This presentation covers – Paradigm shift in taxation of services in India – An overview Major changes in service tax law by the Finance Act, 2012 - at a Glance Negative List of Services Exempted Services Declared Services (Including Valuation) Bundled Services Abatements Reverse Charge Provisions Other Amendments 2
Indian Economy – An overview India’s economy is the 11th largest economy in the world and the second fastest growing even in today’s recession World is presently facing recession-II but Indian economy is still better than comparable economies. Agriculture, services and industry are the major sector of India an economy. Contribution of different sectors in March, 2012 was : Agriculture 19% Services 59% Industry 22% to be contd……. 3
Brief Overview of Services / Service Tax Share of Services in GDP Agricult ure 19% Service Sect or Indust ry 59% 22% GDP C O MPO S ITIO N IN MARC H, 2012 4
Share of services in GDP tracked Year % of GDP 1950 15 1970 33 1980 36 1994 40 1995 41 2000 47 2005 53 2010 57 2012 59In 2011-12, services have grown by 9.6 % which is morethan GDP growth rate 5
Service Tax in India (The Past) Introduced in India in 1994 as a simple, modest tax with just three services. Service tax – an indirect tax. Approach to Service Tax – Selective as against comprehensive one. Desirable from revenue, equity and economic view point. Governed by Finance Act, 1994 and a dozen of rules. Legislative dependence on other laws. Scattered and heterogeneous large mass of service providers as well as wide spectrum of services. Jurisdictional application. 6
Growth of Service TaxYear No of new services Total No of Total collection services (Rs. in crore)1994 3 3 4072001 - 26 26122005 13 72 141992008 7 103 513012010 3 112 580002012 0 120 950002013 - All 126000 (BE) 7
Service Tax in India (The Past)Selective Approach to Service Tax Selective v. Comprehensive approach Taxation by choice Service not defined but taxable service defined > 120 taxable services [section 65(105)] Resulted in distortions / prejudice Untapped tax potential Economically unjustified 8
Service Tax - TodayShift to Comprehensive Approach W.e.f. 1 July 2012 Finance Act, 2012 – A land mark Act to shift from positive to negative approach. It took 18 years to shift from selective approach to positive approach to tax services 9
Taxation of Services by Finance Act, 2012 All Services (including declared Services (-) Specific Exclusions (-) Negative List Services (-) Exemptions (=) Taxable Services 10
Service Tax - TodayNew system of taxation of services All services to be taxed other than services specified in the negative list and exempted services – Section 66B. Negative list (17 in number) specified through statutory provisions – Section 66D. ‘Service’ defined for the first time. ‘Negative List’ and ‘declared services’ also defined. 11
Service Tax provisions no longer applicable (w.e.f. 1.7.2012) Section 65 Old definitions of Services / Taxable Services Section 65A Classification of Services Section 66 Charge of Service Tax Section 66A Charge of Service Tax on Services received from outside India Import of Service Rules, 2006 Export of Service Rules, 2005 12
New Provisions in Service Tax Section 66 B deals with charge of service tax on the after Finance Act, 2012 Section 66 C provides for determination of place of provision of services Section 66 D comprises of negative list of services Section 66 E comprises of the services which constitute declared services Section 66 F provide principles of interpretation of specified description of services or bundled services 13
The New Taxability Concept SERVICE FOR A CONSIDERATION 9 DECLARED SERVICESE: EmployeeM: Money E - MAGIC TESTA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee 14
Taxable Services w.e.f. 1.7.2012All services Taxable[section 65B(44)]Declared services Taxable(section 66E)Services covered under Not Taxablenegative list of services(section 66D)Services exempt under Mega ExemptedNotification No. 25/2012-STdated 20.6.2012 15
Taxation of Services Post Finance Act, 2012 16
What is Service‘Service has been defined in clause (44) of the new section65B and means – any activity for consideration carried out by a person for another and includes a declared service (66E) 17
What is Service Activity must be for a consideration (nexus / reciprocity) Activity – includes both activity as well as non- activity Consideration – includes both monetary and non monetary consideration Two persons are involved – Service provider Service receiver Only services provided by one person to another are taxable Person – natural as well as artificial 18
What is Service Activity Not defined in the Act In common understanding, activity includes – An act done A work done A deed done An operation carried out Execution of an act Provision of a facility etc. Activity could be active or passive and forbearance to act Agreeing to an obligation to refrain from an act or to tolerate an act or a situation - listed as a declared service u/s 66E 19
What is ServiceConsideration Means everything received or recoverable in return for a provision of service which includes - Monetary payment Non-monetary payment Deferred consideration 20
What is ServiceConsideration Monetary consideration means any consideration in form of Money. Includes not only cash but also cheques, promissory note, bill of exchange, letter of credit, draft, pay order, traveler’s cheques, money order, postal or electronic remittance or any such similar instrument Non-monetary consideration - money equivalent 21
What is ServiceActivity for a Consideration Activity should be carried out by a person for a Consideration Activity without consideration like- Donation Gifts Free charities outside the ambit of service Charity for consideration would be service and taxable unless otherwise exempted 22
What is ServicePerson-65B(37) Person includes,–– an individual, a Hindu undivided family, a company, a society, a limited liability partnership, a firm, an association of persons or body of individuals, whether incorporated or not, Government, a local authority, or every artificial juridical person, not falling within any of the above 23
What is ServiceGovernment – Not defined Section 3(22) of General Clause Act, 1897 includes Central/State Government/ Union Territory Actions taken in the name of President/ Governor Most of services provided by government are in Negative List 24
What is Service : ExclusionsService does not include - any activity that constitutes only a transfer in title of goods or immovable property by way of sale, gift or in any other manner a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution a transaction only in money or actionable claim a service provided by an employee to an employer in the course of the employment. fees payable to a court or a tribunal set up under a law for the time being in force 25
What is ServiceTax on Money Remittance No service tax on foreign currency remitted to India from overseas (Circular No.163 dated 10.7.2012) Amount of remittance comprises money Service excludes money transactions Even fee for remittance is not taxable (POPS) Sender of money outside India bank / company remitting located outside India Fee charged by Indian bank - remitter located outside India (not taxable as per POPS) 26
What is ServiceThis scope of service shall not apply to –a) functions performed by M.P., M.L.A., Members of Panchayats / Municipalities who receive any consideration in performing the functions of that office as such member; orb) duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; orc) duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authority and who is not deemed as an employee before 1.07.2012 27
What is ServiceFor the purpose of scope of service -(a) an unincorporated association or a AOP and a member thereof shall be treated as distinct persons;(b) an establishment of a person in the taxable territory andany of his other establishment in a non-taxable territory shallbe treated as establishments of distinct persons.(c) A person carrying on a business through a branch or agencyor representational office in any territory shall be treated ashaving an establishment in that territory 28
