2. FROM EDITOR’S DESK
Dear Readers,
This week, the cabinet cleared two reform bills giving a clearance of 49 percent FDI investment in
insurance and the pension sector. The Purchasing Managers Index (PMI) for the services sector rose
to a seven month high of 55.8 points in September as against of 55 points in August, due to the growth
in new orders. Following a series of new economic measures, the centre is likely to bring in more
reforms in the future, including trying to implement the goods and service tax (GST) in states that are
willing to accept it.
A draft Circular has been issued by CBEC on 27th September, 2012 clarifying on certain doubts on levy
of Service Tax on transport of passengers by air. It is clarified that charges which are directly related to
journey such as re-confirmation fee, date change fee, seat upgrade fee etc. will be covered by
abatement and charges such as meal charges, escort charges which are not related to journey, will not
be covered by abatement. It is also clarified that place of provision of a passenger transportation
services is the place where the passenger embarks on the conveyance irrespective of where the ticket
is booked and where fees / charges are collected. The comments can be sent to 15th October, 2012.
According to the Order No. 137/22/2012-ST dated 28th September 2012, assessees have to provide
data only for period 1.4.2012 to 30.06.2012 in the first half yearly return with a due date on 25.10.2012
and for the period 1.7.2012 to 30.09.2012, data will have to be furnished in a revised return format. The
revised format of the return and the last date for filling will be informed separately. Thus, this time, a
quarterly return will be submitted and another quarterly return may be notified separately.
Date: 06th October, 2012 Dr. Sanjiv Agarwal
GST UPDATE
Centre may implement GST in non-BJP ruled states
Following a series of new economic measures, the Centre would bring in more reforms in the future,
including trying to implement the goods and services tax (GST) in states that are ready to accept it.
The reforms are on the top of the UPA (United Progressive Alliance) government's agenda. We will
bring in more measures, including raising the FDI (foreign direct investment) cap to 49 per cent in
insurance sector.
3. The government is trying hard to bring about a consensus on the GST, the implementation of which
has been considerably delayed. The BJP (Bharatiya Janata Party) is unnecessarily delaying the
implementation of GST by opposing it. However, in case there is no consensus, the UPA government
could enter into separate agreements with states which are ready to accept the measure. At least
those states which want the implementation of the GST should not suffer at the cost of BJP-ruled
states. Barring the BJP-ruled states, the rest are in favour of implementing the GST. The government
would bring in a separate a bill on banking sector reforms. Reforms are the need of the hour. We will
continue our reform measures.
(Source: Business Standard dated 01.10.2012)
Understanding Service Tax Law
Receiver cannot avail the benefit of exemption scheme under Notification No. 33/2012-ST dated
20.06.2012
The exemption scheme is meant only for service providers. The exemption cannot be availed by
service providers who are not liable to pay service tax on the services rendered by them. Similarly,
service receivers who avail the services but are person liable to pay the tax under Section 68(2) as a
special case are not the service providers. As such, service receivers cannot claim the benefit of
exemption scheme. Thus, this scheme will not be of any benefit to either the service receiver or the
service provider in such cases. Uptil 30 June, 2012, these included mutual fund distribution, services
rendered from outside India, life insurance, general insurance auxiliary services, recipient of goods
transport service etc.
The exemption scheme does not apply to person liable under section 68(2) of the Finance Act, 1994 or
person other than service providers as specified under rule 2(1)(d) of Service Tax Rules, 1994. To
avail the exemption, the person should be a service provider only. However, CENVAT credit can be
taken as per rules subject to fulfillment of the specified condition of being an input service.
Thus, exemption scheme meant for small service providers does not applied to following persons
paying service tax under reverse charge method —
— Recipient of service
— Importers of service
— Input service distributors
— Insurance agents
— Mutual fund AMC's
— Specified consignors or consignee for GTA services
4. — Sponsors for sponsorship services
— Service providers under franchise or brand.
The reverse charge mechanism has been expanded w.e.f. 1 July 2012. As such, the service recipients
of services such as arbitral tribunal, legal services, support services provided by the Government,
renting of vehicles, works contracts, manpower supply, security services, director's service etc covered
under reverse charge as per Notification No 30/2012-ST dated 20.6.2012 shall have to pay service tax
and in such cases, benefit of exemption scheme will not be available to service receiver.
