Changes in Service tax law

8/10/2019 Changes in Service tax law

1/18

Union Budget

2014-15 :Changes inService Tax Law

L B Jha & Co,

Chartered Accountants,New Delhi


2/18

Negative list of services : Section 66 D

Before Budget After Budget Implication

Entry no (g) read as Service

related to selling of space or

time slots for advertisements

except advertisement broad

cast by radio or television is a

negative list service.

The levy of service tax would further

extended to advertisements in internet

websites, out of home media, on film

screens in theatres, bill boards,

conveyances, buildings, cell phones,

Automated teller

machines,tickets,commercial publications,

aerial advertising etc.

Thus, it can be said that

selling of space for

advertisement in print

media would only fall

within the purview of

Negative list and sale of

space or time slots for

advertisement in any

other

way shall be subject to

Service Tax.

Services provided by radio

taxis or radio cabs were non-

taxable.

Services provided by radio taxis, cabs

whether or not air-conditioned are taxable

services. However the abatement currently

available to rent a cab service is also

available to radio taxi or cab service. Hence

definition of radio taxi is being included in

exemption notification no 25/2012.

Service tax base has

been extended to bring

these services under the

levy of S.T law and it is

immaterial whether

radio taxi or cab is AC or

NON AC , service tax will

be levied on it.


3/18

Amendments in general exemptionsBefore Budget After Budget Implication

Service of passenger

transportation by a contract

carriage other than for the

purposes of tourism, conducted

tour ,charter or hire is exempt

from service tax.

Service provided by

transport of passenger by

air-conditioned contract

carriage including which are

used for point to point travel

will attract service tax on

abated value of 40% i.e..rate of S.T will be 4.944%.

Scope of exemption is being

reduced by withdrawing

exemption on AC contract

carriages. However service

provided by Non-AC contract

carriages are continue to be

exempted from S.T

Services by way of technical

testing or analysis of newly

developed drugs, including

vaccines and herbal remedies on

human participants by a clinicalresearch organization approved

to conduct clinical trials by the

Drug Controller is exempted

service.

Now become taxable Exemption withdrawn.


4/18

Simplification of exemptionsBefore Budget After Budget Implication

All the services provided by

educational institutions

( services specified innegative list) to their

students, faculty and staff

are exempted services.

In respect of services

received by educational

institutions exemption is

allowed through the conceptof auxiliary educational

services

Service provided by way of

renting of immovable

property to an educational

institution is an exemptedservice.

Continue as it is.

Concept of auxiliary

education services has beenomitted and now only the

following services received by

eligible educational institution

are exempted from S.T :

(a) transportation of students,

faculty and staff ;

(b) catering service includingmid-day meals scheme.

(c) security, cleaning or

housekeeping

(d) services related to

admission and conduct of

examination. Exemption withdrawn.

Note : Education institution is

defined as institution providing

educational services specified in

negative list.

No change

Earlier there were many doubts

regarding the scope of auxiliaryeducation services now to bring

clarity the concept stands

withdrawn and only specified

services received by institute are

exempted.

Services in relation of renting of

immovable property to aneducational institution stands

withdrawn.


5/18

Before budget After Budget Implication

Services provided to govt, a local

authority or a govt authority by

way of carrying out any activity in

relation to water supply, public

health, sanitation conservancy,solid waste management or slum

improvement and up gradation

are exempt from service tax.

Exemption is same as earlier.

However the said exemption

would not be extendable to

other services such as

consultancy, designing etc.

For greater clarity this exemption has

been made more specific.

Government has clarified that

services which are not directly

connected to specified services arenot covered under exemption. For

instance ,consultancy, designing

services related to water supply,

slum improvement etc. are not

covered under this exemption.

Service by way of renting of a

hotel, inn, guest house, club or

campsite or other commercial

places meant for residential or

lodging purposes, having a

declared tariff of a unit of

accommodation below Rs1000/day or equivalent is exempt

from service tax.

Exemption is same as earlier.

However the word

Commercial is being omitted.

