail of the facility of electronic filing of their 'Return' for the following services:

Telegraph Services (TG)
Telephones (TSU)
Life Insurance Services (LIS)
Insurance Auxiliary (IAX)
General Insurance Business (GIB)
Stockbrokers (STB)
Advertising Agencies (ADV) and
Courier Services (COU)
Banking and Financial (BFN)
Custom House Agents (CHA)

This facility will be extended to other services in stages.

The assessee should take care to ensure that he has been indicating his 15 digit STP code in the challans useq by him from September 2002. An assessee who has not done this may also opt for e-filing but he will

For Form ST-3: Return See "Assessment".

For Form T-3A: Return See "Provisional Assessment".

have to submit copies of challans manually to the department after e-filing his return, evidencing payment of duties, after indicating his 15 digit STP code on each challan.

(Q. 4.4) What is the procedure for e-filing?

Ans.Those assessees coming under the above service categories and who have 15 digit Service Tax Payer Code allotted to them, should file an application to their jurisdictional AC/DC as laid out in Trade Notice issued in this regard. They should mention a trusted e-mail address in their application, so that the department can send them their userword and password to help them file their return. They should log on to the Service Tax E-filing Home Page using the Internet. On entering their STP Code, user word and password in the place provided on the Home Page they will be permitted access to the E-filing facility. They should then follow the instructions given therein.

(Q. 4.5) What is to be done when no services are provided for in a half year?

If no services have been provided during a half year no Service Tax is payabl the assessee may file a nil return within the prescribed time limit.

(Q. 4.6) What is the penalty for non-fililng or delayed filing of half yearly returns?

Ans. As per Section 77, "If a person fails to furnish in due time the return which he is required to furnish under Section 70 or the rules made thereunder, he shall be liable to a penalty which may extend to an amount not exceeding one thousand rupees."

(Q. 4.7) Whether a single return is sufficient when an assessee provides more than one Service or separate return is to be filed for each service?

Ans. A single return would suffice. However, details in each of the column in Service tax the form ST-3 has to be furnished separately for each of the taxable service rendered by the assessee.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

B. Filing of Service Tax Returns

1. Section 70 of the Act read with rule 7 of the Service Tax Rules, 1994 stipulates that every person liable to pay service tax shall file a half yearly return in Form ST-3 or ST-3A, in triplicate, along with return under rule 5 of the Service Tax Credit Rules, 2002 wherever applicable as the case may be, along with a copy of the Form TR6 by the 25th of the month following the particular half year. Non filing or late filing of returns is punishable under Section 77 of the Act and the assessee is liable to penalty, which may extend to an amount not exceeding Rs.l000/-.

2. As it appears, there are many registered assessees under the Service Tax who do not file the half yearly returns promptly, the Superintendent Service Tax Range in charge of the respective taxable service providers is hereby directed to prepare the list of assessees who have not complied with the provisions of Section 70 of the Act and to issue Show Cause Notices to all of them immediately. For the convenience of the Range, a format of the show-cause notice is appended as Annexure III. In the show cause notice, the last date for filing reply and the date of Personal hearing shall be indicated. The Assistant Deputy Commissioner, Hyderabad K Division incharge of Service Tax shall reserve one day every week exclusively for hearing and disposal of such Adjudications. All cases under this category shall be disposed of within 15 days from the date of hearing.

3. The Superintendent, Service Tax Range shall maintain a penalty register under Section 77 of the Act. (Annexure IV)

C. Cases were Service Tax returns are not filed even after imposition of penalty under Section 75A/77 of the Act

If any taxable service provider fails to make application for registration under Section 69 of Chapter V of the Finance Act, 1994 and/or fails to file the half yearly return under Section 70 ibid, even after penalty is imposed on him for the aforesaid failures, action may be initiated under Section 82 of Chapter V of the Finance Act, 1994 to search the premises of the concerned taxable service provider after taking due authorization from the Commissioner of Central Excise following the existing provisions of law. The searches shall be conducted only under the supervision of the Deputy Commissioner of Central Excise in charge of Service Tax. In respect of all cases where action under Section 82 is initiated a register shall be maintained in the format prescribed in Annexure V. The Superintendent, incharge of Service Tax Range shall also prepare a list of all such defaulters and communicate it to the Income tax Department iD the prescribed format as provided under Section 132 (b )(1) of the Income Tax Act,1962 (Annexure VI) and record of all such assessees with respect to their gross Income declared for the corresponding period shall be called for immediately.

D. Scrntiny and verification of Service Tax returns submitted by the assessee

The Volume of Service Tax returns filed by the due date is appreciably high. For the purpose of exercising proper scrutiny of the self assessed returns tiled by the assessee, the following guidelines are issued:

1. Scrutiny of all returns where the service tax paid is more than Rs.1 0,000 for the period of the return shall be undertaken invariably by the Superintendent Service Tax Range incharge of that taxable service. (Category A)

2. Scrutiny of all returns where the service tax paid is less than Rs.1 0,000 shall be done on random sampling basis. (Category B)

3. Priority shall be given to the returns belonging to services that are prone to evasion like real estate agents, cable operators, courier services, etc. The Superintendent, Service Tax Range should scrutinize the returns on monthly basis. A consolidated report indicating progress in the scrutiny of the returns shall be submitted to the Deputy Commissioner, every month in the format prescribed in Annexure VII.

4. A check list for scrutiny of service tax returns is appended as Annexure VIII. It shall be the responsibility of the Superintendent, Service Tax Range to check all the points listed out in the check list and to fill up all the columns of the scrutiny report. The scrutiny reports shall be preserved assessee-wise for future references.

5. If the scrutinizing officer finds any discrepancy or if he is of the opinion that service tax payable on any service provided is suppressed or misdeclared in the returns filed by the assessee, the Superintendent of Service Tax Range may by issuing summons under Section 14 of the Central Excise Act, 1944 read with Section 71(2) of Chapter V of the Finance Act, 1994 require the assessee to produce any accounts, documents or other evidence as he may deem necessary for conducting verification under Section 71(1) as and when required. Assessee shall be given reasonable time to produce the records summoned. The list of records required for the verification shall be explicitly and exhaustively mentioned in the summons. If the required information is not forthcoming or if the information furnished is incomplete or incorrect, action under Section 82 of the Act may be initiated in accordance with law as detailed in the check list and, scrutiny report. The detailed of the verification conducted shall be recorded in the verification/investigation register. (Annexure V)

ANNEXURE-III

C.No. _______________________________________ Date: _____________________

To
M/s. _______________________

_______________________
_______________________

Notice to Show Cause

M/s. _________________ having their office at _________________ (hereinafter referred to as the noticee) is registered with the Central Excise, ________________ Commissionerate under Section 69 of Chapter V of the Finance Act, 1994 (hereinafter referred to as Act) under Service Tax Registration No. ________________________ .

Section 70 of the Act read with rule 7 of the Service Tax Rules 1994 stipulates that every assessee shall submit ahalfyearly return in form ST-3, ST3A, in triplicate along with a copy of the TR6challan for the month covered in the half yearly return by the 25th of the month following the particular half year. Failure to furnish the returns in due time is liable to imposition of penalty under Section 77 of the Act.

Whereas it appears that the noticee have not filed their returns for the period till date of issue of Show Cause Notice.

Now, therefore, the noticee is called upon to show cause to the Assistant/Deputy Commissioner (ST), Central Excise,Division having his office at _____________ as to why penalty should not be imposed under Section 77 of the Act for non-filing of their returns in due time.

The noticee is required to produce at the time of showing cause all the evidences upon which they intend to rely in support of their defence.

The last date for filing reply to the notice is ____________. The noticee may appear before the Deputy/Assistant Commissioner (ST) on at _________________ hours if he wishes to be heard in person.

If no cause is shown against the action proposed to be taken within the stipulated date or if the noticee or their legal/authorized representatiye does not appear before the Adjudicating Authority on the date and time fixed for personal hearing, the case would be decided ex-parte on the basis of evidences available on the record without any further reference to him.

The notice is issued without prejudice to any other action that may be taken under the Act or the rules made thereunder or any other law for the time being in force in India.

Deputy Commissioner (ST)

Central Excise: Division

Annexure-IV

Penalty Register under Section 77 of the Finance Act, 1994 (Non-filing/late filing of ST-3/3A returns)

File No.	Name & address of the party	Date of issue of SCN	Period covered in the SCN	Date of adjudication	Amount of penalty imposed
1	2	3	4	5	6

Date of payment of penalty and TR-6 No	Date of filing of returns for the period adjudicated	Particulars of appeal filed	Remarks
7	8	9	10

Annexure-V

Verification/ Investigation Register:

Sl. No.	File Name & address of the taxable service provider	Description of service	Value of taxable service declared if any	Date of issue of summons under Section 71 (2)	Date of search under Section 82
1	2	3	4	5	6

Date of Communication to the I.T Department	Date of reply from I.T Department	Date of finalisation of invtigation/verifi-cation	Value of taxable service computed	Amount of Service Tax demanded	Number & date of show cause notice
7	8	9	10	11	12

Annexure-VI

Sl. No.	Name and address of the assessee and PAN No.	Nature of Service provided	Case in Brief	Amount involved
1	2	3	4	5

Sl. No.Period	Gross income declared for corresponding period	Additional information, if any	Remarks
6	7	8	9

Annexure-VII

Progress report in the Scrutiny & Verification of Service Tax Returns for the month of

Name of the Superintendent

Opening Balance of Returns		Fresh Receipt		Number of Returns scrutinized		No. of returns taken up for verification		Closing Bala'nce
Category A	Category B	Category A	Category B	Category A	Category B	Category A	Category B	Category A	Category B

Opening Balance of Returns		Fresh Receipt		Number of Returns scrutinized		No. of returns taken up for verification		Closing Bala'nce
Category A	Category B	Category A	Category B	Category A	Category B	Category A	Category B	Category A	Category B

Annexure-VIII

Check list for scrutiny & Scrutinizing Report of Service Tax Returns:

Resident!/Non-Resident

1. Name of the assessee	1a. Registration No.
2. Period of Return	2a. Date of Submission
3. Due date for filing return	3a. Period of delay
4. Whether returns for the past period filed - Yes/No	4a. Whether SCN u/S. 77 issued Yes/No
5. Whether the unit is single locational or multi-locational Single/Multiple	5a. Whether central billing is done and opted for registration of only centralized billing office - Yes/No
6. Whether single service unit or multiple service unit Single/Multiple	6a. Name of the taxable service/service provided
7. Whether the return covers all taxable services rendered by all units - Yes/No	7a. Indicate details of taxable services/units which are not covered in the return filed
8. Whether value of all taxable services billed has been realized - Yes/No	8a. If not, indicate the balance value receivable
9. Whether balance value receivable in the last return is realized and included in the current return - Yes/No/Partially realized	9a. If not, indicate the total outstanding amount to be realized including 8(a)
10. Whether the value of taxable services has been calculated correctly - Yes/No	10a. If not, please indicate the details of discrepancie noticed
11. Whether the amount of service tax has been calculated correctly - Yes/No	11 a. If not, indicate the details of discrepancies noticed
12. Whether the Service Tax payable has been paid on or before the due date Yes/No	12a. If not, indicate the period of delay in days
13. In respect of delayed payment whether SCN for penalty u/S, 76 issued	13a. Indicate the SCN No. & date
14. In respect of delayed payment whether interest payable u/S. 75 is paid	14a. If not, indicate the action taken for recovery of interest.
15. Whether any arrears of Service Tax interest and penalty is pending recovery as on date of return	15a. If yes, please indicate the details: i service taxt ii. Interest iii.penalty
16. Whether arrears of Service Tax, Interest & Penalty as per the previousperiods scrutiny report realized - Yes/No	16a. If yes, give details i. Service tax ii. interest iii. penalty
17. If there is discrepancy noticed in respect ofS1.No.10 & 11 above, whether verification done u/S. 71 - Yes/No	17a. If not, why?
18. If there is no discrepancy noticed in respect of S1.No. 10 & 11 above whether verification is done u/S. 71 - Yes/No	18a. If yes, why?
19. Ifverification isconducted, are you satisfied with the results of verification Yes/No	19a. If not, why?
20. Has the assessee cooperated with you for conducting verification u/S. 71	Yes/No
21. Do you recommendfurther course of action against the assessee.	Yes/No
22. If yes, please give brief reasons - Reasons: Value of taxable service escaped assessment. Under-assessment Non-payment/Short payment of Service Tax Wilful suppression or mis-statement of fact Previous investigation is pending Any other reason	Grounds for suspicion Name of Superintendent (ST) Signature
23. Recommendation ofAC/DC for conducting search/issue of summons/investigations.

Public Holiday

Cir. No. 63/12/2003-ST, Date: 14/10/2003

N.B.:- For full text see under "Payment of Service Tax - Procedure".

Return by Registered Post

[TN No. 6/2002, dated 23/1/2002 of the Madurai-II Commissionerate]

In partial modification of the general practice in force, with reference to the Trade Notice 43/2001, dated 26/6/2001, regarding filing of ST-3 returnS, this office hereby, after considering the representations from the Trade and Associations, permits the Service Tax assessees, who may find it difficult to file the said returns in person, to file the returns with the concerned Divisional Office by Registered Post. While the Department will ensure to acknowledge such receipts, the assessees in turn, also should stick on to the due date and ensure that the returns reaches the Divisional Office on or before the due date.

E-filing of ST3 Return - Clarifications

Q. What is e-filing?

A. E-filing is a facility for the electronic filing of Service tax returns by the assessee from his office, residence or any other place of choice, through the Internet, by using a computer.

Q. Who can e-file their returns?

A. Assessees having a 15 digit STP code and falling under the following categories can avaIl of the facIhtY of electronIcally fihng theIr Return for the following services:

Telegraph Services (TGH)
Telephones (TSD)
Life Insurance Services (LIS)
Insurance Auxiliary (lAX)
General Insurance Business (GIB)
Stockbrokers (STB)
Advertising Agencies {ADV)
Courier Services (COD)
Banking and Financial (BFN) and
Custom House Agents (CHA).

This facility will be extended to other services in stages.

The assessee should take care to ensure that he has been indicating his 15 digit STP code in the challans. used by him from September 2002. An assessee who has not done this may also opt for e-filing but he will have to submit copies of challans manually to the department after e-filing his return, evidencing payment of duties, after indicating his 15 digit STP code on each challan.

Q. Can all types of returns be filed electronically?

A. At present only Service Tax return 'ST 3' can be filed electronically. Q. Is e-filing compulsory?

A. No. E-filing of returns is an assessee facilitation measure of the department in continuation of its modernization and simplification program. It is an alternative to the manual filing of returns.

Q. What -about asses sees who fall under more than one category?

A. Assessees corning under the above categories, have to file separate returns for each of the services provided by them.

Q. Do they have to simultaneously also file a manual return or submit manual TR6 challans separately?

A. If an assessee files electronic returns for any of the permissible categories of services and receives an electronic acknowledgement of the same, he need not file a manual return for the same service. He need not file the manual TR 6 copies for the said returns if he has taken care to ensUre that he has been indicating his 15 digit STP code in the challans used by him from September 2002. If the assessee is a provider of more than one service, it is desirable that he pays his challan service wise, so as to take maximum benefit of the procedure. He should however preserve the manual copies of the TR 6 challan for production before the officer, in the rare occasion it is called for, or as stated above, if the assessee has not been indicating his 15 digit STP code in the challans used by him from September 2002.

