3/31/2015 2

This presentation has been made as

a part of initiatives to provide

educational assistance in

understanding the levy of service

tax. It does not command any

statutory status and the users are

strictly advised to refer to only the

legal texts while drawing any

inference on any issue

Topics

Changes made in Finance Act,1994– Section 65B, 66D (Negative List), 67 , 76 & 78

Service Tax Rules,1994 ( Rule

Cenvat Credit Rules,2004

Review of exemptions– With drawl of exemptions

– New exemptions

– Reverse charge Mechanism

– Change in Abatement

Rate of service tax is being increased

The rate of Service Tax is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax.

The effective increase in Service Tax rate will be from the existing rate of 12.36% (inclusive of cesses) to 14%, subsuming the cesses.

[Ref: Clauses 179 and 187 respectively of the Finance Bill, 2015]

Edu., and SHE Cess subsumed

Levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect from a date to be notified by the Government.

‘Education Cess’ and ‘Secondary and Higher Education Cess’ will continue to be levied in Service Tax, till the time the revised rate comes into effect, the

Swachh Bharat Cess

An enabling provision is being incorporated in the Finance Bill, 2014 (Chapter VI/clause 117) to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services.

This cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015.

Pruning - Negative List

The certain changes proposed in the Negative List in Section 66 D so as to widen the scope of service tax.

Changes in the Negative List shall come into effect from a date to be notified later, after the enactment of the Finance Bill, 2015.

Pruning - Negative List

All services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax. [ 66D(a)(iv)]

Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration. [66D-(f)]

Service Tax shall be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks. [66D-(j)]

66D(a)(iv)

Before Budget (a)services by Government or a

local authority excluding the following services to the extent they are not covered elsewhere—

(i) (ii) (iii) (iv) support services, other than

services covered under clauses (i) to (iii) above, provided to business entities;

After Budget (a) services by Government or a

local authority excluding the following services to the extent they are not covered elsewhere—

(i) (ii) (iii) (iv) any, other than services covered

under clauses (i) to (iii) above, provided to business entities;

Scope of amendmentAll Services provided by Government to business entities henceforth attract levy of service tax.

66D-Negative List (f)

Before Budget

(f) any process amounting to manufacture or production of goods;

After budget

“(f) services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption;”;

Scope of amendment:Manufacturers of Indian Made Foreign Liquor on job work basis will come under the purview of Service Tax

66D-Negative List (j)

Before

(j) admission to entertainment events or access to amusement facilities;

After

(j) omitted

Scope of amendment:Service Tax shall be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

Section 65B Interpretations

‘(23A) “foreman of chit fund” shall have the same meaning as is assigned to the term “foreman” in clause (j) of section 2 of the Chit Funds Act, 1982;’

‘(31A) “lottery distributor or selling agent” means a person appointed or authorised by a State for the purposes of promoting, marketing, selling or facilitating in organising lottery of any kind, in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998’;

Section 65B Interpretations

‘(26A) “Government” means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder;’;

Section 65B Interpretations

Before Budget

• (40) "process amounting to manufacture or production of goods" means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force;

After Budget

• (40) "process amounting to manufacture or production of goods" means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or any process amounting to manufacture of, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force;

Service Tax Rules, 1994

in rule 2, in sub-rule (1),-

‘(aa) “aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator;’

Scope of Services “aggregator”

Electronic commerce business model where a firm (that does not produce or warehouses any item) collects (aggregates) information on goods and/or services from several competing sources at its website. The firm's strength lies in its ability to create an 'environment' which draws visitors to its website, and in designing a system which allows easy matching of prices and specifications

Eg: Flipkart, Meru, Uber, Youtube,Myindra, Amazon, ebay , snapdeal etc

Valuation of taxable services

All reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in section 67.

Section 67 Explanation

• (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided;

Before Budget

• ‘(a) “consideration” includes–• (i) any amount that is payable for the taxable services provided or to be

provided; • (ii) any reimbursable expenditure or cost incurred by the service provider

and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

• (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.’.

