A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013

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Tax Bar Association, Kota Dr. Sanjiv Agarwal

6th July, 2013 FCA, FCS

© Dr. Sanjiv Agarwal

A Presentation on

Service Tax Overview

and

Recent Developments

This Presentation Covers

• Economy and Service Tax – Overview

• Major Changes in 2012 -2013 and 2013-14

• What is Service

• Bundled Services

• Negative List and Exempted Services

• Reverse Charge

• Abatements

• New Penal provisions

• VCES2

Service Tax Overview & Recent Developments

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Indian Economy – An Overview

Indian economy is the 11th largest economy in the world and the third fastest growing even in today’s recession, after China and Indonesia (Present growth rate around 5.5%)

World is presently facing recession-II but Indian economy is still a growth economy

Inflation –food, lifestyle Agriculture, services and industry are the major

sectors of Indian economy. Contribution of different sectors in March, 2012 was :

Agriculture 19% Services 59% Industry 22%

(likely to be @ 64% in March, 2013)

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Indian GDP to grow about 5 percent in 2012-13 and growth expected at 6.1-6.7 percent in 2013-14

Tax Policy – clarity in tax Laws, stable tax regime, non-adversarial tax administration, fair mechanism for dispute resolution, independent judiciary

Need to raise tax – GDP ratio which is presently around 6-7 percent.

Service Tax contributes 11.50 percent of the gross tax revenue

Service sector growth @ 9%, much higher than the GDP growth itself.

Contribution of services sector in GDP at 64% including construction sector.

No change in Service Tax rates. No change in peak rates of customs and excise duties also.

Economy / Taxation – A Status

Growth of Service TaxYear No of new

servicesTotal No of services

Total collection (Rs. in crore)

1994 3 3 407

2001 - 26 2612

2005 13 72 14199

2008 7 103 51301

2010 3 112 58000

2012 0 120 97509

2013 - All 132697 (RE)131884 (A)

2014 - All 180141 (BE)

Introduced in India in 1994 as a simple, modest tax with just three services.

Service tax – an indirect tax.

Approach to Service Tax – Selective as against comprehensive one.

Desirable from revenue, equity and economic view point.

Governed by Finance Act, 1994 and a dozen of rules.

Legislative dependence on over 25 other laws.

Scattered and heterogeneous large mass of service providers as well as

wide spectrum of services.

Jurisdictional application.

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Service Tax in India (The Past)

Shift to Comprehensive Approach

W.e.f. 1st July, 2012

Finance Act, 2012 – A land mark Act to shift from selective positive approach to negative approach.

It took 18 years to shift from selective approach (positive) to comprehensive approach (negative ) to tax services

All services to be taxed other than services specified in the negative list and exempted services – Section 66B.

7

Service Tax – The Present

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All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Present Taxation of Services

(=)

New Provisions in Service Tax under Negative List

Section 66 B deals with charge of service tax on or after Finance Act, 2012

Section 66 C provides for determination of place of provision of service.

Section 66 D comprises of negative list of services

Section 66 E comprises of the services which constitute declared services

Section 66 F provide principles of interpretation of specified description of services or bundled services

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Definition of ‘service’ finds place in statutory provisions

Place of provision of service rules determine the location of

service and become be basis of taxation.

Concept of taxable territory and non- taxable territory introduced

Classification of service criteria replaced by new section 66F on

interpretation principles of specified description of services or

bundled services.

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MAJOR CHANGES IN SERVICE TAX IN 2012-13 AT A GLANCE

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Under new reverse charge mechanism, onus of paying Service Tax will be shared

by service provider and service receiver in case of specified services.

Payment of Service Tax on receipt basis for all service providers being

individuals / firms / LLPs, if aggregate value of taxable services in previous year

does not exceed Rs. 50 lakh.

Time limit for appeal by assessees to Commissioner (Appeals) reduced from 3

months to 2 months

Special Audit of Service tax assesses by CAs /CWAs


Service Tax ReturnsJuly to September, 2012

N. No. 1/2013-ST, dated 22.02.2013

Circular No. 137 dated 22.02.2013 / Order No. 1Last date 25th March, 2013; extended to 15th April, 2013;

further extended upto 30th April 2013 vide Order No. 2/2013-ST, dated 12.4.2013

October 2012 to March, 2013

Vide Order No. 3/2013 dated 23.04.2013 , last date extended upto 31st August , 2013

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Changes in Budget / Finance Act, 2013

Vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agriculture and agriculture produce to be in the negative list.

