Entries Tagged 'Service Tax' ↓

Delhi High Court grant the stay on service tax on renting of immovable property

The Hon’ble Delhi High Court in the aforesaid Writ Petition filed by Home Solutions Retail Ltd. has granted a stay from recovery of Service tax under the newly amended taxing entry of “Renting of Immovable Property service”, which amendment was made retrospective w.e.f. 01.06.2007 by the Finance Act, 2010.

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Budget-2010-Indirect Tax Proposals

Indirect Taxes

Custom & Excise.

  • The standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.
  • The specific rates of duty applicable to portland cement and cement clinker also adjusted upwards proportionately. Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles increased by 2 percentage points to 22 per cent.
  • Restore the basic duty of 5 per cent on crude petroleum; 7.5 per cent on diesel and petrol and 10 per cent on other refined products. Central Excise duty on petrol and diesel enhanced by Re.1 per litre each.
  • Some structural changes in the excise duty on cigarettes, cigars and cigarillos to be made coupled with some increase in rates. Excise duty on all non-smoking tobacco such as scented tobacco, snuff, chewing tobacco etc to be enhanced. Compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines to be introduced.

Agriculture & Related Sectors

  • Provide project import status with a concessional import duty of 5 per cent for the setting up of mechanised handling systems and pallet racking systems in ‘mandis’ or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment.
  • Provide project import status at a concessional customs duty of 5 per cent with full exemption from service tax to the initial setting up and expansion of Cold storage, cold room including farm pre-coolers for preservation or storage of agriculture and related sectors produce ; and Processing units for such produce.
  • Provide full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.
  • Provide concessional customs duty of 5 per cent to specified agricultural machinery not manufactured in India;
  • Provide central excise exemption to specified equipment for preservation, storage and processing of agriculture and related sectors and exemption from service tax to the storage and warehousing of their produce; and

• Provide full exemption from excise duty to trailers and semi-trailers used in agriculture.

  • Concessional import duty to specified machinery for use in the plantation sector to be, extended up to March 31, 2011 along with a CVD exemption.
  • To exempt the testing and certification of agricultural seeds from service tax.
  • The transportation by road of cereals, and pulses to be exempted from service tax. Transportation by rail to remain exempt.
  • To ease the cash flow position for small-scale manufacturers, they would be permitted to take full credit of Central Excise duty paid on capital goods in a single installment in the year of their receipt. Secondly, they would be permitted to pay Central Excise duty on a quarterly, rather than monthly, basis.

Environment

  • To build the corpus of the National Clean Energy Fund, clean energy cess on coal produced in India at a nominal rate of Rs.50 per tonne to be levied. This cess will also apply on imported coal.
  • Provide a concessional customs duty of 5 per cent to machinery, instruments, equipment and appliances etc. required for the initial setting up of photovoltaic and solar thermal power generating units and also exempt them from Central Excise duty. Ground source heat pumps used to tap geo-thermal energy to be exempted from basic customs duty and special additional duty.
  • Exempt a few more specified inputs required for the manufacture of rotor blades for wind energy generators from Central Excise duty.
  • Central Excise duty on LED lights reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.
  • To remedy the difficulty faced by manufacturers of electric cars and vehicles in neutralising the duty paid on their inputs and components, a nominal duty of 4 per cent on such vehicles imposed. Some critical parts or sub-assemblies of such vehicles exempted from basic customs duty and special additional duty subject to actual user condition. These parts would also enjoy a concessional CVD of 4 %.
  • A concessional excise duty of 4 per cent provided to “soleckshaw”, a product developed by CSIR to replace manually-operated rickshaws. Its key parts and components to be exempted from customs duty.
  • Import of compostable polymer exempted from basic customs duty.

Infrastructure

  • Project import status to ‘Monorail projects for urban transport’ at a concessional basic duty of 5 per cent granted.
  • To allow resale of specified machinery for road construction projects on payment of import duty at depreciated value.
  • To encourage the domestic manufacture of mobile phones accessories, exemptions from basic, CVD and special additional duties are now being extended to parts of battery chargers and hands-free headphones. The validity of the exemption from special additional duty is being extended till March 31, 2011.

Medical Sector

  • Uniform, concessional basic duty of 5 per cent, CVD of 4 per cent with full exemption from special additional duty prescribed on all medical equipments. A concessional basic duty of 5 per cent is being prescribed on parts and accessories for the manufacture of such equipment while they would be exempt from CVD and special additional duty.
  • Full exemption currently available to medical equipment and devices such as assistive devices, rehabilitation aids etc. retained. The concession available to Government hospitals or hospitals set up under a statute also retained.
  • Specified inputs for the manufacture of orthopaedic implants exempted from import duty.

