A Presentation on Service Tax & Related Compliances

A PRESENTATION

ON

SERVICE TAX

&

RELATED COMPLIANCES

Organized by Rajasthan Event Management Association Dr. Sanjiv Agarwal 5th July, 2013 FCA, FCS

© Dr. Sanjiv Agarwal

Service Tax and Related Compliances

This presentation covers -

• Overview of Service Tax – Past and Present

• Specific provisions / exemptions relating to event

management / sponsorship services

• Place of Provision of Services Rules, 2012

• Reverse Charge Mechanism

• Cenvat credit

3

Indian Economy – An Overview

Indian economy is the 11th largest economy in the world and the third fastest growing even in today’s recession, after China and Indonesia (Present growth rate around 5.5%)

World is presently facing recession-II but Indian economy is still a growth economy

Inflation –food, lifestyle Agriculture, services and industry are the major sectors

of Indian economy. Contribution of different sectors in March, 2012 was :

Agriculture 19% Services 59% Industry 22%

(likely to be @ 64% in March, 2013)

Indian Economy – An Overview

Indian GDP to grow about 5 percent in 2012-13 and growth expected at 6.1-6.7 percent in 2013-14

Tax Policy – clarity in tax Laws, stable tax regime, non-adversarial tax administration, fair mechanism for dispute resolution, independent judiciary

Need to raise tax – GDP ratio which is presently around 6-7 percent.

Service Tax contributes 11.50 percent of the gross tax revenue Service sector growth @ 9%, much higher than the GDP growth

itself. Contribution of services sector in GDP at 64% including

construction sector. No change in Service Tax rates. No change in peak rates of customs and excise duties also.

5

Economy / Taxation – A Status

Growth of Service TaxYear No of new

servicesTotal No of services

Total collection (Rs. in crore)

1994 3 3 407

2001 - 26 2612

2005 13 72 14199

2008 7 103 51301

2010 3 112 58000

2012 0 120 97509

2013 - All 132697 (RE)131884 (A)

2014 - All 180141 (BE)

Introduced in India in 1994 as a simple, modest tax with just three services.

Service tax – an indirect tax.

Approach to Service Tax – Selective as against comprehensive one.

Desirable from revenue, equity and economic view point.

Governed by Finance Act, 1994 and a dozen of rules.

Legislative dependence on over 25 other laws.

Scattered and heterogeneous large mass of service providers as well as wide spectrum of services.

Jurisdictional application.

7

Service Tax in India (The Past)

Shift to Comprehensive Approach

W.e.f. 1st July, 2012

Finance Act, 2012 – A land mark Act to shift from selective positive approach to negative approach.

It took 18 years to shift from selective approach (positive) to

comprehensive approach (negative ) to tax services

All services to be taxed other than services specified in the negative list and exempted services – Section 66B.

8

Service Tax – The Present

9

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Present Taxation of Services

(=)

New Provisions in Service Tax under Negative List

Section 66 B deals with charge of service tax on or after Finance Act, 2012

Section 66 C provides for determination of place of provision of service.

Section 66 D comprises of negative list of services

Section 66 E comprises of the services which constitute declared services

Section 66 F provide principles of interpretation of specified description of

services or bundled services

10

Effective rate of Service Tax @ 12.36 percent w.e.f. 01.04.2012 including education cess.

Definition of ‘service’ finds place in statutory provisions Place of provision of service rules determine the location of

service and become be basis of taxation. Concept of taxable territory and non- taxable territory

introduced Classification of service criteria replaced by new section 66F on

interpretation principles of specified description of services or bundled services.

Under new reverse charge mechanism, onus of paying Service Tax will be shared by service provider and service receiver in case of specified services.

11

MAJOR CHANGES IN SERVICE TAX FOR 2012-13 AT A GLANCE

Quarterly Service Tax Returns April to June, 2012 N. No. 47/2012-ST dated 28.09.2012 – for April to June 2012, quarterly

return prescribed. Order No. 3/2012 - last date of return was extended upto 25.11.2012

July to September, 2012

N. No. 1/2013-ST, dated 22.02.2013

Circular No. 137 dated 22.02.2013 / Order No. 1 Last date 25th March, 2013; extended to 15th April, 2013; further extended

upto 30th April 2013 vide Order No. 2/2013-ST, dated 12.4.2013October 2012 to March, 2013

Vide Order No. 3/2013 dated 23.04.2013 , last date extended upto 31st August , 2013

12

MAJOR CHANGES IN SERVICE TAX IN 2012-13 AT A GLANCE

Changes in Budget / Finance Act, 2013

Stability in negative list maintained with only a few changes.

