Introduction: In the present era of globalization and economical growth of India, Service Sector has grown tremendously and is still growing rapidly. Share of service sector in India’s GDP accounts for more than 50%. Liberalized economic & taxation policies of government have brought in tremendous growth in export of services from India. To make export of services globally competitive, Indian Government has ensured not to impose any indirect tax on export of services; also provided for exemptions from Income Tax in many cases. 

These export promotional incentives in the scheme of taxation may result in a misconception among many exporters of taxable services that they are exempt from complying with various taxation laws e.g. Service Tax Laws in particular. In the following paragraph, the author has restricted his discussion in relation to compliance with Service Tax Laws vis-à-vis Exporters of Taxable Services. 

There are many procedural requirements in relation to Service Tax Compliance, but this paper deals with three procedural requirements i.e. getting Registration under Service Tax Provisions, Payment of Service Tax in the prescribed Time and Filing of periodical Return in the prescribed manner.

Are Exporters of Taxable Services liable to get Service Tax Registration?

Many exporters of taxable services believe that they are not liable to pay any service tax on Service Receipts; hence they are also not liable to comply with Service Tax Laws, which is not the case. Registration Requirements under the Service Tax is governed by Section 69 of the Finance Act, 1994 (hereinafter referred to as ‘Act’). As per Section 69 (1) of the Act, every person liable to pay service tax must make an application for registration to the designated superintendent of Central Excise in the prescribed manner, time and form. Further under section 69(2), inserted by the Finance Act, 2005 with effect from 13.05.2005, the Central Government has been empowered to specify other persons who shall be liable to take registration in the prescribed manner. Under this provision Central Government have notified vide Notification No. 26/2005, ST Dated 07.06.2005 w.e.f. 16.06.2005:

1. An Input Service Distributor
2. Any provider of taxable service whose aggregate value of taxable service in a financial year exceeds Rs. 3 Lacs. (Now proposed to increase to Rs. 7 Lacs in the Union Budget 2007)

In nutshell, any service provider who falls in any of the following categories of person, is under an statutory obligation to take Service Tax Registration:

1. Every person liable to pay service tax.
2. An Input Service Distributor
3. Every provider of taxable service whose aggregate value of taxable service in a financial year exceeds Rs. 3 Lacs. [Rs. 7 Lacs, proposed in the Budget 2007)

Further, Exporter of Taxable Services is given an option vide Rule 4 of Export of Service Rules, 2005 to export Taxable Services without payment of service tax subject to the conditions mentioned therein. Hence he is not liable to pay any service tax if he avails the option and satisfies the stated conditions. In this manner he goes outside the purview of first two categories of persons as mentioned above, still he is liable to take service tax registration if he falls in third categories of persons i.e his aggregate value of taxable services exceeds Rs. 3 Lacs or Rs. 7 Lacs as the case may be.

Conclusion: A service provider who is engaged in the export of taxable services must take Service Tax Registration if his aggregate value of taxable services exceeds Rs. 3 Lacs (or Rs. 7 Lacs as the case may be) in a financial year, irrespective of the fact that he is not liable to pay any service tax.

1. The incubatee should be located within the premises of incubator.
2. Total business turnover of incubatee is less than Rs.50 Lakhs during the previous financial year.
3. Exemption allowed to incubatee only for a period of 3 years (computed from the date of signing the agreement with incubator).

Exporters of Taxable Service are provided with two options either pay service tax and then claim the rebate under rule 5 of the Export of Services Rules, 2005 or export the services without payment of service tax under rule 4 of the said Rules. If option under Rule 4 is opted, Payment of Service tax on output services is not required and refund of accumulated CENVAT (i.e. accumulated balance of excise duty on inputs and service tax on Input Services, which are used in providing exported taxable services) is allowed under Rule 5 of CENVAT Credit Rule, 2004. On the other hand if option under rule 5 is opted, payment of service tax on output services is required which may be effected either by utilizing CENVAT Credit or in cash as the case may be, and exporter shall be required to claim refund of Service tax paid on exported services as well as any unutilized amount of CENVAT Credit under Notification No. 11 & 12/2005-ST, dated 19.04.2005

ection 70 of the Act makes it mandatory for persons liable to pay service tax as well as those who are notified under section 69(2) i.e Input Service Distributor and every provider of taxable service whose aggregate value of taxable service in a financial year exceeds the prescribed limit, to submit periodical returns in the prescribed manner. q

