Trade ChakraIndia Trade ChakraIndia Business Trade Chakra
Trade Chakra

The article provides detailed information on the constitutional provision for service tax in India, the controlling authority, the various services under the purview of service tax and the administrative mechanism in India.

Service Tax in India

Constitutional Provision
Article 265 of the Constitution stresses that no service tax in India shall be charged or collected other than by the concerned authority. Schedule VII divides this subject into three different sections
  • Union list (only Central government has power of legislation).
  • State list (only State government has power of legislation).
  • Concurrent list (both central and state government can pass legislation).
An amendment (95th amendment) in 2003 was made to enable the Central government to decide the method of charging service tax and the means of collection of proceeds by the central government and state government. Subsequently a new article 268 A has been introduced for levy of service tax by Central government.

Creation Of DGST
The department of Director General (Service Tax) was created in 1997 to handle the huge workload resulting due to the increasing importance of service tax. The Director General (Service Tax) is in charge of the department and his role and authority are:
  • Ensure the formation of efficient establishment and infrastructure under various central excise commissionerate to monitor the collection and assessment of service tax.
  • To evaluate the workforce needed for proper and effective execution of service tax.
  • To create a data base for the collection of service tax and to observe the revenue collection from service tax.
  • To look into the proper functioning of service tax cells and perform any other function as would be required from time to time.
The modus operandi with respect to service tax came into existence from 1st July 1994.Its applicability is to the entire nation other than Jammu and Kashmir. The following services were brought under the tax net in 1994-95:
  • Telephone
  • Stockbroker
  • General Insurance.
The Finance Act (2) brought in addition the following services
  • Advertising agencies.
  • Courier agencies.
  • Radio pager services.
The Finance act of 1997 and 1998 brought into the taxable bracket other service providers like
  • Consulting engineers.
  • Custom house agents.
  • Steamer agents.
  • Clearing & forwarding agents
  • Air travel agents
  • Tour operators 
  • Rent-a-Cab Operators
  • Manpower recruitment Agency
  • Mandap Keepers
In 1998-99 twelve new services were introduced
  • Architects.
  • Interior Decorators.
  • Management Consultants.
  • Practicing Chartered Accountants.
  • Practicing Company Secretaries.
  • Practicing Cost Accountants.
  • Real Estates Agents/Consultants.
  • Credit Rating Agencies.
  • Private Security Agencies.
  • Market Research Agencies
  • Underwriters Agencies
In Budget 2002-2003 the following services were included in the tax net
  • Auxiliary services to life insurance
  • Cargo handling.
  • Storage and warehousing services.
  • Event Management.
  • Cable operators.
  • Beauty Parlors.
  • Health and fitness centers.
  • Fashion designer
  • Rail travel agents.
  • Dry cleaning services.
In 2005-2006 the following services were brought under the tax net
  • Intellectual Property Services
  • Opinion Poll Services
  • TV or Radio Programme Services
  • Survey and Exploration of Minerals Services
  • Travel Agent’s Services other than Rail and Air travel agents
  • Forward Contract Services
  • Transport of goods through pipe line or other conduit Services.
  • Site preparation & clearance Services
  • Dredging Services
  • Survey & Mapmaking Services
  • Cleaning Services
  • Membership of Clubs & Associations
  • Packaging Services
  • Mailing list compilation & Mailing Services
  • Construction Services in relation to Residential Complexes
Administrative Mechanism
Service Tax is controlled by the Central Excise Commissionerate who reports to the Central Board Of Excise and Customs, Department of Revenue, Ministry Of Finance. The distinctive feature of service tax is its dependence on collection of tax, mainly through voluntary compliance.

To ensure the assessees and the general public have confidence in the service tax structure the following steps have been taken.
  • Under section 67 of the Finance Act 1994, service tax is levied on the cumulative amount charged by the service provider on the receiver. But according to Rule 6 of Service Tax Rules 1994, the tax is allowed to be paid on the value received.
  • Assessees who are corporate in nature have the freedom to pay tax on the value of taxable service given by them for a month by the 25th of the next month to allow them to finalize the accounts.
  • The process of assessment has been simplified.
  • The CENVAT Credit rule 2004 brought in by the Finance act 2004 has replaced the Service Tax Credit Rules 2002.

Recent Additions