union budget 2012-13 service tax proposals · pdf fileunion budget 2012-13 service tax...

UNION BUDGET 2012-13

SERVICE TAX PROPOSALS

__ March, 2012

Analysis and Impact

Constitutional

Framework

Constitutional Framework...

Taxes levied by Central Government and State Government(s)

Authority to levy a tax is derived from the Constitution of India

Which allocates power to levy various taxes between the Centre and State

Article 265 of the Constitution which states that "No tax shall be levied or collected except by the authority of law”

Article 246 of the Indian Constitution, distributes legislative powers including taxation, between the Parliament of India and the State Legislature

Schedule VII enumerates use of three lists

List - I Where only the parliament is competent to make laws

List - II Where only the state legislature can make laws

List - III Where both the Parliament and the State Legislature can make laws upon concurrently

3

...Constitutional Framework

Union List State List Concurrent List

• Income Tax

• Custom Duty

• Excise Duty

• Corporation Tax

• Service tax

• Central Sales Tax

• Stamp duty in respect

of bills of exchange,

cheques, promissory

notes, etc

• Taxes on lands and

buildings

• Excise duty on

alcoholic liquor etc

• Entry tax

• Sales Tax

• Tolls

• Luxury Tax

• Stamp duty in respect

of documents other

than those specified in

the provisions of List I

• Stamp duties other

than duties or fees

collected by means of

judicial stamps, but

not including rates of

stamp duty

4

Constitutional Framework...

Extract of the Finance Minister Speech

“The life of a Finance Minister is not easy. Various players,

including policy makers, politicians, agriculturists and business

houses, participate in the making of the economy. When

everything goes well with the economy, we all share in the joy.

However, when things go wrong, it is the Finance Minister who is

called upon to administer the medicine. Economic policy, as in

medical treatment, often requires us to do something, which, in the

short run, may be painful, but is good for us in the long run. As

Hamlet, the Prince of Denmark, had said in Shakespeare’s

immortal words, “I must be cruel only to be kind.”

With this reminder, let me now turn to the tax proposals....

5

Headlines

Tax Rates

Service Tax – raised from 10% to 12%

GST – no definitive time-line for introduction

Provision of Service Rules / Place of Supply Rules introduced for comments

Harmonization of Service Tax and Excise Duty regimes – Common Tax Code proposed

GST Network to be operational from August, 2012 in the words of the Finance Minister

Negative list approach to tax services proposed to be introduced – 17 categories of services covered in the negative list

Settlement Commission provisions extended to Service Tax cases

Ordinary limitation period under Service Tax law increased to 18 months

6

Service Tax proposals

8

Service Tax Net Widened

8

Change in Approach

Selective taxation Negative list approach9

Current approach

Focuses on selective taxation of services

Negative list approach

Defining what a service is; and

Tax all services except some specifically defined services which

are kept outside the purview of the tax

Taxation of services comprehensive with some specific exemptions

Taxable

Services

Exempt

Services

Current Provisions Vs Proposed Provisions

Section 65 - Definitions

Section 65A - Classification

Section 66 – Charging Section

Section 66A – Charging Section

in case of import of services

New Section 65B proposed

New Section 66F proposed

New charging Section 66B

proposed

Current Provisions under

Finance Act

The following provisions will

cease to exist from a date to be

notified after enactment of the

Finance Bill

Provisions under Finance Bill

10

Charging section r.w. Provision of

Service Rules r. w. Notification

No. 15/2012 - ST

The following provisions will

come into force from a date to

be notified after enactment of

the Finance Bill

Service Tax Proposals...

New charging section 66B proposed to be introduced

Service Tax at 12% on

all services

other than those in the negative list

provided or agreed to be provided in the taxable territory by one

person to another

Section 65B(34) defines „Negative List‟

Means the services which are listed in Section 66D

Section 66D – Negative list not liable to Service tax

„Taxable territory‟ has been defined in Section 65B(52)

Means the territory to which the provisions of Chapter V of the

Finance Act, 1994 apply i.e. whole of India excluding the State

of Jammu and Kashmir („J&K‟) 11

…Service Tax Proposals...

„India‟ is defined in Section 65B(27) to mean –

(a) the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;

(b) its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976;

(c) the seabed and the subsoil underlying the territorial waters;

(d) the air space above its territory and territorial waters; and

(e) the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof;

„Non-taxable territory‟ is defined in Section 65B(35) as the territory other than the taxable territory

The exclusion of J&K from the definition of taxable territory would render J&K a non-taxable territory. Services provided to persons in such territory may thereby by liable to Service tax under the reverse charge mechanism

12

…Service Tax Proposals...

