LATUR BRANCH OF WIRC OF ICAI                      Residential Refresher Course (RRC)                               A Prese...
SESSION - I   PARADIGM SHIFT IN TAXATION OF   SERVICES IN INDIA – AN OVERVIEW                  &MAJOR CHANGES IN SERVICE T...
This presentation covers  •   Overview of Taxation of Services in India  •   Selective Approach (Positive)  •   Shift to C...
Indian Economy – An overview   India’s economy is the 11th largest economy in the world    and the second fastest growing...
Brief Overview of Services /       Service Tax Share of         Services in GDP Agricult ure    19%                       ...
Share of services in GDP                          tracked        Year                  % of GDP       1950               ...
Growth in Tax GDP Ratio –   Slow                but Steady Years          Tax GDP ratio2003-04         9.2%2007-08        ...
Power to Tax in India   India has a two tier federal power to collect tax –         the Union Government,         the S...
Taxonomy of Indian                       taxationTAXATION POWERS OF UNION Income Tax        –     on income, except      ...
Service Tax in India (The Past)   Introduced in India in 1994 as a simple, modest tax with    just three services.   Ser...
Growth of Service TaxYear    No of new services Total No of   Total collection                           services      (Rs...
Service Tax in India (The Past)Selective Approach to Service Tax      Selective v. Comprehensive approach      Taxation ...
Service Tax in India (The Past)Selective Approach : Some Issues      Classification of service – disputes      Illogical...
Service Tax - TodayShift to Comprehensive approach     W.e.f. 1 July 2012     Finance Act, 2012 – A land mark Act to shi...
Taxation of Services by Finance Act, 2012               All Services      (including declared Services                  (-...
Service Tax - TodayNew system of taxation of services All services to be taxed other than services  specified in the nega...
Service Tax provisions no longer                   applicable (w.e.f. 1.7.2012)   Section 65       Old definitions of Ser...
New Provisions in Service Tax   Section 66 B deals with charge of service tax                 on the after Finance Act, 2...
The New Taxability Concept                            SERVICE FOR A                            CONSIDERATION              ...
Taxable of Services w.e.f.                      1.7.2012     All services                 Taxable    [section 65B (44)] ...
Taxation of Services Post Finance           Act, 2012                               21
What is Service‘Service has been defined in clause (44) of the new section  65B and means –   any activity   for conside...
What is Service   Activity must be for a consideration   Activity – includes both activity as well as non-activity   Co...
What is Service    Activity    Not defined in the Act    In common understanding, activity includes –            An act...
What is ServiceActivity for a Consideration  Activity should be carried out by a person for a  consideration Activity wit...
What is ServiceConsideration (Section 67)   Means everything received or recoverable in return for a    provision of serv...
What is ServiceConsideration   Monetary       consideration     means     any    consideration in form of Money.   Inclu...
What is ServiceMoney- 65B (33)       "money" means legal tender, cheques, promissory note, bill of       exchange, letter ...
What is ServiceTax on Money Remittance No service tax on foreign currency remitted to India from  overseas (Circular No.1...
What is ServicePerson-65B(37)  "person" includes,––     •   an individual,     •   a Hindu undivided family,     •    a co...
What is ServiceGovernment – Not defined Section 3 (22) of General Clause Act,  1897 Includes Central/State Government/ U...
What is ServiceLocal Authority - Section 65B(31) A Panchayat as referred to in clause (d) of article 243 of  the Constitu...
What is ServiceGovernmental Authority (N. No. 25/2012- ST)     board/ Authority / other body     established with > 90% ...
What is Service :                            Exclusions Service does not include - any activity that constitutes only a t...
What is ServiceThis scope shall not apply to –a)   functions performed by M.P., M.L.A., Members of     Panchayats / Munici...
What is ServiceIt may be noted that -(a) an unincorporated association or a AOP and a member   thereof shall be treated as...
Taxability of Services – Then & Now          Period                       Taxable                     Non TaxablePrior to ...
MAJOR CHANGES IN SERVICE TAX                LAW BY The FINANCE ACT, 2012 - AT                           A GLANCE   Object...
MAJOR CHANGES IN SERVICE TAX                 LAW BY The FINANCE ACT, 2012 - AT                            A GLANCE   Plac...
MAJOR CHANGES IN SERVICE TAX LAW                 BY The FINANCE ACT, 2012 - AT A                            GLANCE•   Cons...
MAJOR CHANGES IN SERVICE TAX LAW                 BY The FINANCE ACT, 2012 - AT A                            GLANCE   Chan...
