service tax exemptions including sez

7/31/2019 Service Tax Exemptions Including SEZ

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SERVICE TAX EXEMPTIONS INCLUDING SEZ

JULY 24, 2012

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CONFEDERATION OF INDIAN INDUSTRY


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DISCLAIMER

This presentation provides general information existing as at the

time of preparation. The presentation is meant for general

guidance and no responsibility for loss arising to any person acting

or refraining from acting as a result of any material contained in this

publication will be accepted by BMR Advisors/ Legal. It is

recommended that professional advice be taken based on thespecific facts and circumstances. This presentation does not

substitute the need to refer to the original pronouncements


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CHARGEABILITY

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CHARGEABILITY

Service tax is attracted on ALL SERVICES Except above

Services provided in a non-taxable territory not liable to taxNo requirement to fulfil the export conditions

Services Agreed to be provided also taxable

Not aservice

NegativeList

Otherexemptions

MegaExemption

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EXEMPTIONS UNDER SERVICETAX

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OVERVIEW

Exemptionsunder new law

Continuing exemptions

Exemption Notifications Rescinded

Mega exemption notification

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Exemptionsnecessitatedefinitions


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EXEMPTIONS UNDER SERVICE TAX

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Service TaxExemptions

ServiceProvider

basedexemptions

ServiceRecipient

basedexemptions

Activitybased

exemptions

Sovereignfunctions ofGovernment

Export of

services

Subcontracts /

Intermediaryservices


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SOVEREIGN FUNCTIONS OFGOVERNMENT


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SOVEREIGN FUNCTION BASED EXEMPTIONS

Services by a governmental authorityby way of any activity inrelation to any function entrusted to a municipalityunder article243 W of the Constitution

Municipalities entrusted with powers and authority to enable them tofunction as institutions of self-government

Performance of functions and the implementation of schemes asmay be entrusted to them including those in relation to the matterslisted in the Twelfth Schedule

Services by way of public conveniencessuch as provision offacilities of bathroom, washrooms, lavatories, urinal or toilets

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SERVICE RECIPIENT BASEDEXEMPTIONS


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SERVICE RECIPIENT BASED EXEMPTIONS

Services provided to the United Nations or a specifiedinternational organization

Services Provided to Government

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ACTIVITY BASED EXEMPTIONS

Health care, charitable and religious activities

Sports and Educational services

Construction Services

Transportation services

Business related exemptions

Other Exemptions

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SERVICE PROVIDER BASED EXEMPTIONS

Services Provided by Arbitral Tribunal and AdvocatesServices Provided by a person in a non-taxable territory

Services provided by an incubateeup to a turnover of INR 50lacs in a financial year subject to conditions

Services by Employees State Insurance Corporationtopersons governed under the Employees Insurance Act, 1948

Services by a performing artist in folk or classical art forms of(i) music, or (ii) dance, or (iii) theatre, excluding services providedby such artist as a brand ambassador

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SERVICE PROVIDER BASED EXEMPTIONS

Service by an unincorporated body or a non- profit entityregistered under any law for the time being in force, to its ownmembers by way of reimbursement of charges or share ofcontribution -

as a trade union;

for the provision of carrying out any activity which is exemptfrom the levy of service tax;

up to INR 5000 per month per member of a housing society ora residential complex

Services by way of collecting or providing news by anindependent journalist, Press Trust of India or United News ofIndia

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SUB CONTRACTS /INTERMEDIARY SERVICES


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SUB CONTRACTS/INTERMEDIARY SERVICES

Services by the following persons in respective capacities - sub-brokeror an authorised person to a stock broker;

authorised person to a member of a commodity exchange;

mutual fund agent to a mutual fund or asset management company;

distributor to a mutual fund or asset management company;

selling or marketing agent of lottery tickets to a distributer or a selling agent;

selling agent or a distributer of SIM cards or recharge coupon vouchers;

business facilitator or a business correspondentto a banking companyor an insurance company, in a rural area; or

sub-contractor providing services by way of works contract to anothercontractor providing works contract services which are exempt

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EXEMPTED SERVICE UNDERCENVAT


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NEGATIVE LIST vs EXEMPTED LIST

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Negative List Services Exempted List Services

Part of the Finance Act(may be more Static)

Exemptions through Notifications

Excluded from charge of service tax Chargeable to tax but exemptOption not to avail exemption?

