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Service Tax amendments by Union Budget 2015

The Finance Bill, 2015 presented by the Finance Minister, Mr. Arun Jaitely on 28th February, 2015 has brought with it a whole new set of changes in the indirect taxes. The basic purview taken by the government behind rationalising the transformations is to bring the current taxing provisions in line with the proposed plan of Goods and Service Tax. The Finance Minister while addressing the august gathering highlighted that the backdrop idea of adverting the taxing aspects is not only the GST but the rising concern towards the environment.

Further, the penal proceedings have been made hoarse to minimise the tax evasion by the service providers. Below is gist of proposed and fallout amendments in the Service Tax:

1. Changes applicable w.e.f. 1st March, 2015

CENVAT Credit can be taken within 1year:
Time limit for availment of CENVAT Credit extended to 1 year from the date of invoice.

Registration for single premises shall be granted within two days of filing the application.

Records can be maintained in Electronic form:
In order to encourage digitalization, Government has allowed assesses to maintain records in the electronic form subject to authentication by him with the use of digital signature.

2. Changes applicable w.e.f. 1st April, 2015

Exemption given in respect of transportation of food stuff will be limited to the food grains only due to which food stuff other than food grains will also become costlier.

Relief in relation to precondition, pre-cooling ripening labeling of fruits and vegetables is allowed by which end cost of fruit and vegetable would get reduced.

Now watching of movies will become cheaper:
Now watching of movies will become cheaper because Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of its members is being exempted.

Benefit given to senior citizen:
Exemption is granted in respect of life insurance services provided by way of Varishtha Pension Bima Yojna so that people can spend their old age life in a better manner.

Exemption for ambulance services:
Government has given specific exemption for transporting the patients through ambulances so that financial cost on patient and family of patient can be minimized to the some extent.

Uniform abatement for transport by rail, road and vessel:
A uniform abatement is now being prescribed for transport by rail, road and vessel thereby service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of CENVAT Credit on inputs, capital goods and input services.
The impact of the above amendment is that cost of transportation through road and railway is increased whereas transportation cost through vessel is get reduced.

Air Transport will hit the pocket of High Class flights:
The government has reduced the abatement on business class flights. Now, travel in the business class will become costlier as the abatement has been reduced to 40% from 60%.

Construction of Government Schools and Buildings would become taxable.

Construction pertaining to port/airport would also become costlier due to withdrawal of exemption given in this respect.

3. Changes to be effective from the date Finance Bill, 2015 receives the assent of the president

Revised recovery and penalty provisions
Penalty provisions made more stringent with maximum penalty equal to 100 % of Service Tax. However, in certain cases the benefit of reduced penalty will be allowed to the assessee. Also, exemption from levy of penalty on defaulters has been removed.

Reimbursement made taxable under Service Tax
The government has clarified that the value of reimbursements of all expenses incurred during provision of a taxable service shall be subject to Service tax levy.

4. Changes to be effective from the date to be notified after the Finance Bill, 2015 receives the assent of the president

Rate of Service Tax increased from 12.36% to 14%
Finance Minister has proposed to revise the rate of Service Tax from 12.36% (inclusive of Education Cesses) to 14% (subsuming Education Cesses)

Entry to amusement park /entertainment events will become costlier:
Entry to amusement park/ entertainment events which was earlier exempted under negative list of services now brought under the ambit of service tax. However, exemption is still applicable to entertainment events in case the entry charge does not exceed Rs. 500.

Job Work for production of alcoholic liquor is now taxable:
Job Work for production of alcoholic liquor is now become taxable. Same has been brought under tax net by which liquor prices are expected to rise.

Curtsy- CA. Atul Gupta

Decoding Rule 6 of CENVAT Credit Rules, 2004

Courtesy: CA Ashish Gupta

THUMB RULE to avail CENVAT Credit is that it can be availed on those eligible Inputs, Capital goods or Input Services which have been utilized for providing taxable services or manufacturing dutiable goods except the cases where it is restricted under any notification. Therefore, a person engaged in rendering exempted services or manufacturing exempted goods shall not be allowed to avail any amount of CENVAT Credit. However, CENVAT Credit shall not be denied on:

  • Capital goods to SSI units availing exemptions based on the value of clearance.
  • Inputs used in the manufacture of goods cleared without payment of duty to a job worker referred to in rule 12AA of the Central Excise Rules, 2002.