Goods & Service Tax               (The Future)        GST: A Common Tax              onGoods                   Services   ...
GST - Journey so farBudget 2012   No announcement on GST rollout date   GST to be implemented in consultation with the S...
The Journey – beginning of                       end…….   Past                Present    FutureNational GST         Dual G...
Abatements•   Besides full exemption to 39 categories of services vide    Notification No. 25/2012-ST dated 20.06.2012•   ...
Specific AbatementsSl. No.         Description of taxable service            Tax Percent-           Conditions            ...
Specific Abatements5   Transport of passengers by air,         40   CENVAT credit on inputs or capital    with   or    wit...
Specific Abatements9    Renting   of   any    motor    vehicle 40   Same as above.     designed to carry passengers10   Tr...
Specific Abatements(ii)   provided   by   a   tour   10   (i) CENVAT credit on inputs, capitaloperator in relation to a to...
Specific Abatements(iii) Services, other than   40   (i)   CENVAT      credit    on    inputs,services specified above    ...
Specific Abatements12.   Construction of a complex, 25    (i) CENVAT credit on inputs      building, civil structure or a ...
Changes in Reverse                         Charge Mechanism   W.e.f. 1.7.2012 a new scheme of taxation is being brought i...
Reverse Charge Mechanism                     under various servicesSr.No   Description of Service               Service pr...
Reverse Charge Mechanism                         under various services4.   Services provided by an arbitral tribunal    N...
Reverse Charge Mechanism                    under various services7.   Hiring of Motor Vehicle                 Nil   100 %...
Reverse Charge Mechanism under                     various services9.    Services provided in service portion in      exec...
Appeal before Commissioner                      (Appeals)               Time Period for AppealPrior to 28.5.2012 (sub-sect...
Appeal before Commissioner                      (Appeals)w.e.f. 28.5.2012 (sub-section 3A)     To appeal within two month...
Revision Mechanism   Introduced by Finance Act, 2012   Section 35EE of Central Excise Act, 1944 made applicable to    Se...
Revision Mechanism   Revision by Central Government (Joint Secretary in MOF)   Revision application to be heard and orde...
Settlement Provisions in                        Service Tax   Introduced by Finance Act, 2012 w.e.f. 28.5.2012   Section...
Benefits of Settlement   Quick settlement of disputes to avoid prolonged litigation   A one time tax evader or an un-int...
Settlement of Cases   Any assessee can approach the Settlement Commission   The proceedings / cases should be pending wi...
Settlement of Cases   Application must make full and true disclosures before the    Settlement Commission which is the ve...
Retrospective Amendments•   Special provision for exemption in certain cases relating    to management etc of roads (Secti...
Place of Provision of Services Rules,                   2012 (Section 66C)These rules are primarily meant for persons who ...
Basis of classification   Location of service receiver [R. 3]   Performance of service/ Location of immovable    propert...
Place of Provision of Services                  Rules, 2012 (Section 66C)What is the place of provision of services   Per...
Place of Provision of Services                     Rules, 2012 (Section 66C)   Services provided at more than one locatio...
Input servicesInput Services amended to include   ‘General Insurance’, ‘servicing, repair and maintenance’, of    motor v...
Input services and inputs –                     works contracts and builder’s                               servicesInput ...
Input services and inputs –                  works contracts and builder’s                            servicesbut excludes...
Service tax paid on reverse                          chargeOutput service2(p) “output service” means any service provided ...
Service tax paid on reverse                      charge5B. Refund of CENVAT credit to service providers    providing servi...
Amendment in Cenvat Credit                         RulesRule 7. Manner of distribution of credit by input service  distrib...
Amendment in Cenvat Credit Rules    “ No interest ” on Cenvat credit wrongly availed but not    utilised   Rule 14 amende...
Service Tax Rules - changes effective                          from 01.04.2012   Self adjustment of excess tax paid      ...
Amendments in Finance Act, 1994-         changes effective from 28.05.2012Special audit in service tax (Section 72A) If Co...
