Service Tax (including CENVAT) Amendments 2016 & Recent issues & Judgments

Compiled By : CA Ramandeep Singh Bhatia

RATES OF SERVICE TAX
Krishi Kalyan Cess (KKC)
In order to boost the agriculture sector, the Finance Minister
has introduced a new Cess called as the Krishi Kalyan Cess. It
shall to be levied @ 0.5% on value of all taxable services. Its
proceeds will be exclusively used for financing initiatives
relating to improvement of agriculture and welfare of farmers.
The Cess has come into force with effect from 1st June,
2016.
Summary Chart of Service tax Rates
Period Calculation Effective Rate
Up to 31/5/15 12% ST + 0.24 EC +0.12% SHEC 12.36%
1/6/15 to 14/11/15 14% ST 14.00%
15/11/15 to 31/5/16 14% ST + 0.5% SBC 14.50%
1/6/16
Onward
14%ST +0.5% KKC+SBC+0.5% 15.00%

FAQ’ ON KKC
Now, the Central Government vide Circular No. 194/04/2016-ST, Dated:
May 26, 2016
KKC (Minor
Head)
Tax Collection Other
Receipts
(Interest)
Deduct
Refunds
Penalties
0044-00-507 00441509 00441510 00441511 00441512
Further, the following have also been provided for w.e.f 1st June
2016:
1) Is it applicable to Reverse Charge Also ?
2) Is it applicable to Exempt Services ?
3) Applicable on which Value ?

FAQ’ ON KKC
•Value of taxable services for the purposes of the Krishi Kalyan Cess will be
the value as determined in accordance with the Service Tax
(Determination of Value) Rules, 2006.
•Thus, KKC would be levied in the following manner:
In terms of Service Tax Valuation Rules, Service tax along with SB Cess and
KKC needs to be applied on taxable value. Accordingly, effective rate of
Service tax in following illustrative cases would be:
Particulars
Effective Service Tax Rate
including SBC & KKC
Works Contract: Original works 6% (15% x 40%)
Works Contract: Other than Original Work 10.50% (15% x 70%)
Restaurant and Outdoor catering: AC Restaurant
services
6% (15% x 40%)
Restaurant and Outdoor catering: Outdoor catering
services
9% (15% x 60%)

FAQ’ ON KKC
5) Cenvat Credit Avilable ?
Central Government vide Notification No. 28/2016-Central Excise (N.T.),
Dated: May 26, 2016 has amended CENVAT Credit Rules, 2004 to allow
Cenvat credit of KKC to a service provider.
Definition of “service tax & cess” in the amended Notification No.
39/2012-ST dated June 20, 2012 (Rebate of the duty paid on excisable
inputs or Service tax and cess paid on all input services used in providing
service exported).
-CENVAT credit in respect of KKC shall be utilized only towards payment of
KKC.
Comments: KKC would add to the cost for the manufacturers as they will
not be able to avail the credit of KKC paid by them on input services
utilised during manufacture. The prices will rise to that extent as cost
would be recovered from ultimate consumers only.

FAQ’ ON KKC
6) Point of Taxation of Levy of Krishi Kalyan Cess (KKC) ?
Explanation 1 and 2 inserted with effect from March 1, 2016 to Rule 5 of the Point of
Taxation Rules, 2011 directs that KKC will be applicable in the following cases:
 Service provided and invoice
issued before June 1, 2016 if but
payment received after this date
•Service provided before June 1, 2016
but invoice issued (after 14 Days)and
payment received after this date
Rule -5(A) Invoice Issued & Payment Received before 1st June – NO ST
Rule -5(B) Payment Received before 1st June + Invoice issued with 14 Days- NO ST
Rule -3(A) Service Provided before 1st June + Invoice issued within 14 Days –No ST
Rule 4A of the Service Tax Rules, 2004 determines completion of service to be the
date of invoice. Accordingly, if completion of service can be evidenced to be prior
to imposition of KKC, it is doubtful if the rule can eclipse the levy under section
66B of Finance Act, 1994.