Penalty u/s 77(a) (in case of non-registration) shall be restricted to a maximum of Rs. 10,000.

New provisions for revised punishments for offences u/s 89, makes certain offences cognizable and others non cognizable and bailable.

New Section 78A inserted to impose penalty on directors and officials of company for specified willful actions / offences.

Power to arrest provided u/s 91 where Service Tax contravention / default is more than Rs. 50 lakhs. 13

Recent Amends in Service Tax

‘Service' has been defined in clause (44) of the section 65B and means –

any activity

For a consideration

carried out by a person for another

and includes a declared service (66E)

14

What is Service

15

The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S

Activity must be for a consideration (nexus / reciprocity) Activity – includes both activity as well as non-activity Consideration – includes both monetary and non

monetary consideration. Two persons are involved –

Service provider Service receiver

Only services provided by one person to another are taxable

Person – natural as well as artificial

16

What is Service

Activity Not defined in the Act In common understanding, activity includes –

An act done A work done A deed done An operation carried out Execution of an act Provision of a facility etc.

Activity could be active or passive and forbearance to act Agreeing to an obligation to refrain from an act or to tolerate

an act or a situation - listed as a declared service u/s 66E

17

What is Service

Consideration Means everything received or recoverable in return for a

provision of service which includes -○ Monetary payment○ Non-monetary payment○ Deferred consideration

Under Indian Contract Act, 1872, consideration means -

“When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”

18

What is Service

Activity for a Consideration Activity should be carried out by a person for a

consideration Activity without consideration like-

○ Donation○ Gifts○ Free charities

outside the ambit of service Charity for consideration would be service and

taxable unless otherwise exempted

19

What is Service

'Service' does not include - any activity that constitutes only a transfer in title of goods or

immovable property by way of sale, gift or in any other manner.

a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution

a transaction only in money or actionable claim

a service provided by an employee to an employer in the course of the employment.

fees payable to a court or a tribunal set up under a law for the time being in force

20

What is Service : Exclusions

This scope shall not apply to –

a) functions performed by M.P., M.L.A., Members of Panchayats / Municipalities who receive any consideration in performing the functions of that office as such member; or

b) duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

c) duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Government or local authority and who is not deemed as an employee before the commencement of this section.

21

What is Service

22

What is Service

For the purpose of scope of service -

(a) an unincorporated association or a AOP and a member thereof shall be

treated as distinct persons;

(b) an establishment of a person in the taxable territory and any of his other

establishment in a non-taxable territory shall be treated as establishments of

distinct persons.

(c) A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an

establishment in that territory

Sponsorship Service

Not defined in new Law

Sponsorship in old regime [Section 65(99a)] -

Sponsorship includes naming an event after the sponsor, displaying the sponsor's company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors.

The following services shall be included in sponsorship — naming an event after the name of sponsor displaying the sponsor's company logo on trade name giving the sponsor exclusive or priority booking rights sponsoring prizes or trophies for competition other support with obligation to provide anything in return.

Sponsorship will exclude financial support without any obligation, gifts or donations, sponsorship of sport events given by donors subject to conditions that the service provider is under no obligation to provide anything in return to such donors.

Event Management ServiceNot defined in new Law

Event management in old regime [Section 65(40)] —

"event management" means any service provided in relation to planning promotion, organising or presentation of any arts, entertainment, business, sports, marriage or any other event and includes any consultation provided in this regard.

The event management services would cover certain specific services in relation to - consultation planning promotion organizing, or presentation, of any of the following —

○ arts○ entertainment○ Business○ sports○ Marriage ○ any other event

Event Manager

Not defined in new Law

Event Manager in old regime [Section 65(41)]Event manager means any person who is engaged in

providing any service in relation to event management in any manner.

Following two features are clear from this definition -event manager can be any person i.e., natural or legal.He must be engaged in providing services in any

manner in relation to management of any event.

Agreeing to an obligation to refrain from an Act / to tolerate Act or situation / to do an Act [section 66E(e)]

Following activities if carried out by a person for another for consideration would be treated as provision of service -

Agreeing to an obligation to refrain from an act. Agreeing to an obligation to tolerate an act or a situation. Agreeing to an obligation to do an act.

