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.

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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 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)

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.

 

Documents required for Registration of Service Tax

 

F. No. 137/120/2011 – Service Tax

Government of India Ministry of Finance Department of Revenue (Central Board of Excise & Customs)

New Delhi dated the 13th December 2011

ORDER NO. 2 /2011 – Service Tax

In exercise of the powers conferred by Rule 4(1A) of the Service Tax Rules 1994, Central Board of Excise and Customs hereby specifies the following documents that are required to be submitted by the person who has made an application for registration under Rule 4(1) of the Rules ibid:

(a) Copy of Permanent Account Number (PAN)

(b) Proof of Residence

(c) Constitution of the Applicant.

(d) Power of Attorney in respect of authorised person (s).

2. It is further stated that the above documents must be submitted to the concerned authority within a period of 15 days from the date of filing of the application for registration. Failure to do so would lead to rejection of the registration application.

3. It is also clarified that the time limit of seven days from date of receipt of application or intimation under Rule 4(5A), within which the registration is to be granted by the Superintendent of Central Excise or Service Tax, as referred to in Rule 4(5) shall be reckoned from the date the application for registration is complete in all respects.

(Deepankar Aron) Director (Service Tax)

 

For more detail visit our website: http://www.mukeshraj.com/service-tax.html

Point of Taxation in Service Tax

One major change made in service tax effective from 01-04-2011 is the introduction of Point of Taxation Rules, 2011 to (a) introduce the provisions relating to payment of service tax on accrual basis instead of receipt basis and (b) to specify date relevant for determining rate of service tax.

So far the provision was that service tax was payable on receipt basis i.e. on receipt of payment of the invoice or bill from the customer or receipt of advance, whichever is earlier. Now w.e.f.  01-04-2011, service tax will be payable on billing basis and not on ‘receipt of payment’ basis i.e. on accrual basis and not cash basis (option has been granted to assessee to continue payment on receipt basis upto 30-06-2011, if they so desire).

Scenario Relevant Rule First event Subsequent event Point of Taxation
Normal Situation (not covered under rule 4 to 9) 3(a) Issue of invoice Completion of service or receipt of payment Time of invoice
3(a) Completion of service Issue invoice within 14 days Time of Invoice
Proviso to 3(a) Completion of service Invoice not issued within 14 days Date of completion of service
3(b) and explanation to rule 3 Receipt of payment or advance Invoice or completion of service Time of receipt of payment
Taxable Service provided before change in effective rate of service tax 4(a)(i) Invoice issued and payment received after the change in effective rate N.A. Date of receipt of payment or date of issuance of invoice, whichever is earlier
4(a)(ii) Invoice issued prior to change in effective rate Payment received after change in effective rate of tax Date of issue of invoice
4(a)(iii) Payment received before change in effective rate of tax Invoice issued after change in effective rate of tax Date of receipt of payment
Taxable Service provided after change in effective rate of service tax 4(b)(i) Invoice issued prior to change in effective rate Payment received after change in effective rate of tax Date of receipt of payment
4(b)(ii) Invoice issued and payment received prior to change in effective rate Taxable Service provided Date of receipt of payment or date of issuance of invoice, whichever is earlier  
4(b)(iii) Payment received before change in effective rate of tax Invoice issued after change in effective rate Date of issuing of Invoice  
New service brought under tax net 5(a) Invoice issued and payment received before service became taxable N.A. No Service tax payable  
5(b) Payment received before service became taxable Issue invoice within 14 days of provision of service No Service tax is payable  
3(a) Service provided before tax became effective Invoice within 14 days and payment received after tax became effective No service tax is payable  
Continuous supply of service (applicable separately to each event as specified in contract) 6(a) Issue of Invoice Completion of service or receipt of advance payment Time of Invoice  
6(a) Completion of service Invoice issued within 14 days Time of Invoice  
Proviso to 6(a) Completion of service Invoice not issued within 14 days Date of completion of service  
6(b) and explanation 2 to rule 6 Receipt of payment or advance Invoice or completion of service Time of receipt of payment  
Export of Service 7(a) Completion of service Payment received within the period specified by RBI Date of receipt of payment  
7 (a) and first proviso to rule 7 Completion of service Payment not received within the period specified by the RBI As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable.  
Service where tax payable by recipient of service under reverse charge 7(b) Receipt of Service Payment made to service provider in advance or within six months of date of invoice or service provider Date of payment  
7 (b) and second proviso to rule 7 Receipt of Service Payment not made to service provider in advance or within six months of date of invoice or service provider As per rule 3,4,5,6 or 8 (as applicable) Interest will be payable.  
Professional and firms providing specified taxable service 7 (c) Invoice, completion of service or receipt of payment in any sequence   Date of receipt of payment  
Service Provided from associate enterprises when service provider outside India Third proviso to rule 7 Date of credit in books of account of person receiving service Date of making payment Date of credit in books of account of person receiving service  
Third proviso to rule 7 Date of making payment Date of credit in books of account of person receiving service Date of making payment  
Intellectual property service, where consideration not ascertainable at the time of service 8 Receipt of payment or benefit is received by service provider Invoice issued by the service provider Receipt of payment or benefit is received by service provider  
8 Invoice issued by the service provider Receipt of payment or benefit is received by service provider Invoice issued by the service provider  
Service completed on or before 30-06-2011 9 Issue of Invoice Receipt of payment Issue of invoice or date of receipt of payment  

 

 

