krishan garg & co. chartered accountants email: [email protected]

Krishan Garg & Co. Chartered Accountants Email: [email protected]

Budget ChangesIn Service Tax

Finance Bill 2012

For private circulation only


Effect of Union Budget 2012

with Service tax Perspective

Rate of Tax


Rate of service tax has been increased from 10% to 12%. Due to this increase of 20% in basic rate, corresponding changes have been made in composite rate of tax. This will also increase the effective rate of tax where abatement/exemption is available to a service provider/ receiver. Revised rate of tax would be as under:-


Effective date: This change will take effect from 1st April, 2012.

S.no. Name of Service Rate of Abatement (%) Effective Rate of Tax (%)

1. Normal Rate of Tax N.A. 12.36

2. Goods Transport Agency Service 75 3.09

3. Construction Services 75 3.09

4. Restaurant Services 60 4.94

5. Hotel Room Accommodation 40 7.42

6. Works Contract Service N.A. 4.94

7. Convention, Mandap Keeper, Pandal Shamiana with catering

30 8.65

8. Outdoor Caterer 40 7.42

Common form of registration & return


A common simplified form has been prescribed for excise as well as service tax for registration and filling of return. Return form EST-1 has also been prescribed which will be of one page.

Payment of Service Tax

Rules relating to payment of service tax has been rationalised. At present only Individuals or Firms are allowed to pay the taxes on quarterly basis. Now this relaxation has been given to every small assessee. The same can be understood with the following table:-



S.No. Amount of tax paid in previous year

Individual/Firms & New Assessee (Irrespective of constitution)

Other than Individual/Firms

1 Upto Rs. 25.00 lacs Quarterly Quarterly

2 More than Rs. 25.00 lacs Quarterly Monthly

In an another important change, now every Individual or firm (including LLP) can pay service tax on receipt basis provided their turnover in previous year (FY 2011-12 for 2012-13) towards taxable service was upto Rs. 50.00 lacs.

Periodicity of filling of Return

At present service tax assesses are required to file return on six monthly basis. Now for large assesses (not defined) periodicity of filling of return reduced from 6 months to 1 month. Other assesses are required to file return as usual on six monthly basis.


New levy of Service Tax on Railway Passengers

Service Tax has been levied on A.C./First Class passengers with an abatement of 70% i.e taxable value would be 30% of ticket value. Considering tax rate of 12.36% the effective rate would be 3.71%. This will increase the travelling cost of a common man.Krishan Garg & Co. Chartered Accountants Email: [email protected]

Cenvat Credit can be availed on Motor Vehicle

In the budget 2011, there was a restriction imposed on taking cenvat credit of service tax on motor vehicle. Now from this budget, this restriction has been withdrawn. Therefore now assessee can take cenvat credit of service tax paid on repair or maintenance or Insurance of a motor vehicle except commercial vehicle used for transport and classifiable under chapter heading 8702, 8703, 8704 and 8711.


Cenvat Credit reversal for exempted service

In accordance with change in rate of tax, cenvat credit reversal required under Rule 6(3) of Cenvat Credit Rules, 2004 towards exempted service is also increased from 5% to 6%. Krishan Garg & Co. Chartered Accountants Email: [email protected]

Negative List

A revolutionary change has been made in the concept of service tax. Now taxation will be based on a Negative List. The simple meaning of this newly introduced concept is that apart from the services defined in this Negative List all the other services would be taxable subject to exemption given to the specific service. Now this Negative list along with Exemption notification 12/2012 where list of exempted services are given would become Geeta/Kuran/Bible for a service tax payer.



These Negative list services as prescribed in new section 66D are:-

S.no.

SERVICE

A. Services by Government or Local Authority excluding the following services means these are taxable:-

1. Speed Post, Express Parcel post, Life Insurance provided to other than Government.

2. Services relating to an Aircraft or a vessel3. Transport of goods or passengers4. Support services other than (i) to (iii) above.

B. Services by RBI

C. Services by Foreign Diplomatic Mission located in India

D. Services relating to agriculture

E. Trading of goods

F. Any process amounting to manufacture or production of goods.

G. Selling of space or time slots for advertisement other than advertisements broadcast by radio or television.

H. Service by way of access to a road or a bridge in payment of toll charges.


S.No.

SERVICE

I. Betting, Gambling or lottery.

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

K. Transmission or distribution of electricity by an electricity transmission or Distribution agency.

L. Services by way of-i. Pre-school education and education upto higher secondary school or

equivalentii. Education as a part of a curriculum for obtaining a qualification recognised

by lawiii. Education as a part of an approved vocational education course.

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

N. Services by way of-i. Extending deposits, loans or advances for interest or discount.ii. Inter sale or purchase of foreign currency

O. Services of transportation of passengersi. by a stage carrier or by railway other than First class or an air conditioned

coachii. Metro/Mono Rail or tramwayiii. Inland waterwaysiv. Public transport in a vessel of less than 15 tonne net (other than for

tourism purpose)v. Metered cabs, radio taxi or auto rickshaws

P. Services by way of transportation of goods-i. By Road except GTA and a courier agencyii. By an aircraft or a vessel from a place outside India to the first customs

station of landing in Indiaiii. By Inland waterways

Q. Funeral, burial, crematorium or mortuary services including the transportation of the deceased

All the Exempted services listed in single notification

At present there are various exemptions given to a service provider either through issuing notification or it is given in the definition itself. Now all these exemptions have been clubbed in one notification no. 12/2012-Service Tax dated 17-03-2012. There are 34 services listed in the said notification. This list can be called a `General Exemption’ list. Krishan Garg & Co. Chartered Accountants Email: [email protected]

Interest on loans, advances are considered as exempted services

Interest earned on loans and

advances given to other party would now be exempted income. This is an important amendment since cenvat credit will also be required to reverse in proportion to such income in proportion to total taxable service.


