Introduction Wide sweeping changes to service tax legislation have been proposed All “Activities” are now covered under the gamut of service tax laws. Only exclusions are a so called “Negative List” and 34 exemptions, some of them retrospective Changes have been made in the service tax rate ‘Taxable territory’ has been defined in the Act which excludes J&K. Clarifications of Point of taxation rules, which were announced last year, to ease problems faced by service providers Reverse charge concept has been revised and now included additional services Significant changes have been made to CENVAT credit rules Procedural changes have been made by amending Section V of the finance Act 1994 Service Tax Rules have been amended
Rate Changes Notification no. 8/2009 ST has been withdrawn effective April 1 2012, bringing the service tax rate back to 12% from the current 10% Composition Rates have also been revised as follows : Earlier Now First Year 1.5% 3%* Life Insurance Subsequent Years 1.5% 1.5%* Works Contracts 4% 4.8% Up to Rs 1 Lakh .10% .12% Money Changing Between 1 Lakh and .05%+100 .06%+120 10 Lakh .01%+550, subject to .012%+660, subject to More than 10 Lakh maximum of Rs 5000 maximum of Rs 6000 Air transport - 12%** * CENVAT credit is now available ** 60% abatement available Rate for CENVAT credit reversal for exempt services has been hiked by 20% from 5% to 6%
Definition of Service As per the act, all services are now subject to tax• Service to be defined as “any activity carried out by a person for another for consideration, and includes a declared service”• Activities not considered a service are : – transfer of title in goods or immovable property – a transaction in money or actionable claim – service by an employee to the employer – fees taken in any Court• This clause is not applicable to : – Services rendered by MPs, MLAs, Members of Panchayats, Municipalities etc in performing functions of their office – Services rendered by any person occupying any post in pursuance of the provisions – of the Constitution – duties performed by any person as a Chairperson or a Member or a Director in a – body established by the Central Government or State Governments or local authority
Negative List• “Negative List" means the services which are listed in Section 66D as not liable to Service• Services covered Under Negative List areService CommentsServices provided by Government Authorities, Excluding :• Speed/Express Post, Life Insurance and other agency services In case of other support services,•Services in relation to aircraft/vessel in airport/port service receiver to pay taxes under•Transport of goods, passengers reverse charge system•Other support servicesServices provided by Reserve Bank Of India (“RBI”)Services provided by Foreign Diplomatic MissionAgriculture and related activities ( including sale purchase ofagricultural produce)Trading of goodsManufacturingSale of space or time for advertising ( other than radio and television)
Negative ListService CommentsToll ChargesGames of chance ( betting, gambling and lottery) These are subject to stateEntertainment events and Amusement facilites administered “Entertainment Tax”Electricity Transmission and DistributionEducation ( pre-school, vocational and recognized qualifications)Services by way of renting of residential dwelling for use as residenceInterest on loans and advances and interbank forex tradingPublic Transport (Stage carriage, railways ( except first class and ACcoaches), Metro/trams, inland waterways, transport in a vessel of lessthan 15 tonnes ( other than for tourists), metered cabs, radio tax, auto-rickshaws.Goods Transportation ( except goods transportation agency and courieragency)Funeral Services
Exemption list• Many other changes are also being timed with the introduction of negative list, including many new exemptions consolidated with the existing exemptions in a single mega exemption for ease of reference.• New exemption list is as follows :Service CommentsServices provided to United Nations or specified InternationalOrganizationsHealth care services by a clinical establishment, medical practitioner orPara- medicsServices provided by veterinary clinicServices by a section 12AA entity for charitable purposesServices by a person by way of• Renting of a religious place for general public• Conduct of religious ceremony Not covered under previousFee charged by Advocates from non corporate including representation rules and hence no change is taxability Includes testing of herbalServices of technical testing of drugs by approved organization remedies and vaccines
Exemption listService CommentsTraining or coaching relating to arts, culture or sportsServices provided Clause covers mid-day meals•To educational inst. by way of catering and transportation services•To educational inst. for transportation or admission of students Exemption only to services provided by coaches,Services provided to recognized sports body sportspersons , umpires etc and other sports bodies. Only where the tournamentServices by way of sponsorship of tournament or championships has been organized by specified sports bodiesServices provided to govt. or local authority by way of erection ,construction, repair, alteration , renovation of civil structure, historicalmonument etc.Services provided by way of erection , construction, repair, alteration ,renovation of roads, bridge, tunnel , building owned by charitableorganization, pollution control factory etc.Temporary transfer of a copyright relating to original literary, dramatic,musical, artistic works or cinematograph films