Does not qualify as export of services Qualifies as Exports?

Compliance formalities required?

Person liable for paying service tax toregister etc

Registration required for 100 %exempted service providers?

If 100% exports?


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EXPORT OF SERVICE / REVERSAL OF CENVAT

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SNo

Particulars Construed asexports of service

Reversal ofCenvat Credit

1 Taxable services x

2 Exempted list

services

x

3 Negative list services x

4 Activity which is not aservice

x ?

5 Services to a SEZ x x

Export


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EXEMPTIONS TO A SEZ UNIT


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SEZ EXEMPTION NOTIFICATION


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EXEMPTION TO A SEZ UNIT NOTIFICATION KEYPOINTS

SEZ Act gives exemption from Service Tax on taxable servicesprovided to a SEZ developer/ unit

Notification 40/ 2012 ST dated June 20, 2012 (which superseded17/ 2011-ST, dated March 1, 2011) provides for an refund/ outrightexemption for services received by a SEZ developer/unit

Upfront exemption would be available in case of The services that are wholly consumed inside the SEZ would have

to be determined based on Rule 4 and 5 of the PPS Rules (whichpertain to performance and property based services)

In respect of other services (ie, services not falling under Rule 4 and 5)the same would be exempt upfront only in the case of entities carrying on

operations entirely from an SEZ

The option of refund continues to apply for services not whollyconsumedwithin the SEZ

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Wholly Consumed


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CONDITIONS FOR AVAILING BENEFIT(EXEMPTION / REFUND)

SEZ unit to obtain Form A-1 verified by the Specified Officer of the SEZ for

claimingab initio

exemption from levy of service tax this is required forany service (Category 1, 2 or 3) for claiming exemption

SEZ unit to obtain approval of list of servicesrequired for authorizedoperations from the Unit Approval Committee

No CENVAT credit to be availed on specified services for which benefit

under this notification is availedServices on which exemption/ refund is being claimed must be used for

authorized operations of the SEZ unit

SEZ unit to maintain proper account of receipt and use of the specifiedservices on which exemption/ refund claimed for authorized operations

Refund claim to be filed within 1 year from date of payment of service tax

No specific provision for refund of 100% of service tax with respect to

services exclusively used by the SEZ unit for which upfront exemption isnot available

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SEZ NOTIFICATION VS EARLIER NOTIFICATION

SEZ Notification Earlier Notification Impact / issues

Determination of serviceswholly consumed asper services falling underRule 4 and 5 of PPSRules

Determination of serviceswholly consumed asper specific service taxcategories under Exportof Service Rules

Types of services thatcan potentially qualify aswholly consumed tobe re-determinedforavailing upfrontexemption or refund

Upfront exemption forservices specified underRule 4 of the PPS Rules,actually performedwithin the SEZ

Upfront exemption onservices listed underRule 3(1) (ii) of theExport of Services Rules,wholly performedwithin

the SEZ

To determine whetherservices partiallyperformedwithin theSEZ would qualify asactually performed

Form A-1 to be given byALL units for claiming abinitioexemption

Form A-1 to be given bydeveloper or Unit of SEZwho does not own orcarry out any otherbusiness operations

Earlier Form A-1 to begiven only by standaloneSEZ unitsNow by ALLunitsseeking ab initioexemption

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SEZ NOTIFICATION VS EARLIER NOTIFICATION

SEZ Notification Earlier

Notification

Impact / issues

Refund of service taxpaid on services notwhollyconsumed formula prescribed

Services notwholly consumedto claimproportionaterefund on Shared

services

The term shared service is notmentioned specifically under thenew SEZ Notification

Refund for exclusive services in

full or proportionately to beexamined? SEZ Circular clarifiedearlier that 100% refund forservices used exclusively available

Export turnover for

refund purposesbased on receiptsfrom customers andcompletion ofservices

Export turnover for

refund purposes tobe computed onbasis of invoicesraised

While the new formula shall impact

amount claimed as refund, SEZUnit to maintain proof of FIRCtosubstantiate computation of exportturnover

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THANK YOU

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ANNEXURES


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MUNICIPALITY TWELFTH SCHEDULE

1. Urban planning including town planning.

2. Regulation of land-use and construction of buildings.3. Planning for economic and social development.4. Roads and bridges.5. Water supply for domestic, industrial and commercial purposes.6. Public health, sanitation conservancy and solid waste management.7. Fire services.8. Urban forestry, protection of the environment and promotion of ecological aspects.

