Budget 2014 - Service Tax

Budget 2014 – Service Tax
July 18 2014
Bharti Airtel Ltd. - Impact and Analysis
Presented by:
CA Gaurav Gupta
B.Com(Hons.), FCA, LLB, DISA
Partner
MGS & Co.
Author – Service Tax – Law & Practice

• Radio taxi made taxable
[effective from a date to be notified later after enactment of Finance (No.2) Bill, 2014]
Service tax is proposed to be levied on services provided by radio taxis or radio cabs, whether
or not air-conditioned [section 66D (o)(vi)].
““radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way
radio communication with a central control office and is enabled for tracking using Global
Positioning System (GPS) or General Packet Radio Service (GPRS)”
Implications
• Increased cost in terms of taxes
• Liability under reverse charge
• Abatement available
Negative List
Budget 2014 CA Gaurav Gupta 3

• Radio taxi made taxable
Service tax is proposed to be levied on services provided by radio taxis or radio cabs, whether
or not air-conditioned [section 66D (o)(vi)].
““radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way
radio communication with a central control office and is enabled for tracking using Global
Positioning System (GPS) or General Packet Radio Service (GPRS)”
Implications
• Increased cost in terms of taxes
• Liability under reverse charge
• Abatement available
Negative List

• All sale of space except print media made taxable
All sale of space except print media made taxable. The new levy would further extend to
advertisements in internet websites, out-of-home media, on film screen in theatres, bill
boards, conveyances, buildings, cell phones, Automated Teller Machines, tickets, commercial
publications, aerial advertising, etc.
Implications
• Mobile and online ad becomes taxable
Negative List

• All services to school made taxable
[effective from July 11, 2014]
Concept of “auxiliary educational services” deleted. Accordingly, the following services
received by eligible educational institutions are exempted from service tax:
o transportation of students, faculty and staff of the eligible educational institution;
o catering service including any mid-day meals scheme sponsored by the Government;
o security or cleaning or house-keeping services in such educational institution
o services relating to admission to such institution or conduct of examination.
Implications
• No exemption to any services provided to educational institutions
Exemptions

• Exemption to accommodation places expanded
The term commercial deleted from the exemption phrase and thus, Services by any place of
stay be it Hotel, camsite, dharamshala etc, providing services of residential or lodging and
having declared tariff of a unit of accommodation below one thousand rupees per day or
equivalent shall now be exempted from Service Tax.
Implications
• No Major Impact
Exemptions

• Exemption in respect of air-conditioned contract carriages withdrawn
Exemption in respect of air-conditioned contract carriages withdrawn. Abatement of 60%
available.
Implications
• Increased costs in terms of employee benefits
Exemptions

• Services provided by an Indian tour operator to foreign nationals for foreign tours
exempted
Services provided by the Indian tour operators to foreign tourists in relation to tours wholly
conducted outside India are being exempted. This exemption is available to Indian tour
operators in cases where they organize tours for a foreign tourist wholly outside India, e.g.,
service provided to a Sri Lankan for a tour conducted in Bhutan.
Implications
• Travelling arrangement for persons outside India can be made from India at reduced cost.
Exemptions
Tour Wholly In
India
Wholly Outside
India
Partially
in India
Indian Tourist Taxable Taxable Taxable
Foreign Tourist Taxable Non Taxable Taxable

• GTA to be discharged @25% - abatement condition applicable only to Service provider
The condition for availing abatement in case of GTA service is being amended with immediate
effect to clarify that the condition for non- availment of credit is required to be satisfied by the
service providers only.
Implications
• Saving of Service tax on 75% value of GTA as cost under reverse charge
Abatement

• Abatement on services of air-conditioned contract carriages
an entry has been inserted at Sl. No. 9A providing that the taxable portion of such service
shall be 40% with the condition that CENVAT credit of inputs or capital goods or input
services has not been taken.
Implications
• Costs to be incurred at abated values
Abatement

• Abatement on services of radio taxes
Suitable abatement has been provided that the taxable portion of such service shall be 40%
with the condition that CENVAT credit of inputs or capital goods or input services has not
been taken.
Implications
• Costs to be incurred at abated values
Abatement

• Ratio under reverse charge changed for rent a cab
[effective from October 1, 2014]:
In renting of motor vehicle, where the service provider does not take abatement the portion of
service tax payable by the service provider and service receiver will be modified as 50%
each. Thus, in all cases where there is full Service Tax charged or no Service Tax charged
by service provider of rent a cab, recipient shall now discharge 50% of 12.36%.
Implications
• Increased costs as no Cenvat available
Reverse Charge

