Amount Received for the Services Rendered before enanctment of F Bill, 2006 is taxable at old rate

Amount Received for the Services Rendered before enanctment of Finance Act, 2006 is taxable at old rate as was applicble at the time on which such services was provided

Whenever the rate of service tax is increased, the relevant and important question which arises is that what will happen for the services provided before the date on which rate has been enhanced and amount received thereafter.

In accordance with the provisions of Section 66 of the Finance Act, 1994, service tax is levied on the services provided or to be provided, but actual payment to the exchequers (collection) is deferred till amount is realized in accordance with Rule 6 of the Service Tax Rules, 1994.

Therefore, service tax on the services which have been provided before enactment of Finance Bill, 2006 shall be chargeable at the rate applicable on the date of provision of such services.

Statutory Provisions and Clarification

Section 66 - Chargeability of Service Tax

There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. of the value of the taxable services referred to in sub-clauses (a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (1), (m), (n), (o), (p), (q), (r) (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), ( zzy), ( zzz), ( zzza), ( zzzb), ( zzzc), ( zzzd), ( zzze), ( zzzf), ( zzzg), (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv) and (zzzw) of clauses (105) of section 65 and collected in such manner as may be prescribed.

Section 65(105) - Taxable Services

'taxable service' means any Service provided or to be provided,

(a)        ……

to

(zzzw)  …….

Rule 6(1) - Payment of Service Tax

(1) The service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable services:

Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the quarter in which the payments are received, towards the value of taxable services:

Provided further that notwithstanding the time of receipt of payment towards the value of services, no service tax shall be payable for the part or whole of the value of services, which is attributable to services provided during the period when such services were not taxable:

Provided also that the service tax on the value of taxable services received during the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.

Circular No. 56/5/2003 - ST dated 25-4-2003 - CBEC

A further question raised is relating to payments receivable in foreign exchange for the 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%.