RECENT CHANGES IN SERVICE TAX LAW BY CA. Tony. M.P,THRISSUR.

RECENT CHANGES IN SERVICE TAX LAW

BY

CA. Tony. M.P,THRISSUR

Budget philosophyService tax collection far below its potential.

Law Is complex.

Service tax law different from excise law.

Service tax law completed adulthood by completing 18 years.

Eventual Transition to GST.

Taxation of services based on negative list proposed.

All services taxable except, negative list, exemption list, and abatement.

Harmonization and Simplification ( regn, returns, CENVAT, POT etc.)

Place of Provision of Services Rules introduced.

Rs. 18,660 additional revenue expected. (Total: 124000 Cr.)

Service tax changes effective from

Retrospective changes

01.04.2012

Date of enactment of Finance Bill ( 28-05-2012)

Notified date (01-07-2012)

Rate of service tax

Rate of service tax increased from 10% to 12% wef 01-04-2012[Notification: 2/2012]

why rate increase effective from 01-04-2012 ? Budget not to be passed?

Invoice raised before 01-04-2012, realized on or after 01.04.2012, which rate applies?

advance received prior to 01.04.2012 but service provided on or after 01.04.2012, which rate 10% or 12%?

Rate of service tax

Work Contract Compounding rate also increased from 4.12% to 4.94% wef 01-04-2012

There is an increase of 20% in service tax rate.

(For Example: service tax rate on “construction of residential Complex service” has also gone up by 20% from 2.575% to 3.09%- if land value included; from 3.399% to 4.09% - if land value not included)

The methods for payment of service tax on construction services and work contract services have been changed from 01.07.2012

Rate of service tax

Rate of tax increases in the following cases (wef: 01.4.2012)

(a) Purchase or sale of foreign currency.

(b) Marketing of lottery

(c) Life Insurance service

(d) Transportation of passengers by air.

(f) Reversal of CENVAT Credit under 6(3)(i)

Service Tax Rules - changes effective from 01.04.2012

Partnership firm includes an LLP

Invoice to be issued within 30 days (earlier 14 days)

Banking & Financial Services – invoice within 45 days

No Invoice for minor receipts: If an amount upto Rs.1,000/- is received in excess of the amount indicated in the invoice and the provider has opted to determine POT based on the option in POT Rules, no invoice is required to be issued.

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Service Tax Rules - changes effective from 01.04.2012

Self adjustment of excess tax paid:

Excess amount can be adjusted without any monetary limits provided

excess payment is not on account of interpretation of law, taxability,

classification, valuation or applicability of any exemption Notification.

(Rule 6 (4A))

Small service providers to pay tax on receipt basis:

In respect of individual / firms whose value of taxable services from

multiple locations is Rs.50 lakhs or less in the previous financial year

option available to pay tax upto Rs.50 lakhs in the current financial

year based on receipt of payment.

POINT OF TAXATION

• POT for reverse charge cases: For reverse charge cases, POT shall be date of payment provided payment made within 6 months. Otherwise, on invoice basis.

• POT for “Big firms” on invoice basis:If the value of services exceeds Rs. 50 Lakhs in previous year, POT shall be on invoice basis.

• POT for minor payments: Where payment upto Rs.1,000/- is received in excess of amount indicated in the invoice, POT to the extent of such excess amount, at the option of service provider, shall be determined based on invoice or date of completion of provision of service. (date of payment is ignored)

POINT OF TAXATION

• Best Judgment to determine POT:

New Rule 8A to provide that where the POT cannot be determined on the ground that date of invoice or date of payment or both are not available, Officer may require concerned person to produce accounts, documents, evidence and effective rate of tax prevalent at different point of time shall be applied by an order in writing, to the best of his judgment.

AMENDEMENTS IN FINANCE ACT 1994(effective from 01.07.2012)

• All services become taxable, except:-– Services in the negative list– Exemptions– Abatements / Compounding.

• To make all services taxable, the following existing sections are made inoperative:-– Section 65 (definitions)– Section 65A ( Classification of services)– Section 66 (Rate of service tax)– Section 66A (Import of services)

AMENDEMENTS IN FINANCE ACT 1994(Effective from 01.07.2012)

• To make all services taxable the following sections are introduced:-

– Section 65B (Interpretations)– Section 66B (Charge of service tax)– Section 66C (Determination of place of provision of service)– Section 66D ( Negative list of services- 17 Nos)– Section 66E (Declared services)– Section 66F ( Principles of interpretation of bundled services)


• Joint Reverse Charge mechanism (sec: 68(2))

New concept of reverse charge partly on service provider and partly on service receiver introduced for the following three services:

Serv. Provider Ser. Recever

(a) Renting / hiring of motor vehicle

for carrying passengers

- With abatement nil 100%

- Without abatement 60% 40%

(b) Supply of man power 25% 75%

(c) Works contract 50% 50%

(ONLY IF INDIVI / FIRMS / AOP, PROVIDES TO COMPANIES)

• X• X• X• x

• ion

AMENDEMENTS IN FINANCE ACT 1994(Effective from 28-05-2012)

• Special audit in service tax: (Sec. 72A)

If Commissioner has reason to believe that tax payer has failed to

declare the correct value of service, taken CENVAT by fraud,

services in multiple locations etc, he can order special audit by

CA/CWA even if it is already audited under any other law.