FAQ’ ON KKC
7) Where the service tax is paid at an alternative rate in terms
of sub-rules 7,7A,7B and 7C to Rule 6 ?
Total Service tax liability calculated under Rule 6(7)(7A), (7B) or (7C) * 0.5
(KKC)
__________________________________________________________
14 (being the rate of service tax)
For example : for domestic bookings the rate
of KKC would be: 0.7% * 0.5% / 14% = 0.025%

SEC.66D-NEGATIVE LIST
1) Educational services by way of
(a) pre-school education and education up to higher and secondary school
or equivalent,
(b) education as a part of a curriculum for obtaining a qualification
recognized by any law for the time being in force and
(c) education as a part of an approved vocational education course (This
amendment would come into effect from the date of enactment of Finance
Bill, 2016 -14/05/2016);
(d) Notification No.25/2012-ST as amended by Notification No.09/2016-ST
dated 1st March, 2016 Included in Mega / General Exemption List.
BROADENING TAX BASE : ENTRIES REMOVED FROM LIST

SEC.66D-NEGATIVE LIST
2) Service of transportation of passengers, with or without
accompanied belongings, by a stage carriage (w.e.f. 1st June
2016);
However, such services by a non-air-conditioned contract carriage will
continue to be exempted by way of exemption Notification No.
25/2012-ST, as amended by notification No. 09/2016-ST, dated
1st March 2016
The service of transportation of passengers by air-conditioned stage
carriage is being taxed at the same level of abatement (60%) as
applicable to the transportation of passengers by a contract carriage,
with same conditions of non-availment of Cenvat credit.
BROADENING TAX BASE : ENTRIES REMOVED FROM LIST

CHAPTER V-FINANCE ACT’94
Activity carried out by a lottery distributors or selling agents
of the state government under the provision of the Lotteries
(Regulation ) Act , 1998, Is Leviable to Service Tax
Explanation :2 , Section 65B(44)
A. Section 65(B) (44) – Definition of Service
B. Section 66(E) – Declared Service
Assignment by the Government of the right to use the
radio frequency spectrum is proposed to be declared
service under section 66E and therefore it is made clear
that it is not to be treated as sale of intangible goods.

Section 67A has been amended and linked with the POT Rules
and thus harmony has been created. Now, it is expected to settle
the disputes regarding applicability of rate of service tax. The
POT Rules shall remain relevant for determining rate of service
tax as well as due date of payment of tax. (Enactment -
14/05/2016)
C. Section 67A linked with Point of Taxation Rules (POT)
D. Period of limitation for bona-fide assesses extended
Section 73 has been amended to increase the limitation period
from 18 months to 30 months for short levy/non-levy/short
payment/non-payment/ erroneous refund of Service Tax.
(Enactment -14/05/2016)

E. Section 75 - Interest on delayed payment of service tax
Scenario Proposed
Willful default* and value of taxable service in
preceding yearis less than Rs.60 lakh
21%
Willful default and value of taxable service in
preceding year is more than Rs.60 lakh
24%
Other cases where value of taxable service in
preceding yearis less than Rs.60 Lakh
12%
Other cases where value of taxable service in
preceding yearis more than Rs.60 Lakh
15%
*Willful default- Cases where Service Tax collected but not deposited to the
credit of central government-
Enactment – 14/05/2016

wherein it is proposed to provide that prosecution proceedings
under section 78A shall be deemed to be closed in cases where
the main demand and penalty proceedings have been closed
under section 76 or section 78, by making suitable changes to
section 78A by addition of an explanation.
(Enactment -14/05/2016)
F. Section 78A Prosecution proceedings-Explanation Inserted
G Section 89 - Offences and penalties
The power to arrest in Service Tax is being restricted only to
situations, where the taxpayer has collected the tax but not
deposited it to the credit of the central government, and
that too the above a threshold of Rs.2 crore. The monetary
limit for launching prosecution is being increased to Rs. 2
crore of Service Tax evasion. (Enactment -14/05/2016)

In the provision of Section 90 as we have seen in above case
and to wide powers of department, the Finance Minister
proposed to omit sub-section 2 to Section 90. Existing sub-
section to section 90 provides that an offence even if it is
cognizable and bailable as per the provisions of the Code of
Criminal Procedure, 1973 shall be non-cognizable and
bailable if it was not cognizable as per provision of the
Finance Act, 1994. (Enactment -14/05/2016)
H. Section 90 Cognizance of offences
I. Section 91 Power to Arrest
Now, in cases where the assessee is collecting Service Tax
above Rs. 2Cr. and not depositing it to the credit of the
central government, the Pr. CCE or CCE may authorize the
Central Excise Officer, not below the rank of Superintendent
of Central Excise, to arrest such all person.

