Workshop on Understanding the Amended law of Service Tax dated 03.09.2014 Session 2

CORPORATE KNOWLEDGE FOUNDATION

Presents

Workshop

On

Understanding the Amended Law of Service Tax

Conducted by

Dr. Sanjiv AgarwalFCA, FCS

Wednesday, 3rd September, 2014 @ Mumbai © Dr. Sanjiv

Agarwal

1

Session – II

Major changes in

Service Tax

– Finance Act, 2014

2

MAJOR CHANGES IN SERVICE TAX – FINANCE

ACT, 2014

This presentation covers -

• Changes in Negative List

• Exemptions – What’s out / What’s new / Amendments

• Higher Interest on Delayed Payment

• Changes in POT Rules and POP Rules

• Mandatory Pre-deposit / Stay of Demand

• Consequences of Amendments in Reverse Charge and Abatement

• Change in Valuation of Works Contract

• E-payment of Service Tax

• Amendments in CENVAT Credit

• Other Miscellaneous Changes

33

4

CHANGES IN NEGATIVE LIST

Selling of space for advertisements in print media – Clause (g) ( w.e.f. 1.10.2014)

Prior to amendment This entry should qualify the following tests –

involves selling of space (in case of print media) involves selling of time slots ( in case of electronic media) purpose of selling time slots / space to be for

advertisements (publicity / sales promotion, awareness etc.)

excludes broadcast by radio or television ( i.e. broadcast will be taxable)

After amendment Negative list will only include selling of space in print media Other forms of space selling for advertisement to be taxed

5

CHANGES IN NEGATIVE LISTMeaning of Advertisement [ Section 65B(2) ]

• Advertisement means - any form of presentation for promotion of, or bringing awareness about, any event, idea, immovable property, person, service, goods or actionable claim through newspaper, television, radio or any other means but does not include any presentation made in person;

• Types /mode of advertisement which will be taxable now– Internet (i.e. websites ) Theaters , out of home media Film screens Bill boards, conveyance Building, hoardings, Tickets, Automated Teller Machines (ATM), cell phones Commercial publications (i.e. yellow pages/ business directories etc.) Aerial advertisement etc.

6


Print media [ Section 65B(39a) ]

• Print media means “Book” and “Newspaper” as defined in section 1(1) of the Press and

Registration of Books Act, 1867

• Books includes –

Every volume / part / division of book

Pamphlet in any languages

Every sheet of music

Chart / plan separately printed

but excludes –

Business directories,

Yellow pages

Trade catalogues meant for commercial purposes

• Newspaper means –

Printed periodical work (any frequency)

Containing public news /comments on public news

7


Services of transportation of passengers – Clause (o)

( w.e.f. 1.10.2014)

Services of transportation of passengers, with or without accompanied belongings, by-

• a stage carriage;

• railways in a class other than

(i) first class; or

(ii) an AC coach; ( exempt upto 30.9.2012)

• metro, monorail or tramway;

• inland waterways;

• public transport, other than predominantly for tourism purpose, in a vessel,

between places located in India; and

• metered cabs, radio taxis ( w.e.f. 1.10.2014) or auto rickshaws.

8


Section 65B already defines the following terms –

• Stage carriage (clause 46)

• Inland waterways (clause 29)

• Metered cab (clause 32)

• Services provided by radio taxi / radio cabs whether or not air-conditioned to

be taxable w.e.f. 1.10.2014

• Radio taxi has been defined under clause 2(za) of N. No. 25/2012-ST, dated

20.06.2012

• Radio taxi / radio cabs includes a cab –

Covered by two-way radio communication with a central control office

Enabled for tracking by using GPS / GPRS

• Abatement @ 60% available from 1.10.2014

9

EXEMPTION S –WHAT’S OUT

Services by way of technical testing / 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 - Entry ( 7) ( upto 10.07.2014)

• Exemption withdrawn w.e.f. 11.07.2014

• However, small scale exemption available to the assessee

10

EXEMPTION S –WHAT’S NEW Services provided -

by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of-

treatment or disposal of bio-medical waste or the processes incidental thereto,

would be exempt from service tax. - Entry (2B)

• Bio-medical waste includes – Putrescible infectious Potentially infectious Packaging Unused bandaged infusion kits Laboratory waste containing bio-molecules / organisms etc.