After Budget

Section 73

A new sub-section (1B) is being inserted to provide that recovery of the Service Tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73; and

Sub-section (4A) that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.

Penalty- Section 76

No penalty is to be paid if Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order;

Section 76

Section 76 is being amended to rationalize the provisions relating to penalties, in cases not involving fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax, in the following manner,-

(a) penalty not to exceed ten per cent. of Service Tax amount involved in such cases;

(b) no penalty is to be paid if Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

(c) a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

Penalty -Section 76

Penalty under Section 76 Conditions

No penalty Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

25% of the Penalty imposed under Section 76

Service Tax, interest and penalty is paid within 30 days of such order;

Penalty not to exceed ten per cent. of Service Tax amount involvedin such cases;

Other then above

Section 78

Section 78 is being amended to rationalize penalty in the following manner,-– penalty shall be hundred per cent of Service Tax

amount involved in such cases; – a reduced penalty equal to 15% of the Service Tax

amount is to be paid if Service Tax, interest and reduced penalty is paid within 30 days of service of notice in this regard;

– a reduced penalty equal to 25% of the Service Tax amount, determined by the Central Excise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

Penalty -Section 78

Penalty under Section 78 Conditions

15% of the Service Tax amount involved in such cases;

Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

25% of the service tax amount involved in such cases;

Service Tax, interest and reduced penalty is paid within 30 days of such order;

Penalty e equal to 100 per cent. of Service Tax amount involvedin such cases;

Other then above

Waiver of penalty

Section 80, that provided for waiver of penalty in certain circumstances, is being omitted.

Review of Exemptions

Withdrawal of exemptions.

New Exemptions.

Change in the Rate of abatement.

Change in reverse charge mechanism.

Others.

Notification No.25/2012 Sl.No.2

Before Budget

• (2)Health care services by a clinical establishment, an authorised medical practitioner or para-medics;

After Budget

• “2. (i) Health care services by a clinical establishment, an authorised medical practitioner or para-medics;

• (ii) Services provided by way of transportation of a patient in an ambulance, other than those specified in (i) above;”

Notification No.25/2012 Sl.No.12

• (12)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 -

• (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

• (c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

• 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 Act;

Before Budget

• 12, items (a), (c) and (f) shall be omitted;

After Budget

Effect of amendment

Services provided to Government with regard to construction of various type of buildings such as an educational, (ii) a clinical, (iii) an art or cultural establishment or a residential complex will attract levy of service tax

Example– CPWD and all contractors of CPWD

– State Public works Department

– Housing Corporations of various government department Police, Navy etc

Mega Exemption 25/2012

Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST). The other exemptions covered under S.No. 14 of notification No. 25/12-ST shall continue unchanged.

Notification No.25/2012 Sl.No.14

Before Budget

• 14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,—

• (a) an airport, port or railways, including monorail or metro;

After Budget

• 14. Services by way of construction, erection, commissioning, or installation of original works pertaining to,—

• (a) railways, including monorail or metro;

Mega Exemption 25/2012

Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs. 1,00,000 for a performance (S. No.16 of notification No. 25/12-ST).

Notification No.25/2012 Sl.No.16

Before Budget

• 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;

After Budget

• 16. Services by an artist by way of a performance in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, if the consideration charged for such performance is not more than one lakh rupees:

• Provided that the exemption shall not apply to service provided by such artist as a brand ambassador.”;

Mega Exemption 25/2012

Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt.

Transportation of agricultural produce is separately exempt, and this exemption would continue (S. Nos. 20 and 21 of notification No. 25/12-ST).