• Time limit to issue SCN extended

The time limit increased from “one year” to “18 Months”

AMENDEMENTS IN FINANCE ACT 1994(Effective from 28-05-2012)

• SCN is statement form: (Sec. 72A)

Follow on notices issued on the same grounds need not repeat the

grounds but only state the amount of tax due for the subsequent

period. Such statement of tax due shall be treated as a notice

issued.

• Penalty waiver for renting service (Sec. 80 (2))

No Penalties under any sections if tax due on 6.3.2012 paid with

interest within 6 months from the date of enactment of Finance Bill.


Time limit for filing appeal goes down

The time limit to file appeal to Commissioner (A) brought down from

3 months to 2 months. Similarly, the earlier condonation limit of 3

months came down to 1 month. This time limits only for orders

passed on or after the enactment of finance Bill. Orders passed

before the enactment of finance Bill, the earlier time limit will

continue.

Time limit for filing appeal by Dept. goes up

The time limit to file appeal by the Department to Tribunal increased

from 3 months to 4 months.

AMENDEMENTS IN FINANCE ACT 1994(Changes with retrospective effect)

• Retrospective exemption to: (secs. 97 & 98)

(a) Management, maintenance or repair of roads for the period from 16.06.2005 to 26.07.2009.Refund to be claimed within 6 months from enactment of Bill.

(b) Management, maintenance or repair of non commercial Government Buildings.for the period from 16.6.2005 till the section 66B takes effectRefund to be claimed within 6 months from enactment of Bill.

(c) Club or association service for recycling of effluents and solid waste.for the period from 16.6.2005.

New system of taxation of services (from 01-07-2012)

• All services to be taxed other than services specified in the negative list – Sec. 66B

• Negative list (17 Nos) specified through statutory provisions – Sec. 66D

• Some more services (39 Nos) exempt through Mega Notification No.25/2012 which shall come into force after Section 66B comes into force.

• In addition to exemptions in mega exemption notification, several other exemptions are also issued.

• Section 65, 65A, 66 and 66A have no application after 01.07.2012

“Service” defined in sec. 65B(44)

• An activity carried out by a person to another for consideration and includes a declared service.

• Excludes an activity which constitutes transfer of title in goods or immovable property by way of sale, gift or in any other manner.

• Excludes deemed sale of goods under 366(29A) of constitution.

• Excludes an activity which constitutes transaction in money or actionable claim.

• Excludes provision of service by an employee to an employer in the course of or in relation to its employment.

• Excludes Court / Tribunal fees.


• Section 65B(44) not to apply to:-

• functions performed by MP / MLA / Members of panchayat / Members of Municipality and Members of Local authority who receive any consideration in performing the functions of that office as such member.

• Duties performed by constitutional authorities in that capacity, not a service.

• Duties performed by chair person / member / director of a Government body who is not deemed as an employee is excluded.


• Unincorporated associations or body of persons and a member shall be treated as distinct persons.

• Establishments in taxable territory and establishment in non-taxable territory of same person is treated as establishment of distinct persons.

» Taxable territory means the territory to which the provisions of this chapter apply.

» Non-taxable territory means the territory which is outside the taxable territory.

Main items in the negative list

• Government services excluding certain specific services.• Services relating agriculture• RBI• Foreign diplomatic mission in India• Trading of goods• Any process amounting to manufacture or production of goods• Selling of space or time slots for advertisement other than

radio / TV• Toll charges• Betting, gambling or lottery

Main items in the negative list

• Admission to entrainment events / amusement facilities.• Distribution of electricity• Education• Residential renting

• Financial services of lending, advances with consideration of interest. Purchase/sales of foreign currency among banks/auth. Dealers.

• Transportation of passengers• Transportation of goods• Funeral, crematorium or mortuary services.

Declared services (Sec. 66E)

• Renting of immovable property • Construction of a complex prior to issue of completion certificate.• Temporary transfer or permitting use or enjoyment of IPR.• Software related services • Agreeing to refrain from an act or tolerate an act or a situation or to

do an act.• Hire / lease / license of goods without transferring the right to use

such goods.• Activities in relation to hire purchase or any system of payment by

instalments. • Service portion in the execution of works contract.• Service portion in supply of food and other article.

Place of provision of Services Rules, 2012

• Section 66C

• Detailed Guidance paper also introduced. • Will be effective from 01.07.2012.

• Export / Import of services Rules will be withdrawn

• This rule will determine the taxing jurisdiction for service tax.

• It will also help in GST introduction to tax inter-state services.


• Place of provision of service generally – Location of service receiver. (Rule 3). (if location not available, location of service provider)

• Performance based services – Location of performance

• Immovable property related services – Location of immovable property.