Infotainment

• To address the difficulties experienced by film industry in importing digital masters of films for duplication or distribution loaded on electronic medium vis-à-vis those imported on cinematographic film, owing to a differential customs duty structure, customs duty to be charged only on the value of the carrier medium. The same dispensation would apply to music and gaming software imported for duplication. In all such cases the value representing the transfer of intellectual property rights would be subjected to service tax.

  • Provide project import status at a concessional customs duty of 5 per cent with full exemption from special additional duty to the initial setting up “Digital Head End” equipment by multi-service operators.

Precious Metals

  • Rates on precious metals indexed as follows:

: On gold and platinum from Rs.200 per 10 grams to Rs.300 per 10 grams

: On silver from Rs.1,000 per kg to Rs.1,500 per kg.

  • Basic customs on Rhodium – a precious metal used for polishing jewellery reduced to 2 per cent.
  • Basic customs duty on gold ore and concentrates reduced from 2 per cent ad valorem to a specific duty of Rs.140 per 10 grams of gold content with full exemption from special additional duty. Further, the excise duty on refined gold made from such ore or concentrate reduced from 8 per cent to a specific duty of Rs.280 per 10 grams.

Other Proposals

  • Full exemption from import duty available to specified inputs or raw materials required for the manufacture of sports goods expanded to cover a few more items.
  • Basic customs duty on one of key components in production of micro-wave ovens, namely magnetrons, reduced from 10 per cent to 5 per cent.
  • Value limit of Rs. 1 lakh per annum on duty-free import of commercial samples as personal baggage enhanced to Rs. 3 lakh per annum.
  • Complete exemption from special additional duty provided to goods imported in a pre-packaged form for retail sale. This would also cover mobile phones, watches and ready-made garments even when they are not imported in pre-packaged form. The refund-based exemption is also being retained for cases not covered by the new dispensation.
  • Toy balloons fully exempted from Central Excise duty.
  • Reduction in basic customs duty on long pepper from 70 per cent to 30 per cent;
  • Reduction in basic customs duty on asafoetida from 30 per cent to 20 per cent;
  • Reduction in central excise duty on replaceable kits for household type water filters other than those based on RO technology to 4 per cent;
  • Reduction in central excise duty on corrugated boxes and cartons from 8 per cent to 4 per cent;
  • Reduction in central excise duty on latex rubber thread from 8 per cent to 4 percent; and
  • Reduction in excise duty on goods covered under the Medicinal and Toilet Preparations Act from 16 per cent to 10 per cent.
  • Proposals relating to customs and central excise are estimated to result in a net revenue gain of Rs. 43,500 crore for the year.

Service Tax

  • Rate of tax on services retained at 10 per cent to pave the way forward for GST.
  • Certain services, hitherto untaxed, to be brought within the purview of the servicetax levy. These to be notified separately.
  • Process of refund of accumulated credit to exporters of services, especially in the area of Information Technology and Business Process Outsourcing, made easy by making necessary changes in the definition of export of services and procedures.
  • Accredited news agencies which provide news feed online that meet certain criteria, exempted from service tax.
  • Proposals relating to service tax are estimated to result in a net revenue gain of Rs 3,000 crore for the year.
  • Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000 crore for the year.
  • Proposals relating to Indirect Taxes estimated to result in a net revenue gain of Rs.46,500 crore for the year. Taking into account the concessions being given in the tax proposals and measures taken to mobilise additional resources, the net revenue gain is estimated to be Rs. 20,500 crore for the year.

Problems faced by exporters in availing refund of excess credit



Circular No. 120/01/2010-ST

F.No.354/268/2009-TRU

Government of India

Ministry of Finance

Department of Revenue

(Tax Research Unit)

*****

New Delhi dated the 19th January, 2010.

To

All Chief Commissioners of Central Excise,

All Chief Commissioners of Customs,

All Chief Commissioners of Customs &Central Excise,

Director General of Service Tax,

All Commissioners of Service Tax,

Commissioner (Service Tax), CBEC.

Madam/Sir,

Subject:  Problems faced by exporters in availing refund of excess credit – regarding

CENVAT Credit Rules, 2004 permit taking of credit of inputs and input services which are used for providing output services or output goods.   In order to zero-rate the exports, Rule 5 of CENVAT Credit Rules, 2004 provides that such accumulated credit can be refunded to the exporter subject to stipulated conditions. Notification No. 5/2006-CE (NT) dated 14.03.2006 provides the conditions, safeguards and limitations for obtaining refund of such credit.

