“Service Tax Law Simplified”Session i
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  • 1. Presents 5th Knowledge Master Class On “Service Tax Law Simplified” Conducted by Dr. Sanjiv Agarwal FCA, FCSWednesday,20th March, 2013Gurgaon © Dr. Sanjiv Agarwal 1
  • 2. SESSION – I Overview ofTaxation of Services and Recent Changes 2
  • 3. This Presentation Covers • Economic Overview • Overview of Taxation of Services – Past and Present • GST – An Update • Major Changes in 2012 -2013 • Changes in Budget 2013-14 • New Penal Provisions • Power to Arrest • Voluntary Compliance Encouragement Scheme, 2013 3
  • 4. Indian Economy – An Overview India’s economy is the 11th largest economy in the world and the third fastest growing even in today’s recession, after China and Indonesia (Present growth rate around 5.5%) World is presently facing recession-II but Indian economy is still a growth economy Inflation –food, lifestyle Agriculture, services and industry are the major sectors of Indian economy. Contribution of different sectors in March, 2012 was :  Agriculture 19%  Services 59%  Industry 22% (likely to be @ 64% in March, 2013) 4
  • 5.  Indian GDP to grow about 5 percent in 2012-13 and growth expected at 6.1-6.7 percent in 2013-14 Tax Policy – clarity in tax Laws, stable tax regime, non-adversarial tax administration, fair mechanism for dispute resolution, independent judiciary Need to raise tax – GDP ratio which is presently around 6-7 percent. Service Tax contributes 11.50 percent of the gross tax revenue Service sector growth @ 9%, much higher than the GDP growth itself. Contribution of services sector in GDP at 64% including construction sector. No change in Service Tax rates. No change in peak rates of customs and excise duties also. Both education cesses will continue to be levied. 5
  • 6. Share of Services in GDP 6
  • 7. Growth in Tax GDP Ratio in India– Irratic and low Years Tax GDP ratio 1990-91 10.1% 2003-04 9.2% 2007-08 11.9% 2009-10 9.7% 2010-11 10.4% 2011-12 9.9% 2012-13 7.0%** Expected 7
  • 8. Year No of new Total No of Total collection services services (Rs. in crore)1994 3 3 4072001 - 26 26122005 13 72 141992008 7 103 513012010 3 112 580002012 0 120 97509 (A)2013 - All 132697 (RE)2014 - All 8 180141 (BE)
  • 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 9
  • 10.  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 over 25 other laws. Scattered and heterogeneous large mass of service providers as well as wide spectrum of services. Jurisdictional application. 10
  • 11. Selective Approach to Service Tax  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  Issues – Classification, Illogical definitions, Constitutional challenges, deemed services etc. 11
  • 12. Shift to Comprehensive Approach  W.e.f. 1st 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 (positive) to comprehensive approach (negative ) to tax services  All services to be taxed other than services specified in the negative list and exempted services – Section 66B. 12
  • 13. Taxation of Services by Finance Act, 2012 All Services (including declared Services (-) Specific Exclusions (-) Negative List Services (-) Exemptions (=) Taxable Services 13
  • 14. New system of taxation of services Negative list (17 in number) specified through statutory provisions – Section 66D. „Service‟ defined for the first time. „Negative List‟ and „declared services‟ also defined. 14
  • 15.  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 15
  • 16. New Provisions in Service Tax Section 66 B deals with charge of service tax on or 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 16
  • 17.  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 17
  • 18. GST: A Common Tax onGoods Services 18
  • 19.  Need for Centre to compensate states for loss due to reduction in CST rate Agreement on CST compensation - Rs 9000 crore provided in Budget Petroleum products to be under GST; Alcoholic products to be outside GST Constitutional Amendment Bill, 2011- Report of Standing Committee in this Budget session; further amendments to be made. Not likely before 2014 LS elections No clear road map and commitment on time lines on GST implementation Hope for consensus in next few months. 19
  • 20.  Time to wrap up loose ends GST rate – band may be introduced Consensus required at Empowered Committee on GST to abolish small taxes Agreement on dropping Dispute Settlement Body GST may be introduced in phases. States to decide / opt out States empowered to raise rates in case of distress Revenue sharing mechanism to be rationalized A suitable GST rate? Need for drafting a GST Law by States and Centre 20
  • 21.  Service Tax Law made shorter by about 40 percent Effective rate of Service Tax @ 12.36 percent w.e.f. 01.04.2012 including education cess. Definition of ‘service’ finds place in statutory provisions All services taxed including a set of services called ‘declared services’ Negative list of services containing 17 broad service categories out of Service Tax ambit. Withdrawal of many existing exemptions / abetments or their rationalization 21
