Service Tax Notifications dated 19 April 2006

The effective service tax rate of 12.24% is applicable from 18th April 2006, since that is the day on which the Finance Bill 2006 was assented to by the Hon. President.

A gist of the slew of service tax notifications issued today (though these are dated 19th April 2006) is here. All these notifications are effective from 19th April, 2006.

  1. The rate of interest for delayed service tax payment is 13% p.a. [Notification No. 8/2006]
  2. Service tax to be payable, even if any taxable service is provided from any other country, but is received in India [Notification No. 9/2006]. The clause, prior to this amendment, did not specify the place of providing or receiving the taxable service. It refered to the person providing the service.
  3. Notification No. 10/2006 amends the definition of ‘Person Liable for Paying Service Tax’ in the Service Tax Rules. The receipient of a taxable service which is received in India from any person from any other country, irrespective of from where the service is provided. The earlier definition made the receipent liable to pay service tax only if the provider was a non-resident or from outside India and did not have any office in India. This notification also removes the valuation methods for computing the service tax payable by clearing and forwarding agents and insurance agents.
  4. A new set of Rules (yes, yet another set of rules) called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are notified vide Notification No. 11/2006. Under these rules, input, input service, output service are defined to have the same meaning as in the CENVAT Credit Rules, 2004. The list of taxable services provided from outside India and received in India is mentioned therein; and includes some services in relation to immovable property situated in India, and some other services. There are a few exceptions also specified. These rules require the receipent of the services to register and pay service tax. It is clarified that the taxable services provided from outside India and received in India shall not be treated as output services for availing credit of excise duty / service tax paid on any input / input service. Note that where a service is provided partly outside India and partly in India, will be treated as a service provided in india.
  5. And yet more more set of rules … this time they are to be known as Service Tax (Determination of Value) Rules, 2006. These rules specify the method to value taxable services where the consideration is not wholly / partly received in money, i.e. by valuing the service at an equivalent gross amount charged by the service provided for similar services in the ordinary course of business; failing which the service provider is to determine the equivalent money value of such consideration which cannot be less than the cost of provision of the service. These rules also specify that the authority and powers of the Central Excise Officer to reject the valuation, and the procedure for the same. These rules, along with illustrations and examples, clarifies the inclusion and exclusion of certain costs from the value of service provided. [Notification No. 12/2006].
  6. Notification No. 13/2006 amends the Export of Service Rules, 2005. This amendment specifies the what is export of taxable service and clarifies that any service that is partly performed outside India will be deemed to be performed outside India. The provision of any service shall be treated as export of service when the service is delivered outside India and used outside India; and the payment is received by the service provider in convertible foreign exchange.
  7. And finally, Notification No. 14/2006 rescinds two earlier notifications; namely, notification no 22/2005 [service provided to an individual by a service provider, where the services are received and consumed outside India, not in the course business] and notification no 25/2005 [specified services provided by a non-resident person outside India and consumed outside India, in the course of sailing of a ship].

Related Links: Service Tax Website, Notifications Issued in 2006, CENVAT Credit Rules 2004

Online Applications to DGFT

The Directorate General of Foreign Trade (DGFT) has vide Policy Circular No. 48 (RE-2005)/2004-2009 dated 10th Febraury 2006 has made the system for remitting licence fee through Electronic Fund Transfer (EFT) optional till 31st March 2006.

Exporter can remit the licence fees either through EFT payment gateway on the DGFT Website ( ) or submit the licence fees through a Treasure Challan / Demand Draft.

It is also clarified that mandatory electronic submission with digital signatures is being continued for the following categories of applications: Advance Licence (excluding Para 4.7 and DFRC applications), Advance Licence for Annual Requirement, EPCG Licence and DEPB Licence (for EDI shipping bills). Applications with digital signatures and EFT payment will be eligible for a 50% fee concession, while applications with only digital signatures will be eligible for a 25% fee concession (and licence fees being paid through Treasury Challan / Demand Draft).

The earlier system of filing ECOM applications on the DGFT website for manual shipping bills from notified EDI ports is re-introduced. Hence, no manual DEPB applications will be allowed. Similarly, for DEPB claims based on manual DEPB shipping bills from non-EDI ports, only ECOM applications on DGFT website will be allowed; and no manual DEPB appplications will be allowed. Thus, an exporter will have to submit an ECOM application on the DGFT website with a digital signature and has the option to pay the licence fee either through EFT or Treasury Challan / Demand Draft. (More details of the documents and procedures is specified in the notification).

This is effective from 1st April, 2006. Trade and industry has been requested to have all necessary formalities for operationalising this completed before that.

Quick Links:
Policy Circular No. 48(RE-2005)/2004-2009, Policy Circular No. 44 (RE-2005)/2004-2009, Policy Circular No.   28  (RE-2005)/2004-2009, Policy Circular No.   21  (RE-2005)/2004-2009.