Special Audit provisions are made applicable to Service Tax also

Like Excise Duty special audit

provisions have also been made applicable to service tax.


Cenvat Credit for Banks

In the last budget, Banks were

allowed to take cenvat credit of 50% of total cenvat credit as per Rule 6(3D) if they don’t want to maintain separate records for taxable as well as non taxable service. This facility has been withdrawn.


Service word has been defined for the first time

Government is collecting tax

on service for the last 18 years however there was no definition given to the word `Service’. Now government has dared to define the service word under a new section 65(B)(44).


Cenvat Credit Bonanza to Hotels, Restaurant & Outdoor Caterers

In the last year budget, service tax was imposed on food and drink served in Restaurants (having liquor license and Air conditioned facility) and on room accommodation provided by hotels. They were allowed abatement in value of service with the condition that they will not be entitled for cenvat credit facility. Similar provisions were there with outdoor catering Service which was already in the list of taxable service since 10-09-2004.



S.No. Name of Service Present abatement

Proposed Present effective rate (%)

Proposed effective rate (%)

1. Food or drink served in Restaurant

70% 60% 3.09 4.94

2. Outdoor Catering 50% 40% 5.15 7.42

3. Hotel Room Accommodation

50% 40% 5.15 7.42

Now they are being allowed to take cenvat credit on Capital Goods, Specified inputs and input services by slight decrease in rate of abatement as given below:-

Time limit for issue of Show Cause Notice

Time limit for issuing show cause notice u/s 73 has been increased from 12 months to 18 months.


Settlement Commission

Provisions relating to Settlement Commission which are at present available under Excise Act are also made applicable in Service Tax cases which will encourage quick settlement of disputes.


Time limit for filling appeal before Commissioner (Appeal) reduced

Time limit for filing the appeal

before Commissioner (Appeal) reduced from 3 months to 2 months. This will take effect only on the orders passed after the date on which Finance Bill 2012 receives the assent of the President.


Reverse charge

Till now only certain category of persons like in case of GTA, Mutual Funds, service receiver was directly liable to make payment under reverse charge mechanism. Here the total amount of service tax was payable by service receiver.

In a surprise move, to curb the evasion of tax four category of service has been identified where service provider and receiver both will have to pay tax at a prescribed percentage. The only condition is that in these cases service provider should be either an individual or a firm or LLP and the recipient should be a body corporate. Krishan Garg & Co. Chartered Accountants Email: [email protected]


S.No. Description of Service Service Recipient Service Provider

1. Hiring of motor vehicle designed to carry passengers (With abatement)

100% Nil

2. Hiring of motor vehicle designed to carry passengers (Without abatement)

40% 60%

3. Supply of Manpower 75% 25%

4. Works Contract Service 50% 50%

These four services are:-

Big Relief for Service Tax payers under Renting service

In a big relief to the Service

Tax payers under the category of Renting of Immovable Property Services, no penalty will be levied on the person who pay the service tax due as on 06/03/2012 in full along with interest within six months from the date on which section 80A comes into existence.


Retrospective amendment beneficial to tax payer

Normally Government makes certain amendments retrospectively to overcome from the court judgements. Surprisingly for the first time certain retrospective amendment has been proposed to give relief to the tax payer. Some of the important retrospective changes are given below:-



1. In case of service provided to SEZ there is no need to reverse the cenvat credit considering the SEZ service as exempt service. This effect is given from 10-02-2006

2. Repair of Road has been exempted from payment of tax from 16-06-2005.

3. Repair services relating to Non Commercial Government Building has also been exempted from 16-06-2005.

POT Rules

In POT Rules, time period for issue of invoice increased from present 14 days time limit to 30 days. This limit if further increased to 45 days for Banks and Financial Institutions.


Works Contract Service

Residential complex services has also been included in works contract services. Now, the service tax payer of the construction services can get themselves registered under this category of services and can get cenvat credit benefits with certain conditions.


Residential complex service

At present, residential complex service is taxable only when a complex consists of more than 12 dwelling units. Now the finance minister has very cleverly defined the residential complex as a complex having more than 1 dwelling unit and have imposed service tax on every such complex. Considering this now every flat purchaser will have to pay service tax.


Abatement on completion and finishing services

Till now there was no abatement available on completion and finishing services. An abatement of 40% has been proposed by the finance ministry, which is a welcome step.


Last but not the least

Following are some other changes proposed in the budget:-

1. Exemption limit for the members paying maintenance charges to Resident Welfare Society increased from 3000/- p.m. to 5000/- p.m.

2. Further simplified scheme for exporters for getting refund of service tax.

3. Now there is no limit for self adjustment of excess service tax paid. Previously there was a limit of Rs. 2.00 lacs.


Krishan Garg and Co.Chartered Accountants

Address:411, Chetak Centre,R.N.T. Marg, Indore

Contact:098260-520600731-2520604Email: [email protected]

krishan garg & co. chartered accountants email: [email protected]

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