Place of Provision of Services Rules proposed to determine whether services provided within taxable territory

Definition of the term “service” introduced for the first time

Section 65B(44) defines „Service‟ to mean

Any activity

Carried out by a person for another

For consideration

And includes a declared service

„Service‟ does not include –

any activity that constitutes merely a transfer in title of goods or immovable property by way of sale, gift or in any other manner; or

a transaction in money or actionable claim;

any service provided by an employee to an employer in the course of the employment;

fees payable to a Court or a tribunal established under any law for the time being in force

13

…Service Tax Proposals

Explanations –

This section does not apply to

Functions of Members of the Parliament, the State Legislative, Panchayats, Municipalities and other local authorities who receive any consideration in performing the functions of that office as such members

Duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity

the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section

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

Establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons

Person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory

TRU letter clarifies that „deemed sales‟ as per Art. 366(29A) of the Constitution are also included within the term „sale‟

Negative List of Services...

Sr.

No.

Description of services which are not liable to Service Tax

1. Services by Government or a local authority (excluding certain specified

services)

2. Services by the Reserve Bank of India

3. Services by a foreign diplomatic mission located in India

4. Services relating to agriculture (only certain specified services covered)

5. Trading of goods

6. Any process amounting to manufacture or production of goods. “Process

amounting to manufacture or production of goods" has been defined as a

process on which duties of excise are leviable under section 3 of the CE Act,

1944 or any process amounting to manufacture of alcoholic liquors for

human consumption on which duties of excise are leviable under any State

Act

7. Selling of space or time slots for advertisements other than advertisements

broadcast by radio or television. „Advertisement‟ has been specifically

defined.

8. Service by way of access to a road or a bridge on payment of toll charges

...Negative List of Services...

Sr.

No.


9. Betting, gambling or lottery. The term „betting or gambling‟ has been

specifically defined.

10. Admission to entertainment events or access to amusement facilities.

11. Transmission or distribution of electricity by an electricity transmission or

distribution utility. The term „electricity transmission or distribution utility‟ has

been specifically defined.

12. Services by way of pre-school education, higher secondary school

education, education as a part of a curriculum for obtaining a qualification

recognised by any law and vocational education course.

13. Services by way of renting of residential dwelling for use as residence. The

term „renting‟ has been specifically defined.

14. Services by way of extending deposits, loans or advances in so far as the

consideration is represented by way of interest or discount or inter se sale or

purchase of foreign currency amongst banks or authorised dealers of foreign

exchange or amongst banks and such dealers

...Negative List of Services

Sr.

No.


15. Service of transportation of passengers, with or without accompanied

belongings, by a stage carriage; railways in a class other than first class or

an air-conditioned coach; metro, monorail or tramway; inland waterways;

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

less than fifteen tonne net; and metered cabs, radio taxis or auto rickshaws

16. Services by way of transportation of goods by road, by an aircraft or a

vessel from a place outside India to the first customs, or by inland

waterways (subject to certain exceptions)

17. Funeral, burial, crematorium or mortuary services including transportation of

the deceased.

...Negative List of Services…

Changes brought in the Revised Negative List as compared to

the proposed list issues prior to the Budget

Services, the scope of which are expanded

Services provided by the Government, Judiciary, the RBI and

Regulatory bodies

Services in relation to agriculture and animal husbandry

Services removed from the earlier list but exemption provided

Services by UN, international bodies, diplomatic missions etc.

Services provided by non-profit entities in matters relating to public

and social welfare activities

excluding education and health

Including charitable fund raising events, sponsorship to charitable events and voluntary donations to charity

Supply of goods carriage to persons engaged in the business of transportation of goods

Copyright services- amended

Services of independent journalists, PTI and UNI for providing news-amended

...Negative List of Services

Services removed

Religious services

Services provided by political parties recognized by the Election

Commission of India

Other changes

Renting of personal dwelling for residential use – the threshold limit

has been removed

Health services amended – Services provided by clinical

establishments except in relation to fitness, weight reduction

programmes, health check up and cosmetic or plastic surgery

List of Declared Services...