Earlier some doubts have arisen on

account of the word commercial as

whether accommodation services

provided by dharmsalas,ashramor

any such entity are taxable .Hence

the word commercial has been

removed and govt has clarified thatexemption upto specified limit is

available to all such entities providing

accommodation services.

Note: The purpose of all the above exemptions and exclusions is to widen the tax base. However if the

services provided by a person in a F.Y does not exceed Rs 10 lacs, exemptions will be available in terms of

notification no 33/2012-ST.


6/18

Service tax on service portion in Works

contractsDescription Before Budget After Budget Implication

In case of workscontract :

Service tax shall becomputed on :

Service tax shall becomputed on :

(A) entered into for

execution of original

works

40% of the total amount

charged for works

contract

SAMEAS IT IS No change

(B) entered into for

maintenance, repairing,

reconditioning,

restoration or servicing

of movable goods

70% of the total

amount charged for

works contract

SAMEAS IT IS Earlier valuation of

service portion in case of

maintenance of movable

and immovable property

is done at different

rates. Hence to bring

more clarity and

removal of disputescategory B and C has

been merged and now

60% valuation rule

stands withdrawn .

(C) entered into for allother cases not covered

above i.e.. in case of

maintenance of

immovable property.

60% of the total amountcharged for works

contract.

Has been omitted


7/18

Compliance enhancement

measuresBefore budget After Budget Implication

Extent of delay Simple interest rate on

delayed payment of

service tax : per annum

Simple interest rate on

delayed payment of

service tax : per annum

Upto 6 months 18% 18% Earlier rate of interest

was same in every case

of delayed payment.Now to encourage

timely payment there is

an increase in rate of

interest according to the

extent of delay i.e.

higher the delay, higher

will be the rate of

interest.

More than 6 monthsbut upto 1 year.

18% 18% for the first 6months and 24%

beyond 6 months.

More than 1 year 18% 18% for first 6

months,24% for next six

months and 30%

beyond 1 year.

Note : As specified in the proviso to section 75, 3% concession on the

applicable rate of interest will continue to be available to the small service providers .

E-payment of service tax is being made mandatory with effect from the 1st Oct 2014. Relaxation from

e-payment may be allowed by the Deputy Commissioner/Asst Commissioner on case to case basis[Notification 09/2014-ST].


8/18

Service tax rules:


- Service provided by a Director to a

body corporate is being brought under

the reverse charge mechanism; service

receiver, who is a body corporate will

be the person liable to pay service tax.

New Provision and it is

introduced in view of the

requests by body corporates

such as Reserve bank of India.

- Services provided by Recovery Agents

to Banks, Financial Institutions and

NBFC is being brought under the

reverse charge mechanism; servicereceiver will be the person liable to pay

service tax.

[Notification 9/2014 -ST and

10/2014-ST]


9/18

Place of Provision of service rules :Before Budget After budget Implication

As per Rule 4 of POP of service

rules,2012,the place of provisionof the services specified in this

rule shall be the location where

the services are actually

performed.

As per clause(a) provided further

that this rule shall not apply in

case of a service provided in

respect of goods that are

temporarily imported into India

for repairs, reconditioning or re-

engineering for re-export, subject

to the conditions as specified in

this regard.

As per clause(a) of rule 4

:Provided further that this clauseshall not apply in the case of a

service provided in respect of

goods that are temporarily

imported into India for repairs

and are exported after the repairs

without being put to any use in

the taxable territory, other than

that which is required for such

repair.

Earlier clause(a) would applied

when conditions as specified inthis regard satisfied. Obviously

there were no conditions

specified in the rule and therefore

now govt has draft the clause(a)

as such that this clause will not

applicable where goods imported

for repair purpose and then re-

export without being put to use

in India except for the use which

is required for such repair

purpose.

Hence now condition is

goods shall be re-exported. And goods shall not be put to

use in India except for such

use which is required during

repairing.

Note : The above clause(a) will not applicable in those cases where goods arrived in India in usual courseof business and are subject to repair while such goods remain in India.


10/18


As per rule 9(d) of POP of

service rules,2012 the place of

provision of service related to

hiring of vessels and

aircraft upto a period of 1month will be the location of

the service provider.