  • 22.  Place of provision of service rules 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 provision of service rules coming into operation. Concept of taxable territory and non- taxable territory introduced Taxation of Service to be determined by provision of service in taxable territory and non taxable territory. Basis of charge of Service Tax shifted under new section 66B. Classification of service criteria replaced by new section 66F on interpretation principles of specified description of service or bundled services. 22
  • 23.  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. New Accounting Codes for payment of tax under new regime ( for July – November 2012) Tax Collection 00441089 Other Receipts 00441090 Penalties 00441093 Deduct Refunds 00441094 23
  • 24. Restoration of Service Specific Accounting Codes Circular No. 165 dated 20.11.2012 /Notification No. 48/2012-ST dated 3.12.2012 No change in law ; only for statistical analysis New code created for penalty Registration obtained under the positive list approach continue valid Registration under all taxable services to be amended online under specific head of services For reverse charge, registration should be obtained as service receiver under respective category. Accounting codes for residual entry Service Tax 00441480 Interest 00441481 Penalty 00441485 24
  • 25.  Change in valuation rules in relation to works contracts and outdoor catering / supply of food. 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 Recovery of tax dues – legal smartness (Circular dated 1.1.2013) 25
  • 26. Quarterly Service Tax Returns April to June, 2012 N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly return prescribed. Order No. 3/2012 - last date of return was extended upto 25.11.2012July to October, 2012N. No. 1/2013-ST, dated 22.02.2013Circular No. 137 dated 22.02.2013 / Order No. 1 New ST-3 Form Last date 25th March, 2013; extended to 15th April, 2013 To be uploaded on ACES portal by March, 2013 end To indicate capacity – as provider / under RCM / under partial RCM Filing of return for second half of 2012-13 to be notified later 26
  • 27.  Stability in negative list maintained with only a few changes. Vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agriculture and agriculture produce to be in the negative list. Definition of "process amounting to manufacture" will also include processes under Medicinal and toilet preparations (Excise Duties) Act, 1955. Service Tax to be levied on all restaurants which are air conditioned. The condition of liquor license done away with. Benefit of exemption to copyright on cinematography to be limited to films exhibited in cinema halls. Existing exemption from Service Tax for low cost housing and single residential units to continue. 27
  • 28.  Certain exemptions curtailed / withdrawn in relation to auxiliary education service and renting by educational institutes, transportation of goods by railway / vessel, vehicle parking to general public, repair or maintenance of government aircrafts, charitable activities etc. (w.e.f. 1.4.2013) Retrospective exemption to Indian railways for services provided between 1st July, 2012 upto 28th February, 2013 to the extent notices have been issued. Where it is held that extended period of limitation u/s 73 is not sustainable for making demands, Departments demand for normal period of 18 months shall be sustainable. Penalty u/s 77(a) (in case of non-registration) shall be restricted to a maximum of Rs. 10,000. Abatement reduced w.e.f. 1.3.2013 from 75% to 70% in case of luxury apartments / residential complexes (with carpet area of 2000 sq. ft. or more or value of Rs. 1 crore or more). 28
  • 29.  New provisions for revised punishments for offences u/s 89, make certain offences cognizable and others non cognizable and bailable. New Section 78A inserted to impose penalty on directors and officials of company for specified willful actions / offences. Power to arrest provided u/s 91 where Service Tax default is more than Rs. 50 lakhs. Advance Ruling can be sought to ascertain eligibility of Cenvat Credit on input services for a manufacturer of excisable goods. (w.e.f 1.3.2013) Resident public limited companies also allowed to seek advance ruling from Advance Ruling Authority. Stay orders of CESTAT to have a maximum period of 365 days (180+185) upto which stay granted will be operational even when assessee is not at fault.; Stay to get vacated after 365 days. 29