Definition of "process amounting to manufacture" will also include processes under Medicinal and toilet preparations (Excise Duties) Act, 1955.

Service Tax to be levied on all restaurants which are air conditioned. The condition of liquor license done away with (held unconstitutional by Kerala High Court recently)

Benefit of exemption to copyright on cinematography to be limited to films exhibited in cinema halls / theatres.

Recent Amends in Service Tax

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Certain exemptions curtailed / withdrawn in relation to auxiliary education services and renting by educational institutes, transportation of goods by railway / vessel, vehicle parking to general public, repair or maintenance of government aircrafts, charitable activities etc. (w.e.f. 1.4.2013)

Where it is held that extended period of limitation u/s 73 is not sustainable for making demands, Department's demand for normal period of 18 months shall be sustainable.

Stay orders of CESTAT to have a maximum period of 365 days (180+185) upto which stay granted will be operational even when assessee is not at fault.; Stay to get vacated after 365 days (Section 37C of Central Excise)


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Penalty u/s 77(a) (in case of non-registration) shall be restricted to a maximum of Rs. 10,000.

Abatement reduced w.e.f. 1.3.2013 from 75% to 70% in case of luxury apartments / residential complexes and others (with carpet area of 2000 sq. ft. or more and value of Rs. 1 crore or more).

New provisions for revised punishments for offences u/s 89, makes certain offences cognizable and others non cognizable and bailable.

New Section 78A inserted to impose penalty on directors and officials of company for specified willful actions / offences.

Power to arrest provided u/s 91 where Service Tax contravention / default is more than Rs. 50 lakhs.


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In Cestat appeals, single member bench can hear and dispose off appeals upto a monetary limit of Rs. 50 lakhs (previously Rs. 10 lakh).

Mode of delivery of letters, orders etc will also include speed post and approved courier agency.

Voluntary Compliance Encouragement Scheme, 2013 (VCES) introduced as a one time amnesty measure to effect compliance and recovery and provide amnesty from interest and penalties (last date 31.12.2013).

Service Tax appeal forms ST – 5,6,7 amended w..e.f. 1.6.2013


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‘Service' has been defined in clause (44) of the section 65B and means –

any activity

For a consideration

carried out by a person for another

and includes a declared service (66E)

What is Service

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The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S

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Activity must be for a consideration (nexus / reciprocity)

Activity – includes both activity as well as non-activity

Consideration – includes both monetary and non monetary consideration.

Two persons are involved –Service provider Service receiver

Only services provided by one person to another are taxable

Person – natural as well as artificial

What is Service

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ActivityNot defined in the ActIn common understanding, activity includes –

An act done A work done A deed done An operation carried out Execution of an act Provision of a facility etc.

Activity could be active or passive and forbearance to actAgreeing to an obligation to refrain from an act or to tolerate an

act or a situation - listed as a declared service u/s 66E

What is Service

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ConsiderationMeans everything received or recoverable in

return for a provision of service which includes -Monetary paymentNon-monetary paymentDeferred consideration

Under Indian Contract Act, 1872, Consideration means -

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”

What is Service

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Activity for a Consideration Activity should be carried out by a person

for a considerationActivity without consideration like-

DonationGiftsFree charities

outside the ambit of serviceCharity for consideration would be service

and taxable unless otherwise exempted

What is Service

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Person-65B(37)"person" includes,––

• an individual,• a Hindu undivided family,• a company,• a society,• a limited liability partnership,• a firm,• an association of persons or body of individuals, whether

incorporated or not,• Government,• a local authority, or• every artificial juridical person, not falling within any of the

above

What is Service

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'Service' does not include - any activity that constitutes only a transfer in title of goods or immovable

property by way of sale, gift or in any other manner.

Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI 2013 (29)STR 3 (SC)

a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

a transaction only in money or actionable claim

a service provided by an employee to an employer in the course of the employment.

fees payable to a court or a tribunal set up under a law for the time being in force

What is Service : Exclusions

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This scope shall not apply to –

a) functions performed by M.P., M.L.A., Members of Panchayats / Municipalities who receive any consideration in performing the functions of that office as such member; or

b) duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

c) duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authority and who is not deemed as an employee before the commencement of this section.

What is Service

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What is Service

For the purpose of scope of service -

(a) an unincorporated association or a AOP and a member thereof shall be treated

as distinct persons;

(b) an establishment of a person in the taxable territory and any of his other

establishment in a non-taxable territory shall be treated as establishments of

distinct persons.