This AS is applicable in its entirety to Level I enterprises. In case of other than Level I enterprises having 50 or more average number of persons employed during the year, the provisions relating to:

1. recognition and measurement of short term accumulating compensated absences in respect of which employees are not entitled to cash payment for unused leave at the time of leaving service,
2. discounting the amount payable after twelve months of balance sheet as regards defined contribution plans and termination benefits, and
3. recognition, measurement and disclosure principles in respect of defined benefit plans and other long term employee benefit plan are not applicable

If average number of persons employed during the year is less than 50, then such enterprise can determine and provide the liability and expense as regards defined benefit plans and long term employee benefit by assuming that such benefits are payable to all employees at the end of the accounting year and therefore the recognition, measurement and disclosure principles as laid down in this AS in respect of defined benefit plan and long term employee benefits will not apply to such enterprises.

The accounting treatment of employee benefits depends upon their types as to whether they are short-term benefits, post-employment benefits or other long term benefits.

Accumulated compensated absences should be recognised when employee render service that increases their entitlement to future compensated absences. Non-accumulating compensated absences should be recognised when an employee is actually absent. Profit sharing and bonus plans falling due within 12 months should be recognised when there is a present obligation and a reliable estimate of the obligation can be made.

Defined Contribution plans: In case of defined contribution plans neither actuarial assumptions are required nor discounting is required unless contribution falls due after 12 months. Hence such contribution is recognised as expense.

Defined Benefit plans: The present value of defined benefit obligation less unrecognised past service cost less fair value of plan assets, out of which obligations are to be settled directly, should be treated as a liability (or asset when the result is negative). The net total of following should be recognised as expense: current service cost, interest cost, expected return on plan assets and reimbursement rights, actuarial gains and losses, past service cost, effect of curtailments or settlements and the extent to which asset (i.e. the negative result as aforesaid) exceeds present value of economic benefits in the form of refunds from the plan or reduction in future contribution to the plan.

Other Long Term benefits: The present value of defined benefit obligation at the balance sheet date less fair value of plan assets at balance sheet date, out of which obligations are to be settled directly, should be recognised as a liability. The net total of following should be recognised as expense: current service cost, interest cost, expected return on plan assets and reimbursement rights, actuarial gains and losses, past service cost, effect of curtailments or settlements.

Termination benefits: These should be recognised as expense when there is a present obligation as a result of past event and a reliable estimate can be made thereof provided it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

Other requirements of AS 15:

The discount rate should be determined with reference to market yields on government bonds at the balance sheet date. The past service cost should be recognised as an expense on straight line basis over the average period until the benefits become vested. But it should be expensed immediately if benefits are already vested. Further, the estimate of fair value of plan assets is made by discounting expected future cash flows. Reimbursement should be recognised as a separate asset at fair value and the gain or loss on settlement of a defined benefit plan should be recognised when curtailment or settlement occurs. This AS also stipulates offsetting assets relating to a plan against liability relating to another plan when the surplus in one plan can be used to settle the obligation under the other plans and the obligation is intended to be settled on a net basis. Multi employer plan should be treated as defined benefit plan unless it is not possible to do so for the want of information. Any actuarial gains and losses should be recognised immediately.

The following should be disclosed: Amount recognised as expense in case of defined contribution plan. For defined benefit plans the following should be disclosed: (a) policy for recognizing actuarial gains and losses, (b) general description of type of plan, (c) reconciliation of opening and closing balances of present value of defined benefit obligation, fair value of plan assets, reimbursement right recognised as an asset, (d) amount recognised as expense, etc. Other disclosures as may be required by AS 5 (Revised), AS 18 and AS 29.

The Council of the Institute of Chartered Accountants of India (ICAI), at its 265th meeting held on February 3-4, 2007, decided to defer the date of applicability of Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the ICAI, keeping in view the practical difficulties and general hardship being faced by industry. As per the decision, AS 15 comes into effect in respect of accounting periods commencing on or after December 7, 2006 (instead of April 1, 2006, as stated in the said Standard) and is mandatory in nature from that date. Earlier application of the Standard is encouraged. 

The author is a member of the Institute and the views expressed herein are his personal views and do not necessarily represent the views of the Regional Council.