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Service tax

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On 16 March 2012, the Honorable Finance Minister of India presented in the Parliament the country's Finance Bill for 2012-13, containing proposals on direct and indirect taxes, and key policy initiatives.

In this regard , we are pleased to release the update capturing the key amendments proposed by Finance Bill 2012, in Service Tax provisions of Indian Indirect Tax Law.

The key highlights of the major changes suggested are as follows:
Introduction of Negative List.
Changes in the rate of tax.
Changes in Valuation Rules.
Point of Taxation Rules amended.

We hope this makes for an interesting and informative read.

Published in: Economy & Finance, Business
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Service tax

  1. 1. 2012 Finance Act, 1994 SERVICE TAX HIGHLIGHTS Key amendments in Finance Act,1994 ( known as Service Tax) through Finance Bill, 2012 and its implications
  2. 2. 1) General Amendments(effective from 1st April,2012) (i) Negative List - Section 66D (i) Service tax rate is increased from 10% to 12% plus (a) Services by Government or Local authority excluding the cess @3%. Effective rate is 12.36%. following services to the extent they are not covered (ii) Changes in the composition rate as follows elsewhere – • Services by the department of Posts by way of speed (a) Life insurance: 3 percent for the first year’s post, express parcel post, life insurance and agency premium and 1.5 percent for the subsequent years’ services provided to a person other than Government premium (earlier the rate was a flat 1.5) • Services in relation to an aircraft or a vessel, inside or (b)Money changing: existing rate proportionately increased by 20 percent outside the precincts of a port or an airport (c)Distributors or selling agents of lotteries: • Transport of goods or passengers; or increased from INR 6000/ 9000 to INR 7000/ • Support services, other than services covered under 11000; and above mentioned clauses, provided to business entities (d)Works contracts rate: increased from 4 to 4.8 (b) Services by the Reserve Bank of India percent (c) Services by the foreign Diplomatic mission located in India (d) Services relating to agriculture by way of – • Agriculture operations directly related to production of any agriculture produce including cultivation, harvesting, 2) Negative List Approach (Applicable from the threshing, plant protection or seed testing Date to be notified after the enactment of • Supply of farm labour Finance Bill, 2012) has been introduced vide new • Processes carried out an agriculture farm including sections, namely 65B, 66B, 66C, 66D, 66E & 66F. tending, pruning, cutting, harvesting, drying, cleaning, Services specified in the negative list as well as trimming, sun drying, fumigating, curing, sorting, grading, Proposed Exempted List shall remain outside the cooling or bulk packaging and such like characteristics of purview of the Service tax. All other services except agricultural produce but make it only marketable for the those specifically exempted would be chargeable primary market to service tax. • Renting or leasing of agro machinery or vacant land with or without a structure incidental to its use • Loading, unloading, packing, storing or warehousing of agriculture produce • Agriculture extension services • Services by any Agricultural Produce marketing Committee or Board or services provided by a commission agent for sale or purchase of agriculture produce
  3. 3. (e) Trading of goods • Public transport, other than predominantly for tourism(f) Any process amounting to manufacture or production of purpose, in a vessel of less than fifteen tonne net; andgoods • Metered cabs, radio taxis or auto rickshaw(g) Selling of space or time slots for advertisements broadcast (p) Services by way of transportation of goods -by radio or television • By road except the services of-(h) Services by way of access to a road or a bridge on payment o A goods transportation agency; orof toll charges o A courier agency(i)Betting, gambling or lottery • By an aircraft or a vessel from a place outside India to the(j)Admission to entertainment events or access to amusement first customs station of landing in India; orfacilities • By inland waterways(k) Transmission or distribution of electricity by an electricity (q) Funeral, burial, crematorium or mortuary services includingtransmission or distribution utility transportation of the deceased.(l)Services by way of- 3) Changes in Valuation Rules (effective after the • Pre-school education and education up to higher enactment of Finance Bill,2012) secondary school or equivalent (I) Works Contract (Composition Scheme for payment of • Education as a part of a curriculum for obtaining a Service Tax) Rules, 2007 qualification recognized by any law for the time being in force • Education as a part of an approved education course Specific Valuation Rules to be introduced to determine(m) Services by way of renting of residential dwelling for use as the valuation of services in specific cases.residence Furthermore, certain specific inclusions/exclusions in(n) Services by way of – the value of taxable services also to be introduced • Extending deposits, loans or advances in so far as the under such rules. consideration is represented by way of interest or discount • Inter se sale or purchase of foreign currency amongst banks or authorized dealers of foreign exchange or amongst (II) Value of Taxable Services/ Abatement Services banks and such dealers(o) Services of transportation of passengers, with or without S. Description of Existing Propo CENVAT Credit)accompanied belongings, by - N Services Taxable sed • A stage carriage o Portion Taxab • Railways in a class other than – le o First class; or Portio n o An air conditioned coach; 1 Service portion 30% 40% All credits, except on • Metro, monorail or tramway in the supply of inputs, of chapter 1 to • Inland waterways food or any 22, will now be other article available