2.         It has been represented by the exporters of services (mainly the call centres or the BPOs) that they are facing difficulties in getting refund under the said notification.  In order to ascertain the causes for such delay a number of meetings were held with the refund sanctioning authorities.  During these meetings the officers pointed out the following legal/procedural impediments partly responsible for such delays:

(a)     The major reason causing delay in granting refunds as well as rejecting the claims is that as per the wordings of the notification, refund is permitted of duties/taxes paid only on such inputs/input services which are either used in the manufacture of export goods or used in providing the output services exported.  As against this, the phrases used in the CENVAT Credit Rules permit credit of services used “whether directly or indirectly, in or in relation to the manufacture of final product” or “for providing output service”.   The field formations tend to take the view that for eligibility of refund, the nexus between inputs or input services and the final goods/services has to be closer and more direct than that is required for taking credit.  Many refund claims are being rejected on this ground.

(b)     Even if a nexus is considered acceptable, the officers processing the refund claims find it difficult to co-relate goods or services covered under a particular invoice with a specific consignment of export goods or specific instance of export of service.

(c)     As per the notification, the claims are to be filed quarterly.  For large exporters, the procurement of inputs/input services in a quarter is substantial resulting in each refund claim being accompanied with hundreds of invoices.  Verification of these documents with corroborative documents showing exports (such as export invoices, bank certificates, shipping bills) consumes a long time;

(d)     Though the notification prescribes that refund claims should be filed quarterly in a financial year, it is not clear whether the refund is eligible only of that credit which is accumulated during the said quarter or the accumulated credit of the past period can also be refunded; and

(e)     In certain cases, the invoices accompanying the refund claim are incomplete in as much as either the description of service or its classification is not mentioned.  In some cases, even the name of the receiver of the inputs/input services is also not mentioned.

3.         The matter has been examined.  At the outset it is necessary to understand that the entire purpose of Notification No. 5/2006-CX (NT) is to refund the accumulated input credit to exporters and zero-rate the exports.  Accumulated credit and delayed sanction of refund causes cash flow problems for the exporters.   Therefore, the sanctioning authorities are directed to dispose of the refund claims expeditiously based on the following clarifications to the issues raised in paragraph 2 above.

3.1       Use of different phrases in rules and notification [para 2(a)]:

3.1.1   The primary objection indicated by the field formations is that the language of Notification No. 5/2006-CX (NT) permits refund only for such services that are used in providing output services.  In other words, the view being taken is that to be eligible for refund, input services should be directly used in the output service exported.   As regards the extent of nexus between the inputs/input services and the export goods/services, it must be borne in mind that the purpose is to refund the credit that has already been taken. There cannot be different yardsticks for establishing the nexus for taking of credit and for refund of credit.  Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be construed in a harmonious manner.  To elaborate, the definition of input services for manufacturer of goods, as given in Rule 2 (l) (ii) of CENVAT Credit Rules, 2004, includes within its ambit all services used “in or in relation to the manufacture of final products” and includes services used “directly or indirectly”. Similarly Rule 2 (l) (i) of CENVAT Credit Rules also gives wide scope to the input services for provider of output services by including in its ambit services “used….for providing an output service”.   Similar is the case for inputs.

3.1.2   Therefore, the phrase, “used in” mentioned in Notification No. 5/2006-CX (NT) to show the nexus also needs to be interpreted in a harmonious manner.   The following test can be used to see whether sufficient nexus exists.  In case the absence of such input/input service adversely impacts the quality and efficiency of the provision of service exported, it should be considered as eligible input or input service.   In the case of BPOs/call centres, the services directly relatable to their export business are renting of premises; right to use software; maintenance and repair of equipment; telecommunication facilities; etc.   Further, in the instant example, services like outdoor catering or rent-a-cab for pick-up and dropping of its employees to office would also be eligible for credit on account of the fact that these offices run on 24 x 7 basis and transportation and provision of food to the employees are necessary pre-requisites which the employer has to provide to its employees to ensure that output service is provided efficiently. Similarly, since BPOs/call centres require a large manpower, service tax paid on manpower recruitment agency would also be eligible both for taking the credit and the refund thereof.  On the other hand, activities like event management, such as company-sponsored dinners/picnics/tours, flower arrangements, mandap keepers, hydrant sprinkler systems (that is, services which can be called as recreational or used for beautification of premises), rest houses etc. prima facie would not appear to impact the efficiency in providing the output services, unless adequate justification is shown regarding their need.

3.2       One-to-one co-relation between inputs and outputs and scrutiny of voluminous record [para 2(b) & (c) above]:

3.2.1   Similar problem of co-relation and scrutiny of large number of documents was being faced in another scheme [Notification No. 41/2007-ST dated 06.10.2007] which grants refund of service tax paid on services used by an exporter after the goods have been removed from the factory.  In Budget 2009, the scheme was simplified by making a provision of self-certification [Notification No. 17/2009-ST] whereunder an exporter or his Chartered Accountant is required to certify the invoices about the co-relation and the nexus between the inputs/input services and the exports.  The exporters are also advised to provide a duly certified list of invoices.  The departmental officers are only required to make a basic scrutiny of the documents and, if found in order, sanction the refund within one month.  The reports from the field show that this has improved the process of grant of refund considerably.  It has, therefore, been decided that similar scheme should be followed for refund of CENVAT credit under notification No. 5/2006-CE (NT).  The procedure prescribed herein should be followed in all cases including the pending claims with immediate effect.

