3. Service Tax Overview & Recent Changes
This Presentation Covers
• Economic Overview
• Taxation of Services – Past and Present
• Major Changes in 2012 -2013
• Changes in Budget 2013 / Finance Bill, 2013
• New Penal Provisions
• Power to Arrest
3
4. 4
Indian Economy – An Overview
Indian 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)
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 59
In 2011-12, services have grown by 9.6 % which is more than
GDP growth rate
7. 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
8. Growth of Service Tax
Year No of new
services
Total No of
services
Total collection
(Rs. in crore)
1994 3 3 407
2001 - 26 2612
2005 13 72 14199
2008 7 103 51301
2010 3 112 58000
2012 0 120 97509
2013 - All 132697 (RE)
131884 (A)
2014 - All 180141 (BE)
9. 9
Taxonomy of Indian Taxation
TAXATION 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
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 over 25 other laws.
Scattered and heterogeneous large mass of service providers as
well as wide spectrum of services.
Jurisdictional application.
10
11. Service Tax in India (The Past)
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. Service Tax – The Present
Shift to Comprehensive Approach
W.e.f. 1st July, 2012
Finance Act, 2012 – A land mark Act to shift from selective
positive approach 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. 13
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
Exemptions
Taxable Services
(-)
Present Taxation of Services
(=)
14. Service Tax – The Present
New Law 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. 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
15
16. New Provisions in Service Tax under
Negative List
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. Taxable 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
17
18. MAJOR CHANGES IN SERVICE TAX IN 2012-
13 AT A GLANCE
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
18
19. MAJOR CHANGES IN SERVICE TAX IN 2012-
13 AT A GLANCE
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 services or
bundled services.
19
20. MAJOR CHANGES IN SERVICE TAX IN
2012-13 AT A GLANCE
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.
Change in valuation rules in relation to works contracts and outdoor
catering / supply of food.
20
21. MAJOR CHANGES IN SERVICE TAX IN 2012-13
AT A GLANCE
Criteria for Rs 10 lakh threshold exemption changed to invoices
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)
21
22. MAJOR CHANGES IN SERVICE TAX IN 2012-13
AT A GLANCE
Accounting Codes under new regime ( July – November 2012)
Tax Collection 00441089
Other Receipts 00441090
Penalties 00441093
Deduct Refunds 00441094
Restoration of Service Specific Accounting Codes
C. No. 165 dated 20.11.2012 / N. 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 to be
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
22
23. MAJOR CHANGES IN SERVICE TAX IN
2012-13 AT A GLANCE
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 25.11.2012
July to October, 2012
N. No. 1/2013-ST, dated 22.02.2013
Circular No. 137 dated 22.02.2013 / Order No. 1
New ST-3 Form is available in offline mode
Last date 25th March, 2013; extended to 15th April, 2013; further
extended upto 30th April 2013 vide Order No. 2/2013-ST, dated
12.4.2013
To indicate capacity – as provider / under RCM / under partial RCM
Filing of return for second half of 2012-13 yet to be notified
23
24. Changes in Budget 2013-14
(Finance Bill,2013)
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.
24
25. Changes in Budget 2013-14
(Finance Bill,2013)
Benefit of exemption to copyright on cinematography to be
limited to films exhibited in cinema halls / theatres.
All types of testing in relation to agriculture to be in
Negative List
Existing exemption from Service Tax for low cost housing
and single residential units to continue.
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.
25
26. Changes in Budget 2013-14
(Finance Bill,2013)
Where it is held that extended period of limitation u/s 73 is
not sustainable for making demands, Department's 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).
New provisions for revised punishments for offences u/s
89, make certain offences cognizable and others non
cognizable and bailable. 26
27. Changes in Budget 2013-14
(Finance Bill,2013)
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.
27
28. Changes in Budget 2013-14
(Finance Bill,2013)
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.
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.
Service Tax appeal forms ST – 5,6 & 7 amended w.e.f.
1.6.2013
28
29. Penal Provisions
Section 78A Penalty for offences by director etc.
of a company
Section 89 Offences & penalties
Section 90 Cognizance of offences
Section 91 Power to arrest
Goes against non- adversarial tax policy of
Government
29
30. Penalty for Non- registration
Penalty for failure to take registration (Section 77(1)(a)]
Now:
Penalty which may extend upto Rs. 10000 or Rs. 200 per
day during which default continues, whichever is
higher, starting from first day after due date till the date of
actual compliance
Proposed:
Penalty which may extend upto Rs. 10000
Penalty not to exceed Rs. 10000 in any case
For non payment, there are already strict penalties u/s 76
and 78
30
New Penal Provisions
31. Changes in Budget 2013-14
(Finance Bill,2013)
Penalty for offences by Company officials (Section
78A)
To impose penalty for contraventions / violations by
Company
Penalty may extend up to Rs. one lakh per official
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
Penalty may be levied on more than one person for
single contravention / offences
31
32. Changes in Budget 2013-14
(Finance Bill,2013)
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
32
33. Who is Punishable
Any person who is
• director
• manager
• secretary
• other officer
and who at the time of contravention was in
charge of / was responsible to company
for conduct of business, and
was knowingly concerned with such
contravention.