  4. 4. human consumption or a) Existing Rule 5 to be replaced with a new rule to drink at a restaurant simplify the procedure for refund of unutilized credit2 Service portion 50% 60% All credits, except on on the account of export in the supply of inputs, of chapter 1 to b) Credit is being allowed on motor vehicles (except food or any 22, will now be those of heading nos. 8702, 8703, 8704, 8711 and other article available human their chassis). The credit of tax paid on the supply of consumption or such vehicles on rent, insurance and repair shall also drink from be allowed elsewhere ( c) Credit of insurance and service station is being Outdoor Catering) allowed to –3 Convention 60% 70% All credits, except on i) Insurance companies in respect of motor vehicle centre or inputs, of chapter 1 to insured and re-insured by them; and mandap with 22, will now be ii) Manufacturers in respect of motor vehicles catering available4 Coastal 75% 50% No manufactured by them. shipping d) Rule 4(1) and 4 (2) are being amended to allow a5 Accomodation 50% 60% Credits on input service provider to take credit of inputs or capital in hotel services allowed goods are delivered to him, subject to specified6 Railways: New 30% All Credits will be Passengers Levy allowed conditions e) Rule 7 for input service distributors is being amended to provide that credit of service tax (III) Amendment in Rule 3 attributable to service used wholly in a unit shall be distributed only to that unit and that the credit of Rule 3 of Valuation rules will be applicable only in the cases where valuation is not ascertainable. Prior to Finance Bill, service tax attributable to service used in more than 2012 it has been advertently made applicable to situation one unit shall be distributed on pro rata basis. where consideration received is not wholly or partly consisting f) The rate for CENVAT reversal for exempt services of money. has been revised likewise from 5% to 6% in Rule 6 (3) of CENVAT Credit Rules, 2004. g) Under Rule 14 “Interest can be levied only on4) Changes in CENVAT Credit Rules ( effective from 1st CENVAT credit wrongly taken and utilized. Penalty April, 2012) remains for even wrong taking.”
  5. 5. h) In Rule 9 (1) (e) CENVAT credit in respect of service and the obligation for payment periodically or from tax paid under reverse charge allowed on the basis time to time. of the payment challans. b) Incorporate a new residual rule to ascertain point of taxation in cases where the same cannot be ascertained by the rules prescribed.5) Retrospective Changes effective from date of c) The “date of payment” has been defined. In normal enactment of Finance Bill, 2012) circumstances this date shall be the earlier of the dates of entry into books of accounts or actual credit a) Rule 6(6A) of CENVAT Credit Rules, 2004 is being in the bank account. given effect from February 10, 2006. This will d) An option has been provided to determine the point neutralize the investigations or demands for reversal of taxation in respect of small advances up to Rs. of credits in respect of services provided to SEZs for 1000, in excess of the amount indicated in the the past. invoice, on the basis of invoice or completion of b) Exemptions provided for the setting up of common service rather than payment. facilities for treatment and recycling of effluents and e) In case of “Associated Enterprises”, where the solid wastes by Notification 42/2011-ST dated 25th person providing the service is located outside India, July, 2011 shall be made applicable effective June the point of taxation shall be the date of debit in the 16, 2005. books of accounts of the person receiving the c) Repair of roads has been exempted from service tax service or date of making payment whichever is by Notification 24/2009-ST dated 27th July, 2009. earlier. Exemption relating to roads is extended for the f) Threshold Limit of Rs.10 Lacs will now be calculated earlier period commencing from June 16, 2005. on the basis of first clearances up to Rs. 10 Lacs in d) Service tax exemption has also been granted with terms of invoices raised. Earlier it was on the basis retrospective effect on management, maintenance or of receipt. repair service in relation to non-commercial Government buildings from 16th June, 2005. 7) Amendments in Service Tax Rules, 1994( effective6) Changes in Point of Taxation Rules, 2011 (effective from 1st April, 2012) from 1st April, 2012) a) Time limit for issuance of invoice under Rule 4A has a) Definition of “Continuous supply of service” is been increased to forty five days for banking & amended to capture the entire dimension of the financial institutions, for other thirty days. concept, namely, the recurrent nature of services