Remuneration to Partner – Not a Service Partnership firm is not a distinct legal entity apart from the partners under the Partnership Act, 1932 Partner is not an employee of the firm -contract of employment requires two distinct firms, viz., employer and employee Partners are the real owners of the assets of Firm to the extent of their share Salary paid to partner is only profit known by a different name It is only a transaction in money Incomes received from firm treated as income from Profits and Gains of Business or Profession under I T Act, 1961 Partnership Act can not be overlooked 29
Directors services to Company - Taxable Director’s services to the company are taxable w.e.f 1.7.2012 Sitting fees, commission, bonus, etc. are subject to service tax W.e.f. 1.7.2012 upto 6.8.2012, service tax will be deposited by the directors while from 7.8.2012 vide Notification No. 45/2012, Service Tax on such services will be deposited by the company under reverse charge WTDs /MDs /EDs who are under contractual employment with the company and receive salary or remuneration from the company will not be covered - considered as employees of the company 30
Directors services to company- Taxable Interest on loan by director to company, dividend on shares, other professional charges on account of services not rendered as a director (in professional capacity) are not liable to Service Tax In case of nominee director, the nominating company who receives fees will be liable to pay service tax The invoice / receipt to be issued by the directors within 30 days In case of nominee directors, the invoice will be issued by the nominating company In the case of Government nominees, the services shall be deemed to be provided by the Government but liable to be taxed under reverse charge basis 31
Employer facilities to Employees Draft Circular (F.No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification on certain activities / facilities / reimbursements to employees by the employers (a) Treatment of supplies made by the employer to employees Amount deducted from salary / paid for service provided by the employer to employee is for consideration and taxable Employer who provides some services free of cost (e.g. crèche, gymnasium or a health club) are not liable to tax (b) Treatment of reimbursements made by the employer to the employee Reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a service, hence non-taxable 32
Employer facilities to EmployeesTreatment of supplies and reimbursements made by theemployer to ex-employees/ pensionersSame tax treatment with ex- employees of the company – Reimbursement of expenses on behalf of company – non-taxable Facilities for consideration – taxable Facilities free of cost - non taxable 33
Examples of new activities which may be taxed Non commercial construction for non-government purpose Private roads Residential construction of more than one unit Commercial artists/performers Actors, directors Reality show judges Tourism boats Board director’s sitting fee Non-compete fee Arbitrators to business entities 34
Examples of new activities which may be taxedDiscourses and lecturesBanking services to governmentUnrecognized IPRsServices to RBIHotel Telephone CallsVideo library facilities by hotelsMatrimonial sitesAstrologersWorks contracts for movable properties 35
MAJOR CHANGES INSERVICE TAX LAW BY FINANCE ACT, 2012 - AT A GLANCE 36
MAJOR CHANGES IN SERVICE TAX LAW BY FINANCE ACT, 2012 - AT A GLANCE Objective to widen tax base Service Tax law to be shorter by about 40 percent Effective rate of Service Tax shall be 12.36 percent w.e.f. 01.04.2012 including education cesses Definition of ‘service’ finds place in statutory provisions All services to be taxed including a set of services called ‘declared services’ Negative list of services containing 17 broad service categories to be out of Service Tax ambit. Withdrawing of many existing exemptions / abetments or their rationalization 37
MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A GLANCE Place of provision of supply rules will determine the location of service and become be basis of taxation. Withdrawal of export of service rules and import of service rules in view of place of supply of service rules coming into operation. Concept of taxable territory and non- taxable territory brought in basis of charge of Service Tax shifted under new section 66B. Taxation of Service to be determined by provision of service in taxable territory and non taxable territory. Classification of service criteria replaced by new section 66F on interpretation principles of specified description of service or bundled services. 38
MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A GLANCE Consequent upon change in service tax rates, there is change of service tax rate in composition scheme and specified rates w.e.f. 1.4.2012 (Composition scheme withdrawn w.e.f 1.7.2012 for works contracts) Penalty wavier for arrears paid within specified time in respect of renting of immovable property service Retrospective exemption to road repairs and repairs etc of non commercial government buildings Under new reverse charge mechanism, onus of paying Service Tax will be shared by service provider and service receiver in case of specified services Service Tax on taxable services provided by service provider located in Jammu & Kashmir state liable under reverse charge to be contd…. 39
MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A GLANCE Change in valuation rules in relation to works contracts and outdoor catering / supply of food. Provision introduced for date of determination of value of service, tax rate and rate of exchange. Payment of Service Tax on receipt basis for all service providers being individuals / firms / LLPs, if aggregate value of taxable services in previous year does not exceed Rs. 50 lakh. Criteria for Rs 10 lakh threshold exemption changed. Time limit for appeal by assessees to Commissioner (Appeals) reduced from 3 months to 2 months Revision Application Authority and Settlement Commission provisions made applicable to service tax. Special Audit of Service tax assesses by CAs /CWAs . 40
Goods & Service Tax (The Future) GST: A Common Tax onGoods Services 41
GST – In Budget 2012 No announcement on GST rollout date GST to be implemented in consultation with the States at the earliest GST network (GSTN) likely to be in place from August, 2012 GSTN to implement common PAN based registration, return filing and processing of payments for centre and all states on a shared platform. Bringing closer of Service Tax and Central Excise for transition to GST Drafting of model legislation for CGST and SGST under progress. Common forms for Service Tax and Central Excise registration and return proposed. Place of Provision of Service Rules, 2012 to trigger debate to assess issues that may arise in taxation of inter state services for eventual launch of GST. 42
The GST Journey – beginning of end……. Past Recent Past Now & FutureNational GST Dual GST ??????? …or end of beginning !! 43
Negative list of ServicesWhat is negative list • Defined in new section 66D • Section 66D Specifies seventeen 17 broad categories of services. • Effective from 1-7-2012 • If an activity meets the c haracteristics of service , it is taxable unless specified in Negative List. • Based on socio-economic–tax criterion 45
Negative list of Services(a) Services by Government or a local authority excluding the following services to the extent they are not covered elsewhere: (i)Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (ii)Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii)Transport of goods or passengers; or (iv)Support services ,other than services covered under clauses (i) to (iii) above, provided to business entities; 46 to be contd..
