SERVICE TAX AND THE CHARTERED ACCOUNTANTS written in 2001
“Tax on the services rendered by a professional is quite different and distinct from the tax on the profession.”
“Service Tax is essentially paid on Service and not on the profession falling with the State power” —-
“If there is equality and uniformity within each group the law would not be discriminatory.” —–
“We accordingly direct the respondents that if the members of the petitioner associations comply with the requisite formalities prescribed by or under the statute pay the arrears of service tax on or before 22-4-2001 with interest as per the provisions of the act, the respondents shall not take any penal action.”
[All India Federation vs. Union of India, W.P.No. 469 of 97 decided by Bombay High Court on 27-12-2000]
With these observations the Bombay High Court has put its approval stamp on the levy of Service Tax on the practicing chartered accountants, which had come in force from 16-10-1998. The Gujarat High Court had also upheld the levy of Service Tax.
1. PRACTICING CHARTERED ACCOUNTANT:
In view of the decision of the Bombay High Court, the provisions of Finance Act 1998 will be applicable to all the practicing Chartered Accountants. The practicing Chartered Accountant has been defined as person who is member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act 1949. It also includes any concern engaged in rendering the services in the field of Chartered Accountancy. This means the Chartered Accountant serving with any company is not liable to pay Service Tax on the salary or compensation received by him. Even a Chartered Accountant working as a partner of the Chartered Accountant Firm will not be liable to pay Service Tax on the income received by him as a share of the profit of the Firm. The Chartered Accountant Firms will be liable to pay Service Tax on the amount of the fees received by the Firm for the professional work.
2. RATE OF TAX AND VALUATION OF TAXABLE SERVICE:
The Service Tax is payable at the rate of 5% of the amount received for the service given to the client by the Chartered Accountant in his professional capacity. When the
Chartered Accountant is doing his statutory functions and is charging the client for the professional work done then only the Service Tax will be payable. The liability to pay Service Tax starts from the very first bill. There is no exemption for first few receipts like income tax or sales tax. Since the Service Tax is payable on the services provided in the statutory professional capacity, it is advisable to keep separate bills and receipts for the charges made for statutory work and other work as well as reimbursement of the expenses. That will ensure the smooth process of verification of returns and assessment. It should be noted that the Service Tax is payable on the fees actually received and not on the fees charged. The fees received in convertible foreign exchange and not repatriated are also free from Service Tax. It is not clear whether the fees received for the work related to other than professional capacity, as a C.A. will fall under other taxable service like ‘Management consultant’.
Thus no Service Tax will be payable by the practicing Chartered Accountant on -
1. the fees received for the services rendered for the period before 16-10-1998;
2. the fees received after 16-10-1998 for the services rendered before 16-10-1998;
3. the fees received for the advice given in the field other than his professional [as a C.A.] capacity;
4. the fees received in foreign exchange and not repatriated;
5. amounts received as reimbursement of expenses;
6. services rendered free of charge or in purely honorary capacity;
The Service Tax can be recovered from the clients and can be shown separately in the bills raised on the clients. While charging the Service Tax in the bill it is not compulsory to quote the registration number given by the Excise Deptt but it is advisable to quote the same.
3. OBTAINING THE REGISTRATION:
The application for registration under Service Tax is to be made in form ST-1 to the respective Central Excise Authority having jurisdiction over the office of the Chartered Accountant. If the Chartered Accountant has more than one office, then at the option of the Chartered Accountant only one registration for the office from where the billing is done can be obtained. There is no turnover limit prescribed for registration as the liability to pay Service Tax starts from the very first bill itself. If the Chartered Accountant is also providing any other taxable service then only one registration is enough, but practically the Central Excise Officer insists for separate registration for different services. The registration
certificate is issued in form ST-2. The registration number
and the assessee code given by the Excise authorities are to be quoted in the returns and the challans for payment of Service Tax.
4. PAYMENT OF SERVICE TAX:
The Service Tax is to be paid to central Govt. Some specified banks are authorised for collection of Service Tax. The payment is to made by challan form TR-6 [yellow form]. They are in quadruplicate. The registration number, assessee code number and Bank code number has to be mentioned in the challan. The individuals and partnership firm have to pay Service Tax quarterly within 25 days from the end of the quarter. The companies, trusts and AOP have to pay the same every month within 25 days from the end of the month.
On the delayed payments the interest is payable at the rate of 1.5% per month from the due date of the payment till the date of payment. Where the tax is already paid, the interest for that delayed payment can be paid by a separate challan.
5. RETURNS UNDER SERVICE TAX:
The returns are to be filed in form ST-3 every six months within 25 days from the end of the half-year. In the returns the value of taxable service realized, the amount of Service Tax payable and paid has to be disclosed. The return has to accompany the third copy of the chalan for the quarters covered in the half yearly return. In case there is no receipt of professional fees or no Service Tax is payable, ‘NIL’ return is to be submitted. The assessee are advised to be very careful in payment of taxes correctly, because there is no provision for refund of Service Tax in the Finance Act providing levy and collection of Service Tax. The refund has to be claimed as per Central Excise Rules, which are very cumbersome.
The rate of interest is 1.5% for the period of delay from the due dates upto the date of payment of tax.
Since the Chartered Accountants have to pay Service Tax from 16-10-1998 and since the High Court has given the time upto 22-4-2001 for compliance, it would be advisable to pay tax in 10 separate challans for different quarters and file 5 separate returns for period from 16-10-1998 to 31-3-2001.
6. FURTHER EXTENSION OF TIME:
The Bombay High Court had directed the petitioner associations vide its judgment dated 22-2-2001, to pay the taxes with interest before 22-4-2001. Now the High Court has further extended this date to 31-5-2001.
Written by ntnirale on July 8th, 2009 with comments disabled.
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