Discussion on Budget Updates Service Tax CA Sri Harsha
[email protected] Date: 18 th March 2015 by
Slide 2
Overview of Discussion Changes in Negative List; Changes in
Mega Exemption Notification; Changes in Valuation Section 67;
Changes in Recovery Provisions Section 73; Changes in Penalties
Section 76, 78 & 80; Changes in Abatement Rates; Changes in
Reverse/Partial Charge Provisions; Changes in Service Tax Rules,
1994; Changes in Cenvat Credit Rules, 2004; Miscellaneous Changes;
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Slide 3
Changes in Rates of Service Tax 12.36% to 14% shall take effect
from the date yet to be notified. The said date shall be post to
enactment of Finance Bill, 2015. Hence, till such date all services
shall be taxed at 12.36% only Post such date, the education cess
and secondary higher education cess shall be ceased to apply From a
date to be notified, new cess called Swacch Bharath Cess @ 2% on
value of taxable services shall be made applicable on all or any
taxable services. Hence, effective rate of service tax shall be 16%
and not 14.28% 3 www.sbsandco.com
Slide 4
Changes in Negative List (1/4) Services Provided by Government
to Business Entities: Earlier support services provided by
Government to Business Entities were only covered in Negative List;
support services were defined and Government not defined earlier
leading to restriction of services out of negative list; Now, with
the deletion of phrase support and providing for definition of
government all services provided by Government are out of negative
list; The said services are covered under the reverse charge
obligation where the service receiver has to pay 100% of service
tax. 4 www.sbsandco.com
Slide 5
Changes in Negative List (2/4) Any process amounting to
manufacture or production of goods: The said entry specifically
excludes the activity of services by way of alcoholic liquor for
human consumption. Hence, the services provided by way of
manufacture of alcoholic liquor in the capacity of job work are now
taxable. All contract manufacturers of alcoholic liquor has to
register and pay service tax on the job work charges. The relevant
changes to the Entry 30 of Notification No 25/2012-ST dated
20.06.2012 has also been made to make the subject activity taxable.
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Slide 6
Changes in Negative List (3/4) Betting, Gambling and Lottery:
The said entry excludes the main activity of betting, gambling and
lottery. The changes made in this budget are insertion of an
explanation. The explanation provides that the activities provided
by lottery distributor or selling agent in relation to promotion,
organizing, marketing and other incidental or ancillary services
provided in relation to main activity are not covered under the
ambit of negative list. The subject amendment was carried on to put
an end to the decision of Future Gaming Solutions India Private
Limited by the High Court of Sikkim where the High Court has held
that such activities mentioned above are not taxable. 6
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Slide 7
Changes in Negative List (4/4) Admission to Entertainment
Events or access to Amusement Facilities: The said entry used to
cover services provided by way of admission to entertainment events
or access to amusement facilities. However, from the notified date
the said entry is being omitted. Hence, the access to amusement
facilities are fully covered under the tax net. However, admission
to certain events where consideration is less than Rs 500/- has
been provided. The same shall be discussed at the appropriate
stage. 7 www.sbsandco.com
Slide 8
Changes in Mega Exemption Notification (1/5) Services provided
to Government, Local or Governmental Authority Entry 12: Services
provided by way of construction, erection, commissioning,
installation, completion, fitting out, repair, maintenance,
renovation, or alteration of: a civil structure or any other
original works meant predominantly for use other than for commerce,
industry, or any other business or profession; a structure meant
predominantly for use as (i) an educational, (ii) a clinical, or
(iii) an art or cultural establishment; residential complex
predominantly meant for self-use or the use of their employees or
other persons specified. 8 www.sbsandco.com
Slide 9
Changes in Mega Exemption Notification (2/5) Services provided
to Port or Airport Entry 14: Services provided by way of
construction, erection, commissioning, installation of original
works pertaining to port or airport were exempted. However, post
amendment, the services provided to port or airport are taxable
since such phrases has been omitted from such sub-entry. Hence,
services provided shall be taxable. Services performed by Artists
Entry 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. However,
with effective from 01.04.2015, if the consideration charged for
such performance is more than one lakh, the exemption shall not be
applicable and accordingly taxable. 9 www.sbsandco.com
Slide 10
Changes in Mega Exemption Notification (3/5) Services provided
by transportation of goods by Rail or vessel Entry 20: Services
provided by way of transportation of foodstuff including flours,
tea, coffee, jaggery, sugar, milk products, salt and edible oil,
excluding alcoholic beverages were exempted. However, post
amendment, above entry is replaced with milk, salt and food grain
including flours, pulses and rice are only covered. Hence, only
transportation services provided in relation to such goods are only
exempted and which were earlier exempted shall be taxable. Services
performed by transportation of goods by Road Entry 21: Same as
above. This entry extends exemption to transportation carried on
road. 10 www.sbsandco.com
Slide 11
Changes in Mega Exemption Notification (4/5) Health Care
services provided by way of clinical establishment were covered
under the said entry. Health Care services include transportation
of patient to and from a clinical establishment were only exempted.
However, post amendment, transportation of patient in an ambulance
other than provided by clinical establishments are exempted. That
is to say all ambulance services are now exempted irrespective of
the status of the service providers. Services by operator of Common
Effluent Treatment Plant by way of treatment of effluent are
exempted with effective from 01.04.2015; 11 www.sbsandco.com
Slide 12
Changes in Mega Exemption Notification (5/5) 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 are
exempted with effective from 01.04.2015 ; Services by way of
admission to a museum, national park, wildlife sanctuary, tiger
reserve or zoo are exempted with effective from 01.04.2015. 12
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Slide 13
Changes in Valuation Section 67 The scope of consideration has
been expanded to include the following: 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 conditions as may be prescribe This amendment is
to overcome the decision of the Delhi High Court in case of
Intercontinental, where in it was held that Rule 5 is ultra vires.