Changes in Law
Place of Provision, Point of Taxation
Determination of Value

• Change of place of provision in case of intermediately of goods:
[effective July 11, 2014]
The definition of intermediary is being amended to include the intermediary of goods in its
scope.
Accordingly, all commissions for foreign buyers / sellers shall now be taxable in India and vice
versa.
Thus, there shall be no longer an export of service by Commission agent. The amendment is
brought in purview as India is a major market for sourcing of goods and to counter the
decision in cases like GAP International Sourcing (India) P. Ltd. v CST [2014-TIOL-465-
CESTAT-DEL], wherein it was held that recipient of such services is located outside India.
Implications
• Commission on Sourcing of goods from India or for sale in India now taxable
• Foreign commission agents earning commissions from India exempted
Other Major changes

• Change of place of provision in case of intermediately of goods:
The definition of intermediary is being amended to include the intermediary of goods in its
scope.
Accordingly, all commissions for foreign buyers / sellers shall now be taxable in India and vice
versa.
Thus, there shall be no longer an export of service by Commission agent. The amendment is
brought in purview as India is a major market for sourcing of goods and to counter the
decision in cases like GAP International Sourcing (India) P. Ltd. v CST [2014-TIOL-465-
CESTAT-DEL], wherein it was held that recipient of such services is located outside India.
Implications
• Commission on Sourcing of goods from India or for sale in India now taxable
• Foreign commission agents earning commissions from India exempted
Other Major changes

• Change of point of taxation in case of reverse charge mechanism:
The first Proviso to rule 7 of the Point of Taxation Rules is being amended to reduce the time
allowed for payment to service provider from six months to three months. However, as a
relief, in case such payment is not made within prescribed time, the liability to pay Service Tax
shall arise from the first day that occurs immediately after a period of three months from the
date of invoice. Thus, in case of reverse charge, the amended date of liability is as under:
Implications
• Stricter compliance
• Less time for making payment to service providers
Other Major changes
Date of payment Point of taxation
Payment made to vendor within three
months from date of invoice
Date of Payment
Payment made to vendor after three
months from date of invoice
First day that occurs immediately after a period of
three months from the date of invoice

• Ratio of services in Works contract
modified
[effective from October 1, 2014]
In Rule 2A of the Service Tax
(Determination of Value) Rules, 2006,
category “B” and “C‟ of works contracts are
proposed to be merged into one single
category, with percentage of service
portion as 70%. Thus, the following two
categories of valuation under Option 2 of
Rule 2A shall remain in case of works
contract:
Other Major changes

• Service tax to have its own Rate of Exchange
Currently, Custom notified rates are used for discharge of liability on import and export
transaction under Service Tax. The Explanation to Section 67A is being amended to enable
the Government to prescribe rules for determination of rate of exchange for calculation of
taxable value in respect of certain services. Separate set of Rules shall be prescribed once
the amended Section is notified.
Implications
• Dependency on Customs rate to be removed
• Different rates may be prescribed for different class of services
Other Changes

• Advance Ruling made available to resident Private Limited Companies
The resident private limited company is being included as a class of persons eligible to make
an application for Advance Ruling in service tax.
Implications
• Advance Rulings can now be obtained by private limited companies
• Less litigations
Other Major changes

• Timebound adjudication of Service Tax notices
[effective from enactment of Finance (No.2) Bill, 2014]
Section 73 is being amended to prescribe time limits for completion of adjudication as already
exists in Central Excise. This time limit would need to be followed, as far as possible. Time
limit as prescribed is as follows:
Implications
• Not a strict timeline as scope left with words – “where it is possible to do so”
• Hasty orders and more demands
Other Major changes
In case of notice issued within eighteen
months (without extending limitation)
Within six months from the date of notice
In case of notice issued evoking the
extended period of five years
Within one year from the date of notice

• Power to waive penalty under Section 80 restricted
Section 80 is being amended to exclude the power to waive the following penalties:
• Penalty under Section 77 - providing penalty for contravention of rules and provisions of
Act for which no penalty is specified elsewhere
• Penalty under Section 78A – The only waiver available in Section80 waas that of first
proviso to Section 78(1) Provided that where true and complete details of the transactions
are available in the specified records,
Implications
• Penalty provisions made automatic as tax
• Penalty also made a source of revenue for government
Other Major changes

• Power to search expanded
Powers under Section 82(1) is being expanded, to empower Joint Commissioner or Additional
Commissioner or any other officer notified by the Board to authorize any Central Excise
Officer to search and seize.
Implications
• Power to Search relaxed in terms of departmental formalities
• All Central excise officers can now visit field
Other Major changes

