Service Tax (Determination of Value) Rules, 2006

PREAMBLE

[1]In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 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 publication in the Official Gazette.

2. Definitions.?-

In these rules, unless the context otherwise requires,?

(i)       ?[2]Act? means the Finance Act, 1994 (32 of 1994);

(ii)      ?section? means the section of the Act;

(iii)    ?value? shall have the meaning assigned to it in section 67;

(iv)    words and expressions used in these rules and not defined but defined in the Act shall have the meaning respectively assigned to them in the Act.

[3][2A. Determination of value of services involved in the execution of a works contract.--

Subject to the provisions of section 67, the value of taxable service involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in clause (8) of section 66E of the Act, shall be determined by the service provider in the following manner, namely:-

(i)       Value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.

Explanation.- For the purposes of this clause,-

(ii)      gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract;

(iii)    value of works contract service shall include, -

(iv)    labour charges for execution of the works;

(v)     amount paid to a sub-contractor for labour and services;

(vi)    charges for planning, designing and architect's fees;

(vii)   charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(viii)  cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(ix)    cost of establishment of the contractor relatable to supply of labour and services;

(x)     other similar expenses relatable to supply of labour and services; and

(xi)    profit earned by the service provider relatable to supply of labour and services;

(xii)   Where value added tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax, shall be taken as the value of transfer of property in goods involved in the execution of the said works contract for determining the value of works contract service under this clause.

(xiii)  Where the value has not been determined under clause (i), the person liable to pay tax on the taxable service involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(xiv)  in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract:

Provided that where the gross amount charged includes the value of the land, in respect of the service provided by way of clause (8) of section 66E of the Act, service tax shall be payable on twenty five per cent. of the total amount including such gross amount;

(xv)   in case of other works contracts including completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings not covered under sub-clause (A), service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-

(xvi)  "original works" means-

(xvii) all new constructions;

(xviii)   all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(xix)  "total amount" means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract:

Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance;

Explanation 2.--For the removal of doubts, it is clarified that duty of excise paid on any goods, property which is transferred (whether as goods or in some other form) in the execution of works contract, shall not be availed as CENVAT credit.]

[4][2B. Determination of value of service in relation to money changing.--

Subject to the provisions of section 67, the value of taxable service provided for the services referred to in sub-clause (zm) and (zzk) of clause (105) of section 65 of the Act, so far as it pertains to purchase or sale of foreign currency, including money changing, shall be determined by the service provider in the following manner:-

For a currency, when exchanged from, or to, Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) 6[reference rate for that currency at that time], multiplied by the total units of currency.

Example I: US$100 are sold by a customer at the rate of Rupees 45 per US$.

RBI reference rate for US$ is Rupees 45.50 for that day.

The taxable value shall be Rupees 500.

Example II: INR70000 is changed into Great Britain Pound (GBP) and the exchange rate offered is Rupees 70, thereby giving GBP 1000.

RBI reference rate for that day for GBP is Rupees 69.

The taxable value shall be Rupees 1000.

Provided that in case where the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money:

Provided further that in case where neither of the currencies exchanged is Indian Rupee, the value shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day at the reference rate provided by RBI;]

[5][2C. Determination of value of taxable service involved in supply of food and drinks in a restaurant or as outdoor catering.--

Subject to the provisions of section 67, the value of taxable service involved in the supply of food or drinks for consumption either in a restaurant or as outdoor catering service, either by itself or along with other services, shall be the percentage of total amount, specified in column 3 against the respective description of services mentioned in the following Table:-

Table

Explanation 1.- For the purposes of this rule, "total amount" means the sum total of the gross amount and the value of all goods, excluding the value added tax, if any, levied on goods or services supplied free of cost for use in or in relation to the supply of food or any other article of human consumption or any drink, under the same contract or any other contract:

Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance.

Explanation 2.- For the removal of doubts, it is clarified that any goods classifiable under chapter 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) meant for human consumption shall not be considered as "inputs" for the service portion in an activity wherein goods, being food or any other article of human consumption or drink is supplied in any manner as part of the activity.]

3. Manner of determination of value.?-

Subject to the provisions of section 67, the value of taxable service, [6][where such value is not ascertainable], shall be determined by the service provider in the following manner:?

(a)     the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;

(b)     where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service.

4. Rejection of value.?-

(1)     Nothing contained in rule 3 shall be construed as restricting or calling into question the power of the Central Excise Officer to satisfy himself as to the accuracy of any information furnished or document presented for valuation.

(2)     Where the Central Excise Officer is satisfied that the value so determined by the service provider is not in accordance with the provisions of the Act or these rules, he shall issue a notice to such service provider to show cause why the value of such taxable service for the purpose of charging service tax should not be fixed at the amount specified in the notice.

(3)     The Central Excise Officer shall, after providing reasonable opportunity of being heard, determine the value of such taxable service for the purpose of charging service tax in accordance with the provisions of the Act and these rules.

5. Inclusion in or exclusion from value of certain expenditure or costs.?-

(1)     Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.  

[7][Explanation.- For the removal of doubts, it is hereby clarified that for the [8][telecommunication service], the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority.]

(2)     Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(3)      the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(4)     the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(5)     the recipient of service is liable to make payment to the third party;

(6)     the recipient of service authorises the service provider to make payment on his behalf;

(7)     the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

(8)     the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(9)     The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(10)   the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

(11)   For the purposes of sub- rule (2), ?pure agent? means a person who?

(12)    Enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

(13)   Neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

(14)   Does not use such goods or services so procured; and

(15)   Receives only the actual amount incurred to procure such goods or services.

(16)   ?For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

(17)   ?X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television 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. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent

(18)   In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.

(19)   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 to effectively 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. Value of the taxable service for charging service tax is what A pays to B.

(20)   [9] Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X.

6. Cases in which the commission, costs, etc., will be included or excluded.?-

(1)     Subject to the provisions of section 67, the value of the taxable services shall include??

(i)       the 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 [10][in any manner;]

(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 [11][insurance agent; and].

(x)     [12][the amount realised as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service.]

(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 airfare collected by air travel agent in respect of service provided by him;

(iii)    the rail fare collected by 1[rail travel agent] in respect of service provided by him; and

(iv)    [13][interest on,-

(v)     deposits; and

(vi)    delayed payment of any consideration for the provision of services or sale of goods;] 

(vii)   [14][the taxes levied by any Government on any passenger traveling by air, if shown separately on the ticket, or the invoice for such ticket, issued [15][to the passengers; and]]

(viii)  [16][accidental damages due to unforeseen actions not relatable to the provision of service.]

7. [17][***]