(A) Service tax chargeable on any taxable service with reference to its value shall be :

1. In a case where the provision of service is for a consideration in money, the taxable value shall be Gross Amount Charged by the service provider for the service provided or to be provided. (Section 67(1)(i), Finance Act, 1994.)

Gross Amount Charged : It includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and ‘book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.

Money : It includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic (Coin Collection) value

2. In a case where the provision of service is for a consideration not wholly or partly consisting of money, the taxable value shall be such amount in money, with the addition of service tax charged, is equivalent to the consideration. (Section 67(1)(ii), Finance Act, 1994.)

Consideration : includes any amount that is payable for the taxable services provided or to be provided;

(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.
(Rule 3, The Service Tax (Determination of Value) Rules, 2006. ]


3. In a case where the provision of service is for a consideration which is not ascertainable, then taxable value shall be the amount as may be determined in the prescribed manner. Such case may arise when a single invoice is raised for various services provided without specifying the consideration for each service separately. [ Please Refer : Section 67(1)(iii), Finance Act, 1994. ]

(A) Where the gross amount charged by a service provider, is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (Section 67(2), Finance Act, 1994.)

(B) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. Advance money received for the services to be provided in future is taxable. (Section 67(3), Finance Act, 1994.)

Determination of value of services involved in the execution of a Works Contract:

Value of works contract service = Gross amount charged for the works contract : Less the value of transfer of property in goods involved in the execution of the said works contract.
For the calculating gross amount charged for the works contract, it shall not include Value Added Tax (VAT) or sales tax, paid on transfer of property in goods involved in the execution of the said works contract.

Value of works contract service shall include:-

(i) Labour charges for execution of the works;

(ii) Amount paid to a sub-contractor for labour and services;

(iii) Charges for planning, designing and architect’s fees;

(iv) Charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) Cost of consumables such as water, electricity, fuel, used in the execution of the works contract;

(vi) Cost of establishment of the contractor relatable to supply of labour and services;

(vii) Other similar expenses relatable to supply of labour and services; and

(viii) Profit earned by the service provider relatable to supply of labour and services;


(Rule 2A, Service Tax (Determination of Value) Rules, 2006.)
[ Please Refer : Notification No. 29/2007- Service Tax ]


Optional Method for Valuation available to assessee providing Works Contract Service:

Valuation in case of Works Contract can also be done by following The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007. Assessee has an option to follow Composition Scheme for valuing the Works Contract Service provided. This rule overrides anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006. As per this composition scheme the person liable to pay service tax in relation to works contract service shall have the option to discharge his Service Tax liability at the rate equivalent to four per cent (4%) of the gross amount charged for the works contract.

As per explanation to Rule 3 of The Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007
Gross Amount Charged for the Works Contract shall include-


(i) The value of all goods used in or in relation to the execution of the works contract, whether supplied under any other contract for a consideration or otherwise. So even the goods which are supplied free of cost will be included in the value.

(ii) The value of all the services that are required to be provided for the execution of the works contract;


Gross Amount Charged for the Works Contract shall exclude-

(i) The value added tax or sales tax as the case may be paid on transfer of property in goods involved;

(ii) The cost of machinery and tools used in the execution of the said works contract except for the charges for obtaining them on hire.


However, the above mentioned explanation is not applicable to a Works Contract, where (i) the execution under the said contract has commenced or (ii) where any payment, except by way of credit or debit to any account, has been made in relation to the said contract on or before the 7th July, 2009.

Other Restrictions:

1) No CENVAT Credit is available if this composition scheme is opted for.

2) Such option shall be exercised in respect of a works contract prior to payment of Service Tax and in the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract.

3) The option shall be permissible only where the declared value of the works contract is not less than the gross amount charged for such works contract.

Valuation of Services Provided from Outside India and Received in India

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. (Rule 7(1), Service Tax (Determination of Value) Rules, 2006. )
Notwithstanding anything contained in above mentioned provision, the value of taxable services specified in Rule 3(ii) 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. (Rule 7(2), Service Tax (Determination of Value) Rules, 2006. )


Power of Central Excise Officer to Reject the Value Determined by the Assessee-

Rule 3 of Service Tax (Determination of Value) Rules, 2006 does not restrict or question the power of the Central Excise Officer to satisfy him as to the accuracy of any information furnished or document presented for valuation.

[ Please Refer : Rule 4(1), Service Tax (Determination of Value) Rules, 2006. ]

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.

[ Please Refer : Rule 4(2), Service Tax (Determination of Value) Rules, 2006. ]

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. [ Please Refer : Rule 4(3), Service Tax (Determination of Value) Rules, 2006. ]

Out of Pocket Expenses ( Reimbursable Expenses ) : Before 19-04-2006 out of pocket expenses incurred while providing taxable services were excluded from the taxable value. However, Rule 5 of Service Tax (Determination of Value) Rules, 2006 which came into force from 19-04-2006 considered any amount charged by service provider as integral part of the taxable value of service.

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 and shall be included in the value for the purpose of charging service tax on the said service.

[ Please Refer : Rule 5(1), Service Tax (Determination of Value) Rules, 2006. ]

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:-

(i) 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;

(ii) 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;

(iii) The recipient of service is liable to make payment to the third party;

(iv) The recipient of service authorises the service provider to make payment on his behalf;

(v) 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;

(vi) 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;

(vii) The service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii) 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.


It does not matter, whether the details of individual components are indicated separately or combined billing is done while preparing the invoice of total value of the taxable services provided. Even if individual components are indicated separately still the same should be included while calculating value of taxable service provided. [ Please Refer : Explanation 2, Rule 5(2), Service Tax (Determination of Value) Rules, 2006. ]

INCLUSIONS IN TAXABLE VALUE :

(1) 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.

(2) 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;

(3) The amount of premium charged by the insurer from the policy holder;

(4) The commission received by the air travel agent from the airline;

(5) The commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

(6) 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;

(7) The commission or any amount received by the rail travel agent from the Railways or the customer;

(8) 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

(9) 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.

(Rule 6(1), Service Tax (Determination of Value) Rules, 2006).

EXCLUSIONS FROM TAXABLE VALUE : (1) 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;
(2) The airfare collected by air travel agent in respect of service provided by him;
(3) The rail fare collected by rail travel agent in respect of service provided by him; and
(4) Interest on loans.
(Rule 6(2), Service Tax (Determination of Value) Rules, 2006.)


“PURE AGENT”

Pure Agent means a person who -

(a) 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;
(b) 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;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.
(Refer : Explanation 1, Rule 5(2), Service Tax (Determination of Value) Rules, 2006.)