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Indirect Tax

I. Service Tax

A. Amendments to be effective from 1 April 2012

1. Change in Rate of Tax

a. Rate of service tax has been increased to 12.36 percent (including Education Cess and Secondary & Higher Education Cess)

b. Composition rate of service tax for Works Contract has been increased to 4.94 percent (including Education Cess and Secondary & Higher Education Cess)

2. Amendments in Service Tax Rules, 1994

a. Period for issuance of invoice, challan or bill by the person providing taxable service has been increased from 14 days to 30 days from the completion of service. However, for NBFC period for issuance of invoice shall be 45 days from completion of service.

b. Limit of Rs. 2 lakhs for suo-moto adjustment of excess service tax paid for reasons not involving interpretation of law, taxability, classification, valuation has been done away with.

B. Amendment to be effective from the date of enactment of the provisions of Finance Bill

1. Taxing Services based on Negative List

a. A significant shift has been proposed with regard to the levy and collection of service tax.  It is proposed that services will be taxed based on the concept of ‘Negative List’.  This would, in effect, mean that all services would be subject to service tax excluding those that are either specified in the negative list or are specifically exempted. 

b. 17 categories of services have been included under Negative List which, inter alia, include services like trading of goods, transmission or distribution of electricity by an electric transmission and distribution utility, services by way of extending loan or advances.

c. To effect the above change, amendments have been proposed in the Finance Act 1994 including but not limited to charging section, definitions and place of supply rules etc.  In line with this draft ‘Place of Provision of Service Rules, 2012’ have also been issued for public comments. 

d. In addition to above, related rules and regulations like Service Tax Rules 1994, CENVAT Credit Rules 2004 which are integrated to and based on categories of taxable services will be consequently amended (in due course) to align with the concept of Negative list.    

2. Amendment in Finance Act 1994

a. Period of limitation for issuance of show cause notice has been increased from current 12 months to 18 months from the relevant date

b. Provisions relating to settlement commission have been extended to service tax. 

3. Amendment in Service Tax (Determination of Value) Rules, 2006

Valuation of Works Contracts is proposed to be revamped and is proposed to be taxed in the following manner:

(i) Value of Works Contract shall be the gross amount charged for the works contract less the value of goods transferred while executing the works contract

(ii) Where value is not determined as above, then tax shall be paid on:

a. 40 percent of total amount charged where original works is being executed (i.e. all new constructions)

b. 25 percent of total amount charged where amount charged includes value of land

c. On 60 percent of total amount charged, in case of other works contract like completion and finishing services, installation of electrical fittings etc

4. Amendment in Service Tax Rules 1994

Following relevant service transactions are proposed to be brought under reverse charge mechanism (i.e. recipient of service would be required to discharge service tax):

a. Services provided or agreed to be provided by an individual advocate,

b. Support services provided or agreed to be provided by local authority or government

c. Renting, hiring of any motor vehicle designed to carry passenger by an individual, HUF, proprietary or a partnership firm (tax to be discharged on 40% of the taxable value under reverse charge mechanism)

d. Works contract service provided by an individual, HUF, proprietary or a partnership firm (only 50 % of the liability to be discharged under reverse charge and remaining 50% to be discharged by provider of service)

e. Supply of man power by an individual, HUF, proprietary or a partnership firm (25 % of the liability to be discharged by provider of service and remaining 75% of the liability to be discharged under reverse charge)

II. Excise Duty

a. Excise duty rate has been enhanced from 10.30 percent to 12.36 percent

b. The reduced rate of penalty under Section 11AC will be applicable only where the reduced amount of penalty so computed is also paid along with duty and interest within 30 days. Earlier, the reduced rate of penalty under Section 11AC was applicable where the duty and along with interest was paid within 30 days.

c. The punishment of imprisonment for commitment of specified offences relating to excisable goods will be applicable in cases where the duty leviable thereon exceeds Rs thirty lakh as against Rs one lakh prescribed earlier. 

III. CENVAT Credit

To be effective from 1 April 2012.

a. Motor vehicles falling under tariff headings 8702 (i.e. motor vehicles for transport of 10 or more persons), 8703 (i.e. motor cars and other vehicles principally designed for the transport of persons), 8704 (i.e. motor vehicles for transport of goods), 8711 (i.e. motorcycles) have been included in the definition of capital goods.

b. Amount to be paid under Rule 6(3)(i) of Credit Rules, by a manufacturer or a provider of output service undertaking both taxable and non taxable activity and also not maintaining separate books of accounts with regard to input and input services have been increased from 5 percent to 6 percent.

c. Amendment effected in Credit Rules (during last Union Budget) to the effect that services provided to unit in SEZ or a developer of SEZ shall not be subject to the provisions of Rule 6 of Credit Rules has now been made effective from  10 February 2006.

That is to say, wef 10 February 2006, there is no requirement to reverse Cenvat credit towards input and input services used for providing services to a unit in SEZ or a developer of SEZ.

d. Manner of distribution of Cenvat credit through Input Service Distributor (‘ISD’) has been amended to provide that credit of service tax attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover of the concerned unit to the sum total of the turnover of all units to which the service relates. 

e. Enabling provision has been introduced to transfer unutilized Cenvat credit of Special Additional Duty of Customs (‘SAD’), levied under Section 3(5) of Customs Tariff Act, lying in balance with one registered premise to another.

f. Rule 14 has been amended to provide that mere wrong availment of Cenvat credit would not invoke recovery and interest provisions. Recovery provisions would only be invoked if such wrongly availed credit is also utilized. 

g. Amount to be paid on removal of capital goods would be higher of:

- Amount equal to the duty leviable on transaction value or,

- Amount computed based on prescribed percentage 

Other Aspects

It is also proposed to integrate returns for excise and service tax. Consequently returns for service tax will also have to be filed monthly. A draft template of returns has also been issued. 

With my kind regards & JSK

Manoj Pala

SIEMENS LTD, Kharagpur

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