Section 66 of the Finance Act, 1994 provide for a charge of service tax @ 10% (now proposed at 12% in the Finance Bill, 2006) on the value of taxable services defined u/s 65(105). As per section 67 the valuation of taxable services for charging service tax shall be the gross total amount received by the service provider. Section 67 thus provide for the manner of determination of value of taxable services. Presently section 67 defines the value of any taxable service to mean gross amount charged by the service provider for such service provided or to be provided by him. Payment of service tax to the government is regulated by Rule 6 of Service Tax Rules, 1994 read with section 68 by the 5th of the month immediately following the calendar month in which the payments are received.
The word ‘charged’ and 'received' are to be read as one for the reason that the liability to pay service tax arise on receipt basis. Therefore section 67 comes into effect as soon as a payment is received by the service provider. When a payment can be considered as received may be question worth answering.
Section 67 has been substituted by a new section in the Finance Bill, 2006 to answer such question in the following words:
"67. (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,-
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
(2) Where the gross amount charged by the service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
Explanation, - For the purpose of this section,-
(a) "Consideration" includes any amount that is payable for the taxable services provided or to be provided;
(b) " Money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travelers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;
(c) "Gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment."
Thus the new section aims to rope in amounts that are charged or recovered or realized in any of the following modes:
a) Credit card payments;
b) Deduction from account;
c) Receipt of credit notes;
d) Issue of debit notes;
e) By carrying out book adjustments.
In other words the aforesaid cases shall be considered as resulting in deemed payments. An Explanation is inserted in the new section for this purpose to define the term 'gross amount charged' in the following manner:
"'Gross amount charged' includes payment by cheque, credit card, deduction from account and