Q. What is the procedure for e-filing?

A. Those assessees coming under the above service categories and who have a 15 digit Service Tax Payer Code allotted to them, should file an application to their jurisdictional AC/DC as laid out in Trade Notice issued in this regard. They should mention a trusted e-mail address in their application, so that the department can send them their userword and password to help them file their return. They should log on to the Service Tax E-filing Home Page using the Internet. On entering their STP Code, user word and password in the place provided on the Home Page they will be permitted access to the E-filing. facility. They should then follow the instructions given therein.

Q. To whom should I make a request for e-filing permission?

A. The assessee should file an application to their jurisdictional AC/DC as elucidated in TN mentioned above, for e-filing permission.

Q. How will the permission for e-filing of returns be communicated to me?

A. The permission for e-filing wi:ll be communicated to the assessee through the e-mail address provided by him. It would also contain the user ID and password required for e-filing.

Q. Is it necessary for me to have an e-mail address?

A. Yes. They should mention a trusted e-mail addressintheira.pplication.so that the department can send them their User Word and Password, to help them file their Return. The e-mail address will also be required at the time of log-in.

Q. Can I change my user ID and password after I receive the same front the department?

A. While the assessee cannot change the user ID, he can and must challenge the password immediately after receiving it bye-mail from the department. This he can do by logging on to the CBEC website at the address http:// www.cbec.gov.in and navigating to the e-filing site 'Home Page' ~ere he has an option to change his password. It is the responsibility of the assessee to keep the password confidential and ensure that it is not known to anyone else. This is to prevent misuse. The responsibility for the return filed using the password of the assessee will be his.

Q. What should I do when I change my e-mail address?

A. When the assessee changes his e-mail address he should intimate the department of his new e-mail address. This will help him in continuing to receive messages from the department electronically.

Q. What is an STP code?

A. The STP code stands for Service Tax Payer Code. It is used by the computer as a unique identifier for the assessees records. The department is presently allotting 15 digit STP codes to individual assessees, irrespective of the number of services the assessee may be offering.

Q. Do I have to have a STP code for e-filing?

A. Yes, the assessee has to have a 15 digit STP code for re-filing.

Q. How can I be allotted a 15 digit STP code?

A. The assessee will be allotted a 15 digit STP code by the jurisdictional Central Excise Division after he applies for the same as per the procedure set out in Trade Notice issued in this regard.

Q. Is PAN a must for issuing a 15 digit STP code?

A. The Board through its Circular No. 35/3/2001-CX.4, dt. 27/8/2001 has instructed that every Service Tax Payer should be allotted a PAN based code. However since some assessees are still not having PAN numbers, a provision has also been made in the Computer System for issuing,a 15 digit temporary STP code. When the assessee gets his PAN number, he should immediately inform the department about the number, and the new STP code will be issued incorporating his PAN number. He need not file any new returns for the past period just because of his new STP code.

Q. Why is PAN No. essential?

A. In 1999, the Government of India decided that all business units transacting business with different departments of the Government would be given unique identifiers which have the Permanent Account Number (PAN) assigned by the Income Tax Department as the backbone. This is the Concept behind the Service Tax Payer Code where the first 10 digits constitute the PAN, the next two digits ST is to indicate the special purpose of the code and the last three digits of the code is to constitute a running serial number.

Q. Can I authorize somebody to file the return on my behalf?

A. No. The responsibility for filing the returns and all the information contained therein is that of the assessee. The assessee should hence keep his user ID and password allotted by the department confidential.

Q. How do I get an acknowledgement after filing my return?

A. After submitting his Return, the assessee should wait to get an acknowledgement on his computer screen, of having successfully filed his Return. He should then print a copy of the same as proof of having filed his return. He should be advised to quote the Computer generated number of the acknowledgement in all his future correspondence with the department of this return.

Q. Do I have a grace period for completing the formalities and filing my return electronically?

A. Yes. Being the first time assesses opting for e-filing of ST 3 returns can do so within one month from the due date prescribed in the Service Tax Rules for filing such returns. This concession however does not extend to non-payment of tax in time, misdeclaration etc. For further information please read the Trade Notice issued by the Commissionerate on e-filing.

Q. What are the benefits of e-filing to me?

A. The benefits of e-filing to the assessee is that it saves the assesses precious time from visiting the departmental office to file his returns. He can file the return from his office, house, internet kiosk, or any other place of choice at a time most convenient to him, night or day. He instantly gets an electronic acknowledgement of the return filed by him. The e-filing software also helps the assessee by making checks on the mathematical accuracy of the tax paid. It makes available to him the facility of making reports based on the returns filed by him. In the next stage his refunds will be automatically credited to his bank account.

Q. Where can I seek a clarification of any doubts on e-filing?

A. Any person can seek a clarification on problems relating to e-filing of ST3 returns, by sending an e-mail or contacting the designated officer as per details intimated in the Trade Notice issued by the Commissionerate in this regard.

[Source: C.B.E. & C, E-filing of ST3 Returns, Q & A, dated March, 2003]

E-filing of ST3 Return - Circular

Cir.No. 52/1/2003-ST, dt. 11/3/2003

Sub:- E-filing of Service Tax Returns - Reg.

The Central Board of Excise and Customs is getting ready to facilitate electronic filing of ST-3 returns of Service Tax from the month of April, 2003. Initially, this facility will be extended to only select class or group of service tax providers.

2. Broadly the following criteria may be applied for selecting assessees in the initial phase to be implemented in April, 2003.

(i) Assessee should be providing anyone of the following services viz.,

S.No.	Service Category	Code
1.	Telegraph Services	TGH
2.	Telephones	TSU
3.	Life Insurance Services	LIS
4.	Insurance Auxiliary Services	IAX
5.	General Insurance Business	GIB
6.	Stock brokers	STB
7.	Advertising Agencies	ADV
8.	Courier Services	COU
9.	Banking and Financial	BFN
10.	Custom House Agents	CHA

(ii) Assessee should have the 15 digit STP code (either PAN based or TEMP No.) which is appearing on the SAPs site used by Central Board of Excise & Customs for giving registration to Service Tax assessees.

(iii) The assessee should have been indicating his 15 digit STP code in the challans used by him for the period from September, 2002 to March, 2003 for paying Service Tax. (An assessee who has not done this may also opt for filing. But he will have to submit copies of Challans, evidencing payment of duties to the concerned excise formations after indicating his 15 digit STP code on each challan)

3. The process of E-filing will be facilitated by the following sequential steps:

The assessee who opts for E-filing should file an application to the concerned excise formation before 31-03-2003, in Annexure-I as may be amended from time to time.
The local Commissioner designates an e-mail address and a Telephone No. for receiving queries from trade on any related manner and making arrangement for prompt reply to such mails.
User id and password for the assessee are communicated to him before10/04/2003along with technical details required for accessing the relevant site and the procedure for making entries and other guidance as may be necessary.
After 15-04-2003 he downloads form for entering details ofST3 returns and TR6 challans from the central server using internet and enters the necessary details of the concerned return period.
The computer generates a key number which will depend on the STP code, date of filing, value of services declared and tax paid and generates an acknowledgement giving these details which can be printed by the assessee and kept in his records as evidence of having filed the return.
The computer will verify the fact of payment from data obtained from Focal Point Bank. Where details as declared by the assessee is not found the assessee will be contacted.

4. Where an assessee who has opted for E-filing faces any technical difficulty and he is not able to file the return electronically and get the acknowledgement as specified above he may send an E-mail at the address specified by the Commissioner explaining the difficulties and if any reply is not received within 2 days he may send a mail to saps@excise.nic.in

5. Since this facility is being tried out for the first time in Central Board of Excise & Customs assures all asses sees opting for E-filing of returns that the department will not invoke Section 77 of the Finance Act, 1994 prescribing a maximum penalty of Rs.l000/- for non- filing ST-3 return for upto one month from the due date prescribed under the rules for filing such return. Where an assessee after having opted for e-filing does not succeed in such. filing and getting the computer generated acknowledgement within 25 days from the due date he should file a manual return as was being done hitherto. It is to be clearly understood that this assurance does not extend to non-payment of tax in time or mis-declaration of the value of taxable services rendered.

6. In this initial phase electronic filing will be optional. Every Commissioner should take initiative to get at least some assessees in his Commissionerate to file return electronically. Based on the experience during April, 2003 guidelines will be revised to bring more assessees under the scheme by September, 2003. The progress in practice of using electronic signatures also will be taken into account before revising this instruction.

Appendix' A' to TN No. ______________________ Dated. ________________________________.

To,
The Assistant/Deputy Commissioner
Service Tax.

Sub: Application for permission to file ST3 Returns Electronically

(1) Name of Assessee:

(2) Category of service(s):

(3) Service Tax Registration No.

(4) Email Address:

(Please give a trusted e-mail address to which the Userword and Password for access to the E-filing of the Return can be sent)

(5) I/We request that I/We may be permitted to file my ST3 Return electronically. I/We declare that I/We satisfy the conditions of Trade Notice No.____________ Dated and shall observe the instructions given therein.

I/We undertake to indicate my/our 15 digit STP code in every challan used by me/us for remitting Service Tax in Banks.

If any difficulty is faced in filing the return electronically and get the acknowledgement from the computer within one month from the due date, I/we shall file manual returns as was done hitherto.

Date:	Name and signature of the assessee
Place:	Designation with Seal.

Cir.No. 71/1/2004-ST, Date: 2/1/2004

Sub:- E-filing of Service Tax Returns - Reg.

The attention is invited to the Central Board of Excise and Customs Circular No.52/1I2003 (F.No.137/9/2003-CX. 4, dated 11/3/2003) introducing e-filing of ST-3 returns of Service Tax from the month of April, 2003 in respect of 10 (ten) select class or group of service tax providers.

2. It has now been decided by the Board to extend this facility to all 58 taxable services with immediate effect.

3. Broadly the following criteria may be applied for selecting assesses who are being allowed to avail the facility of e-filing.

(i) Assessee should have the 15 digit STP code (either PAN based or TEMP No.) which is appearing on the SAPS site used by Central Board of Excise & Customs for giving registration to Service Tax assessees.

(ii) The assessee should have been indicating his 15 digit STP code in the challans used by him for the period for which the returns are being filed. (An assessee who has not done this may also. opt for e-filing, but he will have to submit copies of Challans, evidencing payment of service tax to the concerned excise formations after indicating his 15 digit STP code on each challan)

4. The process of E-filing will be facilitated by the following sequential steps:

(a) The assessee who opts for ,E-filing should file an application to the concerned excise formation at least one month in advance before the due date of filing of the return, in Annexure-I as may be amended from time to time.

(b) The local Commissioner designates an e-mail address and a Telephone No. for receiving queries from trade on any related manner and making arrangement for prompt reply to such mails.

(c) User 'id' and 'password' for the assessee will be communicated to him within ten days after filing the application along with technical details required for accessing the relevant site and the procedure for making entries and other guidance as may be necessary.

(d) After receipt of the said details the individual service provider can download form for entering details of ST3 returns and TR6 challans from the central server using internet and enter the necessary details for the concerned return period.

(e) The computer generates a key number which will depend on the STP code, date of filing, value of services declared and tax paid and generates an acknowledgement giving these details which can be printed by the assessee and kept in his records as evidence of having filed the return.

(f) The computer will verify the fact of payment from data obtained from Focal Point Bank. Where details as declared by the assessees are not found the assessee will be contacted.

5. Where an assessee who has opted for E-filing faces any technical difficulty and he is not able to file the return electronically and get the acknowledgement as specified above he may send an E-mail at the address specified by the Commissioner explaining the difficulties and if any reply, is not received within 2 days he may send a mail to saps@excise.nic.in

6. If this facility is being tried out for the first time the Central Board of Excise & Customs assures all assessees opting for E-filing of returns that the department will not invoke Section 77 of the Finance Act, 1994 prescribing a maximum penalty of Rs.1000/- for nonfiling ST-3 return for delay upto one month from the due date prescribed under the rules for filing such return. Where an assessee after having opted for e-filing does not succeed in such filing and getting the computer generated acknowledgement within 25 days from the due date he should file a manual return as was being done hitherto. It is to be clearly understood that this assurance does not extend to non-payment of tax in time or mis-declaration of the value of taxable services rendered.

7. The facility of E-filing is an optional facility and does not bar in any way the manual filing of the return by the Service Provider.

Appendix' A' to TN No. _____________________________ Dated. _______________________________ .

To,
The Assistant/Deputy Commissioner,
Service Tax.

Sub:- Application for permission to file ST3 Returns Electronically

(1) Name of Assessee:

(2) Category of service(s):

(3) Service Tax Registration No.

(4) Email Address:

(Please give a trusted e-mail address to which the Userword and Password for access to the E-filing of the Return can be sent)

(5) I/We request that I/We may be permitted to file my ST3 Return electronically. I/We declare that I/We satisfy the conditions of Trade Notice No. ______________________.

Dated and shall observe the instructions given therein.

I/We undertake to indicate my/our 15 digit STP code in every challan used by me/us for remitting Service Tax in Banks.

If any difficulty is faced in filing the return electronically and get the acknowledgement from the computer within one month from the due date, I/we shall file manual returns as was done hitherto.

Date:	Name and signature of the assessee
Place:	Designation with Seal.

Case Law

Late filing of return - penalty upheld for not showing sufficient cause for the delay - 2002 (141) ELT 66 (New Delhi - Cegat).

Clause 150 of Finance Bill, 2003 seeks to amend retrospectively Section68.and insert a new Section 71-

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Indian Service Tax

Return By Goods Transport Operator And C & F Agent

Note:- Clause 150 of Finance Bill, 2003 seeks to amend retrospectively Section68.and insert a new Section 71-A in the Finance Act,1994from16/7/97to 16/10/98 to validate the collection of service tax from the customer in case of services provided by goods transport operator and clearing and forwarding agent.

Notification No. 4/2003-ST, dt. 14/5/2003 has prescribed the following Form:

FORM ST-3B

(See rule 7 A)

Return of service tax credited to the Government of India for the period commencing on and from the 16th day of July, 1997 to the 16th day of October, 1998, in case of service provided by goods transport operator and, clearing and forwarding agents_________________________.Commissionerate.

Name of the assessee:
Category of service: Goods transport operator service/clearing and forwarding agents service:
Service tax registration No.(optional) :
PAN No. ______ (in case assessee does not have registration No.)
Period*:
Value of taxable service:
Amount of service tax payable:
Amount of interest, if any payable:
Mode of payment:
Challan Nos:
Date of challans :
for goods transport operator service, the relevant period is from 16/11/1997 to 2/6/1998; and for clearing and forwarding agents,the relevant period is from 16/7/1997 to 16/10/1998.

Self-Assessment Memorandum

I. I/we declare that the above particulars are in accordance with the records and books maintained by us and are correctly stated.

2. I/we have assessed and paid the service tax correctly in terms of the provisions of the Act and rules made thereunder.

3. I/we have paid duty within the time specified in these rules and in case of delay, I/we have deposited the interest leviable as per section 75 of the Act.

Place:	Name and signature of the assessee or his authorized representatives
Date:

Acknowledgement

Date of receipt _________________________	Signature and Official Seal of the Superintendent of Central Excise
Place:
Date:

Generally, all Commissionerates of Central Excise, have a Service Tax Cell, headed by Assistant Commissioner/Deputy Commissioner

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Indian Service Tax

Registration

(Q) Whom and where should one approach for registration?

Ans. Generally, all Commissionerates of Central Excise, have a Service Tax Cell, headed by Assistant Commissioner/Deputy Commissioner. However, in certain Commissionerates, separate Service Tax Divisions have been constituted. The work is also delegated to Central Excise Divisions in many Commissionerates. A prospective assessee of Service Tax can approach the Assistant Comrnissioner/Deputy Commissioner in charge of Service Tax cell of the Jurisdictional Commissionerates or Central Excise Division for registration depending upon the arrangements made in the Commissionerate.

