What is classification.
Classification is the determination of the heading under which the service provided by you falls. There are certain services which are very similar to each other and therefore the determination of the heading under which the service provided poses a problem.
Why classification is necessary.
Classification is necessary because...
The rate of service tax may differ from service to service.
The abatement value may differ or may not be available if the classification differs.
For Certain services exemption is available .
The services were brought to the tax net on various date.
If you fail to classify the services correctly...
Then you may loss the opportunity to avail the abatement/ exemption there by increasing the cost of your services to your client or ...
You may have to pay the money to the government for wrong abatement / incorrect Exemption claimed/ short payment / non payment with fine and penalty.
The rate of service tax may differ from service to service.
The abatement value may differ or may not be available if the classification differs.
For Certain services exemption is available .
The services were brought to the tax net on various date.
If you fail to classify the services correctly...
Then you may loss the opportunity to avail the abatement/ exemption there by increasing the cost of your services to your client or ...
You may have to pay the money to the government for wrong abatement / incorrect Exemption claimed/ short payment / non payment with fine and penalty.
Rules of Classification.
The Taxable services have been defined under Section 65 (105) of the Finance Act, 1994. So it will be always a good thing if you go through the definition of your service under the above Section.
Coming to classification, the first rule of classification says that the classification of the service will be determined by the definition of taxable service prescribed under Section 65 (105). If it is not possible to classify the services based on the above definition.
the second rules prescribes the following three ways of classification (a), (b) and (c).
(a) The sub clause which provides the most specific description should be preferred to sub clauses providing more general description.
(b)composite services consisting of a combination of different services which cannot be classified in the manner specified above will be classified as if they consisted of a service which gives them their essential character.
(c)If it not possible to classify the service based on criteria (a) and (b) then it shall be classfied under the sub clause which occurs first among the sub clauses which dqually mertis consideration.
Coming to classification, the first rule of classification says that the classification of the service will be determined by the definition of taxable service prescribed under Section 65 (105). If it is not possible to classify the services based on the above definition.
the second rules prescribes the following three ways of classification (a), (b) and (c).
(a) The sub clause which provides the most specific description should be preferred to sub clauses providing more general description.
(b)composite services consisting of a combination of different services which cannot be classified in the manner specified above will be classified as if they consisted of a service which gives them their essential character.
(c)If it not possible to classify the service based on criteria (a) and (b) then it shall be classfied under the sub clause which occurs first among the sub clauses which dqually mertis consideration.