Amendment so as to enable allowing of rebate by way of
notification as well as rules.
J. Section 93 A – Power to Grant Rebate
K. Section 101New-Service Tax Exemption to Canal , Dam or
Other Irrigation Work , Retrospective Amendment
-Definition of Government Authority Amended – With
retrospective effect 30/01/2014
-Refund Available – Service Tax collected from 30/01/2014
-Claim – 6 Month from date of Enactment -14/05/2016

L. Section 102New-Restoration of Certain Exemption
withdrawn last year for projects , Contracts in respect of
Government Building.
Notification 06/2015 dated 1st March’ 2015 had withdrawn the
exemption given to certain construction related services to
Government, Local Authority or a governmental authority w.e.f. 01st
April’ 2015.
The same is being restored for the services provided under a contract
which had been entered into prior to 01.03.2015 and on which
appropriate stamp duty, where applicable, had been paid prior to that
date. The exemption is being restored till 31.03.2020. [Notification No.
25/2012-ST as amended by notification No 09/2016-ST, dated 1st
March, 2016].
Refund Claim – 6 Month from date of Enactment -14/05/2016 Period
01/04/2015 to 29/02/2016

M. Section 103New-Restoration of Exemption from Service Tax
on services by way of construction, erection, etc. of original
works pertaining to an airport, port was withdrawn with
effect from 1.4.2015.
Contract which had been entered into prior to 01.03.2015 and on
which appropriate stamp duty, where applicable, had been paid
prior to that date subject to production of certificate from the
Ministry of Civil Aviation or Ministry of Shipping, as the case
may be, that the contract had been entered into prior to
01.03.2015.
Refund Claim – 6 Month from date of Enactment -
14/05/2016 Period 01/04/2015 to 29/02/2016

NOTIFICATION NO.25/2012-ST
A. Service provided by EPFO are exempt from service
tax – Sr. no 49 with effect from 01.04.2016
B. Service provided by SEBI are also exempt -Sr. no 51
with effect from 01.04.2016
C. Services of life insurance business provided by way of
annuity under the National Pension System (NPS)
regulated by Pension Fund Regulatory Sr. no 26 C with
effect from 01.04.2016
D. Services provided by Biotechnology Industry Research
Assistance Council (BIRAC) approved biotechnology
incubators to the incubates are being exempted from
service tax. (Amendment in Not. 32/2012 with effect from
01.04.2016)

E. Services provided by National Centre for Cold Chain
Development under Department of Agriculture,
Cooperation and Farmer‟s Welfare, Government of
India, by way of knowledge dissemination are being
exempted from service tax. Sr. no 52 with effect
from 01.04.2016
F. Services provided by Insurance Regulatory and
Development Authority (IRDA) of India are being exempted
from service tax. Sr. no 50 with effect from 01.04.2016
G. Services of general insurance business provided under
„Niramaya‟ Health I nsurance scheme launched by
National Trust for the Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disability
in collaboration with private/public insurance
companies are being exempted from service tax. Sr. no
26(Q )with effect from 01.04.2016

K. Services by way of construction, erection etc. of a civil structure
or any other original works pertaining to the “In-situ
Rehabilitation of existing slum dwellers using land as a resource
through private participation” component of Housing for All (HFA)
(Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in
respect of such dwelling units of the projects which are not
constructed for existing slum dwellers, is being exempted from
service tax (Sr. no 13 (ba) w.e.f.1st March, 2016).
L. Services by way of construction, erection etc., of a civil structure
or any other original works pertaining to the “Beneficiary-led
individual house construction / enhancement” component of
Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas
Yojana (PMAY) is being exempted from service tax (Sr. no 13 (bb)
w.e.f.1st March, 2016).

H. The threshold exemption limit of consideration charged for
services provided by a performing artist in folk or classical art
forms of music, dance or theatre, is being increased from Rs 1
lakh to Rs 1.5 lakh per performance. Sr. no 16 with effect
from 01.04.2016 – (Brand Ambassador not Covered)
I. Services provided by way of skill/vocational training by Deen
Dayal Upadhyay Grameen Kaushalya Yojana training partners
are being exempted from service tax. Sr. no 9 (D) with effect
from 01.04.2016
J. Services of assessing bodies empanelled centrally by
Directorate General of Training, Ministry of Skill Development
& Entrepreneurship are being exempted from service tax. . Sr.
no 9 (C) with effect from 01.04.2016.