26

Declared Services

Obligations / ActionsExamples of Taxable Obligations / Actions Non-compete fees for agreeing not to compete compensation on termination of business agreements advance forfeited for cancellation of agreement to provide a

service. forfeiture of security deposit for damages done by service

receiver in course of receiving of services. cancellation charges being charged by airlines, hotels etc. consideration for non-appearance in a court of law or

withdrawal of suit. demurrage charges or detention charges

27

Declared Services

Event related Services covered in Negative List

Admission to entertainment events and access to amusement facilities

Section 65B(24)

‘Entertainment event’ if it is intended (may not necessarily provide) to provide any one or more of the following to the recipients / viewers / audience • recreation • pastime• fun , or • enjoyment

to be contd …….



This could be by way of – • exhibition of cinematographic film• circus • concerts • sporting events • pageants • award functions • dance performance • musical performance • theatrical performances – drama, ballets or any such event /

programme.

to be contd …….



“Amusement facility" means • a facility where fun • recreation is provided by means of rides • gaming devices • bowling alleys in amusement parks• amusement arcades• water parks• theme parks • such other places • but does not include a place within such facility where

other services are providedto be contd …….



• Amusement means entertainment, diversion, pastime, sport etc.

• Theatrical performances need not be performed in theatre

• Standalone amusement ride in a mall – fun or recreation by means of ride – covered under amusement – excluded

• Membership of club which provides amusement facilities - excluded

• Event manager for organizing an entertainment event or entertainment is not covered in this category

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

This entry in negative list should qualify the following tests –• involves selling of space (in case of print media)• involves selling of time slots ( in case of electronic media)• purpose of selling time slots / space to be for advertisements

(publicity / sales promotion, awareness etc.)• excludes broadcast by radio or television ( i.e. broadcast will be

taxable)

contd …….

32


33


Taxable Non-taxable

Sale of space or time for advertisement to be broadcast on radio or television

Sale of space for advertisement inprint media

Sale of time slot by a broadcastingorganization

Sale of space for advertisement in bill boards, public places (including stadia), buildings, conveyances, cell phones, automated teller machines, internet

Aerial advertising

Presentation made in person

34


Not covered in Negative List Covered In Negative List

Printing & Publishing of yellow pages, business directory and trade catalogues etc.

Spaces allotted in buses and public transport system public transport system to run display of advertisement

Advertisement services to Government departments

Private circulation of magazines / journals

Purchase of time slots from broadcaster and sold to advertising agency

Telephone directories

Preparing advertisement for display during a movie in theatre

Clubs, associations, professional bodies etc. member's list / directories

Services provided by advertisement agencies in relation to preparation of advertisement

Internal directories / business information

Commission received by advertisement agencies from broadcasting or publishing companies

Advertisement means • any form of presentation for promotion of,• or bringing awareness about, • any event,• idea, • immovable property, • person, service,• goods or actionable claim through • newspaper, television, radio or any other means• but does not include any presentation made in person;• Services provided by advertisement agencies relating to

preparation / designing etc of advertisements are taxable.• Print media includes newspaper and books.

35


Event related Services covered under Exemption

Services by way of sponsorship of sporting events organized- (Entry No. 11)

a) by a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone;

b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat;

c) by Central Civil Services Cultural and Sports Board; d) as part of national games, by Indian Olympic Association; ore) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA)

Scheme


Services by way of sponsorship of sporting events• Events, i.e., tournaments or championships organized

only by specified bodies in relation to games, sport, cultural events etc – Exempted

• Any sponsorship of event organized by any other body like BCCI arranging IPL cricket tournament –Not Exempted

• Vide N. No. 30/2012-ST dated 20.6.2012, entire service tax is payable by the body corporate or partnership firm receiving the service in India under reverse charge method


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; (Entry No. 16)

• The service provided by any person being a performing artist in the form of -• folk, or• classical in relation to -• music, • dance, or• theatre

are exempt • if such an artist provides services as a brand ambassador for any

product, service, event or company etc for a consideration - Taxable


Services by an organizer to any person in respect of a

business exhibition held outside India (Entry No. 31) Organizer should be in India Exhibition should be held outside India It should be in relation to business

39

40

Taxation of Cross Border Services

How to Determine Taxability –i) Which rule applies to the service provided specifically? In case more

than one rules apply equally, which of these come later in the order given in the rules?

ii) What is the place of provision of the service in terms of the above rule?

iii) Is the place of provision in taxable territory? If yes, tax will be payable. If not, tax will not be payable.

iv) Is the provider 'located' in the taxable territory? If yes, he will pay the tax.

v) If not, is the service receiver located in taxable territory? If yes, he may be liable to pay tax on reverse charge basis.

vi) Is the service receiver an individual or government receiving services for a non-business purpose, or a charity receiving services for a charitable activity? If yes, the same is exempted.

vii) If not, he is liable to pay tax.