Negative list of Services Most of services provided by Central / State Governments exempt from service tax. But following services are taxable - Department of posts - speed post, express parcel, life insurance and agency service to non government business entity but basic mail, money orders, operation of saving accounts ,pension payment etc services are covered in negative list In relation to vessel or aircraft service within/outside port/airport Transport of goods and/ or passengers Support service to business entities To be contd…..
Negative list of Services Services by government as sovereign functions (grant of licensing rights or audit of government, passport etc.) Excludes corporations formed under Central Acts or State Acts or various Government companies registered under Companies Act, 1956 or autonomous institutions set up by a Special Acts Government Department needs to be registered and to pay tax on support services of Renting of immovable properties Speed post, express parcel, life insurance. Transport of goods and/ or passengers Services in relation to vessel or aircraft For other services, government not liable to pay service tax as tax paid by service recipient in reverses charge (N. No. 30) To be contd…..
Negative list of ServicesSupport services means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis; Services provided by Government Security agencies are covered under support service - under reverse charge, Service Receiver is liable to tax.
Negative list of Services(b) Service by Reserve Bank of India(c) Services by a foreign diplomatic mission located in India(d)Service relating to Agriculture or Agricultural Produce by way of -(i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;(ii) supply of farm labour;(iii)processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market;
Negative list of Services(iv)renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;(v)loading, unloading, packing, storage or warehousing of agricultural produce;(vi)agricultural extension services;(vii)services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce 51
Negative list of Services(e) Trading of Goods Trading of goods is not a taxable service, it being a sale and not a service. If a transaction is a sale, it is not a service and vice versa Transfer of title in goods is crucial Activities of a commission agent / clearing and forwarding agent who sells goods on behalf of another for a commission are not trading of goods (Title of goods does not pass) Forward contracts are in the nature of trading of goods. Future contracts are not trading of goods to be contd …….
Negative list of ServicesGoods - Section 65B(25) Goods means every kind of movable property other than actionable claim and money includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale
Negative list of Services(f) Any process amounting to manufacture or production of goods process amounting to manufacture or production of goods means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force. Covers manufacturing activity carried out on contract or job work basis where Transfer of title of goods is not involved Duties of excise are leviable on such process 54
Negative list of ServicesWhat is Excisable Goods Excisable goods means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of excise and includes salt Mobility and marketability are essential conditions Goods includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
Negative list of Services(g) Selling of space or time slots for advertisements otherthan advertisements broadcast by radio or television(h)Service way of access to a road or a bridge onpayment of toll charges(i) Betting, Gambling or Lottery(j)Admission to entertainment events and access toamusement facilities(k)Transmission or distribution of Electricity by anelectricity transmission or distribution utility 56
Negative list of Services(l) Service by way of - i. Pre-school education and education up to higher secondary school or equivalent ii. Education as a part of a prescribed curriculum for obtaining a qualification recognized by law for the time being in force; iii. education as a part of an approved vocational education course;Conduct of degree courses by colleges, universities orinstitutions which lead to grant of qualifications recognizedby law to be contd …….
Negative list of ServicesApproved vocational education course a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training, offering courses in designated trades as notified under the Apprentices Act, 1961 a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Employment and Training, Ministry of Labour and Employment, Government of India a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India to be contd …….
Negative list of ServicesCircular No. 164/15/2012-ST dated 28.08.2012 If VEC is offered by Government / Local Authority, service tax does not arise If VEC is offered by an independent institution, in form of society or any other similar body, qualification recognized by any law or approved VEC is in Negative List Recognized by any law will include such courses as are approved or recognized by any entity established under a central or state law However, definition is silent on these issues 59
Negative list of Services Education upto higher secondary school or equivalent are in negative list. Services provided to or by an educational institution for Auxiliary educational services and renting of immovable property – exempted under mega notification Negative list will not include – Private tuitions Education as a part of prescribed curriculum for obtaining qualification recognized by law of a foreign county Services provided to educational institutions Placement services Educational tours Seminars and conferences (including CPE Hours) to be contd …….
Negative list of ServicesEducation related services not in negative list but exemptfrom tax under Notification No. 25/2012-ST dated20.06.2012 • Transportation of students to / from institutions • Provision of mid-day meal in schools • Admission related services to educational institutes where education services are exempt • Coaching / training in recreational activities of arts, culture or sports
Negative list of Services(m) Services by way of renting of residential dwelling for use as residenceRenting covers all types of arrangements in relation to immovableproperty with or without its transfer of possession or control andwhether wholly or partly. It would cover / include – • allowing • permitting • granting access / entry / occupation • use of facility • letting • leasing • licensing, or • other similar arrangements (such as right to use, sub-lease, space sharing etc.) to be contd …….