• Services relating to disposal of bio-medical waste treatment are also exempt

(Applicable w.e.f. 11.07.2014)

11

EXEMPTION S –WHAT’S NEW

Services by a specified organization in respect of a religious

pilgrimage facilitated by the Ministry of External Affairs of the

Government of India, under bilateral arrangement – Entry (5A)

Two conditions should be fulfilled –

• Organization must be a specified one

• Services should be religious pilgrimage facilitated by MEA - GOI

Specified organization as per Clause 2(zfa) means

(a) Kumaon Mandal Vikas Nigam Limited, a Government

of Uttarakhand Undertaking; or

(b) ‘Committee’ or ‘State Committee’ as defined in section 2 of the Haj

Committee Act, 2002

(Vide N. No. 17 /2014 –ST dated 20.08.2014 w.e.f. 20.08.2014)

12


The services of –

loading

unloading

packing

storage and

warehousing

of

rice, and

cotton, whether ginned or baled

shall be exempt from service tax. – Entry (40)

• 'cotton, ginned or baled' is not an agricultural produce in term of definition in section 65B(5)

of the Finance Act, 1994

• Prior to 11.07.2014, services of loading, unloading, packing, storage etc. relating to only

rice were exempt w.e.f. 17.02.2014(Applicable w.e.f. 11.07.2014)

13


Exemption from Service Tax to Forex services -

received by RBI

from outside India

in relation to management of foreign exchange reserves –Entry (41)

• This exemption would cover –

external asset management

securities handing services

custodial services etc.

• Prior to this exemption, RBI was liable to pay Service Tax under reverse

charge mechanism.


14


Services provided by an Indian tour operator to foreign tourist

in relation to foreign tours wholly conducted outside India

shall be exempt from Service Tax - Entry (42)

• Conditions to be satisfied for availing this exemption –

Services must be for tour wholly outside India (foreign tours)

Tourist must be foreign tourist

Services must be provided from India

Indian tour operator

• Services in relation to an inbound or an outbound tour are liable

for Service Tax


15


Tour Indian Tourist Foreign Tourist

Wholly outside

India

Taxable Exempt

Partly in India and

Partly outside

India

Taxable Taxable

Wholly in India Taxable Taxable

Taxability of foreign tours by Indian tour operator

16

AMENDMENT S IN EXEMPTION S Education related services

Services provided - Entry (9) ( w.e.f. 11.07.2014)

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

transportation of students, faculty and staff;

catering, including any mid-day meals scheme sponsored by

the Government;

security or cleaning or house-keeping services performed in

such educational institution;

services relating to admission to, or conduct of examination

by, such institution

17

AMENDMENT S IN EXEMPTION S

Education related services

• Services (not all) provided to eligible educational institutions are

exempted

• All services provided only to its students, faculty and staff by an

eligible educational institution would be exempt

• Exemption to services received by educational institution restricted

only to specified services

• Services provided by way of renting of immovable property to

educational institutions – exemption stands withdrawn

• Concept of 'auxiliary educational services' under para 2(f) of N.

No. 25/2012-ST dated 20.06.2012 stands deleted.

18


Education related services

• Services exempted prior to 11.07.2014 but now taxable -

Any outsourced services relating to any skill, knowledge, education or development of

course content or any other knowledge – enhancement activity, whether for the

students or the faculty, or any other knowledge – enhancement activity, whether for

the students or the faculty and

any other services which educational institutions ordinarily carry out themselves but

may obtain as outsourced services from any other person.

Services provided to other institutes

• ‘Educational institution' means an institution providing services specified in clause (l) of

section 66D of the Finance Act, 1994. i.e., pre-school, education upto higher secondary,

education as a part of curriculum etc. - Para 2(oa) of N. No. 25/2012-ST, dated

20.06.2012.


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Accommodation services

Services by way of renting of a hotel, inn, guest house, club,

campsite, by whatever name called or other commercial places

meant for residential or lodging purposes, having declared tariff

of a unit of accommodation below rupees one thousand per day

or equivalent – Entry (18)

• Prior to 11.07.2014, services by way of renting of a hotel, inn, guest house,

club, campsite or other commercial places mean for residential or lodging

purposes, having declared tariff of a unit of accommodation below Rs. 1,000

per day or equivalent, were exempt.

