seminar on service tax at jaipur on 20.4.2013 (session i)

Agarwal Sanjiv & CompanyChartered Accountants

Presents

A Workshop On

Service Tax

Conducted byDr. Sanjiv Agarwal

FCA, FCS

Saturday,20th April, 2013Jaipur © Dr. Sanjiv Agarwal

1

SESSION – I

SERVICE TAX

Overview

and

Recent Changes

2

Service Tax Overview & Recent Changes

This Presentation Covers

• Economic Overview

• Taxation of Services – Past and Present

• Major Changes in 2012 -2013

• Changes in Budget 2013 / Finance Bill, 2013

• New Penal Provisions

• Power to Arrest

3

4

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)

5

Share of Services in GDP

6

Share of services in GDP tracked

Year % of GDP 1950 15 1970 33 1980 36 1994 40 1995 41 2000 47 2005 53 2010 57 2012 59

In 2011-12, services have grown by 9.6 % which is more than GDP growth rate

7

Growth in Tax GDP Ratio in India– Irratic and low

Years Tax GDP ratio

1990-91 10.1%

2003-04 9.2%

2007-08 11.9%

2009-10 9.7%

2010-11 10.4%

2011-12 9.9%

2012-13 7.0%*

* Expected

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)

9

Taxonomy of Indian Taxation

TAXATION POWERS OF UNION

Income Tax – on income, except

agricultural income Excise Duty – on goods manufactured Custom Duty – on imports Service Tax – on specified services Central Sales Tax – on inter-state sale of goods Stamp Duty – on 10 specified instruments

Service Tax in India (The Past)

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.

10

Service Tax in India (The Past)

Selective Approach to Service Tax

Taxation by choice Service not defined but taxable service defined. > 120 taxable services [section 65(105)]Resulted in distortions / prejudice Untapped tax potential Economically unjustified Issues – Classification, Illogical definitions,

Constitutional challenges, deemed services etc.

11

Service Tax – The Present

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.

12

13

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Present Taxation of Services

(=)

Service Tax – The Present

New Law of Taxation of Services

Negative list (17 in number) specified through statutory provisions – Section 66D.

‘Service’ defined for the first time. ‘Negative List’ and ‘declared services’ also

defined.

14

Service Tax provisions no longer applicable (w.e.f.

1.7.2012)

Section 65 Old definitions of Services / Taxable Services

Section 65A Classification of Services Section 66 Charge of Service Tax Section 66A Charge of Service Tax on Services

received from outside India.

Import of Service Rules, 2006 Export of Service Rules, 2005

15

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

16

Taxable Services w.e.f. 1.7.2012

All services Taxable [section 65B (44)] Declared services Taxable (section 66E) Services covered under Not Taxable

negative list of services (section 66D) Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions Exempted

17

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

Service Tax Law made shorter by about 40 percent Effective rate of Service Tax @ 12.36 percent w.e.f. 01.04.2012

including education cess. Definition of ‘service’ finds place in statutory provisions All services taxed including a set of services called ‘declared

services’ Negative list of services containing 17 broad service categories

out of Service Tax ambit. Withdrawal of many existing exemptions / abetments or their

rationalization

18

19


Place of provision of service rules determine the location of service and become be basis of taxation.

Withdrawal of export of service rules and import of service rules in view of place of provision of service rules coming into operation.

Concept of taxable territory and non- taxable territory introduced Taxation of Service to be determined by provision of service in

taxable territory and non taxable territory. Basis of charge of Service Tax shifted under new section 66B. Classification of service criteria replaced by new section 66F on

interpretation principles of specified description of services or bundled services.

20


Under new reverse charge mechanism, onus of paying Service Tax

will be shared by service provider and service receiver in case of

specified services.

Service Tax on taxable services provided by service provider located

in Jammu & Kashmir state liable under reverse charge.

Change in valuation rules in relation to works contracts and outdoor

catering / supply of food.

21


Criteria for Rs 10 lakh threshold exemption changed to invoices

Time limit for appeal by assessees to Commissioner (Appeals)

reduced from 3 months to 2 months

Revision Application Authority and Settlement Commission

provisions made applicable to service tax.

Special Audit of Service tax assesses by CAs /CWAs

Recovery of tax dues – legal smartness (Circular dated 1.1.2013)

22


Accounting Codes under new regime ( July – November 2012) Tax Collection 00441089 Other Receipts 00441090 Penalties 00441093 Deduct Refunds 00441094

Restoration of Service Specific Accounting Codes C. No. 165 dated 20.11.2012 / N. No. 48/2012-ST dated 3.12.2012 No change in law ; only for statistical analysis New code created for penalty Registration obtained under the positive list approach continue to be valid Registration under all taxable services to be amended online under

specific head of services For reverse charge, registration should be obtained as service receiver

under respective category. Accounting codes for residual entry

Service Tax 00441480

Interest 00441481

Penalty 00441485


Quarterly Service Tax Returns

April to June, 2012 N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly return

prescribed. Order No. 3/2012 - last date of return was extended upto 25.11.2012

July to October, 2012

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

Circular No. 137 dated 22.02.2013 / Order No. 1 New ST-3 Form is available in offline mode Last 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 To indicate capacity – as provider / under RCM / under partial RCM Filing of return for second half of 2012-13 yet to be notified

23

24

Changes in Budget 2013-14 (Finance Bill,2013)

Stability in negative list maintained with only a few changes.