3.2.2   Procedure: The exporter should, alongwith the refund claim, file a declaration containing the following details:

(Rs. in lakh)

Details of goods/services exported on which refund of input credit is claimed

S.

No.

Details of shipping bill/ Bill

of export/export documents etc.

Details of input credit on which refund claimed

(1) (2) (3)
No. Date Date of export order Goods/ service exported Invoice No., date and Amount Name of service provider/ supplier of goods Service tax/

Central

Excise Regn. No. of service provider/ supplier of goods

Details of service/

goods

provided with classifi-

cation under FA 1994/

Central

Excise

Tariff

Service tax/

Central

Excise

duty payable

Date and details of payment made to service provider
1.
2.
Documents attached to evidence the

amount of service tax paid

Total export during the period for which refund is claimed Total domestic clearances during the period for which refund is claimed Total amount of input credit claimed as refund
(4) (5) (6) (7)

The declaration should be certified by a person authorized by the Board of Directors (in the case of a limited company) or the proprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter.  In case the refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits the annual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961), as the case may be.

The Assistant or Deputy Commissioner may, after verification of the fact that the input credit has been correctly claimed, sanction the refund on the basis of the declaration.  In case there is a doubt about the correctness of the claim of CENVAT credit on any service, the undisputed amount may be refunded and the balance claim may be decided after following the dispute settlement process.

3.3        Quarterly refund claims [para 2(d) above]:

As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there should not be any objection in allowing refund of credit of the past period in subsequent quarters.  It is possible that during certain quarters, there may not be any exports and therefore the exporter does not file any claim.  However, he receives inputs/input services during this period.  To illustrate, an exporter may avail of Rs.1 crore as input credit in the April – June quarter.  However, no exports may be made in this quarter, so no refund is claimed.  The input credit is thus carried over to the July-September quarter, when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made.  The exporter should be permitted a refund of Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit of Rs.1 crore availed in April-June quarter.  The illustration prescribed under para 5 of the Appendix to the notification should be viewed in this light.  However, in case of service providers exporting 100% of their services, such disputes should not arise and refund of CENVAT credit, irrespective of when he has taken the credit, should be granted if otherwise in order.    Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it is noticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can be demanded from him.

3.4       Incomplete invoices [para 2(e) above]:

In case of incomplete invoices, the department should take a liberal view in view of various judicial pronouncements by Courts.  It had earlier been prescribed in circular No.106/09/2008-ST dated 11.12.2008 that the invoices/challans/bills should be complete in all respect.  This circular was issued with reference to notification No.41/2007 dated 06.10.2007 as specific services eligible for refund under the notification has been specified.  Thus, a stricter requirement exists under the said notification for ascertaining the actual service which has been used in the export of goods.  In the case of refund under Rule 5, (i) so far as the nature of the service which has been received by the exporter can be ascertained; (ii) tax paid therein is clearly mentioned; and (iii) other details as required under rule 4(a) are mentioned, the refund should be allowed if the input service has a nexus with the service/goods exported as discussed earlier.  In any case, the suggested Chartered Accountant’s certificate should clearly bring out the nature of the service and this will assist the officer in taking a decision.

4.         The instructions contained in this circular should be implemented with immediate effect and the pending claims may be disposed of accordingly.   It is expected that with the clarifications provided and liberalization of procedure, most of the impediments to smooth and expeditious disposal of exporters’ claims for refund of accumulated credit would be removed.   The Board, therefore, expects that the concerned refund sanctioning authorities should decide all claims of exporters within 30 days of their receipt as has been prescribed in notification No. 17/2009-ST.  Any lapse in this regard would be viewed seriously.    In case of any doubt, an immediate reference may be made to the Board.

Yours faithfully,

(Roopam Kapoor)

Officer on Special Duty (TRU)

Tel: 23095590

Indian Goods & Service Tax: Proactive actions for Indian Inc.

By CA. Vinay Bhushan

“Proactive action is always the best approach to deal with challenging matters before they get out of hand”

Is Indian Inc. really ready to adopt Goods and Service Tax (‘GST”)? The answer of this question is really tough in the current scenario. Presently, Indian Inc. is bound to comply with multi taxes and sufferings in term of high tax cost. Short span of time provided to readjust and realign it business process will increase suffering further. How Indian Inc. can realign its business model, supply chains, logistics with in few month and how anyone can expect this!! Following are the few points on which Indian Inc. should act proactively on the new proposed GST model.