• Words 'way of renting of' have been deleted; and words 'or other commercial

places' have been substituted by "by whatever name called".

20


Accommodation services

• Services by way of renting of any place meant for residential / lodging purposes

having declared tariff of Rs.1000 or above are covered under Service Tax.

• Dharmashalas, ashram or any such entity offers accommodation - taxable

• Renting of vacant land or buildings for hotels would continue to be taxable

irrespective of the hotel's declared tariff


21


Scope of Exemption Expanded

• Services by way of transportation by rail / vessel of -organic manure, cotton, ginned or baled

shall be exempt from Service Tax – Entry (20)

• Services provided by GTA by goods carriage of organic manure, cotton, ginned or baled

shall be exempt from Service Tax – Entry (21)


22


Exemption Curtailed

Transport of passengers, with or without accompanied

belongings, by -

Non-air conditioned contract carriage other than radio

taxi, for transportation of passengers, excluding

tourism, conducted tour, charter or hire

• Exemption withdrawn for services of transportation of passengers by an air-

conditioned contract carriage

• Prior to such amendment all contract carriages whether air-conditioned or

non air-conditioned were covered.


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AMENDMENT S IN EXEMPTIONS

Exemption Curtailed

• The following functions of municipality are exempted from service tax-

water supply,

public health,

sanitation conservancy,

solid waste management or

slum improvement and up-gradation - Entry (25)

• Prior to such amendment, any activity in relation to any function ordinarily

entrusted to municipality under article 243W of the Constitution (urban

planning, planning for economic and social development, fire services, etc.)

were covered under exemption


24

AMENDMENT S IN EXEMPTIONS

Scope of exemption expanded

Services of life insurance business under scheme of life micro-insurance

product as approved by the Insurance Regulatory and Development

Authority, having maximum amount of cover of fifty thousand rupees is

exempt from Service Tax – Entry (26A)

• Life micro-insurance product is defined under para 2(xa) of N. No. 25/2012-ST

dated 20.06.2012

• Life micro-insurance product means – any term insurance contract with or without return of premium, any endowment insurance contract / health insurance contract, with or without

an accident benefit rider, either on individual or group basis, as per terms stated in Schedule-II appended to these regulations


25

INTEREST PROVISIONS (SECTION 75)

S. No. Period of Delay Rate of simple interest (p.a.)

1 Upto 6 months 18%

2 Between 6 to 12 months 18% for the first 6 months

+ 24% for the remaining

period

3 More than 12 months 18% for the first 6 months

+ 24% for the next 6

months + 30 % for the

remaining period


26

INTEREST PROVISIONSExample of new Interest provision (as per TRU)

Delay - 15 months; Amount – Rs.1 lakh

• 3 % interest rate concession u/s 75 still continue to specified persons

• This rate structure will not be applicable on VCES cases as interest @ 18% p.a. is payable under the scheme which ends on 31 December, 2014

• Upto 30.09.2014, the rate of interest is 18% p.a.

• The rate of interest is simple interest per annum

If paid prior to 1.10.2014 –

Interest @ 18% p.a. for 15 months Rs. 22,500/-

If paid after 1.10.2014 (1.08.2013 to 1.11.2014 ) – Period upto 30.09.2014 ( 14 months @ 18% p.a.) 1 month @ 30% p.a. (as delay is > 1 year)

Rs. 21,000/-Rs. 2,500/-

Rs. 23,500/-

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SOME MORE EXAMPLES OF INTEREST RATES

Due Date

Date of Payment

Delay Period

@ 18% @24% @30%

1.6.2014 31.10.2014 5 5 months - -

1.6.2014 30.05.2015 12 6 months 6 months

-

1.6.2014 31.07.2015 14 6 months 6 months

2 months

1.1.2014 30.09.2014 9 9 months - -

1.10.2013

31.10.2014 13 12 months - 1 month

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CHANGES IN POT RULES

Rule 7 - Determination of Point of Taxation in case of specified services or

persons (Reverse charge mechanism)

• POT in respect of services covered under RCM shall be earlier of :

the date of payment, or

the first day after three months from the date of invoice (i.e., where payment has

not been made)

• Prior to this amendment, time period for payment was six months.

