Budget 2005

By

Jai Kumar, Natarajan, Karthikeyan

SERVICE TAX

SSI - For Service Tax

No service tax for the first realisation of Rs.4 Lakhs in a Financial year. (Exemption Limit : Rs. 4 Lakhs)

- If the value of taxable services renderedduring the preceding financial year is less than Rs.4 Lakhs. (Eligibility limit of Rs.4 lakhs)

Other conditions ...

No Cenvat Credit can be availed in respect of the input services, used for rendering the taxable service, for which the exemption is claimed.

No Cenvat credit can be availed in respect of theinputs and capital goods, received during the period, in which exemption is availed.

Why restriction on capital goods?

Other conditions ...

At the time of claiming this exemption, credit already availed, in respect of the inputs lyingin stock or in process, shall be paid back.

Balance credit, if any, shall lapse.

It cannot be used for any other purpose also. (Eg. Payment of excise duty on final products).

Exemption not entitled, if service is rendered under the brand name of another person.

Other conditions ...

Exemption limit to be calculated, by taking intoaccount all services and all premises.

Exemption limit, not to include the value of taxable service, which is exempted from the levy of service tax.

Eligibility limit to be calculated, by taking into account, all premises.

No exclusions envisaged while determining eligibility limit.

Practical issues…

Value of taxable service, during preceding financial year.

Premises I Service A : Rs.1,00,000. Service B : Rs.1,25,000.

Premises II Service A : Rs.75,000.

Service C : Rs.1,50,000.

Not entitled.

Am rendering two categories of taxable services.Can I avail the exemption for one service andpay service tax on one service?

No.

While calculating the exemption limit, the serviceon which you are paying service tax will also be considered together.

Practical issues…

Practical issues…

2004-2005Total value of taxable service rendered : Rs.3,50,000

Service Tax thereon : Rs.35,000

Realisation during 2004-05 : Rs.3,00,000

Service Tax paid : Rs.30,000

Outstanding amount : Rs.50,000

Service tax payable : Rs.5000

Practical issues…

2005-2006Availed exemption for fresh realisations : Rs.3,50,000

Outstanding amount, nowrealised : Rs.50,000

Service tax realised thereon : Rs.5000.

This should also be included in the exemption limit, since consecutive payments have to be considered together.

As such, the exemption limit gets saturated, thoughexemption is availed only for Rs.3,50,000.

If the collected service tax is not paid, Section 11 D will be attracted.

Any solution in sight?

Ask the debtor, to pay only the value and not service tax!

Ask the debtor, not to pay, until you exhaust your exemption limit!

Is that all practically possible?

GTA & SSI

Goods Transport Agency is entitled to claim this exemption, whenever it is liable for payment of service tax, by itself.

Persons availing the benefit of GTA and are liable for payment of service tax, are not entitled to clam this exemption.

All those who are liable for payment of Service Tax under Section 68 (2), are not entitled for claiming this exemption.

GTA & SSI

When a GTA claims this exemption, the value of taxable service, for which the consignor / consignee have paid service tax, shall not be taken into account, while determining the exemption limit.

GTA & SSI

Calculation of eligibility limit for GTA.

- Value, in respect of which the consignor / consignee has paid service tax, shall also be taken into account.

- Values, which are exempted, being less than Rs.1500 / Rs.750, as the case may be shall also be taken into account.

- Even if service tax is paid on 25 % of the freight, the full amount of freight shall be taken into account.

Fresh levies

a) Transport of goods, other than water, through pipeline or conduit.

b) Site formation and clearance, excavation, earthmoving, demolition, including, i) drilling, boring and core extraction; ii) soil stabilisation; iii) horizontal drilling; iv) land reclamation; etc.

But does not include services in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies.

c) Dredging of rivers, port, harbour, backwater or estuary.

d) Survey and map making.

e) Cleaning services - including specialised cleaning - of

commercial or industrial buildings / premises;

factory, plant or machinery, tank or reservoir of such commercial / industrial buildings.

Exclusion : agriculture, horticulture, animal husbandry or dairying/

f) Services by clubs or associations, to its members, in relation to provision of services, facilities or advantages.

Exclusion : - Body constituted under any law. - trade unions, promotion of agriculture, horticulture or animal husbandry. - charitable, religious or political. - associated with press or media.

g) Packaging - manufacture excluded.

h) Mailing list compilation and mailing.

i) Construction of residential complexes, having more than 12 units.