The service receiver is only liable to pay service tax and by doing so, he does not become service
provider. The liability to pay service tax has only been shifted.
NEWS ROOM
(News on Service Tax which matters)
Services PMI rose to 7-month high in Sept
The HSBC’s Purchasing Managers Index (PMI) for the services sector rose to a seven-month high of
55.8 points in September versus 55 in August, on the back of growth in new orders. The data, compiled
from a survey of about 350 private companies, showed new orders in September expanded the fastest
in seven months. However, as manufacturing PMI was stagnant at 52.8 points in September compared
with that in August, the composite indices went up only to 55 points from 54.3 in August. A reading
above 50 points denotes expansion and below this, a contraction.
Service sector activity grew at a faster clip in September, led by firm demand, underscoring the
resilience of the services sector .This further lifted employment, which helped businesses keep up with
orders. The volume of incoming new work increased steeply in the private sector, leading to an
increase in job creation. This expanded for the seventh month in a row.
There is no separate official data on services to compare PMI figures. In India, services data comes
once in a quarter, as part of GDP data. In the first quarter of the current financial year, the services
sector, particularly financial and construction activities, pushed up GDP, which nonetheless grew by
just 5.5 per cent as manufacturing pulled it down. Service providers also registered input cost inflation,
though at a slower pace than manufacturers. Labour, fuel, petroleum and gold prices were higher, with
some mentions of increasing taxes and excess demand.
(Source : Business Standard dated 05.10.2012)
5. LEGISLATIVE ROUNDUP
(Brief commentary on recently reported cases)
Cenvat Credit on Capital Goods
In Signor Polymers Pvt. Ltd. v. CCE, Rajkot (2012) 36 STT 461 (Cestat, Ahmedabad), where assessee
claimed threshold small service provider's exemption and exemption was denied as assessee availed
Cenvat Credit of duty paid on capital goods, it was held that once assessee availed Cenvat Credit on
capital goods received in the premises from where he provides taxable services, benefit of threshold
exemption under Notification No. 6/2005-ST dated 1.3.2005 would not be available.
FROM THE GOVERNMENT
DRAFT CIRCULAR -- SERVICE TAX -- TRANSPORT OF PASSENGERS BY AIR DATED 27TH
SEPTEMBER, 2012
Representation has been received seeking clarification regarding certain doubts which arise during
the course of levy and collection of service tax on transport of passengers by air.
2. The issues have been examined and the guidance is as follows:
Issue (a) : Whether service tax of 4.944% (60% abatement) will apply to related charges such as
reconfirmation fee, upgrade fee, date change, additional collection, etc., levied by airlines to
passengers?
Clarification: These charges could be levied in either of the following manners: (a) as a consolidated
charge without any break-up; (b) with break-up for individual services or at a point later to the initial
booking. In case of (a) above the provisions of section 66F will apply and the service that imports the
essential character will determine the applicability of both the Place of Provision of Services (POP)
Rules as well as abatement. In the case of (b) above, the individual components will need to be
analyzed on their respective merits.
Various charges collected by airlines from a passenger can be broadly put into two categories: (a)
charges which are directly related to the journey; and (b) charges which are not so related. Charges
6. which are directly related will be covered by abatement. Re-confirmation fees, date-change fee,
upgrade fee, preferred seat charges, additional collection in the nature of differential ticket fare
towards the journey and unaccompanied minor charges are directly related charges. For the charges
which are not directly related to the particular journey, abatement is not available. Sky-meal-on-order
and escort charges are not directly related to the journey.
Issue (b): Whether abatement meant for transport of passenger by air service, is applicable for
excess baggage charges?
Where a passenger embarks on an international journey, excess baggage charges are not leviable to
service tax as the place of provision of such service will be outside India under Rule 10 of POP
Rules. However, in the case of journey within the taxable territory, excess baggage charge is leviable
to service tax without abatement. Similar will be the tax treatment for pet charges.
Issue (c): When a passenger puts a ticket for refund, whether full rate of 12% will apply to
cancellation fee, refund fee, no show fee, since the passenger is not availing air transportation
service?