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Residential Refresher Course (RRC) -Presentation i

  1. 1. LATUR BRANCH OF WIRC OF ICAI Residential Refresher Course (RRC) A Presentation On “New Regime of Service Taxation in India”On bySaturday, Dr. Sanjiv Agarwal25st August,2012 FCA, FCS@ Goa © Dr. Sanjiv Agarwal
  2. 2. SESSION - I PARADIGM SHIFT IN TAXATION OF SERVICES IN INDIA – AN OVERVIEW &MAJOR CHANGES IN SERVICE TAX LAW BY The FINANCE ACT, 2012 - AT A GLANCE 2
  3. 3. This presentation covers • Overview of Taxation of Services in India • Selective Approach (Positive) • Shift to Comprehensive approach (Negative) • The future approach (Proposed GST) • Abatements • Reverse Charge • Other Amendments – Place of Provision, Cenvat Credit, Appeal, Revision, Settlement etc. 3
  4. 4. 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……. 4
  5. 5. Brief Overview of Services / Service Tax Share of Services in GDP Agricult ure 19% Service Sect orIndust ry 59% 22%GDP C O MPO S ITIO N IN MARC H, 2012 5
  6. 6. 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 6
  7. 7. Growth in Tax GDP Ratio – Slow but Steady Years Tax GDP ratio2003-04 9.2%2007-08 11.9%2009-10 9.7%2010-11 10.3%2011-12 10.1% 7
  8. 8. Power to Tax in India India has a two tier federal power to collect tax –  the Union Government,  the State Governments including urban/rural local bodies Presently goods are liable to Vat / Excise / Customs duty while taxable services attract service tax. Certain transactions subject to both - Vat and Service tax Efforts to revamp the direct tax structure - New direct tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957 would be scrapped) proposed Efforts to bring on a single indirect tax – GST proposed 8
  9. 9. Taxonomy of Indian taxationTAXATION POWERS OF UNION Income Tax – on income, except agricultural income Excise Duty – on goods manufactured Custom Duty – on imports Service Tax – on specified services Central Sales Tax – on inter-state sale of goods Stamp Duty – on 10 specified instruments to be contd….. 9
  10. 10. 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. 10
  11. 11. 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) 11
  12. 12. 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 12
  13. 13. Service Tax in India (The Past)Selective Approach : Some Issues  Classification of service – disputes  Illogical definitions  Problem defining each taxable service  Inefficient tax administration  Constitutional Challenges  Services / deemed Services  Valuation / abatement / reverse charge 13
  14. 14. 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  Section 65 (Definition of Taxable Service), 65A (Classification of Taxable service), 66 (Charge of Section Tax) and 66A (Charge of Service Tax on Services received from outside India) have no application w.e.f. 01.07.2012. 14
  15. 15. Taxation of Services by Finance Act, 2012 All Services (including declared Services (-) Specific Exclusions (-) Negative List Services (-) Exemptions (=) Taxable Services 15
  16. 16. 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. 16
  17. 17. 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 17
  18. 18. 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 service. 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 18
  19. 19. The New Taxability Concept SERVICE FOR A CONSIDERATION 9 DECLARED SERVICESE: EmployeeM: MoneyA: Actionable claim E - MAGIC TESTG: GoodsI: Immovable propertyC: Court Fee 19
  20. 20. Taxable of Services w.e.f. 1.7.2012 All services Taxable [section 65B (44)] Declared services Taxable (section 66E) Services covered under Not Taxable negative list of services (section 66D) Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions Exempted 20
  21. 21. Taxation of Services Post Finance Act, 2012 21
  22. 22. What is Service‘Service has been defined in clause (44) of the new section 65B and means – any activity for consideration carried out by a person for another and includes a declared service (66E) 22
  23. 23. What is Service Activity must be for a consideration 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 23
  24. 24. 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 24
  25. 25. 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 25
  26. 26. What is ServiceConsideration (Section 67) Means everything received or recoverable in return for a provision of service provided or to be provided which includes -  Monetary payment  Non-monetary payment  Deferred consideration Under Indian Contract Act, 1872, Consideration means - “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise” 26
  27. 27. 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 27
  28. 28. What is ServiceMoney- 65B (33) "money" means legal tender, cheques, promissory note, bill of exchange, letter of credit, draft, pay order, traveller cheques, money order, postal or electronic remittance or any similar instrument but shall not include any currency that is held for its numismatic valueActionable Claim –Section 3 of Transfer of Property Act, 1882 • Claim to unsecured debts • Claim to beneficial interest in movable property not in possession of claimant • Right to insurance claim • Arrears of rent 28
  29. 29. 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) 29
  30. 30. 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 30
  31. 31. 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 31
