View my other blogs on Service Tax

Airport Services

http://servicetax-airport.blogspot.com/

Intellectual Property Rights

http://servicetax-ipr.blogspot.com/

Consulting Engineers

http://servicetaxind.blogspot.com/

Blogs on Customs Duty and procedure

Import of Computer Software

http://customs-software.blogspot.com/

Import of capital goods/components where supplier is paid royalty

http://customs-royalty.blogspot.com/

How Bill of Entry is assessed in a Custom House

http://import-procedure.blogspot.com/

Blogs on Central Excise duty and procedure

Exemption to new industrial units in Himachal Pradesh and Uttaranchal

http://excise-uttaranchal.blogspot.com/

14. Exemption from service tax

If the aggregate value of the taxable services provided by a service provider in a financial year is up to Rs 4 Lakh, there is no liability on the service provider to pay the service tax as it is exempted vide Notification No 6/2005-service Tax dated 1 March 2005. However, the benefit of exemption is available subject to the following conditions:

a) Service is not provided by the service provider under a brand name or trade name
b) Value of service shall be aggregate value not exceeding Rs 4 Lakh from one or more premises and from one or more taxable service
c) In the last preceding financial year, aggregate value of all taxable services provided from one or more premises does not exceed Rs 4 Lakh
d) It is obvious that service provider should not avail the credit of service tax paid on the input service under the CENVAT Credit Rules, 2004
e) In case aggregate value of taxable service exceeds Rs 4 lakh, the first consecutive payments upto Rs 4 Lakh will be exempted. Subsequent payments will be subject to tax. Further, in the subsequent year, the benefit of exemption will not be available as the aggregate value of the preceding year will exceed Rs 4 Lakh
f) The exemption is not available for the services in respect of which the service receiver is liable to pay the service tax on the services availed by him, as in the case of Goods Transport Agency Service. Irrespective of the aggregate value of taxable service provided by a corporate service provider, if any freight has been paid, service tax has to be paid by the company.

14. Rate of Service Tax

Presently Rate of service tax is 12%, and education cess @ 2% and secondary and higher education cess @1% on service tax is also payable. Effective rate is 12.36%

13. List of disciplines of science

• Acoustical engineering
• Aquatic and environmental engineering
• Aerospace engineering
• Agricultural engineering
• Architectural engineering
• Audio engineering
• Automotive engineering (automotive systems engineering)
• Behavioral engineering
• Biological engineering
• Biomedical engineering
• Biomaterials engineering
• Bioresource engineering
• Ceramic engineering
• Chemical engineering
• Civil engineering
• Coastal engineering
• Combat engineering
• Communications system engineering
• Construction engineering
• Control engineering (control systems engineering)
• Ecological engineering
• Electrical engineering
• Electronics engineering (includes microelectronics engineering, microelectronics and semiconductor engineering)
• Electromechanical engineering
• Engineering science and mechanics
• Engineering physics (engineering science)
• Environmental engineering
• Computational finance (financial engineering)
• Fire protection engineering
• Food process engineering
• Forensic engineering
• Forest engineering
• Genetic engineering
• Geomatics engineering
• Geotechnical engineering
• Industrial engineering (includes production engineering)
• Information engineering
• Instrumentation engineering
• Integrated engineering
• Industrial engineering (includes manufacturing engineering)
• Landscape engineering
• Marine engineering
• Materials engineering (includes metallurgical engineering)
• Mechanical engineering
• Mechatronics
• Microsystems engineering
• Military engineering
• Minerals process engineering
• Mineral engineering
• Mining engineering
• Nanoengineering
• Neural engineering
• Nuclear engineering
• Optical engineering
• Ocean engineering
• Paper engineering
• Photovoltaics engineering
• Petroleum engineering
• Plastics engineering
• Process engineering
• Quality engineering (quality assurance engineering)
• Reliability engineering
• Safety engineering
• Security engineering
• Sewage engineering
• Structural engineering
• Systems engineering (systems design engineering)
• Traffic engineering
• Transportation engineering (transport engineering)
• Vacuum engineering
• Value engineering

12. Service tax credit

12.1
Consulting engineers avails many input services in the course of providing consulting services to their client. A few examples are Advertising Services, Banking and Other Financial Services, Business Support Services, Chartered Accountants Services, Courier Services, Facsimile Services, Telephone Services and a lot other services which are taxed. The Consulting engineers has to bear the incident if service tax charged on these input services.