In case a person is engaged in providing Taxable & Exempted service or Manufacturing Dutiable or Exempted goods together then CENVAT Credit on inputs or input services used shall be availed the manner given in Rule 6 of CCR, 2004.

Before moving towards the answer of this question, we need to understand the meaning of Exempted Goods & Exempted Services as provided in Cenvat Credit Rules, 2004.

Cenvat2

Following three types of Goods are covered in the aforesaid definition:

  1. Excisable goods which are exempt from whole of the duty under any exemption notification, which would otherwise be dutiable. But it does not include those goods which are not excisable at all i.e. not listed in Central Excise Tariff Act, 1958
  1. Excisable goods on which duty is charged at the NIL rate i.e. No Excise Duty is payable on such goods though mentioned in CETA.
  1. Excisable goods on which duty is reduced to 1% with a condition that CENVAT Credit on inputs or input services was not availed under N. No. 1/2011-C.E., dated 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-C.E., dated 17th March, 2012.

Cenvat3

Cenvat4

Cenvat5

Following three types of Services are covered in the aforesaid definition:

  1. Any taxable service which is exempt from whole of the service tax by way of exemption notification which would otherwise be taxable. But if any activity is not a “Service” as per section 65(44) of the Act then it can not be termed as Exempted Service like a transaction in money only.
  1. Services which are listed in section 66D of the Act as Negative List of services on which no service tax is levied under section 66B of the Act shall be treated as exempted service.
  1. Services where part of it has been exempted by way of abatement with a condition that no CENVAT Credit shall be availed on input and input services used in providing such services. However, it will not cover those services where abatement benefit is available without any condition or a condition which restrict availment of CENVAT credit of either inputs or input services. For example, service tax is being levied on 30% of the Total Value of service of construction of commercial complex where money was received from customers before receipt of completion certificate from competent authority. Under this category, abatement benefit is available with a condition that no CENVAT Credit shall be available on inputs used in providing output services. Here, CENVAT Credit on input services can be availed and thus this service can not be categorised as exempted services.

 

Further, it has specifically been mentioned in this definition that it shall not include the services which are exported. Most of the time it is misunderstood that export will also be considered as exempted service for the purpose of this Rule but it has been clarified now within the definition itself.

If a person is engaged in manufacturing dutiable & exempted goods or rendering taxable & exempted services together then he has to determine and avail CENVAT Credit only on those inputs or input services which are used for providing taxable services or manufacturing dutiable goods.

In such cases there can be two following situations:

  1. Inputs or Input Services exclusively used for exempted goods or services then no CENVAT Credit shall be allowed on such items.
  1. Common input or input services have been used for both taxable and exempted output then it would be difficult for the assessee to identify the amount of CENVAT Credit that has been used for taxable output only. For such cases, law provides three rules to determine correct amount of CENVAT Credit eligible for utilization.

 

Three Rules CENVAT Credit

 

If any person is engaged in manufacturing exempted goods or rendering exempted services along with the taxable service or goods then assessee has to determine the amount of CENVAT Credit utilized for taxable goods or services. There are three options available under the following rules to do so:

Cenvat6

 

 

Rule 6(2) of CCR, 2004

 

The manufacturer or provider of output service for availing CENVAT Credit shall maintain separate accounts for the receipt, consumption and inventory of inputs & use of input services used:

 

(i) in or in relation to the manufacture of exempted goods;

(ii) in or in relation to manufacture of dutiable final products excluding exempted goods;

(iii) for the provision of exempted services;

(iv) for the provision of output services excluding exempted services.

 

and shall take CENVAT credit only on inputs & input services under clauses (ii) and (iv).

 

Rule 6(3)(i) of CCR, 2004

 

The manufacturer of goods or the provider of output service shall pay an amount equal to six per cent of value of the exempted goods and exempted services. In case of services by way of transportation of goods or passengers by rail, the service provider shall pay only two per cent on the value of service so exempted.