Sr. No. Description of services which are declared services

1. Renting of immovable property. The levy of Service tax on “renting of immovable

property” is presently pending before the Supreme Court in Home Solutions Retails

(India) Ltd vs. Union of India [2011-TIOL-103-SC-ST]

2. Construction of a complex, building, civil structure or a part thereof, including a

complex or building intended for sale to a buyer (subject to certain specified

exceptions)

The Hon‟ble Bombay High Court in Maharashtra Chamber of Housing Industry and

Another vs. Union of India and Others [2012-VIL-15-BOM-ST] and Punjab &

Haryana High Court in G S Promoters vs. Union of India [2011 (21) STR 100

(P&H)] has upheld the levy of Service tax under the present Entry

3. Temporary transfer or permitting the use or enjoyment of any intellectual property right

4. Development, design, programming, customisation, adaptation, upgradation,

enhancement, implementation of information technology software

„Declared Service‟ is defined in Section 65B(22)

Means any activity carried out by a person for another person for

consideration and declared as such under Section 66E

Section 66E – List of declared services

...List of Declared Services

Sr. No. Description of services which are declared Services

5. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or

to do an act

6. Transfer of goods by way of hiring, leasing, licensing or in any such manner without

transfer of right to use such goods

7. Activities in relation to delivery of goods on hire purchase or any system of payment

by installments

8. Service portion in the execution of a „Works Contract‟

‘Works contract’ has been defined in Section 65B(54) to mean a contract wherein

transfer of property in goods involved in the execution of such contract is leviable to

tax as sale of goods and such contract is for the purpose of carrying out construction,

erection, alteration of any building or structure on land or for carrying out any other

similar activity or a part thereof in relation to any building or structure on land.

9. Service portion in an activity wherein goods, being food or any other article of human

consumption or any drink (whether or not intoxicating) is supplied in any manner as a

part of the activity

Sr.

No.

Description of service in respect of which exemption from payment of Service Tax

is proposed to be granted

1. Services provided to the United Nations or a specified international organization

2. Health care services by a clinical establishment, an authorised medical practitioner…

3. Services by a veterinary clinic in relation to health care of animals or birds

4. Services by an entity registered under Section 12AA of the IT Act ie charitable activities.

5. Services of- (a) renting of precincts of a religious place meant for general public; or (b)

conduct of any religious ceremony.

6. Services provided to any person other than a business entity by -

(a) an individual as an advocate; or (b) a person represented on and as arbitral

tribunals.

7. Services of technical testing or analysis of newly developed drugs, including vaccines

and herbal remedies, on human participants by a clinical research organization...

8. Services by way of training or coaching in recreational activities relating to arts, culture

or sports.

Exempted Services...

22

Sr.

No.



9. Services provided-

(a) to an educational institution by way of catering under any centrally assisted mid – day

meals scheme sponsored by Government; (b) to or by an institution in relation to

educational services, where the educational services are exempt from the levy of Service

Tax, by way of transportation of students or staff (c) to or by an institution in relation to

educational services, where the educational services are exempted from the levy of

service tax, by way of services in relation to admission to such education.

10. Services provided to a recognised sports body by-

(a) an individual as a player, referee, umpire, coach or manager for participation in a

tournament or championship organized by a recognized sports body;

(b) another recognised sports body;

11. Services by way of sponsorship of tournaments or championships organised,-

(a) by a national sports federation, or its affiliated federations…

(b) by Association of Indian Universities, Inter-University Sports Board, School Games

Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India,

Special Olympics Bharat;

(c) by Central Civil Services Cultural and Sports Board;

(d) as part of national games, by Indian Olympic Association; or

(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;

23

...Exempted Services...

Sr.

No.



12. Services provided to the Government or local authority by way of erection, construction,

maintenance, repair, alteration, renovation or restoration of -

(a) a civil structure .. meant predominantly for a non-industrial or non-commercial use;

(b) a historical monument, archaeological site or remains of national importance...

(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an

art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage

treatment or disposal; or

(f) a residential complex predominantly meant for self-use or the use of their employees

or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said

Finance Act;

13. Services provided by way of erection, construction, maintenance, repair, alteration,

renovation or restoration of,-

(a) road, bridge, tunnel, or terminal for road transportation for use by general public;

(b) building owned by an entity registered under section 12AA of the Income tax Act,

1961(43 of 1961) and meant predominantly for religious use by general public;

(c) pollution control or effluent treatment plant, except located as a part of a factory; or

(d) electric crematorium;

24


Sr.

No.