K. Services by way of construction, erection, etc., of original works
pertaining to low cost houses up to a carpet area of 60 sq.m per
house in a housing project approved by the competent authority
under the “Affordable housing in partnership” component of
PMAY or any housing scheme of a State Government are being
exempted from service tax (Sr. no 14 (ca) w.e.f.1st March, 2016 ).
L. Services provided by the Indian Institutes of Management (IIM)
by way of 2 year full time Post Graduate Programme in
Management(PGPM) (other than executive development
programme), admissions to which are made through Common
Admission Test conducted by IIMs, 5 year Integrated Programme
in Management and Fellowship Programme in Management are
being exempted from service tax (Sr. no 9 (B) w.e.f. 1st March,
2016 ).

M. Services by way of transportation of goods by an aircraft from
place outside India upto the customs station of clearance in India
(Sr. no 53 (ca) w.e.f. 1st June, 2016 ). (Earlier was in Negative list)
O. Transport of Passenger ,with or without accompanied belonging
by – Stage Carriage other than air conditioned stage carriage (Sr.
no 23 (BB) w.e.f. 1st June, 2016 ). (Earlier was in Negative list)
P. Service Tax leviable on services of Senior Advocates
Services provided by a senior advocate to an advocate or
partnership firm of advocates or business entity having turnover
up to Rs.10 Lakh in preceding financial year.
Services provided by a person represented on an arbitral tribunal
to an arbitral tribunal;
Service Tax payable by the service provider Forward Charge
(effective from 1st April 2016). (who is Senior Advocate)

ABATMENTS-NOTIFICATION NO.26/2012-ST
Rationalization of various Abatements Effective From – 01/04/2016
SR.
No
Rationalization of
various Abatements
Existing
Abatement-
Rate
Proposed
Abatement-
Rate
1 Passenger/Goods
Transportation by Rail –
Abatement 70%
70% - 4.5%
Without Credit
70% - 4.5%
With Input
Service Credit
2 Transportation of Goods in
Containers by Rail
70% - 4.5%
Without Credit
60% - 6.00%
With Input
Service Credit
3 Transportation of goods by
Vessel
70% - 4.5%
Without Credit
70% - 4.5%
With Input
Service Credit

SR.
No
Rationalization of
various Abatements
Existing
Abatement-
Rate
Proposed
Abatement-
Rate
4 Services of construction of
complex, building, civil
structure, or a part thereof ,
Intended for a sale to buyer ,
wholly or partly
Low Ended
Less than 2000 Sqft + Amt less
than Rs.1 Crore
Low Ended –
75%- 3.5%
High Ended –
70% -/4.2%
Both Type –
70% - 4.2%

SR.
No
Rationalization of
various Abatements
Existing
Abatement-
Rate
Proposed
Abatement-
Rate
5 Abatement rate on tour
operator services Package Tour
(Inclusive all) & other than
packaged tour
(tour operator is providing
services solely of arranging or
booking accommodation for
any person in relation to a tour,
abatement of 90% is available
with specified conditions)
Package Tour
(Inclusive all)-
75% - 3.75%
Other than
Package Tour-
60% - 6.00%
All Type :
70% - 4.5%

SR.
No
Rationalization of
various Abatements
Existing
Abatement-
Rate
Proposed
Abatement-
Rate
6 Abatement on transport of used
household goods by a Goods
Transport Agency (GTA) is being
rationalized at the rate of 60%
without availment of CENVAT
credit on inputs, input services
and capital goods by the service
provider.
70%- 4.5% 60%-6.00%
7 Abatement for the service of
transport of goods by vessel
70%-4.5%
No Cenvat Credit
70%-4.5%
Input Service is
allowed

SR.
No
Rationalization of
various Abatements
Existing
Abatement-
Rate
Proposed
Abatement-
Rate
8 Services provided by foreman to
a chit fund under the Chit Funds
Act, 1982 are proposed to be
taxed at an abated value of 70%
(with abatement of 30%) subject
to the condition that CENVAT
credit of inputs, input services
and capital goods has not been
availed.
0% - 15%
(CENVAT Credit
on Input ,
Input
Service &
Capital
Goods)
30% - 10.50%
(No- CENVAT)