 

The amount paid under this rule shall be deemed to be CENVAT credit not taken for the purpose of exemption notification where part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs or input services shall be taken. In such cases, 6% shall be paid on the value so exempted under the notification.

 

Rule 6(3A) of CCR, 2004

 

Under this rule, an assessee shall reverse or pay the proportional amount of CENVAT credit availed, every month on provisional basis, which will be considered as utilized for the provision or manufacture of exempted service or goods respectively. Such reversal or payment shall be made by 5th of the following month or quarter as the case may be. Following formula has been prescribed for computing such amount under this rule:

Cenvat Credit* taken in a month x Value of Exempted Service or Goods manufactured or    removed during the preceding financial year

Total Value of Taxable & Exempted Services and Dutiable Goods manufactured & removed during the preceding financial year

 

The amount computed would be the provisional amount of CENVAT Credit which shall be paid in cash or through CENVAT Credit account for all the 12 months. At the end of the financial year, the assessee shall re-compute the amount of CENVAT Credit required to be reversed or paid under this Rule for the current financial year based on the current year’s values of goods & services. Given below is the formula:

 

Cenvat Credit* taken in the year x Value of Exempted Service or Goods manufactured or removed for the current year

Total Value of Taxable & Exempted Services and Dutiable Goods manufactured & removed during the current year

 

* Cenvat Credit amount shall be excluded of the value of inputs used in or in relation of manufacture of exempted goods.

 

This amount is the actual amount of CENVAT Credit which was supposed to be reversed or paid on account of credit availed for providing exempted services or manufacturing exempted goods.

 

The assessee shall compute the difference between the provisional and the actual amount of CENVAT as computed of CENVAT reversal. In case, the amount reversed by the assessee during the Financial Year falls short of the actual amount of CENVAT Credit then he shall have to pay the balance amount by 30th June of next Financial Year. Interest @24% p.a. will be levied if payment is delayed. In case excess CENVAT Credit was reversed during the year then he will be allowed to take it back by way of debiting its CENVAT Credit balance.

 

# In case there were no output services rendered or no goods were manufactured by the assessee during the preceding year then there is no need to compute the amount on provisional basis. The assessee will directly compute the amount to pay or reverse at the end of the financial year and will pay it by 30th June of succeeding financial year accordingly.

 

Exception to Rule 6(3A):

In case of a banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, the amount of CENVAT credit required to be reversed or paid shall be equivalent to fifty per cent of the CENVAT Credit availed on inputs and input services in a particular month.

Compliance under Rule 6(3A):

In order to avail this option, assessee is required to submit following details to the jurisdictional Superintendent of Central Excise:

Cenvat7

 

Miscellaneous:

 

  • Once an option is opted by an assessee, it shall be exercised on all the exempted goods manufactured or services provided by the assessee and shall not be withdrawn during the remaining part of the financial year.

 

  • In terms of Rule 6(3)(ii), with respect to inputs, an assessee can maintain separate accounts for inputs used for manufacturing taxable & exempted goods and take CENVAT credit on inputs used for taxable goods. While with respect to input services, assessee can pay or reverse CENVAT Credit as provided under Rule 6(3A) ibid.

Exceptions to Rule 6 of CCR, 2004:

100% of CENVAT Credit on inputs or input services or capital goods can be availed even if the service provider or manufacturer of goods is engaged in providing exempted services or manufacturing exempted goods along with taxable services or goods. The provisions of Rule 6 shall not apply in the following cases:

 

  • In case the excisable goods, where goods are removed without payment of duty to:
    • Cleared to a unit in SEZ or developer of SEZ, software technology park;
    • Cleared for exports under bond;
    • Cleared to 100% EOU;
    • Cleared for Solar power generation project;
    • Gold or Silver falling under the Chapter 71 of the First Schedule arising in the course of manufacture of copper or zinc;
    • Supplied to UN or an international organization or foreign diplomatic missions or consular missions for their official use

 

  • In case of taxable services, where services are rendered without payment of service tax to a unit in SEZ or developer of SEZ or when services are exported.

