service tax changes
TRANSCRIPT
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PROJECT REPORT
Change in services Tax by Finance Act, 2012
Introduction of Negative List - Changes in Service Tax law effective 01.07.2012
INTRODUCTION
The Finance Minister announced implementation of a new system for taxation of services
popularly known as the Negative List while presenting the Budget on 16 March 2012 for the
fiscal year 2012-2013. The Govt. of India by clause No.143 to 145 of the Finance Bills 2012, had
proposed constitutional amendment relating to the service tax law and accordingly said Bills has
been received the assent of the president and as a result of which many changes has been taken
place in the Finance Act, 1994 and related Service Tax Rules effective 1st day of July, 2012.
After the enactment of the Finance Bill 2012 on 28 May 2012, Notification was issued on 06
June 2012 notifying 01 July 2012 as the date for implementation of Negative List. This would
mark a paradigm shift from the way in which the services would be taxed w.e.f., 01 July 2012.
That is to say, all services would be subject to service tax unless specified in the Negative List or
are specifically exempted from the levy of service tax.
To implement such a significant change, series of notifications have been issued on 20 June
2012, inter alia, superseding old exemption notifications, introducing new exemptions, amending
the manner of valuing services and to determine the import or export of services etc.
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The Central Government has issued a total of sixteen new notifications numbering from
25/2012-ST to 40/2012-ST on 20th June, 2012. These notifications along with two further
important notification issued on 29th Jun12 will assist in implementation of new regime of
Service Tax based on negative list of services.
All these notifications (dated. 20.06.2012 in particular) shall come into force on the 1st day of
July, 2012.
1) 25/2012-ST 20.06.2012 Mega exemption notification
2) 26/2012-ST 20.06.2012 Abatement Notification to be suitably read with 30/2012 ST
20.06.2012 for reverse charge mechanism
3) 27/2012-ST 20.06.2012 Exemption to services for the official use of foreign Diplomatic
Mission
4) 28/2012-ST 20.06.2012 Place of Provision of Services Rules,2012
5) 29/2012-ST 20.06.2012 Exemption on property tax paid on immovable property
6) 30/2012-ST 20.06.2012 REVERSE CHARGE MECHANISM under sub-section (2) of
Section 68 of Finance Act to be suitably read with 26/2012 ST 20.06.2012
7) 31/2012-ST 20.06.2012 Exemption to specified services received by exporter of goods
8) 32/2012-ST 20.06.2012 Exemption of services provided by TBI/ST 20.06.2012EP
9) 33/2012-ST 20.06.2012 Exemption to Small Service Providers
10) 34/2012-ST 20.06.2012 Rescinding of certain notifications
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11) 35/2012-ST 20.06.2012 Rescinding of notification 32/2007-ST 20.06.2012
12) 36/2012-ST 20.06.2012 Amendment in Service Tax Rules, 1994
13) 37/2012-ST 20.06.2012 Seeks to amend Point of Taxation Rules, 2011
14) 38/2012-ST 20.06.2012 Amendment of Notification 28/2011-ST 20.06.2012
15) 39/2012-ST 20.06.2012 Notification under Rule 6A of Service Tax Rules
16) 40/2012-ST 20.06.2012 Special Economic Zones
17) 41/2012-ST dated. 29.06.2012 grants rebate of service tax paid on the taxable services
which are received by an exporter of goods and used for export of goods
18) 42/2012-ST dated. 29.06.2012 exempts Service provided by the Foreign Commission Agent
to Indian Exporters for procuring order subject to fulfillment of certain conditions specified
therein
19) 43/2012-ST dated. 02.07.2012 exempts the taxable services provided by the Indian Railways
from the whole of service tax levi-able thereon, w.e.f. 02.07.2012 up to and including the 30th
day of Sep 2012 i.e., for 3 months (July12 to Sep12)
Through this document we have made an effort to encapsulate all the relevant and key
amendments that would impact the business and transactions. All implications mentioned in this
note would be applicable w.e.f., 01 July 2012.
These Negative list services as prescribed in new section 66D are:-
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a) Services by Government or Local Authority excluding the following services means these
are taxable:-
(i) Speed Post, Express Parcel post, Life Insurance provided to other than Government.