Rule 9(d) in relation of vessels

and aircraft is being excluded

and now the service related to

hiring of vessels and

aircraft whether short andlong term will be covered by

general rule i.e.. Rule 3 and

accordingly the place of

provision will be the location

of servicer receiver.

Earlier Rule 9(d) applied in

case of hiring of these two

item i.e.. vessels and

aircraft but after

amendment the place ofprovision will be decided on

the basis of rule 3.However

Vessels here excludes

Yachts( a recreational boat

or ship) and hence it is

continue to be covered in Rule

9(d).

As per rule 9 (c) of POP

rules,2012 the definition of

intermediary is read as it

means a broker, an agent or

any other person by whatever

name called, who arrangesand facilitates a provision of a

service(main service) between

two or more persons and

does not include

intermediaries in respect of

goods i.e.. a commission

agent, selling agent)

Definition of rule 9(c)

amended and it also includes

intermediaries in respect of

goods i.e.. a commission

agent or selling agent or

consignment agent.

Widen the tax base by

including intermediaries in

respect of goods.


11/18

POT rules,2011Before Budget After Budget Implication

As per rule 7 of POT rules,

Point of taxation, in case ofperson liable to pay tax

under reverse charge or in

case of associated

enterprise, shall be the

date of payment. However

if the payment is not madewithin a period of 6

months from the date of

invoice, the point of

taxation shall be

determined as per Rule

3(main rule).

The first proviso to rule 7

is amended to providethat point of taxation in

respect of reverse charge

will be the payment date

or the first day that

occurs immediately after

a period of 3 monthsfrom the date of invoice,

whichever is earlier.

Only first proviso of Rule 7

is amended i.e..amendment is in relation

of reverse charge not in

case of associated

enterprises.

Moreover this amendment

will be apply only to invoicesraised after 1stOctober,2014.

C C di R l 2004


12/18

Cenvat Credit Rules,2004Before Budget After Budget Implication

- A manufacturer or a service provider

shall take credit on inputs and input

serviceswithin a period of six monthsfrom the

date of issue of invoice, bill or challan

w.ef 1stSeptember,2014.

Newly inserted proviso to

rule 4(1) and fifth proviso to

rule 4(7). Earlier there wasno such time limit for

availing Cenvat credit.

In case of full reverse

charge, service receiver can

avail the cenvat credit on

input services only when he

makes the payment of

invoice value to service

provider.

Service receiver can book the cenvat

credit immediately on availing the

input service.

The condition of

availement has been

withdrawn. However,

there is no change in

respect of partial reverse

charge .

- Re-credit of Cenvat credit reversed

on account of non-receipt of export

proceeds within the specified period

or extended period to be allowed, if

export proceeds are received within

1 year from the period so specified or

extended period. This can be done on

the basis of documents evidencing

receipt of export proceeds.

Newly inserted proviso to

rule 6(8)


13/18


As per notification No

26/2012,in case of goods

transport agency service, service

tax will be charged on 25% value

of service i.e.. there is an option

of availing the abatement on

75% value if CENVAT credit on

inputs and capital goods, used

for providing the taxable service,

has not been taken under the

provisions of the CENVAT Credit

Rules, 2004.

As per notification no 8/2014-ST,

26/2012,in case of goods transport

agency service, service tax will be

charged on 25% value of service

i.e.. there is an option of availing

the abatement on 75% value if

CENVAT credit on inputs and capital

goods used for providing taxable

service has not been taken under

CENVAT credit rules,2004 by

Service Provider only.

Earlier it was not cleared that who

has to comply with the condition

laid down, if the abatement

option is taken, as liability to

discharge whole service tax is on

service

recipients. However, the term by

the service provider has been

inserted to make it clear

that condition for non- availment

of cenvat credit is required to be

satisfied by the serviceproviders only and service

recipient will not be required to

establish satisfaction of this

condition.

As per notification no 30/2012,

renting of vehicle to any personwho is not engaged in the

similar line of business to carry

passenger by individual, HUF,

Firm or AOP and service

receiver is a body corporate

then RCM will be applicable.

