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Service Tax (Determination of Value) Rules, 2006.
NOTIFICATION NO
No.12/2006-Service Tax, Dated: April 19, 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) 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.
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.
(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.
Explanation1.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.
Explanation2. 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
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;
the airfare collected by air travel agent in respect
of service provided by him;
the rail fare collected by air travel agent in respect
of service provided by him;and
interest on loans.
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.
F. No. B1/4/2006-TRU
(R.Sriram)
Deputy Secretary to the Government of India
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