  32. 32. What is ServiceLocal Authority - Section 65B(31) A Panchayat as referred to in clause (d) of article 243 of the Constitution A Municipality as referred to in clause (e) of article 243P of the Constitution A Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund A Cantonment Board as defined in section 3 of the Cantonments Act, 2006 A regional council or a district council constituted under the Sixth Schedule to the Constitution A development board constituted under article 371 of the Constitution, or A regional council constituted under article 371A of the Constitution. 32
  33. 33. What is ServiceGovernmental Authority (N. No. 25/2012- ST)  board/ Authority / other body  established with > 90% participation  of government control/ equity  set up by Act of Parliament or State Legislature  to carry out any functions entrusted to municipality u/s 243W of constitution 33
  34. 34. What is Service : Exclusions Service 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 34
  35. 35. What is ServiceThis scope 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 the commencement of this section. 35
  36. 36. What is ServiceIt may be noted that -(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 and anyof his other establishment in a non-taxable territory shall betreated as establishments of distinct persons.(c) A person carrying on a business through a branch or agency orrepresentational office in any territory shall be treated as havingan establishment in that territory 36
  37. 37. Taxability of Services – Then & Now Period Taxable Non TaxablePrior to Finance Act, 2012(upto 30.6.2012) • Taxable services • Exempt services specified in section 65 • Service not covered (105) under section 65 (105) • Import of services under • Export of services reverse chargePost Finance Act, 2012(w.e.f. 1.7.2012) • All services provided in • Services in Negative List taxable territory • Exempt services • Declared services • Services provided in non- taxable territory (as per POPS Rules) 37
  38. 38. MAJOR CHANGES IN SERVICE TAX LAW BY The 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 38
  39. 39. 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. 39
  40. 40. 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. 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…. 40
  41. 41. 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 .• New Accounting Code – 00441089 (tax), 00441090 (other receipts), 00441093 (penalties) 41
  42. 42. Goods & Service Tax (The Future) GST: A Common Tax onGoods Services 42
  43. 43. GST - Journey so farBudget 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 Supply Rules, 2012 to trigger debate to assess issues that may arise in taxation of inter state services for eventual launch of GST. 43
  44. 44. The Journey – beginning of end……. Past Present FutureNational GST Dual GST ??????? …or end of beginning !! 44
  45. 45. 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 45
  46. 46. Specific AbatementsSl. No. Description of taxable service Tax Percent- Conditions age1 Financial leasing services including 10 Nil equipment leasing and hire purchase2 Transport of goods by rail ( now exempt 30 Nil till 30.9.2012)3 Transport of passengers, with or without 30 Nil accompanied belongings by rail ( now exempt till 30.9.2012)4 Supply of food or any other article of 70 CENVAT credit on any human consumption or any drink, in a goods classifiable under premises, including hotel, convention chapter 1 to 22 of the center, club, pandal, shamiana or any Central Excise Tariff Act, place specially arranged for organizing a 1985 has not been taken function under the provisions of 46 the CENVAT Credit Rules,
  47. 47. Specific Abatements5 Transport of passengers by air, 40 CENVAT credit on inputs or capital with or without accompanied goods, used for providing the taxable belongings 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 Transport Agency goods 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 70 Same as above. chit 47
  48. 48. Specific Abatements9 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, (i) provided by a tour operator in capital goods and input relation to a package tour services, used for 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 48 inclusive of charges for such a
  49. 49. Specific Abatements(ii) provided by a tour 10 (i) CENVAT credit on inputs, capitaloperator in relation to a tour, goods and input services, used forsolely arranging or booking providing the taxable service, has notaccommodation 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. 49
  50. 50. Specific Abatements(iii) Services, other than 40 (i) CENVAT credit on inputs,services specified above capital goods and input services,in (i) or (ii) used for 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. 50
  51. 51. Specific Abatements12. 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, consideration is received 2004. after issuance of completion certificate by the competent (ii) The value of land is authority included in the amount charged from the service recipient. 51
  52. 52. Changes in Reverse Charge Mechanism W.e.f. 1.7.2012 a new scheme of taxation is being brought into effect whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/ 2012 dated 20.6.2012 ) The extent to which tax liability has to be discharged by the service receiver specified in the notification. Credit of tax paid by service recipient The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan 52
  53. 53. Reverse Charge Mechanism under various servicesSr.No Description of Service Service provider Service receiver1. Services provided by an insurance Nil 100% agent to any person carrying on insurance business2. Services provided by a goods Nil 100% transport agency in respect of transportation of goods by road3. Services provided by way of Nil 100% sponsorship 53
