(A)
Review of the Negative List of services
·
Levy of
Service Tax on Radio-taxis/cabs
The government has proposed to levy
Service Tax on Radio-taxis/cabs whether or not air-conditioned. Earlier the
same was exempted from the purview of Service Tax as it was covered under the
Negative list [Section 66D (o)]. In order to remove disparity between the two,
the abatement presently available to rent-a-cab service would also be made
available to Radio-taxis/cabs. The abatements were notified by the government
vide Notification No. 25/2012-ST dated 26-06-2012. The definition of radio taxi
is being included in the exemption notification No.25/2012-ST which reads as
mentioned here-in-below:
“a taxi including a radio cabby whatever name called which is in two way
radio communicationwith a central control office and is enabled for tracing
using Global Positioning System (GPS) or General Packet Radio Service (GPRS)”.
Applicable From:
It will come into effect from a date to
be notified later, after the Finance (No.2) Bill, 2014 receives the assent of
the President.
·
Service
Tax extended to be levied on sale of space or time for advertisements on online
& mobile advertising
Earlier Service Tax was leviable on sale
of space or time for advertisements in broadcast media such as ‘radio’ or ‘television’.
It has been now proposed to be extended to cover:-
§ Such sales on other segments like ‘online’
and ‘mobile’ advertising;
§ Advertisements in internet websites;
§ Out-of-home media;
§ On film screen in theatres;
§ Bill boards;
§ Conveyances;
§ Buildings;
§ Cell phones;
§ Automated Teller Machines;
§ Tickets;
§ Commercial publications;
§ Aerial advertising, etc..
In this regards, it would be relevant
to note that the sale of space for advertisements in print media would continue
to be in the negative list and hence remain excluded from the ambit of service
tax.
Now one may be in dilemma over here as in what will happen
if a person provides a composite service of providing space for advertisement
that is covered in the negative list entry coupled with taxable service
relating to design and preparation of the advertisement. How will its
taxability be determined?
This would be a case of bundled
services taxability of which has to be determined in terms of the principles
laid down in section 66F of the Act. Bundled services have been defined in the
said section as provision of one type of service with another type or types of
services. If such services are bundled in the ordinary course of business then
the bundle of services will be treated as consisting entirely of such service
which determines the dominant nature of such a bundle. If such services are not
bundled in the ordinary course of business then the bundle of services will be
treated as consisting entirely of such service which attracts the highest liability of service tax.
Applicable From:
It will come into effect from a date to
be notified later, after the Finance (No.2) Bill, 2014 receives the assent of
the President.
(B)
Review of General Exemptions
For ease
of reference and simplicity most of the exemptions were incorporated under one
single mega exemption notification 25/2012-ST dated 20/6/12. Out of 39 such
entries in the Mega Exemption Notification, entry no. 7 & 23(b) stands to
be withdrawn which are mentioned here-in-below for ease of reference:
·
Exemption extended to clinical research on human participants
is being withdrawn [Entry No. 7]
Services
by way of technical testing or analysis of newly developed drugs, including
vaccines and herbal remedies, on human participants by a clinical
research organisation approved to conduct clinical trials by the Drug
Controller General of India has been withdrawn vide Notication No. 06/2014-ST
dated 11TH July, 2014.
For this
purpose ‘contract carriage’ has the meaning assigned to it in clause (7) of
section 2 of the Motor Vehicles Act, 1988 (59 of 1988)
·
Exemption extended to ‘air-conditioned’ contract
carriages like buses is being withdrawn [Entry No. 23(b)]
Earlier
under the entry no. 23(b) exemption was for the transportation of passengers,
with or without accompanied belongings, by a contract carriage excluding
tourism, conducted tour, charter or hire whether air condition or not.
In this
regards, it must be noted that the exemption has been withdrawn only for ‘air-conditioned’
contract carriages like buses vide Notication No. 06/2014-ST dated 11TH
July, 2014 and hence shall now be chargeable to Service Tax. . As a result, any service provided for
transport of passenger by air-conditioned contract carriage including which are
used for point to point travel, will attract service tax, with immediate
effect. Service tax will be charged at an abated value of 40% of the amount
charged from service receiver and the effective tax will be 4.944%
Applicable From:
Both the aforesaid exemptions withdrawn
shall be chargeable to Service Tax with immediate effect.