 

  • These rules shall not apply to persons who are liable to pay service tax as service receiver under reverse charge mechanism. For example: A person is manufacturing dutiable goods and has used services by way of transportation of goods by road on which he has to pay service tax, on 25% of the total value of the service, as a service recipient. Then, he shall not be required to reverse or pay CENVAT Credit utilized for manufacturing taxable goods even though he had paid service tax on the abated value of the service.

 

Further, CENVAT Credit on Capital Goods is not restricted where a person is providing taxable & exempted services or manufacturing dutiable or exempted goods together. But no credit shall be allowed where assessee deals in exempted services or goods only.

 

New Service Tax Return Form Released for the Quarter April’12 to June’12

Now all the assesses will be able to file their Service Tax return for the quarter April’2012 to June’ 2012, last due date of which is 25th November, 2012. However, such facility is available in offline mode only i.e. through Excel Utility. Assesses will not be able to fill their ST-3 data online after logging into ACES website.

Service Tax Return – Date Of Filing Extended till 25th November, 2012

F.No.137/99/2011-Service Tax
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs

 

New Delhi, the 15th October, 2012

 

ORDER NO: 3/2012

In exercise of the powers conferred by sub-rule(4) of rule 7 of the Service Tax Rules,1994, the Central Board of Excise & Customs hereby extends the date of submission of the return for the period 1st April 2012 to 30th June 2012, from 25th October, 2012 to 25th November,2012.

The circumstances of a special nature which have given rise to this extension of time are as follows:

a) ACES will start releasing the return in Form ST3 in a quarterly format, shortly before the due date of 25th October, 2012.

b) This will result in all the assesses attempting to file their returns in a short time period, which may result in problems in the computer network and delay and inconvenience to the assesses.

 

(S.M. Tata)

Commissioner Service Tax
Central Board of Excise and Customs

 

 

To
Chief Commissioners of Central Excise & Customs(All)
Chief Commissioners of Central Excise(All)
Director General of Systems
Director General of Service Tax
Commissioners of Service Tax (All)
Commissioner (DPPR)
Additional Directors General Systems (All)

Service Tax under reverse charge- A happy hunting ground for Revenue Audit

Provision of service is the taxable event for service tax although Point of Taxation Rules (POTR) governs the timing of tax. Usually the provider of service is liable to discharge service tax liability unless it is otherwise earmarked for recipient of service. It is comparatively easy to keep a track on service tax liability arises on income but to detect service tax liability under reverse charge basis one needs to give a deep dive in the expenditure statement of a business entity.

Position up to June 30, 2012

Import of any service and limited number of specified services such as insurance auxiliary service, sponsorship service, services pertaining to transportation of goods by road, service of distribution of mutualfundbymutualfund distributor or agent etc. were covered under recipient based service tax, popularly known as service tax paid under reverse charge basis. A close look of the then position revealed that apart from importation of service and Goods Transport Service (GTA) all other services covered under reverse charge basis have limited impact on the routine transactions of the business entities.Moreover,methods of computation of tax were also simple since limited conditions were attached to such computation.

Position from July 1, 2012 on wards

Services that are used by almost all the business entities on a regular basis, such as works contract, security service, car rental service, work force supply service etc are now under the coverage of reverse charge mechanism.

Top of it for some of the services such as Insurance Auxiliary, sponsorship service, services rendered by advocate etc. recipient is liable to pay full service tax and for other services such as car rental, supply of work force, works contract etc. recipient is liable to pay a portion of the tax.

Moreover  partial tax liability is also varies from service to service, e.g. car rental without abatement liability under reverse charge is 40% and with abatement liability is 100%, works contract liability under reverse charge is 50% whereas the same for supply of work force is 75%.

Not only that, one should, need to verify the status of the service provider and the service recipient, in other words, one need to enquirewhether the service provider is a corporate entity or not, whether service recipient is an individual or business entity or corporate entity before apply the rule of reverse tax mechanism to discharge the tax liability.