  6. 6. b) Rule 6 (4A) is being amended to allow unlimited b) Monthly Return– Assesse other than Individual/ amount of permissible adjustments Firm/ LLP having Tax liability more than Rs. 25lakhs c) In case of exporters, the period extended by the in immediately preceding financial year. Reserve Bank of India on specific request is also being included in the period for which the tax liability 9) Proposed Place of Supply Rules (effective from the date to be notified after the enactment of Finance is allowed to be deferred. Bill, 2012) d) LLPs have been treated as partnership firms for • A new Section 66C which empowers the Central service tax purpose. Government to make rules for determination of the e) Benefit of depositing service tax on receipt of place of provision of service to be introduced as ‘Place consideration by individuals and firms (including of Supply Rules, 2012’ LLP) has been extended to all services, provided the • Export of Service Rules, 2005 and Taxation of Services turnover did not exceed 50 lakh INR in the previous (Provided from Outside India and Received in India) financial year. Rules, 2006 proposed to be replaced by Place of f) Where an option has been exercised by Service Supply Rules provider under Point of Taxation Rules, 2011 in • Criteria to determine the place of provision of service proposed to be classified under the following heads: respect of amount received up to Rs. 1000 in excess ––Location of the service receiver of the invoice value, then no invoice is required to be ––Place of performance of services (primarily involving issued to such extent. services related to any goods) ––Location of immovable property ––Place the where event is held (in the case of event8) Service Tax Return(effective from the date to be related services) notified after the enactment of Finance Bill, 2012) • Where both the service providers as well as the a) Quarterly Return– recipient are located within the taxable territory then i) Individual/Firm/LLP assessee – any amount of notwithstanding any of the above criteria, the place of provision of service is to be the location of the recipient tax liability in immediately preceding financial of service year. • Special Rules proposed in respect of the following ii) Assessee other than Individual/Firm/LLP – services: Tax Liability less than Rs. 25 lakhs in ––Services provided by a banking company, or a immediately preceding financial year. financial institution, or a non-banking financial company, to account holders ––Telecommunication services provided to subscribers
  7. 7. ––Online information and database access or retrieval service provider is an individual/firm/LLP and the services recipient is the body corporate. The services and ––Intermediary services portion of service tax payable by provider and ––Service consisting of hiring of means of transport, up recipient of services are as follows:- to a period of one month Sl. No. Description Service Service ––Goods transportation service of service recipient provider ––Passenger transportation service ––Services provided on board a conveyance 1. Hiring of a motor vehicle10) Reverse charge Mechanism(Applicable from designed to the Date to be notified after the enactment of carry Finance Bill, 2012) passengers: (a) with 100% NIL a) The taxable territory has been defined and the abatement service provided in that territory only will be liable to (b) without 40% 60% service tax. Thus, services provided by any person abatement from non-taxable territory to any business entity in . taxable territory will be subject to service tax under 2. Supply of 75% 25% reverse charge e.g. Services provided from state of manpower for Jammu & Kashmir to business entity in taxable any purpose territory will be liable for service tax subject to the provisions of The Place of Supply Rules, 2012. 3. Works contract 50% 50% b) Notification no. 15/2012-ST dated 17.3.2012 has service been issued wherein the taxable services/ cases are prescribed on which reverse charge method will be applicable. i) Services provided to business entities by Government, individual advocates and arbitral 11) Other Legislative Amendment(effective from the tribunal, date to be notified after the enactment of Finance ii) Three services are being prescribed under Bill, 2012) notification no. 15/2012-ST in respect of which both service provider and service recipient will be a) Provision of Settlement Commission and Revisionary considered as person liable to pay the service Authority brought under the Service Tax provisions. tax on the basis of a fixed percentage. This There will an additional option to file for revision amendment will be applicable only where the against order of Commissioner (Appeals) instead of
  8. 8. filing an appeal before the Tribunal (CEGAT) directly for service tax matters.b) Show Cause Notice Period extended from one year to 18 months.c) Time Limit for filling an appeal before the Commissioner (Appeals) reduced to 2 months, with delay condonation for one month. Time Limit for filling appeal before Tribunal, for department, enhanced from 3 to 4 months.d) Mens Rea required for prosecution. Earlier providing taxable service without issuing an invoice was an offence. Now the clause (a) of section 89(1) is substituted as “Knowingly evades the payment of service tax under this chapter”.
  9. 9. S.P. NAGRATH & Co.CHARTERED ACCOUNTANTS A-380, Defence Colony, New Delhi – 110024 Tel: +91-11-4980-00000 Fax: +91-11-4980-0029Website: www.spnagrath.com

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