We are an architect firm. We understand that the service tax rate changed from February 24, 2009 to 10.30%. We are billing our customers for services rendered in January 2009. Should we charge service tax at 12.36% or 10.30%?

Service tax is applicable on provision of a taxable service. The taxable event for levy of service tax is the provision of a taxable service. The billing and collection are incidental to the provision of service. Therefore, the service tax rate prevalent on the date of provision of the services should be the applicable rate for deposit of service tax. In your case, since the services are provided prior to the change in rate of service tax, the invoice should be raised at 12.36 %.

We are engaged in providing consultancy services to various multinational companies. In some cases, we enter into annual retainership contracts for which we bill the client on a monthly basis. We are raising an invoice for services rendered in February 2009. Please advice what is the rate of service tax to be applied on the invoices raised on our clients.

The reduced rate of service tax would be applicable on the services rendered on or after February 24, 2009. Ideally, you should segregate between services rendered prior to February 24, 2009 and services rendered after that. However, if segregation is not possible, the retainership for the month of February 2009 should be apportioned on a prorated basis into services rendered up to February 23, 2009 (attracting tax of 12.36%) and rendered from February 24, 2009 (attracting tax of 10.3%).

We have recently been awarded a contract for construction and maintenance of a stretch of road. We wish to know whether we should charge service tax on the invoices raised by us.

Construction services are liable to service tax under the taxable service category of ?commercial or industrial construction service?. However, as construction of roads is specifically excluded from the definition, it won?t be liable to service tax. However, repair and maintenance of roads would be liable to service tax under the category of ?management, maintenance and repair service?, which includes the management or maintenance of immovable property.

Therefore, you should pay service tax on the activity of maintenance of the roads but not on the activities of construction of the roads.

We procure orders for a foreign company from customers in India, for which we receive a commission from the company (the payment is received in foreign exchange). We have been paying service tax under the taxable category of ?business auxiliary service?. We understand that the service tax department had issued a recent clarification in light of which we no longer have to pay service tax on our commission income. Would request if you could please advise on the same.

As we understand, the issue that you have basically pertained to is whether the services rendered by you to the foreign company can qualify as ?exports? under the Export of Services Rules, 2005. For ?business auxiliary service? to qualify as exports, three conditions need to be satisfied, namely, the service recipient should be located outside India, payment should be received in convertible foreign exchange and the service should be provided from India and used outside India. The department has recently clarified that for services such as ?business auxiliary service?, the term ?used outside India? should be interpreted to mean that the benefit of service should accrue outside India.

Thus, for such services, it is possible that the service should qualify as exports even if all the relevant activities take place in India so long as the benefits of these services accrue outside India. Given the above clarification, it is possible to take a view that the services rendered by you should qualify as exports and, therefore, no service tax should be applicable.

?Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers? queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information