  54. 54. Reverse Charge Mechanism under various services4. Services provided by an arbitral tribunal Nil 100%5. Services provided by individual advocate Nil 100% or a firm of advocates by way of legal services5A Services provided by director to the Nil 100% company (w.e.f. 7.08.2012)6. Services provided by Government or Nil 100% local authority by way of support services excluding,- (1) renting of immovable property, (2) postal services (3) transport of goods / passengers (4) air craft or vessel 54
  55. 55. Reverse Charge Mechanism under various services7. Hiring of Motor Vehicle Nil 100 % (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business 60% 40% (b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business8. Services provided by way of supply of 25% 75 % manpower or security services for any purpose (w.e.f. 7.08.2012) 55
  56. 56. Reverse Charge Mechanism under various services9. Services provided in service portion in execution of works contract 50% 50%10. Services provided by any person who is located in a non-taxable territory Nil 100% and received by any person located in the taxable territory 56
  57. 57. Appeal before Commissioner (Appeals) Time Period for AppealPrior to 28.5.2012 (sub-section 3) To appeal within three months from date of communication of order appealed against Period of 3 months can be extended by further 3 months (total 6 months) by Commissioner (Appeals) Condonation of delay/ extension beyond 3 months is beyond the power of Commissioner (Appeal) to be contd………. 57
  58. 58. Appeal before Commissioner (Appeals)w.e.f. 28.5.2012 (sub-section 3A)  To appeal within two months from date of communication of order passed after 28.05.2012  Period of 2 months can be extended by further 1 month (total 3 months) by Commissioner (Appeals)  Condonation of delay/ extension beyond 1 month is beyond the power of Commissioner (Appeal) 58
  59. 59. Revision Mechanism Introduced by Finance Act, 2012 Section 35EE of Central Excise Act, 1944 made applicable to Service Tax w.e.f. 28.05.2012 All appeals against Commissioner (Appeals) orders lied before Tribunal prior to 28.05.2012. Like Excise, in Service Tax also, revision authority shall hear matters relating to –  Cenvat Credit  Rebate of Exports to be contd…….. 59
  60. 60. Revision Mechanism Revision by Central Government (Joint Secretary in MOF) Revision application to be heard and order passed Order may be annulled or modified Minimum amount of dispute Rs. 5000 To be filed within 3 months of communication of order Revision can be sought by CCE/ assessee Central Government can also suo moto revise No provisions for appeal against revisionary order Only remeady is writ Jurisdiction Quasi judicial proceedings 60
  61. 61. Settlement Provisions in Service Tax Introduced by Finance Act, 2012 w.e.f. 28.5.2012 Sections 31, 32 and 32A to 32P of Central Excise Act, 1944 made applicable to Service Tax (section 83 of Finance Act, 1994) Service Tax (Settlement of Cases) Rules, 2012 notified (N.No. 16/2012-ST dated 28.05.2012) Objective to encourage quick settlement of disputes and save business from prosecution / penalties Principal bench at Delhi (benches at Mumbai, Calcutta, Chennai) 61
  62. 62. Benefits of Settlement Quick settlement of disputes to avoid prolonged litigation A one time tax evader or an un-intending defaulter can make clean his affairs through Settlement Any defaulting person can admit his guilt, pay taxes with applicable interest and avoid further liabilities Settlement Commission can grant waiver/ reduction of penalty, fine or interest Settlement Commission can grant immunity from prosecution to assessee, its directors and partners 62
  63. 63. Settlement of Cases Any assessee can approach the Settlement Commission The proceedings / cases should be pending with aggregate amount of more than Rs 3 lakh involved Application to Settlement Commission should be made with prescribed fee and in prescribed form Application once made, can not be withdrawn Application can be made by any assessee including directors or partners of firms Application can also be filed by two or more assessees and joint / co - noticees proceedings or case must be pending before the adjudicating authority on the date of application. A show cause notice should have been issued 63
  64. 64. Settlement of Cases Application must make full and true disclosures before the Settlement Commission which is the very basis of settlement. Issues relating to recovery of Cenvat credit can also be taken up before the Settlement Commission Cases involving only penalty or cases which are pending before court or Appellate Tribunal shall not be entertained by the Settlement Commission. Cases involving interpretation of classification and valuation can not be taken up by Settlement Commission . 64
  65. 65. Retrospective Amendments• Special provision for exemption in certain cases relating to management etc of roads (Section 97)• Special provision for exemption in certain cases relating to management etc of non-commercial Government buildings (Section 98)• Exemption to club & association including cooperative societies for projects meant for treatment of effluents / solid waste w.e.f. 16.6.2005 (Section 145) 65
  66. 66. Place of Provision of Services Rules, 2012 (Section 66C)These rules are primarily meant for persons who deal incross-border services and state of Jammu and Kashmir. The service providers operating within India frommultiple locations, without having centralizedregistration and services that are wholly consumedwithin a SEZ, to avail the outright exemption will findthem useful in determining the precise taxablejurisdiction. 66
