Service Tax Amendment - 2013

Speech of Finance Minister in Lower House (i.e., in Lok Sabha) on Service Tax in respect of non filing of Service Tax Return cited below:

“While there are nearly 17,00,000 registered assessees under service tax, only about 7,00,000 file returns. Many have simply stopped filing returns. We cannot go after each of them. I have to motivate them to file returns and pay the tax dues. Hence, I propose to introduce a one-time scheme called ‘Voluntary Compliance Encouragement Scheme’. A defaulter may avail of the scheme on condition that he files a truthful declaration of service tax dues since 1.10.2007 and makes the payment in one or two instalments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. I hope to entice a large number of assessees to return to the tax fold. I also hope to collect a reasonable sum of money.”

Author opinion: It is a wakeup call for the assessees who are neither filing their return nor paying service tax on timely basis. In this Budget, Finance Minister stringent the penalty provisions and prosecution provisions of Service Tax.

Provisions made applicable from 1st March, 2013

1. Change in Abatement scheme:

Earlier all the builders or developers engaged in construction of a complex, building or civil structure or a part thereof, intended for sale to a buyer, **(except where the entire consideration is received after issuance of completion certificate) by the competent authority were entitle for the benefit of abatement of flat 75% from the gross amount charged on fulfilment of certain conditions.

However, in the present Budget a dual rate of abatement has been prescribed:

(Notification No. 02/2013-ST dated 1st March, 2013)

Author comment: The abatement available under S. No 12 of notification 26/2012-ST dated June 20, 2012 for construction of a complex, building, civil structures etc. is being reduced from the existing 75% to 70% for construction other than residential properties having a carpet area up to 2000 sq ft or where the amount charged is less than Rs 1 crore. This will come into effect from March 1, 2013. ( D.O.F. No. 334/3/2013-TRU,New Delhi, dated February 28, 2013).

By the virtue of aforesaid amendments rate of commercial offices and Shops and other non residential properties rise. This is another type of burden impose on the person who wants to purchase luxury commercial offices and Shops and other non residential properties.

Speech of Finance Minister on this amendment cited below:   

“Homes and flats with a carpet area of 2,000 sq.ft.  or more or of a value of `1 crore or more are high-end constructions where the component of ‘service’ is greater. Hence, I propose to reduce the rate of abatement for this class of buildings from 75 percent to 70 percent. Existing exemptions from service tax for low cost housing and single residential units will continue.”

** In this case no service tax levy. 

2. Amendment made in section 96A

The Public limited companies can also obtain the advance rulings on any question of law or fact regarding the liability to pay service tax in relation to the services proposed to be provided.

(Notification No. 04/2013-ST dated 1st March, 2013)

Author comment: It is Good news for Public Limited companies. But this benefit is only for services proposed to be provided by company not for existing services provided by company.

3. Changes in CENVAT Credit Rules, 2004

As per Rule 3(5)/3(5A)/3(5B)  of CENVAT credit Rules, 2004, an amount of CENVAT credit is required to be paid to the government on removal or writing off of Inputs or Capital Goods whether as such or after being put to use. Now explanation has been added after proviso to rule 3(5B) so as to apply recovery provisions as contained in Rule 14 of CCR, 2004, in cases service provider / manufacturer fails to pay the amount so calculated.

(Notification No. 03/2013-CE (NT) dated 1st March, 2013)

Rule 3(5):- If Inputs or Capital Goods, on which CENVAT credit has been taken, are removed as such from the factory of manufacturer or premises of output service provider, in that case, amount equivalent to such CENVAT credit taken is required to be paid to the credit of Central Government.

Rule 3(5A):- If Capital Goods are removed after being used, whether as capital Goods or as scrap or waste, in that case, an amount equivalent to CENVAT credit claimed on the said goods, reduced by a prescribed percentage, is required to be paid to the credit of Central Government.

Prescribed percentage shall be determined as under:

I. For Computers and Computer peripherals:

II. For Capital Goods, other than Computers and Computer peripherals. @2.5% for each quarter.

However, if the amount so calculated is less than the amount equal to the duty leviable on transaction value; in that case, the amount to be paid shall be equal to the duty leviable on transaction value.