• Prior to this amendment, in case when payment was not made within prescribed

period ( 6 months) , rule 3 (general rule) was applicable.

• W.e.f. 1.10.2014, Rule 3 will not be applicable in case of delayed payment, as earlier

• This change will be applicable only to the invoices issued on or after 01.10.2014

(Transitional Rule No. 10)


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CHANGES IN POT RULES

Particulars Period Rule POT

Prior to 1.10.2014 Payment made

Payment made

Within 6 months

After 6 months

7

Proviso to Rule 7 – Rule 3

Date of Payment

• Date of invoice raised (if invoice raised within specified period) • otherwise date of completion of service

W.e.f. 1.10.2014 Payment made

Payment made

Within 3 months

After 3 months

7

Proviso to Rule 7

Date of Payment

The next date immediately following the said period of 3 months

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CHANGES IN POP RULES

Rule 4 - Place of Provision of Performance Based Services

• Services relating to re-engineering and re-conditioning of imported goods will

no longer be excluded under Rule 4(a).

• Prior to this amendment, re-engineering and re-conditioning were covered

under Rule 3 and POP was the location of the service receiver

• W.e.f. 1.10.2014, re- engineering and reconditioning of imported goods will

covered under rule 4 and POP shall be the location where the services are

actually performed

• Only repairs of goods are now covered

• Goods repaired should not be put to use in India

• Use of such goods for the purpose of repair itself is allowed

• This exclusion is not applicable to the goods that arrive in the taxable

territory in the usual course of business

(applicable w.e.f. 1.10.2014)

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Rule 9 – Place of Provision of Specified Services

Intermediary redefined-

Intermediary means a broker, an agent or any other person, by

whatever name called, who arranges or facilitates a provision

of a service or a supply of goods, between two or more

persons, but does not include a person who provides the main

service or supplies the goods on his account

• The term “intermediary” has been expanded to cover the services in

relation to supply of goods

• In case of intermediary of goods, POP shall be the location of

service provider and their services shall now be taxable (earlier out

in Rule 3)

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• Intermediaries for goods includes commission agent / broker/ agents

working as middlemen between vendors and prospective buyers

• Prior to 1.7.2012, intermediaries covered under business auxiliary services

• W.e.f. 1.7.2012 to 30.09.2014 covered under rule 3 of POP rules and out

of service tax net – location of service receiver

• W.e.f. 1.10.2014 covered under rule 9 of POP rules and liable to pay

service tax even in case of export of service

• In case of foreign commission agents providing services to Indian

principal, payment has to be made in foreign exchange but no service tax

liability – location of service provider being outside India


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Clause (d) substituted as under -

Service consisting of hiring of all means of transport other than,-

(i) aircrafts, and

(ii) vessels except yachts,

upto a period of one month.

• Services of hiring of aircraft, vessels ( except yachts) upto a period of one month are

excluded from Rule 9(d) of POPS Rules

• POP will be the place of service recipient in case of services of hiring of vessels

(excluding yachts) / aircraft ( whether short term or long term)

• Transportation by yachts are still covered under rule 9 (service provider will be liable )


34

MANDATORY PRE-DEPOSIT /STAY OF DEMAND

• The amount of Pre-deposit payable would be subject to a ceiling of

Rs. 10 Crore

• Amendment is prospective and not applicable to appeals and stay

application filed and pending for decision prior 06.08.2014

Order passed by Appellate Authority % of duty and / or penalty

required as pre-deposit

Any officer of a rank lower than

Commissioner of Central Excise

Commissioner

(Appeals)

7.5 (maximum of Rs. 10

crores)

Commissioner of Central Excise CESTAT 7.5 (maximum of Rs. 10

crores)

Commissioner (Appeals) CESTAT 10 (additional over and

above 7.5% paid earlier)

(maximum of Rs. 10 crores)

35


• “Duty demanded” shall include—

amount determined under section 11D;

amount of erroneous Cenvat credit taken;

amount payable under rule 6 of the Cenvat Credit Rules, 2001 or

the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.”