Exemption listServiceServices provided in relation to serving of food or beverages by units nothaving air-conditioning/heating or a license to serve alcoholic beveragesServices provided by way of transportation of 9 specified goods by As per Notification No. 8/2010-railways or by a vessel. ST, dated 27.2.2010Services provided by GTA by way of transportation of fruits, eggs, milketc. where gross amount charged for single carriage does not exceed Rs1500 and for a single consignee does not exceed Rs 750Renting of motor vehicle meant to carry more than twelve passengers tostate transport undertaking and, a means of transportation of goods to agoods transport agencyTransport of passengers by air terminating in an airport located in AP,Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura orWB or contract carriage for transportation of passengersServices by way of motor vehicle parking to general public excludingleasingServices to govt. by way of repair of ship, boat ; waste collection; storage , Transport of drinking watertransport or testing of water; sewerage treatment via pipe and conduits exemptServices of general insurance business
Exemption listServiceServices by performing artist in folk or classical art formsServices of collecting and providing news rendered by independentjournalists, Press Trust of India or United News of India Exemption available only toServices by way of renting hotels, inns or places meant for residential or units with declared tariff belowlodging purposes. Rs 1000/dayServices provided by Sub broker , Member of commodity exchange ,Mutual fund agent, Marketing agent of lottery tickets or A businessfacilitatorProcess as job worker in relation to specified goodsServices by way of making telephone calls from PCO, Airport phones etc.Services of slaughtering of bovine animalsServices received by govt. or charitable organization from service providerlocated in non-taxable territory.Service provided by incubatee with a total business turnover not Exemption available in the firstexceeding 50 lakhs three years of incubation For services rendered as tradeServices by unincorporated body or society to own members by way of union, provision of exemptreimbursements of charges or contribution services etc
Declared Services• ‘Declared Services’ are the services carried out by a person for another for consideration and are hence taxable , as per section 66E.• These have been introduced with a view to remove ambiguity and for the purpose of uniform application of law.• Following are the 9 activities specified:-ServiceRenting of immovable propertyConstruction of complex, building or structure or a part thereof except where entire consideration is receivedafter issuance of certificate of completion.Temporary transfer or permitting the use of enjoyment of any intellectual property right.Development, design, programming, adaptation etc. of information technology softwareAgreeing to the obligation to refrain from ,to tolerate, to do an act.Transfer of goods by way of hiring, leasing, licensing without transfer of right to use.Activity in relation to delivery of goods on hire purchase.Service portion in execution of works contract.Service portion in activity wherein food, other article of human consumption is supplied.
Abatements• With the introduction of the Negative list, changes has been made to abatements considering the principle of neutrality and to avoid double taxation.• The existing and new abatements are:Services Existing taxable Proposed taxable CENVAT credit portion portion allowedConvention center or Mandap with All credits except 60% 70%catering inputs All credits exceptPandal or shamiana with catering 60% 70% on inputsCoastal shipping 75% 50% No creditAccommodation in hotel 50% 60% Credits on inputsRailways: goods 30% 30% All credits allowedRailways : passengers New levy 30% All credits exceptOutdoor catering 60% 50% inputs All credits exceptService portion of supply of food or any 40% 30% inputsother article
Reverse charge - Amendments• ‘Reverse charge’ means when liability to pay service tax has been shifted to service recipient covered.• Existing cases under reverse charge are (100% liability of recipient): • Service by insurance agent to person carrying on insurance business • Transportation of goods by road by GTA • Sponsorship services • Service provided by a person from outside India • Service by arbitral tribunal • Service by govt. located in taxable territory• Additional services covered under Reverse charge mechanism are: Services Liability of service Liability of service provider receiver Rent a Cab services From 16.07.2005 to •With abatement 100% 27.07.2009 •Without abatement 40% Supply of manpower 75% 25% Works contract services 50% 50%
Place of provision of service Rules 2012• Given the impending introduction of GST and the new negative list provisions it became necessary to identify the taxing jurisdiction for the service. Accordingly, place of provision rules have been introduced.• These new rules will determine the place where service shall be deemed to be provided.• These are formulated by replacing the export rules and import rules.• The ‘place of provision’ in different situation is proposed to be as follows: Situation Place of provision of service Generally Location of service receiver Location where service is Performance based services actually performed Where immovable property is Service relating to immovable property located Location in taxable territory Where above service are provided at more than one location where greatest prop. of service including a location in taxable territory is provided.