Negative list of ServicesRenting of certain kinds of property already covered inthe negative list renting of vacant land, with or without a structure incidental to its use, relating to agriculture. renting of residential dwelling for use as residence renting out of any property by Reserve Bank of India renting out of any property by a Government or a local authority to non-business entity to be contd …….
Negative list of Services Residential dwelling not defined but includes residential accommodation Does not include hotel, motel, inn, guest house, camp site, lodge, house boat or other placement temporary stay Residential dwelling used partly as a residence and partly for non residential purpose- treated as bundled service Residential unit – independent residential unit with specific facilities for living, cooking and sanitation Generally, hostels rooms / hotel rooms not a residential unit to be contd …….
Negative list of Services(n) Services by way of— (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers; to be contd …….
Negative list of Services Transactions in money outside the ambit of ‘service’ Any activity related to a transaction in money by way of its use or conversion by cash or by any other mode, from one form , currency or denomination to another form, currency or denomination would not be treated as a transaction in money if a separate consideration is charged for such an activity Service tax levied on service charges for transactions in money including of charges for making of drafts, letter of credits issuance charges, service charges relating to issuance of CDs/ CPs etc Interest rate swaps and foreign exchange swaps are excluded being securities and hence excluded to be contd …….
Negative list of Services Only interest and discount are in negative list Interest on Money borrowed Debt incurred Deposit Claim / obligation/ similar right Service charge / fee/ commission not covered (e.g. pre payment fee, late fee, cheque bounce charges) Interest on credit facility not utilized (commitment charges ) not covered Bill discounting – only discount covered to be contd …….
Negative list of Services Any charges over and above interest/ discount taxable Purchase/ sale of foreign currency between banks and authorized dealers under negative list Examples of services in negative list- Fixed deposits or saving deposits or any other such deposits in a bank for which return is received by way of interest Providing a loan or over draft facility for consideration on payment of interest Mortgages or loans with a collateral security to the extent that the consideration for advancing such loans or advances are represented by way of interest Corporate deposits to the extent that the consideration for advancing such loans or advances are represented by way of interest or discount
Negative list of Services(o)Services relating to transportation of passengers with orwithout accompanied belongings, by—(i) a stage carriage;(ii) railways in a class other than— (A) first class; or (B) an air conditioned coach;(iii) metro, monorail or tramway;(iv) inland waterways;(v) public transport, other than predominantly for tourismpurpose, in a vessel, between places located in India; and(vi) metered cabs, radio taxis or auto rickshaws; 69
Negative list of Services(p) services by way of transportation of goods— (i) by road except the services of— (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India upto the customs station of clearance in India ; or (iii) by inland waterways;(q) funeral, burial, crematorium or mortuary services including transportation of the deceased. 70
Exemptions under Service Tax General ExemptionsSmall Scale Exemption• The threshold exemption limit of Rs. 10 lakh continues to exist and it is over and above the exemptions notified in Notification No. 25/2012-ST dated 20.6.2012.• W.e.f. 1.4.2012, aggregate value of Rs. 10 lakh would mean the sum total of value of first consecutive invoices issued during a financial year, but does not include value charged in invoices towards such services which are exempt from whole of service tax. (Refer Notification No. 33/2012-ST dated 20.6.2012) to be contd….
Exemption under Service Tax General Exemptions• W.e.f. 1.07.2012, Notification No. 6/2005 as amended shall no longer be applicable. There is a change in scope of aggregate value which shall mean as follows and subject to following conditions- total of value of taxable services value shall be as charged in first consecutive invoices issued during financial year value charged in invoices issued for taxable services which are exempt from whole of Service Tax shall be excluded in determining the aggregate value
Exemption under Service Tax General ExemptionsExemption for Exporters/SEZ Transportation of export goods by Goods Transport Agency in a goods carriage received by an exporter for transport of goods. (Refer Notification No. 31/2012- ST dated 20.6.2012) Refund of service tax paid on all input taxable services received by an exporter of goods and used for export of goods, subject to certain specified conditions. (Refer Notification No. 39/2012-ST dated 20.6.2012) Taxable services, received by a unit located in a Special Economic Zone or Developer of SEZ for the authorised operations. (Refer Notification No. 40/2012-ST dated 20.6.2012)
Exemption under Service Tax General ExemptionsExemption for Exporters/SEZ Rebate of Service Tax paid on taxable services received by exporter of goods and used for export of goods, subject to conditions (Refer Notification No. 41/2012-ST dated 29.6.2012) Exemption to services provided by commission agent located outside India and engaged by Indian exporter for promotion of export goods exported upto Service Tax calculated on 10% of free on board value of export goods (Refer Notification No. 42/2012-ST dated 29.6.2012)
Exemption under Service Tax General ExemptionsExemption to Import of Technology Taxable service involving import of technology, from so much of service tax, as is equivalent to the extent of amount of cess payable on the said transfer of technology under the provisions of section 3 of the Research and Development Cess Act, 1986.(Refer Notification No. 14/2012-ST dated 17.3.2012)Exemption for Services to Foreign Diplomatic Mission Taxable services provided for the official use of a foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers posted therein. (Refer Notification No. 27/2012-ST dated 20.6.2012)
Exemption under Service Tax General ExemptionsExemption to Services by TBI or STEP Taxable services provided by a Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, Government of India. (Refer Notification No. 32/2012-ST dated 20.6.2012) Exemption to Renting of an Immovable Property Taxable service of renting of an immovable property, from so much of the service tax leviable thereon, as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied and collected by local bodies. (Refer Notification No. 29/2012-ST dated 20.6.2012)
Exemption under Service Tax General ExemptionsExemption to Railway Services Taxation of services of passenger transportation by railways in first class / AC coach and transportation of goods by railways exempt upto 30 September, 2012 (Refer Notification No. 43/2012-ST dated 2.7.2012) W.e.f 1.10.2012 , Railway services is liable to Service Tax
Exempted Services(Vide mega Exemption Notification No. 25/2012-ST dated 20.6.2012) W.e.f. 1.7.2012 Covers 39 specific exemptions Negative List services – not taxable at all ; can be amended only by parliament Exempted services – taxable but exempt under notification; can be modified by notification.