• In case of appeal against demand and penalty, pre-deposit is of

7.5% or 10% of the demand

• In case of appeal against penalty, pre-deposit is of 7.5% or 10% of

the penalty

• Stay application may not be required to be filed before any

appellate authority henceforth

36


Impact of new section 35F / 35FF (Central Excise)

• Stay application no longer required at both stages

• Will reduce appellate work significantly as more than 50% pendency is

on account of stay applications

• Will discourage discretion and arbitrariness in decisions in granting pre-

deposit

• Ever alternative remedy in writ not possible now.

• Will address issue of alleged corruption

• Will avoid conceive recoveries

• Saving of avoidable litigation from assessees view point

• Win- win situation for both the parties

37


Impact of new section 35F / 35FF

• But what happens to genuine hardship cases?

• No stay even in procedural contraventions!

• Departmental appeals against refunds –stay?

• Hardship on sick units / BIFR cases?

• Injustice to assessee in blatantly bad orders

• Rate of interest may be @ 6% to 36% as notified by the Central Government

from the date of payment of the amount till the date of refund of such amount on

the success of appeal

• Vide N. No. 24/2014-CE(NT) dated 12.08.2014, rate of interest is 6% p.a. for the

purpose of section 35FF.

• Earlier , interest was payable after 3 months of appellate order

38

TAX EVASION TRAIL

Obligation to furnish Information (Section 15A of Central

Excise)

• ‘Third eye’ to check tax evasion trail u/s 15A and 15B to call for third party

data, mandatory information filing and penalties (first time in indirect

taxes)

• Specified persons to furnish information return containing details of tax,

transactions, bank account, consumption, investment etc.

• Period, time, form (including e-form), manner and to whom - to be

prescribed

• Persons include assessee, local authority, State Government, banks,

Income Tax authority, Electricity Companies/ Boards, Registrar (Property,

Companies, and Motor vehicles), stock exchanges, depository etc.

• Defective information to be rectified in 30 days

• Notice to be served for non-supply of information; to be submitted within

90 days thereafter

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TAX EVASION TRAIL

Penalty for failure to furnish information (section 15B of Central Excise)

• Penalty applicable to any or all specified

assessees- no exemption to any authority /

persons

• Penalty on failure to furnish required

information after notice

• Monetary penalty of Rs. 100 per day of such

failure till such failure continue

• Information authority to be notified

40

CHANGES IN REVERSE CHARGEDirector ‘s services

• Director of body corporate covered under RCM

• 100% Liability has to be discharged by the body corporate not by director of body corporate


Recovery agents

• Services of recovery agent to a banking company, financial institution / non-banking financial company now under RCM

• 100% liability has to be discharged by service provider being banking company, financial institution, non-banking financial company


Renting of motor vehicles

• Renting of motor vehicles service (without abatement) – ratio changed to 50:50 to be shared between service provider / recipient


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CHANGES IN ABATEMENTS

• In case of GTA service, the condition is that Cenvat credit on inputs, capital

goods and input services used for providing the taxable service should not be

taken by the service provider

• Prior to this, there was a confusion that whether service receiver or service

provider should not take Cenvat credit

• Services provided by air-conditioned contract carriage has been made taxable

and an abatement of 60% shall be available subject to fulfillment of conditions

• The abatement on transport of goods by vessel has been increased by 10 % and

effective tax rate is now 4.94% w.e.f. 1.10.2014 ( prior to 1.10.2014 – 6.18%)

• Radio taxi is allowed abatement of 60% and effective rate is 4.94% w.e.f. notified

date. (1.10.2014)

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CHANGE IN VALUATION OF WORKS CONTRACT

Upto 30.09.2014, Valuation under Rule 2A is as follows-

Where works contract is for…

Value of the service portion shall be…

Execution of original works forty percent of the total amount charged for the works contract

Maintenance or repair or reconditioning or restoration or servicing of any goods

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

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

43

CHANGE IN VALUATION OF WORKS CONTRACT

• Category B & C of works contract service under Rule 2A(1)(ii) has been merged and service tax has to be paid @ 70% of the value

• For valuation of work contract, now only two categories will exist –


Original work 40% of the total amount charged

Other than original work ( i.e., maintenance or repair or reconditioning or restoration or servicing of any goods or maintenance or repair or completion and finishing services such as glazing / plastering / floor and wall tiling etc.

