Value of taxable service – Decision making

March 2, 2015

The value of taxable service is the gross amount received by the service provider for the taxable service provided or to be provided by him.

  • The valuation of taxable service is to be done with respect to the service provided or to be provided also.
  • For certain services, a specified percentage of abatement or reduction in value of taxable service is allowed from the gross amount collected for rendering the services, subject to certain conditions
    • That Cenvat Credit has not been availed by the service provider
    • And the cost of goods sold in the process of providing the subject service is not deducted in terms of Notification No. 12/2003-ST dated 20.6.2003.
  • Provide list of services under abatement

Cenvat Credit:

Cenvat credit is a mechanism in which the amount Cenvat /Service Tax paid on input is allowed to be deducted from the Output Cenvat/Service Tax Payable. The purpose and objective of Service Tax Credit scheme are to enable the person providing maintenance services to take credit for the Service Tax charged by the service provider and then pay only the net amount of Service Tax to the government. The Service Tax Credit scheme is thus intended to provide relief in the form of Service Tax credit where any taxable input service has been used for rendering of output service.

Cenvat credit is dealt with under the Cenvat Credit Rules, 2004 (Cenvat Rules). The Cenvat Rules apply to all taxable services, irrespective of the category of taxable services. Cenvat credit is applicable to a manufacturer who produces taxable goods and to a service provider who provides a taxable output service. A service provider is eligible to claim Cenvat credit on the duty paid on inputs and capital goods, and service tax paid on input services used for providing output services. The Cenvat credit cannot be claimed in cases where the service is not a taxable service, or is exempted. It, therefore, follows, if someone is an availing general exemption, Credit is not available.

Illustration:

The Maintenance service provider raises a bill of Rs.1000. At the same time, he utilizes the services of Consulting Engineer in relation to the maintenance service, the consulting engineer charges in his bill Service Tax of Rs.750. Now the maintenance service provider can take this Rs.750 of Service Tax paid by him as credit in his account and pay to the Government only the net amount of Rs.250 only in cash. In other words, the consulting engineering service becomes the input service for the maintenance service provider. Since the maintenance service provider, which is an output service, the credit is allowed to be taken on the input service by the output service, uses the input service provided.

Service Tax inclusive of Service Tax:

The service provided is inclusive of Service Tax payable, the value of such taxable service shall be such amount as with the addition of tax payable is equivalent to the gross amount charged.

Illustration:

If the service provider charges Rs.225000 as the consideration for rendering a particular service inclusive of service tax of 12% and Education Cess of 3%, then the value of service tax would be 225000*100/112.36 = 200249

Related topics : Introduction to service tax