(Q) What is the procedure for registration?

Ans. A prospective taxable service provider seeking registration should file an application in Form ST-l (in duplicate) before the jurisdictional Central Excise officer/Service Tax officer within thirty days from the date of notification of the taxable service. Department is required to issue the registration certificate within 7 days of the receipt of application. In case of failure to issue registration certificate within 7 days, the registration applied for is deemed to have been granted and the assessee can carry on with his activities.

(Q) Who should apply for registration under Service Tax law? Is there any provision for Centralised Registration?

Ans. All persons providing taxable services are required to register with the Central Excise department. They would have to take only one registration even if they operate from more than one premise but have centralised billing at one place. However, if such persons do not have Centralised billing at one place, then they will have to register at each place separately. Besides, only one registration is required to be taken even if an individual provides more than one service but from the same premises.

(Q) What is to be done with the registration when

(a) a registered assessee transfers his business to another person, or

(b) a registered assessee ceases to carry on the activity for which he is registered?

Ans. (a) When a registered assessee transfers his business to another person the transferee should obtain a fresh certificate of registration.

(b) When a registered assessee ceases to carry on the service activity for which he is registered, he should surrender his registration certificate to the Central Excise authorities.

(Q) What is the time limit within which the service provider should register with the Central Excise department for the service tax purpose once the service is notified or once the assessee commences the business of rendering the taxable service?

Ans. Every person liable to pay the service tax should make an application to the concerned Central Excise Officer for registration within a period of 30 days of the Service Tax having come into force. In cases where a person commences the business of providing a taxable service after such service has been notified, he is required to make an application for registration within a period of 30 days from the date of commencement of his activities.

(Q) Whether a service provider can make payment of Service Tax and file returns before the grant of registration by the proper officer?

Ans. Yes. A service provider can pay service tax and file returns immediately after applying for registration.

( Q) Is there any penal provision for non-registration?

Ans. Yes. Any offence of failure for non-registration will attract a mandatory penalty of rupees five hundred.

Note:- Section 75A omitted by Finance (No.2) Act, 2004, w.e.f. 10/9/2004.

(Q) Is obtaining a PAN No. from Income Tax Deptt. a must for obtaining Service Tax Registration?

Ans. It is not mandatory to have a PAN for obtaining registration in Service Tax. However, it is advisable for Service Tax asses sees to have a PAN No. as Service Tax Code (STC) Number based on PAN allotted by Income Tax Deptt. has been introduced in Service Tax also. The main objective of allocating a number is to identify the concerned person where he is located and registered.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Cir.No.72/2/2004-ST

Date: 2/1/2004

Sub:- Facility for single registration and filing single return for Assessees providing more than one service.

During the Open Houses and Seminars conducted all over. India, lot of queries have been raised as to whether only single registration is required for a. service provider providing more than one taxable service and also whether a Single return is acceptable in respect of more than one taxable service being provided by the service tax provider. Apprehensions have also been raised that whenever the service tax assessees approach the jurisdictional Superintendent of Central Excise and other Central Excise Officers, they are being asked all kinds of question before their application is accepted for registration. These issues have been agitating the minds of service providers and, therefore, this is being clarified in respect of all the taxable services that only a single registration for all the taxable services provided by the service provider and also a single return where an assessee provides more than one taxable service is sufficient. Similarly, the declaration submitted at the time of registration in the application for registration (ST-I) shall be accepted by the jurisdictional Superintendent of Central Excise and the registration must be given immediately but within seven days in any case.

The following points are, therefore, further clarified:-

Whether a service provider providing more than one taxable service is required to take one registration or separate registration?

Clarification: Attention is invited to Rule 4(4) of the Service Tax Rules, which provides "where an assessee is providing more than one taxable service, he may make a single application, mentioning therein all the taxable services provided by him, to the concerned Superintendent of Central Excise". Thus in terms of this rule such service provider would be required to take a single registration. However while making such application for registration he should indicate all the taxable services being provided by him Certificate of registration in form of ST -2 should also indicate the details of all the taxable services provided by the service provider.

Whether a single return is sufficient when an assessee provides more than one Service or separate return is to be filed for each taxable service?

Clarification: Attention is invited to Q.4.7 of the 'Frequently asked questions on Service Tax' issued by CBEC in October 2003, wherein it has been clarified " a single return would suffice. However the details in each of the columns of the form ST.3 has to be furnished separate11 for each of the taxable service rendered by the assessees".

What action should be taken by the concerned officer receiving the application for registration?

Clarification

The application received for registration in form ST -1 will have to be processed as per the Rule 4(5) of the Service Tax Rules. This Rule provides that "The Superintendent of Central Excise shall after due verification of the application form, grant a certificate of registration in Form ST-2 within seven days from the date of receipt of the application. If the registration certificate is not granted within the said period, the registration applied for shall be deemed to have been granted"

However while granting registration the rule do not permit the jurisdictional officer to question about the correctness of the declaration made by the service provider.

The jurisdictional Superintendent of Central Excise shall, therefore, accept the declaration given by the new assessee in the application for registration for service tax.

Form ST-l*

Application for registration under Section 69 of the Finance Act, 1994 (32 of 1994)

Name of the assessee:
Address of the assessee:
PAN Number:
Address of the premises to be registered:
Category of the service:
Fax/telex and phone number:
Form of organization (individual/company/ partnership, etc.) :
Additional information required in the case of stock broker:
(a) Name of the member, with code No.
(b) Name of stock exchange registeredwith:
(c) Date of admission of membership:
(d) Whether member of more than one stock exchange? If so, please give name of the stock exchange with code number:
(e) Registration number allotted by Securities and Exchange Board of India (copy of certificate of registration may be enclosed or a copy of application for registration with SEBI may be enclosed) :

I/We ______________________ agree to abide by all the provisions of Service tax Rules, 1994, and any order issued thereunder.

9. I/We __________________ declare to the best of my/our knowledge and belief that the information furnished herein is true and complete.

Place:

Date:

Signature of assessee or his Authorized representative

Form ST-2

Certificate of registration under Section 69 of the Finance Act, 1994 (32 of 1994).

1. Shri/Ms____________________(Name with complete address of premises) having undertaken to comply with the conditions prescribed in the Service Tax Rules, 1994 and any orders issued thereunder is hereby certified to have been registered with the Central Excise Department for payment of service tax on services of……….His Registration Number is …………….

2. This certificate is valid only for the premises given above.

3. This Registration Certificate is not transferable.

4. This certificate shall remain valid till the holder carries on the activity for which the certificate has been issued or where surrender of the certificate is accepted by the Central Excise Officer.

Place:

Date:

Name and Signature of the Central Excise offi

Is the Service Tax payable by the assessee, even in cases where his clients do not pay for the service rendered or pay only a part of the bill raised

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Indian Service Tax

Refunds

Q. Is the Service Tax payable by the assessee, even in cases where his clients do not pay for the service rendered or pay only a part of the bill raised in this regards?

Ans. The Service Tax is required to be paid only on the value of taxable service received in a particular month or quarter as the case may be and not on the gross amount billed to the client. However, in all such cases where the amount received is less than the gross amount charged/billed to the client, the Service Tax assessee are required to amend the bills either by rectifying the existing bill or by issuing a revised bill and by properly endorsing such charge in the billed amount. In case an assessee fails to do so, his liability to pay Service Tax shall be on the amount filled by him to the client for the services rendered.

Q. Can any adjustment of tax liability be made by an assessee on his own in cases where Service Tax has been paid in excess?

Ans. Yes. Facility for adjusting excess payment of service tax by the assessee towards future liability is now provided for in the law. In cases, where an assessee has paid to the credit of Central Government service tax in respect of a taxable service which is not so provided by him either wholly or partially, for any reason, the assessee can adjust the excess service tax so paid by him calculated on a pro-rata basis against his service tax liability for the subsequent period, provided that the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received. However, the assessee is required to file the details in respect of such suo-moto adjustments done by him at the time of filing the service tax returns. In all other cases of excess payment, the refund claims have to be filed with the department.

Q. How the adjustment of excess tax paid by the assessee is made on his own on prorata basis?

Ans.The excess service tax paid in the previous returns period can be adjusted against the tax liability of the subsequent period on prorata basis in terms of sub rule (3) of Rule 6 of Service Tax Rules, 1994.

Ex.(l) If the assessee who is an Individual /Proprietary or partnership firm has paid Rs. 6000/- in excess of service tax liability during the previous half year ending period, the firm can adjust service tax for the subsequently period @ Rs. 3000/- per quarter and not at a stretch.

Ex.(2) If the assessee who is a Private Limited Company and has paid Rs. 6000/- in excess of the liability of service tax, during the previous half year ending period, the assessee can adjust Rs. 1000/- only per month in his subsequent tax liability and not at a stretch.

Q.What is the procedure for claiming refund?

Ans. The procedure for claiming refund for the amount due from the Department is as mentioned below:

(i) Submission of application in prescribed Form-R in triplicate to the jurisdictional Assistant Commissioner.

(ii) Application should be filed within the prescribed period, i.e. before the expiry of six months from the relevant date as defined in Section IIB of the Central Excise Act, 1944 which is made applicable to service refund matters also.

Application should be accompanied by documentary evidence to establish that the amount of Service Tax in relation to which such refund is being claimed has been paid by the assessee in excess and the incidence of such tax had not been passed on to any other person.

Q. What is the "relevant date" for calculation of limitation period of six months in respect of filing refund claims related to service tax?

Ans. The "Relevant Date" for the purpose of refund (under section IIB of CEA 1944) is date of payment of Service Tax. Thus, the limitation period of six months is to be calculated from the said date.

Head of Account

Cir. No. 24/1/98

Date 23/4/1998

Sub:- Service Tax - Revenue refund under Head of Account 0044-Service Tax.

A doubt has arisen whether Bank Branches nominated for collection of central excise, customs and other dues and payment of refunds etc. under major head of account No. 037-Customs and 038-Union excise duties are equally authorised for collection and payment of refunds etc. under Head of Account No. 0044 - Service Tax.

The matter has been examined. The existing scheme as applicable to collection & accounting of central excise, customs, and other dues and payment of refund, rebate and drawbacks etc by the branches of Public Sector Bank is equally applicable to Service Tax also. Accordingly, instructions issued by Reserve Bank of India vide Circular No. GAINB. No. 95/41.01.001/94-95, dated 14/7/1994 for collection and accounting of central excise, customs and other dues and payment of refunds, rebates and drawbacks etc. by the branches of PublicSector Bank will applymutatis mutandis in respect of receipt, reporting, accounting of service tax collection as well. A copy of RBI's instruction is also enclosed for information.

Copy of Letter No. Coord/13-6/94-95/Service Tax/1129, dated 31st March, 1998 received from Dy. Controller of Accounts, CBEC, New Delhi, addressed to Sanghamitra Panda, Director (CX-4)

Subject: Service Tax - Revenue refund under Head of Account 0044Service Tax - Regarding

In this connection it is stated that the instructions contained in the revised Memorandum of instructions issued by the Reserve Bank of India for collection and accounting of Central Excise, Custom and other dues and payment of refund, rebate and drawbacks etc. by the branches of the Public Sector Bank will apply "mutatis mutandis" in respect of Service Tax as well. In this connection a copy of the RBI's Circular No. GA.NB. No. 95/41.01.001/94-95, dated 14/7/1994 is enclosed.

	Yours faithfully,
	Sd/
	Dy. Controller of Accounts

RBI's Letter No. GA.NB.No. 95/41.01.001/94-95, dated 14th July, 1994, addressed to the Chief General Managers of State Bank of India and its associates and to the General Managers of Nationalised Banks.

Subject: Levy of service tax on telephones, insurance and stock brokerage - Procedure for receipts/accounting

As you are aware, Government of India in the Budget 1994-95 proposed to levy a service tax on Telephones, Insurance and Stock brokerage. Accordingly, Government of India have since decided to implement the proposal for levy of service tax with effect from 1st July, 1994. We forward herewith a copy each of the Notifications Nos. 1/94 and 2/94, dated the 28th June, 1994 issued in this regard by the Ministry of Finance, Department of Revenue for your information.

The salient features thereof are briefly given below:

(i) Details of service tax sought to be levied and manner of collection Service Tax on services provided to-

(a) an investor by a stock broker in connection with the sale and purchase of securities.

(b) a subscriber by the telegraph authority in relation to a Telephone connection.

(ii) Banking arrangements for collection of service tax.

The existing scheme as applicable to the collection of Central Board of Excise & Customs (CBEC) revenue is applicable to the collection of service tax. Accordingly, the assessees as defined in para 2 of the Notification No. 2/ 94, dated 28th June 1994 (vide Annexure), will deposit the collections into the existing authorised branches of the nominated banks including sub-agency banks under CBEC collection, scheme. The assessee will tender the amounts along with a challan, in Form TR-6, in quadruplicate, (by the 15th of the month immediately following the calendar month) as in the case of other CBEC dues viz. 0037-Customs, 0038-UED. The specimen of challan to be used by the assessee is enclosed to the copy of notification.

(iii) Head of Account

The service tax so collected by the assessees will be credited to 0044 Service Tax.

(iv) Reporting and Accounting System

(a) The scheme of collection of service tax will be operated by Central Board of Excise & Customs.

(b) As stated above the banks presently nominated for collection of CBEC revenue have been entrusted with the collection of revenue on account of Service Tax as well for the present.

Accordingly, the instructions contained in the Revised Memorandum of instructions for collection and accounting of Central Excise, Customs and other dues and payment of refunds, rebates and drawbacks etc. by the branches of public sector bank (effective from 1st April 1986) issued by us will apply, mutatis mutandis,in respect of receipt, reporting, accounting of 'Service Tax' collections as well.

As the Service Tax is leviable with effect from 1st July, 1994, we shall be glad if you will please issue instructions immediately to the concerned branches to accept the service tax tendered by the assessees for eventual credit to Government Account in terms of CBEC collection procedure.

Case Law

Unjust enrichment - 2002 (144) ELT 343 (New Delhi - Cegat).

specific records have been prescribed to be maintained by a Service Tax assessee. The records including computerised

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Indian Service Tax

Records

(Q.5.1) Is there any statutory documents prescribed by the Govt. such as specified invoice proforma, specified registers etc. for use by the Service Providers?

Ans. No specific records have been prescribed to be maintained by a Service Tax assessee. The records including computerised data if any being maintained by an assessee as required under any other law in force, (e.g. Income Tax, Sales Tax) is acceptable to the Central Excise Department for the purpose of Service Tax.

(Q.5.2) From where do the Service Tax assessee get the Forms Viz. ST-l, ST -2 etc.?

Ans. The Forms are available on the website as well as with the jurisdictional Central Excise Commissionerates.

(Q.5.3) Can the Department ask for more information than what assessee is submitting to it in the forms ST-l and ST-3?

Ans. Yes, if required the Department can always ask for additional information.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Service Tax - Reconciliation of revenue receipts under the Major Head 044.

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Indian Service Tax

Reconciliation of Revenue Receipts

[TN No. 111/12/1/99, dt. 16/7/1999 of the Cochin Commissionerate]

Sub:- Service Tax - Reconciliation of revenue receipts under the Major Head 044.

In order to streamline the reconciliation work of revenue receipts under the Major Head 044 (Service Tax) it has been decided to revise the present procedure and do the reconciliation work in computer on the same lines as being done in the case of challan reconciliation relating to 038 payments. In this connection, your attention is invited to this office letters C. No. III/12/2/93Accts. II, dated 16/10/1996 and C. No. III/20/23/97-Accts. II, dated 12/1/1998.In prder to facilitate proper accounting of the amounts to the correct head of accounts, revised accounting codes of Major/Minor/sub-heads allotted for all services under Service Tax Act vide Annexures I & II of this office Trade Notice No. 152/97, dated 14/10/1997 and subsequent Trade Notice No. 2/99, dated 8/1/1999 may also be referred to.