9. Safeguarding the interests of weaker sections of society, including thehandicapped and mentally retarded.

10. Slum improvement and upgradation.11. Urban poverty alleviation.12. Provision of urban amenities and facilities such as parks, gardens, playgrounds.13. Promotion of cultural, educational and aesthetic aspects.14. Burials and burial grounds; cremations, cremation grounds; and electric

crematoriums.15. Cattle pounds; prevention of cruelty to animals.16. Vital statistics including registration of births and deaths.17. Public amenities including street lighting, parking lots, bus stops and public

Conveniences18. Regulation of slaughter houses and tanneries

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DETERMINATION OF WHOLLY CONSUMED

Sl

no

Category Type of services Treatment

1 Category I Services specified in Rule 4 ofthe PPS Rules, when these areactually performedwithin theSEZ

Such services shall beupfront exempt from thelevy of service tax

2 Category II Services specified in Rule 5 of

the PPS, when these areperformed in respect ofproperty locatedor intendedto be located within the SEZ

Such services shall be

upfront exempt from thelevy of service tax

3 Category IIIServices other

than thoseCategory Iand II above

When entity has no operationsother than in the SEZ

Upfront exemptionavailable on such services

When entity has operationsoutside the SEZ

Upfront exemption notavailableand suchservices shall be eligiblefor refund of service taxpaid as per conditions laidout

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SERVICE PROVIDER BY ARBITRAL TRIBUNAL ANDADVOCATES

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Services provided by-

an arbitral tribunal to -

any person other than a business entity; or

a business entity with a turnover up to rupees ten lakh in the precedingfinancial year;

an individual as an advocate or a partnership firm of advocates by way of

legal services to,- an advocate or partnership firm of advocates providing legal services ;

any person other than a business entity; or

a business entity with a turnover up to rupees ten lakh in the preceding financialyear; or

a person represented on an arbitral tribunal to an arbitral tribunal

legal service means any service provided in relation to advice, consultancy or

assistance in any branch of law, in any manner and includes representational

services before any court, tribunal or authority

Partnership firm

includes LLP?


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SERVICE PROVIDER BY A PERSON IN A NON-TAXABLETERRITORY

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Services received from a provider of service located in a non- taxable

territory by - Government, a local authority, a governmental authority or an individual in

relation to any purpose other than commerce, industry or any other businessor profession;

an entity registered under section 12AA of the Income tax Act, 1961 (43 of1961) for the purposes of providing charitable activities; or

a person located in a non-taxable territory


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GOVERNMENT AS SERVICE RECIPIENT

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Services provided to the Government, a local authority or a

governmental authority by way of construction, erection,commissioning, installation, completion, fitting out, repair,maintenance, renovation, or alteration of -

Civil structure or other original works meant predominantly for use

other than for commerce, industry, or any other business or profession Historical monument, archaeological site etc

Structure meant predominantly for use as (i) an educational, (ii) aclinical, or (iii) an art or cultural establishment;

Canal, dam or other irrigation works;

Pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii)sewerage treatment or disposal; or

Residential complex predominantly meant for self-use or the use oftheir employees etc


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GOVERNMENT AS SERVICE RECIPIENT

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Services provided to Government, a local authority or a

governmental authority by way of -

carrying out any activity in relation to any function ordinarily entrustedto a municipalityin relation to water supply, public health, sanitationconservancy, solid waste management or slum improvement and

upgradation; or

Repair or maintenanceof a vessel or an aircraft


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HEALTH CARE, CHARITABLE AND RELIGIOUS SERVICES

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Health care services by a clinical establishment, an authorized

medical practitioner or paramedics

Services by a veterinary clinic in relation to health care ofanimals or birds

Services by way of technical testing or analysis of newlydeveloped drugsetc on human participants by a approved

clinical research organisation

Services by an entity registered under section 12AA of the Incometax Act by way of charitable activities