REVERSE CHARGE MECHANISM
Effective From – 01/04/2016
A. No more reverse charge on services provided by
Mutual fund agents
Services provided by mutual fund agents/distributor to a
mutual fund or asset management company are being put
under forward charge, i.e. the service provider is being
made liable to pay service tax. The small sub-agents down the
distribution chain will still be eligible for small service
provider exemption [threshold turnover of Rs 10
lakh/year] and a very small number will be liable to pay
service tax.
B. Any Service Provided by Government or Local
Authority to business Entities – Liability on Recipient

REVERSE CHARGE MECHANISM
Notification No.30/2012-ST Amendment- Sr. No.6 ‘by way of
supports service ‘ deleted.
B. Any Service Provided by Government or Local
Authority to business Entities – Liability on Recipient

SERVICE TAX RULES
Individuals and partnership firms are given special
treatment under Rule 6 of the ST Rules, who are allowed to
pay tax on quarterly basis upon receipt of service proceeds (up
to Rs.50 lacs turnover). This benefit has been extended to
OPCs and HUFs.
A. Rule-6 One Person Company (OPC) and HUF treated
on par with individuals and firms
B. Rule-7A ST on Single premium insurance policies is
reduced from 3.5% to 1.4%
The service tax liability on single premium annuity (insurance)
policies is being rationalized and the effective alternate service
tax rate (composition rate) is being prescribed at 1.4% of the
total premium charged.

THE POINT OF TAXATION RULES (POTR)
Section 67A has been amended and linked with the POT Rules and
thus harmony has been created. Now, it is expected to settle the
disputes regarding applicability of rate of service tax. The POT
Rules shall remain relevant for determining rate of service tax as
well as due date of payment of tax.
A. Section 67 A Linked With POT
B. Rule-5 Invariably made applicable for New Levy &
Collection of New Levy
Explanation – Inserted- K K C & S B C

ANNUAL RETURN
A new concept of furnishing of Annual Return
is proposed to be introduced in service tax.
Such annual return shall be required to be filed
in addition to the existing system of Half Yearly
returns.
- Certain Threshold,
- Can be Revised with in One month
- Upto 30th November

Information Technology Software
Chapter -85 Notified under Section 4A of the CEA
Where it is required to
show RSP (retail Sale
Price ) Fixed on the
Package as per Legal
Metrological act
Central Excise Duty / CVD –
Note Sale – Deemed Sale as per Service Tax ,
hence no Service tax
Where it is not required
to show RSP (retail Sale
Price ) Fixed on the
Package as per Legal
Metrological act
CVD or Central Excise exempted for the Value
of Media & Information.
Service Tax will be Levied on that portion.
CVD or Central Excise will be levied on Value
of medium on which it is recorded + Freight
& Insurance.

Indirect Tax Dispute Resolution Scheme, 2016
The scheme is a step towards resolving litigations still pending at
the initial level before the first appellate authorities.
Persons opting for the scheme will have to pay the tax along with
interest and in case the matter in appeal is related to penalty
imposed under the impugned order then 25% of such penal
amount will have to be paid. The unique feature of the scheme is
that opting under scheme and paying tax and penalty would not
render the matter as being decided on merits and would not
result in any binding precedent for other cases.
Detailed Scheme issued .
Major Benefit- Prosecution can be avoided & Penalty can be Saved
to some extent.

CENVAT CREDIT RULES , 2004
A. AMENDMENTS RELATED TO CAPITAL GOODS
1) Wagons of sub heading 8606 92 included in the definition of
capital goods
2) The Capital goods used in office located within factory is also
eligible for CENVAT CREDIT.
3) CENVAT credit on inputs and capital goods used for pumping of
water, for captive use in the factory, is being allowed even where
such capital goods are installed outside the factory.
4) All capital goods having value upto Rs.10,000/- per piece are
being included in the definition of inputs.

B. AMENDMENTS RELATED TO INPUTS SEND TO JOB WORKER
1) Manufacturer of final products is being allowed to take CENVAT credit on
tools of Chapter 82 of the Central Excise Tariff in addition to credit on jigs,
fixtures, moulds & dies, when intended to be used in the premises of job-
worker or another manufacturer who manufactures the goods as per
specification of manufacturer of final products.
(Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal)
2) It is also being provided that a manufacturer can send jigs, fixtures,
moulds & dies goods directly to such other manufacturer or job-worker
without bringing the same to his premises.
3) The permission given by an Assistant Commissioner or Deputy
Commissioner to a manufacturer of the final products for sending Inputs
or partially processed inputs can be send outside factory to a job-worker
and clearance there from on payment of duty is valid for 3 financial years.