(c) A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an establishment

in that territory

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Declared Services Clause 44 of section 65B defines service – it includes a declared service.

There are 9 categories of services or activities as declared services implying that on all such nine declared services, Service Tax shall be payable

Does not include any such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Article 366(29A) of the Constitution of India.

What is declared services is defined in section 65B(22) to mean any activity carried out by a person for another person for a consideration and declared as such under section 66E of the Act.

They are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country

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List of declared services

Following constitute Declared Services (Section 66E)

Renting of immovable property;

Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;

Temporary transfer or permitting the use or enjoyment of any intellectual property right;

Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software;

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List of declared services

Agreeing to an obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods;

Activities in relation to delivery of goods on hire purchase or any system of payment by installments ;

Service portion in execution of a works contract;

Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as part of the activity.

Agreeing to an obligation to refrain from an Act / to tolerate Act or situation / to do an Act [section 66E(e)]

Following activities if carried out by a person for another for consideration would be treated as provision of service -

Agreeing to an obligation to refrain from an act.Agreeing to an obligation to tolerate an act or a

situation.Agreeing to an obligation to do an act.

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Declared Services

Obligations / ActionsExamples of Taxable Obligations / ActionsNon-compete fees for agreeing not to compete compensation on termination of business agreementsadvance forfeited for cancellation of agreement to

provide a service. forfeiture of security deposit for damages done by

service receiver in course of receiving of services. cancellation charges being charged by airlines, hotels

etc.consideration for non-appearance in a court of law or

withdrawal of suit.demurrage charges or detention charges

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Declared Services

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Declared Services

Works Contract [65B(54)]

“Works Contract” means a contract wherein transfer

of property in goods involved in the execution of such

contract is leviable to tax as sale of goods and such

contract is for the purpose of carrying out

construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance,

renovation, alteration of any movable or immovable

property or for carrying out any other similar activity

or a part thereof in relation to such property.

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Declared Services

Alternative valuation model (Rule 2A of Valuation Rules) Where works contract is for… Value of the service portion shall

be…

(A) execution of original works forty percent of the total amount charged for the works contract

(B) maintenance or repair or reconditioning or restoration or servicing of any goods

seventy per cent of the total amount charged including such gross amount

(C) in case of other works contracts, not included in serial nos. (A) and (B) above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings.

sixty percent of the total amount charged for the works contract

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Bundled Services

Principles of Interpretation of specific description of services [section 66F]

Section 65A dealing with classification of taxable services omitted w.e.f. 1.7.2012

useful in deciding whether a service falls in negative list / exemptions / declared services

composite v bundled service bundled service –

collection of services / tied up services more than one service element of one service combined with element of provision of

other service (s). Examples - Mailing done by RTI, Air traveling and catering therein Earlier issue – which taxable service Now – whether any activity is a ‘service’ or not a ‘service’.

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Bundled Services

Rule 1 Reference to main service can not be used for services used for

providing the main service If some service is provided with reference to provision of main

service, it does not be come main service, Related services do not take the colour of main service. Examples

Provision of access to any road or bridge on payment of toll Security services IT related services Contract commission

Transportation of passengers by rail Air travel agency Tour operators

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Bundled Services

Rule 2Most specific description to be preferred over more

general description for services capable of differential treatment

for any purpose based on its description Examples

Real estate agent for immovable property• If taxed as intermediary, his location is important • If taxed as immovable property, location of property is

important Outdoor catering by pandal & shamiana / convention to be

taxed as specific combined entry exist for abatement and not as individual services

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Bundled Services

Rule 3Taxability of naturally bundled services in ordinary course of business

If various elements of a bundled service are naturally bundled in the ordinary course of business, it shall be treated as provision of a single service which gives such bundle its essential character

Perception of service provider / service receiver Trade practice Example

• Packaged hotel accommodation for convention delegates may include Hotel room accommodation Breakfast Tea / coffee during conference to be

contd…

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Access to gym / health club / pool Internet Business centre Sight seeing

Could be considered as naturally bundled convention services as each activity is taxable but does not provide essential character and taxed accordingly

Indicators of naturally bundled services There is a single price or the customer pays the same amount, no

matter how much of the package they actually receive or use The elements are normally advertised as a package. The different elements are not available separately. The different elements are integral to one overall supply – if one or

more is removed, the nature of the supply would be affected. Each case to be individually examined

Bundled Services

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Rule 4 Taxability of services not naturally bundled in

ordinary course of business If various elements of a bundled service are not

naturally bundled in the ordinary course of business, it shall be treated as provision of a service which attracts the highest amount of service tax.