Services by a person by way of-

(a) renting of precincts of a religious place meant for general public;(b) conduct of any religious ceremony

general public means the body of people at large sufficiently defined by somecommon qualityof public or impersonal nature


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SPORTS AND EDUCATIONAL SERVICES

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Services by way of training or coaching in recreational activities

relating to arts, culture or sports;

Services provided to a recognised sports body by-

an individual as a player, referee, umpire, coach or team manager forparticipation in a sporting event organized by a recognized sports body

another recognised sports body

Services by way of sponsorship of sporting events organised bynotified boards/ federations

Services provided to or by an educational institution in respect ofeducation exempted from service tax, by way of-

auxiliary educational services; or

renting of immovable property;


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CONSTRUCTION BASED EXEMPTIONS

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Services provided by way of construction, erection,

commissioning, installation, completion, fitting out, repair,maintenance, renovation, or alteration of,-

a road, bridge, tunnel, or terminal for road transportation for useby general public

a civil structure or any other original works pertaining to a scheme

under Jawaharlal Nehru National Urban Renewal Mission or RajivAwaas Yojana

a building owned by an entity registered under section 12 AA of theIncome tax Act and meant predominantly for religious use bygeneral public

a pollution control or effluent treatment plant, except located as apart of a factory; or

a structure meant for funeral, burial or cremation of deceased

general public means the body of people at large sufficiently defined by

somecommon qualityof public or impersonal nature


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Services by way of construction, erection, commissioning, or

installation of original works pertaining to,- an airport, port or railways, including monorail or metro;

a single residential unit otherwise than as a part of a residentialcomplex

Approved low- cost houses up to a carpet area of 60 square metres per

house Post- harvest storage infrastructure for agricultural produce etc

Mechanised food grain handling system, machinery or equipment forunits processing agricultural produce as food stuff excluding alcoholicbeverages

residential complex means any complex comprising of a building orbuildings, havingmore than one single residential unit

single residential unit means a self-contained residential unit which isdesigned for use, wholly or principally, for residential purposes forone family


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Services provided to the Government, a local authority or a

governmental authority by way of construction, erection,commissioning, installation, completion, fitting out, repair,maintenance, renovation, or alteration of -

Civil structure or other original works meant predominantly for use

other than for commerce, industry, or any other business orprofession

Historical monument, archaeological site etc

Structure meant predominantly for use as (i) an educational, (ii) aclinical, or (iii) an art or cultural establishment;

Canal, dam or other irrigation works; Pipeline, conduit or plant for (i) water supply (ii) water treatment, or

(iii) sewerage treatment or disposal; or

Residential complex predominantly meant for self-use or the use oftheir employees etc


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TRANSPORTATION SERVICES

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Services by way of transportation by rail or a vessel from one

place in India to another of the following goods - petroleumand petroleum products

relief materials meant for victims of natural or man-made disasters,calamities, accidents or mishap;

defenceor military equipments;

postal mail or mail bags;

household effects;

newspaper or magazines registered with the Registrar of Newspapers;

railway equipments or materials;

agricultural produce;

foodstuff including flours, tea, coffee, jaggery, sugar, milk products, saltand edible oil, excluding alcoholic beverages; or

chemical fertilizer and oilcakes;


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Services provided by a goods transport agency by way of

transportation of Fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;

Gross amount charged on a consignment transported in a single goodscarriage does not exceed INR 1500;

Gross amount charged for transportation of all such goods for a single

consignee does not exceed INR 750

Services by way of giving on hire -

to a state transport undertaking, a motor vehicle meant to carry morethan twelve passengers; or

to a goods transport agency, a means of transportation of goods;


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Transport of passengers, with or without accompanied

belongings, by -

Air, embarking from or terminating in an airport located in the state ofArunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,Sikkim, or Tripura or at Bagdogra located in West Bengal;