(C)
Rationalisation of Exemptions
·
Education
Section
66D (l) of the Finance Act, 1994 exempts all educational services provided by
educational institutions to their students, faculty and staff which shall
continued to be under the arena of Negative List. Now before going into the
amendment brought in under this head, let us have a brief highlight on
educational service. The services which are exempt under the Negative list can
be categorized under the following major heads:
•
Pre-school education and education up to higher secondary school or equivalent;
•
Education as a part of a prescribed curriculum for obtaining a qualification recognized
by law for the time being in force;
•
Education as a part of an approved vocational education course.
Let us now, come on the
facts of the amendment brought via Union Budget 2014-15. Let me ask one
question now. Are services provided to educational institutions also covered in
the Negative List? The answer is NO. Such services are not covered under the
negative list entry. However certain services provided to or by educational
institutions are separately exempted under the mega–notification by way of:
§ Auxiliary educational services; or
§ Renting of immovable property.
What is Auxiliary
Educational Service?
Auxiliary educational services are
defined in the mega notification. In term of the definition, the following
activities are auxiliary educational services:
§
Any services relating to imparting any skill, knowledge or
education,
§
Development of course content,
§
Any other knowledge enhancement activity, whether for the
students or the faculty,
§
Any other services which educational institutions ordinarily
carry out themselves but may obtain as outsourced services from any other
person, including following services relating to :
ü
Admission to such institution
ü
Conduct of examination
ü
Catering for the students under any mid-day meals scheme
sponsored by
Government
ü
Transportation of students, faculty or staff of such institution.
In order
to bring clarity, it has been proposed to ‘omit the concept of ‘auxiliary educational services’ .
Accordingly,
the following services received by eligible educational institutions are exempted
from service tax:
§ Transportation
of students, faculty and staff of the eligible educational institution;
§ Catering
service including any mid-day meals scheme sponsored by the Government;
§ Security
or cleaning or house-keeping services in such educational institution;
§ Services
relating to admission to such institution or conduct of examination.
Further
as a rationalization measure, the exemption hitherto available to services
provided by way of renting of immovable property to educational institutions
stands withdrawn, with immediate effect.
Applicable From:
The aforesaid exemptions withdrawn
shall be with immediate effect.
·
Services ordinarily provided by a Municipality
For
greater clarity, the exemption in respect of services provided to Government or
local authority or governmental authority in entry at serial no. 25 of Mega
Exemption Notification has been made more specific. Services by way of water
supply, public health, sanitation conservancy, solid waste management or slum
improvement and up-gradation will continue to remain exempted but the exemption would not be extendable to other
services such as consultancy, designing, etc., not directly connected with
these specified services.
·
Services by a Hotel, Inn or Guest House
Earlier
service by way of renting of a hotel, inn, guest house, club or campsite or
other commercial places meant for residential or lodging
purposes, having a declared tariff of a unit of accommodation below INR 1000 per
day or equivalent is exempt from service tax.
Some
doubts appears to have arisen on account of use of the word “commercial” in the
entry as to whether dharmashalas, ashram or any such entity which offer
accommodation would be covered therein. It may be noted that this exemption,
upto the specified threshold level, is available to any entity providing
service by way of accommodation, including dharmashalas or ashram or such other
entities. To remove any ambiguity, “the word commercial is being omitted”.
However
it would be relevant to note that the renting of vacant land or buildings for
hotels would continue to be taxable irrespective of the hotels declared tariff.
·
Service tax on service portion in Works Contracts
Rule 2A
of Service Tax (Determination of Value) Rules, 2006 determines the value of
service portion in the execution of works contract. Where the value has not
been determined under clause (i) of Rule 2A, the person liable to pay tax on
the service portion involved in the execution of the works contract shall
determine the service tax payable in the following manner mentioned
here-in-below for ease of reference:
§
Works
contracts ---------------> Execution of original works ---------------> Service tax shall be payable on -------------> 40% * Total amount charged for
the works contract;
§
Works
contracts ---------------> Maintenance or
repair Service tax shall be
payable on ---------------> 70% * Total amount charged for
the works contract;
§
Works
contract other than first two clause ----------->Maintenance, repair,
completion and finishing services ---------------> 60% * Total amount charged for
the works contract.