C. CENVAT CREDIT ELIGIBILITY
1) Radio Frequency Spectrum, Mines etc.: CENVAT credit of Service Tax
paid on amount charged for assignment by Government or any other
person of a natural resource such as radio-frequency spectrum, mines
etc. shall be spread over the period of time for which the rights have
been assigned.
2) Where the manufacturer of goods or provider of output service
further assigns such right to use assigned to him by the Government or
any other person, in any financial year, to another person against a
consideration, balance CENVAT credit not exceeding the service tax
payable on the consideration charged by him for such further
assignment, shall be allowed in the same financial year.

C. CENVAT CREDIT ELIGIBILITY
Infrastructure Cess: Cenvat credit cannot be utilised for payment of
Infrastructure Cess. Further, no credit of this Cess would be available
under the Credit Rules.
Infrastructure Cess is a levy/tax imposed by the Union Government on the
production of vehicles, at the rate of 1% on small petrol, LPG, CNG (gas based) cars,
2.5% on Diesel Cars of certain capacity and 4% on other higher engine capacity
vehicles and Sports Utility Vehicles (SUVs), for the purposes of financing
infrastructure projects.
Infrastructure cess has come into effect from 1 March 2016.
Cess is exempted for certain motor vehicles such as three wheelers, electric vehicles,
hydrogen /fuel cell based vehicles, vehicles certified to be used for physically
challenged/ differently abled persons etc. Further, this is also exempted for other
public utility transport vehicles like buses (which transport more than 10 persons)
and cars /vehicles which are registered solely for serving as taxis or as ambulances.

D. AMENDMENT IN RULE – 6 (REVERSAL OF CREDIT)
Rule 6(1): The existing principle that CENVAT credit shall not be allowed
on such quantity of input and input services as is used in or in relation
to manufacture of exempted goods and exempted service. The
procedure for calculation of credit not allowed is provided in sub-rules
(2) and (3), for two different situations.
Rule 6(2): A manufacturer who exclusively manufactures exempted
goods for their clearance up to the place of removal or a service
provider who exclusively provides exempted services shall pay (i.e.
reverse) the entire credit and effectively not be eligible for credit of any
inputs and input services used.

Rule 6(3) exempted goods and final products excluding exempted goods
or provides two classes of services, namely exempted services and
output services excluding exempted services, then the manufacturer or
the provider of the output service shall exercise
One of the two options, namely,
(a) pay an amount equal to 6% of value of the exempted goods and 7%
of value of the exempted services, subject to a maximum of the total
credit taken or
(b) pay an amount as determined under sub-rule (3A).

Rule 6 (3A) : Provisionally for each month. Intimation in writing to the
Superintendent of Central Excise is necessary. The four key steps for
calculating the credit required to be paid are
– No credit of inputs or input services used exclusively in manufacture of
exempted goods or for provision of exempted services shall be available
– Full credit of input or input services used exclusively in final products
excluding exempted goods or output services excluding exempted services shall
be available;
– Credit left thereafter is common credit and shall be attributed towards
exempted goods and exempted services by multiplying the common credit with
the ratio of value of exempted goods manufactured or exempted services
provided to the total turnover of exempted and non-exempted goods and
exempted and non-exempted services in the previous financial year;
– Final reconciliation and adjustments are provided for after close of financial
year by 30th June of the succeeding financial year, as provided in the existing
rule.

New sub-rule (3AA): A manufacturer or a provider of output service
who has failed to follow the procedure of giving prior intimation, may
be allowed by a Central Excise officer, competent to adjudicate such
case, to follow the procedure and pay the amount prescribed subject to
payment of interest calculated at the rate of 15% p.a.
New sub-rule (3AB) (transitional provision) The existing rule 6 of CCR
would continue to be in operation upto 30.06.2016, for the units who
are required to discharge the obligation in respect of financial year
2015-16.
Rule 6(3B) Allow banks and other financial institutions to reverse credit
in respect of exempted services on actual basis in addition to the
option of 50% reversal.