Exempted Services(1)Services Provided to the United Nations or a Specified international organization(2)Health care services by a clinical establishment, an authorised medical practitioner or para-medics;(3)Services by a veterinary clinic in relation to health care of animals or birds ;
Exempted Services(4) Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities“Charitable activities”- Clause (k) means activities relating to – (a) public health by way of – • care or counselling of - (i) terminally ill persons or persons with severe physical or mental disability (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol or • public awareness of preventive health, family planning or prevention of HIV infection (b) advancement of religion or spirituality
Exempted Services(c) advancement of educational programmes or skill development relating to,- (I) abandoned, orphaned or homeless children (II) physically or mentally abused and traumatized persons (III) Prisoners or (IV) persons over the age of 65 years residing in a rural area(d) preservation of environment including watershed, forests and wildlife or(e) advancement of any other object of general public utility up to a value of twenty five lakhs rupees in any FY provided that total value of such activities had not exceeded twenty five lakhs rupees during the preceding FY
Exempted ServicesConditions for this exemption - services should be provided by an entity registered u/s 12AA of Income Tax Act, 1961, and services should be charitable activities (as above)
Exempted Services(5)Services by a person by way of- renting of precincts of a religious place meant for general public ; or conduct of any religious ceremony Religious place - meant for prayers / worship pertaining to religion, meditation or spirituality General Public- body of people at large sufficiently defined by some common quality of public or impersonal nature 85
Exempted Services(6) Services provided by- (a) an arbitral tribunal to - (i) any person other than a business entity; or (ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; (b) an individual as an advocate or a partnership firm of advocates by way of legal services to,- (i) an advocate or partnership firm of advocates providing legal services ; (ii) any person other than a business entity; or (iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or (c) a person represented on an arbitral tribunal to an arbitral tribunal;
Exempted ServicesTaxability for Arbitral TribunalSole / Panel to Arbitral Tribunal exempt to any person (non business entity) exempt to business entity (turnover upto 10 lakh) exempt to business entity (turnover > 10 lakh) taxed under reverse chargeTaxability for advocates Individual / firm to Individual / firm exempt to business entity (turnover upto 10 lakh) exempt to business entity (turnover > 10 lakh) taxed under reverse charge• Firm includes LLP• Effectively, no tax to be paid by advocates / arbitral tribunal• Legal services – advice, consultancy or assistance in any branch of law in any manner, includes representational services (N. No. 25/2012-ST dated 20.6.2012)
Exempted Services High Court of Delhi vide Order dated 21.09.2012 has stayed the implementation of this amendment in a petition (W.P. (C) No. 5957/2012) of Delhi Tax Bar Association. It has directed that the provisions of Section 65B(44) and 66B of the Finance Act, 1994 (as amended by the Finance Act, 2012) as well as Rule 2(1)(d)(D)(II) of the Service Tax Rules, 1994 shall not be given effect till the next date of hearing. 88
Exempted Services(7) Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India(8)Services by way of training or coaching in recreational activities relating to arts, culture or sports
Exempted Services(9) Services provided to or by an educational institution in respect ofeducation exempted from service tax, by way of - (a) auxiliary educational services or (b) renting of immovable propertyAuxiliary education services shall cover the services in relation toeducational activities only and include – (i) any service relating to imparting any skill knowledge education development of course conduct other knowledge enhancement activity (ii) whether for students or faculty (iii)out sourced activities ordinarily carried out by educational institutions
Exempted Services(iv) Services in relation to – admission conduct of examination catering of students under any mid day meal scheme sponsored by Government Transportation of students or faculty(v) Services in relation to catering under mid day scheme and transportation were hitherto exempt under different notifications under outdoor catering services and tour operator’s services
Exempted Services(10) Services provided to a recognized sports body by- (a) an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body; (b) another recognized sports body;(11) Services by way of sponsorship of sporting events organised- (a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone; (b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat; (c ) by Central Civil Services Cultural and Sports Board; (d) as part of national games, by Indian Olympic Association; or (e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme
Exempted Services(12) Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;d) canal, dam or other irrigation works;e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; orf) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
Exempted Services(13) Services provided by way of construction, erection, commissioning,installation, completion, fitting out, repair, maintenance, renovation, oralteration of,- a) a road, bridge, tunnel, or terminal for road transportation for use by general public; b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana; c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public; d) a pollution control or effluent treatment plant, except located as a part of a factory; or e) a structure meant for funeral, burial or cremation of deceased
Exempted Services• Construction of roads for use by general public - Exempt• Construction of roads which are not for general public use e.g. construction of roads in a factory, residential complex etc –Taxable• If assessee is constructing such structures for the government, a local authority or a governmental authority – Exempt• If assessee is constructing for others – Taxable• Construction of a building owned by an entity registered under section 12 AA of the Income tax Act, 1961 and meant predominantly for religious use by general public – Exempt• Repair, maintenance of airports, ports and railways -Taxable
Exempted Services(14) Services by way of construction, erection, commissioning, or installation of original works pertaining to,-a) an airport, port or railways, including monorail or metro;b) a single residential unit otherwise than as a part of a residential complex;c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; ore) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;
Exempted Services• Original works as defined in Valuation Rules means – (a) all new constructions; or (b) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable, (c) erection, commission or installation of plant, machinery or equipment or structures, whether prefabricated or otherwise• No service tax liability on erection or installation of machineries or equipments for units processing agricultural produce• Erection or installation of machineries or equipments for dal mills, rice mills, milk dairies or cotton ginning mills -Exempt• Only erection and construction of original works is covered• Exemption will cover low cost houses under the scheme of affordable housing in partnership
Exempted Services(15)Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films;(16) Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador;(17)Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India;(18) Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent;