Examples Renting of two floors or two portions of building by a

common agreement (treated as commercial use) Management of event covering advertisement,

promotion, space booking, photography, videography, public relation etc.

Bundled Services

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Negative list of Services

What is Negative List

• Defined in new section 66D

• Section 66D specifies seventeen 17 broad categories of services.

• Effective from 1-7-2012

• If an activity meets the characteristics of ‘ service ‘, it is taxable unless specified in Negative List.

Based on socio-economic–tax criterion drawn from seven sectors, viz. financial sector, transportation , construction & real estate, education, health care, Government services

Specified services relating to education

• Service by way of -i. Pre-school education and education up to higher

secondary school or equivalentii. Education as a part of a prescribed curriculum

for obtaining a qualification recognized by law iii. Education as a part of an approved vocational

education course

• Conduct of degree courses by colleges, universities or institutions which lead to grant of qualifications recognized by law

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Approved vocational education course

a course run by an industrial training institute or an industrial

training centre affiliated to the National / State Council for Vocational

Training, offering courses in designated trades as notified under the

Apprentices Act, 1961 , or

a Modular Employable Skill Course, approved by the National Council

of Vocational Training, run by a person registered with the

Directorate General of Employment and Training, Ministry of Labour

and Employment, Government of India, or

a course run by an institute affiliated to the National Skill

Development Corporation set up by the Government of India


Specific Exempted Services

(Vide mega Exemption Notification No. 25/2012-ST dated 20.6.2012)

W.e.f. 1.7.2012Covers 39 specific exemptions Negative List services – not taxable at all ;

can be amended only by Parliament Exempted services – taxable but exempt

under notification; can be modified by notification.

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44

• Education upto higher secondary school or equivalent are in negative list.

• Services provided to or by an educational institution for Auxiliary educational services and renting of immovable property – exempted under mega notification

Negative list will not include – • Private tuitions • Education as a part of prescribed curriculum for

obtaining qualification recognized by law of a foreign country

• Services provided to educational institutions • Placement services

contd …….


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Education related services not in negative list but exempt from tax under Notification No. 25/2012-ST dated 20.06.2012

Auxiliary education services if provided to educational institutions

• Transportation of students to / from institutions • Provision of mid-day meal in schools • Admission related services to educational institutes

where education services are exempt.

Coaching / training in recreational activities of arts, culture or sports.


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Exemption upto 31.03.2013 –

Service Provider Service Receiver Taxability

Educational Institution Educational Institution Exempt

Educational Institution Non Educational Institution Exempt

Non Educational Institution Educational Institution Exempt

Non Educational Institution Non Educational Institution Taxable

Note " CBEC in its Letter No. 334/3/2013-TRU dated 28/02/2013, it has been clarified that –“Exemption by way of auxiliary educational services and renting of immovable property by (and not to) specified educational institutes under S.No. 9 will not be available w.e.f. 1.4.2013.”

Exemption w.e.f. 01.04.2013 -Educational Institution Educational Institution Exempt

Educational Institution Non Educational Institution Taxable

Non Educational Institution Educational Institution Exempt

Non Educational Institution Non Educational Institution Taxable

Services provided to / by educational institution

Services provided to or by an educational

institution in respect of education

exempted from service tax, by way of -

auxiliary educational services or

renting of immovable property

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48

Auxiliary education services shall cover the services in relation to educational activities only and include –

i. any service relating to imparting any skill knowledge education development of course conduct other knowledge enhancement activity

ii. whether for students or faculty iii. out sourced activities ordinarily carried out by educational

institutions iv. services in relation to –

admission conduct of examination catering of students under any mid day meal scheme sponsored

by Government Transportation of students or faculty

v. Services in relation to catering under mid day scheme and transportation were hitherto exempt under different notifications under outdoor catering services and tour operator’s services

Services provided to / by educational institution

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Under Partial Reverse Charge (Proportional) Renting of motor vehicles Manpower supply & security services Works contracts

Under Full Reverse Charge (100%) Insurance related services by agents goods transportation by road sponsorship arbitral tribunals legal services company director's services services provided by Government / local authority excluding

specified services services provided by persons located in non-taxable

territory to persons located in taxable territory.

