The Finance Ministry, on Thursday, issued two master circulars on service tax that replace all earlier ones, clarifying among other issues that business chit funds which collect funds through regular instalments, and sub-contractors in construction will have to pay the levy. The circulars, issued following demands for clarification in some issues from industry chambers, have for the first time also given a particular number under a coding system to each issue relating to service tax. The circulars follow the recommendations of a ministry-appointed committee headed by T R Rustagi in this regard.
According to the master circular on technical issues, simple chit funds where no fee is paid for services would not be taxed. However, business chit funds, where cash management services are charged, will have to pay 12 per cent service tax along with three per cent education cess.
Residential units
The Ministry also clarified that in case of construction sector, if the builder or developer builds any residential complex having more than 12 residential units by engaging a sub-contractor, the contractor would have to pay service tax.
These circulars intend to meet the demand of trade and industry to make available all clarifications relating to service tax at one place in a simple and comprehensive manner, according to a Finance Ministry statement. These two master circulars supercede all the earlier circulars, it added. The circulars have simplifed many issues. For example, it says that an amount collected for delayed payment of a telephone bill cannot be taxed under service tax.
While one of the circular relates to the coding of these clarifications, the other relates to procedural issues such as registration, e-payment of service tax, issuance of bills, challans, service tax returns and Cenvat credit. The circular relating to procedures has clarified that delay in payment of service tax would attract 13 per cent penal interest per year. Further, failure to pay service tax will also attract a penalty up to Rs 200 every day or at the rate of two per cent of such tax per month. However, such penalty would not exceed the service tax payable.