70% of the total amount charged

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E-PAYMENT IN SERVICE TAX

• Mandatory e-payment for all assessees w.e.f. 1.10.2014

• Amendment in Rule 6(2) of Service Tax Rules, 1994

• Payment to be made electronically through internet banking

• Relaxation from e-payment may be allowed by jurisdictional

AC / DC on a case to case basis

• Permission to allow payment other than by internet banking

only after reasons to be recorded in writing.

45

AMENDMENT IN CENVAT CREDIT RULES

Rule 4 – Conditions for allowing Cenvat Credit

• Credit on input and input services can be availed within a period of 6 months from the date

of invoice / challan / other specified documents (applicable w.e.f. 1.09.2014)

• In case of 100% RCM, credit can be taken immediately on the payment of tax

irrespective of payment or non-payment of value to the service provider ( applicable

w.e.f. 11.07.2014)

• In case of 100 % RCM, no reversal of Cenvat credit required if payment is not made

to the service provider within 3 months from the date of invoice ( applicable w.e.f.

11.07.2014)

• Change in partial RCM only in relation to time (payment has to be made to service

provider within 3 months)

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Particulars Payment to Service provider

Service tax payment

Credit taken Reversal

When service tax is paid by service provider

Within 3 months

After 3 months

Alongwith invoice payment


Immediately on receipt of services


No

Yes

When service tax is paid by service receiver

Within 3 months

After 3 months

made within 3 months

After 3 months

Date of payment

Date of payment

No

No

When service tax is paid partly by service provider and service receiver

Within 3 months

After 3 months





No

Yes

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Rule 6 – Obligation of a manufacturer or producer of final products

and a provider of output service

• Re-credit of exports related credit reversals permitted only if proceeds

are collected within the time period allowed by RBI plus an additional

one year

• If service provider avails abatement of renting of motor vehicle ,

receiver can take 40% Cenvat credit of input service without being

required to establish satisfaction of the condition by the service

provider

• Tour Operator service providers allowed to avail Cenvat credit on input

service of another tour operator used for providing taxable service

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Other changes

• LTUs are no longer eligible to transfer credit availed on or after 11.07.2014 to its units

• Manner for distribution of credit by input service distributor has been clarified

• Availment of Cenvat credit in relation to GTA service clarified and restriction (on not taking

credit on inputs, capital goods and input services) is applicable only to service provider

( applicable w.e.f 11.07.2014)

• Cenvat credit shall be available for rent-a-cab services received by the main contractor from a

sub-contractor. (applicable w.e.f. 1.10.2014)

• Power to impose restrictions in certain cases will now cover any service provider [ Rule

12AAA w.e.f. 25.08.2014 ]

• A Service Tax Certificate for Transportation of goods by Rail (STTG certificate) issued by the

Indian Railway, alongwith photocopies of Railway Receipt (RR) mentioned in STTG certificate

is a document on which Cenvat credit shall be taken by the manufacturer or the provider of

output service [ vide N. No. 26/2014 –CE (NT) dated 27.08.2014]

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OTHER MISCELLANEOUS CHANGES

• Rate of exchange u/s 67A is to be determined as per rules to be prescribed

• Presently, the rate of exchange is the rate notified u/s 14 of the Customs Act,

1962

• Time limit has been recommended for adjudication of SCN within–

Six months (of SCN) extended period not invoked (18 months)

One year (of SCN) extended period invoked

• Section 80 benefit of penalty waiver not available in case of serious offences

of suppression / misstatement

• JC/AC/ any other officer notified by CBEC empowered to authorize any

person to undertake search and seizure

• Power to recover dues of a predecessor from the assets of a successor

which are purchased from the predecessor (section 87)

Workshop on Understanding the Amended law of Service Tax dated 03.09.2014 Session 2

Law

Transcript of Workshop on Understanding the Amended law of Service Tax dated 03.09.2014 Session 2