CASE –LAWS
No Service tax on sale of under construction flats
if contract price includes value of land
Suresh Kumar Bansal Vs. Union of India & Ors; Anuj Goyal & Ors Vs.
Union of India & Ors [2016-TIOL-1077-HC-DEL-ST]-03/06/2016
Petitioners’ contentions:
•The Agreement entered with the Builder are for purchase of
immovable property and the Parliament does not have the
legislative competence to levy Service tax on such transaction;
The entries relating to taxation in List I and List II of the Seventh
Schedule to the Constitution of India were mutually exclusive and
the Parliament did not have the power to levy tax on immovable
property; thus, the levy of Service tax on agreements for purchase
of flats was beyond the legislative competence of the Parliament;

CASE –LAWS
No Service tax on sale of under construction flats
if contract price includes value of land
Petitioners’ contentions:
Their Agreement with the Builder is a composite contract for purchase
of immovable property and in absence of specific provisions for
ascertaining the service component of the said Agreement, the levy
would be beyond the legislative competence of the Parliament;
There was no service element in preferential location charges which
were levied by the Builder and the same related only to the location of
the immovable property and, therefore, such charges were not exigible
to Service tax.

CASE –LAWS
Revenue’s contention: The Revenue submitted that development of a
project results in the substantial value addition on bare land and
includes various services such as consulting services, engineering
services, management services, architectural services etc.
These services are subsumed in the taxable service as contemplated
under Section 65(105)(zzzh) of the Finance Act. The Revenue also
submitted that as the gross charges include value of land and
construction material, only 25% of the Base Selling Price (BSP) charged
by a Builder from the ultimate consumer is subjected to levy of Service
tax.
However, in case of preferential location charges, the entire amount
charged by a developer is for value addition and therefore, the gross
amount charged for such services is chargeable to Service tax under
Section 66 read with Section 65(105)(zzzzu) of the Finance Act.

CASE –LAWS
Held:
The Hon’ble High Court of Delhi after detailed deliberation held as
under:
- No services are rendered in a contract to sell immovable property
- Imposition of Service tax in relation to a transaction between a
developer of a complex and a prospective buyer does not impinges on
the legislative field reserved for the States.
- No statutory machinery provision for determining the service element
in Composite Contract

CASE –LAWS
Held: The Hon’ble High Court of Delhi after detailed deliberation held as
under:
Undisputedly, the contract between a buyer and a builder/ promoter/
developer in development and sale of a complex is a composite one.
The arrangement between the buyer and the developer is not for
procurement of services simplicitor;
While the legislative competence of the Parliament to tax the element
of service involved cannot be disputed but the levy itself would fail, if
it does not provide for a mechanism to ascertain the value of the
services component which is the subject of the levy;
In the present case, there is no machinery provision for ascertaining the
service element involved in the composite contract. In order to sustain
the levy of Service tax on services, it is essential that the machinery
provisions should provide for a mechanism for ascertaining the
measure of tax, that is, the value of services which are charged to
Service tax.

CASE –LAWS
NO SERVICE TAX AUDIT BY THE
DEPARTMENTAL OFFICER
MEGA CABS PVT. LTD Vs. Union of India [2016-TIOL-1077-HC-
DEL-ST]-03/06/2016

CASE –LAWS
Key Dates Legal Build-up
28th Decemb
er, 2007
The Central Government in the Ministry of Finance, Department of Revenue
inserted Rule 5A in the Service Tax Rules, 1994 (“ST Rules”)
1st January,
2008
CBEC also issued an instruction explaining the scope of the powers of the
various officers of the Department to carry out audit or scrutiny of the
records of service tax payers.
Date of
Appeal of
Travelite
Both the Notification dated 28th December 2007 inserting Rule 5A as well
as the CBEC Instruction dated 1st January 2008 were challenged before
this Court in a writ petition by Travelite (India)
26th Septemb
er, 2012
SKP SECURITIES LTD. / INFINITY INFOTECH PARKS LTD. Versus
DEPUTY DIRECTOR (RA-IDT) & ORS 2013 (29) S.T.R. 337 (Cal.) it was
held by Hon’ble Calcutta HC that CAG is not empowered to conduct audit of
nongovernmental-company pursuant to the provisions of service tax laws.
Rule 5A was held ultra vires to section 94 in context to non governmental
company audit by CAG while referring the case to chief justice for divisional
bench adjudication.
30th April,
2014
Above Judgement of SKP (Supra) was again upheld in the case
of INFINITY INFOTECH PARKS LTD. Versus UNION OF INDIA 2014 (36)
S.T.R. 37 (Cal.)