Rule 3(5B):- If the value of any inputs, or capital goods before being put to use, on which CENVAT Credit has been taken is written off fully or where any provision to write off fully or partially has been made in the books of account, then the service provider shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods:

Author comment: The Government, vide aforesaid amendment, has levied the interest on the said amount if said amount is not paid within due date.

Provisions made applicable from 1st April, 2013

1. Change in Mega Exemptions:

A. No Exemption shall be available in respect of services provided by Educational Institution by way of auxiliary education services and renting of immovable property.

However, services provided by way of auxiliary educational services and renting of immovable property to educational institutes in respect of education exempted from service tax remain exempt. 

Author comment: This will have the effect of restricting the scope of exemption to “Auxiliary education services” and “Renting of immovable property services” only when

(a) Provided by any person to Educational Institutes;

(b) Provided by one Educational Institute to another Educational Institute.

2. Exemption benefit for film industries:

Before this Budget, Exemption has been provided in respect of services provided by way temporary transfer or permitting the use or enjoyment of a copyright of all cinematograph films.

However, w.e.f. 1st April, 2013, such exemption is limited to services provided with respect to exhibition of cinematograph films in a cinema hall or cinema theatre only.

Author comment: Now only services of copyright of cinematographic films for exhibition in a cinema hall or cinema theatre are covered under Mega Exemption Notification and service tax will be applicable on services provided by temporary transfer or use or enjoyment of copyright for exhibition other than in a cinema hall or cinema theatre.

E.g. in case copyright is given to any channel like zee tv by subhase ghai having the copyright of movie taal, is now taxable under the service tax from 1st April, 2013

3. Exemption relating to Restaurants

Now, Service Tax will apply on the all the restaurant, eating joints or mess having centralized air-conditioning or central air-heating facility in any part of the establishment at any time during the year. The precondition to have a licence to serve liquor has been dispensed off with. And this may apply to almost all the restaurants, eating joint or a mess like Mc Donald, sagar Ratna and KFC.

However, the restaurants, eating joints or mess which does not have centralized air conditioning or air heating facility shall remain exempt from payment of service Tax.

Author comment: By the virtue of this amendment the price of foods of aforesaid restaurant will increase by service tax amount.

4.  Decrease the list of exemption relating to transportation of goods by Rail or Vessel

The benefit of exemption on services provided by way of transportation by rail or a vessel from one place in India to another in respect of transportation of following goods has been withdrawn (i.e., service tax will applicable from 1st April, 2013):-

a) Petroleum and petroleum products falling under chapter heading 2710 and 2711 of the 1st Schedule to the Central Excise Tariff Act, 1985 (s of1986)

b) Postal mail or mail bags; and

c) Household effects.

Author comment: By the virtual of this amendment the price of aforesaid items increase from service tax amount and the inflation rate will also increase from the increase in price of  Petroleum and petroleum products falling under chapter heading 2710 and 2711 of the 1st Schedule to the Central Excise Tariff Act, 1985 (s of1986).

5. Increase the list of exemption relating to GTA

Service Provided by GTA (Goods Transport Agency) by way of transport in a goods carriage NON TAXABLE (i.e., relief for GTA) in respect of following goods:

a) Agriculture produce;

b) Goods, where gross amount charged for transportation of goods on a consignment transported in a single carriage does not exceed 1,500 or;

c) Goods where gross amount charged for transportation on all such goods for a single consignee does not exceed Rs.750

d) Food stuff including flours, tea, coffee, jiggery, sugar, milk products, salt and edible oil excluding alcoholic beverages or;

e) Chemical fertilizers and oil cakes;

f) Newspaper or magazines registered with the registrar of news paper;

g) Relief material meant for victim of natural or man-made disaster, calamities, accidents or mishaps;

h) Defence or military equipment.

Author comment: By the virtual of this amendment the price of aforesaid items will decrease from service tax amount.