14. Services by way of erection or construction of original works pertaining to,-

(a) airport, port or railways;

(b) single residential unit otherwise as a part of a residential complex;

(c) low- cost houses up to a carpet area of 60 square metres per house in a housing

project approved by competent authority empowered under the „Scheme of Affordable

Housing in Partnership‟ framed by the Ministry of Housing and Urban Poverty Alleviation,

Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages

for such purposes; or

(e) mechanised food grain handling system, machinery or equipment for units processing

agricultural produce as food stuff excluding alcoholic beverages;

15. Temporary transfer or permitting the use or enjoyment of a copyright covered under

clause (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of

1957), relating to original literary, dramatic, musical, artistic works or cinematograph

films;

16 Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or

(iii) theatre, excluding services provided by such artist as a brand ambassador

17. Services by way of collecting or providing news by an independent journalist, Press Trust

of India or United News of India. 25


Sr.

No.



18. Services by way of renting of a hotel, inn, guest house, club, campsite or other

commercial places meant for residential or lodging purposes, having declared tariff of a

room below rupees one thousand per day or equivalent;

19. Services provided in relation to serving of food or beverages by a restaurant, eating joint

or a mess, other than those having the facility of air-conditioning or central air-heating in

any part of the establishment, at any time during the year and which has a license to

serve alcoholic beverages;

20. Services by way of transportation by rail or a vessel from one port in India to another of

the 9 specified varieties of goods.

21. Services provided by a goods transport agency by way of transportation of fruits,

vegetables, eggs, milk, food grains or pulses, or where gross amount charged on a

consignment transported in a single goods carriage does not exceed Rs. 1,500; or

where gross amount charged for transportation of all such goods for a single consignee

in the goods carriage does not exceed Rs. 750

22. Renting of motor vehicles to State transport undertaking meant to carry more than twelve

passengers and to a goods transport agency, a means of transportation of goods.

26


Sr.

No.



23. Transport of passengers by-

•air embarking or terminating in an airport located in the state of Arunachal Pradesh,

Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Baghdogra

located in West Bengal; or

•a contract carriage for the transportation of passengers, excluding tourism, conducted

tour, charter or hire

24. Services by way of motor vehicle parking to general public excluding leasing of space to

an entity for providing such parking facility

25. Services provided to the Government or a local authority by way of -

(a) repair of a ship, boat or vessel;

(b) effluents and sewerage treatment;

(c) waste collection or disposal;

(d) storage, treatment or testing of water for drinking purposes; or

(e) transport of water by pipeline or conduit for drinking purposes

26. Services of general insurance business provided under specified schemes

27. Services provided by an incubatee up to total business turnover of Rs. 50 lakh in an FY,

subject to the following conditions: (a) total business turnover had not exceeded Rs. 50

lakh in the preceding FY and

(b) 3 years has not lapsed from the date of entering into agreement as an incubatee 27


Sr.

No.



28. Service by an unincorporated body or an entity registered as a society to own members

by way of reimbursement of charges or share of contribution

(a) as a trade union;

(b) for the provision of exempt services by the entity to third persons; or

(c) up to an amount of Rs. 5000 per month per member for sourcing of goods or services

from a third person for common use of its members in a housing society or residential

complex

29. Services by the following persons in respective capacities -

(a) a sub-broker or an authorised person to a stock broker;

(b) an authorised person to a member of a commodity exchange;

(c) a mutual fund agent or distributor to mutual fund or asset management company for

distribution or marketing of mutual fund;

(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;

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

(f) a business facilitator or a business correspondent to a banking company or an

insurance company in a rural area;

28


Sr.

No.

Description of service in respect of which exemption from payment of Service Tax is

proposed to be granted

30. Carrying out an intermediate production process as job work in relation to specified goods

31. Services by an organiser to any person in respect of a business exhibition held outside

India

32. Services by way of making telephone calls from:

(a) departmentally run public telephones;

(b) guaranteed public telephones operating only for local calls; or

(c) free telephone at airport and hospitals where no bills are being issued

33. Services by way of slaughtering of bovine animals

34. Services received from a service provider located in a non- taxable territory by: (a) the

Government, a local authority or an individual in relation to any purpose other than industry,

business or commerce; or

(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the

purposes of providing charitable activities.

