Service Tax is the most preferred subject for the draftsman and legislators for Budget 2012. The Service Tax legislation has attained the age of eighteen years this year. On the eve of attaining age of eighteen, The Finance Ministry has tried to rationalize the complete Service Tax law. Following are the major amendments proposed by Budget, 2012.
RATE OF SERVICE TAX:
The Service Tax rate has been enhanced form 10 % to 12 %. This amendment shall be applicable from the 1st Day of April, 2012. The effective rate shall be 12.36% (inclusive of Education Cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1%). The net government earnings due to increase of service tax would be increased by Rs.18, 660/- Cores.
Consequent to the change of rate of service, following amendments also been proposed:
Works Contract Services: The composition rate for the works contract services has been increased in proportion to the increased in general rate. The composition rate under the works contract scheme is being proposed to increase from 4% to 4.8%.
Services in relation to purchase and sale of foreign currency including money changing: Raising the existing rates proportionately by 20%;
Services of promotion, marketing, organizing or in any manner assisting in organizing lottery: Raising the specified amounts proportionately to Rs 7,000 and 11,000.
Other Proposal to amend the Service Tax rate (Specific Services):
Life insurance service: Where the entire premium is not towards risk cover, the first year’s premium shall be taxed at the rate of three per cent. While subsequent premium shall attract tax at the rate of 1.5 per cent. Availment of full CENVAT Credit is being allowed.
Transport of passengers embarking in India for domestic and international journey by air: The dual rate structure of maximum service tax of INR 150/- and INR 750/- in case of economy class travel is being replaced by an ad valorem rate of twelve per cent, with abatement of sixty per cent. This abatement shall be available subject to the condition that no credit on inputs and capital goods is taken
The enhanced rate of service tax i.e. 12.36% shall be applicable from the 1st day of April, 2012.
NEGATIVE LIST OF SERVICES:
The Union Budget proposes that all services will come under the ambit of Service Tax unless specified in the Negative List or which are otherwise exempted by a specific exemption notification. Negative List will comprise the list following services.
1. Services provided to the United Nations or a specified international organization;
2. Health care services by a clinical establishment, an authorized medical practitioner or Para-medics;
3. Services by a veterinary clinic in relation to health care of animals or birds;
4. Services by an entity registered under section 12AA of the Income tax Act, 1961 by way of charitable activities;
5. Services by a person by way of-
(a) Renting of precincts of a religious place meant for general public; or
(b) Conduct of any religious ceremony;
6. Services provided to any person other than a business entity by –
(a) An individual as an advocate; or
(b) A person represented on and as arbitral tribunals;
7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India;
8. Services by way of training or coaching in recreational activities relating to arts, culture or sports;
9. Services provided-
(a) To an educational institution by way of catering under any centrally assisted mid – day meals scheme sponsored by Government;
(b) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of transportation of students or staff;
(c) to or by an institution in relation to educational services, where the educational services are exempt from the levy of service tax, by way of services in relation to admission to such education;
10. Services provided to a recognized sports body by-
(a) An individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body;
(b) Another recognized sports body;
11. Services by way of sponsorship of tournaments or championships organized,-
(a) By a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone;
(b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India, Special Olympics Bharat;
(c) By Central Civil Services Cultural and Sports Board;
(d) As part of national games, by Indian Olympic Association; or
(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;12. Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of –
(a) a civil structure or any other original works meant predominantly for a nonindustrial or non-commercial use;
(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii) sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act;
13. Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,-
(a) Road, bridge, tunnel, or terminal for road transportation for use by general public;
(b) Building owned by an entity registered under section 12 AA of the Income tax Act, and meant predominantly for religious use by general public;
(c) pollution control or effluent treatment plant, except located as a part of a factory;or
(d) electric crematorium;
14. Services by way of erection or construction of original works pertaining to,-
(a) airport, port or railways;
(b) single residential unit otherwise as a part of a residential complex;
(c) low- cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;
(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or
(e) mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;
15. Temporary transfer or permitting the use or enjoyment of a copyright covered under clause (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957, relating to original literary, dramatic, musical, artistic works or cinematograph films;
16. Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador;
17. Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India;
18. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent;
19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air heating in any part of the establishment, at any time during the year, and which has a license to serve alcoholic beverages;
20. Services by way of transportation by rail or a vessel from one port in India to another of the following goods –
(a) petroleum and petroleum products falling under Chapter heading 2710 and 2711 of the First Schedule to the Central Excise Tariff Act, 1985
(b) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap;
(c) defense or military equipment’s;
(d) postal mail, mail bags or household effects;
(e) newspaper or magazines registered with Registrar of Newspapers;
(f) railway equipment’s or materials;
(g) agricultural produce;
(h) foodstuff including flours, tea, coffee, jiggery, sugar, milk products, salt and
edible oil, excluding alcoholic beverages; or
(i) chemical fertilizer and oilcakes;
21. Services provided by a goods transport agency by way of transportation of –