6. General Public Parking Become Taxable

Service by way of vehicle parking to general public is taxable from 1st April, 2013 through omitted point No. 24.

Author comment: By the virtual of this amendment the rate general Parking will Increase from 1st April, 2013.

7.  In point No. 25 of mega Exemption Notification has amended in present budget through the words “a vessel or an aircraft” the words “a Vessel” shall be substituted.

By the virtue of this amendment, now service provided to government, a local authority or a governmental authority, by way of repair or maintenance of aircraft will be taxable.

8. Withdrawal of Exemption benefit

The scope of charitable Activities has been curtailed by omitting the “Advancement of any other object of general public utility” from the definition of “Charitable Activities”. Thus now only specified activities shall be termed as charitable activities.

Author comment: the benefit to charities providing services for advancement of “any other object of general public utility” up to Rs 25 Lakhs will not be available. However the threshold exemption will continue to be available up to Rs 10 lakh.

Provisions made applicable from enactment of finance act, 2013

1. Expansion in the Scope of Negative List:-

Services relating to agriculture or agricultural produce by way of agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing; [Old provision of section 66D (d)].

Services relating to agriculture or agricultural produce by way of agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;  [New Provision of section 66D (d)].

Author comment: As a result of this, Various type of “Testing services” like laboratory testing services testing of plants or animals, soil testing, animal feed testing etc. to determine the quality of produce and directly related to production of agriculture or agricultural produce has now been made non taxable under service tax.

2. Expansion in the Scope of Negative List:-

Definition of 'approved vocational education course' provided in section 65B (11) is being amended: firstly, the words, 'or State Council of Vocational Training' (SCVT) is being inserted in (i), and secondly, entry at item serial number (iii) is being omitted, for NSDC is not an affiliating body. After the proposed amendment takes effect, courses in 'designated trades' offered by Industrial Training Institute or Industrial Training Center affiliated to State Council of Vocational Training will also be covered by the negative list;

For (SCVT)   For NSDC  

Author comment: By the virtue of aforesaid amendment under section 65B (11), the scope of Negative List is being changed by the Budget, 2013 by including courses in designated trades as notified under the Apprentices Act, 1961 offered by industrial training institute (ITI) or an industrial training centre (ITC) affiliated to the State council of vocational Training under the definition of “approved vocational educational course”.

However, courses run by an institute affiliated to the National Skill Development Corporation are being excluded from the scope of the definition because NSDC is not an affiliating body.

3. Changes in section 65B (40)

Even a process amounting to manufacture or production under the Medicinal and toilet Preparation (Excise Duties) Act, 1955 shall be covered by the negative list of services and no service could be levied on such process.

Author Comment: This point is not mentioned in negative list by mistake but in current year it is covered by Finance minister.

4. Changes in section 73

Section 73 dealt with Recovery of service Tax not levied or paid or short levied or short paid or erroneously refunded.

Insertion of section 73(2A) after sub section 2 provides that:

If the Appellate Authority or tribunal concluded that notice is not sustainable as the extended period cannot be invoked, then Central Excise officer shall determine the service Tax liability for the shorter period of eighteen months..

Author comment: By virtue of this amendment, if whole of proceeding shall not become void-ab-initio due to Appellate Authority or tribunal concluded that notice is not sustainable as the extended period cannot be invoked.

5. Changes in Penalty Provision

I. Penalty for Non Registration.

Section 77(1) (a) is being modified so that penalty for non –registration will be restricted to Rs. 10,000. Currently (i.e., before this budget, 2013) quantum of penalty may extend to higher of:

a) Rs.10,000 OR

b) Rs. 200 per day of failure.

Author comment: By the virtue of this amendment, penalty of non- registration will maximum up to Rs. 10,000. The idea behind this amendment is for courage the people for registration.

II. Personal Penalty (it is additional penalty introduce in this Budget)

Section -78A is being introduced to impose the penalty on director, manager, secretary or other officer of the company, who is knowing involved in specified contraventions.

