Pre-Budget Amendment in Service Tax

While the Union Government is keen to present the Budget for upcoming financial year on 1st Feb, 2017, departing from the colonial-era tradition of presenting the Union Budget on the last working day of February, the Central Board of Excise and Customs (CBEC) on 12th of January 2017 proposed several amendments in the Service Tax Law, the details of which are as follows:

Services by way of Transportation of goods by a vessel from a Place outside India up to the customs station of clearance in India (When Service provider and service receiver both are located in Non-Taxable territory):

Earlier Provision: In Entry No. 34(c) of Mega Exemption notification no. 25/2012, in case when the service provider and service receiver both are located in non-taxable territory, that service will be exempt from payment of service tax.

New Provision: Wide notification no. 1/2017 dated 12-01-2017, the aforesaid exemption will not apply in case of “services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India” effective from 22-01-2017. Meaning thereby with effect from 22nd Jan, 2017, the said service will be chargeable to service tax although service provider and service receiver both are in non-taxable territory.

Person liable to pay service tax: Shift in liability to pay service tax from service provider to person in charge of vessel:

• The person in India who complies with sections 29, 30 or 38 read with section 148 of the Customs Act, 1962  with respect to such goods will be the person liable to pay service tax.
• Meaning thereby the person in charge of the conveyance or an agent appointed by him will be liable to pay service tax in case of aforesaid service when both SP and SR are non-taxable territory.

(Notification No. 02/2017-ST and 03/2017-ST dated 12th Jan, 2017 effective from 22nd Jan, 2017)

Analysis of aforesaid amendment:

• Place of provision of services of transportation of goods is the place of destination of the goods. Meaning thereby, in case of transportation of goods by a vessel from a place outside India to customs stations of clearance of India, the Place of Provision will be in India. Hence Service Tax may be levied in that service.
• However before 1st of June, 2016, the services provided by a vessel from a place outside India up to the customs station of clearance in India was covered in Negative List thereby no service tax was levied.
• Finance Act, 2016 deleted the said negative list entry thereby making it chargeable to service tax.
• Hence with effect from 01-06-2016, if service receiver for such services is in India, he need to pay service tax under reverse charge mechanism as the same service will qualify to be importation of services.
• However there was a scope of exclusion in cases where both service provider and service receiver are in non-taxable territory (say outside India) as although the negative list entry has been deleted but the same would have been covered by Mega Exemption 25/2012 entry no 34(c).
• Now with this amendment, the scope of exclusion in cases where both SP and SR are in non-taxable territory has also been deleted thereby making the person in charge of vessel liable to pay service tax.

Services by a Tour Operator:

Earlier Provision:

Taxability in case of Service by a Tour operator has been divided in 2 parts:

1. In relation to a tour, only for the purpose of arranging or booking accommodation for any person: 10% Value Taxable;
2. In relation to tour other than above: 30 % taxable.

Further in both the above cases, Cenvat Credit of Input, Capital Goods and Input services was not available except to the extent of input service of tour operator used in the course of providing taxable service.

That means credit was restricted to only input service in nature of tour operator obtained in the course of output service of tour operator.

New Provision:

• No separate distinction.
• In all the cases 60% value will be taxable.
• Cenvat credit of Input and Capital Goods will not be available.
• However full credit of all Input services will be available.

(Notification No. 04/2017-ST dated 12th Jan, 2017, effective from 22nd Jan, 2017)

Services by a business facilitator or a business correspondent to a banking company:

Earlier Provision: Exemption from service tax wide Notification No. 25/2012 was available in cases where:

• Service provided by business facilitator or a business correspondent
• To a banking company
• With respect to “Basic Savings Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company's rural area branch,
• By way of account opening, cash deposits, cash withdrawals, obtaining e-life certificate, Aadhar seeding”

New Provision: Exemption from service tax wide Notification No. 25/2012 will be available in cases where:

• Service provided by business facilitator or a business correspondent
• To a banking company
• With respect to accounts in its rural area branch
• Thus wide Notification No. 1/2017-ST dated 12-01-2017, the scope of this entry has become much wider to include all type of account and services in rural area branch of a banking company.

Change in definition of Aggregator:

i. As per Rule 2(aa) of service tax rules, 1994, "aggregator" means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator.

ii. Wide Notification No. 2/2017-ST dated 12-01-2017, a proviso has been added in the said definition of aggregator.

iii. As per the said proviso, aggregator shall not include:

- such person who enables a potential customer to connect with persons providing services

- by way of renting of hotels, inns, guest houses, clubs, campsites or other commercial places

- meant for residential or lodging purposes

- subject to following conditions:

1. the person providing the aforesaid services of renting has a service tax registration.
2. Whole of the consideration for such services is received directly by such service provider.
3. No amount which farms part of the consideration of services is received by the aggregator directly either from applicant or his agent.

iv. Hence some aggregators like Oyo Rooms may have some relief if the room rent charges are received directly by the hotels and if those hotels are separately registered under service tax.

The above said amendment will be effective from 22nd Jan, 2017.

(Disclaimer: This write up is based on the understanding and interpretation of author and the same is not intended to be a professional advice.)

The author is a Chartered Accountant and can also be reached at canitingoyal1994@gmail.com