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Slide 14
Changes in Recovery Provisions Section 73 A new sub-section
(1B) has been introduced to state that where the amount of service
tax payable has been self-assessed in the service tax returns and
not paid either in full or in part, the same shall be recovered
along with interest in the modes specified vide Section 87 and
without service of notice under Section 73(1). Sub-section (4A) has
been omitted and hence there shall be no benefit of reduced penalty
if true and complete details were available in the specified
records. However, the above change is not harmful since the penalty
provisions are streamlined as detailed in the subsequent
paragraphs. 14 www.sbsandco.com
Slide 15
Changes in Penalty Provisions 76, 78 & 80 Section 76 Cases
where involvement of ingredients specified in Section 78 not
existing: penalty not to exceed ten per cent of Service Tax amount;
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 to be paid if the
Service Tax, interest and reduced penalty is paid within 30 days of
such order; and 15 www.sbsandco.com
Slide 16
Changes in Penalty Provisions 76, 78 & 80 Section 78 Cases
where involvement of ingredients specified in Section 78 are
existing: penalty shall be 100% of Service Tax amount; reduced
penalty = 25% of Service Tax 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 to be
paid if the Service Tax, interest and reduced penalty is paid
within 30 days of such order; and 16 www.sbsandco.com
Slide 17
Changes in Penalty Provisions 76, 78 & 80 Section 80 has
been omitted. Hence, there cannot be any power to plead for waiver
of the penalty. 17 www.sbsandco.com
Slide 18
Changes in Abatement Rates 26/2012 (1/2) For Transportation of
Goods by Rail: The condition of non-availment of cenvat credit of
input, input services and capital goods has been specified for
availing the abatement. Hitherto, there was no condition for
availing such abatement. For Transportation of Passengers by Rail:
The condition of non-availment of cenvat credit of input, input
services and capital goods has been specified for availing the
abatement. Hitherto, there was no condition for availing such
abatement. 18 www.sbsandco.com
Slide 19
Changes in Abatement Rates 26/2012 (2/2) For Transportation of
Goods by Road: The taxable portion has been increased to 30% from
25%. For services provided in relation to Chit: The abatement has
been withdrawn and accordingly full value of services provided by
foreman becomes taxable. For Transport of Goods by Vessel: The
taxable portion has been reduced from 40% to 30%. 19
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Slide 20
Changes in RCM/PCM 30/2012 (1/2) In relation to services
provided by a mutual fund agent or a distributor to a mutual fund
or asset management company the service receiver has to pay 100% of
service tax - With effective from 01.04.2015; In relation to
services provided by selling or marketing agent of lottery tickets
to lottery distributor or selling agent the service receiver has to
pay 100% of service tax - With effective from 01.04.2015; In
relation to manpower supply services the service receiver has to be
pay service tax at 100% instead of erstwhile 75% - with effective
from 01.04.2015; 20 www.sbsandco.com
Slide 21
Changes in RCM/PCM 30/2012 (2/2) In relation to services
provided by aggregator in any manner the aggregator of service has
to pay 100% - With effective from 01.03.2015. In case of provision
of aggregator services using brand or trade name the person
providing such service shall be responsible for payment of service
tax. 21 www.sbsandco.com
Slide 22
Changes in Service Tax Rules, 1994 Registration can be obtained
online at www.aces.gov.in without visiting to the authorities. The
following procedure has to be adopted:www.aces.gov.in Application
has to be made online at www.aces.gov.in;www.aces.gov.in ST-2 shall
be granted within 2 days based on trust; Documents have to be
posted within 7 days to Superintendent; Premises visit only on
necessity if approved by Addtl/Joint Commissioner; ST-2 may be
revoked DC/AC after opportunity of being heard is granted; No
Signed Copy of ST-2 is required Download from ACES would suffice.
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Slide 23
Changes in Cenvat Credit Rules, 2004 (1/3) Rule 4 3 rd Proviso
Time limit for availment of Cenvat Credit: Time limit for availment
of Cenvat Credit has been extended from 6 months to 1 Year with
effective from 01.03.2015; Rule 4(7) Credit on Input Services in
case of RCM/PCM and Others: The cenvat credit can be availed
immediately after payment of service tax to the credit of central
government in case of reverse and partial charge mechanism. The
availment of credit after making payment to the vendor has been
dispensed. The reversal within 3 months is made inapplicable to
such cases. 23 www.sbsandco.com
Slide 24
Changes in Cenvat Credit Rules, 2004 (2/3) Rule 14 Recovery of
Cenvat Credit: Where Cenvat Credit has been taken wrongly but not
utilised, the same shall be recovered - Section 73 of Finance Act,
1994; Where Cenvat Credit has been taken and utilised wrongly, the
same shall be recovered along with interest in terms of Section 75
of Finance Act, 1994; Methodology for determining the credits: All
credits taken during the month shall be deemed to have been taken
on the last day of the month. Utilisation is as under: Opening
Balance of the month has been utilised first; Credit admissible
during the month has been utilised next; Credit inadmissible during
the month has been utilised thereafter 24 www.sbsandco.com
Slide 25
Changes in Cenvat Credit Rules, 2004 (3/3) Rule 15 Penalty:
Cases where involvement of ingredients specified in Section 78 not
existing Penalty as laid down in Section 76 of Finance Act, 1994;
Cases where involvement of ingredients specified in Section 78
existing Penalty as laid down in Section 76 of Finance Act, 1994.
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Slide 26
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