(ii) Services relating to an Aircraft or a vessel
(iii) Transport of goods or passengers
(iv) 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.
i) Batting, Gambling or lottery
j) Admission to entertainment events or access to amusement facilities
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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 equivalent
(ii) Education as a part of a curriculum for obtaining a qualification recognized by law
(iii) 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 passengers
(i) By a stage carrier or by railway other than First class or an air conditioned coach
(ii) Metro/Mono Rail or tramway
(iii) Inland waterways
(iv) 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 agency
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(ii) By an aircraft or a vessel from a place outside India to the first customs station of
landing in India
(iii) By Inland waterways
q) Funeral, burial, crematorium or mortuary services including the transportation of the
deceased
DEFINITION OF SERVICE
For the first time since the introduction of service tax law, term service has been defined under
the Negative list regime to mean any activity carried out by a person for another for
consideration, and includes a declared service. Taxable service provided only in the Taxable
Territory shall be taxed. Such determination is to be done in terms of Provision of Services
Rules, 2012. In this context, Taxable Territory has been defined to mean whole of India
excluding state of J&K.
The term activity has not been defined but a very wide and broad interpretation has sought to be
provided. It has been clarified that activity could be active or passive and would also include
forbearance to act. In this context, agreeing to the obligation to refrain from an act or to
tolerate an act or a situation has been declared to be a service. Therefore, it seems that there is a
possibility that following could fall within the scope of service tax net w.e.f., 01 July 2012:
o Assignment or novation of a contract for a considerationo Transfer of right to use all types of Intellectual Property (including software)o Agreeing to perform/non-perform in a certain way or manner i.e., to say non-
compete agreements etc.
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o Payment of fees to non-executive directorHowever, following have been clarified to be out of the ambit of term service
o Any transaction in money or actionable claimo Transfer of title in goods or immovable property (i.e. sale, gift etc.) or deemed
sale as per article 366(29A). However, a dichotomy with regard to dual taxability
of software seems to continue.
o Services provided under an employer-employee relationshipIn view of the above, an undertaking may like to do an analysis of all revenue/expenses of its
companies to ascertain the risk or exposure, if any, of certain transactions or activities falling
under tax net on account of the introduction of Negative List.
VALUATION OF SERVICE
Certain significant amendments have also been introduced in the valuation principles of services.
Key amendments have been highlighted below:
Inclusions:
Amount realized as demurrage (or by any other name called) for provision of service beyond the
period originally contracted or in any manner relatable to the provision of service.
Exclusions:
Interest charged or paid on delayed payments, Accidental damages due to unforeseen actions not
relatable to provision of service
Key Exemptions
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Following key exemptions have been provided from levy of service tax:
o Services by way of transfer of a going concern as a whole or an independent part thereofo Services received and provided between persons located in a non-taxable territory. For
instance, design services provided by SAG to another foreign entity in respect of an
Indian project, there should be no service tax implication on SAG. This is in line with
current provisions.
o Sub-contractor providing works contract services to main contractor in respect ofexempt works contract services. For instance, benefits of exemption for service
provided to railway should also be available to sub-contractor - Please refer Para 9 for
detailed analysis.
o Benefits available to railways have also been clarified to be available to metro or monorail - Please refers to Para 9 for detailed analysis.
o Services by way of sponsorship of sporting events organized by specified organizationslike national sports federation, association of Indian Universities etc.
WORKS CONTRACT
Composition scheme which permitted payment of service tax @4.94% on total value of contract
has been dispensed with. Deduction of specified proportion of contract value, depending upon
nature of works contract, has been prescribed to discharge service tax. Scope of works contract
has been extended to even include repair, maintenance, renovation and alteration etc of any
moveable or immovable property.
o Following schemes of taxation would now exist as regards taxability of works contract:
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o Where actual value of property in goods transferred and services provided are determinedthen respective taxes would apply on the respective values of goods and service.
o Where values are not determined as above, then following method should be followed:In this connection original works would mean
All new constructions All types of additions and alterations to abandoned or damaged structures
on land those are required to make them workable
Erection, commissioning or installation of plant, machinery or equipmentor structures, whether pre-fabricated or otherwise
From, above discussion, it seems that there would be double taxation on certain proportion of
contract value of works contract wherein both VAT as well as service tax would be levied. One
of the significant impacts seems to be in case of CAMCs or AMCs wherein a comprehensive
price is quoted for replacement of parts and spares as well as for provision of services. Further, it
is understood that in most cases, it is practically not possible to ascertain the quantum of goods
and items supplied.