Business Strategy/Pricing Policy/Logistics

Impact of tax cost on pricing policy should be reviewed as per new GST rates on inputs/ final products. Options of backward and forward integration in terms of overall tax cost and efficiency may be explored.

Feasible study of inter state supplies or warehousing in terms of new valuation rules of goods and services would be the need of hour. Further, supply chain and distribution channels may need a review as per the new regulations.

First discussion paper on GST affirms few positions, like applicability of Integrated Goods and Service Tax (IGST) on inter state transaction, allowance of cross credit among goods and services, non allowance of credit among State GST and Central GST. Indian Inc. can evaluate the different feasible options and plan proactively the future course of action.

Abolition of Central Sales Tax (“CST’):

Revenue authorities are committed to abolish CST from April 01, 2010. On this auspicious day Indian Inc. would say good bye to CST and will welcome GST (may be delayed for further few months!!). Inc. engaged in manufacturing which are having presence on pan India basis needs adjustments/realignments in the supply chain due to abolition of CST. The cost benefit analysis of distribution cost vs. warehousing cost should be done to evaluate the tax impact on the products.

Statutory Concessional Forms:

Next action point for Indian Inc is the collection of statutory concessional forms. Form F (concessional form for branch transfer) may be the internal matter of the trade and easy to coordinate among the branches; will not pose as a big challenge. The bigger challenge is to collect Form C (concessional form for inter state sale). Proper strategy on coordination with the buyer would minimize the tax liability and future exposure.

Location Based Exemptions:

Inc. having manufacturing facilities in the state of Uttaranchal, Himachal Pradesh and availing location based exemptions need to review their business model. Present scheme of exemption may be adopted by GST in the form of first pay and then refund scheme. This scheme will definitely increase the working capital requirement of the company. Further getting refund would also require documentation and have administration cost. A study on the requirement of additional working capital would be required. Administration Cost Vs. exemption benefits should be evaluated to determine the best available option.

Export obligations:

Most of the export promotions schemes like EPCG, SEZ and EOUs are attached with export obligations, which are calculated as per the current tax rates. Inc. availing export promotions schemes should do a study of impact of the GST and need to re-calculate the duty obligation with respect to the export as per the new rates. Surety Bonds executed with the revenue authorities would require a suitable amendment in view of changed liability as per the applicable GST.

Changes in the ERP System:

GST will come with the new tax rates; new formats of the invoices, returns, challan would also be amended as per the GST requirement. ERP need to be amended in terms of the above changes. Accounting entries for GST would also be required to amend as per the new tax model.

Training of the Middle Management:

Management should be ready to adopt the changes in the minimum period of time. As per the discussion paper, each state will have its own legislation. However, uniformity on the broad issues has been assured by discussion paper. In light of changed legislations, rates, formats core tax team should be prepared and well trained.

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Advances Received are taxable under Service Tax

The Finance Act, 2005 has inserted Explanation 3 in Section 67 of the Act so as to clarify that the gross amount charged for taxable services shall include any amount received towards the taxable service received before, during or after provision of such service. This Explanation came in to effect from 16.06.2005. The ministry has since clarified as follows:-

(1) Amendments have been made in Section 65(105), Section 67 and rule 6 of Service Tax Rules, 1994 to link payment of Service tax with the receipt of payment for taxable services provided or advance payment received towards taxable service to be provided in future. When payments relatable to taxable service are received during the course of provision of service, service tax is liable to be paid to the extent of receipt of payment. In other words, a person is liable to pay the tax as soon as the consideration towards the taxable service is received.

(2) In case of continuous supply of services (Such as construction services where the payment is based on the percentage of completion of contract) which are provided for a period of time and the consideration (payment), the whole or part of it, is determined as payable, periodically from time to time, the services are treated as provided separately and successively each time the payment is due or each time the payment is received by the service provider.

(3) However, when advance payment is received for a service which is non taxable at the time of receipt of payment but becomes taxable during the course of provision of service, such payment would have to be apportioned appropriately between the two periods and that part of service provided on or after the service becomes taxable service, is only liable for service tax. Similarly, when payment is received on advance for service to be provided but subsequently the services are not actually provided, then in such cases service tax paid is liable to be refunded.

budget update 2009- Indirect Taxes

The Finance Minister has confirmed the introduction of the Goods and Services Tax (GST) by the targeted date of 1 April 2010. It will be a dual GST comprising of a Central GST and a State GST, whereby the Centre and the respective States will legislate, levy and administer the same. Another significant proposal is the role of the Authority for Advance Rulings (AAR) constituted under the Income Tax Act, 1961 to also act as an Authority for the purposes of Customs, Central Excise and Service Tax.