Manifolds challenges:

  • Tracking of payments that are liable to tax under reverse charge basis.

Manual tracking of payments, which will trigger service tax exposure, is not possible for any sizable business operation. Accounting software is required to be upgraded by putting relevant patches that will help business entity to arrest the payments, vulnerable to service tax.

  • Obtaining registration and compliance of law.

Business entities, which are purely in manufacturing/trading operation and were never before under the service tax net, may require to take fresh registration under service tax and require to comply the relevant provisions of the law, such as payment of tax, filing of return, facing service tax audit etc. Moreover, for appropriate discharge of service tax liability many factors such as nature of service, whether service vendor is availing abatement or whether service vendor is availing cenvat credit needs to be verified. Any short payment of tax will lead to payment of interest and penalty apart from litigation.

  • Payment of tax in cash

Unique feature of service tax, paid under reverse charge mechanism is that the payment has to be made in cash. Business entity cannot touch the accumulated cenvatcredit to discharge the service tax liability. It will definitely have an impact on the cash flow specifically for that entity that does not have any (or less) service tax/excise duty appetite. It will certainly hit bottom line of the pure trading company since trading company does not have any service tax liability to set off the credit.

  • No threshold limit

There is no shelter available to escape the service tax liability under reverse charge basis. Even for a payment of a   single rupee, business entity is required to discharge its service tax liability under reverse charge. It will cause immense hardship for small business entities that were enjoying tax shelter under the threshold limit regime.

  • Eligibility of cenvat credit

In view of the amended definition of input service, eligibility of cenvat credit on service tax paid under reverse charge basis is required to be assessed case-to-case basis.

  • Vendor classification

Applicability of service tax under reverse charge depends on the status of the vendor as well. Most of the cases if the provider of service is a corporate entity, payment of service tax under reverse charge mechanism will not be applicable. Master record of vendors is required to be configured accordingly to avoid compliance lapses.

  • Handling of service tax audit.

Last but not the least is handling of service tax audit under the new tax regime.  Business entities are prone to commit error to comply such complex procedures. The department is also knows this and thus they will focus more on this area, which will eventually become breeding grounds for litigations.

 

Way forward:

  • Review  of expenditure statement to identify payments, which will be liable to service tax under reverse charge basis.
  • Analyse the impact of such payment on additional cash out flow, cenvat credit and profitability of the company.
  • Explore solutions if any to minimise the impact.
  • Upgrade accounting software to make it compatible to new changes.
  • Closely monitor  Vendor  master file
  • Conduct periodic internal review to ensure that the business entity is not in the wrong side of the law.
  • Educate in house people who are dealing with payments.

Curtsy:  Ca. Subhasis Banerjee (subhasis@mukeshraj.com)

Directors’ remuneration- service tax liability is now on the company.

Contributed by Ca. Subhansis Banerjee

Position upto June 30, 2012

Applicability of service tax on remuneration paid to non-executive director (NED), be it as sitting fee, commission or in any other form was a controversial topic under the erstwhile service tax regime.

Before June 30,2012, only selected category of services were liable to service tax andas a result of which, sitting fee, commission or any other form of remuneration if it was for rendering taxable service, question of imposition of service tax was being discussed.

Position from July 1 to August 6, 2012

The definition of service { Sec 66B(44)} under new service tax regime has made it amply clear that any activity performed by a director ( except as an employee) for consideration is liable to service tax with effect from July 1, 2012.

This aspect is being reiteratedby Central Board of Excise & Customs (CBEC) on 13.07.2012, in its presentation clarifying that payment to Directors is taxable and is applicable to all kinds of directors except of government regulatory bodies.

It covers Any monetary or no-monetary consideration Directors’ fee, commission / bonus, company car/ travel reimbursements etc Thus the services performed by a director (other than Managing Director/Executive Director/ Wholetime Director if they are treated as employees of the Company) of a company fall within the ambit of taxable services with effect from 1st July, 2012.

Implication on NED

Because of such change, NED is liable to deposit service tax on remuneration (monetary as well as non-monetary) received from company if the gross service income of NED during the financial year exceeds Rs. 10 lakhs.

