Rule

Service Tax (Determination of Value) Rules, 2006

Document type: Rule
Dated: 01 May 2012
Category: Rules

Determination of Value

Service Tax (Determination of Value)Rules, 2006

Determination of Value

NTF. NO. 12/2006-ST, DT. 19/04/2006 - 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) Amendment Rules, 2011.

(2) Save as otherwise provided under these rules, they shall come into force on the 1st day of April, 2011

(Rule 1 has been amended vide NTF. NO. 02/2011-ST, DT. 01/03/2011)

[OLD-
(1) These rules may be called the Service Tax (Determination of Value) Amendment Rules, 2010.

(2) They shall come into force on the date of their publication in the Official Gazette.]

(Rule 1 has been amended vide NTF. NO. 15/2010-ST, DT. 27/02/2010)

[OLD-
(1) These rules may be called the Service Tax (Determination of Value) (Amendment) Rules, 2007.

(2) They shall come into force with effect from the 1st day of June, 2007.]

(Rule 1 has been amended vide NTF. NO. 29/2007-ST, DT. 22/05/2007)

[OLD-
(1) These rules may be called the Service Tax Determination of Value (Amendment) Rules, 2006.

(2) They shall come into force on the date of their publication in the Official Gazette. ]

(Above Rule 1 has been amened vide NTF. NO. 24/2006-ST, DT. 27/06/2006)

[OLD-
(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,–

“Act” means the Finance Act, 1994 (32 of 1994);

“section” means the section of the Act;

“value” shall have the meaning assigned to it in section 67;

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.

2A. Determination of value of services involved in the execution of a works contract:

(1) Subject to the provisions of section 67, the value of taxable service in relation to services involved in the execution of a works contract (hereinafter referred to as works contract service), referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act, shall be determined by the service provider in the following manner:-

(i) Value of works contract service determined 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 rule,-

(ii) Where Value Added Tax or sales tax, as the case may be, 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 or sales tax, as the case may be, 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 clause (i).

(Rule 2A has been inserted vide NTF. NO. 29/2007-ST, DT. 22/05/2007)

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) reference rate for that currency for that day, 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;

(Above Rule 2B has been inserted vide NTF. NO. 02/2011-ST, DT. 01/03/2011)

3. Manner of determination of value.– Subject to the provisions of section 67, the value of taxable service, where the consideration received is not wholly or partly consisting of money, 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.

Explanation.- For the removal of doubts, it is hereby clarified that for the services specified in subclause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, 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.

(Above Explanation has been inserted vide NTF. NO. 02/2011-ST, DT. 01/03/2011 wef 01/03/2011)

(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:-

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;

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;

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

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

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;

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;

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

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.

Explanation 1.–For the purposes of sub- rule (2), “pure agent” means a person who–

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;

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;

does not use such goods or services so procured; and

receives only the actual amount incurred to procure such goods or services.

Explanation 2.– 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.

Illustration 1.– 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

Illustration 2.– 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.

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 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.

Illustration 4.– 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‚–

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;

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;

the amount of premium charged by the insurer from the policy holder;

the commission received by the air travel agent from the airline;

the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

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;

the commission or any amount received by the rail travel agent from the Railways or the customer;

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

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–

[OLD-

]

NTF. NO. 24/2006-ST, DT. 27/06/2006

NTF. NO. 15/2010-ST, DT. 27/02/2010

7. Actual consideration to be the value of taxable service provided from outside India.–

(1) The value of taxable service received under the provisions of section 66A, shall be such amount as is equal to the actual consideration charged for the services provided or to be provided.

(2) Notwithstanding anything contained in sub-rule (1), the value of taxable services specified in clause (ii) of rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, as are partly performed in India, shall be the total consideration paid by the recipient for such services including the value of service partly performed outside India.

Draft Valuation Rules DATE 01/03/2006 -

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.

Service Tax (Determination of Value) Rules, 2006

Related Content

In This Category