29

...Exempted Services

Classification – Section 66F

Concept of „composite service‟ under Section 65A has been replaced by „bundled service‟

New Section proposed to be introduced, setting out principles governing specified description of services or bundled services

Reference to a service shall not include reference to a service used in providing such main service

For services capable of differential treatment for any reason based on its description, the most specific description to be preferred over a more general description

In case of a bundled service i.e. when provision of one service is combined with element(s) of other service(s), taxability is to be determined as under

If various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character

If various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in the highest liability of Service Tax

30

Other Provisions…

Ambit of the definition of „money‟ expanded

„Money‟ as defined in Explanation to Section 67(b) proposed to be

omitted

Section 65B(33) proposed to be introduced

Indian legal tender, bill of exchange and electronic remittances

included

Any similar instrument when used to settle an obligation or exchange

with Indian legal tender of another denomination shall be deemed to

be money

Date of determination of rate of tax, value of taxable service and

rate of exchange

New section 67A proposed to be introduced

Rate or value in force as applicable, at the time when the taxable

service has been provided or agreed to be provided

31

…Other Provisions…

Payment of Service tax

A new proviso is proposed to be added to Section 68(2)

Central Government is empowered to notify service and Service Tax

payable by the person, who is liable to discharge Service Tax under

the Act

Provisions relating to Special Audit

Provisions relating to special audit as contained in Section 14AA

of Central Excise Act, to be made applicable to Service Tax

New Section 72A proposed

Comprehensive powers for conducting Service tax audit

Scope of Section 72A – Also covers cases where

Chief Commissioner has reasons to believe that operations of any

person liable to tax, are spread out in multiple locations and it is

not possible or practical to obtain a true and complete picture of

his accounts from the registered premises32


Provisions relating to recovery of Service Tax

Section 73 - Period for issuance of demand extended to 18

months from 12 months

New sub-section proposed to be added to Section 80 vide which

no penalty shall be imposable on the assessee, as of 6th March,

2012, for failure to pay Service Tax under the taxing entry for

“Renting of Immovable Property Service”, provided that the

amount of Service Tax along with applicable interest is paid

within a period of 6 months from the date on which the Finance

Bill, 2012 receives assent of the President

This is in the nature of an amnesty provision

Provisions relating to settlement of cases introduced for Service

Tax cases

33


New sub-section proposed to be added to Section 80 vide which

no penalty shall be imposable on the assessee, as of 6th March,

2012, for failure to pay Service Tax under the taxing entry for

“Renting of Immovable Property Service”, provided that the

amount of Service Tax along with applicable interest is paid

within a period of 6 months from the date on which the Finance

Bill, 2012 receives assent of the President

This is in the nature of an amnesty provision

Provisions relating to settlement of cases introduced for Service

Tax cases

Statutory period for filing appeals amended

Proposed amendment to Section 85, whereby, period of filing

Appeal to Commissioner (Appeals) reduced to two months

Extension of 1 month may be granted for sufficient cause 34

…Other Provisions

Proposed amendment to Section 86, for period of filing Appeal to

the Appellate Tribunal

Period for Appeal by the Department increased to four months

Period for Appeal by the Assessee continues to be three months

Provisions relating to revision mechanism as available in

Central Excise proposed to be introduced in Service Tax

Provisions relating to prosecution proposed to be amended

such that any person who knowingly evades the payment of

Service Tax can be prosecuted

Proposed provision covers any act (which may be construed to be

intentional evasion) as against the specific acts presently covered

under the provision

35

Exemptions with retrospective effect

Services in relation to repair of roads proposed to be exempted for the period commencing from June 16, 2005 to July 27, 2009

Services of Management, Maintenance or Repair in relation to non-commercial Government buildings are proposed to be exempted from June 16, 2005

Services in relation to common facility set-up for treatment and recycling of effluents and solid waste discharged by associations or cooperative societies, which facilities are set up with financial assistance from the Central or State Government, are proposed to be exempted from June 16, 2005 under the taxing entry of “Club or Association Services”

Refund is proposed to be granted of the Service Tax collected which would not have been so collected had the above exemptions been in force at all material times

36

Amendments to

Service tax Rules

Amendment to Service tax Rules...

LLP has been included in the definition of partnership firm

Provisions relating to invoices

Time period for issuance of invoice increased from 14 days to 30 days from date of provision of services

For Banking Company invoice has to be issued within 45 days

Payment of Service tax on receipt basis for Small Service providers

Individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is Rs. 50 lakhs or less in the previous financial year

Have the option to pay Service Tax on receipt basis

Adjustment of excess amount paid under Rule 6(4B)

Monetary limit of Rs. 2 lakhs and intimation to jurisdictional Superintendent has been omitted

38

…Amendment to Service tax Rules...