The condition against entry no 9 in

notification no 30/2012 is amendedwith effect from 1st October 2014,

to allow the credit of input service

of renting of a motor cab if such

services are received

from a person engaged in the

similar line of business i.e.. a sub-

contractor providingservices of renting of motor cab to

Entry no 9 is amended and

moreover as per substituted entrythe whole cenvat credit is

allowed with respect of input

service received from person

paying S.T on 40% value. On the

other hand in case if abatement is

not availed then cenvat credit

eligibility is restricted to 40% ofcredit of input service.


14/18


- By amending the entry of

serial No. 11 of notification no

26/2012 , tour operator

service providers are also

allowed to avail CENVAT credit

on the input service of

another tour operator, which

are used for providing the

taxable service.

The words input services,

wherever occurring, the words

input services other than the

input service of a tour

operator shall be substituted

with effect from the 1st day of

October, 2014.This is

substituted to avoid cascading

effect of taxation. Now tour

operators are eligible to availcenvat credit on input services

received from other tour

operators.

As per entry no 10 of

notification no 26/2012-in

case of transport of goods by

vessel, service tax will be paid

on 50% value if the condition

of non availement of cenvatcredit is satisfied.

Rate of 50% is reduced to

40%.

Effective service tax will

decrease from the present

6.18% to 4.944%, with

effect from 1st October, 2014.

Si lifi ti f P ti l R Ch


15/18

Simplification of Partial Reverse Charge

mechanism and Advance RulingDescription Before Budget After Budget Implication

Renting of vehicleto any person to

carry passenger by

individual, HUF, firm

or AOP and service

receiver is a body

corporate and noabatement is availed

then liability under

RCM is as :

Serviceprovider

liability

Servicereceiver

liability

Serviceprovider

liability

Servicereceiver

liability

Changes applicablefrom 1stOctober,2014

60% 40% 50% 50%

The resident private limited company is being included as a class of persons

eligible to make an application for Advance Ruling in service tax [Notification

No.15/2014-ST]. This change will come into effect immediately i.e. w.e.f. 11the July,2014

E ti t S i l t


16/18

Exemptions to Social sectorBefore Budget After Budget Implication

No exemption All life micro-insurance schemes approved by

IRDA, where sum assured does not exceed

Fifty Thousand

Rupees are being exempted from service tax

New entry Sl. No.26A of Notification

25/2012-ST amended by Notification

No.06/2014-ST].

No exemption Transport of organic manure by vessel, rail or

road (by GTA) is being

exempted from service tax.

organic manure will be

on par with fertilizer which is already

exempted

No exemption Services by way of loading, unloading,

packing, storage or warehousing,

transport by vessel, rail or road (GTA), of cotton,

ginned or baled, is being exempted

Amendment of entry at Sl. No. 20

& 21 and 40 of notification no

25/2012.

No exemption Services provided by Common Bio-medical

Waste Treatment Facility

operators by way of treatment, disposal of bio

medical waste or processes incidental to

such treatment or disposal are being exempted.

New entry at Sl. No.2B is inserted.

No exemption Service provided by Employees State

Insurance Corporation (ESIC) during

the period prior to 1.7.2012 is proposed to beexempted from service tax.

It may be noted that any service

provided by ESIC

to is already exempt for theperiod commencing from 1.7.2012.


17/18

Technical exemptionsBefore Budget After Budget Implication

No exemption Specialized financial services received by RBIfrom outside India, in the course of management

of foreign exchange reserves, e.g. external asset

management, custodial

services, securities lending services, are being

exempted

New entry at Sl. No. 41 of25/2012-ST.

No exemption Services provided by the Indian tour operators to

foreign tourists in relation to tours wholly

conducted outside India are being exempted

This exemption is available to

Indian tour operators in

cases where they organize

tours for a foreign tourist

wholly outside India, e.g.,service provided to a Sri

Lankan for a tour conducted

in Bhutan. It may be noted

that service provided by a

tour operator in relation to

an inbound or an outbound

tours continue to be liveableto service tax.


18/18

Changes in Service tax law

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