The duplicate copy of the receipted bank challans received from the Range Officer will be entered into the computer with Sub-headingwise details in the concerned divisional office Computer Cell. The divisional Computer Cell after the data entry pertaining to each quarter upto 9/98 and thereafter on the Half yearly basis will send the computer floppies to the Headquarters Computer Cell under intimation to ACAO II, PLA section. The computerised data will be transferred on a floppy from PAO to the Computer Cell of Headquarters Office. Based on this data, 044 quarterly statement will be generated and sent to all the concerned Range Officers in duplicate who will ensure that for every duplicate copy of challans received by them there is a corresponding entry in the statement. If there is no corresponding entry in the statement; the Range Officer will send a copy of the challan along with his Verification Report. Similarly if there is no challan with him corresponding to PAO Challan in the statement, a suitable remark to this effect will be made in the copy of the 044 statement to be returned to Headquarters office after verification. A certificate as in the case of 038 will be incorporated in the 044 statement by the officer verifying and resubmitting the said statement to ACAO II., Hqrs. Office, Cochin I commissionerate, Cochin-18.'

The above changed procedure will be implemented from 1st January, 1998 onwards and for this purpose revised programme for entering the Service Tax returns and challans has already been installed in division machines. In this connection, all Range Officers/SOS should ensure that the following details are clearly shown in the.TR-6 challans:

ECC No.
Registration Number
Bank Branch No. in which the tax is paid.
Month/Quarter for which the tax is paid and the category of service in column I of challan.
The correct head of account for tax, interest or penalty and other receipts.
A running serial number should be allotted by the assessee himself on the top of the challan.

As instructed vide this office letter dated 12/1/1998 (copy enclosed) SI. Code No. as allotted may be indicated in the challans distinctly according to the various Minor heads to facilitate reconciliation in computer. In order to implement the revised procedure firstly action has to be initiated at the division level and Asstt. Commissioners may ensure that after the data entry, the first quarterly report (Computer Floppy) for the period from Jan., 1998 to March, 1998 is sent to Headquarters Computer Cell before 31 st August, 1998 positively so that the changed procedure should be made effective immediately. It may also be ensured by the Range Officer that the verification reports of quarterly statement reach this office (PLA Section) by name to ACAO II within 15 days of receipts of the statement in range office.

All the Asstt. Commissioners/Range Officers are requested to bring the practical difficulties, if any, to the notice of the undersigned so that remedial action could be taken immediately.

Sub:- Central Excise - Reconciliation of challans - Furnishing of correct head of account/Assessee's Code No. etc. in the challans under which the payments made - Further instructions - Issue of - Regarding

It has been decided that the reconciliation of challans relating to payments made towards Service Tax under different minor heads will be done on computer on the same lines as in the case of challans relating to 038 payments. There are a lot of difficulties in implementing because of improper filling up of challans. In this connection, your attention is invited to this office letter C. No. 111/20/101 Misc./95 Accts. II,dated 13/12/1995 enclosing a specimen of new challans indicating head of accounts for various items fot depositing duty. Copy of the same is enclosed for ready reference. Recently, revised accounting codes of Major/Minor/Sub-heads were allotted for all services under Service Tax Act for depositing Service Tax vide Annexures I & II of this office Trade Notice No. 152/97, dated 14/10/1997. In the above Trade Notice, the assessees were requested to indicate in the challans the revised allotted headings while depositing the Service Tax. It has been noticed that some of the asses sees are not mentioning the correct Code Nos. for payment made towards Service Tax under different minor heads. To streamline the reconciliation work of revenue receipts under Service Tax on computer, the deposit have to be made by the asses sees distinctly according to the major/minor/sub-heads of accounts and the 'SI. Code' No. mentioned in the Annexures I & II of the said Trade Notice has to be indicated in the challans instead of the 'Alpha Numberic Code' No. without fail.

In order to facilitate accounting of the amounts to the proper head of accounts, all Range Officers and Sector Officers are requested to ensure that the informations are correctly furnished by the assessees in the challans before presenting the same to the Bank for remittance.

The concept of provisional assessment has been built into the scheme of service tax rules, vide sub-rules (4) to (6)

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Indian Service Tax

Provisional Assessment

The concept of provisional assessment has been built into the scheme of service tax rules, vide sub-rules (4) to (6) of Rule 6 of Service Tax Rules, 1994.Whenever an assessee, for any reason, unable to correctly estimate on the date of deposit, the actual amounts collected for any particular month or quarter, the assessee may make a request in writing to the Asst. Commissioner/Deputy Commissioner of Central Excise, concerned, to make a provisional assessment of the tax on the basis of amount deposited. The said Central Excise Officer will, on receipt of such request, order provisional assessment of tax. In this regard, the provisions of Central Excise Rules have been made applicable. However, there is no requirement to enter into a bond in respect of service tax.

A statement giving details of the difference between the service tax deposited and the service tax liable to be paid for each month in a memorandum in Form ST -3A accompanying the quarterly or half-yearly return.

Form St-3A **

** See also "Centralised Accounting System".

Memorandum for provisional deposit under rule 6 of the Service Tax Rules, 1994, for the month of________________20 _________.

Sl.No.	Provisional Value of taxableService in terms of Section 67 of the Act	Provisional Amount of Service Tax paid	Form TR-6 No.and date	Actual value of Taxable Service in Terms of Section 67	Actual Amount of Service Tax Payable	Difference between the amount of Provisionallly Paid Tax and the amont of Service Tax Payable	Form TR-6 No. and Date indicating payment under Col. (7)	Remarks
1	2	3	4	5	6	7	8	9

Reasons for making provisional deposit of Service Tax __________________________________.

* Attach separate sheet for each month.

Under what situations, penalty may be imposed by the Department on the assessee

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Indian Service Tax

Penalties

Q.1 Under what situations, penalty may be imposed by the Department on the assessee?

Ans. Penalty may be imposed by the Department on the assessee if he,

fails to pay service tax to the government in time or,
fails to file half-yearly return with the department in time or;
willfully suppresses or conceals the value of taxable service or furnishes inaccurate value of such taxable service or,
fails to comply with a notice requiring him to produce within the specified time limit, such accounts, documents or other evidence as considered necessary by the Central Excise officer for assessment.

Q.2. What is the penalty in case of .delay in paying the Service Tax to the Government within the prescribed time limit?

Ans. For failure to pay the Service Tax, the assessee would be required to pay a minimum penalty of Rs.lOO/- to Rs.200/-, per day as decided by Central Excise Officer. This amount is subject to a ceiling of the amount equivalent to Service Tax not paid. Interest is also payable at the rate of one and a half percent for every month or part of a month by which the payment of tax or any part thereof is delayed.

Q.3. What is the penalty for non filing or delayed filing of Half -yearly returns?

Ans. An assessee failing to file half-yearly returns or failing to file them on time, could be penalised for Rs. 2000/- maximum.

Q.4. What would be the penalty when the assessee willfully suppresses or conceals the value of the taxable service or furnishes inaccurate value of such taxable service with an intention to evade payment of service tax?

Ans. In such cases, the assessee will have to pay, in addition to service tax and interest if any, a penalty not less than the amount of service tax, intended to be evaded, but not exceeding twice that amount.

Q.5. Is there any provision in law for prosecution of assessees for any failure?

Ans. Originally, provisions had been made in the law for prosecution for violations of requirements of Service Tax. The same, however, have been deleted by the Govt. by the Finance Act, 1998, as a measure of goodwill to the new assessees.

Q.6. Whether any penalty could be imposed for the delayed submission of ST-3 returns in the assessment memorandum itself or should a separate notice to be issued?

Ans. Penalty could be imposed for the delayed submission of ST-3 returns under Sec.77 of the Act. However, Show Cause Notice has to be issued before the penalty is imposed.

Q.7. Many Government departments/undertakings like MHADA, BH & AD Board, CIDCO etc. are not paying service tax to the empanelled consultant Architects,Engineers. Whether the service tax is payable by the departments to empanelled consultant? If yes, has any clarification letter cum guidelines been issued by Tax Department to all such service receiver departments?

Ans. Service Tax is correctly payable on the value of the taxable. services received and there is no exemption to any Central/State Govt. agencies or organisations in this regard. Instructions have also been issued by the Govt. of India in this regard.

Exemption from penalty

Section 80 of the Finance Act, 1994 provides that no penalty shall be imposable for failure to comply with the notice under Section 71, for failure to submit ST-3 return in time, for failure to pay taxes in time or even for suppressing the value of taxable service, if the assessee proves that there was reasonable cause for the said failure. However, penalty for delay in taking up the registration in not possible to be waived.

Actnal date of crediting

[TN No. 132/96, dated 26/11/1996 of the Cochin Commissionerate]

Sub:- Service Tax - Actual date of crediting of Service Tax to the Book account of the Central Government to be taken for calculation of interest and penalty.

Under Sections 75 and 76 of the Act an interest has to be charged at the rate of 1.5% of every month or part of the month by which crediting of tax is delayed and penalty for failure to collect or pay Service Tax can also be imposed. In order to arrive at the calculation of interest and penalty under the Service Tax on telephones it has been decided that the first date on which book transfer is made in the cash section of Secondary Switching Area.(SSA) as the date of crediting to the Central Government. Accordingly the proforma ST 3 and ST 3A prescribed under Rule 7 of Service Tax is revised which is enclosed alongwith this trade Notice. Hereafter all Secondary Switching Areas who are paying the service Tax on telephones by book transfer has to file the return prescribed under Rule 7 of Service Tax in the revised proforma.

Difficulties - Clarification

Cir.No. 76/6/2004-ST

Date 3/3/2004

Sub:- Clarification sought by PHD Chamber of Commerce and Industry on various difficulties being faced by Service Tax assessees - Regarding.

The Board has received representation from PHD Chamber of Commerce and Industry with regard to' general difficulties being faced by Service tax assessees.

The following points are, therefore, further clarified :

Penalty for each service under section 75A for delay in taking single registration for more than one taxable service &
Penalty for each service under section 77 for delay in filing of return by assessee providing more than one taxable service

Clarification

As per statutory provisions only one penalty as prescribed can be imposed.

3. Delay in issue of PAN based 15 digit STC/STP Code and difficulties faced by asses sees for seeking STC/STP.

Clarification

The forms for registration for issue of 15 digit STC/STP code are very simple and do not create any ambiguity. If the allotment has not been done within three working days in terms of Circular 35/3/2001-CX-4, dated 27/8/2001 the assessees may bring the same to the notice of the jurisdictional Assistant Commissioner/Deputy Commissioner/Commissioner of Central Excise who shall immediately issue necessary directions.

4. Insisting on payment of penalty before registration.

Clarification

The Circular No. 72/2/2004-S.T, dated 2nd January, 2004 provides that jurisdictional officer shall accept the declaration given by the assessee and as per the Rule 4(5) of the Service Tax Rules, 1994 grant the registration within seven days.

5. Issue of Show Cause Notice for petty amounts.

Clarification

The matter has been considered by the Board and it has been decided that for an amount of Rs. One thousand and below towards short payment/non-payment of service tax, the jurisdictional officer should give an opportunity and allow the assessee to deposit the amount of service tax not paid along with interest, if any. Incase the service provider pays the service tax along with interest within period of one month of the default in payment being pointed out, recourse should be made to section 80 of Finance Act, 1994 as amended provided the assessee fulfils the conditions therein. However, in other cases of failure on behalf of Service provider to pay the service tax and interest, if any,normal procedure shall be followed.

Case Law

Before imposing penalty, principles of natural justice to have to be observed- 2000 (117) ELT 696 (Cal. - Cegat).

The Service Tax amount is required to be paid in Form TR-6 challan (Yellow in colour) in the specified branches

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Indian Service Tax

Payment Of Service Tax - Procedure

Q. 3. 1 How and where to pay Service Tax?

Ans. The Service Tax amount is required to be paid in Form TR-6 challan (Yellow in colour) in the specified branches of designated banks. The list of such Banks and Branches is available in every Commissionerate of Central Excise. Different heads of accounts have been specified for different taxable service by the Govt. under which payment has to be made. While making the payment of service tax to the credit of Central Govt., head of account should be correctly and properly indicated under major and minor heads and sub-heads to avoid misclassification.

Q. 3. 2 When is Service Tax required to be paid?

Ans. If the assessee is an individual or a proprietary or partnership firm, the service tax is to be paid on quarterly basis. The payment is to be made by the 25th day of the month following the quarter. For example, Service Tax for the quarter ending 30th June is to be paid by 25th July.

In respect of other categories, the tax is payable on monthly basis and is to be paid by 25th day of the succeeding month.

Q. 3. 3 Whether the payment of Service Tax is to be made for the billed amount or for the value received?

Ans. The Service Tax for a particular period is payable on the value of taxable service received in that period and not on the gross amount billed to the client.

Q. 3. 4 Whether service tax deposited by the assessees in non-designated bank will amount to non-payment of service tax?

Ans. Yes. For payment of service tax, specific Bank has been nominated for every Central Excise Commissionerate. If service tax amount is deposited in a branch of Bank other than nominated Bank, it amounts to non-payment of Service Tax.

Q. 3. 5 What is the date of payment of Service Tax? Is it the date on which the cheque for the same is deposited/tendered in the designated Bank or the date on which the amount is credited?

Ans. The date of deposit of cheque is the date of payment of Service Tax. The Service Tax Rules as amended provide that it would suffice if the cheque is presented to the bank by the 25th of the month. However,Ifthe cheque bounces, it would mean as if the tax has not been paid and the necessary penal consequences would follow.

Q. 3. 6 How do you describe the expression "person" appearing in the definition of taxable service?

Ans. The expression refers to a "legal person" and would include any individual, proprietary firm or partnership firm, company, trust, institution and society etc.

Q. 3. 7 Would services provided in India for the foreign client be liable for payment of service tax?

Ans. Yes, the service tax is payable on all taxable services rendered in India, whether to an Indian or foreign client.

Q. 3. 8 Would the service provided abroad liable for payment of Service Tax?

Ans. No, the services rendered abroad shall not attract service tax as the levy covers only the services provided within India.

Q. 3. 9 When payment is made by a client or customer to an' assessee after deducting his Income Tax liability under "Tax Deducted At Source" provision, whether the Service Tax liability of the assessee is only towards the amount actually received from his client or customer or tax is to be paid on the amount of income tax deducted at source also?

Ans. The Service Tax is to be paid on the value of taxable services which is charged by an assessee. Any income tax deducted at source is included in the charged amount. Therefore, Service Tax is to be paid on the amount of income tax deducted at source also.

Q. 3. 10 What is the interest rate applicable on delayed payment of Service Tax?

Ans.Every person, liable to pay the tax in accordance with the provisions of Section 68 or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at the rate of fifteen per cent per annum for the period by which such crediting of the tax or any part thereof is delayed.

Q. 3. 11 Is the amount for Service Tax charged from the client compulsorily to be indicated separately in the Bills/Invoices raised on him?

Ans. Yes, it is compulsory to separately indicate the amount of Service Tax charged in the Bills/Invoices raised on clients in terms of Section 83 of Finance Act, 1994 read with Section 12A of Central Excise Act, 1944. It is also advisable for the service providers to separately bill the amount of Service Tax in the invoice/bill on the basis of taxable value of service rendered, especially so if he requires to avail the input credit scheme.

Q. 3. 12 Is there any exemption for payment of Service Tax if the receiver/ provider of the service is the Central Govt./State Govt. organisation and/or Public Sector Undertakings? Can anyone of the above claim immunity from the liability to payor make provision for paying the Service Tax?

