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AMENDMENTS-relevant for may 2015

(Amendments between may 14 to oct 14)

Earlier

Amendment

Mega Exemption Notification (25/2012) (Effective form 11/07/2014)

New Exemption

Services provided by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto

Exemption Omitted

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

Services provided to an educational institution in respect of education exempted from service tax by way of

- auxiliary educational services and

 - renting of immovable property

Services provided

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,-

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational institution;

Services by way of renting of a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent;”

Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent

Transport of passengers, with or without belongings, by a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire.

Transport of passengers, with or without belongings, by non-airconditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire.

New Exemption

Services by way of loading, unloading, packing, storage or warehousing of rice has been extended to cotton, ginned or baled

Services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves

Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India

a. Services by transportation by rail or vessel from one place in India to another and services by a goods transport agency by way of transport in a goods carriage of “organic manure, cotton, ginned or baled” has been exempted. 

b. Educational institution as explained u/s 66D of the Finance Act 1994.

c. “Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS)

d. Service to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation has been exempted.

Earlier these services were exempted only if activity is carried out in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation.

One new scheme of Life Insurance business is also covered in the exemption list viz  “life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees.”;

Provision

Effective Date

Abatement Notification (26/2012)

The condition regarding non utilisation of CENVAT credit on inputs, capital goods and input services, used for providing the taxable services of goods transport agency in relation to transport of goods has been clarified by introducing “CENVAT credit on inputs, capital goods and input services used for providing the taxable services, has not been taken by the service provider. Thus Service recipient is not required to establish satisfaction of this condition by service provider.

11/07/2014

The abatement of 60% will be available on “renting of motor cab” instead of “any motor vehicle designed to carry passengers”.

Further some relaxation has been provided in Cenvat Credit also as under :-

Cenvat credit on Inputs

Not available

Cenvat credit on Capital Goods

Not available

Cenvat credit on Input Services of renting of motorcab

Available as under :-

(1) Full Cenvat credit provided that service tax is paid only on 40% value of input service.

(2) 40% Cenvat credit if service tax is paid on full value of input service.

Cenvat credit on other input services

Not Available

01.10.2014

Abatement of 60% has been provided for “Transport of passengers by a contract carriage other than motorcab. The abatement is with the condition that Cenvat credit of Inputs or Capital goods or Input services has not been taken.

Further it is also proposed to enhance the scope of such service by adding radio taxi alongwith other contract carriages. However, such amendment is to be brought by the Central Government by notification on some date.

11.07.2014

To be checked

The abatement for services provided by transport of goods in a vessel has been increased from 50% to 60% resulting in change in effective rate of service tax from the present 6.18% to 4.944%.

01.10.2014

The tour operators are provided some relief in Cenvat credit. Now they can avail the Cenvat credit of service tax paid on input services of a tour operator.

01.10.2014

     

Service Tax Rules

E-payment of service tax has been made mandatory with effect from 1st October 2014. However, Deputy Commissioner can give some relaxation.

Reverse Charge Mechanism Notification No 30/2012 dated 20.06.2012

1. The new entry has been introduced for reverse charge. The services provided by Recovery Agents to banks, Financial Institutions and NBFC is being brought under the reverse charge mechanism. (11.07.2014)

2. In addition to services provided by the director of the company to the company, services provided by the director to the body corporate have also been introduced in reverse charge mechanism. Such amendment seems to be clarificatory in nature.(11.07.2014)

3. In renting of motor vehicle, where service provider does not take abatement the portion of service tax payable by the service provider and the service receiver has been changed from 60% : 40% to 50% each. (01.10.2014)

Service Tax (Determination of Valuation) Rules, 2006

Taxable portion of works contract related to maintenance or repair or reconditioning or restoration or servicing of any goods or maintenance or repair or reconditioning and completion and finishing such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property has been increased to seventy percent. Thus the earlier taxable portion of 60% and 70% has been rationalized to uniform rate of 70%. (01.10.2014)

Changes in interest Rates

S No

Period of delay

Rate of Simple Interest

1. 

Up to six months

  1.  

2. 

More than six months and up to one year

24% for this period

3. 

More than one year

30% for this period

POT Rules, 2011

The point of taxation in case of reverse charge mechanism is determined on the basis of payment made to the service provider. The payment has to be made within 6 months else the point of taxation is preponed. Now the amendment has been introduced to make payment within three months. But if payment is not made within three months the point of taxation is the date immediately after the date of end of three months. However this will come into force from 1st October 2014.

Transitional Rule 10

Notwithstanding anything contained in the first proviso of rule 7, if the invoice in respect of service, for which point of taxation is determinable under rule 7 has been issued before the 1st day of October 2014 but payment has not been made as on the said day, the point of taxation shall –

a. If payment is made within a period of six months of the date of invoice, be on the date on which payment is made,

b. If payment is not made within a period of six months of the date of invoice, be determined as if rule 7 and this rule does not exist.

POPS Rules 2012 Effective form 01.10.2014)

Definition of intermediary modified to include “supply of goods” in its purview.

Second proviso to Rule 4 stating Place of Provision for performance based services is modified as Provided further that this clause shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than which is required for such repair. Earlier it said that conditions for such activity is to be specified by the Government.

Specified Services (Rule 9) modified as –service consisting of hiring of all means of transport other than (i) aircrafts, and (ii) vessels except yachts, upto a period of one month. Earlier all means of transport were covered.

Advance Rulings

The government has notified resident private limited company to be covered under the applicant for advance rulings.