  67. 67. Basis of classification Location of service receiver [R. 3] Performance of service/ Location of immovable property (also include multiple locations of performance) [R.4,5,6,7] Both provider and receiver in India [R. 8] Location of service provider [R.9] Service of transportation of goods and services [R. 10,11] Services provided on board conveyance [R.12] Order of application [R.14] 67 67
  68. 68. Place of Provision of Services Rules, 2012 (Section 66C)What is the place of provision of services Performance based services – Location of performance Immovable property related services – Location of immovable property. Services relating to events – Location of event held. 68
  69. 69. Place of Provision of Services Rules, 2012 (Section 66C) Services provided at more than one location – Location in the taxable territory where the greatest proportion of service is provided. Services where both service provider and receiver are located in the taxable territory – Location of service receiver Specified services ( banking, online , Intermediary, transport hiring) – Location of service provider. Goods transportation services – Place of destination of goods. (In GTA Service – Location of the person liable to pay tax Passenger Transportation service – Place were the passenger embarks. Services provided on board a conveyance – Location of first scheduled point of departure. Where more than one rule is applicable(which merit equal consideration), 69 the later rule will apply
  70. 70. Input servicesInput Services amended to include ‘General Insurance’, ‘servicing, repair and maintenance’, of motor vehicles covered as input service in case of vehicle manufacturers and insurance companies Renting of motor vehicle availed by a person for whom motor vehicle is capital goods, shall be considered as input services For others these services are excluded 70
  71. 71. Input services and inputs – works contracts and builder’s servicesInput definition….. but excludes-(B) any goods used for - (a) construction or execution of works contract of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act; 71
  72. 72. Input services and inputs – works contracts and builder’s servicesbut excludes-(1) service portion in the execution of a works contract and(2) construction services including(3) service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services)in so far as they are used for -(a) construction or execution of works contract of a building or a civil structure or a part thereof; or(b) laying of foundation or making of structures for support of capital goods,- except for the provision of one or more of the specified services; or ] 72
  73. 73. Service tax paid on reverse chargeOutput service2(p) “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,-• specified in section 66D of the Finance Act; or• where the whole of service tax is liable to be paid by the recipient of service 73
  74. 74. Service tax paid on reverse charge5B. Refund of CENVAT credit to service providers providing services taxed on reverse charge basis.- A provider of service providing services notified under sub- section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the 74
  75. 75. Amendment in Cenvat Credit RulesRule 7. Manner of distribution of credit by input service distributor Input service distributor to distribute the credit on service tax paid on input service to its manufacturing units or units providing output service, subject to the following conditions - (a) the credit distributed against a document does not exceed the amount of service tax paid thereon (b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed (c)credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit (d)credit of service tax attributable to service used in more than one unit shall be distributed prorata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the 75 units to which the service relates
  76. 76. Amendment in Cenvat Credit Rules “ No interest ” on Cenvat credit wrongly availed but not utilised Rule 14 amended to provide that interest is chargeable if Cenvat credit is “wrongly availed and utilized”. Thus, no interest is chargeable if Cenvat credit is wrongly availed but remains unutilized. However, rule 15 relating to penalty has not been amended and therefore in deserving cases, penalty may be charged even if wrongly availed Cenvat credit is not utilized. 76
  77. 77. Service Tax Rules - changes effective from 01.04.2012 Self adjustment of excess tax paid Excess amount can be adjusted without any monetary limits provided excess payment is not on account of interpretation of law, taxability, classification, valuation or applicability of any exemption Notification. (Rule 6 (4A)) Small service providers to pay tax on receipt basis In respect of individual / firms whose value of taxable services from multiple locations is Rs.50 lakhs or less in the previous financial year option available to pay tax upto Rs.50 lakhs in the current financial year based on receipt of payment. 77
  78. 78. Amendments in Finance Act, 1994- changes effective from 28.05.2012Special audit in service tax (Section 72A) If Commissioner has reasons to believe that tax payer has failed to declare the correct value of service, taken CENVAT by fraud, services in multiple locations etc, he can order special audit by CA/CWA even if it is already audited under any other law. 78

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