Clarification: In terms of section 66B of the Finance Act, 1994, service tax is leviable on service
provided or agreed to be provided. Thus service tax becomes payable when a booking is made, i.e.
when the service is agreed to be provided, the subsequent cancellation of the ticket does not take it
outside the purview of tax absolutely.
However, Rule 6(3) of the Service tax Rules, 1994, provides that where an assessee has issued an
invoice, or received any payment, against a service to be provided which is not so provided by him
either wholly or partially for any reason, the assessee may take credit of such excess service tax paid
by him, if the assessee,-- (a) has refunded the payment or part thereof, so received for the service
provided to the person from whom it was received; or (b) has issued a credit note for the value of the
service not so provided to the person to whom such an invoice had been issued.
Thus the amount retained by the airlines in the event of cancellation of ticket, out of the original fare
will remain liable to be taxed as originally taxed and hence is entitled to abatement applicable in this
regard. However, if the ticketed amount is fully refunded to the passenger, but no-show (late
cancellation charges) or cancellation fee is separately collected through an invoice or bill, abatement
will not be applicable. Here, cancellation fee takes the nature of administrative charge.
Issue (d ): (i) whether service tax will apply on related fees/charges on journeys starting outside India,
7. even if the transaction for related charges is made in India? ; (ii) Whether service tax will apply on
related fee charges on journeys starting in India, even if the transaction for related charges is made
outside India?
Clarification: According to Rule 11 of Place of Provision of Services Rules, 2012, the place of
provision of a passenger transportation service is the place where the passenger embarks on the
conveyance for a continuous journey. Therefore, if place of embarkation of passenger is located
within the taxable territory, service tax is leviable on the gross amount payable for such continuous
journey, irrespective of where the ticket is booked and where fees/charges are collected. If the place
of embarkation of a passenger on a continuous journey falls outside the taxable territory, service tax
is not leviable, irrespective of where the tickets are booked and where fees/charges are collected.
However, as mentioned at (a) above, only such charge will be determined under Rule 11 of POP as
are directly related to the continuous journey. The POP of other charges will be judged on their own
merits.
3. Field formations, business and industry chambers are requested to offer their comments,
views and suggestions on the draft circular. It is requested that comments, views and suggestions
may be forwarded to the undersigned on or before 15th October, 2012. The same also may be e-
mailed to jm.kennedy@nic.in
F. NO. 137/22/2012-SERVICE TAX DATED 28TH SEPTEMBER, 2012
Subject : Filing of ST-3 only for the period 1st April to 30th June 2012
In terms of sub-rules (1) and (2) of Rule 7 of the Service Tax Rules, 1994, the half yearly return for the
period 1st April to 30th September 2012, is to be filed by 25th October, 2012. In the current financial
year, an assessee would have had to give data with respect to specific services and the corresponding
legal provisions for the period 1-4-2012 to 30-6-2012. The data for the period 1-7-2012 to 30-9-2012,
would have been with respect to different services and the corresponding legal provisions.
Combination of all these provisions into one return would have made the return complex for the
assessees.
2. I am directed to inform you that it has been decided that assessees have to provide data only for the
period 1-4-2012 to 30-6-2012 in the first half yearly return which is due on 25-10-2012. (The data for
the period from 1-7-2012 to 30-9-2012 should not be filed. Modifications will be made in the ACES so
that any data filed for this period is rejected. Till such time as the modifications are made, ACES will
not be accepting returns) Accordingly notification 47/2012 dated 28-9-2012 has been issued today.
8. 3. Data for the period 1-7-2012 to 30-9-2012 will have to be furnished in a return in a revised format.
The revised format of the return and the last date for filing it will be indicated separately.
4. The above information may be communicated to departmental officers and assessees. Hindi version
to follow.
OBLIGATIONS FOR THE WEEK
• Monthly Return - Last Date for filing of Return of Central Excise and Cenvat Credit for the
previous month For non SSI Units ER - 1 Rule 12(1), Dated 10.10.2012.
• Monthly Return - Last Date for filing of Return of Central Excise and Cenvat Credit for the
previous month for EOU units ER - 2 Rule 17(3), Dated 10.10.2012.
• Monthly - Details of receipt and consumption of principal inputs and finished excisable goods -
Declarations under central excise to be filed by a unit paying total duty (Cenvat Credit + Cash)
of more than 1 crore ER - 6 Rule 9A(3), Dated 10.10.2012.