Further, no CENVAT credit of specified duties paid in respect of Inputs used in or in relation to
works contract would be available. There is no restriction in availing credit on capital goods and
input service by the service provider and hence the service provider of the works contract can
take credit on capital goods and input service.
REVERSE CHARGE
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Provisions of Section 68(2) are proposed to be amended to empower the Government to also
notify the extent and proportion of service tax that needs to be discharged by the person made
liable to pay service tax. Below are relevant service transactions towards which service tax needs
to be paid under reverse charge basis:
o Service tax needs to be paid only on 25% of the invoice Value subject to specifiedconditions being fulfilled
o Services should be provided by an individual, HUF, partnership firm (whether registeredor not) including association of persons to a company registered under the Companies
Act, 1956 or a business entity registered as a body corporate.
For the purpose of works contract service, where both service provider and service recipient are
liable to pay tax, then each of the persons has the option to choose such method of valuation
which might be independent of the other
PLACE OF PROVISION OF SERVICES RULES, 2012 (PPSR)
These Rules will determine the place of provision of service and will supersede Export and
Import Rules w.e.f., 1 July 2012. As a thumb rule, PPSR provides that place of provision of
service shall be the location of the service recipient. However, where location of service
recipient is not available in the ordinary course of business, it shall be the location of the service
provider.
Certain exceptions have been carved out to the above general principle and the relevant ones
have been outlined below:
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Sl.
No.
Scenario/ Situation Place of provision of Service
1 Where services are provided in
respect of goods that are
required to be made physically
available by the service receiver
to the service provider (in order
to provide service)
It will be the place where services are actually
performed. Relevant for CAMCs, installation
& Commissioning services.
2 Services relating to immovable
property
Place where immovable property is located or
intended to be located. Relevant for civil
works contract.
3 Services relating to events Place where the event is actually held
4 Services where both provider
and recipient of services are
located in the taxable territory
Place of location of the service provider
5 Intermediary services Location of the service provider
With regard to Sl. No 1 above, please note that said rule shall not apply in case of goods which
are temporarily imported into India for repairs, reconditioning or re-engineering for re-export.
That is to say, in such a scenario, place of supply should be the location of recipient and should
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therefore qualify as export if the consideration is received in FE. With regard to S No 5 above,
please note that Intermediary; has been defined as a broker, agent etc who arranges or facilitates
a provision of a service between two persons. Therefore this could impact transactions where SL
acts as an intermediary for SAG to canvass certain service business and earns a service fee or
any other consideration.
EXPORT & SEZ
The definition of export has been re-defined whereby it states that provision of any service
provided or agreed to be provided shall be treated as export when the following five conditions
are satisfied:
o Provider of service is located in the taxable territoryo Recipient of service is located outside Indiao Place of provision of service is outside India in terms of PPSRo Payment for such service is received in convertible FEo Rebate of service tax or duty paid on input services or inputs on providing such services
is still available.
The procedures for claiming service tax refund/exemption for any services provided to an SEZ,
has remained unchanged, the benefit of refund of CENVAT credit on input and input services
should be claimed by the service provider. Exemption to services provided to SEZ shall continue
(subject to the condition that Form A-1 is provided by the SEZ customer). In addition, service
provider shall be entitled to avail full credit of CENVAT credit in respect of inputs or input
services used for providing services to SEZ.
PROCEDURAL TIPS (W.E.F., 01.07.2012)
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Earlier, all taxable services whenever provided or proposed to provide first time, needs to be
endorsed in the registration certificate for the reasons all services were having different
classification numbers (more than 120 in numbers), but now there in only one head /
classification i.e. 65B(44) of the Finance Act, 1994. Since w.e.f., 01/07/2012, the definition of
Service has been changed there is therefore absolute need to amend the existing service tax
registration certificate with new service tax code i.e., Service as defined by Section 65B(44)
read with Section 65B(51) of the Finance Act, 1944.
The following declaration is to be given by the Rent-a-cab service provider to enable the
recipient of services to pay ser-tax on reverse charge basis (w.e.f., 1.7.2012 as per point of
taxation Rules) on car hiring services by considering the 60% abatement. I.e., if the service bill
for car hire charges is Rs.100 then considering 60% abatement (subject to the declaration so
given below in the bill of the service provider), the recipient need to pay ser-tax on the 40%
i.e., 12.36% of 40%
Declaration CENVAT credit on inputs, capital goods and input services, used for providing
the taxable service, has not been taken under the provisions of the CC Rules, 2004
EXEMPTION BY MEGA NOTIFICATION
In the negative list approach to Service Tax, so long as there was a negative list, it was logical
and made sense. But apart from a long negative list of services based on Indias socio
economic-political considerations, we do have a long list of exempted services (39 in number) by
virtue of Notification No. 12/2012-ST dated 17.03.2012 and later superceded by Notification No.