Non-monetary consideration such as use of company car, phone or accommodation is required to be valued as per the Valuation Rules and NED is required to comply with all the applicable provision of the service tax law.

Implication on Company
In case of any payment to NED, located outside India, company is required to pay service tax under reverse charge basis and thresh hold limit of Rs. 10 lakhs will not be applicable on such case.
Service tax will be additional cost to the company and company may require taking an approval to accommodate service tax within the ceiling of overall Directors’ remuneration.

Position from August 7, 2012 onwards
Central Board of Excise and Customs have come out with a notification (Notification No. 46/2012) on August 7, 2012, stating that the company is liable to pay service tax as recipient of service on remuneration paid to NED.

Impact of the Notification

  • Company will be liable to pay service tax on any remuneration paid to NED whether in the form of money or otherwise.
  • NED is not required to pay service tax henceforth.
  • No thresh hold limit will be applicable to company. In other words, even if the payment is Rs.1, company is required to pay service tax on the same.
  • Company is required to comply with all the necessary compliances, such as obtaining service tax registration, payment of service tax, filing of tax return as applicable under the service tax law.
  • Company may be required to take permission under company law, because of service tax,if total remuneration to NED exceed the approved amount.
  • For a trading company service tax so paid as recipient of service, will be cost to the company.
  • For non-trading company service tax so paid may be available as credit if it qualifies as eligible input service.

Open Issue

In the absence of mention of any date in the notification, it shall be effective from the date of publication in the official gazette. Notification No. 46/2012, empowering company to pay tax under reverse charge basis was published in the official gazette on August 7, 2012. Accordingly, Notification No. 46/2012 should be effective from August 7, 2012, the date when the same was published in the Official Gazette. Considering the said fact, can company take a position that payment of remuneration to NED will be subject to tax at their end only from August 7, 2012, onwards?

Way forward

  • Any payment to NED needs to be scrutinised from the perspective of service tax.
  • Service rendered prior to August 7 but payment is made after August 7, the liability is required to be determined as per Point of Taxation Rules
  • Taxable value of non-monetary remuneration is required to be ascertained as per Service Tax Valuation Rules.
  • Eligibility of cenvat credit in respect of service tax so paid by the company as recipient of service needs to be examined on cases to case basis.

Service Tax Guide Part-1

What is ‘service’?
‘Service’ has been defined and means -any activity for consideration carried out by a person for another and includes a declared service.
The said definition further provides that ‘Service’ does not include –
– Any activity that constitutes only
– A transfer in title of goods or immovable property by way of sale, gift or in any other manner or
– A transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
– A transaction only in money or actionable claim
– A service provided by an employee to an employer in the course of the employment.
– Fees payable to a court or a tribunal set up under a law for the time being in force
To determine whether you are providing a ‘Service’ Pose the following questions to yourself

service

[*if you are a person doing business through an establishment located in the taxable territory and another establishment located in non taxable territory OR a association or body of persons or a member thereof then please see Explanation 3 to clause (44) of section 65B of the Act before answering this question]
If the answer to the above questions is as per the answers indicated in column 2 of the table above THEN you are providing a service.

Taxability of a ‘service’

The taxability of services or the charge of service tax has been specified in section 66B of the Act. To be a taxable a service should be – provided or agreed to be provided by a person to another in the taxable territory and should not be specified in the negative list.
The phrase “agreed to be provided” has been retained from the definition of taxable service as contained in the erstwhile clause (105) of section 65 of the Act. The implications of this phrase are- – Services which have only been agreed to be provided but are yet to be provided are taxable
– Receipt of advances for services agreed to be provided become taxable before the actual provision of service
– Advances that are retained by the service provider in the event of cancellation of contract of service by the service receiver become taxable as these represent consideration for a service that was agreed to be provided.

Negative List
In terms of Section 66B of the Act, service tax will be leviable on all services provided in the taxable territory by a person to another for a consideration other than the services specified in the negative list. The services specified in the negative list therefore go out of the ambit of chargeability of service tax. The negative list of service is specified in the Act itself in Section 66D. In all, there are seventeen heads of services that have been specified in the negative list.