Exempted Services(19)Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and (ii) a licence to serve alcoholic beverages 99
Exempted Services(20) Services by way of transportation by rail or a vessel from one place in India to another of the following goods -a. petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);b. relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap;c. defence or military equipments;d. postal mail or mail bags;e. household effects;f. newspaper or magazines registered with the Registrar of Newspapers;g. railway equipments or materials;h. agricultural produce;i. foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; orj. chemical fertilizer and oilcakes;
Exempted Services(21) Services provided by a goods transport agency by way of transportation of -a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;b) goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; orc) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;(22) Services by way of giving on hire - a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or b) to a goods transport agency, a means of transportation of goods;
Exempted Services(23)Transport of passengers, with or without accompanied belongings, by - a) air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal; b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or c) ropeway, cable car or aerial tramway;(24) Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;
Exempted Services(25)Services provided to Government, a local authority or a governmental authority by way of -a) carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; orb) repair or maintenance of a vessel or an aircraft;
Exempted Services(26)Services of general insurance business provided under Following schemesa. Hut Insurance Scheme;b. Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme);c. Scheme for Insurance of Tribals;d. Janata Personal Accident Policy and Gramin Accident Policy;e. Group Personal Accident Policy for Self-Employed Women;f. Agricultural Pumpset and Failed Well Insurance;g. premia collected on export credit insurance;
Exempted Servicesh. Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;i. Jan Arogya Bima Policy;j. National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);k. Pilot Scheme on Seed Crop Insurance;l. Central Sector Scheme on Cattle Insurance;m. Universal Health Insurance Scheme;n. Rashtriya Swasthya Bima Yojana; oro. Coconut Palm Insurance Scheme;
Exempted Services(27) Services provided by an incubatee up to a total turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:-a) the total turnover had not exceeded fifty lakh rupees during the preceding financial year; andb) a period of three years has not been elapsed from the date of entering into an agreement as an incubatee;(28)Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution - a) as a trade union; b) for the provision of carrying out any activity which is exempt from the levy of service tax; or c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex
Exempted Services(29)Services by the following persons in respective capacities -a) sub-broker or an authorised person to a stock broker;b) authorised person to a member of a commodity exchange;c) mutual fund agent to a mutual fund or asset management company;d) distributor to a mutual fund or asset management company;e) selling or marketing agent of lottery tickets to a distributer or a selling agent;f) selling agent or a distributer of SIM cards or recharge coupon vouchers;g) business facilitator or a business correspondent to a banking company or an insurance company, in a rural area; orh) sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;
Exempted Services(30)Carrying out an intermediate production process as job work in relation to - (a) agriculture, printing or textile processing; (b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act ,1985 (5 of 1986); (c) any goods on which appropriate duty is payable by the principal manufacturer; or (d) processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;
Exempted Services(31) Services by an organizer to any person in respect of a business exhibition held outside India ;(32) Services by way of making telephone calls from -a) departmentally run public telephone;b) guaranteed public telephone operating only for local calls; orc) free telephone at airport and hospital where no bills are being issued ;(33) Services by way of slaughtering of animals; 109
Exempted Services(34) Services received from a provider of service located in a non- taxable territory by -a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; orc) a person located in a non-taxable territory; 110
Exempted Services(35) Services of public libraries by way of lending of books, publications or any other knowledge- enhancing content or material;(36) Services by Employees’ State Insurance Corporation to persons governed under the Employees’ Insurance Act, 1948 (34 of 1948);(37) Services by way of transfer of a going concern, as a whole or an independent part thereof ;(38) Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets;(39)Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution ;
As defined in clause 44 of section 65B, ‘service’ includes a declared service. There are 9 categories of services or activities as declared services implying that on all such nine declared services, Service Tax shall be payable Does not include any such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Article 366 (29A) of the Constitution of India. What is declared services is defined in section 65B(22) to mean any activity carried out by a person for another person for a consideration and declared as such under section 66E of the Act. They are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country 113
Following constitute Declared Services (Section 66E) Renting of immovable property; Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority; Temporary transfer or permitting the use or enjoyment of any intellectual property right; Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software; 114
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods; Activities in relation to delivery of goods on hire purchase or any system of payment by installments ; Service portion in execution of a works contract; Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity. 115
Renting of Immovable PropertyRenting of Immovable Property Renting (Section 65B(41)) allowing, permitting or granting access, entry, occupation, usage or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable propertyRenting of certain kinds of immovable properties is specified in the negative list • Renting of vacant land, with or without a structure incidental to its use, relating to agriculture. • Renting of residential dwelling for use as residence • Renting out of any property by Reserve Bank of India • Renting out of any property by a Government or a local authority to a non-business entity 116
Renting of Immovable PropertyExemptions to Renting of Immovable property Threshold level exemption up to Rs. 10 lakh. Renting of precincts of a religious place meant for general public is exempt. Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent is exempt. Renting to / by an exempt educational institution Municipal taxes (Notification No. 29/2012-ST dated 20.6.2012) to be contd… 117
Renting of Immovable PropertyThe immovable property could be – factories office buildings warehouses theatres exhibition halls multiple use buildings commercial markets shops / shopping centre hotel, guest houses community centre Vacant land for commercial use etc. Allowing or permitting the usage of immovable property without transferring possession of such property is also renting of immovable property. 118