Place of provision of service Rules 2012Situation Place of provision of serviceProvider and receiver are located in taxable territory Location of service receiverSpecific services Location of service providerService of transportation of goods Place of destination of goodsGoods transport agency services Location of person liable to pay tax. Place where person embarks forPassenger transportation services conveyance First scheduled point of departure ofService provided on board a conveyance that conveyance. • Central govt. is empowered to notify any description of service • Where provision of service is determined in more than one rule, the provision is determined acc. to the rule that occurs later.
Point of Taxation Rules - AmendmentsScenarios: Situation Point of TaxationInvoice is issued before completion of service Time of issue of invoiceand receipt of paymentService is completed and invoice is issued Time of issue of invoicewithin 30 days/45 daysService is completed and invoice is not issued Date of completion of servicewithin 30/45 daysPayment is received in advance before issue of Date of receipt of payment, to theinvoice or completion of service extent of such paymentFor the purposes of this rule, wherever any advance, by whatever name known, is receivedby the service provider towards the provision of taxable service, the point of taxation shallbe the date of receipt of each such advanceInvoice to be issued:Within 30 days of “completion of service”For banking /financial institution or any other providing service in relation to banking –within 45 days of completion of service.
Point of Taxation Rules - Amendments In case of individuals and firms, in case of aggregate value of taxable services provided in a year being Rs 50 lakhs or less, option to pay service tax on payment basis up to taxable services up to such limits is available In case service provider receives up to Rs. 1000 in excess of the invoice amount; there is no need to raise fresh invoice for such excess amount if POT rules are followed. Exporter of service is not required to pay tax if payment is received within period specified or extended period as allowed by RBI. ‘Date of Payment’ has been specifically defined under Rule 2A: Situation Service provided after change in effective rate of tax In normal case Earlier of dates of entry into books of account or actual credit . In case of change of rate or new Date when amount is actually credited in the bank; if it is levy between said two dates credited more than four days after date of such change. [Rule 5]-
Introduction of New Service - ProceduresIn the case of introduction of new services under tax ambit the following situations withfollow : Scenario Point of Taxation Event 1 Event 2 Invoice issued & No Service Tax Payment received before NA Payable Service became Taxable New Service Invoice issued within No Service Tax brought under Payment received before 14 days of Payablegamut of Service Service became Taxable Completion of Service Tax Invoice issued within 14 days of No Service Tax Service provided before Completion of Service Payable tax became applicable and payment received after Service became taxable
Continuous Supply of Services Continuous Services• Telecommunication Services • Any other service if provided• Commercial or Industrial Construction continuously or on recurrent basis under• Construction of Residential Complex a contract for a period exceeding three• Internet Telecommunication months.• Works ContractThe point of taxation in the case of continuous supply of services shall be as follows: Date of issue of invoice or receipt of payment, whichever is earlier, if the invoice is issued within the prescribed period of 30 days from the date of completion of the provision of service. Date of completion of the provision of service or receipt of payment, if the invoice not issued within the prescribed period as above.Separate rules for continuous services have been omitted.Provisions of rules for new levy and changes of rates will also applicable to continuoussupply.
Specified Services When CENVAT Credit available Nature of Service Point of Taxation (POT) Conditions to Service Recipient If payment is not received within time, prescribed (6 Months) by Export of service Date of Receipt of Payment NA RBI, POT as per normal provisions If payment is not made within 6 months from the date of invoice, POT would be as per normal Persons required to pay Date of payment of Value & provisions. Therefore, if after six service tax as recipient of Date of Payment Service tax mentioned on months payment for invoice has service (Reverse Charge Invoice not been made, then there would Mechanism) be liability to pay service tax but no corresponding credit would be allowed A) Specified Services: - Architect, Interior Decorator, CA/ CS/ Cost Accountants/Scientific &Individuals/ Proprietorship/ Technical consulting/ Legal Partnership firms providing Date of Receipt of Payment Date of Receipt of Invoice B) Credit is available to the specified Services Service Recipient on receipt of invoice though no amount has been paid They must have turnover of 50 Other Date of Receipt of Payment lakhs or less during preceding Individual/partnerships F/Y. Payment basis shall firms(LLP) applicable up to Rs. 50 lakhs.