Service tax payment by life insurance company

Option to pay Service Tax @ 3 % in the first year and 1.5 % in the

subsequent years of the premium charged from policy holder

Service tax payment by dealers in foreign exchange

Rate increased to 0.12% for currency exchanged upto Rs. 1 lakh,

subject to minimum amount of Rs. 30

Rs. 120 and 0.06% for currency exchanged between Rs. 1 lakh to

Rs. 10 lakh

Rs. 550 and 0.1% for currency exchanged above Rs. 10 lakh

subject to maximum of Rs. 6,000/-

Service tax payment by dealers selling lottery tickets

Rate increased from Rs. 6,000/- to Rs. 7,000/- and the maximum

rate has been increased from Rs. 9000/- to Rs. 11,000/-

39

…Amendment to Service tax Rules

Adjustment of excess amount paid under Rule 6(4B)

Monetary limit of Rs. 2 lakhs and intimation to jurisdictional

Superintendent has been omitted

Service tax payment by life insurance company

Option to pay Service Tax @ 3 % in the first year and 1.5 % in the

subsequent years of the premium charged from policy holder

Service tax payment by dealers in foreign exchange

Rate increased to 0.12% for currency exchanged upto Rs. 1 lakh,

subject to minimum amount of Rs. 30

Rs. 120 and 0.06% for currency exchanged between Rs. 1 lakh to

Rs. 10 lakh

Rs. 550 and 0.1% for currency exchanged above Rs. 10 lakh

subject to maximum of Rs. 6,000/-

40

…Amendment to Service tax Rules

Service tax payment by dealers selling lottery tickets

Rate increased from Rs. 6,000/- to Rs. 7,000/- and the maximum

rate has been increased from Rs. 9000/- to Rs. 11,000/-

Simplified filing of returns

A simplified one page common return for Central Excise and

Service Tax has been placed for comments and feedbacks

Simplified format for obtaining registration

A common simplified registration format for Central Excise and

Service Tax has been placed for comments and feedback

41

Other provisions

Other provisions...

Works contract composition rate increased from 4% to 4.8%

Rule 2A is amended to include another method for

determination of the value of taxable services involved in

execution of a works contract

Where works contract is for… Value of the service portion shall be…

(i) execution of original works forty percent of the total amount charged

for the works contract

(ii) execution of original works and the gross

amount charged includes the value of land

twenty five per cent of the total amount

charged including such gross amount

(iii) works contracts, other than contracts for

execution of original works, including

contracts for 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

…Other provisions

„Total amount‟ is the sum total of gross amount and the value of all goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract and, in case of (ii) in the table above, including the value of land charged as a part of the total consideration

„Original works‟ means

all new constructions

all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable

Person liable for payment of Service tax – Section 68(2)

As per Notification 15/2012 dated 17.03.2012, in respect of services provided under works contract, ST shall be payable

50% by the Service provider

50% by the Service recipient44

Abatement of Service tax...

Abatement has been provided for following services subject to

conditionsSl.

No.

Services Proposed %

of abatement

Conditions

1. Financial leasing services,

including equipment leasing

and hire purchase

10 Applies to amount forming or

representing as interest

2. Transport of goods by rail 30

3. Transport of passengers by

rail

30

4. Supply of food or articles of

consumption for function at

premises such as hotel etc

70 No CENVAT credit of goods

classifiable under chapter 1 to 22

of CETA. Consideration is sum

total of gross amount and value of

all goods, excluding VAT, free of

cost under the same or any other

contract

5. Transport of passengers by

air

40 No CENVAT credit of inputs and

capital goods

...Abatement of Service tax...

Sr. No. Service Proposed % Condition

6. Renting of hotels,

inns, guest houses,

clubs, campsites etc

60 No CENVAT credit of inputs and

capital goods

7. Transport of goods

by road by Goods

Transport Agency

25 No CENVAT credit of inputs, input

services and capital goods

8. Services provided in

relation to chit



9. Renting of any motor

vehicle to carry

passengers



10. Transport of goods

in a vessel from one

port in India to

another



46

…Abatement of Service tax

Sr.

No.

Service Proposed

%

Condition

11. (i) Services provided

by a tour operator in

relation to a package

tour



The bill is inclusive of charges for such

tour

(ii) Services provided

by a tour operator in

relation to a tour,

solely for arranging or

booking

accommodation for

any person in relation

to a tour



Invoice indicates that charges are

toward accommodation

Invoice should include cost of such

accommodation apart from the service

charges for arranging or booking

accommodation for any person

(iii) Services, other

than (i) and (ii) above,

provided by a tour

operator in relation to

a tour



Invoice indicates that amount charged

in the bill is the gross amount charged

for such a tour

47

Point of Taxation

Rules, 2011

Amendment to Point of Taxation Rules...