Where ‘A Company’ has committed any of the following contraventions namely:

a) Evasion of service Tax; or

b) Issuance of invoice, bill or as the case may be, a challan without provision of taxable service in violation of the rules made under the provision of this chapter; or

c) Availment  and utilization of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this chapter; or

d) Failure to pay any amount collected as service tax to the credit of the central government beyond a period of six months from the date on which such payment becomes due.

Then any director, manager, secretary or other office of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concern with such contravention, shall be liable to a penalty which may extend to Rs. 1,00,000.

Such penalty shall be imposed only if such director, manager, secretary or any other officer of the company-

a) Was in charge of , and

b) Was responsible for the conduct of business and

c) Was knowingly concerned with such contravention.

Author comment: This is an additional penalty impose on the any director, manager, secretary or other office of company.

6. Changes in provisions related to offences:

I. Section 83

Section 83 of Finance Act, 1994 is being amended to substitute the section 9A with section 9A (2) of Central Excise Act, 1944 and made applicable to the provisions of Finance Act, 1994 mutatis- mutandis.

Section 9A (2) deals with the certain offences deemed to be non-cognizable cited below:

“Any offence under this Chapter may, either before or after the institution of prosecution, be compounded by the Chief Commissioner of Central Excise on payment, by the person accused of the offence to the Central Government, of such compounding amount as may be prescribed.”

Difference between cognizable offences & Non-cognizable offences

Non-Cognizable/ Bailable: Here the Police cannot take cognizance of a crime and start investigation except with the permission of court (i.e., here the permission of court required). All non-cognizable offences are Bailable. That is if someone has been taken in preventive custody, he is not kept in lock up overnight and if someone is ready to give his surety, he would be released with a condition that he would be available for questioning or would co-operate with Police for investigations. 506 is one such crime.

Cognizable/ Bailable: Here the Police can take cognizance of a crime and start investigation without the permission of court. And if needed they can take a person in custody, but they cannot kept him in lock up overnight and if someone is ready to give his surety, he would be released with a condition that he would be available for questioning or would co-operate with Police for investigations. 406/ DP Act are such crimes. The Police itself have the authority to grant bail in such offences.

Cognizable/ Non-Bailable: Here the Police can take cognizance of a crime and start investigation without the permission of court, and if needed they can take a person in custody. The crime being non-bailable, the bail has to be granted by Court only.

II. Section 89

 New provisions are being introduced to prescribe revised punishments for offences in section 89, make certain offences cognizable and others non-cognizable and bailable. The Policy wing of the Board will be issuing detailed instructions in due course.

Author comment: This amendment is done by finance minister for introduce the new section 90 (killer section for persons who take service Tax lightly).

III. Section 90

Section 90 had been omitted by Finance [No.2] Act, 1998. However, vide finance bill 2013 it has been re-introduced, now

Cognizable offence: If assessee collects any amount exceeding Rs.50 Lakhs as service but fails to pay the amount so collected to the credit of central government beyond a period of 6 months from the date on which such payment becomes due.

Non-cognizable offence: All other offences as specified under section 89 of the Act shall be Non- cognizable. 

Author Comment: Section 89, Section 90 and Section91are killer sections for assessees who take service tax lightly. And not file correct return and not pay service tax timely.

IV.  Section 91: Power to arrest

(1)  If the Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of section 89, he may, by general or special order, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such person.

(2)  Where a person is arrested for any cognizable offence, every officer authorised to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours.

(3)  In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer in charge of a police station has, and is subject to, under section 436 of the Code of Criminal Procedure, 1973.

(4)  All arrests under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to arrests.”;

Author Comment: this amendment had shown the clear intention of finance minister that department take action for the person who takes service tax lightly. No defaulting person can escape from Service Tax law.

V. Section 86 Appeals to Appellate Tribunal

Section 86 (5) is proposed to be amended to provide that in case of appeal filed by assessee, CESTAT can admit an appeal or permit the filing of Memorandum of cross Objections after the expiry of the relevant period (i.e., within 3 months of the receipt of the relevant notice regarding filing of appeal) if CESTAT is satisfied that there is a sufficient cause for delay in filing appeal.

