Draft Valuation Rules DATE 01/03/2006
Service Tax (Determination of Value) Rules, 2006 - feedback invited- reg
At present, valuation of taxable services are governed by section 67 of the Finance Act, 1994 which provides that the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided. The existing provision covers only situations where the consideration for the taxable service is received in money terms. There is no specific provision to determine taxable value where the consideration is wholly or partly not in money terms or where the consideration is in money terms but is not known explicitly.
2. In budget 2006, proposal has been made in the Finance Bill, 2006 to substitute the existing section 67 of the Finance Act, 1994 with a comprehensive provision and also specifically include provisions for determining taxable value where the consideration is wholly or partly not in money terms or where the consideration is in money terms but is not known explicitly and to notify rules for prescribing the manner of determination of taxable value
3. Draft Rules required to be issued this section is attached. Tax Research Unit, Department of Revenue, Ministry of Finance solicits the considered views/ /comments/suggestions on the above mentioned draft rules from all concerned. The same may be kindly sent to the following address, preferably by email, not later than 31/3/2006.
R. Sriram
Deputy Secretary (TRU)
Ministry of Finance, Department of Revenue
146 F, North Block
New Delhi
Email : tru.finmin@ gmail.com
F.No.334/6/2006-TRU
DRAFT NOTIFICATION No._____/2006-Service Tax
G.S.R. (E),____ In exercise of the powers conferred by sub-sections (1) and (2) of section 94 read with sub-section (4) of section 67 of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules, namely:-
1. Short title and commencement,____ (1) These rules may be called the
Service Tax (Determination of Value)Rules, 2006. (2) They shall come into force on the date of their final publication in the Official Gazette.
2. Definitions,____In these rules, unless the context otherwise requires,–(a) "Act" means the Finance Act, 1994 (32 of 1994);(b) "value" means the value referred to in section 67 of the Act;(c) words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act.
3. Determination of taxable value,____The value of any taxable service shall, except as otherwise provided by or under the Act, for the purposes of sub-section (1) of section 67 of the Act, be determined in accordance with these rules.
4. Taxable value where consideration is in money,____The value of any taxable service shall, if the service provided or to be provided is for a consideration in money, be the gross amount charged by the service provider for such service.
5. Taxable value where consideration is not wholly or partly in money,____ (1) Where the service provided or to be provided is for a consideration not wholly or partly consisting of money, the value for such service shall be the equivalent money value of the consideration received, or the sum total of the consideration received in money and the equivalent money value of the consideration received, other than in terms of money, as the case may be.
(2) The equivalent money value of the consideration received other than in terms of money referred to in sub-rule (1), shall be determined by the service provider subject to the condition that– (a) the equivalent money value of the consideration received, or as the case may be;
(b) the sum total of the consideration received in money and the equivalent money value of the consideration received, other than in terms of money, for the taxable service so determined by the service provider, shall not be less than(i) the value of similar services provided by the same service provider to any other person in the ordinary course of trade; or
(ii) cost of provision of such service provided or to be provided,
whichever is higher.
(3) Nothing contained in this rule shall be construed as restricting or calling into question the right of the Central Excise Officer to satisfy himself as to the accuracy of any information furnished, or document presented for valuation.
6. Taxable value where consideration is not ascertainable,____ If the service provided is for a consideration in money but such consideration is not ascertainable, the value of such service provided or to be provided shall be ascertained in accordance with the method of determination notified for that particular category of taxable services, by the Central Board of Excise and Customs in this regard.
7. Inclusion in or exclusion from taxable value of certain expenditure or costs,____ (1) Where certain expenditure or costs are incurred by the service provider in the course of providing any taxable service, all such expenditure or costs shall be treated as consideration for the taxable services provided or to be provided and shall be included in the value.
(2) Subject to the provisions of sub-rule (1), the expenditure or costs that a service provider incurs, as a pure agent of the client, shall be excluded from the value if such service provider fulfills the following conditions with respect to such expenditure or costs, namely:-(i) the service provider acts as an agent of the recipient of service when he makes payment to the third party for the goods or services procured;(ii) the recipient of service receives and uses the goods or services so procured by the service provider as an agent of the recipient of service;(iii) the recipient of service and not the service provider who is only an agent of the recipient of service , is responsible for making payment to the third party;(iv) the recipient of service authorises the service provider to make the payment on his behalf;(v) the recipient of service knows that the goods and services paid for by the service provider will be provided by a third party;(vi) the service provider’s payment on the service recipient’s behalf is indicated separately when he invoices the recipient of service;(vii) the service provider recovers only the actual amount he has paid to the third party; and(viii) the goods or services for which the service provider pays for are clearly additional to the services he provides to the recipient of service on his own account.