Definition of “Continuous supply of service” amended to include any service provided or to be provided on a recurrent basis, for a period exceeding three months with the obligation for payment periodically or from time to time

Recurrent basis has not been defined

Rule 6, in respect of continuous supply of service omitted and merged with Rule 3 – determination of point of taxation

Rule 4 and Rule 5 dealing with change in effective rate of tax and introduction of new services is made applicable to continuous supply of services as well

Small advances received upto Rs. 1000 by telecommunication, credit cards etc –

Service provider has option to determine the Point of Taxation as the date of invoice/ completion of service, instead of date of payment

49

…Amendment to Point of Taxation Rules

„Date of Payment‟ defined under Rule 2A

In normal circumstances, date of payment as the earlier of the

dates on which the payment is

entered in the books of accounts or

credited to the bank account of the person liable to pay tax except in

certain specified cases

As per the new rule in case of change in effective rate of tax or a

new levy between the above two dates, the date of payment shall

be the date of actual credit in the bank account, if the amount is

credited through a banking instrument more than four working

days after the date of such change

„Best Judgment‟ provision inserted – Rule 8A

To ascertain the point of taxation by way of „best judgment‟ by the

Central Excise Officer where the taxpayer is unable to submit the

details regarding the date of payment or date of invoice or both 50

CENVAT Credit

Rules, 2004

Amendments to CENVAT Credit...

Definition of “Capital goods” and “Input Services” has been liberalised

“Capital goods”

Definition extended to cover “motor vehicles other than those falling

under tariff headings 8702, 8703, 8704, 8711 and their chassis”

Similar amendment made for motor vehicles used for specified services

Credit in respect of components, spares and accessories of motor

vehicles which are capital goods for the assessee allowed

“Input service”

Specified services relating to motor vehicles have been reduced to cover

only

„rent-a-cab services‟ and „supply of tangible goods services‟ insofar as

they relate to a motor vehicle which is not capital goods, and

„general insurance services‟ and „repair, reconditioning, restoration of

motor vehicle services‟ (except when used by a manufacturer in relation

to a motor vehicle manufactured by him, or a general insurance service

provider in respect of a motor vehicle insured / reinsured by him) 52

Amendments to CENVAT Credit...

20% credit restriction for providers of „life insurance services‟

and „management of investment under ULIP services‟ has been

deleted

New provisions relating to availment and utilisation of CENVAT

Credit

A new enabling rule has been substituted in relation to refunds of

CENVAT credit for exporters of goods and services

Refund is to be calculated in the ratio of export turnover from

goods and services to total turnover

Ratio is applied to the net CENVAT credit which is the credit of

inputs and input services less any reduction under Rule 3(5C)

Export turnover for goods is the value of goods cleared during the

relevant period, and exported

Export turnover for services is based on the services completed

during the relevant period 53

…Amendments to CENVAT Credit...

„Export service‟ has been separately defined and is to be

determined per the Export Rules, but irrespective of whether

payment has been received

Value of services is to be determined per Rule 6(3) and Rule

6(3A)

Total turnover is the sum of turnover from all excisable goods

cleared (exempted, dutiable or exported), all services provided

and any inputs removed as such

Refund is not available if benefit of drawback / rebate has been

availed

New refund scheme applies to export made on or after 01.02.2012

Refunds under the old rule may be claimed within 1 year from the

commencement of the new rule

54

…Amendments to CENVAT Credit...

Amendments to existing provisions relating to availment and

utilisation of CENVAT Credit

CENVAT Credit on Capital Goods removed as such (effective

from 17.03.2012)

CENVAT credit shall be paid on the depreciated value of the goods

(per the rates provided) or the transaction value, whichever is greater

CENVAT Credit in respect of inputs and capital goods will also be

allowed where inputs are delivered at a location other than the

premises of the service provider

Service provider opting not to maintain separate books of

accounts - Rule 6(3)

Rate at which payment is to be made has been increased from 5% to

6% of the value of exempted goods and services

The same applies to services exempted on condition that no credit of

inputs and input services have been taken

55

…Amendments to CENVAT Credit

Distribution of credit of Service Tax by an ISD has been restricted

(i) to the respective unit where the service is used wholly by that unit

(ii) to being carried out on a pro rata basis (per the turnover) of units

to which the service relates

Units are defined to include registered and unregistered premises of

manufacturers and service providers. Turnover is to be calculated per

the procedure prescribed for the new refund scheme.

