Internet
Cafe's services are brought under the Service Tax net by the Finance Act, 2003,
w.e.f. 1-7-2003 vide Notification No. 7/2003, dated 20-6-2003.
The services shall be taxed, if provided by an Internet Cafe.
Rate of Service Tax: The rate
of service tax is specified in section 66 of the Act. The Finance (No. 2) Act,
2004 has substituted the charging section 66, and the rate of service tax is
enhanced from 8% to 10% ad valorem. The increase in tax rate has come into
force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004.
Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also
levied an education cess @ 2 % of the service tax. The cess paid on inputs
services shall be available as credit for payment of cess on output services.
For further discussion in this regard, refer to -'Payment of Service
Tax'.
The internet cafe most popularly know as cyber cafe's are mushrooming throughout the country to provide people to access the internet. The information and technology revolution in the country has made possible to the people of India to access internet and connect themselves with the world with no barrier. The people go to the internet cafe or cyber cafe to access internet for chatting, internet telephony and for surfing. The cyber cafe provides the infrastructure such as computer terminals and internet connection and charge very nominal fee on hourly basis, from those who come to access internet. Now, w.e.f. 1-7-2003, internet cafe service has been made costlier by 8% as the imposition of levy on such service as introduced by the Finance Act, 2003 comes into force from that date.
The
definition of taxable service provided by an internet cafe has been given under
sub-clause (zzj) of clause (105) of section 65. That is:
"any
service provided "to any person, by an internet cafe in relation to access
of internet".
Service
tax is liable to be paid when access of internet services are rendered by an
internet cafe.
(1) 'Internet cafe'
The
definition of internet cafe has been given under clause (57) of section 65.
That is:
"internet
cafe" means a commercial establishment providing facility for accessing
internet".
(2) 'commercial establishment'
The term
'commercial' indicates that there should be profit motive. The term
'establishment' means 'the act of establishing': 'a business': 'a settlement'
(reference the Chambers English Dictionary). The term 'commercial
establishment' in the context of present service means a fixed state or space
where the services of accessing of internet are provided by the cyber cafe
against fee/charges to earn profit. Thus, in the present context, only
establishment shall be covered under the service tax, however, the form of
establishment does not matter, it may be proprietorship firm, partnership firm
or private or public limited company. It may be noted that single individual
cannot be termed as an 'establishment' therefore, he shall be out of the ambit
of service tax, unless having the activities in such a manner which construed
establishment.
Services of internet cafe are liable to be
charged to service tax
Internet
cafe's services are liable to be charged to service tax when provided to
§
any person;
§
in relation to access of internet.
(1) 'any person'
The term
'person' has not been defined in the context of service tax. But, the term
'person' has been defined as "person shall include any company or
association or body of individual, whether incorporated or not" [clause
(42) of section 3 of General Clauses Act, 1897]. In the present context, person
means any individual who is accessing internet from an internet cafe.
Value
of taxable services for charging tax
The value
of taxable services in relation to services provided by an internet cafe shall
be the gross amount charged by the internet cafe from any person in relation to
access of internet [section 671. The words 'gross amount' is used in contrast
to the 'net amount', therefore, no abatement shall be allowed in respect of
administrative/ office expenses incurred in respect of such services.
Explanation
1 has also been added to section 67, which provides that, for the removal of
doubt, in respect of only certain specific services, it is declared that
certain amount shall be the part of value of taxable services and certain
amount shall not be part of the value of taxable services, but nothing has been
specified in respect of internet cafe's services.
(1) Value of taxable service where lumpsum payment is received prior to 1-7-2003 but the entire or part of service is provided on or after 1-7-2003
The
Government in its Circular No. 65/14/2003, dated 5th November, 2003 (discussed
and appended as Annexure VII in the - 'Payment of Service Tax') has clarified
that "where the value of taxable service has been received in advance for
a service which became taxable subsequently, service tax has to be paid on the
value of service attributable to the relevant month/ quarter which may be
worked out on pro rata basis". Accordingly on the services rendered on or
after 1-7-2003 for which the lumpsum payment has been received
prior to 1-7-2003 (i.e. prior to the date of imposition of levy on
taxable service), the value of taxable service shall be worked out on pro rata
basis.
Exempted internet cafe's services
The
Government has granted exemption from the whole of Service Tax in respect of
all taxable services, for services provided to United Nations or an
International Organisation. Similarly, the exemption, subject to certain
conditions, has also been granted for taxable service provided to a developer
or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November,
2003 has restored the exemption, as an interim measure, from the whole of
service tax when payment is received in convertible foreign exchange for the
taxable services rendered in India provided it was not repatriated from or sent
outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003.
N.B. The
readers may note that provisions, procedures and other related discussion
related to registration, payments of service tax, filing of return, interest
and penalty, assessment procedure, appeal, refund of tax, etc., which are same,
as applicable in respect of other taxable services, have been given in
separate.