7. Changes in the provisions of Sections of central Excise ACT, 1994 applicable to Service Tax as per section 83 of Finance Act, 1994

Section 37C of Central Excise

Section 37C is being amended to specify additional modes of delivery of specified documents i.e. by speed post with proof of delivery or through courier approved by the Central Board of Excise & Customs.

Author comment: The date of delivery by courier shall be deemed to be date of serving of decision or order passes or any summon or notice, in case such decision or order or any summon or notice is served by way of courier.

8. Good news for defaulters who are non filers or stopped filing their Service Tax Return and had not discharged their Service Tax liability

The Hon’ble Finance Minister in order to increase the Service Tax Collection and reduce financial deficit had taken a very bold step by introduction of Amnesty Scheme for the Service Provider who have neither filed their service tax returns nor discharged their service tax liability.

Objective of Scheme:- To provide one time Amnesty Scheme for payment of service tax due or payable under the provisions of Finance Act, 1994 for the period beginning from the 1st day of October,2007 and ending on the 31st day of December, 2012. Any liability for the period on or after 1st January, 2013 shall be governed by the provisions of the Act. Getting complete waiver from penalty, interest or any other proceedings under the provisions of Finance Act, 1994.

Person who can apply for Scheme:-

On whom no notice or order for determination of tax due has been issued or made under Section 72, Section 73 or Section 73A of Finance Act, 1994 before 1st March 2013.

Person who can’t apply for Scheme:-

· Any person who has furnished return under section 70 of the Chapter and disclosed his true liability, but has not paid the disclosed amount of service tax or any part thereof, shall not be eligible to make declaration for the period covered by the said return;

· Person on whom notice or order of determination is issued in respect to any period on any issues can not file declaration on such issue for subsequent period.

· Any person on whom inquiry/investigation/audit has been initiated by way of search of premises, issue of summons or requiring production of accounts, documents or other evidence and such inquiry, investigation or audit is pending as on the 1st day of March, 2013

Procedure for applying the Amnesty Scheme

· Declaration upto 31st December 2013 in prescribed form and manner to designated authority.

·To pay not less than fifty per cent of the tax dues so declared along with submission of proof of such payment to the designated authority on or before the 31st day of December, 2013.

· Balance of the tax due declared but not paid shall be required to be paid by the declarant on or before the 30th day of June, 2014.

· However, in case a declarant fails to comply with the time limit as mentioned above but pays the same on or before 31.12.2014, interest shall be payable only for the period of delay as starting from 1.7.2014.

· On furnishing the details of full payment of declared tax dues and the interest, issue of acknowledgement for discharge of such dues by designated authority to the declarant in such form and in such manner as may be prescribed.

· No refund of amount paid under the scheme under any circumstances.

· Amount declared but not paid to be recovered as per the provisions of Section 87 of Finance Act, 1994.

Proceeding to be reopened in case of substantially false declaration

· Commissioner of Central Excise can serve a show cause notice if he has reasons to believe that the declarant has made substantially false declaration by recording reasons in writing.

· SCN so issued be deemed to have been issued under section 73, or as the case may be, under section 73A of the Chapter and the provisions of the Chapter shall accordingly apply.

· However, no show cause notice can be served on the declarant after the expiry of one year from the date of declaration.

Note: Although it is provided that no SCN shall not be issued for such failure after 1 year from the date of declaration, still there appears to be doubt whether provisions of extended period could be invoked because of use of expression “SCN so issued be deemed to have been issued under section 73”.

Tax declared but not paid

Where declaration has been made by declarant under his scheme, but fails to pay the tax so declared, then the tax liability so declared along with interest shall be recovered under the provisions section 87 of the Act.

Discretion to reject declaration

In case where inquiry or investigation has been initiated [in following ways] and the same is pending as on 1st March, 2013, designated authority has the power to reject the declaration by passing an order in writing giving reasons thereof

a) Search has been conducted of the premises of a person; or

b) Summons has been issued under  section 14 of central Excise Act, 1944; or

c) Any notice requiring production of accounts, documents or other evidence has been issued; or

d) Any audit has been initiated.