Documents for availing credit have been amended to include

Challans evidencing payment

Interest provision has been amended

Payment of interest required only when CENVAT credit is both

taken and utilized wrongly

56

Place of provision of

Service Rules, 2012

Place of Provision of Service Rules, 2012…

An important component of the proposed changes is the

introduction of the Place of Provision of Services Rules, 2012,

which have been released for comments and feedback

Draft Guidance Paper-B has also been issued

The new rules will determine the place where a service shall be

deemed to be provided

The Place of Provision of Services Rules, 2012 will replace

the „Export of Services, Rules, 2005‟ and

„Taxation of Services (Provided from outside India and received in

India) Rules, 2006

58

…Place of Provision of Service Rules, 2012…

Basic philosophy - Service should be taxed in the jurisdiction of

its consumption

Rules Place of provision

Default Rule Service shall be deemed to be provided where the receiver is

located

Rule 4 - Performance

based services

Services provided “in respect of goods that are made physically

available, by the receiver to the service provider, in order to provide

the service” e.g. repair, reconditioning, or any other work on goods,

storage and warehousing etc.

Remote location by electronic means – place where goods are

situated at the time of provision of service

Services provided in conjunction with supply of goods under another

contract e.g. erection & commissioning

Services entirely or predominantly in the physical presence of

individual receiver. E.g. cosmetic or plastic surgery, beauty

treatment etc.

Rule 5 – Location of

immovable property

Services directly in relation to immovable property, where

immovable property (land or building) is located



Rule 6 – Services

relating to Events

Place where event is held (admission to, or organization of, a cultural,

artistic, sporting, scientific, educational, entertainment event, or a

celebration, conference…or any other similar event, and of services

ancillary to such admission)

Rule 7 - Part

performance of service

Service under Rules 4,5,6 provided at more than one location,

including a location in taxable territory, place of provision shall be the

location in the taxable territory where the greatest proportion of the

service is provided

Rule 8 – Provider as

well as receiver is

located in Taxable

territory

Location of Receiver – covers a situation where the place of provision

of service provided in taxable territory may be determinable to be

outside taxable territory, in terms of application of one of the earlier

Rules, but service provider, as well as service receiver, are located in

taxable territory

TRU - Where both provider and recipient located outside India , there

is no mechanism to collect tax

Rule 9 – Specified

services

Place of service provider. E.g. banking or financial company to

account holders, Telecommunication services, Online information and

database access etc.



Rule 10 – Place of

provision of a service of

transportation of goods

Is the place of destination of goods, except in the case of services

provided by GTA for transportation of goods by road, in which case place

of provision is location of the person liable to pay tax (as determined in

terms of rule 2(1)(d) of Service tax Rules, 1994.

Rule 11 – Passenger

transportation services

Place where the passenger embarks on the conveyance for a continuous

journey. Continuous journey means – journey for which single ticket issued

or more than one ticket or invoice has been issued for the journey, by one

service provider, or by an agent on behalf, at the same time, and there is

no scheduled stopover in the journey

Rule 12 – Service

provided on board

conveyances (aircraft,

vessel, rail or roadways

bus)

Examples – onboard services of movies/music/video/ etc. etc. albeit only

when provided against a specific charge, and not supplied as part of fare.

The place of provision during the course of passenger transport operation

is the first scheduled point of departure of that conveyance for the journey

Rule 13 – Power to

notify services or

circumstances

In order to prevent double taxation or non-taxation of the provision of a

service, or for the uniform application of rules, Central Government shall

have power to notify any description of service or circumstances in which

the place of provision shall be place of effective use and enjoyment of a

service.

Rule 14 – Order of

application of Rules

Moe than one Rule - Rule that occurs later among the rules that merit

equal consideration

…Place of Provision of Service Rules, 2012

Liability to pay Service tax

Service provider

Service recipient where service provider located outside India and

place of provision of service is in taxable territory

Mumbai1502, A Wing, Dalamal Towers, Nariman Point, Mumbai 400 021

Phone: + 91 22 6636 7000, Fax: + 91 22 6636 7172, Email: [email protected]

Delhi405-406, 4th Floor, World Trade Centre, Barakhamba Lane, New Delhi 110 001

Phone: + 91 11 4152 8400, Fax: + 91 11 4152 8404, Email: [email protected]

Ahmedabad801, Abhijeet III, Mithakali Six Roads, Ellisbridge, Ahmedabad-380 006

Phone: +91 79 6605 4480 / 8, Fax: +91 79 6605 4482, Email: [email protected]

PuneSuyog Fusion, 7th Floor, No.1, 97 Dhole Patil Road, Nr. Ruby Hall Clinic, Pune 411 001

Tel:+91 20 4146 7400 / 02 Fax:+91 20 4146 7499