Renting of Immovable Property Nature of Activity TaxabilityRenting of property to educational body Not chargeable to service tax; exemptionRenting of vacant land for animal husbandry Not chargeable to service tax as it is covered in theor floriculture negative list entry relating to agriculturePermitting use of immoveable property for Chargeable to service tax as permitting usage ofplacing vending/dispensing machines space is covered in the definition of rentingAllowing erection of communication tower Chargeable to service tax as permitting usage ofon a building for consideration. space is covered in the definition of rentingRenting of land or building for entertainment Chargeable to service tax as there is no specificor sports exemption.Renting of theatres by owners to film Chargeable to service tax as the arrangementdistributors amounts to renting of immovable property.Renting of immovable property outside India not taxable in India even if owners arein India
Construction ActivitiesConstruction Activities [Section 66E (b)]Construction activities means construction of a complex, building, civilstructure or a part thereof, including a complex or building intendedfor sale to a buyer, wholly or partly, except where the entireconsideration is received after issuance of completion certificate by thecompetent authority.It includes construction of - Complex Building Civil structure or part thereof Complex or building intended for sale to a buyer except where entire consideration is received after issuance of completion certificate by the competent authority.Actual sale after construction-if consideration received before suchcompletion will also be taxed. 120
Construction Activities Construction is not defined Construction Includes additions, alteration, replacement, or remodelingof any existing civil structure 121
Construction ActivitiesWho is Competent Authority to Issue Completion Certificate Government Any authority authorized to Issue CC under any law In absence of any requirement to issue CC, • architect under Architect Act, 1972 • Chartered Engineer register with 10E • licensed surveyor (of local body / development or planning authority) 122
Construction ActivitiesResidential Complex Complex comprising of one or more buildings having more than one residential unit Even two units would be called ‘complex’ Single residential unit – self contained residential unit designed for use, wholly / principally, for residence of one family Original work – new construction and all type of addition / alteration to abandoned / damaged structures on land as are required to make them workable / erection , commissioning, installation. 123
Construction ActivitiesCircular F. No. V/ST –I /Tech –II /463/11 Mumbai dated31.08.2012 Intended for personal use of residence – not in the newdefinitionIf the construction is provided to the existing flat ownerunder SRA Project, Service tax will be applicableFloor rising charges are also taxable because theconstruction cost increases as per increase in the floor but itis eligible for abatement of 75% in N. No. 26/2012-ST dated20.6.2012 124
Intellectual Property RightTemporary transfer or permitting the use or enjoyment of anyintellectual property right [Section 66 E (c)]Intellectual property right has not been defined but Intellectual PropertyRight includes :• Copyright Patents Trademarks Designs Any other similar right to an intangible property 125
Intellectual Property RightExamples of IPRs Patents - New technical concepts, inventions Copyright - Text, graphics, software, data compilations, art, music Trademarks - Brands (Services/ Products) image and reputation Confidential Information - Ideas, information, know-how etc. Design Rights - Form and appearance, decoration 126
Intellectual Property RightWhat is taxed in IPR all IPRs (whether recognized in law or not) excluding copy rights temporary transfer of IPRs permitting the use of IPRs enjoyment of IPRs 127
Intellectual Property RightCopyrights as IPRs are exempted which include : literary work dramatic work musical work artistic works cinematograph films 128
Works contract [65B(54)] “Works Contract” means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. 129
Works contract covers Construction Erection Commissioning Completion Fitting out Repair Maintenance Renovation Alteration, or Any other similar activity or part there of 130
Such activities could be in relation to any – Movable property (plant, machinery, equipments etc) Immovable property (land, building, structures etc) This definition is very vast and covers almost everything 131
Some issues in works contractsLabour contracts ExcludedRepair & Maintenance of motor yes if property in goodsvehicles transferred in execution of WCConstruction of pipeline / conduit yes, structures on landPainting/repair/renovation of building yes if involves provision of material alsoErection/commissioning installation of yes if transfer of property inplant/ machine etc goods is involved 132
Principles of Interpretation of specific description of services [section 66F] Section 65A dealing with classification of taxable services omitted w.e.f. 1.7.2012 useful in deciding whether a service falls in negative list / exemptions / declared services composite v. bundled service bundled service – collection of services / tied up services more than one service element of one service combined with element of provision of other service (s). Examples - Mailing done by RTI, Air traveling and catering therein Earlier issue – which taxable service Now – whether any activity is a ‘service’ or not a ‘service’. 134
Rule 1Reference to main service can not be used for services used for providing the main service If some service is provided with reference to provision of main service, it does not become main service, Related services do not take the colour of main service. Examples • Provision of access to any road or bridge on payment of toll Security services IT related services Contract commission • Transportation of passengers by rail Air travel agency Tour operators 135
Rule 2Most specific description to be preferred over more generaldescription for services capable of differential treatment forany purpose based on its description Examples Real estate agent for immovable property • If taxed as intermediary, his location is important • If taxed as immovable property, location of property is important Outdoor catering by pandal & shamiana / convention to be taxed as specific combined entry exist for abatement and not as individual services 136
Taxability of naturally bundled services in ordinary courseof business (Rule 3) If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character Perception of service provider / service receiver Trade practice Example • Packaged hotel accommodation for convention delegates may include Hotel room accommodation Breakfast Tea / coffee during conference to be contd…… 137
Access to gym / health club / pool Internet Business centre Sight seeing Could be considered as naturally bundled convention services as each activity is taxable but does not provide essential character and taxed accordingly Indicators of naturally bundled services There is a single price or the customer pays the same amount, no matter how much of the package they actually receive or use The elements are normally advertised as a package. The different elements are not available separately. The different elements are integral to one overall supply – if one or more is removed, the nature of the supply would be affected. Each case to be individually examined
Bundled ServicesRule 4Taxability of services not naturally bundled ink ordinary course of business If various elements of a bundled service are not naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax. Examples Renting of two floors or two portions of building by a common agreement (treated as commercial use) Management of event covering advertisement, promotion, space booking, photography, videography, public relation etc.