Explanation1,____For the purposes of sub- rule (2), “pure agent or an agent” is a person who– (a) enters into a contractual agreement with his client(recipient of service) to act as an agent of the client to incur expenditure or costs in the course of providing a taxable service;
(b) neither intends nor holds any title to the goods or services so provided as an agent of the client;
(c) never uses such goods or services provided; and
(d) receives the actual amount incurred to procure such goods or services.
Explanation2,____ For the purposes of this rule, it is clarified that the value of the taxable service provided is the total amount of consideration consisting of one or more components of the taxable service, received for such taxable service provided or to be provided and details of such components of the total consideration, whether or not indicated separately in the invoice, are not relevant for the purpose of determining the taxable value.
Illustration 1,____ X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in newspaper. Y billed X including charges for newspaper advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. X cannot contend that Y acted as agents on his behalf when obtaining newspaper advertisement even if the cost of newspaper advertisement is mentioned separately in the bill. Such services are in the nature of input services for the estate agent in order to enable or facilitate him to perform his services as an estate agent
Illustration 2,____ To provide a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., in the course of providing a taxable service and may indicate these items separately on the invoice to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procure the inputs or input service on his own account for providing the taxable service. Merely because such expenses are shown separately in an invoice do not mean that they are reimbursable expenditure.
Illustration 3,____ A contracts with B, an architect for building a house. During the course of providing the taxable service B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him effectively to perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. It is quite immaterial how the service provider computes the charges or how they break their invoice or bill down. Consideration for the service is what A pays B which is the taxable value for the purposes of levy of service tax.
Illustration 4,____ To provide a taxable service of rent-a-cab, company X provides chauffeurs for overseas visitors. The chauffeur is given a lump sum amount during the tour to cover his food and overnight accommodation and any other incidental expenses such as parking fees. At the end of the tour, he returned the balance of the amount with a statement of his expenses and the relevant bills. Company X charged these amounts from the recipients of service. In such a case, the cost incurred by the chauffeur and billed to the recipient of service constituted part of the consideration for the provision of services by the company
8. Cases in which the commission, costs, etc., will be included or excluded,____ (1) Subject to the provisions of section 67 of the Act, the value of the taxable services shall include
(i),____ the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;
(ii) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;
(iii) the amount of premium charged by the insurer from the policy holder;
(iv) the commission received by the air travel agent from the airline;
(v) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;
(vi) the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;
(vii) the commission or any amount received by the rail travel agent from the Railways or the customer;
(viii) the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and
(ix) the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.
(2) Subject to the provisions contained in sub-rule (1), the value of any taxable service, as the case may be, does not include–(i) initial deposit made by the subscriber at the time of application for telephone connection or pager or facsimile (FAX) or telegraph or telex or for leased circuit;(ii) the cost of unexposed photography film , unrecorded magnetic tape or such other storage devices, if any, sold to the client during the course of providing the service;(iii) the cost of parts or accessories, or consumable such as lubricants and coolants, if any, sold to the customer during the course of service or repair of motor cars, light motor vehicle or two wheeled motor vehicles;(iv) the airfare collected by air travel agent in respect of service provided by him;(v) the rail fare collected by air travel agent in respect of service provided by him;(vi) the cost of parts or other material, if any, sold to the customer during the course of providing maintenance or repair service;(vii) the cost of parts or other material, if any, sold to the customer during the course of providing erection, commissioning or installation services; and(viii) interest on loans.
9. Actual consideration to be the value of a taxable service provided from outside India,____ The value of any taxable service received under the provisions of section 66A of the Act, shall be taken to be such amount as is equal to the actual consideration charged for the services so provided or to be provided.
[F. No. Bx/x/2006-TRU]
(R.Sriram)
Deputy Secretary to the Government of India
Presented by eximkey.com