25/2012-ST dated 20.6.2012, effective from 1.7.2012, which are exempt from levy of Service
Tax. This notification termed as mega exemption notification by CBEC in its Letter No.
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334/1/2012-TRU dated 17.03.2012 and Service Tax Guidance Note seeks to reduce the existing
exemption notifications from 88 to 10 in number. This appears to be misleading as Notification
No. 25/2012-ST itself contains 39 categories of exemptions which contain many sub clauses.
Besides, this list can be further enlarged whenever considered necessary as against the negative
list which can now be amended only in 2013.
It is worth noting that most of the existing exemptions available in relation various taxable
services as also the general exemptions have been retained in the mega exemption notification.
There were certain exclusions in erstwhile provisions which now find place in exempted services
or in negative list u/s 66D. From the point of view of taxation, there is no difference between a
service listed in negative list and a service finding place in mega exemption notification. The
only difference is that services in negative list are not at all taxable as they have been excluded
from the meaning of service itself which is defined in section 65B(44). As against this,
exempted services are services per se, but exempt from levy of Service Tax by way of
Notification issued by the Central Government under delegated powers in terms of section 93(1).
Also, amendments to negative list can be made only by Parliament by way of amendment to the
Finance Act, 1994 whereas exemptions could be enlarged or curtailed on the basis of
notification.
List of Exempt Services (vide Notification No. 25/2012-ST dated 20.06.2012 w.e.f. 1.07.2012)
1. Services provided to United Nations or specified International Organizations;
2. Health care services provided by a clinical establishment, an authorized medical practitioner
or para-medics;
3. Services by a veterinary clinic in relation to health care of animals or birds;
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4. Services provided by an institution registered u/s 12AA of the Income Tax Act, by way of
charitable activities;
5. Services of renting of religious place or conducting religious ceremonies;
6. Services provided by individual advocate/arbitrator to any person other than business entity;
services provided by advocate to advocate; services provided by advocates and arbitral tribunals
to business entities upto a turnover of Rs. 10 lakh in preceding financial year ; services provided
by person represented on arbitral tribunal to an arbitral tribunal .
7. Services of technical testing and analysis of newly developed drugs etc, by an approved
clinical research organization;
8. Service of training and coaching in recreational activities relating to arts, culture or sports;
9. Auxiliary education services and renting of property provided by educational institutions in
respect of education exempt from tax including catering under mid-day meals scheme of
government;
10. Services provided, to or by a specified educational institution, by way of transportation of
students or staff or services in relation to admission;
11. Service to a recognized sports body:-
(i) individual as a player, referee etc. for participation in a tournament
(ii) by another recognized sports body;
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12. Sponsorship service for tournaments and championships organized by specified bodies;
13. Services of erection, installation, commissioning, completion, fitting out, construction,
maintenance or alteration provided
(i) to government or local authority or governmental authority in relation to specified
structures like historical monuments, canal, dams etc.;
(ii) in relation to specified structures like road, bridge, tunnel, etc.;
(iii) in relation to works contract under JLNURM or Rajiv Awaas Yojana
14. Erection or Construction service in relation to original works pertaining to airport, port,
railways or single residential unit etc.;
15. Service of temporary transfer or permitting use of copyrights 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, (ii) dance or (iii)
theatre, excluding when provided as a brand ambassador;
17. Service of collecting or providing news by independent journalist/specified bodies;
18. Service of renting of a hotel, inn, guest house etc. meant for residential or lodging purposes,
having declared tariff of a room below Rs. 1000 per day;
19. Restaurant services other than those having air conditioning facility and having licence to
serve alcohol;
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20. Service of transportation of specified goods by rail or vessel from one port in India to another
port;
21. Services provided by GTA for transportation of fruits, vegetables etc. or where amount
charged for transportation is upto a given monetary limit;
22. Services of giving on hire a means of transportation to State Transport Undertaking or GTA;
23. Services of transport of passengers:-
(i) by air embarking or terminating in specified eastern States of India; or
(ii) by a contract carriage excluding conducted tour or charter on hire;
(iii) ropeway, cable car or air tramway
24. Services by way of motor vehicle parking to general public excluding leasing of space to an
entity for providing such parking facility;
25. Specified services provided to government or local authority or governmental authority
26. Services of general insurance business provided under certain specified schemes;
27. Services provided by an incubatee subject to certain conditions;
28. Services by an unincorporated body or non profit entity registered under law to own
members by way of reimbursement of charges or share of contribution subject to conditions;
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29. Services provided by person in specified capacities such as sub broker, mutual fund agent,
selling or marketing agent of lottery tickets, SIM cards, business facilitator or business
correspondent, sub contractor etc.
