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Service tax is an indirect tax which has been levied by the Central
Government under Chapter V of the Finance Act, 1994 w.e.f. 1st July,

Service Tax was introduced as an indirect tax such as sales tax, excise
duty,    custom     duty     etc.    which     are     borne      by    ultimate
In the case of Tamil Nadu Kalyana Mandapam Assn. V. Union of India
& Ors. 2004 (167) ELT 0003 SC = 2004 (267) ITR 0009 SC, Hon’ble
Supreme Court observed that “Service tax is an indirect tax and is to be
paid on all the services notified by the Government of India for the said
purpose. The said tax is on the service and not on the service
provider. However, under Section 68 of the Finance Act, 1994 as
amended by the Finance Act, 1997 read with Rule 2(1)(d)(ix) of the Service
Tax Rules, 1994, the service provider (in the present case the Mandap-
Keeper) is expected to collect the tax from the client utilizing his services.”

In the aforesaid judgment, Hon’ble Supreme Court has categorically
stated that service tax is on services and not on service provider.
Therefore, it is added to the cost of services and shall be borne by service

Further in plethora of judgments, in respect of levy of indirect tax, it has
been held that, in the absence of specific agreement, the incidence of tax
shall be borne by consumer/customer/service recipient.

Further Rule 4A of Service Tax Rules, 1994 specifically suggests that
service provider shall charge for ‘value of taxable services’ (in present
case, license fee) and service tax thereon separately. The said rule is
reproduced as under:

“4A. Taxable service to be provided or credit to be distributed on
invoice, bill or challan.
Every person providing taxable service shall not later than fourteen days
from the date of completion of such taxable service or receipt of any
payment towards the value of such taxable service, whichever is earlier
issue an invoice, a bill or, as the case may be, a challan signed by such
person or a person authorized by him in respect of such taxable service
provided or to be provided and such invoice, bill or, as the case may be,

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challan shall be serially numbered and shall contain the following,

(i)       the name, address and the registration number of such person;
(ii)      the name and address of the person receiving taxable service;
(iii)     description, classification and value of taxable service provided or
          to be provided; and
(iv)      the service tax payable thereon.”

Further section 77 provides that in case, service provider contravenes
any rule (including aforesaid rule) made under Finance Act, 1994, he
shall be liable to pay penalty under said section.

Thus, as per the provisions governing service tax, service provider is
required to charge the value of taxable service and service tax thereon
from the service recipient.

Looking from another perspective, the credit of service tax paid on the
input services is available to the manufacturer of final product/service
provider rendering taxable services. One cannot claim credit of any
amount the incidence of which has not been borne by him. Therefore,
CENVAT Credit Rules, 2004 which are applicable both to service tax
providers and manufacturers of excisable goods makes it further clear
that incidence of tax has to be borne by the service recipient.

To safeguard the interest of revenue and for better recovery of revenue,
legislature vide rule 2(1)(d) of Service Tax Rules, 1994, has made certain
specified category of service recipient liable to pay service tax directly to
Central Government.

Following are the persons, being service recipients, has been made liable
to pay service tax:

        1) in relation to general insurance business, the insurer or re-insurer
           as the case may be, providing such service

        2) in relation to insurance auxiliary service by an insurance agents,
           any person carrying on the general insurance business or the life
           insurance business, as the case may be, in India;

        3) in relation to any taxable service provided or to be provided by any
           person from country other than India and received by any person
           in India under Section 66A of the Act, the recipient of such service;

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   4) in relation to taxable service provided by a goods transport agency,
      where the consignor or consignee of goods are certain specified

   5) in relation to business auxiliary service of distribution of mutual
      fund by a mutual fund distributor or an agent, as the case be, the
      mutual fund or asset management company, as the case may be,
      receiving such service;

   6) in relation to sponsorship service provided to any body corporate
      or firm located in India, the body corporate or, as the case may be
      the firm who receives such sponsorship service;

Incidence of service tax is borne by the service recipient in all aforesaid
cases. That is why these service providers after making payment of
service tax, under reverse charge, can claim the credit of same out of its
service tax liability or excise duty where such services are input service
for such recipient. Thus, In such cases, service recipient has been made
liable to pay service tax.

From the above discussion, it is concluded that service tax is an indirect
tax, the incidence of which is to be borne by the service recipient and
service provider being a person registered with the department, is liable
to collect the same from the service recipient and deposit the same with
the department.
The above proposition is true with regard to all the taxable services, and
is being followed by all the service providers. To illustrate, telephone
service provider including MTNL, General insurance Companies etc. are
charging service tax in the invoice raised to the subscriber/policy holders
and depositing the same with the department.

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