Work Shop on New Regime of Taxation of service-part II

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Work Shop on New Regime of Taxation of service-part II

  1. 1. Presents A Knowledge Master Class On “Understanding New Regime of Service Taxation in India” Conducted by Dr. Sanjiv Agarwal FCA, FCSThursday,13th December, 2012Gurgaon © Dr. Sanjiv Agarwal 1
  2. 2. SESSION – IIScope of Taxation of Services 2
  3. 3. This Presentation Covers • Scope of ‘Service’ under new regime • Declared Services • Bundled Services • Abatements 3
  4. 4. ‘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) 4
  5. 5. Services on which Service Tax shall be attracted comprise of :  Those services which satisfy the definition of service u/s 65B (44)  Nine specified declared services u/s 66E  Those services which do not find place in negative list of services u/s 66D  Those services which are not exempt from levy of Service Tax under Notification No. 25/2012-ST dated 20.06.2012 to be contd…. 5
  6. 6. Scope of services under Service TaxServices on which no Service Tax shall be payable comprise of : • Service which are specifically excluded from the scope of definition of service itself u/s 65B(44). • 17 broad services specified in the negative list of services u/s 66D. • Services which are exempt from levy of Service Tax under N. No. 25/2012-ST dated 20.06.2012. • Specified services otherwise exempt under specific notifications. • Activities where service provider and service receiver are in non –taxable territory 6
  7. 7. The New Taxability Concept SERVICE FOR A CONSIDERATION 9 DECLARED SERVICESE: EmployeeM: MoneyA: Actionable claim E - MAGIC TESTG: GoodsI: Immovable propertyC: Court Fee 1. Non - Taxable 2. Negative territory list (17) (POPS) 3. Exemption s (39) Taxable 7
  8. 8.  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 8
  9. 9. 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 9
  10. 10. Consideration Means everything received or recoverable in return for a provision of service 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” 10
  11. 11. Consideration 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 11
  12. 12. Activity 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 12
  13. 13. Money- 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 13
  14. 14. Tax on Money Remittance (Circular No. 163 dated 10.7.2012) No service tax on foreign currency remitted to India from overseas 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) 14
  15. 15. Person-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 15
  16. 16. Government – 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 16
  17. 17. Local 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. 17
  18. 18. Governmental Authority (N. No. 25/2012-ST)  Board/ Authority / other body  Established with > 90% participation  Equity /government control  Set up by Act of Parliament or State Legislature  To carry out any functions entrusted to Municipality u/s 243W of Constitution 18
  19. 19. 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 19
  20. 20. This 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. 20
  21. 21. For the purpose of scope of service -(a) an unincorporated association or a AOP and a member thereof shall betreated as distinct persons;(b) an establishment of a person in the taxable territory and any of his otherestablishment in a non-taxable territory shall be treated as establishments ofdistinct persons.(c) A person carrying on a business through a branch or agency orrepresentational office in any territory shall be treated as having anestablishment in that territory 21 21
  22. 22.  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 hence 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 22
  23. 23. (c )Treatment of supplies and reimbursements made by theemployer to ex-employees/ pensionersSame tax treatment for ex- employees of the company –  Reimbursement of expenses on behalf of company – non-taxable ?  Facilities for consideration – taxable  Facilities free of cost - non taxable ? 23
  24. 24.  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 to 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 24
  25. 25.  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 if payment made to such 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 (support service) 25
  26. 26.  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, 1932 can not be overlooked 26
  27. 27.  Non commercial construction for non-government purpose Private roads (not meant for general public) Residential construction of more than one unit Commercial artists/performers Film actors/ directors Reality show judges Tourism boats Board director’s sitting fee Non-compete fee Arbitrators to business entities 27 to be contd..
