Initially, Service Tax was chargeable on Realisation basis i.e. receipt of the consideration for the services provided/to be provided (in case of advance receipts). With effect from 1 April 2011, the Point of Taxation Rule was introduced for effective collection of Service Tax.
Point of Taxation refers to the point of time when a service shall be deemed as provided.
According to this Rule, Point of Taxation shall be the
Date of Issue of Invoice, or
Date of receipt of Payment, whichever is earlier
The liability of paying tax to the Government is on the service provider i.e. the person providing service, and in some cases, on the service receiver.
Example: Royal Agency provided advertising services of Rs. 1,00,000 to SysImage. On the service amount of Rs.1,00,000, Royal Agency is liable to pay the tax of Rs. 12,360 @ 12.36% (12% of Service Tax, 2% of Education Cess, 1% of Secondary Education Cess).
Service tax is applicable on taxable services
Provided and taxable in the hands of service provider
Received and taxable in the hands of service receiver : Generally it is the service provider who is liable to collect Service Tax from his customer/client and pay the same to the Government. But Section 68(2) empowers the Government to notify the services with regard to which the service receiver would be held liable to pay Service Tax to the Government. For the services mentioned below, the service receiver is liable to pay Service Tax (as per Notification 36/2004 ST dated 31.12.2004 as amended from time to time)
Goods Transport Agency service
Business auxiliary service of distribution of mutual fund by a mutual fund distributor or agent
Sponsorship service provided to any body corporate/firm
Taxable services received by any person in India from abroad
Insurance auxiliary service by an insurance agent
With effect from 1 July, 2012, Negative List-based System of Tax on Services was introduced-
Negative List is a list of services which are not subject to Service Tax
All services other than those featuring in the Negative List fall under the purview of Taxable Services
The definition of Taxable Service is different for each class of services, e.g. in case of Stock Broker Agency, any service provided to a investor by buying or selling securities listed on a recognised Stock Exchange will be a Taxable Service.