SERVICE TAX

  • Legal advice, consultancy or assistance (other than appearance in courts) provided by any entity (not being an individual) to be included in the list of services chargeable to service tax.
  • Cosmetic and plastic surgery services to be included in the list of services chargeable to service tax.
  • Services provided in relation to transport of goods by rail and transport of (i) coastal goods; and (ii) goods through inland water including national waterways to be included in the list of services chargeable to service tax.
  • “Business and auxiliary service” definition to be amended to provide exemption from services provided in relation to ‘excisable goods’ under excise, thus resulting in elimination of double taxation of such services.
  • Definition of “stock broker” to be amended to exclude sub-brokers.
  • Service providers who provide services that are taxable and are exempt and do not maintain separate accounts of inputs, to be required to pay an amount equal to 6% of the value of exempted services (reduced from 8%).
  • Exemption from service tax to be provided to inter-bank purchase and sale of foreign currency between scheduled banks.
  • Two of the taxable services, namely, “Transport of goods through road” and “Commission paid to foreign agents” to be exempted from the levy of service tax, if the exporter is liable to pay service tax on reverse charge basis. Thus, an exporter will not be required to first pay the tax and later claim refund in respect of these services. However, as the present cap of 10% on commission agency charges has been retained, the exporter will have to pay service tax on the amount of commission which is in excess of 10%.

CUSTOMS/ IMPORT DUTY

  • On packaged or canned software, an exemption of Additional or Countervailing Duty of Customs (CVD) to be provided on the portion of the value which represents the consideration for transfer of the right to use such value which represents the consideration for transfer of the right to use such software, subject to specified conditions.
  • A new section, section 26(A) to be introduced to the Customs Act, 1962, to provide for refund of import duty paid, on goods which are defective or not as per agreed specifications and which are returned by the buyer.
  • Provisions to be made for a High Court to condone delays in filing an appeal and filing cross objections beyond the prescribed period.
  • Section 9 of the Customs Tariff Act, 1975, to be amended retrospectively so as to extend the machinery provisions of the Customs Act, 1962, to CVD levied under this section.

CENTRAL EXCISE DUTY

  • The excise duty rate on items currently attracting 4% duty to be increased to 8% with certain exceptions such as specified food items, drugs and pharmaceutical products, medical equipment, etc.
  • High Courts to be empowered to condone delays for filing of appeals and memorandum of cross objections.
  • A manufacturer of both dutiable and exempted goods, who does not maintain separate accounts of inputs, to pay an amount equal to 5% of the total price of exempted goods (earlier 10%).
  • Chartered Accountants are now eligible for special audit as prescribed by section 14 A & 14AA

Contributed by Ca. Vinay Bhushan Sharma

Service Tax on Commercial Rent Held Unconstitutional (Delhi High Court)

“The Delhi High Court has on April 18, 2009 struck down the levy of service tax on renting ofimmovable property as “unconstitutional”.”

For_Immediate_Release:

The Delhi High Court has today struck down the levy of service tax on renting of immovableproperty as “unconstitutional”, while deciding 26 writ petitions of different petitioners, by acombined order. The division bench of the Delhi High Court comprised of Mr. Justice BadarDurrez Ahmed and Mr. Justice Rajiv Shakdher observed that service tax shall not be levied onrenting of immovable property.

Alishan Naqvee, Advocate, LexCounsel Law Offices, who represented his clients in two of thepetitions disposed off today, tells that the category of “renting of immovable property service”was introduced by the Finance Act of 2007. This, in effect brought renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course offurtherance of business and commerce, within the service tax net with effect from June 1,2007. This new levy severely impacted business models across India as most of the rentarrangements did not even stipulate it beforehand.

The businesses across India opted to en masse challenge the constitutionality of levy of servicetax on rent, on the primary grounds that renting does not involve any service, and the CentralGovernment is not empowered to tax consideration for transfer of rights in immovable property, being a state subject as per the Constitution of India. Few High Courts, including the High Court of Mumbai, Delhi, Gujarat, Andhra Pradesh, Kolkata and Chennai reportedlygranted interim reliefs to the petitioners from payment of service tax until final disposal of theirmatters. The stays were however granted subject to undertakings by the petitioners, mainlytenants, to deposit the service tax amount with the Government if the tax was ultimately heldconstitutional. The Delhi High Court however is the first High Court to deliver the final orderin the matter that would have persuasive value for the other High Courts.

The detailed order of the Delhi High Court is expected to be available within the next couple ofworking days. One issue that needs to be seen is whether the Delhi High Court has expresslylimited the applicability of its judgment to its territorial jurisdiction. Notably, while grantinginterim orders, the Delhi High Court had expressed that the stays would be operative within theterritorial jurisdiction of the Court.