Important Circular on CENVAT Credit Rules

(Manner of distribution of common input service credit under rule 7(d) of the Cenvat Credit Rules, 2004)

 Doubts have been raised regarding the manner and extent of the distribution of common input service credit in terms of amended rule 7 [especially rule 7(d)] of the Cenvat Credit Rules, 2004 (CCR). Rule 7 provides for the mechanism of distribution of common input service credit by the Input Service Distributor to its manufacturing units or to units providing output services. An amendment was carried out vide Notification no. 05/2014-CE (N.T.) dated 24th February, 2014, amending inter-alia rule 7(d) providing for distribution of common input service credit among all units in their turnover ratio of the relevant period. Rule 7(d), after the amendment, reads as under:

‘credit of service tax attributable to service used by more than one unit shall be distributed pro rata on the basis of the turnover of such units during the relevant period to the total turnover of all its units, which are operational in the current year, during the said relevant period’

2. These doubts have arisen with respect to the meaning of the words ‘such unit’ used in rule 7(d). It has been stated in the representations that due to the use of the term ‘such unit’, the distribution of the credit would be restricted to only those units where the services are used. It has been interpreted by the trade that in view of the amended rule 7(d) of the CCR, the credit available for distribution would get reduced by the proportion of the turnover of those units where the services are not used

Rule 7 was amended to simplify the method of distribution. Prior to this amendment there were a few issues raised by the trade regarding distribution of credit under rule 7 such as determining the turnover of each unit for each month and distributing by following the nexus of the input services with the units to which such services relate. The amendment in the said rule was carried out to address these issues. The amended rule 7(d) seeks to allow distribution of input service credit to all units in the ratio of their turnover of the previous year. To make the intent of the amended rule clear, illustration of the method of distribution to be followed is given below

An Input Service Distributor (ISD) has a total of 4 units namely ‘A’, “B’, ‘C’ and ‘D’, which are operational in the current year. The credit of input service pertaining to more than one unit shall be distributed as follows:

Distribution to A = X*Z/Y

X = Turnover of unit ‘A’ during the relevant period

Y = Total turnover of all its unit i.e. ‘A’+’B’+’C’+’D’ during the relevant period

Z = Total credit of service tax attributable to services used by more than one unit

Similarly the credit shall be distributed to the other units ‘B’, ‘C’ and ‘D’.

Illustration:

An ISD has a common input service credit of Rs. 12000 pertaining to more than one unit. The ISD has 4 units namely ‘A’, ‘B’, ‘C’ and ‘D’ which are operational in the current year. Unit

Turnover in the previous year (in Rs.)

A (Manufacturing excisable goods)

25,00,000

B (Manufacturing excisable and exempted goods)

30,00,000

C (providing exclusively exempted service)

15,00,000

D (providing taxable and exempted service)

30,00,000

Total

1,00,00,000

The common input service relates to units ‘A’, ‘B’ and ‘C’, the distribution will be as under:

A = 3000      B = 3600      C = 1800      D = 3600

The distribution for the purpose of rule 7(d), will be done in this ratio in all cases, irrespective of whether such common input services were used in all the units or in some of the units.

Service tax on Joint Venture

1. Certain doubts have been raised regarding the levy of service tax on taxable services provided (i) by the members of the Joint Venture (JV) to the JV and vice versa; and (ii) inter se between the members of the JV. In addition, doubts have also been raised regarding taxation of cash calls or capital contribution made by the members to the JV and also administrative services provided by a member to the JV.

2. With effect from 1st July, 2012, under the negative list approach, all services are taxable subject to the definition of the service [available in section 65B (44) of the Finance Act, 1994], other than the services specified in the negative list [section 66D] and exemption notification [Notification No. 25/2012-ST]. According to Explanation 3(a) of the definition of service, “an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons”. In accordance with the above explanation, JV and the members of the JV are treated as distinct persons and therefore, taxable services provided for consideration, by the JV to its members or vice versa and between the members of the JV are taxable.

3. In the context of a JV project, cash calls are capital contributions made by the members of JV to the JV. If cash calls are merely a transaction in money, they are excluded from the definition of service provided in section 65B(44) of the Finance Act, 1994. Whether a ‘cash call’ is ‘merely… a transaction in money’ [in terms of section 65B(44) of the Finance Act, 1994] and hence not in the nature of consideration for taxable service, would depend on the terms of the Joint Venture Agreement, which may vary from case to case.

4. Detailed and close scrutiny of the terms of JV agreement may be required in each case, to determine the service tax treatment of cash calls. Some important aspects, by way of illustration, which could be examined in this regard, are:-

4.1  Taxable service provided by a JV to its members:

Cash calls, sometimes, could be in the nature of advance payments made by members towards taxable services to be received from the JV. For instance, JV which receives the cash call from its members may in return agree to do something of direct benefit either to the member or on the behest of a member to a third party, such as granting of right, reserving production capacity or providing an option on future supplies.

4.1.1 Taxable services received by a JV from its members or third party:

Payments made out of cash calls pooled by a JV, towards taxable services received from a member or a third party is in the nature of consideration and hence attracts service tax.

4.2 Taxable services provided by members to the JV:

Usually responsibility of managing the cash calls of the JV is assigned to one or some of the members of the JV, by way of a contractual agreement, for which he/they may receive a consideration either in cash or kind (say, goods or services).

A member of JV may provide support services (for example, administrative service in the form of setting up/management of a project office/site office) to the JV for a consideration either in cash or kind (say, goods or services).

5. JV being an unincorporated temporary association constituted for the limited purpose of carrying out a specified project within a time frame, a comprehensive examination of the various JV agreements (at times, there could be number of inter se agreements between members of the JV) holds the key to understanding of the taxation of transactions involving taxable services between the JV and its members or inter-se  between the members of a JV. Therefore it is advised to carefully examine the leviability of service tax with reference to the specific terms/clauses of each JV agreement

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