• Recovery from successor incorporated
Section 87 is being amended to incorporate power to recover dues of a predecessor from the
assets of a successor purchased from the predecessor as it is presently provided for in
section 11 of the Central Excise Act, 1944. Accordingly, any person acquiring any business
must ensure two things – that there are no outstanding Service Tax dues of the business as
they cannot be withheld by the transferor and also intimation to such transfer is preintimated
to Central Excise officer so as to nullify any unknown Service Tax liabilities.
Implications
• Stricter Due Diligence
• NOC from department in case of purchase of business
Other Major changes

• Rule making power of government enhanced
Section 94 is being amended to obtain rule making powers :
(a) to impose upon assessees, inter alia, the duty of furnishing information, keeping records
and making returns and specify the manner in which they shall be verified;
(b) for withdrawal of facilities or imposition of restrictions (including restrictions on utilization
of CENVAT credit) on service provider or exporter, to check evasion of duty or misuse of
CENVAT credit; and
(c) to issue instructions in supplemental or incidental matters.
Implications
• More complicates laws
• More power to governemnt to impose compliance
Other Major changes

• Interest provisions made harsh
[effective October 1, 2014]
Implications
• More interest damage
Other Major changes
Sl.No Period of delay Rate of simple interest
(1) (2) (3)
1. Up to six months 18 per cent.
2. More than six months
and up to one year
18 per cent. for the first six months of delay and 24 per cent. for
the delay beyond six months.
3. More than one year 18 per cent. for the first six months of delay; 24 per cent. for the
period beyond six months up to one year and 30 per cent. for any
delay beyond one year.

• Time restriction on availment of Cenvat credit on missed invoices
[effective from September 1, 2014]
A manufacturer or a service provider shall take credit on inputs and input services within a
period of six months from the date of issue of invoice, bill or challan. Thus, the decisions in
case of Central Bank of India [2012-TIOL-1314-CESTAT-MAD] holding that there is no time
limit for taking Cenvat Credit shall no longer help assessee in availing long forgotten credit.
Implications
• Stricter compliance
• Invoice missed, gone forever
Other Major changes

• Cenvat credit to reinstate on reinstatement of output services as Export
Re-credit of CENVAT credit reversed on account of non-receipt of export proceeds within the
specified period or extended period, to be allowed, if export proceeds are received within one
year from the period so specified or extended period. This can be done on the basis of
documents evidencing receipt of export proceeds.
Implications
• Relief to Exporters
Other Major changes

• Stay Amount prescribed
[effective from September 1, 2014]
Section 35F of the Central Excise Act has already been made applicable to Service Tax. This
section is being substituted with a new section to prescribe a mandatory fixed pre-deposit of
• 7.5% of the tax demanded or penalty imposed or both for filing of appeal before the
Commissioner (Appeal) or the Tribunal at the first stage, and
• 10% of the duty demanded or penalty imposed or both for filing second stage appeal
before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of
Rs 10 Crore.
All pending appeals/stay application would be governed by the statutory provisions prevailing
at the time of filing such stay applications/appeals.
Implications
• Faster Judgement as stay no longer required
• Unnecessary harrasements in terms of higher amounts of Demand orders
Other Major changes

• Application of more sections of Central Excise on Service Tax
Section 5A(2):
This section has been introduce to expand the power of government to bring out a change in
understanding by way of explanation in a notification or order at any time within one year of
issue of notification or order, for clarifying the scope or applicability thereof and such
explanation shall have effect from the date of issue of such notification or order.
Section 15A:
This new section is being inserted in the Central Excise Act to stipulate that third party
sources shall furnish periodic information, as specified, in the manner as may be prescribed.
Section 15B:
This new section is being inserted in the Central Excise Act to prescribe that failure to
provide information under section 15A of the Act would attract penalty as specified.
Other Major changes

Disclaimer
This presentation has been prepared for internal use of ICAI and its members. The contents of this document are
solely for informational purpose. It does not constitute professional advice or a formal recommendation. The
presentation is made with utmost professional caution but in no manner guarantees the content for use by any
person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the
matter given. The presentation is meant for general guidance and no responsibility for loss arising to any person
acting or refraining from acting as a result of any material contained in this presentation will be accepted by us.
Professional advice recommended to be sought before any action or refrainment.
CA Gaurav Gupta
Partner
MGS & Co.
507 B, D-Mall, Netaji Subhash Palace, Delhi - 110034
+91 11 32962487
+91 11 2735 2487
+91 98110 13940
cagauravmgs@gmail.com
Thank you

Budget 2014 - Service Tax

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Budget 2014 - Service Tax