  28. 28. Discourses and lectures/ yoga classesBanking services to governmentUnrecognized IPRsServices to RBIHotel telephone callsVideo library facilities by hotelsMatrimonial sitesAstrologersWorks contracts for movable propertiesOn board catering and other facilities 28
  29. 29.  Clause 44 of section 65B defines service – it 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 29
  30. 30. 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; 30
  31. 31.  Agreeing to an 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. 31
  32. 32. Renting 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 32
  33. 33. Exemptions 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 of immovable property to / by educational institution in respect of exempted education 33
  34. 34. The 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. 34
  35. 35. Nature of Activity Taxability Renting of property to educational body Not chargeable to service tax; exemption Renting of vacant land for animal Not chargeable to service tax as it is covered in husbandry or floriculture the negative list entry relating to agriculture Permitting use of immoveable property for Chargeable to service tax as permitting usage of placing vending/dispensing machines space is covered in the definition of renting Allowing erection of communication tower Chargeable to service tax as permitting usage of on a building for consideration. space is covered in the definition of renting Renting of land or building for Chargeable to service tax as there is no specific entertainment or sports exemption. Renting of theatres by owners to film Chargeable to service tax as the arrangement distributors amounts to renting of immovable property.Renting of immovable property outside India not taxable in India even if owners arein India
  36. 36. Construction Activities [Section 66E (b)]Construction activities means construction of a complex, building, civilstructure or a part thereof, including a complex or building intended forsale to a buyer, wholly or partly, except where the entire consideration isreceived after issuance of completion certificate by the competentauthority.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 any consideration received before suchcompletion certificate, it will also be taxed. 36
  37. 37.  Construction is not defined Construction Includes  additions,  alteration,  replacement, or  remodelingof any existing civil structure 37
  38. 38. Who 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 registered with Institution of Engineers • Licensed surveyor (of local body / development or planning authority) 38
  39. 39. Residential 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. 39
  40. 40. Temporary transfer or permitting the use or enjoyment of any intellectualproperty 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 40
  41. 41. Examples 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, processes etc. Design Rights -Form and appearance, decoration, apparels 41
  42. 42. What 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 42
  43. 43. Copyrights as IPRs are exempted which include : literary work dramatic work musical work artistic works cinematograph films 43
  44. 44. Information Technology software related services [section 66E(d)] It includes following in relation to Information Technology Software (ITS) –  Development  Design  Programming  Customization  Adaptation  Upgradation  Enhancement  Implementation 44
  45. 45. ITS is defined in Section 65B(28) Representation in ITS should be of any of the following – • Instruction • Data • Sound • Image • Source code • Object code Such items represented should be recorded in a machine readable form, Such items represented and recorded should be capable of being manipulated. They should provide interactivity by way of a – • computer, or • automatic data processing machine, or • any other device or equipment 45
  46. 46. Scope of ITS ServiceDesign - plan, schemeProgramming - process of writing a computer programmeCustomization - modifying to meet a specific requirementAdaptation - change to suit, adoptUp gradation - raising standard, improving quality / version / featuresEnhancement - in value, content, qualityImplementation - execution 46
  47. 47. Agreeing to obligation to refrain from on Act / to tolerate Act or situation / to do an Act [section 66E(e)]Following activities if carried out by a person for another for consideration would be treated as provision of service - Agreeing to the obligation to refrain from an act. Agreeing to the obligation to tolerate an act or a situation. Agreeing to the obligation to do an act. 47
  48. 48. Examples of Obligations / Actions non compete fees for agreeing not to compete compensation on termination of business agreements advance forfeited for cancellation of agreement to provide a service. forfeiture of security deposit for damages done by service receiver in course of receiving of services. cancellation charges being charged by airlines, hotels etc. consideration for non-appearance in a court of law or withdrawal of suit. demurrage charges or detention charges 48
  49. 49. Transfer of goods by hiring, leasing, licensing [66E(f)]There should be transfer of goods involved Such transfer of goods should be by way of –  hiring  leasing  licensing, or  any such manner Such transfer should be without transfer of right to use such goods. Excludes intangible goods Only goods [section 65B(25)] covered 49
  50. 50. Transfer of right to use Taxable only when transfer of right to use goods is not there Constitutional / legal concept Can be determined when agreement is read in whole, not just one clause Transfer of right to use is deemed sale u/s 366(29A) of Constitution If owner retains effective control, no transfer of right can take place Service excludes deemed sale u/s 366(29A) 50
  51. 51. Tests laid down by Supreme Court in BSNL v UOI [(2006)2 STR 161(SC)] There must be goods available for delivery ; There must be consensus ad idem as to the identity of the goods; The transferee should have legal right to use the goods – consequently all legal consequences of such use including any permissions or licenses required therefore should be available to the transferee; For the period during which the transferee has such legal right, it has to be the exclusion to the transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of the right to use’ and not merely a license to use the goods; Having transferred, the owner cannot again transfer the same right to others 51
  52. 52. Article 366 (29A) of Constitution of India, as amended by Constitution (46thAmendment) Act, 1982, w.e.f 2.2.1983"Tax on the sale or purchase of goods" includes- a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; a tax on the delivery of goods on hire-purchase or any system of payment by installments; a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; to be contd…… 52