Ans. No, there is no such general exemption, exempting the services received/provided by the Central Government/State Government organization or Public Sector Undertakings. No one can claim immunity from payment of service tax until specifically provided in law.

Q. 3. 13 Whether any general exemption from Service Tax is available for small scale service providers, as in the Central Excise?

Ans. No. At present there is no such general exemption available for small scale service providers.

Q. 3. 14 What are the penal provisions if the service tax is not paid/paid late?

Ans. Any person liable to pay service tax in accordance with the provisions of Section 68 or the rules made thereunder, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of Section 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay.

Q. 3. 15 Can any adjustinent of tax liability be made by an assessee on his own in cases where Service Tax has been paid in excess?

Ans.Yes. As per Rule 6(3) "Where an assessee has paid to the credit of Central Government service tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him (calculated on apro ratabasis) against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received." In all other cases of excess payment, the refund claims have to be filed with the department.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Advances

Cir. No. 65/14/2003

Date: 5/11/2003

Sub:- Payment of service tax in case of advance payment of value of services.

I am directed to say that some doubts have been raised regarding payment of service tax in cases where a lumpsum payment for a service to be provided in future over a certain period of time, is made in advance before the date on which the particular service came under the tax net, but the entire or part of such service is provided after the date on which it became taxable. The doubt appears to have arisen as Rule 6(1) of Service Tax Rules, 1994, provides for payment of tax on the value of service received during a month/quarter, and in the instant case, no payment is received after the date on which the tax came into force (for example a case where payments for coaching service is received before 1/7/2003 i.e. the date on which this service became taxable, but the entire or part of coaching is provided after that date).

In this regard it may be noted that rule 6 only prescribes the procedure of payment of tax. The liability to tax is created by Section 66 of the Finance Act, 1994 as amended from time to time. The liability to pay tax is fastened on the service provider by Section 68 of the said Act. These two sections read together imply that service tax is payable. by the service provider on the value of taxable services. Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clarifies value of service as the amount charged for the taxable service by the service provider. In other words, an amount becomes value of taxable service only when it has a nexus with the service provided. That is the reason why the expression used in rule 6 is "value of taxable services" and not amount. The implication is that the tax has to be paid on the value of taxable services attributable to the service provided in a month/quarter as and when it is received. Thus, rule 6(1) can not be read in isolation. When read alongwith the provisions of the Act, it becomes clear that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out onpro ratabasis.

In this context, attention is invited to para 2.3.1 of circular No.59/8/ 2003 dated 20/6/2003 wherein it was clarified that in view of the notification 1112003-ST dated

20/6/2003, no service tax would be payable where maintenance contracts are entered into before 1/7/2003, provided the invoices are raised and paid prior to 1/7/2003. It was further mentioned in the circular that similar would be the situation in case of continuing services. By continuing services what was meant was continuing maintenance services where there is an ongoing contract under which regular periodical payments are made. That para 2.3.1 was only in the context of maintenance and repair service is also quite clear from the heading, "MAINTENANCE AND REPAIR SERVICES" of para 2.3 in that circular. No similar exemption has been granted to any other service in case of advance payments.

Public Holiday

Cir. No. 63/12/2003-ST

Date 14/10/2003

Sub:- Return to be filed on next day if 25th day is a holiday.

It is directed to say that doubts have arisen with regard to the last date of payment of Service Tax and for filing the Service Tax return in case the 25th of the month in which the Service Tax is to be paid or return filed happens to be public holiday.

As per the Rules 6 and 7 of the Service Tax Rules, 1994, Service Tax received by the service provider is to be deposited with the Central Government by 25th of the month immediately following the month in which it is received. In case of individual or proprietary or partnership firm the Service Tax received during any quarter shall be deposited with Central Government by 25th of the month immediately following the said quarter.

Adequate precautions should be taken by the service providers to deposit the tax in time. In case of genuine hardship on account of public holiday on 25th of the month in which a service provider has to pay the service' tax or file the returns, he may pay the service tax in Government account on next working day immediately following the holiday. Same thing applies with regard to the filing of return.

Case Law

Where the cheque was not dishonoured, the payment must be deemed to be made on the date on which cheque was handed over to the Department, not the date on which cheque was encashed - 2002 (141) ELT 66 (New Delhi Cegat).

Sub:- Payment of Service Tax made in not-designated banks Regarding.

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Indian Service Tax

Payment Into Non-Designated Banks

[F. No. V/DGST/21(7)/Engg/16/ 2000/1976, dated 23/8/2001 of Director General, Service Tax, Mumbai]

Sub:- Payment of Service Tax made in not-designated banks Regarding.

Please refer to your letter F.No. ST/M-II/PAO(16)/2001, dated 12th July,2001 on the above subject.

Clarifications have been sought on the modalities to be followed for resolving the issue where the assessees have made payments of Service Tax to non-designated Banks or to Designated Banks of other Commissionerate.

I am directed to inform the decision of the Director General (Service Tax) as under

Payment of Service Tax into non-designated banks would not amount to paying Service Tax (Refer to Question and Answers booklet).

As genuine difficulty is felt by those who have committed such mistake, as a one time measure transferring the amount from non-designated banks to appropriate designated banks, in consultation/concurrence with PAOs of the both the Commissionerates may be resorted to.

The ratio of above-cited decision of the Government would applymutatis mutandisto the payment of service tax also

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Indian Service Tax

Payment By Cheque

Delay

F.No. V/DGST/30-Misc-46/2000/11727 of Dte. of ST

Date: 23/08/2000

Sub:- Payment of Service Tax by cheque in authorized BanksConsequences of delay in encashment beyond due date Reg.

The Rule 7 of the Central Government Account (Receipts and Payments) Rules, 1983inter aliaprovides that Government dues including taxes can be credited by the taxpayers directly into any branch of an authorised Bank. As per Rule 79 of the Treasury Rules of the Central Government, such payments/ credits can be made by cheques also. Accordingly, a large number of tax payers including the Service tax assessees discharge their tax liabilities by depositing a cheque for the required amount in the authorized Banks.

As per Rule 6(1) of the Service Tax Rules, 1994 read with Section 68( 1) of the Finance Act' 1994, an assessee is required to pay Service Tax on monthly/quarterly basis by 25th of the succeeding month. In the event of failure to pay tax by the due date, the assessee is liable to pay interest as well as penalty in terms of Section 75 and 76, ibid, respectively.

It is observed that in many cases, the assessees pay the tax due by cheque on the last date or very close to such date. In such cases, many a time, the cheque is encashed and credited to the Government's account after the due date. Hitherto, in such cases also, the department has been levying interest and penalty. This practice has developed presumably because the Rule 79(1) (a) of the Treasury Rulesinter aliastates that "___________until the cheque is cleared, the Government cannot admit that payment has been received, ___________________".

A number of representations have been received in this Directorate stating that recovery of interest and imposition of penalty in the cases where cheques have been deposited before due date and the amount is credited to the Government account in due course, but after the due date, is not fair since the assessee has no control over the time taken by the Bankers of the Government in clearing the cheque.

The matter has been examined.

It is observed that the identical issue had arisen in case of payment of Inland Air Travel Tax (IATT) by Sahara Airlines Ltd. The concerned authorities had imposed penalty and ordered recovery of the interest from the party since the cheques deposited by them towards payment of IATT were credited to the Government after the due date. The matter has now, been decided in second appeal by the Government of India{Sahara Airlines Ltd. Vs. Commissioner of Customs (Appeals)- (2000) 110 TAXMAN 378 (GOI)}. The Government has held that a harmonious reading of the provisions of Rule 7 of the Central Government Account (Receipts and Payment) Rules and Rules 79 & 80 of the Treasury Rules, makes it clear that the Government dues can be presented in the form of cheque into the authorized Bank. And if the cheque is not dishonoured later, the payment shall be deemed to have been made on the date when the cheque was handed over to the Government's bankers. Accordingly, the Government set aside the imposition of penalty/interest etc. in the said case.

The ratio of above-cited decision of the Government would applymutatis mutandisto the payment of service tax also. Therefore,it is clarified that in the cases where the service tax amount has been deposited by an assessee in the authorized Bank, by cheque, before the due date and such cheque is not dishonoured later, the Department need not initiate proceedings for recovery of interest /penalty etc. However, if the cheque is not honored in due course or the clearance is abnormally delayed for any lapse on the part of the assessees, the Department would be free to take penal action etc. as deemed fit.

In exercise of the powers conferred by clause (a) of sub-section (6) of Section 6, and clause (a) of sub-section (7) of Section 7,

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Indian Service Tax

Outside Territorial Waters Of India

Cir. No. 36/4/2001

Date: 08/10/2001

Sub:- Service Tax - Services provided outside the limits of Indian territorial waters not liable to tax

I am directed to say that question has arisen whether services provided outside the limits of the Indian territorial waters are liable to Service Tax or not. The matter has been examined. At present the levy of service tax extends to the whole of India except the State of Jammu and Kashmir. The expression "India" includes the territorial waters of India. Indian territorial waters extend up to twelve nautical miles from the Indian land mass. Chapter V of the Finance Act which governs the levy of Service Tax has not extended to the levy to designated areas in the Continental Shelf and the Exclusive Economic Zone of India (as has been done in case of Central Excise vide Notification No. 166/87C.E., dated 11/6/87 and in case of Customs by Notification Nos. 1l/87-Cus., Dated 14/1/87 & 64/97-Cus., dated 1/12/97). It is, therefore, clarified that the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service tax have not been extended to such areas so far.

Notification No.1I2002-ST, dated 1/3/2002

Services rendered outside Indian Territorial waters are included.

In exercise of the powers conferred by clause (a) of sub-section (6) of Section 6, and clause (a) of sub-section (7) of Section 7, of the Territorial Waters, Continental Shelf; Exclusive Economic Zone and Other Maritime Zones Act, 1976 (80 of 1976), the Central Government hereby extends the provisions of Chapter V of the Finance Act, 1994 (32 of 1994) to the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the Notifications of the Government of India in the Ministry of External Affairs Nos. S.O. 429 (E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September, 1996 with immediate effect.

Services availed by a person in India from non-residents Service provider

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Indian Service Tax

Non-Resident Service Provider

Point No. 2

Services availed by a person in India from non-residents Service provider

In terms of Rule 2(I) (d) (iv) of the amended Service Tax Rules, 1994, when a non-resident or a person from outside India, who does not have an office in India renders service to a person in India, the recipient is liable to pay service tax for services rendered by such person outside India.

For such cases, the law is silent over several issues

(a) Who is required to register the recipient in his own name or in the name of such non-resident?

The Chairman replied that the recipient is required to obtain registration in form STl. However, the name & address of the non-resident alongwith details of his passport etc. are to be incorporated in the body of the registration. Similarly in ST -3 return such services and amount of service tax paid should be shown separately.

(b) If the recipient of. the service is already registered with the service tax department, does he require separate registration for services from nonresident?

Reply

No, subject to fulfilment of condition 'a' above.

(c) Is the recipient entitled to input tax credit in respect of service tax paid for the services of non-resident if the Indian firm/Company also renders same category of service to his clients?

Reply

Yes, subject to fulfilment of condition "a" above and such input credits can be utilized against the non-resident person's Service Tax account only, which the resident has been authorised to operate.

(d) If the recipient of service in India avails services of more than one non-residents, whether separate registration/ST Returns/assessments are required for each case or otherwise?

Reply

No. Mention of each such non-resident as per reply in (a) should be got trade on the registration certificate from concerned officer.

(e) If there is only one time service from a non-resident, does the recipient have to regirter, pay tax, file return and then surrender the Certificate of Registration.

Reply

Yes.

Sub Point

There are a few more incidental issues in the above context which are not dealt with in the law and in absence of this, both the department and assessees at large viz. the availers of services of non-residents remain confused as to the correct procedure - kindly comment.

Reply

The Chairman replied that, since the incidental issues referred to here have not been specified, no comments can be offered.

(Authority: RAC on 29/1/2003 of Mumbai-IV Commissionerate)

[Para 2.9.2 of Cir.No. 59/8/2003, dt. 20/6/2003]

In case of a non-resident service provider who does not have any office in India, the service receiver in India is liable to pay service tax. A doubt has been raised as to how such receiver would avail the service tax credit. As per the existing law, in such cases service receiver is required to take registration, to pay service tax and to comply with other procedural formalities. As there is no bar under service tax law on the service tax payer to take the same amount back as credit, the service receiver after having paid the service tax on behalf of the non-resident service provider, can take credit of the same on the basis of document/ bill/invoice under which he paid the service tax.

The Chairman replied that, the provisions of Service Tax Rules, 1994 to provide that when any assessee is rendering

2008-01-12T05:40:00.002-08:00

Indian Service Tax

Multiple Services

Point IV. Multiple Services

A person rendering more than one taxable service should obtain only one

registration certificate for all the services and accordingly should be allowed to file only one composite return.

Reply

The Chairman replied that, the provisions of Service Tax Rules, 1994 to provide that when any assessee is rendering more than one taxable service from one premises, he can file single application for Registration. In such cases, the assessee shall be granted a single Registration Certificate in respect of all the services rendered by him. The Chairman, however advised that a separate return in the Form ST-3 should be filed before the Superintendent concerned in respect of each of the services rendered by the assessee.

(Authority: RAC on 6/9/2002 of Vadodara Commissionerate)

rregular Levy of Service Tax by the service providers @ 8% after budget i.e. 1/3/2003 -

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Indian Service Tax

Clarification

Cir.No. 57/06/2003-CX (ST)

20/5/2003

Sub:- Irregular Levy of Service Tax by the service providers @ 8% after budget i.e. 1/3/2003 - regarding.

It has come to the notice of the Board that service providers have started collecting service tax @ 8% immediately after the budget i.e. 1/3/2003. However, this rate will come into effect from 14th May, 2003 on which the Finance Bill 2003 received the assent of the President. In this connection it is stated that if any amount has been collected as service tax but the same is not deposited with the Government in terms of provisions of Section 83 of Finance Act 1994, send with Section IID of Central Excise Act, 1994 same becomes recoverable.

It is, therefore, requested to alert the field formations to verify the returns carefully for the above mentioned period so as to ensure that amount collected in excess of Service tax should be deposited with the exchequer.

Though the new rate of service tax of 8% came into force from 14th May, 2003 on existing 51 services, and would come

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Indian Service Tax

Irregular Levy

[Para 2.9.3 of Cir.No.59/812003, dt. 20/6/2003]

Though the new rate of service tax of 8% came into force from 14th May, 2003 on existing 51 services, and would come into effect from 1st July, 2003 in case of new services and extensions of services, in certain cases service providers have reportedly collected service tax @ 8% on such services, even prior to these specified dates. In such cases, unless the amount is refunded back to service receiver, the service provider is required to deposit amount equal to such duty collected in excess of that is leviable, as per the provisions of the service tax law.

As per Section 75 of the Chapter V of the Finance Act, 1994, the interest is to be charged at the rate of one & half percent

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Indian Service Tax

Interest On Delayed Payment

Author's Note:-

Rate of Interest upto 15/7/2001 - 18%.

Rate of Interest from 16/7/2001 to 15/8/2002 - 24%

Rate of Interest from 16/8/2002 to 9/9/2004 - 15%

Rate of Interest from 10/9/2004 to till date - 13%

Q. What is the rate of interest to be paid by the assessee, if he fails to pay service tax to the government within prescribed time limit?

Ans. The assessee is liable to pay simple interest at the rate of one and one half percent for every month or the part of the month by which such payment is delayed. .