Consequently, a number of petitioners, having operations in multiple states, were constrainedto knock at the doors of the other High Courts.

To avoid multiplicity of litigation, the Union of India preferred a transfer petition to the Supreme Court of India seeking transfer of all writ petitions pending before different HighCourts of India, to the Delhi High Court for single window adjudication.

It is open for the Government to prefer an appeal before the Supreme Court of India, challenging the decision of the Delhi High Court. The judgment however delivers great relief to the business by helping liquidity in the current times.

Special Economic Zone (SEZ) – Exemption from Service Tax – Now Exemption is allowed through refund mode

NOTIFICATION NO. 09/2009-SERVICE TAX, Dated: March 3, 2009

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification  of the Government of India, Ministry of Finance ( Department of Revenue), No. 4/2004-ServiceTax, dated the 31st March, 2004, published  in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 31st March, 2004, vide, G.S.R.248(E), dated the 31st March, 2004, except as respects things done or omitted to be done before such supersession, the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (105) of section 65 of the said Finance Act, which are provided in relation to the authorised operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone,  from  the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that-

(a) the developer or units of Special Economic Zone shall get the list of services specified in clause (105) of section 65 of the said Finance Act as are required in relation to the authorised operations in the Special Economic Zone, approved from the Approval Committee (hereinafter referred to as the specified services);

(b) the developer or units of Special Economic Zone claiming the exemption actually uses the specified services in relation to the authorised operations in the Special Economic Zone;

(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone;

(d) the developer or units of Special Economic Zone claiming the exemption has actually paid the service tax on the specified services;

(e) no CENVAT credit of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone has been taken under the CENVAT Credit Rules, 2004;

(f) exemption or refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone shall not be claimed except under this notification.

2. The exemption contained in this notification shall be subject to the following conditions, namely:-

(a) the person liable to pay service tax under sub-section (1) or sub-section (2) of section 68 of the said Finance Act shall pay service tax as applicable on the specified services provided to the developer or units of Special Economic Zone and used in relation to the authorised operations in the Special Economic Zone, and such person shall not be eligible to claim exemption for the specified services:
Provided that where the developer or units of Special Economic Zone and the person liable to pay service tax under sub-section (2) of section 68 for the said services are the same person, then in such cases exemption for the specified services shall be claimed by that person;

(b) the developer or units of Special Economic Zone shall claim the exemption by filing a claim for refund of service tax paid on specified services;

(c) the developer or units of Special Economic Zone shall file the claim for refund to the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be;

(d) the developer or units of Special Economic Zone who is not registered as an assessee under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, or the said Finance Act or the rules made thereunder, shall, prior to filing a claim for refund of service tax under this notification, file a declaration in the Form annexed hereto with the respective jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be;

(e) the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall, after due verification, allot a service tax code (STC) number to the developer or units of Special Economic Zone within seven days from the date of receipt of the said Form;

(f) the claim for refund shall be filed, within six months or such extended period as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall permit, from the date of actual payment of service tax by such developer or unit to service provider;

(g) the refund claim shall be accompanied by the following documents, namely:-

(i) a copy of the list of specified services required in relation to the authorised operations in the Special Economic Zone, as approved by the Approval Committee;

(ii) documents for having paid service tax;

(iii) a declaration by the Special Economic Zone developer or unit, claiming such exemption, to the effect that such service is received by him in relation to authorised operation in Special Economic Zone.

(h) the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall, after satisfying himself that the said services have been actually used in relation to the authorised operations in the Special Economic Zone, refund the service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone;

(i) where any refund of service tax paid on specified services is erroneously refunded for any reasons whatsoever, such service tax refunded shall be recoverable under the provisions of the said Finance Act and the rules made thereunder, as if it is a recovery of service tax erroneously refunded.

3. The exemption contained in this notification shall apply only in respect of service tax paid on the specified services on or after the date of publication of this notification in the Official Gazette.

4. Words and expressions used in this notification and defined in the Special Economic Zones Act, 2005 (28 of 2005) or the rules made thereunder, shall apply, so far as may be, in relation to refund of service tax under this notification as they apply in relation to a Special Economic Zone.