30. Service of carrying out job work in relation to agriculture, printing, textile,
diamonds/jewellery, cycle or sewing machines or any goods on which duty is paid by principal
manufacturer;
31. Services by an organizer in respect of business exhibition held outsideIndia;
32. Service of making telephone calls from specified places like free telephone at airport and
hospitals etc.
33. Services by way of slaughtering of bovine animals;
34. Services received from a service provider located in a non-taxable territory by any person for
non-commercial purpose or by a Charitable Institution or to person located in non taxable
territory.
35. Services of public libraries by way of lending of books, publication or any other knowledge
enhancing content or material.
36. Services by Employees State Insurance Corporation (ESIC) to eligible person.
37. Services of transfer of going concern as a whole or independent part thereof.
38. Services of public conveniences such as provision of facilities of bath room, wash room,
lavatories, urinals or toilets.
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39 Services by governmental authority in relation to any function as constitutionally entrusted
to a municipality.
DEEMED VALUE OF TAXABLE SERVICE - ABATEMENT
Value of the following taxable services for the purpose of levy of service tax would be
calculated at percentage specified in the Table subject to the relevant conditions specified
Sl.
No.
Description of taxable
service
Deemed value -
Existing %
Proposed
%
Conditions
1 Financial leasingservices including
equipment leasing andhire purchase
10
(Nft 4/2006)
10 Nil.
2 Transport of goods by
rail
30
(Nft 1/2006)
30 Nil.
3 Transport of passengers
by rail
New levy 30 Nil.
4.1 Catering in a premises,
including hotel,convention center, club,pandal, shamiana or any
place specially arrangedfor organizing a function
Convention center
or mandapcatering- 60pandal or shamiana
catering 70
(Nft 1/2006)
70 CENVAT
credit on anygoodsclassifiable
under chapter1 to 22 used
for providingthe taxable
service is notallowed
5 Transport of passengers
by air
Upto 31.03.2012
Domestic travel
maxRs. 150
International
Travel maxRs. 750
(Nft 26/2010)
40 CENVAT
credit oninputs and
capital goods,not allowed
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w.e.f. 01.04.2012
All Class
Exemption 60%
Levy of ST on40%
(Nft 6/2012)
6 Renting of hotels, inns,guest houses, clubs,
campsites or othercommercial places meant
for residential or lodgingpurposes.
50
(Nft 1/2006)
60 CENVATcredit on
inputs andcapital goods,
not allowed
7 Transport of goods by
road by Goods TransportAgency
25
(Nft 13/2008)
25 No CENVAT
credit
Exempt (i) when
gross amountcharged on
consignments notexceeding Rs.1500,or (ii) gross
amount charged on
individualconsignment notexceeding Rs.750 -
(Nft 034/04)
8 Services provided in
relation to chit
70
(Nft 1/2006)
70 No CENVAT
credit
9 Renting of any motorvehicle designed to carry
passengers
40
(Nft 1/2006)
40 No CENVATcredit
10 Transport of goods in avessel from one port in
India to another
75
(Nft 1/2006)
50 No CENVATcredit.
11 (i)Services provided by a
tour operator in relation
25 25 No Cenvat
Credit
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to a package tour (Nft 1/2006)
(ii)Services by a tour
operator in relation to atour, solely of arranging
or bookingaccommodation for any
person in relation to atour
10
(Nft 1/2006)
10 No Cenvat
Credit
(iii) Services, other than
services specified in (i)and (ii) above, provided
to any person, by a touroperator in relation to a
tour
40
(Nft 1/2006)
40 No Cenvat
Credit
Prabhakar Tiwari
Reg. No. 320409896/04/2009
Source: Internet.