  • Services provided by Government or local authority
  • Services provided by Reserve Bank of India
  • Services by a foreign diplomatic mission located in India
  • Services relating to agriculture or agricultural produce.
  • Trading of goods
  • Processes amounting to manufacture or production of goods
  • Selling of space or time slots for advertisements other than advertisements broadcast by radio or television
  • Access to a road or a bridge on payment of toll charges
  • Betting, gambling or lottery
  • Entry to Entertainment Events and Access to Amusement Facilities
  • Transmission or distribution of electricity
  • Specified services relating to education
  • Services by way of renting of residential dwelling for use as residence
  • Financial activity
  • Services relating to transportation of passengers
  • Service relating to transportation of goods
  • Funeral, burial, crematorium or mortuary services including transportation of the deceased

Place of Provision of Service

The ‘Place of Provision of Services Rules, 2012’ specify the manner to determine the taxing jurisdiction for a service. Hitherto, the task of identifying the taxing jurisdiction was largely limited in the context of import or export of services. For this purpose rules were formulated which handled the subject of place of provision of services somewhat indirectly, confining to define the circumstances in which a provision of service would constitute import or export.
The new rules will, on the other hand, determine the place where a service shall be deemed to be provided, in terms of section 66C of the Finance Act, 2012, read with section 94 (hhh) of Chapter V of the Finance Act, 1994. In terms of section 66B, a service is taxable only when, inter alia, it is “provided (or agreed to be provided) in the taxable territory”. Thus, the taxability of a service will be determined based on the “place of its provision”. The ‘Place of Provision of Services Rules, 2012’ will replace the ‘Export of Services, Rules, 2005’ and ‘Taxation of Services (Provided from outside India and received in India) Rules, 2006.

Declared Services

In the definition of ‘service’ contained in clause (44) of section 65B of the Act it has also been stated that service includes a declared service. The phrase ‘declared service’ is also defined in the said section as an activity carried out by a person for another for consideration and specified in section 66E of the Act. The following nine activities have been specified in section 66E:
1. Renting of immovable property;
2. Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;
3. Temporary transfer or permitting the use or enjoyment of any intellectual property right;
4. Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software;
5. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
6. Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods;
7. Activities in relation to delivery of goods on hire purchase or any system of payment by installments;
8. Service portion in execution of a works contract;
9. Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity.

Exemptions

Under the present system there are 88 exemption notifications. The need for exemptions is not obviated with the introduction of negative list. While some existing exemptions have been built into the negative list, others, wherever necessary, have been retained as exemptions. In addition some new exemptions are also proposed to be introduced. For ease of reference and simplicity most of the exemptions are now a part of one single mega exemption notification 25/2012-ST dated 20/6/12

Revised list of document for opening of bank account of Sole Proprietorship Firm

RBI/2011-12/506 DBOD. AML.BC. No 93 /14.01.001/2011-12                    April 17, 2012

 

The Chairmen / Chief Executive Officers

All Scheduled Commercial Banks (excluding RRBs)/

All India Financial institutions/ Local Area Banks

 

Dear Sir,

 

Know your Customer (KYC) Guidelines – Accounts of Proprietary Concerns

1. Please refer to our circulars DBOD. AML BC. No. 80/14.01.001/2009-10 dated March 26, 2010 and DBOD. AML.BC. No. 38 /14.01.001/2010 -11 dated August 31, 2010regarding customer identification procedure for opening accounts of proprietary concerns.

 

2. On a review, it has been decided to include the following documents in the indicative list of required documents for opening accounts of proprietary concern:

 

i) The complete Income Tax return (not just the acknowledgement) in the name of the sole proprietor where the firm’s income is reflected, duly authenticated/ acknowledged by the Income Tax Authorities.

ii) Utility bills such as electricity, water, and landline telephone bills in the name of the proprietary concern.

 

 

Yours faithfully,

(Sudha Damodar)

Chief General Manager

Union Budget 2012- Service Tax

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

Effective Date:

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

outside India;

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.