CASE –LAWS
4th August,
2014
Travelite (India) v. Union of India 2014 (35) STR 653 (Delhi), a Division
Bench of this Court struck down Rule 5A(2) as being ultra vires Section 72A
read with Section 94(2) of the FA. The consequent Circular of CBEC
Instruction dated 1st January 2008 was also struck down. It was clarified
that Service Tax Audit Manual, 2011 was merely an instrument of
instructions for the Service Tax authorities and has no statutory force
6th August,
2014
94(2)(k) was inserted vide Finance Act, 2014
5th December
, 2014
New Rule 5A(2) Substituted
10th Decemb
er, 2014
Circular No. 181/7/2014-ST was issued by the CBEC clarifying that in view
of the insertion of Section 94(2)(k), the officers of the Service Tax
Departments could proceed with conducting audits as before. It was stated
that that expression ‘verified’ used in Section 94(2)(k) of the FA was of wide
import and would include within its scope audit by the departmental officers.

CASE –LAWS
18th Decemb
er, 2014
Special Leave Petition No. 34872/2014 was filed in the Supreme Court
by the Union of India vide order of the Supreme Court while directing
notice in the said Special Leave Petition directed that there would be a stay
of the operation of the decision of this Court in Travelite (India) v. Union of
India (supra)
27th February
, 2015
Circular No. 995/2/2015-CX was issued by the CBEC on the subject
“Central Excise and Service Tax Audit norms to be followed by the Audit
Commissionerates” and this too contemplated the Department’s officers
themselves undertaking audits. A Central Excise and Service Tax Audit
Manual, 2015 was also issued by the Directorate General of Audit of the
CBEC in this regard.
3rd June,
2016
Delhi HC Again Strikes Down (In the Present Case) the Amended Rule 5A
(2) to the extent of Department’s authority to Conduct ‘Audit’ of Assessees
registered under Service Tax.

CASE –LAWS
Section 94(2)(k) of the FA,1994
“94. Power to make rules.-(1) The Central Government may, by
notification in the Official Gazette, make rules for carrying out the
provisions of this Chapter.
(2) In particular, and without prejudice to the generality of the foregoing
power, such rules may provide for all or any of the following matters,
namely (k) “imposition, on persons liable to pay service tax, for the
proper levy and collection of tax, of duty of furnishing information,
keeping records and the manner in which such records shall be
verified”

CASE –LAWS
Rule 5A. (2) Every assessee, shall, on demand make available to the
officer empowered under sub-rule (1) or the audit party deputed by the
Commissioner or the Comptroller and Auditor General of India, or a cost
accountant or chartered accountant nominated under section 72A of
the Finance Act, 1994,–
(i) the records maintained or prepared by him in terms of sub-rule (2) of rule
5;
(ii) the cost audit reports, if any, under section 148 of the Companies Act,
2013 (18 of 2013); and
(iii) the income-tax audit report, if any, under section 44AB of the Income-tax
Act, 1961 (43 of 1961),
for the scrutiny of the officer or the audit party, or the cost accountant or
chartered accountant, within the time limit specified by the said officer or the
audit party or the cost accountant or chartered accountant, as the case may
be

CASE –LAWS
Held by Hon’ble Delhi HC
Rule 5A(2) is ultra vires to the FA and, therefore, strikes it down
to that extent;
Expression ‘verify’ in Section 94(2)(k) of the FA cannot be
construed as audit of the accounts of an Assessee and,
therefore, Rule 5A(2) cannot be sustained with reference to
Section 94(2)(k) of the FA.

CA . RAMANDEEP SINGH BHATIA
Qualifications :
FCA, CS (EXE) , BCOM,
CERT. IFRS, CERT. IDT, CERT. CBA, DISA
Associated to:
-Trainer ICAI Raipur- GMCS/OTC/ITT
- Trainer MCA Investor Awareness Program
- Editor Newsletter Income Tax Bar Association Raipur
- Vice President (Training) – JCI Raipur Capital
- Executive Member of Governing Board of CG IDT Association
+919827152729
ca.ramandeep@yahoo.com
facebook.com/caramandeep.bhatia
Twitter/caramandeep

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