All new levies to be effective, after the enactment of the Finance Act, 2005

Withdrawal of levy

Services rendered by authorised service stations, in respect of Light Motor Vehicles.

Expansion of existing levies ...

Services rendered by authorised service stations :

- to cover reconditioning and restoration also.

Scope of broadcasting services, expanded.

Beauty Parlour to cover hair cutting, hair dyeing and hair dressing.

Hair dyeing continue to be exempted under Notification 11/2002 Dt. 01.08.2002.

Business Auxiliary Service.

“production of goods on behalf of the client” replaced with “production or processing of goods for, or on behalf of the client”.

Commission agent is defined in the Act itself.

Commercial or industrial construction.

Expanded to cover :

Construction of pipe line or conduit.Completion and finishing services also, such as painting, carpentry, wall covering, etc.

Erection, Commissioning or Installation.

Expanded to cover :

Installation of specific items, like electrical or electronic devices, plumbing, heating, ventilation, air conditioning, insulation, lift, escalator, etc.

Maintenance or repair service.

Expanded to cover :

Services provided under any contract or agreement, as against maintenance contract or agreement. Reconditioning and restoration added.Maintenance or management of immovable property is covered.

Roadside repair shops, to be covered?

Labour contractors to be covered under manpower recruitment or supply agency.

Canteens in factories, etc. covered under outdoor catering service.

Scope of sound recording expanded.

Scope of video production expanded.

Other important changes

Service to be provided is also taxable service. As a result, service tax is payable even on advance receipts.

Service rendered by a foreign person, to an Indian recipient is deemed to be a taxable service. Defence of “service rendered outside India” - can no longer be pleaded.

Adjudication procedures streamlined.

Other important changes

Centralised Registration Procedure streamlined.

Invoice has to be raised by the service provider, within 14 days of completion of service or receipt of payment, whichever is earlier.

Due date for payment of service tax made as 5th of succeeding month / quarter. Effective from 01.04.2005.

Exemption to Business Auxiliaryservice

Production of good on behalf of client(Not production or processing of goods for or on behalf of the client) is exempted.

- Raw materials or semi-finished goods should be supplied by the client.

- Goods produced, to be returned to the client.

- Client shall use it in or in relation to manufacture of goods, on which “appropriate duty” of excise is payable.

Exemption to Business Auxiliaryservice

What if the job worker also uses his own raw materials / consumables? What if the job worker directly removes the processed goods, as directed by his client? What if the job work is done for a SSI unit? What if the client exports the goods? What if the client removes some of the processed goods, under any other exemption?

CENTRAL EXCISE

Changes in SSI Exemption

Eligibility limit i.e. preceding year’s value of clearances - enhanced to Rs. 4 Crore.

Notification 9/2003 - Rescinded.

SSIs to file declaration, after crossing Rs.40 lakhs, as against Rs.90 Lakhs now.

Cenvat Credit Rules

Retrospective amendment to Rule 57 CC / 57 D / 57 AD / 6.

Credit of AED (GSI) paid before 01.04.2000.

Fresh levy of Additional Duty of Customs - Cannot be used for payment of service tax. Such duty on capital goods, can be availed in one installment.

Procedural

Absolute exemption granted under Sec. 5 A - To be availed compulsorily.

Scope of Advance Ruling Authority - widened.

Review of orders of Commissioner (A) and Commissioners, which was hitherto done by Commissioners and Board, respectively, will henceforth be done by a committee of two Chief Commissioners.

Fresh levies and enhanced levies

Additional duty levied on various tobacco products.

Mosaic tiles - 8 %.

Molasses - enhanced to Rs.1000 PMT.

Iron & Steel - enhanced to 16 %.

Road tractors - 16 %.

Branded jewellery - 2 %. Process of affixing brand name would amount to manufacture. Detailed job work procedure prescribed.

Reduced levies & complete exemption

Tea & tea waste exempted.

Air conditioners - 24 % to 16 %.

Matches - mechanized / semi mechanized 16 to 12 %.

Imitation jewellery - 16 % to 8 %.

LPG and kerosene - NIL.

8 % SED on goods of chapter 54, exempted.

Independent processors of Chapter 54 made eligible for optional levy schemes for the textile sector.

CUSTOMS

4 % Additional Duty levied on certain IT products. No CESS thereon.

Peak rate reduced to 15 %.

Reduced to 10 % for specified textile machineries.

THANKS