The
amendment brought herein is in category last two categories of works contracts wherein
it is proposed to be merged into one single category with percentage of service
portion as 70%. Primarily this amendment has been made to avoid disputes of
classification between these two categories vide Notification No.11/2014-ST
dated 11th July, 2014.
Applicable From:
The
aforesaid amendment will come into effect from 1st October, 2014.
(A)
Measures for compliance enhancement
·
Variable rates of Interest
Notification
No. 12/2014 –ST dated 11th July, 2014 specifies different interest
rates to be levied on the basis of extent of delay in order to encourage prompt
payment of service tax.
To bring in more clearity let us take up the illustration as suggested by
the government.
Service tax became due on: 6th
July, 2012
Assessee pays the dues on: 6th December, 2014.
In such
a case, the interest to be charged would be as mentioned here-in-below for ease
of reference:
§ 18%
simple interest upto 30th September, 2014.
§ For the
period from 1st October, 2014 – 6th December, 2014, the Rate
of Interest will be 30% since the period of delay is beyond one year.
Applicable From:
The new
interest rate regime will come into effect from 1st October, 2014.
·
E-payment
E-payment
of service tax is being made mandatory vide Notification No. 09/2014-ST dated
11th July, 2014. However the relaxation on same can be provided by
the Deputy Commissioner/Assistant Commissioner on case to case basis.
Applicable From:
The
aforesaid amendment will come into effect from 1st October, 2014.
(A)
Facilitation measures
·
Reverse Charge Mechanism
Services
provided by Recovery Agents to Banks, Financial Institutions and NBFC is being
brought under the reverse charge mechanism vide Notification No. 10/2014-ST
dated 11th July, 2014. Service receiver will be the person liable to
pay service tax.
Further,
services provided by a director of a company or a body corporate to the said
company or the body corporate has been brought under the purview of Reverse
Charge Mechanism
|
Description of a service
|
% payable
by service provider
|
% payable
by service receiver
|
|
Services
provided
By recovery
agent
to banking company
or
financial institution, NBFC
|
Nil
|
100%
|
|
Services provided by a director of a company or a body corporate
to the said company or the body corporate
|
Nil
|
100%
|
·
Point of Taxation Rules
Rule 7
of the Point of Taxation Rules is being amended to provide that point of
taxation in respect of reverse charge will be:
§
The date of payment, or
§ The first
day that occurs immediately after whichever is earlier
a period
of 3 months from the date of invoice.
Applicable From:
This
amendment will apply only to invoices issued after 1st October, 2014.
·
Simplification of partial reverse charge mechanism
In
renting of motor vehicle, where the service provider ‘does not take abatement’ the
portion of service tax payable by the service provider and service receiver
will be modified as 50% each. It has be tabulised here-in-below for ease of reference:
|
Particulars
|
Description
of Service
|
% payable
by Service Provider
|
% payable
by Service Receiver
|
|
Pre Budget
|
Renting of Motor Vehicle – Non abated
|
60%
|
40%
|
|
Post Budget
|
50%
|
50%
|
Applicable From:
This will come into effect from 1st of October 2014.
·
CENVAT Credit Rules
§ A landmark amendment - A manufacturer or a service provider shall take credit on
inputs and input services within a period of “six months” from the “date of issue of invoice, bill or challan”. The
same will come into effect from 1st September, 2014.
§ In case of service tax paid under FULL reverse charge, the
condition of payment of invoice value to the service provider for availing
credit of input services is being withdrawn. It would be pertinent to note that
there is no change in respect of partial reverse charge.
§ Re-credit of CENVAT credit reversed on account of non-receipt
of export proceeds within the specified period or extended period, to be
allowed, if export proceeds are received within one year from the period so
specified or extended period. This can be done on the basis of documents
evidencing receipt of export proceeds
·
New exemptions
§ Life micro-insurance schemes for the poor, approved by IRDA,
where sum assured does not exceed INR 50,000 to be exempted from service tax.
