Section 67 of Finance Act, 1994 contains provisions for valuation of taxable services for charging service tax.The highlights of provisions of section 67 as effective from 18-4-2006 are as follows –
• Service tax is payable on gross amount charged by service provider for service provided or ‘to be provided’. Thus, tax is payable as soon as advance is received.
• ‘Value of taxable service’ plus service tax payable is equal to ‘gross amount charged’ [section 67(2)].
• Where the consideration for providing services is entirely in money, gross amount charged by serviceprovider of taxable service provided or to be provided by him will be relevant for ‘valuation’ [section67(1)(i)].
• Where the consideration for providing services is not wholly or partly in terms of money, service tax is payable on amount of money, which with addition of tax service tax charged, is equivalent to the consideration [section 67(1)(ii)].
• Where consideration is not ascertainable, valuation will be on basis of Valuation Rules [section 67(1)(iii)]
• If gross amount charged by service provider is inclusive of service tax (i.e. service tax not charged separately in invoice), value of taxable service will be calculated by back calculations such that with addition of service tax payable, the total is equal to the gross amount charged [section 67(2)].
• Gross amount charged for taxable services can be before, during or after provision of service [section 67(3)].
Calculation of service tax by back calculations
The gross amount charged can be taken as inclusive of service tax and the ‘value’ and ‘service’ tax is to be calculated by back calculations. For example, if Bill amount is ` 1,000 and service tax is not shown separately inInvoice, the tax payable calculated by a simple mathematical formula is as follows –
Assessable Value = (Cum tax price)/(1 + rate of tax)
Assume that Assessable Value (AV) is equal to ‘Z’.
AV = 1.000 Z
Duty @ 12.36% = 0.1236 × Z
Sub-Total = 0.1236 × Z
1.1236 × Z = 1,000
Hence, ‘Z’ = 1,000/1.1236
i.e. Z = 890
Thus, ‘Z’, i.e. Assessable Value is ` 890 and service tax @ 12% will be 106.80. Education cess @ 2% of service tax will be 2.14. SAH education cess @ 1% is 1.07 Thus, total tax will be 110.