Q. In case of delay in payment of Service Tax to the Government, the interest becomes payable under section 75 at the rate of 1.5% per month or part thereof. Whether the period of one month is to be computed from the due date prescribed under Sec. 68 that is 25th of the month in which the payment is due or it should be calculated as per calendar month?

Ans. In case of delay in making payment of Service Tax to the Government, the interest is payable at the rate of 1.5 % per month or part thereof. The period is to be calculated with reference to 26th of the month on which the interest becomes due. In other words, the period between 26th of the month and the 25th of the next months be taken as one month. Otherwise, the person making payment on 151 of the next month will have to pay interest for two months for delay of 6 /7 days, which is not the intention of the law.

Q. What is the date of payment of Service tax - is it the date on which the cheque for the same is deposited / tendered in the designated Bank or the date on which the amount is credited?

Ans.The date on which the amount is credited to the Central Govt. account would be considered as the date of payment.

Q. If 25th of any calendar month {i.e. the last date of making payment/filing returns) is Sunday or Bank/Govt. holiday & the payment is made/return is filed on the subsequent working day, would it be treated as delay and subject to interest & penalty?

Ans. No, the payment made/return filed on the working day following 25th of the calendar months which was a holiday, would be considered as having been paid/filed on time.

Q. The interest for delayed payment of Service Tax is payable @ 1.5% for every month or for the part of a month for delay in payment of Service Tax. If payment is delayed for one or two days, whether the interest is to be paid for the full month or only for one or two days, as the case may be.

Ans. The interest is to be levied u/Sec.75 @ 1.5% for every month or part of the month by which the payment is delayed. Thus, even for a delay by one day interest @ 1.5% is to be charged for full month and not to be charged on the basis of number of days.

Q. If any short payment of service tax is noticed after lapse of few months from the submission of returns, whether the assessee is liable to pay interest upto the date of assessment or from the date of submission of returns to the department?

Ans. If the short payment is noticed within six months /5 years as the case may be, from the date of filing of the returns, the interest @ 1.5% is required to be paid U/S 75, (as delayed payment) upto the date of actual payment of such short paid amount.

Q. Is the interest paid for late payment of Service Tax refundable, in case of excess payment?

Ans. Yes, Interest paid in excess of the tax actually due, which is only of an erroneous nature, is liable to be refunded.

Cir.No. 3/DGST/98-ST

Date 16/11/1998

Sub:- Service Tax - Interest in case of delayed payment of Service Tax to the Government - Clarification.

As per Section 75 of the Chapter V of the Finance Act, 1994, the interest is to be charged at the rate of one & half percent simple interest per month or part of the month for which the payment is delayed. In case, where, the payment is due on 15th (as per the earlier provision)/or 25th of the month (as per new provision) and the payment is made on 1st ofthe next month, then there is delay of 16/17 days or 6/7 days respectively as the case may be, in making payment of Service Tax to the Government. In such cases, interest should not be charged for two months, rather, it is clarified that the period of one month should be considered with reference of 16th/26th of the month to the 15th/25th of the next month and the interest. should be charged for one month only.

Actual date of crediting

[TN No. 132/96, dated 26/11/1996 of the Cochin Commissionerate]

Sub:- Service Tax - Actual date of crediting of Service Tax to the Book account of the Central Government to be taken for calculation of Interest and penalty.

Under Sections 75 and 76 of the Act an interest has to' be charged at the rate of 1.5% of every month or part of the month by which crediting of tax is delayed and penalty for failure to collectorpay Service Tax can also be imposed. In order to arrive at the calculation of interest and penalty under the Service Tax on telephones it has been decided that the first date on which book transfer is made in the cash section of Secondary Switching Area (SSA) as the date of crediting to the Central Government. Accordingly the proforma ST 3 and ST 3A prescribed under Rule 7 of Service Tax is revised which is enclosed alongwith this Trade Notice. Here after all Secondary Switching Areas who are paying the Service Tax on telephones by book transfer has to file the return prescribed under rule 7 of Service Tax in the revised proforma.

The secondary services which are consumed or merged with the primary output services which are eventually exported outside India will be exempt

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Indian Service Tax

Export Of Services

Whether export of services are exempted from Service Tax? If so, what would constitute exports? Whether secondary service providers supplying service to primary service providers are exempted from Service Tax if the primary service is exported?

Ans. The Service Tax is leviable only on the taxable services supplied within India except Jammu and Kashmir. Thus all the taxable services exported outside India are not leviable to service tax and therefore, exempt. Since tax is a destination based consumption tax and, therefore, if the service provided are consumed abroad, it is covered under export and therefore, not leviable to service tax. Some of the examples are that if a Management Consultant or a Consulting Engineer provides the consultancy service to a foreign company situated outside India, it will constitute direct export. Similarly, if service provider in India desputes his consultant abroad or provides the service to foreign customer abroad by opening a branch office or any other establishment in that country, same would also constitute exports. However, where a foreign company comes to India and takes the services of manpower recruitment agency in India for recruitment of personnel, the service tax will be leviable as it does not amount to export. Similarly, foreign tourist coming to India and enjoying taxable services (even though making payment in foreign currency) are taxable and are not exempt as it does not amount to export.

The secondary services which are consumed or merged with the primary output services which are eventually exported outside India will be exempt.

[Source: Directorate of Publicity and Public Relations, Customs & Central Excise, New Delhi, October, 2003].

Cir.No. 56/5/2003-ST

25/4/2003

Sub:- Non levy of service tax on export of services - Regarding

The Central Government has issued Notification No.2/2003 dated 1/3/2003 in the current year's Budget rescinding the earlier Notification No. 6/99 Service Tax dated 9/4/99 which exempted taxable services from payment of service tax so long as payment for services rendered is received in convertible foreign exchange which is not repatriated outside India. Consequent to the issue of Notification No. 2/2003 cited above, service tax would be leviable on all taxable services consumed or rendered in India, irrespective of whether the payment thereof is received in foreign exchange or not.

In this regard various representation have been received by the Board raising apprehension that because of the withdrawal of the notification No. 6/ 99, export of service would be affected as it would be costlier in the international markets.

The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination-based consumption tax and it is not applicable on export of services. Export of services would continue to remain tax-free even after withdrawal of notification No. 6/99 dated 9/4/99. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed at present as inter-sectoral tax credit between services and goods are not allowed.

Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services.However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported.

A further question raised is relating to payments receivable in foreign exchange forthe services performed prior to March, 1, 2003 when the rate of service tax applicable was 5 % but payments are received after March 1,2003. The enhancement of the rate of service tax from 5% to 8% would be applicable only when the Finance Bill is passed. If payments are received in the aforesaid case after the Finance Bill is passed, the rate of tax applicable would be 5% so long as the billing has been made prior to the date of passing of the Finance Bill. If the billing is made subsequent to the date of the passing of the Finance Bill, the service tax would be applicable at the enhanced rate of 8%.

In exercise of the powers conferred by Section 93 of the Finance Act, 1994

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Indian Service Tax

Notifications

Value of goods and services

[Notification No. 12/2003-ST, dt. 2/6/2003]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under Section 66 of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.

^{Ins. by Noti. No. 12/2004-ST, dt. 10/9/2004.}[Provided that the said exemption shall apply only in such cases where

(a) no credit of duty paid on such goods and materials sold, has been taken under the provisions of the Cenvat Credit Rules, 2004, or

(b) where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials.]

2. This notification shall come into force on the 1st dayofJuly, 2003.

Foreign Exchange

[Notification No. 21/2003-ST, dt. 20/11/2003]

In exercise of the powers conferred by Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in sub-section (105) of Section 65 of the said Act, provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the service tax leviable thereon under Section 66 of the said Act:

Provided that nothing contained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India.

Distribution of work amongst various section. of CBEC regarding

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Indian Service Tax

General Exemptions

The following exemptions are applicable to all services.

Exemption to UNO or International Organisation.
Special Economic Zones-Notification No. 17/2002-ST, dt. 21/11/2002&4/2004-ST, dt. 31/3/2004.
Cost of goods and materials (barring few exceptions like beauty parlour) -Notification No. 12/2003-ST, dt. 20/6/2003.
Export of services-Cir No. 56/5/2003-ST, dt. 25/4/2004.
Payment received in non-repartriable freely convertible foreign exchange. -Notification No. 6/98-ST, dt.9/4/99 &21/2003-ST, dt. 20/11/2003.
Services rendered abroad.
Old services rendered prior to 10/9/2004- Notification No. 18/2004 ST, dt. 10/9/2004.
New Services rendered prior to 10/9/2004-Notification No. 18/2004 ST, dt. 10/9/2004.

F.No. B2/8/2004-TRU

Date 10/9/2004

Restriction on availment of credits and exemptions towards goods sold, in cases where abatements are allowed:

In cases of specified services, like tour operators, rent-a-cab, mandapkeeper providing catering services, erection, commissioning and installation etc., abatements are allowed to neutralize the cost of materials/goods supplied or used during the course of provision of service. These abatements were allowed when cross credit of excise duty and service tax was not available. Service tax like Cenvat is basically a value added tax which is operated through credit mechanism. It is being provided that in all such cases, the abatement would be conditional, subject to non-availment of input goods and capital goods credit under the new Cenvat Credit Rule, 2004 and also non-availment of benefit under Notification No. 12/2003-S.T. (Refer Notification No. l2/2004-S.T, dated 10/9/2004). The credit of input services would, however, be available.

Exemption No. 12/2003-S.T. provides that the value of goods and materials sold by the service provider during the course of providing service shall remain excluded from value of taxable service subject to production of documentary proof value of such sale. It is being provided that benefit of abatement would not be available to any service provider availing this concession. Also, this concession would be subject to condition that either no CENVAT credit has been availed on such goods or if already availed, it is reversed prior to the sale of such goods. (Refer Notification No. l2/2004-S.T, dated 10/9/2004).

Notification Nos. 18 and 25/2004-S.T., dated 10/9/2004 have been issued so as to exempt the payments received by the service provider before 10th Septenlber, 2004 in respect of new services and expanded services.

[Para 5 of Cir.No. 62/11/2003-ST, dt. 21/8/2003]

Cir.N o. 62/11/2003-ST

Date: 21/8/2003

Service rendered free of charge

In the context of certain services, a doubt has been raised as to whether service tax will be payable if the service is provided free. of charge.

As per charging section viz. Section 66 of the Act, service tax is chargeable at the rate of 8% of the value of taxable service, Thus if the value is zero the tax will also be zero even though the service is taxable.

Presently, there is no exemption from Service Tax, in respect of any taxable services rendered to Central/ State Govt. Organisation for Public Sector Undertakings except Banking and Financial Services. The Service Tax would therefore correctly be payable by the assessees in cases the service is being provided to the Central Government/ State Government Organisation and Institutions. Similar is the case where the service provider is the Central Government or the State Government undertaking or organisation or institution. The only exemption available relates to certain services provided to United Nations, International Organisations or specified Diplomatic Missions. In view of the above, none of the service providers can claim immunity from paying the tax on the services provided by them and none of the service receiver can claim immunity from making provisions for payment of tax on the services, through the concerned providers. This has been clarified by the Ministry of Finance to all the administrative ministries of the Government of India as well as of the state Governments and Union Territories.

Since the sub-agent is receiving the value of taxable services rendered by him in Indian currency, he would be liable to pay service tax on the services rendered by him, eventhough in such a case main agent shall be exempted.

At present there is no such general exemption available for small scale service providers.

Service Tax is not leviable for the services rendered before the date of Notification of service. Therefore, the payment received for services rendered before the notified date in respect of that service, is not to be taxed.

Distribution of work

Cir.No 69/18/2003-ST

Date 15/12/2003

Sub:- Distribution of work amongst various section. of CBEC regarding.

Please refer to Circular No.661/5212002-CX,dated 11/09/2002 issued under File No. 137/8/2001-CX-4 on the subject mentioned above.

2. It has been decided by the Board that the work relating to "Service Tax exemptions under Section 93 of the Finance Act, 1994" being handled by the CX-4 Section shall henceforth be handled by the TRU.

Some instances where such problems have arisen relate toManagement Consultants vs. Manpower Recruitment Services

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Indian Service Tax

Classification Of Services

Cir. No. 51113/2002-ST Date: 07/01/2003

Sub:- Classification of Services.

I am directed to say that doubts have been raised regarding classification of certain services which appear to fall under two or more categories simultaneously. Some instances where such problems have arisen relate toManagement Consultants vs. Manpower Recruitment Services, Mandap Keepers vs. Convention Services, Rent-A-Cab Scheme vs. Tour Operators, Cargo Handling Services vs. Storage And Warehousing Services, Architect vs. Interior Decorator, Scientific And Technical Consulting Services vs. Consulting Engineer, Practising Chartered Accountants vs. Management Consultants, etc.

2. The matter has been examined in the Board. It is hereby clarified that any service (transaction) can be taxed only once, even if it appears to fall under two or more categories. Therefore, before levying service tax it is essential to determine under which category a particular service falls. It should be kept in mind that service tax is a tax on the service provided and is recovered from the service provider (in some cases even from the service recipient). The position is akin to Central Excise duty which is charged on manufactured goods. Just as Central Excise duty can not be charged twice on the same goods under two separate chapters/headings/sub-headings of the Central Excise Tariff, so also Service tax can not be charged twice on the same service (transactions). However, one service provider may provide mare than one taxable service. In such cases, the service provider need only take one registration, but it shall be endorse for all the taxable services and tax liability will have to be discharged for each of the taxable services seperately.

3. However, in the absence of any interpretative rules, it may become difficult at times to decide the classification of a particular service. The guiding principle should be that a service should be categorised under that category which is more specific. As for example, a hotel may rent out a conference room for an official conference where lunch is also served. A dispute could arise in this case as to whether this particular service would fall under the category of 'mandap keeper' and exempt from tax vide Notification No.12/2001-Service Tax dated 20/12/2001, or it will fall under the category of 'convention services' and charged to service tax. Between the two competing categories, in this case, the more specific one would be' that of a 'convention service' since a 'mandap keeper' includes official, social as well as business functions whereas a'convention service' covers conventions only which is like an official function.Hence in this case the service would not be exempt from service tax.

4. Similarly, in each case where such problems arise the proper Central Excise officer has to decide on merits as to which is the more specific category and charge tax accordingly.

5. Pending issues may be disposed of on the basis of the above guidelines. Past cases need not be re-opened.

F.No. B2/8/2004-TRU

Date 10/9/2004

Many of the services covered under fresh levies may include activities that were taxable earlier under different category of taxable services. While the classification of a taxable service would be in terms of Section 65A of the Finance Act, 1994, it should be ensured that there is no double taxation and a service is taxed only once under the appropriate category.

Case LawSpecific entry prevails over general entry - 1994 (74) ELT 5 (SC).

there is no procedure laid down in the Service Tax Rules. For example, Company A shifts its business address

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Indian Service Tax

Change Of Address

When there is a change in the address of an assessee and if the new address is covered by a different jurisdictional office, there is no procedure laid down in the Service Tax Rules. For example, Company A shifts its business address in the month of December. The address was covered by Mumbai Commissionerate-I and the new address falls in the jurisdiction of Commissionerate-IV. For the first two months, the payment of service tax was made in the designated bank of Commissionerate-I. The issues arise are:

(a) Whether Commissionerate-I would transfer the file and papers to the new jurisdictional office and the assessee may be advised to pay service tax for rest of the months of the half year in the designated bank of CommissionerateIV? Then in such case, ST-3 Return for 6 months may be filed in Commissionerate-IV

(b) If the answer to(a)required to file two separate returns for the first two months and the balance four months separately in the respective jurisdictional offices?

There is necessity to lay down a standard procedure for all the offices of the Department.

Reply:

The Chairman replied that:

(i) The records would be transferred to the concerned Commissionerate if there is a change in the address of the assessee.