• Quarterly Return - Return of Central Excise and Cenvat Credit for the Quarter ending previous
month For SSI Units ER - 3 Rule 12(1), Dated 10.10.2012.
PROBLEMS IN SERVICE TAX
Query
What is the meaning and scope of the phrase ‘transfer of right to use such goods ?
Reply
Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of
goods on lease, license or hiring basis does not result in transfer of right to use goods. ‘Transfer of
right of goods’ involves transfer of possession and effective control over such goods in terms of the
judgment of the Supreme Court in the case of State of Andhra Pradesh vs RashtriyaIspat Nigam Ltd
[Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Transfer of custody along with permission to
use or enjoy such goods, per se, does not lead to transfer of possession and effective control. The test
laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited v. Union of India
[2006(2)STR161(SC)] to determine whether a transaction involves transfer of right to use goods, which
has been followed by the Supreme Court and various High Courts, is as follows:
• There must be goods available for delivery.
• There must be a consensus ad idem as to the identity of the goods.
9. • 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.
Whether a transaction amounts to transfer of right or not cannot be determined with reference to a
particular word or clause in the agreement. The agreement has to be read as a whole, to determine the
nature of the transaction.
Do you have any doubt or query on Service Tax? Why not seek an expert reply from STC.
Email your query to asandco@gmail.com.
LITERATURE
LITERATURE
• Now Railway and Freight Go Up – Dr. Sanjiv Agarwal, Hindustan Times, dated 01.10.2012.
• Dutiability of waste and scrap – N. Prabhakaran, Excise Law Times, Vol. 284: Part 1, dated
01.10.2012.
• Goods and Service Tax – Reality or dream – S. Balakrishnan, Excise Law Times, Vol. 284: Part
1, dated 01.10.2012.
• Reverse Charge Mechanism in Service Tax – Dr. Sanjiv Agarwal,
www.taxmanagementindia.com, dated 03.10.2012.
• GST in a Year, with Some Give & Take – Sumit Dutt Majumder, The Economic Times, dated
04.10.2012.
EVENTS
Topic : Seminar on Sectorial Impact of Changes in Service Tax
Day / Date : Saturday, 13th October, 2012
Venue : Walchand Hirachand Hall, 4th Floor, IMC, Churchgate, Mumbai – 400 020
Time : 10.00 a.m. to 6.00 p.m.
Organized by : The Institute of Chartered Accountant of India (WIRC)
10. TIP FOR THE MONTH
You have to file Service Tax return for April – June 2012 (not six months) in Form ST-3 by 25th
October, 2012 and wait for new return format for subsequent period
QUOTE OF THE WEEK
"Be the change you want to see in the world."
Mahatma Gandhi
Humour of the Week
Service Tax on Corruption Proceeds
Politician (To CA) - Whether my corruption proceeds are taxable !
CA - It is an issue of interpretation ! It involves an activity, is in between two
persons and has a consideration ! Let me study.
Politician - Ok, please also let me know that if taxable, will I get Cenvat Credit as I'll
also pass it on to someone.
Knowledge Extra Corner
CONFIDENTIAL v. CLASSIFIED
While information shared between two people is confidential, classified has to do with weightier
national or diplomatic affairs. They are usually slugged under restricted, protected, secret or top-secret
tags. These documents are declassified after many years
11. Confidential Information:
Confidential information is data which is not available in the public domain.
Information that a person would not want to share with his acquaintances.
Though it is an umbrella term, it is usually used in relation to personal information.
For instance, you’ve hidden your income from everybody apart from your chartered accountant.
Not just personal information even commercial information such as client data, company
strategy or budgetary allocations is confidential.
Classified Information:
Classified information is also confidential, but is used mostly when we talk of a country's
security.
Sensitive military information and diplomatic exchanges are classified.
For instance, a country's nuclear programme, identity of spies and minutes of some cabinet
meetings.
Some of this information is declassified later on. Declassified documents throw light on recent
political history.
Announcements
FOR EXCLUSIVE AND IN HOUSE
SEMINAR / WORK SHOP
On
NEW REGIME OF SERVICE TAX
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS,
Please Contact at:
asandco@gmail.com, himadri@ckfindia.org
sanjivservicetax@gmail.com malini@ckfindia.org
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