The Cenvat Credit Rules, 2004 provides that Consulting engineers can take credit of the service tax paid on input services and setoff the same on payment of service tax on output service namely Consulting Engineers Service

12.2
in case Consulting engineers is providing services other than Consulting engineers which are not taxed and seperate accounts are not maintained for taxable service and exempted service, then he can avail Cenvat credit only up to 20% of his tax liability.

12.3
Similarly, a manufacturer or a service provider can take credit of the service tax paid on Consulting engineers services and adjust same against his excise duty/ service tax liability.

11. Some of the other services which are not within the mischief of consulting engineer service

11.1
Services in relation to research and development activity

In case of CCE v. MRF Ltd. (Chennai), it was held by the Tribunal that the services provided by the foreign company to the respondent were for its research and development activity with regard to automotive tyres, and were, therefore, in the nature of scientific and technical consultancy service and not the consulting engineer service.

‘Scientific and technical consultancy services’ has been introduced as a new service for purpose of levy of service tax with effect from 16-7-2001.

11.2
Annual maintenance contract services

In case of Roots Multiclean Ltd. v. CCE, the appellant, manufacturer of floor cleaning machines, used to offer warranty period of one year, beyond which they used to enter into Annual Maintenance Contracts (AMC) with their buyers for repair and maintenance of machines sold. The tribunal held that, ‘engineering consultancy service’ is an intangible service. But the service rendered by the appellants during the period of dispute was a tangible service, in as much as they were physically repairing or maintaining the machines, which could be hardly equated with intangible services such as advice, consultancy, etc. It would follow that the repair and maintenance of machines undertaken by the appellants under AMCs with their buyers beyond the warranty period were not covered by ‘Engineering Consultancy Service’.

The activity became taxable service only with effect from 1-7-2003 when separate entry was included.

11.3
Planning of building, preparation of land map, property valuation

In case of CCE v. Rabindra Dass, assessee, the tribunal has held that the functions performed by a civil engineer i.e. planning of building, preparation of land map, preparation of ground plan of factory, stability certificate, installed capacity assessment and property valuation fall within the purview of the term ‘consulting engineer’.

The above view has been upheld by the High Court of Madras in the matter of Shanmugavel v. CCE. Chennai 2001 (131) ELT 14 (Mad.) wherein it was held that valuers of plant and machinery being professionally qualified engineers, be regarded as ‘consulting engineers’ and services rendered by them are liable to service tax”.

11.4
Manpower supply services

In case of SPIC-SMO Ltd. v. CCE, the tribunal has held that the appellant was only supplying manpower in view of the surplus technical manpower which the appellant had therefore, the finding that the appellant was rendering consulting engineer service was not sustainable and no service tax was to be demanded.

The above service will now be covered by the Manpower recruitment or supply agency services with effect from 16-06-2005.

10. Valuation

10.1
The value of any taxable service is determined as per the provisions of the Service Tax (Determination of Value) Rules, 2006 [‘the Valuation Rules’].

10.2
As per Rule 3 of the Valuation Rules, the value of taxable service, where the consideration received is not wholly or partly consisting of money, is determined by the service provider in the following manner :-

(a) the value of such taxable service is equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b) where the value cannot be determined in accordance with clause (a), the service provider is required to determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service.

10.3
Further, as per Rule 5(1) of the Valuation Rules, where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs are includable in the value for the purpose of charging service tax on the said service.

10.4
However, as per Rule 5(2) of the Valuation Rules, the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, are excluded from the value of the taxable service if all the following conditions are satisfied,

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(iii) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorises the service provider to make payment on his behalf;

(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

10.3
At times, an engineering firm will be providing both engineering services and architectural services and a lump sum amount is charged for both the services. In Trade Notice No. 1/98-ST, dated 5-1-1998, it has been clarified that in such cases, service tax will have to be collected on the entire amount charged. However, if separate break-up is given in the bill for engineering services and architectural services, then service tax needs to be paid only on the charges for engineering services.