The document summarizes changes to India's service tax law that take effect on January 22, 2017. For tour operators, the taxable value increases to 60% but credit can be claimed on all input services. For transportation of goods by vessel, service tax will now be payable under reverse charge if a foreign supplier engages a foreign service provider to transport goods from outside India to an Indian customs station. The person liable will be whoever complies with the relevant sections of India's Customs Act regarding those goods.

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SERVICE TAX ALERT – CHANGES EFFECTIVE FROM 22.01.2017
Background
Even though Union Budget, 2017 is supposed to be on 01.02.2017, the
Government has introduced significant changes to service tax law through the issue
of Notification No. 01/2017, 02/2017, 03/2017 and 04/2017 dated 12.01.2017.
These notifications shall come into force from 22.01.2017.
Tour Operators
(i) Currently, tour operators qualify for abatement under Notification No.
26/2012, which is divided into two segments whereby an operator who
arranges only accommodation is liable on 10% of the value whereas all other
categories of tour operators are liable on 30% of the value. Cenvat credit
was not available on inputs and capital goods. Credit was available on input
services only when it pertained to usage of services of another tour operator.
(ii) Notification No. 04/2017 substitutes Entry No. 11, Notification No. 26/2012,
whereby the distinction is removed and there is only one category of
services by a tour operator where the bill is issued inclusive of
accommodation and transportation. The taxable value is now 60% and
cenvat credit can be availed on all input services. There is no cenvat credit
on inputs and capital goods.
(iii) The taxable value increases and as a softener cenvat credit eligibility is
extended to all input services. Since the amendment is effective from
22.01.2017, the requirements of Point of Taxation Rules, 2011 will have to
be factored.

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Transportation of Goods by Vessel
(i) When ocean freight was subjected to service tax from 01.06.20116, there
was no tax impact when a foreign supplier of goods engaged a foreign liner
and both the provider and the receiver of services were located in the non-
taxable territory. This was by virtue of Entry No. 34(c), Notification No.
25/2012.
(ii) A proviso is being introduced to Entry No. 34, Notification No. 25/2012
w.e.f. 22.01.2017, whereby the exemption is not applicable to services by
way of transportation of goods by a vessel from a place outside India upto
the customs station of clearance in India.
(iii) Service Tax Rules, 1994 are being amended from 22.01.2017 whereby if
services are provided by a person located in a non-taxable territory to a
person located in a non-taxable territory by way of transportation of goods
by vessel from a place outside India upto the customs station of clearance in
India, the person liable to pay service tax is the person in India who
complies with Sections 29, 30 or 38 read with Section 148 of the Customs
Act, 1962 with respect to such goods. Notification No. 30/2012 has also been
amended.
(iv) The effect of these changes are that when a supplier located in say UK,
engages a service provider in UK, for transportation of goods by vessel from
a place outside India to the customs station of clearance in India, service tax
is payable under reverse charge mechanism by the person who complies
with Section 29, 30 or 38 read with Section 148 of the Customs Act, 1962.
(v) Section 29 refers to ‘person in charge of the vessel or aircraft’; Section 30
contemplates person in charge of the vessel or aircraft as well as a person
other than a carrier who is authorised to issue delivery order in favour of an
importer to file an import manifest; Section 38 confers power on the proper
officer to require the person in charge to produce documents; Section 148
refers to agents appointed by the person in charge.

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WISHING EVERYONE A HAPPY PONGAL, MAKAR SAKRANTI AND
LOHRI
Disclaimer:- This Service Tax Alert is only for the purpose of information and does not
constitute or purport to be an advise or opinion in any manner. The information provided is not
intended to create an attorney-client relationship and is not for advertising or soliciting.
K.Vaitheeswaran & Co. do not intend in any manner to solicit work through this Tax Alert. The
Tax Alert is only to share information based on recent developments and regulatory changes.
K.Vaitheeswaran & Co. is not responsible for any error or mistake or omission in this Tax Alert
or for any action taken or not taken based on the contents of this Tax Alert.
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