(ii) In the new Commissionerate the assessee has to apply for a fresh registration and the previous Commissionerate would cancel the registration and shall inform the new jurisdictional office regarding the change of address so that the assessee remains under the Service Tax Act.

(iii) Further, in case the assessee has paid some portion of Service Tax payment, in the designated bank and for the remaining portion, if Service Tax become payable, he can pay in the designated bank of the new Commissionerate. The same procedure applies for filing of ST 3 Returns also.

(Authority: RAC on 29/1/2003, Mumbai-IX Commissionerate)

Education Cess is levied under section 91 to fulfil the commitment of the Government to provide and finance universalised quality basic education

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Indian Service Tax

CESS

Education Cess is levied under section 91 to fulfil the commitment of the Government to provide and finance universalised quality basic education.
It is at the rate of 2.
It shall be taxable services in addition to the existing tax (i.e. S.T. presently 10%, Education Cess 2% of 10% = 0.1; total S.T. = 10.2%)
Cess is payable on input services and output services.
Service Tax Credit is available.
Cess cannot be utilised for any other purpose.
Education Cess is payable from 10/9/2004.
The provisions of Chapter V of the Finance Act, 1994 and rules made thereunder are applicable to levy and collection of Cess
too.

F.No. B2/8/2004-TRU

Date 1/9/2004

Education Cess on taxable services

Education cess on taxable services is imposed under section 91 read with section 95 of the Finance (No.2) Act, 2004. The cess would be 2% of the service tax levied and collected. Therefore, fully exempted taxable services would not be subjected to cess. In case of a partial exemption, say by way of abatement, the cess would be calculated on the net tax paid and not on the entire amount of tax that would have been payable, but for the exemption.

centralised accounting system in respect of such services rendered to clients

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Indian Service Tax

Centralised Accounting System*

Hyd-IV, T.N. No. 76/2003

Date 6/11/2003

Sub-rule 3(A) of Rule 4 of Service Tax Rules, 1994 requires that where an assessee is providing taxable service from more than one premises and has centralised accounting system in respect of such services rendered to clients from each such premises or office at anyone premises or office, the Commissioner of Central Excise may permit such assessee to registering only the premises or office from where such centralised accounting is done, if he is satisfied that such registration shall not be detrimental to the interest of revenue.

Under Centralised Accounting System, bills are raised from various branches of the assessee and are accounted for at one office of the assessee. The assessee has to seek permission from the Jurisdictional Commissioner of Central Excise for the registration of the office or premises from where centralised accounting is done. The Commissioner to grant such permission has to ensure that such registration shall not be detrimental to the interest of revenue. In order to ensure that a uniform practice be adopted to grant such permission the following guidelines are issued:

I.Information/Documents to be submitted along with ST-I application:

Proof of address of the premises office sought to be registered
PAN number of the assessee
List of Branches offices or premises of the assessee
Brief note on accounting system adopted by the assessee
Branch-wise series of invoices maintained along with a sample copy thereof
Previous years audited balance sheet along with gross trial balance of different branches
Details of records accounts maintained at different branches and Central Office
Bank account numbers of the Branches and Central Office through which the receipts are deposited transacted.

II. Documents to be submitted along with ST -3 returns:

Centralised Office premises should submit a monthly statement branch wise based on the daily monthly sales receipt submitted
by the Branch Offices to the main office.

The centralised office shall consolidate the monthly statement showing branch-wise receipt and arrive at the total Service Tax
payable and pay on monthly/quarterly basis depending on the type of the assessee.

The monthly statements of centralised office with the branch reports and payment details should be submitted before the
Superintendent of Central Excise along with ST-3 return.

Contents of this Trade Notice may be brought to the notice of Trade and all concerned.

Presumption of culpable mental state.

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Indian Service Tax

Central Excise Act, Applicability Of

The provisions of the following sections of Central Excise Act, 1944, shall apply to service tax.

Section 9-C.	Presumption of culpable mental state.
Section 9-D.	Relevancy of statements under certain circumstances. Section 11. Recovery of sums due to Government.
Section ll-B.	Claim for refund of duty.
Section ll-BB.	Interest on delayed refunds.
Section II-C.	Power not to recover duty of excise not levied or short-levied as a result of general practice.
Section II-D.	Duties of excise collected from the buyer to be deposited with the Central Government.
Section 12.	Application of the provisions of Act No. 52 of 1962 to Central Excise Duties.
Section 14	Power to summon persons to give evidence and produce documents in inquiries under this Act.
Section 15.	Officers required to assist Central Excise Officers.
Section 35-F	Deposit, pending appeal, of duty demanded or penalty levied. Statement of case to High Court.
Section 35-G	Statement of case to High Court.
Section 35-H.	Application to High Court.
Section 35-I	Power of High Court or Supreme Court to require statement to be amended.
Section 35-J	Case before High Court to be heard by not less than two Judges.
Section 35-K	Decision of High Court or Supreme Court on the case stated.
Section 35-L	Appeal to the Supreme Court.
Section 35-M	Hearing before Supreme Court.
Section 35-N	Sums due to be paid not withstanding reference, etc.
Section 35-O	Exclusion of time taken for copy.
Section 35-Q	Appearance by authorised representative.
Section 36	Definitions.
Section 36-A	Presumption as to documents in certain cases.
Section 36-B	Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence.
Section 37- A	Delegation of powers.
Section 37-B	Instructions to Central Excise Officers.
Section 37-C	Service of decisions, orders, summons, etc.
Section 37-D	Rounding off of duty, etc.
Section 40	Protection of action taken under the Act.

Attention is invited to Board's Circular No. 19/13/96 dt.21/11/1996 wherein instructions were issued for auditing

2008-01-12T05:33:00.000-08:00

Indian Service Tax

Audit

Cir.N o. 38/1/2002-ST

Date 07/02/2002

Sub:- Audit of Service Tax assesses/records

Attention is invited to Board's Circular No. 19/13/96 dt.21/11/1996 wherein instructions were issued for auditing of assesses providing services relating to telephones, insurance and stock broking. The following instructions are issued in partial modification of the said instructions.

Since service tax has been in operation for over 7 years now, departmental officers as well as the service providers have by now become familiar with the rules and procedures relating to service tax administration. It has therefore been decided by the Board to extend the coverage of service tax audit to other services also on a selective basis.

An Expert Group (EV -07) has already been constituted under the CIDA Project to go into this aspect in details and suggest audit procedures for every service, keeping in mind the specific nature and peculiarity of each service. Once this study is completed it is proposed to bring out a comprehensive Service Tax Audit Manual on the lines of. the manual issued for Central Excise Audit. Till then, the following guidelines are prescribed for immediately initiating audit of selected service, tax assessees .

Only those assesses will be taken up for audit who are registered in the Metropolitan cities of New Delhi, Mumbai, Chennai and Kolkata and whose names are given in Annexure - I.

In respect of Stock-broking, Telephones and non-life Insurance, audit will continue to be done as per norms indicated in Board's Circular of 21/11/96 and selection of assessees by the Commissioners. In respect of these three services the Audit will, obviously, not be confined to metropolitan cities only.

The Audit of assesses listed in Annexure -I should be confined to the accounts for the years 1999-2000 onwards only. In respect of services which have been brought under the tax net in July, 2001, the Audit period will be July 2001 till the date of Audit. The Audit of each selected assessee should be completed in not more than 10 working days.

The audit would be conducted as per proforma Annexure - II (enclosed). This proforma is based on the EA-2000 Audit being carried out on the Central Excise side.

Efforts should be made to have the Audit done by teams of officers who are already familiar with EA-2000 Audit. Before proceeding with the Audit the teams should familiarize themselves properly with the law and procedures relating to Service Tax. The teams should ensure that during the course of Audit there is minimum hindrance in the normal working of the assessee.

Attempt should be made to conduct as many such audits during the remaining months of the current financial year so that short levies detected, if any, can be realized during this year itself.

Annexure I

(Not reproduced, since it is not relevant now]

Annexure II

Audit Note No__________________

Taxpayer – M/s. ABC

Auditors.

S/Shri X, Y and Z Customs & Central Excise Commissionerate,_________________________

Office of the Commissioner of Customs & Central Excise, Internal Audit Branch

F.No.________________________Dated______________________2002

Assistant Commissioner,

Customs & Central Excise,______________________

Sub:- Audit Report drawn in respect of Taxpayer – M/s. ABC for the period:

Enclosed please find Audit Report drawn in respect of Taxpayer - Mis.ABC for the period_____________In this connection, you are requested to please take immediate suitable action to safeguard Government revenue under intimation to the audit.

Enclosure _____________________

(XYZ)

Assistant Commissioner (Audit)

Copy to:

The Deputy Commissioner (Prev.), Central Excise Hqrs______________________for information.

The Superintendent, Central Excise Range ........

The Audit Report master file

(XYZ)

Assistant Commissioner (Audit)

Index
Sr.No.	Items	Page No.
1	Summary of audit reports	1
2	Summary of audit results
3	Detailed Audit para (Annexure-A)
4	Enclosures (Annexure-B)
5	Working Papers (Annexure-w/p-A to-)

PART1

SUMMARY OF AUDIT REPORTS

Name & Address of the Taxpayer:	Mis ABC_______________
Its HO, Regional! Branches offices etc.
Status of the Taxpayer
Jurisdictional Commissionerate/Division/Range Name of the Range Supdt./Inspecto	Commissionerate:
	Division:
	Range:
	Shri :
Name of taxable services provided to clients
Registration No.
Exemption Notification No. & its effective date along with gist of exemption notification
Date of Last Audit
period for which currentAudit undertaker
Dates on which audit undertaker
Unconfirmed demand, if any
Confirmed demand, if any
Appeal filed if any
Tax, interest & penality paid during the current audit period
No. of procedural paras
No. of procedural paras
Total Revenue involve in audit paras

PART-2

Summary Of Audit Results

[provide an outline of important and material non- compliance issues identified during the Audit. Indicate if the TAXPAYER has agreed to improve]

The important and material non-compliance issues identified and reaction of the assessee is indicated in the table given below:-

Audit	Gist of objections	Revenue implications if any, (in Rs.)	Tax payer’s Agreement yes/No,if no reason for Disagreement	Department’s conclusion with reason

Total Revenue Involved =	Rs.
		XYZ
		Assistant Commissioner (Audit)

PART – 3

Working Paper

Preliminary Review

Audit file review

[Review audit file to determine nature of the organisation, its operations, service provided, results of last audit and the reasons it was selected for audit this time.]

Review information in Range Office

[Review information available in the Range office, i.e. Returns filed, Tax paid & List of records/returns filed. Check if any anti-evasion action is in progress]

Review Amendment in Laws

[Review amendment in laws after the last audit and its compliance]

Develop tentative plan for audit, identifying potential area for audit:- [Where necessary, discuss tentative plan with the AC/DC or JC/ADC]

S1.No.	Area	Period	Selection
1
2
3

Contact tax payer & set up an appointment:- [Keep a log where tax payer appears to be stalling.]

Gathering and Documenting Systems Information

Interview & organisational information

(a) Person (s) Interviewed and Title:- [Name of the persons who have

been interviewed and their statements in brief]

(b) Organisational Information:- [Identify the Head Office/ registered office or regional/ branch offices of the taxpayer, location of its operations and location of its accounting records. Also the offices who are billing services]

(c) Organisational Type and Ownership:- [Confirm organisation,whether proprietorship, partnership or a Pvt Ltd or Ltd company]

(d) Organisation Chart:- [Obtain the organisation chart or describe the organisation structure if chart is unavailable. Note responsibilities of key personnel and any recent changes, particularly in personnel involved in tax accounting.]

Financial and Tax Accounting Information

(a) Business Records:- [Obtain audited financial statements, trial balance and chart of accounts. In case of audited statements, note name of the chartered accountants and review any notes to the financial statements.]

(b) Consolidated Internal Financial Statements:- [If unit is a division of a company, check if internal financial statements are prepared for the unit being audited before consolidation with other related units. Obtain a copy of last two reports.]

(c) Business Activities:- [Identify all business activities - commercial and non-commercial. For each activity & services indicate annual volume in Rupees. Attach additional working paper if necessary.]

(d) Tax Accounting:- [Describe how the tax payer accounts for service taxes, indicating registers/ledgers used]

(e) Tax Accounting - special situations:- [Clarify how service tax is accounted for in special situations such as service provided to related units, bills cancelled/revised, excess/ short payment of taxes.

Identify special registers or accounts maintained for such transactions.]

Service Information

(a) Pattern:- [List major clients, services provided and indicate annual volume in Rupees. Attach additional working paper, if necessary.]

(b) Service - special situations:- [Identify any special situations such as service to related unit.]

(c) Other Revenue:- [ not connected with any notified service]; [Identify other revenues as reported in the financial statements.]

(d) Miscellaneous:- [Identify any other issue that becomes known during the interview stage. Note other items, such as in-house magazines.]

3. Tour of the Premises:- [Tour the premises accompanied with appropriate personnel. Observe operations to confirm information received to date and to note areas that may be vulnerable to non-compliance. Ask about the number of workers in the organisation and if any shift work is done. This may not be needed, in case of majority of services generally]

Evaluation of the Internal Controls

General/ Tax Accounting

(a) System Review:- [Review and describe Service (Revenue) and tax Accounting and any other service tax related systems. Summarise the flow of information, procedures used for recording transactions and indicate person responsible for various functions.]

(b) Controls that impact taxes:- [Identify and describe any internal controls within these systems that have an impact on accounting for service tax. Check if there have been any system or personnel changes in key areas. If yes, review the change over period with care.]

(c) Walkthrough - Service System:- [Perform a walkthrough of the Service/ Revenue System. Trace a sample of transactions (all types). Amend systems descriptions to match findings in the 'walkthrough.]

(d) Walkthrough - Other system(s):- [Perform a walkthrough of any other system (e.g. Journal Entries & other adjustments etc.). Trace a sample of transactions, of all types from source documents through to the service tax account. Amend systems descriptions to match findings in the walkthrough.]

(e) Walkthrough - Service Tax Return:- [Perform a walkthrough of the process of compiling a tax return for one quarter/ six months, tracing from tax return amounts through to their sources. Amend systems descriptions to match findings in the walkthrough.]

(f) Postings to the General Ledger:- [Test postings from the books of original entry, i.e. Service and other journals, to the General Ledger. Verify that taxes are correctly recorded.]

(g) Taxes in GL:- [Verify mathematical accuracy of taxes by performing test adds on the GL and Journals. Note that even if the records are computerised, the test add should be done to detect programming "bugs".]

(i) High Value Transactions in GL and in Journals:- [Review GL, General Journal and journals for high value transactions related to Taxes. Consider tracing these to the source documents.]

Service/Revenue System

(a) Providing Services:- [Review key controls that prevent or detect the providing of services that are not invoiced. (Can service be provided without recording them?)]

(b) Recording of invoices:- [Review key controls that prevent or detect supply of services that are invoiced but not recorded. (Can services be invoiced but the invoice not recorded in the system?).These may include pre-numbered invoices, authorisation to cancel an invoice etc. etc.).]

(c) Recording of Cash transactions:- [ Review key controls that ensure that all cash revenues are recorded. (How does a unit make sure all cash transactions are recorded and deposited in the bank?) The controls may include pre-numbered cash transaction invoices, daily reconciliation of cash invoices, separation of taxes etc. etc.]

(d) Types of services:- [Review key controls that prevent or detect the mis-classification of services for exemption.]

(e) Credits for returns:- [Review key contro is that ensure adjustments are made to taxes payable for all credits issues for amendment of invoices.]

(f) Other:- [Review any other key internal controls within the Service/Revenue system on, which you can rely.]