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.

25


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

All types of testing in relation to agriculture to be in Negative List Existing exemption from Service Tax for low cost housing and

single residential units to continue. Certain exemptions curtailed / withdrawn in relation to auxiliary

education service 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)

Retrospective exemption to Indian railways for services provided between 1st July, 2012 upto 28th February, 2013 to the extent notices have been issued.

26


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.

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 (with carpet area of 2000 sq. ft. or more or value of Rs. 1 crore or more).

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

27


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 default is more than Rs. 50 lakhs.

Advance Ruling can be sought to ascertain eligibility of Cenvat Credit on input services for a manufacturer of excisable goods. (w.e.f 1.3.2013)

Resident public limited companies also allowed to seek advance ruling from Advance Ruling Authority.

28


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.

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.

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

29

Penal Provisions

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

Penalty for Non- registration

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

Now: Penalty 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

Proposed: Penalty which may extend upto Rs. 10000 Penalty not to exceed Rs. 10000 in any case For non payment, there are already strict penalties u/s 76 and

78

30

New Penal Provisions

31


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 official Penalty on any director, manager, secretary or officer of

Company Incharge / responsible to Company for conduct of

business of Company If knowingly involved in specified contraventions Penalty may be levied on more than one person for

single contravention / offences

32


Penalty for Offences by Company Officials (Section 78A)

Specified Contraventions Evasion of Service Tax Issuance 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

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.

33

New Penal Provisions

34

Changes in Budget 2013-14 (Finance Bill, 2013)

Penalty for offences by Company officials (Section 78A)

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

35


Offences & Penalties (Section 89)

Punishment to whoever commits any offence :

a) Knowingly evades payment of Service Tax

b) Wrongly avails / utilizes credit of taxes

c) Maintains false books of accounts/ supplies false information

d) 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…..

36


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 years For any other offence– imprisonment upto 1 year For second or subsequent conviction

For (a), (b), (c), other offences – imprisonment upto 3 years For (d) – imprisonment upto 7 years

37


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 Offences

All offences except cognizable offence as above

Detailed Instructions to be issued

38


Power to Arrest (Section 91)

Similar provisions existed earlier but withdrawn in 1998 Provides power to arrest (where evasion exceeds Rs. 50 lakhs) Covers all classes of assessees Empowers Commissioner of Central Excise He may authorize any officer not below the rank of Superintendent

to arrest Who can be arrested – any person as per Section 89 Trigger 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)

39

Power to Arrest (Section 91) For Cognizable offences

Grounds of arrest to be informed to such personProduced before Magistrate with in 24 hours

Asstt. / 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

Changes in Budget 2013-14 (Finance Bill,

2013)

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

40

**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

Impact of Power to Arrest (Section 91)

Punitive punishments measures Possible harassment of small service providers (sole

proprietors etc.) But tax amount of Rs. 50 lakhs provides a breather May improve compliances Regressive; possible threat to otherwise bonafide cases May increase litigation Need to distinguish between willful and genuine defaults Arrest can be made at the beginning of proceedings

itself, investigation may follow

41

Power to Arrest

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

42

Power to Arrest

46

Changes in Budget 2013-14

(Finance Bill, 2013)Voluntary Compliance Encouragement Scheme, 2013 (VCES)

Chapter VI (Clause 94-104 of Finance Bill, 2013) 17 lakh assessees, 7 lakh returns filed Stop filers / non-filers Only a one time scheme To chase assessees not possible Hope 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

47


Voluntary Compliance Encouragement Scheme, 2013 (VCES) Not applicable to period before 1.10.2007 or after 31.12.2012 Not applicable to cases involving search, audit, investigation,

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

paid To be rejected if audit etc. initiated as on 1st March, 2013 Pay at least half of tax before, 31st December, 2013 Pay 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

48


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

Goods & Service Tax (The Future)

GST: A Common Tax

on

49

Goods Services

50

GST –An Update

Need for Centre to compensate states for loss due to reduction in CST rate

Agreement on CST compensation - Rs 9000 crore provided in Budget

Petroleum products to be under GST; Alcoholic products to be outside GST

Constitutional Amendment Bill, 2011- Report of Standing Committee in this Budget session; further amendments to be made.

Not likely before 2014 LS elections No clear road map and commitment on time lines on GST

implementation Hope for consensus in next few months.

51

GST : What Next

Time to wrap up loose ends GST rate – band may be introduced Consensus required at Empowered Committee on GST to abolish small

taxes Agreement on dropping Dispute Settlement Body GST may be introduced in phases. States to decide / opt out States may be empowered to raise GST rates in case of distress Revenue sharing mechanism to be rationalized What could be a suitable GST rate? Need for drafting a GST Law by States and Centre Next meeting of Empowered Committee on 11-12 May at Mussoorie Dual control not likely - to be controlled by Central / States based on

turnover Composition scheme likely, besides threshold exemption

seminar on service tax at jaipur on 20.4.2013 (session i)

Business