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The journey of taxation of services began by selective taxation of services began by selective taxation of just three services on July 1, 1994. The first year collections now appear a very modest at 407 crore.


After appearing largely as just-another-tax for the first 8 years, with collections touching Rs.3, 302 crore in 2001-02, service took some giant leaps in the next 7 years, both on the back of wider coverage as well as increase in tax rate, reaching Rs 60,941 crore in 2008-09. Next two years saw the growth somewhat moderating with collections reaching Rs 70,896 crore in 2010-11. Service Tax contributed Rs 97,444 crore during 2011-12, an increase of nearly 37% over the previous year.


By the Finance Act,2012, radical changes have been made in Finance Act,1994 by providing that service tax is payable on all services rendered in taxable territory except the services specified under section 66D. Thus, with effect from 1-7-2012, tax has been levied on all the services except those specified under section 66D.


The key features of the new system of taxation are as follows:


  • At the outset ‘service’ has been defined in clause (44) of section 65B of the Act.


  • Section 66B specifies the charge of service tax which is essentially that service tax shall be levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list.


  • The negative list of services is contained in section 66D of the Act.


  • Since provision of service in the taxable territory is an important ingredient of taxability, section 66C empowers the Central Government to make rules for determination of place of provision of service. Under these provisions the Place of Provision of Service Rules, 2012 have been made.


  • To remove some ambiguities certain activities have been specifically defined by description as services and are referred as Declared Services (listed in section 66E).


  • In addition to the services specified in the negative list, certain exemptions have been given. Most of the exemptions have been consolidated in a single mega exemption for ease of reference.


  • Principles have been laid down in section 66F of the Act for interpretation wherever services have to be treated differentially for any reason and also for determining the taxability of bundled services.


  • The system of valuation of services for levy of service tax and of availment and utilization of Cenvat credits essentially remains the same with only incidental changes required for the new system of taxation.

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