41


Rule 3- Default Rule

The main rule or default rule provides that a service shall

be deemed to be provided , where the receiver is located

In case, when location of the service receiver is not

ascertainable, location of the service provider is the place

of provision of service

This rule is applied when none of the other later rules

apply

42

Rule 3- Default Rule

‘A’Service Provider

‘X’Service Provider

‘B’Service Receiver

‘Y’Service Receiver

Taxable Territory Non- Taxable Territory

Taxable for A

Taxable for B

Not Taxable

43


Rule 6- Service relating to Events

Place of provision is the place where event is actually held

Covers admission to events, organizing events and ancillary services relating to events

Includes cultural, artistic, sporting, scientific, educational, entertainment event, or a

celebration or any other similar event

Examples

Conventions

Conferences

Exhibitions

Fairs , Seminars

Workshops

Weddings

Sports

Cultural Events etc. Contd……

44


Rule 6- Service relating to Events

A management school located in UK intends to organize a road show in Mumbai and

New Delhi for prospective students. Any service provided by an event manager, or

the right to entry like participation fee for prospective student will be taxable in India.

An Indian fashion design firm hosts a show at USA. The firm receives the services of

a Canadian event organizer. The place of provision of this service is the location of

the event, which is outside the taxable territory. Any service provided in relation to

this event, including entry fee will not be taxable.

Provision of sound engineering for an artistic event is a pre-requisite for staging of

that event and should be regarded as a service ancillary to its organization. A

service of hiring a specific equipment to enjoy the event at the venue, is ancillary to

admission.

45


Rule 14- Order of application of Rules

Where more than one rule applies, rule that

occurs later is relevant rule

Under Partial Reverse Charge (Proportional) Renting of motor vehicles Manpower supply & security services Works contracts

Under Full Reverse Charge (100%) Insurance related services by agents goods transportation by road sponsorship arbitral tribunals legal services company director's services services provided by Government / local authority excluding specified

services services provided by persons located in non-taxable territory to persons

located in taxable territory. 46

Liability to pay tax under Reverse Charge by Service Receiver

Governed by Notification No. 30/2012-ST dated 20.06.2012 w.e.f. 1.7.2012

Liabilities of both the service provider and service receiver are independent of each other

Reverse charge will not apply where the service receiver is located in non-taxable territory

For three specified services provided by business entities being company, society, cooperative society, trust etc, reverse charge will not apply.

Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services

Small scale benefit is available only to service provider (not to service receiver), if entitled

47

Important Points in Reverse Charge Mechanism

Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012

Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II)

Liability to pay Service Tax for ongoing contracts will be as per Point of Taxation Rules, 2011

Reverse charge shall not be applicable if provider of service was liable before 1.7.2012

Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012

48

Important Points in Reverse Charge Mechanism

Service Provider Service Receiver

Individual Advocate / Firm / LLP **Business entity with turnover > Rs 10 lakhs in preceding financial year

Arbitral Tribunal **Business entity with turnover > Rs 10 lakh in previous financial year

** Business entity may be an individual also

49

Reverse Charge for Legal Services

Reverse Charge Mechanism under various services

S. No. Description of Service Service provider Service receiver

1. Services provided by an insurance agent to any person carrying on insurance business

Nil 100%

2. Services provided by a goods transport agency in respect of transportation of goods by road

Nil 100%

3. Services provided by way of sponsorship

Nil 100%

50



4. Services provided by an arbitral tribunal Nil 100%

5. Services provided by individual advocate or a firm of advocates by way of legal services

Nil 100%

5A. in respect of services provided or agreed to be provided by a director of a company to the said company ( w.e.f 7.08.2012)

Nil 100%

6. Services provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, (2) postal services (3) transport of goods / passengers (4) air craft or vessel