Liability to pay tax under Reverse Charge by Service Receiver

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Governed by Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 1.7.2012

Liabilities of both the service provider and service receiver are independent of each other

Reverse charge will not apply where the service receiver is located in non-taxable territory

For three specified services provided by business entities being company, society, cooperative society, trust etc, reverse charge will not apply.

Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services

Small scale benefit is available only to service provider (not to service receiver), if entitled

Important Points in Reverse Charge Mechanism

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Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012

Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II)

Liability to pay Service Tax for ongoing contracts will be as per Point of Taxation Rules, 2011

Reverse charge shall not be applicable if provider of service was liable before 1.7.2012

Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012

Important Points in Reverse Charge Mechanism

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Service Provider Service Receiver

Individual Advocate / Firm / LLP

**Business entity with turnover > Rs 10 lakhs in preceding financial year

Arbitral Tribunal **Business entity with turnover > Rs 10 lakh in previous financial year

** Business entity may be an individual also

Reverse Charge for Legal Services

Reverse Charge Mechanism under various services

S. No. Description of Service Service provider Service receiver

1. Services provided by an insurance agent to any person carrying on insurance business

Nil 100%

2. Services provided by a goods transport agency in respect of transportation of goods by road

Nil 100%

3. Services provided by way of sponsorship

Nil 100%

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4. Services provided by an arbitral tribunal Nil 100%

5. Services provided by individual advocate or a firm of advocates by way of legal services

Nil 100%

5A. in respect of services provided or agreed to be provided by a director of a company to the said company ( w.e.f 7.08.2012)

Nil 100%

6. Services provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, (2) postal services (3) transport of goods / passengers (4) air craft or vessel

Nil 100%

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7. Hiring of Motor Vehicle (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business(b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

Nil

60%

100 %

40%

8. Services provided by way of supply of manpower for any purpose or security services ( w.e.f 07.08.2012)

25% 75 %

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Sr.No Description of Service Service provider Service receiver

9. Services provided in service portion in execution of works contract 50% 50%

10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Nil 100%

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Service Provider Service Receiver Service Tax Payable by

Individual /HUF/ Partnership firm /AOP

Business entity – body corporate

Joint


Individual /HUF/ partnership firm /AOP

100 % by service provider

Business entity –Body Corporate / Company



Business entity –Body Corporate

Business entity – Body Corporate


Reverse Charge Obligations for three Specified Services

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Abatements in Service Tax

• Over and above full exemption to 39 categories of services vide Notification No. 25/2012-ST dated 20.06.2012

• Earlier there were a number of exemption notifications that prescribed the abatements for various categories of services (including 1/2006)

• Abatements merged into a single Notification No 26/2012 - ST dated 20/6/12

• Valuation rules contain abatement for Works Contract and Supply of Food Services

Specific AbatementsSl. No. Description of taxable service Taxable

value(%)

Conditions

1 Financial leasing services including

equipment leasing and hire purchase

10 Nil

2 Transport of goods by rail (exempted upto

30.9.2012)

30 Nil

3 Transport of passengers, with or without

accompanied belongings by rail

( exempted upto 30.9.2012)

30 Nil

4 Supply of food or any other article of

human consumption or any drink, in a

premises, including hotel, convention

center, club, pandal, shamiana or any place

specially arranged for organizing a

function

70 CENVAT credit on any

goods classifiable under

chapter 1 to 22 of the

Central Excise Tariff Act,

1985 has not been taken

under the provisions of the

CENVAT Credit Rules, 2004. 59

60

Specific AbatementsSl.

No

Description of taxable service Taxable

value(%)

Conditions

5 Transport of passengers by air, with

or without accompanied belongings

40 CENVAT credit on inputs or capital goods,

used for providing the taxable service, has

not been taken under the provisions of the

CENVAT Credit Rules, 2004.

6 Renting of hotels, inns, guest

houses, clubs, campsites or other

commercial places meant for

residential or lodging purposes

60 Same as above.

7 Transport of goods by road by

Goods Transport Agency

25 CENVAT credit on inputs, capital goods

and input services, used for providing the

taxable service, has not been taken under

the provisions of the CENVAT Credit

Rules, 2004.

8 Services provided in relation to chit 70 Same as above.

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Specific Abatements

Sl.