  • 30.  In Cestat appeals, single member bench can hear and dispose off appeals upto a monetary limit of Rs. 50 lakhs (previously Rs. 10 lakh). Mode of delivery of letters, orders etc will also include speed post and approved courier agency. Voluntary Compliance Encouragement Scheme, 2013 (VCES) introduced as a onetime amnesty measure to effect compliance and recovery and provide amnesty from interest and penalties (last date 31.12.2013). 30
  • 31. Section 78A Penalty for offences by director etc. of a companySection 89 Offences & penaltiesSection 90 Cognizance of offencesSection 91 Power to attrestGoes against non- adversarial tax policy of Government 31
  • 32. Penalty for offences by Company officials (Section 78A) To impose penalty for contraventions / violations by Company Penalty may extend up to Rs. one lakh Penalty on any director, manager, secretary or officer of Company Incharge / responsible to Company for conduct of business of Company If knowingly involved in specified contraventions 32
  • 33. Penalty for offences by Company officials (Section 78A)Specified Contraventions - Evasion of Service Tax Issuance of bill / Invoice / challan without provision of service in violation of rules. Availment and utilization of credit of taxes /duties without actual receipt of services /goods either fully or partially. Failure to pay amount collected as service tax to the credit of Central Government beyond 6 months of the due date 33
  • 34. Penalty for offences by Company officials (Section 78A)Personal Penalty Till now, there was no provision in the Finance Act, 1994 to levy personal penalty (also legally held) There can be no penalty on directors /officers / manager / secretary of non-company assessees 34
  • 35. Offences & Penalties (Section 89) Punishment to whoever commits any offence a) Knowingly evades payment of Service Tax b) Wrongly avails / utilizes credit of taxes c) Maintains false books of accounts/ supplies false information d) Collects tax but fails to pay within 6 months of due date Contd….. 35
  • 36. Offences & Penalties (Section 89) For (a), (b) and (c), amount > Rs. 50 lakhs – imprisonment from 6 months to 3 years For (d), if amount > Rs. 50 lakh – imprisonment from 6 months to 7 years For any other offences– imprisonment upto 1 year For second or subsequent conviction  (a), (b), (c), other offences – imprisonment upto 3 years  (d) – imprisonment upto 7 years 36
  • 37. Cognizance of Offences (Section 90) Cognizable Offences Failure to deposit service tax collected where amount exceeds Rs. 50 lakhs Non-Cognizable and Bailable Offences All offences except cognizable offences as above Detailed instructions to be issued(Similar provisions existed prior to 16.10.1998) 37
  • 38. Power to Arrest (Section 91) Provides power to arrest Covers all classes of assessees Empowers Commissioner of Central Excise He may authorize any officer not below the rank of Superintendent to arrest Who can be arrested – any person as per Section 89 Trigger for arrest – offences – as per Section 89(1) Arrests to be made in terms of Code of Criminal Procedure, 1973 (CCP) For Cognizable offences  Grounds of arrest to be informed to such person  Produced before Magistrate with in 24 hours Asstt. / Deputy Commissioner empowered to release an arrested person on bail in case of non -cognizable / bailable offences To have same powers as officer -in -charge of Police Station in terms of Section 436 of CCP 38
  • 39. Changes in Budget 2013-14 (Finance Bill, 2013)Power to Arrest (Section 91)Impact Punitive punishments measures Possible harassment of small service providers (sole proprietors etc.) But tax amount of Rs. 50 lakhs provides a breather May improve compliances Regressive Increase litigation Need to distinguish between willful and genuine defaluts 39
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  • 43. Voluntary Compliance Encouragement Scheme, 2013 (VCES) Chapter VI (Clause 94-104 of Finance Bill, 2013) 17 lakh assessees, 7 lakh returns filed Stop filers / non-filers Only a one time scheme To chase assessees not possible Hope to collect reasonable money Action & consequences  Truthful declaration of service tax dues service 1.10.2007 upto 31.12.2012 by defaulter as on 1.03.2013  Payment of due tax in 1 or 2 installments  Interest , penalties and other consequences waived Not applicable to period before 1.10.2007 or after 31.12.2012 Not applicable to cases involved search, audit, investigation, SCN or summon issued cases as on 1. 03. 2013 43
  • 44. Voluntary Compliance Encouragement Scheme, 2013 (VCES) Pay at least half of tax before, 31st December, 2013 Pay balance by  30th June, 2014 without interest  31st December 2014 with interest w.e.f. 1.07.2014 Dues for period after 31st December, 2012 to be settled as per present Law No refund of amount paid under VCES Tax dues declared but not paid – to be recovered as per Law False declaration to be rejected - reason to believe, notice to be served No action after one year from date of declaration Once acknowledgement is issued - no reopening permissible 44