• Services relating to events – Location of event held.


• Services provided at more than one location – Location in the taxable territory where the greatest proportion of service is provided.

• Services where both service provider and receiver are located in the taxable territory – Location of service receiver

• Specified services – Location of service provider.

• Goods transportation services – Place of destination of goods. (In GTA Service – Location of the person liable to pay tax


• Passenger Transportation service – Place were the passenger embarks.

• Services provided on board a conveyance – Location of first scheduled point of departure.

• Services for certain purposes ( to avoid double taxation or double non taxation) – Central Govt can notify the place of enjoyment of such service.

• ORDER OF APPLICATION OF THIS RULE: (notwithstanding anything stated in any rule where the provision of a service is determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.)

Changes in Valuation Rules(The changes in this rule is only when the Negative list

based taxation starts, i.e, 01.07.2012)

VALUATION FOR WORK CONTRACT SERVICE (R 2A)

- Gross value of contract Less Value of materials

Or- Original Work - 40% of total is value of service- Repairs to goods - 70%- Other works - 60%

partial CENVAT available.

FMV of free supply of goods or services by service receiver to be added to gross amount

Changes in Valuation Rules(The changes in this rule is only when the Negative list

based taxation starts, i.e, 01.07.2012)

VALUATION FOR SUPPLY OF FOOD (R 2B)

- In Restaurant – 40% of total is value of service

- As outdoor caterer – 60%

Mega exemption Notification( Notification No : 25/2012)

Presently there are 88 exemption notifications

Out of which 39 exemptions are retained with some modification and included in the mega notification.

In addition, some more exemptions are also modified and issued as separate notifications.

Many Other exemption notifications have been withdrawn (Notification: 34/2012)

The mega exemption notification effective from 1st July.

Main items in Mega exemption Notification

Services to UN or international Organisation

Health care services

Veterinary clinic

Charitable entities (12AA + engaged in charitable

activities)

Religious entities ( renting and conduct of religious

ceremonies)


Legal service (except, provided to business entities having

turnover Rs. 10 lacs - reverse Charge)

Technical testing of drugs by clinical research

organisations ( approved by Drug Controller G of India)

Training in recreational activities (arts, culture, sports)

Services to / by Educational institutions by way of auxiliary

education services and renting of imm. Property)

Services to a recognised sports body (players etc)


Sponsorship of sporting events organised by certain

recongised entities.

Construction services to Government (Non commercial in

nature)

Construction service for infrastructure. (religious entities

with 12AA included)

Construction for transport, housing, agriculture. (single

house exempted)

Temporary transfer of copyright ( relating to original literary, dramatic, musical, artistic or films)


Performing artists in folk or classical arts (brand ambassador excluded)

News Agency (including independent journalists)

Short term accommodation upto Rs. 1000 per day tariff.

Hotels other than bar attached hotels

Transportation of certain goods by rail or vessel.

Exemption to GTA

Hiring of vehicles to State Transport Undertakings and GTA.


Transportation of passengers (air-specified states, contract carriage

other than tours, hire, charter etc )

Vehicle parking to general public

Specified services to Government.

General Insurance under certain schemes.

Services by incubatees in TBI

Service by an unincorporated body to its own members in certain

Cases (Trade Unions, for exempted services or RWA)


Services by certain persons

including selling of SIM Cards & Recharge voucher coupons.

sub contractors providing WCS to main contractor engaged in exempted WCS )

Intermediate production process as job work in certain situations

Business Exhibition held outside India.

Public Telephone service.

Main items in Mega exemption NotificationSlaughtering of animals

Service received from a person located in a non taxable territory by - Government or individual for non commercial purpose.- 12AA regd entitity engaged in charitable activities.- a person located in a non taxable territory.

Public libraries

Services by ESI Corporation to employees covered under the Act.

Transfer of a going concern as a whole or an independent part.Public conveniences like bathrooms, urinals etc.

Service by Government authority of any function entrusted to a municipality.

Other exemption Notifications

Basic exemption to small service providers continues.

Exemption on services provided to SEZ

Services provided to Exporters.

Property tax paid on immovable property.

Reverse Charge( Notification No : 15/2012)Mutual fund distributors are removed from reverse charge and given full exemption from service tax.

Following new items are included:-

- Services provided by an individual advocate / arbitral tribunal

- Support services by Government to any business entity

- Renting of motor vehicles to carry passengers- Indi etc to co.

- Supply of man power- individual / firm etc to companies

- Work contract by an individual / firm etc to companies.

This notification will be effective from 01.07.2012

Proposed simplification

• Simplified common registration format for central excise & service tax.

• Common & One page return format for Central Excise & Service tax

• Periodicity of return filing & payment of tax proposed to be monthly for larger assessees and Quarterly for others.

These proposed changes are only in draft form and not yet introduced.

Thank youfor your participation

in this discussion

RECENT CHANGES IN SERVICE TAX LAW BY CA. Tony. M.P,THRISSUR.

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