No

Description of taxable service Taxable

value(%)

Conditions

9 Renting of any motor vehicle

designed to carry passengers

40 Same as above.

10 Transport of goods in a vessel from

one port to another

50 Same as above.

11 Tour operator services

(i) provided by a tour operator in relation

to a package tour

25 (i) CENVAT credit on inputs, capital

goods and input services, used for

providing the taxable service, has not

been taken under the provisions of the

CENVAT Credit Rules, 2004.

(ii) The bill issued for this purpose

indicates that it is inclusive of charges

for such a tour.

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Sl. No Description of taxable

service

Taxable

value(%)

Conditions

(ii) provided by a tour operator in

relation to a tour, solely arranging

or booking accommodation

10 (i) CENVAT credit on inputs, capital goods

and input services, used for providing the

taxable service, has not been taken under

the provisions of the CENVAT Credit Rules,

2004.

(ii) The invoice, bill or challan issued

indicates that it is towards the charges for

such accommodation.

(iii) This exemption shall not apply in such

cases where the invoice, bill or challan

issued by the tour operator, in relation to a

tour, only includes the service charges for

arranging or booking accommodation for

any person and does not include the cost

of such accommodation.

Specific Abatements

63

Sl. No Description of taxable service Taxable

value(%)

Conditions

(iii) Services, other than

services specified above in (i)

or (ii)

40 (i) CENVAT credit on inputs, capital

goods and input services, used for

providing the taxable service, has not

been taken under the provisions of

the CENVAT Credit Rules, 2004.

(ii) The bill issued indicates that the

amount charged in the bill is the gross

amount charged for such a tour.

Specific Abatements

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Sl. No Description of taxable service Taxable

value(%)

Conditions

12. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority -

(i) For residential unit having carpet area upto 2000 sq. ft. or (and w.e.f. 8.05.2013) where the amount charged is less than rupees one crore;

(ii) For other than the (i) above

25 (upto 28.02.2013)

25 ( w.e.f. 1.03.2013)

30 ( w.e.f. 1.03.2013)

(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The value of land is included in the amount charged from the service recipient.

Specific Abatements

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Gross amount charged by the service provider for such services provided or to be provided (Section 67)

Service Tax (Determination of Value) Rules, 2006, Rule 5 – Inclusions in or exclusion from value of expenditure / costs Expenditure / costs incurred in course of providing

services – treated as consideration Expenditure / costs incurred as pure agent of

recipient of service – excluded conditionally RE arises where person paying is under no

obligation to pay but pays on behalf of other

Valuation of Services – Reimbursements

66

Intercontinental Consultants and Technorats Pvt. Ltd. v U.O.I. 2012 (12)TMI 150 (Delhi HC- DB)

Earlier stayed (2008)12 STR 689 (Delhi) Petitioner providing consulting engineering services in respect of

highway projects to NHAI Receives payment not only for its service but also reimbursed (out of

pocket) expenses incurred on hotel, travel etc. Held not to pay service tax on reimbursed expenses Rule 5(1) of the Service Tax (Determination of Value) Rule, 2006 is ultra

vires the provisions of the Finance Act, 1994. Rule 5(1) is against the charging provision and has been struck down. Even if rules are laid before both the houses of the Parliament, such an

act cannot confer validity to the rules. Section 94(4) of the Finance Act, 1994 does not add any greater force to

the rules. They continue to be a piece of sub ordinate legislation.

Contd……….

Reimbursement of Expenses

67


Service Tax is levied at a particular rate (presently 12%) on the value of taxable services in terms of charging section.

Value of taxable service for levy of Service Tax has to be in consonance with the charging section.

Service Tax can be levied on the taxable service and nothing more or nothing less. It is only the taxable service which needs to be evaluated for the purpose of

valuation u/s 67 as it talks of ‘such service’. Thus, value of taxable service shall be the gross amount charged by the service

provider ‘for such service’. It has to be essentially for ‘such service’ and nothing else.

The charging section (erstwhile section 66) and valuation provisions (section 67) of the Finance Act, 1994 have to be read together and harmoniously.

If read in consonance, only the consideration paid as quid pro quo for the taxable service can be brought to charge of Service Tax.

Contd…..


68


The valuation rules, i.e., Service Tax (Determination of Value) Rules, 2006 are expressly made subject to the provisions of section 67(1) and as such, it cannot go beyond what is intended to be in section 67.

The common thread running through the provisions of section 66, 67 and 94 of the Finance Act, 1994 is manifest and leads to only conclusion that ‘only the services actually provided by the service provider can be valued and assessed to Service Tax’.