§ Transport of organic manure by vessel, rail or road (by GTA)
is being exempted.
§ Loading, unloading, packing, storage or warehousing,
transport by vessel, rail or road (GTA), of cotton, ginned or baled, is being
exempted.
§ Services provided by common bio-medical waste treatment
facility operators to clinical establishments are being exempted.
§ Specialized financial services received by RBI from global
financial institutions in the course of management of foreign exchange
reserves, e.g., external asset management, custodial services, securities
lending services, etc. are being exempted.
§ Services provided by Indian tour operators to foreign
tourists in relation to a tour wholly conducted outside India are being
exempted.
Applicable From:
New exemptions will come into effect immediately.
·
Clarification in regards to Input Service Distributor
Rule 7 of the CENVAT Credit Rules, 2004, provides for the
manner of distribution of common input service credit by the Input Service Distributor.
This was amended vide notification No. 05/2014-CE (N.T.) amending, inter-alia,
rule 7(d), to provide for distribution of common input service credit among all
units in their turnover ratio of the relevant period. Some interpretational
issues were raised regarding the amendment such as:
(i)
due to the use of the
term „such unit‟ in rule 7(d), the distribution of the credit would be
restricted to only those units where the services are used, and
(ii)
the credit available
for distribution would also get reduced by the proportion of the turnover of
those units where the services are not used.
These issues are being clarified vide Circular No. 178/04/2014-ST, dated 10.7.2014 illustrating the effect of the amendment carried out vide
notification No. 05/2014-CE (N.T.). It clarifies that the amended rule 7 allows
distribution of input service credit to all units (which are operational in the
current year) in the ratio of their turnover of the previous year/previous
quarter as the case may be.
·
Miscellaneous Amendments
§ The condition for availing abatement in case of GTA service
is being amended with immediate effect to clarify that the condition for non-
availment of credit is required to be satisfied by the service providers only.
Service recipient will not be required to establish satisfaction of this
condition by the service provider.
§ Service of transportation of passenger by air-conditioned
contract carriages is taxable with immediate effect, as stated earlier. Hence,
an entry has been inserted at Sl. No. 9A providing that the taxable portion of
such service shall be 40% with the condition that CENVAT credit of inputs or
capital goods or input services has not been taken.
§ The condition against entry No. 9 is amended with effect from
1st October 2014, to allow the credit of input service of renting of a motor
cab if such services are received from a person engaged in the similar line of
business i.e. a sub-contractor providing services of renting of motor cab to
the main contractor. The whole of the CENVAT credit has been allowed with
respect to input service of renting of any motor cab, received from a person
who is paying service tax on 40% of the value of services. The CENVAT credit
eligibility will be restricted to 40% of the credit of the input service of
renting of any motor cab if service tax is paid or payable on full value of the
services i.e. no abatement is availed.
§ Tour operator service providers are also being allowed to
avail CENVAT credit on the input service of another tour operator, which are
used for providing the taxable service. This is being provided to avoid
cascading of taxes. The same will be applicable with effect from 1st
October, 2014.
§ Taxable portion in respect of transport of goods by vessel is
being reduced from 50% to 40%. Effective service tax will decrease from the
present 6.18% to 4.944%. The same will be applicable with effect from 1st
October, 2014.
§ Section 35F of the Central Excise Act has already been made
applicable to Service Tax. This section is being substituted with a new section
to prescribe a mandatory fixed pre-deposit of 7.5% of the duty demanded or
penalty imposed or both for filing of appeal before the Commissioner(Appeal) or
the Tribunal at the first stage, and 10% of the duty demanded or penalty
imposed or both for filing second stage appeal before the Tribunal. The amount
of pre-deposit payable would be subject to a ceiling of Rs 10 Crore. All
pending appeals/stay application would be governed by the statutory provisions
prevailing at the time of filing such stay applications/appeals. This new
provisions would, mutatis mutandis, apply to Service Tax.
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