(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;
(b) goods where gross amount charged on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or
(c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;
22. Services by way of giving on hire –
(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or
(b) to a goods transport agency, a means of transportation of goods;
23. Transport of passengers, with or without accompanied belongings, by –
(a) air, embarking or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Baghdogra located in West Bengal; or
(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire;24. Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;
25. Services provided to the Government or a local authority by way of –
(a) repair of a ship, boat or vessel;
(b) effluents and sewerage treatment;
(c) waste collection or disposal;
(d) storage, treatment or testing of water for drinking purposes; or
(e) transport of water by pipeline or conduit for drinking purposes;
26. Services of general insurance business provided under following schemes –
(a) Hut Insurance Scheme;
(b) Cattle Insurance under Swarnajaynti Gram Swarozgar Yojna (earlier known as Integrated Rural Development Programme);
(c) Scheme for Insurance of Tribals;
(d) Janata Personal Accident Policy and Gramin Accident Policy;
(e) Group Personal Accident Policy for Self-Employed Women;
(f) Agricultural Pumpset and Failed Well Insurance;
(g) premia collected on export credit insurance;
(h) Weather Based Crop Insurance Scheme or the Modified National Agricultural Insurance Scheme, approved by the Government of India and implemented by the Ministry of Agriculture;
(i) Jan Arogya Bima Policy;
(j) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana);
(k) Pilot Scheme on Seed Crop Insurance;
(l) Central Sector Scheme on Cattle Insurance;
(m) Universal Health Insurance Scheme;
(n) Rashtriya Swasthya Bima Yojana; or
(o) Coconut Palm Insurance Scheme; 27. Services provided by an incubatee up to a total business turnover of fifty lakh rupees in a financial year subject to the following conditions, namely:-
(a) the total business turnover had not exceeded fifty lakh rupees during the preceding financial year; and
(b) a period of three years has not lapsed from the date of entering into an agreement as an incubatee;
28. Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution –
(a) as a trade union;
(b) for the provision of exempt services by the entity to third persons; or
(c) up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;
29. Services by the following persons in respective capacities –
(a) a sub-broker or an authorized person to a stock broker;
(b) an authorized person to a member of a commodity exchange;
(c) a mutual fund agent or distributor to mutual fund or asset management company
for distribution or marketing of mutual fund;
(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;
(e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or
(f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area;
30. Carrying out an intermediate production process as job work in relation to –
(a) agriculture, printing or textile processing;
(b) cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central Excise Tariff Act ,1985 (5 of 1986);
(c) any goods on which appropriate duty is payable by the principal manufacturer; or(d) processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines up to an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;
31. Services by an organizer to any person in respect of a business exhibition held
32. Services by way of making telephone calls from –
(a) departmentally run public telephones;
(b) guaranteed public telephones operating only for local calls; or
(c) free telephone at airport and hospitals where no bills are being issued;
33. Services by way of slaughtering of bovine animals;
34. Services received from a service provider located in a non- taxable territory by –
(a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or
(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities.
EXPORT of SERVICE RULES:
Provision of service to be qualified as export if following requirements have to be fulfilled:
The Service Provider is located in Taxable Territory.
Service Recipient is located outside India
Service provided is a service other than in the negative list
The Place of provision of the service is outside India.
The payment is received in convertible foreign exchange.
CENVAT CREDIT RULES, 2004:
Removal of Capital Goods after being used:
A manufacturer or service provider need to pay an amount equal to the CENVAT Credit taken on capital good reduced by the percentage points calculated by straight line method for each quarter of a year or part thereof from the date of taking the CENVAT Credit
Capital Goods other than computers and commuters peripherals: 2.5% for each quarter;
Computers and Computer Peripherals: First Year: 10% Second Year: 8% Third Year: 5% and Fourth and Fifth Year: 1% (on quarterly basis).
Refund of CENVAT Credit:
Refund provision is being rationalized further. The refund shall be based on the proportion of extort turnover of goods and services and total turnover. The major change is the definition of the Export turnover.
Export Turnover means: Payment received during the relevant period for export services + Export services whose provision has been completed for which payment has been received in advance in any period prior to the relevant period – Advance received for export services for which the provision of service has not been completed during the relevant period.
Transfer of CENVAT Credit: The unutilized CENVAT Credit of Special Additional Duty can be transferred from one registered unit to other registered unit of the manufacturer or service provider.
Renting of Immovable Property (Penalty Waived): In view of Judicial precedent Retailers Association of India Vs. Union of India, it is proposed that penalty may be waived for tax payers who pay the eservice due on the renting of immovable property services within six months from the date of Bill come into force. (Section 80A).
Point of Taxation in case of Small Service Provider: Individuals and Partnership Firms who are having service receipts less than fifty lacs may pay service tax liability on receipt basis. Necessary amendments have been introduced in the Service Tax Rules.
OTHER IMPORTANT PROPOSED AMENDMENTS:
The statutory limit of days to raise invoice has been enhanced from 14 days to 30 days.
Special audit provision on the similar lines with Central Excise, Commission of Service Tax can now appoint chartered accountant or Cost accountant to provide audit report of the service provider.
New Service Tax Return i.e. EST – 1 shall be introduced for service provider and manufacturer.