Abatements• Besides full exemption to 39 categories of services vide Notification No. 25/2012-ST dated 20.06.2012• Earlier there were a number of exemption notifications that prescribed the abatements for various categories of services (including 1/2006)• Abatements merged into a single Notification No 26/2102 - ST dated 20/6/12• Valuation rules contain abatement for Works Contract and Supply of Food Services
Specific AbatementsSl. No. Description of taxable service Taxable Conditions value(%)1 Financial leasing services including 10 Nil equipment leasing and hire purchase2 Transport of goods by rail (exempted upto 30 Nil 30.9.2012)3 Transport of passengers, with or without 30 Nil accompanied belongings by rail ( exempted upto 30.9.2012)4 Supply of food or any other article of human 70 CENVAT credit on any goods consumption or any drink, in a premises, classifiable under chapter 1 including hotel, convention center, club, to 22 of the Central Excise pandal, shamiana or any place specially Tariff Act, 1985 has not been arranged for organizing a function taken under the provisions of the CENVAT Credit Rules, 2004.
Specific AbatementsSl. Description of taxable service Taxable ConditionsNo value(%)5 Transport of passengers by air, with 40 CENVAT credit on inputs or capital goods, or without accompanied belongings used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.6 Renting of hotels, inns, guest 60 Same as above. houses, clubs, campsites or other commercial places meant for residential or lodging purposes7 Transport of goods by road by 25 CENVAT credit on inputs, capital goods Goods Transport Agency and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.8 Services provided in relation to chit 70 Same as above.
Specific Abatements Sl. Description of taxable service Taxable Conditions No value(%)9 Renting of any motor vehicle 40 Same as above. designed to carry passengers10 Transport of goods in a vessel from 50 Same as above. one port to another11 Tour operator services 25 (i) CENVAT credit on inputs, capital (i) provided by a tour operator in relation goods and input services, used for to a package tour providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
Specific AbatementsSl. No Description of taxable Taxable Conditions service value(%) (ii) provided by a tour operator in 10 (i) CENVAT credit on inputs, capital goods relation to a tour, solely arranging and input services, used for providing the or booking accommodation taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
Specific AbatementsSl. No Description of taxable service Taxable Conditions value(%) (iii) Services, other than 40 (i) CENVAT credit on inputs, capital services specified above in (i) goods and input services, used for or (ii) providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.
Specific AbatementsSl. No Description of taxable service Taxable Conditions value(%)12. Construction of a complex, 25 (i) CENVAT credit on inputs building, civil structure or a used for providing the taxable part thereof, intended for a service has not been taken sale to a buyer, wholly or under the provisions of the partly except where entire CENVAT Credit Rules, 2004. consideration is received after issuance of completion (ii) The value of land is certificate by the competent included in the amount authority charged from the service recipient.
Specific AbatementsDraft Circular F. No.354 /146/2012 – TRU dated 27.09.2012 (AirTravel)Charges which are directly related to journey such as re-confirmationfee, date change fee, seat upgrade fee, preferred seat charges etc. willbe covered by abatementCharges which are not related to journey such as meal charges,escort charges etc. will not be covered by abatement.Excess baggage charge may be leviable to service tax withoutabatementPet charges may be leviable to service tax without abatementFor cancellation charges billed separately as administrative charge,abatement will not be applicable 148
Value of service portion in execution of work contract = gross amount charged for works contact less value of transfer of property in goods involved in execution of works contractGross amount includes Gross amount does not includeLabour charges for execution of Value of transfer of property in goods involved in thethe works execution of the said works contract.Amount paid to a sub-contractor Note:for labour and services As per Explanation (c) to sub-rule (i), where value addedCharges for planning, designing tax or sales tax has been paid or payable on the actualand architect’s fees value of property in goods transferred in the execution of the works contract, then such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred inCost of establishment of the the execution Tax (VAT) or sales tax, as the case may be, Value Added of the said works contract.contractor relatable to supply of paid, if any, on transfer of property in goods involved inlabour and services and other the execution of the said works contractsimilar expenses relatable tosupply of labour and servicesProfit earned by the serviceprovider relatable to supply oflabour and services 149
Alternative valuation model (Rule 2A of Valuation Rules)Where works contract is for… Value of the service portion shall be…(A) execution of original works forty percent of the total amount charged for the works contract(B) maintenance or repair or seventy per cent of the total amountreconditioning or restoration or servicing charged including such gross amountof any goods(C) in case of other works contracts, not sixty percent of the total amount chargedincluded in serial nos. (A) and (B) above, for the works contractincluding contracts for maintenance,repair, completion and finishing servicessuch as glazing, plastering, floor and walltiling, installation of electrical fittings. 150
Total Value = Sum total of + gross amount charged + value of goods and services supplied free of cost for use in or in relation to execution of WC Same Contract Any other Contract + value of land charged as part of total consideration - amount charged for such goods / services, if any - VAT levied, if any If value of FOC goods / services is not ascertainable, it will be determined on basis of fair market value having close resemblance FMV based on generally accepted accounting principles No Cenvat available on goods / inputs used in works contract 151
Valuation of Supply of food Restaurants provided conditional exemption Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other then those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverage. Threshold exemption What activities are covered – • Supply of food or drinks in a restaurant; • Supply of food and drinks by an outdoor caterer.
Valuation of Supply of food in a restaurant -40% of total value charged by outdoor catering - 60% of total value charged Exemption under Notification No. 25/2012-ST to mid day meal scheme and restaurants without bar license / air conditioning / central heating facility Abatement @ 30% Notification No. 26/2012-ST provided Cenvat credit is not taken on goods 153