Notification No.25/2012 Sl.No 20

Before Budget

• 20. Services by way of transportation by rail or a vessel from one place in India to another of the following goods—

• (i) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

After Budget

• 20. Services by way of transportation by rail or a vessel from one place in India to another of the following goods—

• "(i) milk, salt and food grain including flours, pulses and rice;

Notification No.25/2012 Sl.No 21

Before Budget

• 21. Services provided by a goods transport agency by way of transportation of—

After Budget

• 21. Services provided by a goods transport agency by way of transportation of—

• "(d) milk, salt and food grain including flours, pulses and rice;";

Before Budget

• 29 Services by the following persons in respective capacities—• (c) mutual fund agent to a

mutual fund or asset management company;

• (d) distributor to a mutual fund or asset management company;

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

After Budget

• 29(c),(d) and (e) omitted

Notification No.25/2012 Sl.No 29

Notification No.25/2012 Sl.No 30

Before Budget

• 30. Carrying out an intermediate production process as job work in relation to –• (c) any goods on which

appropriate duty is payable by the principal manufacturer; or

After Budget

• 30. Carrying out an intermediate production process as job work in relation to –• (c) any goods excluding

alcoholic liquors for human consumption on which appropriate duty is payable by the principal manufacturer; or

Notification No.25/2012 Sl.No.32

Before Budget

• 32. Services by way of making telephone calls from—

• (a) departmentally run public telephone;

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

• (c) free telephone at airport and hospital where no bills are being issued;

After Budget

• 32. Omitted

Notification No.25/2012 as amended by 6/2015 ST

43. Services by operator of Common Effluent Treatment Plant by way of treatment of effluent;

44. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables;

45. Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo;

Notification No.25/2012 as amended by 6/2015 ST

46. Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members;”;

47. Services by way of right to admission to,-

(i) exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet; (ii) recognised sporting event; (iii) award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than Rs 500 per person.”.

Notification No. 31/12-ST dated 20.6.2012.

Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

Abatement notification 26/2012 ST

A uniform abatement is now being prescribed for transport by rail, road and vessel and Service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.

– ( Abatement for GTA is reduced from 75% to 70%- effect from the 1st day of April, 2015. (Refer Notification No: 8/2015 ST dated 01/03/2015)

New rate of abatement

Taxable service Abatementbefore budget

Abatement after Budget

Old Rate New rate

Transport of Goods by Transport Agency

75% 70% 3.09% 4.20%

Transport of Goods Coastal Vessel

60% 70% 4.944% 4.20%

Abatement notification 26/2012 ST

At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and Service Tax would be payable on 60% of the value of such higher classes.

Abatement is being withdrawn from services provided in relation to chit. Consequently, Service Tax shall be paid by the chit fund foremen on the full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit.

The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015.

Reverse Charge Mechanism

Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

services provided or agreed to be provided by a mutual fund agent or distributor, to a mutual fund or asset management company.

service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent

service provided or agreed to be provided by a person involving an aggregator in any manner

Come into force on the 1st day of April, 2015. (Refer Notification No;7/2012 dated 01/03/2015)

Cenvat Credit Rules, 2004

Rule 4(7) is being amended to allow Cenvat Credit of Service Tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider. This change will come into effect from 1.4.2015.

The period for taking Cenvat Credit is being extended from six months from the date of invoice to one year from the date of invoice.

Service Tax Rules, 1994

in rule 2, in sub-rule (1),-

‘(aa) “aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator;’

Service Tax Rules, 1994

Rule 4 is amended to for registration in service tax. Order No. 1/15-ST, dated 28.2.2015 has been issued, prescribing documentation, time limits and procedure for registration.

A provision for issuing digitally signed invoices is being added along with the option of maintaining of records in electronic form and their authentication by means of digital signatures. (Rule 4, 4A and 5).

References

F. No. 334/5/2015-TRU dated 28/02/2015

Notification No. 03/2015 to 09/2015 ST all dated 28/01/2015

Notification No: 6/2015 CE NT

www.cbec.gov.in

www.indiabudget.gov.in

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Presented By:B.Venkateswaran, Assistant CommissionerVizag ST.IA Division, Vizag I Commissionerate.