What has to be valued is only the output service and nothing else, i.e., not the input services or other expenses which go into rendering of such services.

If it is not held so, the rule 5(1) of valuation rule seeks to extract more as Service Tax than stipulated in section 67(1) by including in the value of service, the other costs and expenditure which are incurred by the service provider in the course of providing the taxable service.

What can be taxed as Service Tax is only the consideration which is further qualified by ‘for the taxable service’.


69

Section 78A Penalty for offences by director etc. of a company

Section 89 Offences & penalties

Section 90 Cognizance of offences

Section 91 Power to arrest

Goes against non- adversarial tax policy of Government

New Penal Provisions

70

Penalty for Non- registrationPenalty for failure to take registration (Section 77(1)(a)]

EarlierPenalty which may extend upto Rs. 10000 or Rs. 200 per

day during which default continues, whichever is higher, starting from first day after due date till the date of actual compliance

Now (w.e.f. 10.5.2013)Penalty which may extend upto Rs. 10000Penalty not to exceed Rs. 10000 in any caseFor non payment, there are already strict penalties u/s 76

and 78


71

Penalty for Offences by Company Officials (Section 78A)

To impose penalty for contraventions / violations by Company

Penalty may extend up to Rs. one lakh per officialPenalty on any director, manager, secretary or

officer of CompanyIncharge / responsible to Company for conduct of

business of CompanyIf knowingly involved in specified contraventionsPenalty may be levied on more than one person for

single contravention / offences


72


Specified Contraventions Evasion of Service TaxIssuance of bill / Invoice / challan without

provision of service in violation of rules.Availment and utilization of credit of taxes /duties

without actual receipt of services /goods either fully or partially.

Failure to pay amount collected as service tax to the credit of Central Government beyond 6 months of the due date


73

Who is Punishable Any person who is

• director • manager• secretary • other officer

and who at the time of contravention was in charge of / was responsible to company for conduct of business, and was knowingly concerned with such

contravention.


74


Personal Penalty

Till now, there was no provision in the Finance Act, 1994 to levy personal penalty for contraventions by Companies (also legally held)

There can be no penalty on directors /officers / manager / secretary of non-company assessees


75

Offences & Penalties (Section 89)

Punishment to whoever commits any offence :

a) Knowingly evades payment of Service Taxb) Wrongly avails / utilizes credit of taxesc) Maintains false books of accounts/ supplies false informationd) Collects tax but fails to pay within 6 months of due date• In such cases, prosecution to be initiated• Cases of no intent to defraud also covered• ‘Knowingly’ is very subjective; to be proved

Contd…..


76

Offences & Penalties (Section 89)

For (a), (b) &(c) and amount > Rs. 50 lakhs – imprisonment from 6 months to 3 years

For (d), if amount > Rs. 50 lakh – imprisonment from 6 months to 7 yearsFor any other offence– imprisonment upto 1 yearFor second or subsequent conviction

For (a), (b), (c), other offences – imprisonment upto 3 years

For (d) – imprisonment upto 7 years


77

Cognizance of Offences (Section 90)

Cognizable Offence Failure to deposit to the credit of Central Government service tax collected where amount exceeds Rs. 50 lakhs

Non-Cognizable and Bailable OffencesAll offences except cognizable offence as above

Detailed Instructions to be issued


78

Power to Arrest (Section 91)

Similar provisions existed earlier but withdrawn in 1998Provides power to arrest (where evasion exceeds Rs. 50

lakhs)Covers all classes of assesseesEmpowers Commissioner of Central ExciseHe may authorize any officer not below the rank of

Superintendent to arrestWho can be arrested – any person as per Section 89Trigger for arrest – offences – as per Section 89(1)

(Reasons to believe that offence has been committed to exist )

Arrests to be made in terms of Code of Criminal Procedure, 1973 (CCP)

Power to Arrest

79

Power to Arrest (Section 91)For Cognizable offences

Grounds of arrest to be informed to such person

Produced before Magistrate with in 24 hoursAsstt. / Deputy Commissioner empowered to

release an arrested person on bail in case of non -cognizable / bailable offences

To have same powers as Officer -in -charge of Police Station in terms of Section 436 of CCP

Power to Arrest

80

Offence u/s 89 Imprisonment on first default

Imprisonment on subsequent defaults

Cognizable or non- cognizable

Knowingly evades payment of Service tax

3 years ** 3 years Non- cognizable

Avails & utilizes credit of taxes without actual receipt of inputs/ services, whether partly or fully


