SERVICE TAX-2

Classification of service

Service to be classified

The classification of services will be determined according to terms specified in various sub-clauses of section 65(105). [section 65A(1)].

Rules for classification of service

If prima facie, a taxable service is classifiable under two or more sub-clauses of section 65(105), classification shall be effected as per following rules –

(a) Specific description to be preferred over a general description [section 65(2)(a)]

(b) Classification should be as per essential character in case of composite services [section 65(2)(b)]

(c) Service which appears earlier in list of section 65(105), if service cannot be classified on above basis [section 65(2)(c)]

Exception in case of port and airport services

Exception is made in case of port services and airport services, where, if service is rendered wholly in port or airport, the service will be classified as port/airport service irrespective of its classification as per section 65A,

Service should be predominantly taxable

Service should be predominantly a taxable service. A composite contract consisting various services cannot be vivisected.

Composite contract consisting of goods and services can be vivisected

An indivisible/composite contract of goods and services can be vivisected and service part of it subjected to service tax.

New service head means service was not earlier taxable

Introduction of new service head means the service was not taxable earlier.

Service excluded from one head

Service specifically excluded from one head cannot be classified under other head.

Cenvat Credit

Credit of tax/duty paid on input goods, input services and capital goods

Service provider can avail Cenvat credit of service tax paid on input services and excise duty paid on inputs and capital goods. The credit can be utilised for payment of service tax on output services.

Any service in relation to business is input service

Definition of input service is wide. Any service in relation to business is‘input service’.

Duty paying document for availing Cenvat credit

Credit can be availed on basis of proper and complete specified original duty paying documents.

Cenvat credit when taxable as well as exempted services provided

If assessee is providing both taxable and exempt services and if input services are common, Cenvat credit can either be taken on proportionate basis or 6% ‘amount’ is required to be paid on value of exempted services.

Disclaimer: In this note, we have attempted to summarise some of the significant aspects to be kept in mind by readers to ensure compliance of tax laws and regulations. Readers should ensure to verify specific provisions as applicable to each case before taking any business decisions. It would be pertinent to note that some changes are being made to the tax laws and rules and regulations on a continuous basis by way of notifications, clarifications etc issued by the department based on their practical experience in implementing the legislation.

It may be noted that nothing contained in this note should be regarded as our opinion.  Professional advice should be sought for applicability of legal provisions based on specific facts. Though reasonable efforts have been taken to avoid errors or omissions in this note we are not responsible for any liability arising to readers directly or indirectly due to any mis-statements or error contained in this note. It must be noted that the views expressed in the note are based on our understanding of the law and regulations as published by the Government authorities and we may or may not agree or subscribe to such views. This blog, between contributor and readers, shall not create any attorney-client relationship.