33
New Penal Provisions
34. Changes in Budget 2013-14
(Finance Bill, 2013)
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 for
contraventions by Companies (also legally held)
There can be no penalty on directors /officers /
manager / secretary of non-company assessees
34
35. Changes in Budget 2013-14
(Finance Bill, 2013)
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
• In such cases, prosecution to be initiated
• Cases of no intent to defraud also covered
• ‘Knowingly’ is very subjective; to be proved
Contd…..
35
36. Changes in Budget 2013-14
(Finance Bill, 2013)
Offences & Penalties (Section 89)
For (a), (b) &(c) and 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 offence– imprisonment upto 1 year
For second or subsequent conviction
For (a), (b), (c), other offences – imprisonment upto 3
years
For (d) – imprisonment upto 7 years
36
37. Changes in Budget 2013-14
(Finance Bill, 2013)
Cognizance of Offences (Section 90)
Cognizable Offence
Failure to deposit to the credit of Central
Government service tax collected where amount
exceeds Rs. 50 lakhs
Non-Cognizable and Bailable Offences
All offences except cognizable offence as above
Detailed Instructions to be issued
37
38. Changes in Budget 2013-14
(Finance Bill, 2013)
Power to Arrest (Section 91)
Similar provisions existed earlier but withdrawn in 1998
Provides power to arrest (where evasion exceeds Rs. 50 lakhs)
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)
(Reasons to believe that offence has been committed to exist )
Arrests to be made in terms of Code of Criminal
Procedure, 1973 (CCP)
38
39. Power to Arrest (Section 91)
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
39
Changes in Budget 2013-14
(Finance Bill, 2013)
40. Offence u/s 89 Imprisonment on
first default
Imprisonment on
subsequent
defaults
Cognizable or non-
cognizable
Knowingly evades payment of
Service tax
3 years ** 3 years Non- cognizable
Avails & utilizes credit of taxes
without actual receipt of inputs/
services, whether partly or fully
3 years ** 3 years Non- cognizable
Maintains false books or fails to
supply any information or
supplies false information
3 years ** 3 years Non- cognizable
Collects any amount as service
tax but fails to pay the same to
government exchequer within 6
months of due date
7 years ** 7 years Cognizable
Any other offence 1 year 3 years Non- cognizable
40
**Provided that in the absence of special and adequate reasons to the contrary to be recorded in the
judgment of the court, such imprisonment shall not be for less than six months
** if amount exceeding Rs. 50 lakh
41. Impact of Power to Arrest (Section 91)
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; possible threat to otherwise bonafide cases
May increase litigation
Need to distinguish between willful and genuine defaults
Arrest can be made at the beginning of proceedings itself,
investigation may follow
41
Power to Arrest
42. Possible Measures to avoid Arrest
Suo moto compliance
Independent due diligence
Promptly attending to notices / summons
Ensuring timely / full payment of Service Tax – Taxes
not to be used for working capital / funding other
requirements
Where delay is expected, get in touch with
Department.
Take aggressive tax positions with utmost care –
Risk Management
Strengthen internal processes and controls to avoid
unintended failures
42
Power to Arrest
46. Changes in Budget 2013-14
(Finance Bill, 2013)
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 / litigation to come down
Action & consequences
Truthful declaration of service tax dues since 1.10.2007 upto
31.12.2012 by defaulters as on 1.03.2013
Payment of due tax in 1 or 2 installments
Interest , penalties and other consequences waived
46
47. Changes in Budget 2013-14
(Finance Bill, 2013)
Voluntary Compliance Encouragement Scheme, 2013 (VCES)
Not applicable to period before 1.10.2007 or after 31.12.2012
Not applicable to cases involving
search, audit, investigation, SCN or summon issued cases as on
1. 03. 2013
Not eligible if return furnished u/s 70 but disclosed amount not
paid
To be rejected if audit etc. initiated as on 1st March, 2013
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
47
48. Changes in Budget 2013-14
(Finance Bill, 2013)
No refund of amount paid under VCES
Tax dues declared but not paid – to be recovered as per Law
Even in default, only Service Tax and interest is payable
False declaration to be rejected - reason to believe, notice to be
served
Declaration to be final – no withdrawal / no revision
Satisfaction of designated authority required where audit /
investigation / summons/ notice issued and pending as on
1.3.2013; Declaration liable to be rejected by written reasoned
order.
No action can be taken after one year from date of declaration
Acknowledgment is a must
Once acknowledgement is issued - no re-opening permissible
before any authority
48
49. Goods & Service Tax
(The Future)
GST: A Common Tax
on
49
Goods Services
50. GST –An Update
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.
50
51. GST : What Next
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 may be empowered to raise GST rates in case of distress
Revenue sharing mechanism to be rationalized
What could be a suitable GST rate?
Need for drafting a GST Law by States and Centre
Next meeting of Empowered Committee on 11-12 May at Mussoorie
Dual control not likely - to be controlled by Central / States based on
turnover
Composition scheme likely, besides threshold exemption
51