Maintains false books or fails to supply any information or supplies false information


Collects any amount as service tax but fails to pay the same to government exchequer within 6 months of due date

7 years ** 7 years Cognizable

Any other offence 1 year 3 years Non- cognizable** Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than six months** if amount exceeding Rs. 50 lakh

Power to Arrest – At a Glance

81

Impact of Power to Arrest (Section 91)Punitive punishments measuresPossible harassment of small service providers (sole

proprietors etc.)But tax amount of Rs. 50 lakhs provides a breatherMay improve compliances Regressive; possible threat to otherwise bonafide cases May increase litigationNeed to distinguish between willful and genuine

defaults Arrest can be made at the beginning of proceedings

itself, investigation may follow

Power to Arrest

82

Possible Measures to avoid Arrest Suo moto compliance Independent due diligence Promptly attending to notices / summons Ensuring timely / full payment of Service Tax – Taxes

not to be used for working capital / funding other requirements

Where delay is expected, get in touch with Department.

Take aggressive tax positions with utmost care – Risk Management

Strengthen internal processes and controls to avoid unintended failures

Power to Arrest

86

Voluntary Compliance Encouragement Scheme, 2013 (VCES)

Chapter VI (Sections 100-110 of Finance Act, 2013)17 lakh assessees, 7 lakh returns filed Stop filers / non-filersOnly a one time schemeTo chase assessees not possibleHope to collect reasonable money / litigation to come down Action & consequences

Truthful declaration of service tax dues since 1.10.2007 upto 31.12.2012 by defaulters as on 1.03.2013

Payment of due tax in 1 or 2 installments Interest , penalties and other consequences waived

Voluntary Compliance Encouragement Scheme (W. e. f. 10.5.2013)

87


Not applicable to period before 1.10.2007 or after 31.12.2012Not applicable to cases involving search, audit, investigation,

SCN or summon issued cases as on 1. 03. 2013Not eligible if return furnished u/s 70 but disclosed amount

not paidTo be rejected if audit etc. initiated as on 1st March, 2013Pay at least half of tax before, 31st December, 2013Pay balance by

30th June, 2014 without interest 31st December 2014 with interest w.e.f. 1.07.2014

Dues for period after 31st December, 2012 to be settled as per present Law


88


No refund of amount paid under VCES Tax dues declared but not paid – to be recovered as per Law Even in default, only Service Tax and interest is payable False declaration to be rejected - reason to believe, notice to be served Declaration to be final – no withdrawal / no revision Satisfaction of designated authority required where audit /

investigation / summons/ notice issued and pending as on 1.3.2013; Declaration liable to be rejected by written reasoned order.

No action can be taken after one year from date of declaration Acknowledgment is a must Once acknowledgement is issued - no re-opening permissible before

any authority


89

• Notification No 10/2013-ST dated 13.5.2013 - to give effect to VCES, 2013. It prescribes rules and forms to implement the scheme.

Following rules are relevant-Rule 3 RegistrationRule 4 Form of declarationRule 5 Form of acknowledgement of declarationRule 6 Payment of tax duesRule 7 Form of acknowledgement of discharge Following forms have been prescribed-Form VCES 1 Declaration u/r 4Form VCES 2 Acknowledgement of declaration u/r 5Form VCES-3 Acknowledgment of discharge u/r 7.

Service Tax (Voluntary Compliance Encouragement Scheme) Rules, 2013

90

Form VCES 1

Declaration under VCES-2013 shall be made by assessee in form VCES-1 Declaration is in duplicate and is of tax dues VCES-1 is in two parts- declaration and verification duly signed and dated by the declarant. VCES-1 declaration shall contain the following particulars/ information -

Name & address of declarant Telephone No & email id Service Tax Code No. Details of tax dues (Service tax, education cess, secondary & higher education cess,

amount u/s 73A) Calculation sheet for tax dues should be furnished tax return period wise and service wise. Declaration is alongwith a verification, inter alia, to the effect that -

Information is correct and complete No inquiry, investigation or audit is pending as on 1 March, 2013.

VCES-1 is to be submitted to the concerned Central Excise Officer designated as the designated authority

Declarant should obtain an acknowledgment from the designated authority in Form VCES-2

Service Tax (Voluntary Compliance Encouragement Scheme) Rules, 2013

91

THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]

A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013

Education

Transcript of A Presentation on Service Tax Overview and Recent Developments dated 06.07.2013