HIGHLIGHTS OF UNION BUDGET – 2011-12

  1. The basic exemption limit in the case of individuals increased from Rs.1.60 lacs to Rs.1.80 lacs. However, there is no increase in basic exemption limit in the case of Resident Women who is below 60 years at any time during the previous year.
  2. The qualifying age limit for senior citizens has been lowered from 65 years to 60 years and  increased the current exemption limit under two categories
  3. Category -1 – Age of Individual – 60 years or more but less than 80 years at any time during the previous year. The basic exemption limit is increased from Rs.2.40 lacs to Rs.2.50 lacs
  4. Category – 2 –   Age of Individual beyond 80 years or more at any time during the previous year. The basic exemption limit is Rs.5.00 lacs.
  5. In the case of domestic companies the surcharge has been reduced from Rs.7.5% to 5%
  6. In the companies other than domestic companies the surcharge has been reduced from 2.5% to 2%
  7. The definition of charitable purpose u/s 2 (15) includes “the advancement of any other object of general public utility”. The monetary limit in respect of such activities has been enhanced from Rs.10.00 lacs Rs.25.00 lacs.
  8. The amount paid by an assessee as an employer by way of contribution towards pension scheme, as referred to in sec 80CCD(2) on account of an employee to the extent it doesn’t exceed 10% of the salary of employee in the previous year, shall be allowed as a deduction u/s 36 in computing the income under the head profit and gains of business or profession.
  9. The Indian company which receives foreign dividend from foreign subsidiary company such dividend is taxable at the 15% as against 30% plus applicable surcharge.
  10. The rate of MAT is increased to 18.5% from the existing rate of 18% of such book profit.
  11. Minimum Alternative Tax has been introduced for Limited Liability Partnership (LLP) in line with MAT on companies with effect from the Assessment Year 2012 – 2013.
  12. The Government  exempts assessees having no other income other than salary from furnishing the return of income by notification. The proposed amendment shall be effective from 1st June, 2011.
  13. It is proposed to omit the requirement of quoting of Documentary Identification Number in notices / order / correspondences issued by Income tax department.
  14. The SEZ developers are required to pay dividend distribution tax on dividends declared / distributed on or after 1st June, 2011.
  15. The deduction u/s 80CCF to investment in notified long term infrastructure bonds extended for the A.Y. 2012-13 also.
  16. Liaison offices of a company will be required to file Annual Information in the prescribed form with in the 60 days from the end of the financial year.
  17. The tax holiday for power sector has been extended for further period of one year i.e. upto 31.03.2012.

SERVICE TAX

 

  1. The following two new services have been proposed
    1. Services by air conditioned restaurants having licence to serve liquor; and
    2. short term accommodation hotels / inns / clubs / guest houses etc.

 

  1. The monetary limit for adjustment of excess service tax paid is increased from Rs. 1.00 lacs to Rs.2.00 lacs.
  2. The penalty for delayed payment of service tax u/s 76 has been reduced from 2% to 1% per month or Rs.100 per day whichever is higher.
  3. The maximum penalty reduced to 50% of the tax.
  4. The rate of interest is reduced by 3% for assesses with turnover of upto 60 lacs.
  5. The maximum penalty for delay in filing of return increased from Rs.2,000 to Rs.20,000

Courtesy: CA. Naveen ND Gupta

 

Service tax on on-going works contracts entered into prior to 01.06.2007

Circular No. 128/10/2010-ST, dated 24-8-2010

It has been brought to the notice of the Board that the following confusions/disputes prevail with respect to long term works contracts which were entered into prior to 01.06.2007 (when the taxable service, namely, Works contract came into effect) and were continued beyond that date:

(i)             While prior to the said date services like Construction; Erection, commissioning or installation; Repair services were classifiable under respective taxable services even if they were in the nature of works contract, whether the classification of these activities would undergo a change?

(ii)            Whether in such cases of continuing contracts, the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 under Notification No. 32/2007-ST dated 22/05/2007 would be applicable?

2.         The matter has been examined.  As regards the classification, with effect from 01.06.2007 when the new service ‘Works Contract’ service was made effective, classification of aforesaid services would undergo a change in case of long term contracts even though part of the service was classified under the respective taxable service prior to 01.06.2007.   This is because ‘works contract’ describes the nature of the activity more specifically and, therefore, as per the provisions of section 65A of the Finance Act, 1994, it would be the appropriate classification for the part of the service provided after that date.

3.         As regards applicability of composition scheme, the material fact would be whether such a contract satisfies rule 3 (3) of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.  This provision casts an obligation for exercising an option to choose the scheme prior to payment of service tax in respect of a particular works contract.  Once such an option is made, it is applicable for the entire contract and cannot be altered.   Therefore, in case a contract where the provision of service commenced prior to 01.06.2007 and any payment of service tax was made under the respective taxable service before 01.06.2007, the said condition under rule 3(3) was not satisfied and thus no portion of that contract would be eligible for composition scheme.   On the other hand, even if the provision of service commenced before 01.06.2007 but no payment of service tax was made till the taxpayer opted for the composition scheme after its coming into effect from 01.06.2007, such contracts would be eligible for opting of the composition scheme.

4.         The Board’s previous Circular No. 98/1/2008-ST dated 04.01.2008 and the ratio of judgement of the High Court of Andhra Pradesh in the matter of M/s. Nagarjuna Construction Company Limited vs. Government of India (Writ Petition No. 6558/2008, dated 7-6-2010) are in line with the above interpretation.

5.         Trade Notice/Public Notice may be issued accordingly.

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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