  53. 53.  a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) , where such supply or service is for cash, deferred payment or other valuable consideration,and such transfer, delivery or supply of any goods shall be deemed tobe a sale of those goods by the person making the transfer, delivery orsupply and a purchase of those goods by the person to whom suchtransfer, delivery or supply is made. 53
  54. 54. Examples of transfer without right to use Car on hire with driver – right to use not transferred Conditional supply of equipment – not free to use goods Bank lockers – possession not transferred to hirer Scaffolding structure for temporary purpose – no transfer of right / effective control and possession Hiring of Pandal / Shamiyana – No effective control Hiring of audio visual equipment with attendant – no transfer of right / possession
  55. 55.  Includes delivery of goods on -  hire purchase  any system of payment by installment Payment in parts / installments Lease payment is calculated so as to cover full cost of asset together with interest charges Transfer of substantially all risks and rewards in relation to goods so transferred Not taxable as covered under deemed sale of goods But services in relation to such sale taxable 55
  56. 56.  Delivery of goods on hire purchase Transfer of possession (and not just of custody) The hirer has the option or obligation to purchase the goods in accordance with the terms of the agreement. In hiring, hirer has no such option and risks remain with owner / not transferred to hirer In hire purchase, hirer has option / obligation to purchase goods Operating lease not covered Involves two transactions – financial transaction and hire purchase. Financial transaction is chargeable to Service Tax [Association of Leasing & Financial Services v. Union of India (2010) 20 STR 417 (SC)]. Service Tax levied only on 10 percent value representing interest in financial lease and not full value (Notification No. 26/2012-ST) 56
  57. 57. 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. 57
  58. 58. Works Contract covers Construction Erection Commissioning Completion Fitting out Repair Maintenance Renovation Alteration, or Any other similar activity or part there of 58
  59. 59. 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 59
  60. 60. Some issues in works contractsLabour contracts ExcludedRepair & Maintenance of motor vehicles yes if property in goods transferred in execution of WCConstruction of pipeline / conduit yes, structures on landPainting / repair / renovation of building yes if involves provision of, wall tiling, flooring etc. material alsoErection/commissioning installation of yes if transfer of property inplant/ machine etc goods is involved and machinery etc 60
  61. 61. Value of service portion in execution of work contract = gross amount charged for workscontact 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 where value added tax or sales tax has been paid or payablefor labour and services on the actual value of property in goods transferred in theCharges for planning, designing execution of the works contract, then such value adopted forand architect’s fees the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract. (Rule 2A explanation)Cost of establishment of the Value Added Tax (VAT) or sales tax, as the case may be, paid,contractor relatable to supply of if any, on transfer of property in goods involved in thelabour and services and other execution of the said works contractsimilar expenses relatable tosupply of labour and servicesProfit earned by the serviceprovider relatable to supply oflabour and services 61
  62. 62. 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. 62
  63. 63.  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 whether us 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 63
  64. 64.  Supply of foods and drinks is deemed sale and hence not taxable However, only service portion in deemed sale is sought to be taxed Service portion in 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 a part of the activity is a declared service. Levy of Service Tax on services provided by only such restaurants where service portion in total supply is substantial and discernible 64
  65. 65. Service portion in supply of foods and drinks [section 66E(i)] 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.
  66. 66.  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% under Notification No. 26/2012-ST provided Cenvat credit is not taken on goods 66
  67. 67. 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’. 67
  68. 68. Rule 1Reference to main service can not be used for services used for providingthe main service If some service is provided with reference to provision of main service, it does not be come 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 68
  69. 69. 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 69
  70. 70. 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 70
  71. 71. Bundled Services  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
  72. 72. Rule 4 Taxability of services not naturally bundled in ordinary course ofbusiness 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.
  73. 73. 73
  74. 74. • 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
  75. 75. Sl. 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 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 place Central Excise Tariff Act, specially arranged for organizing a function 1985 has not been taken under the provisions of the CENVAT Credit Rules, 2004.
  76. 76. Sl. 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.
  77. 77. 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.
  78. 78. Sl. 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.
  79. 79. Sl. 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.
  80. 80. Sl. No Description of taxable service Taxable Conditions value(%)12. Construction of a complex, 25 (i) CENVAT credit on inputs used building, civil structure or a for providing the taxable service part thereof, intended for a has not been taken under the sale to a buyer, wholly or provisions of the CENVAT Credit partly except where entire Rules, 2004. consideration is received after issuance of completion (ii) The value of land is included certificate by the competent in the amount charged from the authority service recipient.
  81. 81. Draft Circular F. No.354 /146/2012 – TRU dated 27.09.2012(Air Travel)Charges which are directly related to journey such as re-confirmation fee,date change fee, seat upgrade fee, preferred seat charges etc. will becovered by abatementCharges which are not related to journey such as meal charges, escortcharges etc. will not be covered by abatement.Excess baggage charge may be leviable to service tax without abatementPet charges may be leviable to service tax without abatementFor cancellation charges billed separately as administrative charge,abatement will not be applicable 81
  82. 82. THANK YOU FOR YOUR PRECIOUS TIME AND ATTENTION Dr. Sanjiv Agarwal FCA, FCS, Jaipur asandco@gmail.comsanjivservicetax@gmail.com

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