Changes in Valuation rules• A new clause has been inserted in Rule 6 to include any amount realized as demurrage within the value of services.• Accidental damages due to unforeseen action would no longer form part of value of service.• Interest on loans will now be an exempt income rather an exclusion from value; so credit reversal will take place in case of interest on loans.• ‘Prescribed manner’ in Rule 3 will be applicable only in case where valuation is not ascertainable.• In the case of works contracts If value of goods cannot be determined, gross value for service tax purposes will be:Nature of contract Taxable valueIn case of original work (includes additions and alterations) 40%where gross amount include value of land 25%Otherwise including completion and finishing 60%
CENVAT Credit Rule Changes Rule 5 has been amended to provide taxes paid on any inputs or input services will be entitled to be refunded in the ratio of export turnover to total turnover. Credit on goods can be allowed without bringing them to the premises provided documents regarding delivery and location have been maintained. In case of ISD, credit of inputs services is allocated to only such units where they have been put to use or proportionate to turnover if utilized for more than one unit. Credit of service tax paid on hiring, insurance, repairs of all Motor cars except those specified will be allowed. Rule 9(1)(e) has been amended to allow availment of credit on tax payment challans in case service tax paid on reverse charge basis. The rate for payment under rule 6(3) has been increased from 5% to 6% of value of exempted goods and services. Documents for availing credit have been amended to include challans evidencing payments by all categories of service receiptant.
General Changes Changes in frequency of filing returns :-Tax Liability Organization Type Individual /firm /LLP Others Tax liability <25lacs in Tax liability >25lacs in preceding year preceding yearReturn Filing Frequency Quarterly Monthly
General changes • Ambit of ‘Money’ defined in sec 67 has been amended to expand the meaning. • A new section 67A has been introduced to prescribe the applicable rate of exchange, value of taxable service & rate of service tax. • Provisions of section 73 has been amended regarding recovery of tax as follows:Amendment commentsPeriod of issuance of demand notice extended from to take care of the shorter period available due to12 to 18 months reduction of period of new return EST-1A new sub section (1A) have been introduced tofollow up the demand.To avoid overruling reference to subsection 3 isbeing deleted from sub section 4(A) • Provision relating to settlement commission are being bought in service tax.
General changes• Provisions of appeals have been amended to align with Excise Law which will come into force from the date president will give consent to Finance bill 2012. – Appeals to CCE(appeals) reduced to 2 months – Appeals to Appellate tribunal increased to 4 months• Revision mechanism under CE Act has been made applicable to Service Tax.• Section 89 related to offences has been amended to provide that any person who knowingly evades payment of services tax shall be punishable.• Special audit provisions u/s 14AA ahs been made available to Service Tax.• In respect of renting of immovable property penalty shall not be imposable for default in the payment of service tax provided service tax along with interest is paid within period of 6 months from date Finance Bill 2012 receives consent of president.• Taxable service of import of technology has been exempted from service tax to the extent R&D cess has been payable subject to certain conditions.• Scheme for electronic refund of tax paid on taxable services used for exports of goods at post removal stage had been made operational since 3.01.2012.
Implementation Dates • The Effective dates for the various changes proposed by the bill are as below :Provision Effective Date Date to be notified after theNegative list for services enactment of the Finance Bill, 2012Amendments to Point of Taxation Rules under the March 17, 2012Finance Act, 1994Amendments to CENVAT Credit Rules, 2004 Effective from April 1, 2012Legislative changes in Customs and Excise Date of enactment of the Finance Bill, 2012New rate of Service Tax April 1, 2012
DisclaimerThe finance Bill 2012 is pending before the parliament and the final bill passed may substantially differfrom the one presented by the finance minster on the 16th of March 2012, on which this analysis isbased. The analysis/views in this booklet do not purport to be and should not be treated as legalopinion. Nothing contained herein can substitute appropriate legal opinion in the fact specificsituations that affect you or your enterprise.
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