Nil 100%

51



7. Hiring of Motor Vehicle (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business(b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

Nil

60%

100 %

40%

8. Services provided by way of supply of manpower for any purpose or security services ( w.e.f 07.08.2012)

25% 75 %

52


Sr.No Description of Service Service provider Service receiver

9. Services provided in service portion in execution of works contract 50% 50%

10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Nil 100%

53

Service Provider Service Receiver Service Tax Payable by

Individual /HUF/ Partnership firm /AOP

Business entity – body corporate

Joint


Individual /HUF/ partnership firm /AOP

100 % by service provider

Business entity –Body Corporate / Company



Business entity –Body Corporate

Business entity – Body Corporate


54

Reverse Charge Obligations for three Specified Services

Gross amount charged by the service provider for such services provided or to be provided (Section 67)

Service Tax (Determination of Value) Rules, 2006, Rule 5 – Inclusions in or exclusion from value of expenditure / costs Expenditure / costs incurred in course of providing services

– treated as consideration Expenditure / costs incurred as pure agent of recipient of

service – excluded conditionally RE arises where person paying is under no obligation

to pay but pays on behalf of other

55

Valuation of Services – Reimbursements

Cenvat Credit

Output Service [Rule 2(p)]

Output service means any service provided by a

provider of service located in the taxable territory but

shall not include a service,—

(1) specified in section 66D of the Finance Act; or

(2) where the whole of service tax is liable to be

paid by the recipient of service.( reverse charge)

Cenvat Credit

Input Service [Rule 2(l) ]

Input service would mean any service which is received and consumed by service provider in relation to

providing an output service, or which is used by manufacturer, directly or indirectly in relation to

manufacture of final products and clearance of final products upto the place of removal. Thus, input

services could be used by an output service provider or a manufacturer in relation to providing service

or manufacturing a final product. Input service will also include services used in relation to any one or

more of the following —

(a) setting up of a factory,

(b) setting up of a premises of output service provider,

(c) setting up of a office relating to any factory or premises,

(d) advertisement or sales promotion,

(e) procurement of inputs,

(f) activities relating to management of business (say, business auxiliary services)

Cenvat Credit

such as —

(i) accounting, (ii) auditing,

(iii) financing, (iv) recruitment,

(v) quality control,

(vi) coaching and training,

(vii) computer networking,

(viii) credit rating,

(ix) share registry,

(x) security,

(xi) inward transportation of inputs or capital goods,

(xii) outward transportation upto the place of removal.

Cenvat Credit Exempted service means a— (Rule 2(e))

taxable service which is exempt from the whole of the service tax leviable thereon; or

service, on which no service tax is leviable under section 66B of the Finance Act; or

taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken;

but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.

Exempted services includes trading

Rule 4A (Contents of Invoice, Bill or Challan)

Name, address and the registration number of service provider.

Name and address of the person receiving taxable service.

Description and value of taxable service provided or agreed to be provided.

The service tax payable thereon.

Voluntary Compliance Encouragement Scheme, 2013 (VCES)

Chapter VI (Clause 94-104 of Finance Bill, 2013) 17 lakh assessees, 7 lakh returns filed Stop filers / non-filers Only a one time scheme To chase assessees not possible Hope to collect reasonable money Action & consequences

Truthful declaration of service tax dues service 1.10.2007 upto 31.12.2012 by defaulter as on 1.03.2013

Payment of due tax in 1 or 2 installments Interest , penalties and other consequences waived

Not applicable to period before 1.10.2007 or after 31.12.2012 Not applicable to cases involved search, audit, investigation, SCN or

summon issued cases as on 1. 03. 201361

Changes in Budget 2013-14 (Finance

Bill, 2013)

Voluntary Compliance Encouragement Scheme, 2013 (VCES)

Pay at least half of tax before, 31st December, 2013 Pay balance by

30th June, 2014 without interest 31st December 2014 with interest w.e.f. 1.07.2014

Dues for period after 31st December, 2012 to be settled as per present Law

No refund of amount paid under VCES Tax dues declared but not paid – to be recovered as per Law False declaration to be rejected - reason to believe, notice to be

served No action after one year from date of declaration Once acknowledgement is issued - no reopening permissible

62

Changes in Budget 2013-14 (Finance Bill, 2013)

THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]

63

Education

A Presentation on Service Tax & Related Compliances