A contract carriage for the transportation of passengers, excludingtourism, conducted tour, charter or hire; or

ropeway, cable car or aerial tramway


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BUSINESS RELATED EXEMPTIONS

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Carrying out an intermediate production process asjob work in

relation to - agriculture, printing or textile processing;

cut and polished diamonds and gemstones etc

Any goods on which appropriate duty is payable by the principalmanufacturer

Processes of electroplating, zinc plating, anodizing, heat treatment,powder coating, painting including spray painting or auto black, duringthe course of manufacture of parts of cycles or sewing machines upto anaggregate value of taxable service of the specified processes of INR 150lacs in a financial year

Services by way of transfer of a going concern, as a whole or anindependent part thereof;

(Slump sale etc would now trigger reversal of credits?)


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BUSINESS RELATED EXEMPTIONS

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Temporary transfer or permitting the use or enjoyment of a

copyright relating to original literary, dramatic, musical, artisticworks or cinematograph films

Renting of a hotel etc having declared tariff of below INR 1,000 for aunit of accommodation

Serving of food or beverages by Air-conditioned restaurants etc

having a licence to serve alcoholic beverages

Services by an organiserto any person in respect of a businessexhibition held outside India

Services of general insurance business provided under variousnotified schemes


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OTHER EXEMPTIONS

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Telephone calls from departmentally run public telephone etc

Slaughtering of bovine animals

Public libraries

Vehicle parking to general public


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CHARITABLE ACTIVITIES

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Charitable activities means activities relating to

Public health

Advancement of religion or spirituality

Advancement of specified educational programmes or skill developmentrelating

Preservation of environment including watershed, forests and wildlife; or Advancement of any other object of general public utility up to-

(a) INR 18.75 lacs for the year 2012-13

(b) INR 25 lacs in any other financial year

(Total value of such activities had not exceeded INR 25 lacs during the precedingfinancial year)


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RULE 6A OF SERVICE TAX RULES EXPORT OF SERVICES

Provision of any service shall be treated as export of service when:

Service provider in the taxable territory Service recipient outside India

Not Negative list services

Place of provision of service outside India

Receipt in convertible foreign exchange Service provider and recipient of service not merely establishments of a

distinct person

Receipt in Foreign Exchange to be within the time allowed by theReserve Bank of India to claim the benefit of Cenvat/Rebate


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CONTINUING EXEMPTIONS

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Threshold Exemption of INR 10 lacs to service provider

Research and Development Cess paid on import of technology

Property tax paid in respect of renting of immovable property

Services for the official use of foreign diplomatic missions

Exemptions that have moved to Negative list (transmission of

electricity, education, agriculture related etc)Exemptions under the Mega Exemption Notification

Activities treated as provided in non-taxable territory as per PPS(transport of goods by air, transit goods etc)

Abatements for various services

Exemption/Refund for SEZ developers/Units

Exemption/Rebate to exporters


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EXEMPTIONS RESCINDED

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Services provided by banks & Financial Institutions in relation to

collection of duties and taxeson behalf of governmentServices provided to the Reserve Bank of India in cases ofreverse charge tax liability (domestic/import)

Club or Association service - Exemption to association of dyeingunits in relation to effluent treatment

Import of Services by Hotel - Hotel accommodation booking by andfor non-resident

Value of goods/materials sold by the service provider to the servicerecipient (12/2003) Mere transfer?

Packaged or canned software exemption from service taxwhere excise/customs duty paid


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EXEMPTIONS RESCINDED

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Site formation and clearance, excavation and earthmoving and

demolition and such other similar activities for roads, airports,railways, transport terminals, bridges, tunnels, dams, ports

Transport of export goods by air within port or airport

Repair of Ships/Boards/Vessels belonging to Govt. within port orairport

Supply of Water, Electricity within the port or airport


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ORIGINAL WORKS

Original works has been defined to mean the following:

(i) all new constructions;

(ii) all types of additions and alterations to abandoned or damagedstructures on land that are required to make them workable;

(iii) erection, commissioning or installation of plant, machinery or

equipment or structures, whether pre-fabricated or otherwise

service tax exemptions including sez

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