Form

1. Name of the developer or unit of Special Economic Zone:

2. Address of the registered office or head office:

3. Permanent Account Number (PAN):

4. Details of Bank Account:

(a) Name of the Bank:

(b) Name of the Branch:

(c) Account Number:


5. (a) Constitution of developer or unit of Special Economic Zone [Proprietorship /Partnership /Registered Private Limited Company /Registered Public Limited Company /Others (specify)]  

(b) Name, address, telephone number and Email ID of proprietor /partner /director

6. Description of authorized operations as approved by the Approval Committee:

S. No.

Description of goods

Classification in case of excisable goods

(1)

(2)

(3)

 

 

 

7.  Description of taxable services received by the exporter for use in relation to the authorised operations in the Special Economic Zone:

S. No.

Description of taxable service

Classification under the Finance Act, 1994

Name, STC and address of service provider

Invoice number  and date

(1)

(2)

(3)

(4)

(5)

 

 

 

 

 

8. Name, designation and address of the authorized signatory / signatories:

9. I / We hereby declare that-

(i) the information given in this application form is true, correct and complete in every respect and that I am authorized to sign on behalf of the developer or units of Special Economic Zone;

(ii) no CENVAT credit of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone shall be taken under the CENVAT Credit Rules, 2004;

(iii) I / we shall maintain records pertaining to the specified services used in relation to the authorised operations in the Special Economic Zone and shall make available, at the declared premises, at all reasonable time, such records for inspection and examination by the Central Excise Officer authorised in writing by the jurisdictional Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be.

(Signature of the applicant / authorized person with stamp)


Date:

Place:

[F.No.354/163/2006-TRU]

(Unmesh Sharad Wagh)

Under Secretary to the Government of India

Reduction in Effective Rate of Service Tax from 12% to 10%

NOTIFICATION NO. 8/2009-ST

Dated: February 24, 2009

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts all the taxable services specified in sub-section 105 of section 65 of the Finance Act from so much of service tax leviable there on under section 66 of the Finance Act, as is in excess of the rate of ten per cent of the value of taxable services.

F. No. 354/210/2008-TRU (part)

(Unmesh Sharad Wagh)

Under Secretary to the Government of India

Imposition of service tax on Builders – Clarification

Sale of Residential Houses: CBEC Clarified that – any service provided by a seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax.

Circular No. 108/02/2009

F. No. 137/12/2006-CX.4

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs

New Delhi, dated 29th January 2009

 

Construction of residential complex was brought under service tax w.e.f.01.06.2005. Doubts have arisen regarding the applicability of service tax in a case where developer / builder/promoter enters into an agreement, with the ultimate owner for selling a dwelling unit in a residential complex at any stage of construction (or even prior to that) and who makes construction linked payment. The ‘Construction of Complex’ service has been defined under Section 65 (105)(zzzh) of the Finance Act as “any service provided or to be provided to any person, by any other person, in relation to construction of a complex”. The ‘Construction of Complex’ includes construction of a ‘new residential complex’. For this purpose, ‘residential complex’ means any complex of a building or buildings, having more than twelve residential units. A complex constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex intended for personal use as residence by such person has been excluded from the ambit of service tax.

2. A view has been expressed that once an agreement of sale is entered into with the buyer for a unit in a residential complex, he becomes the owner of the residential unit and subsequent activity of a builder for construction of residential unit is a service of ‘construction of residential complex’ to the customer and hence service tax would be applicable to it. A contrary view has been expressed arguing that where a buyer makes construction linked payment after entering into agreement to sell, the nature of transaction is not a service but that of a sale. Where a buyer enters into an agreement to get a fully constructed residential unit, the transaction of sale is completed only after complete construction of the residential unit. Till the completion of the construction activity, the property belongs to the builder or promoter and any service provided by him towards construction is in the nature of self service. It has also been argued that even if it is taken that service is provided to the customer, a single residential unit bought by the individual customer would not fall in the definition of ‘residential complex’ as defined for the purposes of levy of service tax and hence construction of it would not attract service tax.

3. The matter has been examined by the Board. Generally, the initial agreement between the promoters / builders / developers and the ultimate owner is in the nature of ‘agreement to sell’. Such a case, as per the provisions of the Transfer of Property Act, does not by itself create any interest in or charge on such property. The property remains under the ownership of the seller (in the instant case, the promoters/builders/developers). It is only after the completion of the construction and full payment of the agreed sum that a sale deed is executed and only then the ownership of the property gets transferred to the ultimate owner. Therefore, any service provided by such seller in connection with the construction of residential complex till the execution of such sale deed would be in the nature of ‘self-service’ and consequently would not attract service tax. Further, if the ultimate owner enters into a contract for construction of a residential complex with a promoter / builder / developer, who himself provides service of design, planning and construction; and after such construction the ultimate owner receives such property for his personal use, then such activity would not be subjected to service tax, because this case would fall under the exclusion provided in the definition of ‘residential complex’. However, in both these situations, if services of any person like contractor, designer or a similar service provider are received, then such a person would be liable to pay service tax.

4. All pending cases may be disposed of accordingly. Any decision by the Advance Ruling Authority in a specific case, which is contrary to the foregoing views, would have limited application to that case only. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

F. NO. 137/12/2006-CX.4

(Gautam Bhattacharya)

Commissioner (Service T