(G) Other internal controls:- [Review other key controls that prevent or detect under-valuation of service tax.]

(H) Conclusions:

Table 14

Items	concerns
General/Tax accounting:
Service

Analysis, Audit Plan & Assessments

Risk Loss Analysis (Reasonableness Tests)

service tax:- [Prepare the risk loss analysis, covering a period of one year or a minimum of one return, for service tax and provide your conclusions as to the significance of the potential revenue loss. Indicate possible problems and therefor the audit steps that might be indicated]

[Nb - a sample risk loss analysis format is given as Per annexure -'a']

6. Trend Analysis:- [Perform appropriate trend analysis to check the overall reasonableness and consistency of data provided by a taxpayer. Identify potential problem areas and audit steps required verifications of tax implications.]

Auditors should verify the invoices/Bills issued for audit period and the same should be compared with present invoices being issued to ascertain the rates being charged for past and present. Similarly, expenses incurred (including Capital Investment) as compared to income should also be examined.

7. Audit Plan:- [The audit plan must be based on information gathered so far before starting the audit and must be specific.]

Trend Analysis:- [perform appropriate trend analysis to check the overal reasonableness and consistency of data provided by a taxpayer. Identify potential problem areas and audit steps required verifications of tax implications].

auditors should verify the invoices/Bills issued for audit period and the same should be compared with present invoices being issued to ascertain the rates being charged for past and present. Similarly, expenses incurred (including Capital Investments) as compared to income should also be examined

Audit Plan:- [The audit plan must be based on information gathered so far before starting the audit and must be specific.]

SI.No.	Area	Period	Selection Criteria	Verification	Comments	Allotted to Shri(insp)
	(i)	(ii)	(iii)	(iv)	(v)	(vi)

1. Registration - (i) whether registration done as per Board's Circular No 35/3/2001 CX dt 27/8/2001,

(ii) since it is not transferable, whether the registration is in the name of the person who actually engaged in the providing of services.

2.(i)Whether the tax is paid in the designated bank under proper TR-6 Chllan and the Tax-return is filed in time, (ii) whether amended return being filed after Noti. No. 10/2001-ST dt 9/10/2001,(iii) if the tax is paid after due date whether the interest at the proper rate is paid or not, (vi) and whether taxpayer has claimed any abatement from tax on account of amount not collected from the clients.

3.(i) In case of provisional assessment whether the taxpayer has applied for it giving cogent reasons, (ii) whether the AC/DC has given his express approval for it; (iii) whether a statement in the form of ST -3A giving details of service tax deposited or liable is filed along with tax return, and (iv) whether assessment is in the process of finalisation.

4. Tax paid amount - (i) whether the tax paid is proper under the law i.e. on gross amount, not on the net amount - (ii) whether it has not been undervalued by not included other incidental charges, and (iii) whether it has been reported by the RO to the AC/ DC who has to pass an order in this regard.

5. Whether excess service tax paid has been correctly adjusted periodically on pro-rata basis.

6. Penalty or Interest recovered whether it is properly calculated.

7. Exemption - Whether it is correctly availed

8. Verification of taxable service from other records/returns whether the taxable service has been cross verified from other records/ returns (i.e. such returns which are filed with government or financial institutions) maintained by the taxpayer.

8. Verificatlon:- [Carry out verification as planned. Note W/P Ref. in the last column of audit plan above. Where audit plan had to be altered, provide suitable comments].

9. Summary of Audit findings and assessment:--- [Once the verification, as per the audit plan, is complete, all of the assessments must be rolled up for presentation to and discussions with the supervisor and the assessee.] (The results must be presented in a logical manner and should be cross-indexed so that it would be easy to follow both by the assessee and Departmental officers).

10. Assesses agreement/ disagreement with the reassessment:- [Make a note of the date and name of person (s) present when the results of the audit as to the significance of the potential revenue loss. Indicate possible problems and therefore the audit steps that might be indicated.]

SI.No.	Names/Shri	Designations	Signatures
1.
2.
3.
4.
5.

ANNEXURE-' A'

Risk Loss Analysis

[Sample Reconciliations]

A. Reconciliation of tax base as shown in return with income statement.

1.Total revenue for the period per income statement = A

2. Deduct revenue items not subject to service tax

Sales revenue = B
Non taxable service = C
Misc. Income = D

3. Taxable Service Revenue Base = S = A - (B - C - D)

4. Estimated Tax @ 5% =T= S0.05

5. Deduct: Tax Reported on Return = t

6. Variance Amount or potential Risk = V = T-t

7. Variance percentage on Taxes payable = V 100/T

8. Response/Conclusion.

B. Reconciliation of Service Tax paid as per Return with that shown in Financial Account

Tax reported in Return i.e. 't' should invariably be first reconciled with the amount of tax paid in the financial accounts. For this purpose, the relevant account heads where service tax transactions are recorded should first be identified and then a reconciliation be first made between Service Tax paid as per Return

vis a visService Tax paid as shown in financial accounts. Depending upon the accounting policy being followed, whether service tax collected from customers and service tax paid to the Government are accounted separately or combined, the auditor must first ascertain the accounting system. If both the above accounts are clubbed then, a detailed extract of the combined account must be scrutinized and then tabulated so as to make meaningful comparison. If the two transactions are accounted for separately, then the two acc'ounts should first be reconciled and then compared with the tax return.

C.Auditor should also look towards the Income vs Expenses incurred (including capital investment), whether there is any possibility of suppressing the income liable for service tax. Auditor should also weigh the changes in the current charges for billing service (with the charges for billing service during audit period as per record). Any large variation in such charges without any reasonable basis is an indicator for suppression of income and therefore service tax.

Cir.No. 742/58/2003-CX

Date 3/9/2003

Sub:- Service Tax Audit Manual - Regarding.

I am directed to say that as you are aware that taxation of services was started in July, 1994 in a limited way with three services and since then the scope has been extended considerably. At present, 58 services are subjected to levy of Service Tax. The revenue from Service Tax sector has also been growing appreciably over the time. The audit of selected services (telephones, non-life insurance and stock brokers) was started in the year 1996. Subsequently, the same was extended in 2002 to cover certain selected service providers in four metropolitan cities.

2.Taking into account the peculiarities of service tax law, book keeping practices of service providers and the experiences gained during the course of auditing of selected service tax categories, it is felt necessary to prepare a comprehensive Service Tax Audit Manual following internationally recognized audit methodology to provide guidelines to the departmental officers to facilitate auditing of Service Tax-payers and to ensure uniformity. Accordingly, DirectorGeneral (Audit) has prepared and issued a comprehensive Service Tax Audit Manual. The Manual is for use of the departmental officers, which may be Carefully studied. The suggestions to improve the Audit Manual and the difficulties experienced if any, may be brought to the notice of Director-General of Audit.

3. The salient features of the Audit Manual are:

Legal provisions for levy and collection of service tax are indicated in one place.
Principles of auditing of Service tax-payers based on modern methodology are enumerated.
Guidelines are provided for selection of tax-payers for auditing based on risk assessment technique.
Detailed guidelines are provided for preparation of audit plan before the commencement of the actual audit.
Various techniques of auditing such as 'walk through', ABC Analysis,Revenue Risk Analysis and Trend Analysis are explained.
Specific guidelines are provided for conduct, preparation, reporting and follow up of audit.
Formats for collection and compilation of data on service providers and maintenance of Master Files have been prescribed.
Check list for service tax auditing has been provided.
Detailed profiles for three major services namely, telephone, non-lifeinsurance and stock brokers are made as part of the
Manual for effective audit.

The Service Tax Audit Manual meets one of the most critical requirements of service tax administration. Considering the fact that the administration of service tax is fundamentally following the principle of believing inbona fidesof the tax-payer and trust is reposed on voluntary compliance, it is expected that the Audit Manual shall be able to provide valuable guidelines.

Cir.No. 775/8/2004-CX

Date 17/2/2004

Sub:- Audit of Service Tax Assessees - Regarding.

Attention is invited to Board's Circular No. 19/13/96, dated 21/11/96 wherein instructions were issued relating to visit of Central Excise officers to the premises of the assessees for conducting audit of services relating to telephones, insurance and stock brokers. Subsequently, the coverage of Service Tax Audit was extended to other services also on a selective basis vide Circular No. 38/1/2002-CX., dated 7/2/2002.

A comprehensive Service Tax Audit Manual has been issued vide Circular No. 742/58/2003-CX., dated 3/9/2003 which,inter alia,provides detailed guidelines 'of audit of Service Tax assessees.

Board has examined the proposal of extending the scope of Service Tax Audit and it has been decided to extend the scope to all services which are subject to levy of service tax. Needless to mention that selection of assessees and auditing of those assessees who have been selected for auditing will be subject to the guidelines and procedures prescribed in the said Service Tax Audit Manual.

Rule 7 of service Tax Rules, 1994] Return of service tax credited to the Government

2008-01-12T05:32:00.002-08:00

Indian Service Tax

ASSESSMENT

The most significant legislative change made in the provisions of the Service Tax relates to the introduction of self-assessment procedure vide amendments made to Sections 70 and 71 w.e.f. 16-7-2001. Section 71 has also been amended to provide verification by the Superintendent for correctness of the tax assessed by the assessee on self-assessment basis. Where service tax on any services has escaped assessment or has been under-assessed, the Assistant Commissioner/Deputy Commissioner of Central Excise is required to pass an order of assessment. In view of the amended provisions, the Superintendent is not required to pass any order of assessment. He should only refer the matter to Assistant Commissioner/Deputy Commissioner concerned along with his observation and report.

Sub-rule (3) of Rule 6 provides a facility for adjusting excess payments of service tax by the assessee.

Form ST-3 is reproduced below:

FORM ST – 3

[See Rule 7 of service Tax Rules, 1994] Return of service tax credited to the Government of India for the period________________to_________________Commissionerate.

Name of the assessee
Whether an individual or proprietary firm or partnership firm or any other (please specify)
Category of services
Service Tax Registration No

Name of the taxable service provided	Month(s)	Value of taxable service charged or billed (indicate break-up of the amount month-wise)	Value of taxable service realized (indicate break-up of the amount month-wise)	Amount of service tax payable	Amounts of service tax adjusted in terms of sub-rule(3) of Rule 6 of the Service Tax Rules, 1994*	Amount of interest, if any payable
1	2	3	4	5	6	7

Details of payment made to the Government credit	Mode of pament
	Cash(8a)		Service Tax credit 8(b)	Total amount paid (8a+8b)
	Amount	Challan No. and date/Journal Slip No. and date	Amount
Service tax paid
Interest paid			xxxxx
Any other amount paid **			xxxxx

* Please specify and enclose documentary evidence.

** Please specify on what account the amount has been paid.

Self - assessment Memorandum

I/We declare that the above particulars are in accordance with the records and books maintained by us and are correctly stated.
I/We have assessed and paid the service tax correctl in terms of the provisions of the Act and rules made thereunder.
I/We have paid duty within the time specified in these rules and in case of delay. I/We have deposited the interest leviable as per Section 75 of the Act. (Worksheet of interest calculation is attached) .

Place:
Date:
	Name & Signature of the assessee or his authorized representative

Acknowledgement

Date of receipt________________________

Signature & official Seal of the Superintendent of Central Excise

Place:
Date:

Note

Details in each of the column should be furnished separately for each of the taxable service rendered by the assessee.
Service tax credit shall be utilized only for payment of service tax on output service and not for interest or penalty.
In case service tax credit on input service is availed, enclose the proforma in terms of rule 5(4) of the Service Tax Credit Rules, 2002.

inter alia, of the Central Excise Act, 1944 shall apply mutatis mutandis to Service Tax

2008-01-12T05:32:00.001-08:00

Indian Service Tax

ARREARS

As per provisions of Section 83 of the Act, Section 11, inter alia, of the Central Excise Act, 1944 shall apply mutatis mutandis to Service Tax.
The Service Tax Range has to prepare a list of arrears of service tax including penalty and interest in the format in Annexure X every month end and send it to the Arrears Recovery Cell, Hqrs. Office: Primarily, it is the responsibility of Service Tax Range to recover the arrears of revenue.The Arrears Tax Recovery Cell is involved in the process only to give a helping hand to the Service Tax Range for recovery of arrears of Service Tax in difficult cases.
The recovery proceedings by the Tax Arrears Recovery Cell shall be periodically monitored by the Joint Commissioner (Service Tax).

ANNEXURE-X

Details of arrears of Service Tax including Penalty and interest pending recovery as on___________________________________

Name & address of the party	Order-in-Original No. & date	Amount of Serviace Tax payable	Date since when payable	Interest applicable	Penalty payable		Remarks
Name & address of the party	Order-in-Original No. & date	Amount of Serviace Tax payable	Sec. 76	Sec. 77	Sec. 78	Sec. 79	Remarks

Financial Times

Elucidate various bases of Cost Classification

Explain the various steps involved in preparing a Cash Flow Statement

Explain the various steps involved in preparing a Cash Flow Statement

Elaborate on Objective of Fund Flow Statement

Write a note on three Important Profitability Ratios

Differentiate between Management Accounting and Financial Accounting

Marginal Costing Vs CVP Analysis

Enumerate various sub-fields of accounting

Write a note on types of Errors and their Rectification

Rectification of Accounting Errors:

Explain various type of Journals

Elaborate on Basic Accounting Concepts

place liable to search is closed, any person residing in or in charge of such place shall, on demand of the officer executing

Indian Service Tax

Searches

being faced by the Field Formations/Service Providers in collecting/paying

Indian Service Tax

Rounding Off Of Service Tax

Review of Order-in-Revision passed by Commissioner of Central Excise in respect of Service Tax matters

Indian Service Tax

Review

Order-in-Revision

submit copies of challans manually to the department after e-­filing his return, evidencing payment of duties, after indicating his 15 digit STP code

Indian Service Tax

Returns

B. Filing of Service Tax Returns

Notice to Show Cause

Annexure-IV

Annexure-V

Annexure-VI

Annexure-VII

Public Holiday

Return by Registered Post

E-filing of ST3 Return - Clarifications

E-filing of ST3 Return - Circular

Case Law

Clause 150 of Finance Bill, 2003 seeks to amend retrospectively Section68.and insert a new Section 71-

Indian Service Tax

Return By Goods Transport Operator And C & F Agent

FORM ST-3B

Self-Assessment Memorandum

Acknowledgement

Generally, all Commissionerates of Central Excise, have a Service Tax Cell, headed by Assistant Commissioner/Deputy Commissioner

Indian Service Tax

Registration

Registration

Cir.No.72/2/2004-ST

Clarification

Form ST-l*

Form ST-2

Is the Service Tax payable by the assessee, even in cases where his clients do not pay for the service rendered or pay only a part of the bill raised

Indian Service Tax

Refunds

Head of Account

Cir. No. 24/1/98

Case Law

specific records have been prescribed to be maintained by a Service Tax assessee. The records including computerised

Indian Service Tax

Records

Service Tax - Reconciliation of revenue receipts under the Major Head 044.

Indian Service Tax

Reconciliation of Revenue Receipts

The concept of provisional assessment has been built into the scheme of service tax rules, vide sub-rules (4) to (6)

Indian Service Tax

Provisional Assessment

Form St-3A **

Under what situations, penalty may be imposed by the Department on the assessee

Indian Service Tax

Penalties

Exemption from penalty

Actnal date of crediting

Difficulties - Clarification

Cir.No. 76/6/2004-ST

Clarification

Clarification

Clarification

Clarification

Case Law

The Service Tax amount is required to be paid in Form TR-6 challan (Yellow in colour) in the specified branches

submit copies of challans manually to the department after e-filing his return, evidencing payment of duties, after indicating his 15 digit STP code