Budget 2013 - Highlights - Service Tax

Finance Bill, 2013 has been submitted to Parliament by the Union Finance Minister, Mr. P. Chidambaram on 28^th February, 2013. We bring you the highlights of the changes proposed in area of Service Tax alone.

Change in Negative List

1. Present Vocational Couse which is limited to National Council for Vocational Training has been amended to extend the service tax exemption to State Council for Vocational Training also.

2.  Course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India would be taxable has been removed from the definition of Approved Vocational Couse, thereby making the same taxable

3. Process on which the excise is levied under Medicinal and Toilet Preparations (Excise Duties) Act,1955 will be out of the service tax net.

4. The earlier exclusion which was restricted to seed testing has been extended any testing relating to any agricultural operations

Other Changes in the Act

5. New Section 66BA has been issued to make the reference of section 66 (charging section prior to 01.07.2012) to be applied to 66B (charging section present) with an retrospective effect from 01.07.2012

6.  New Sub-Section 73(2A) has been introduced to make the demand recoverable for the period of 18 months (normal period of limitation). Upto this amendment a SCN could have been issued with the normal period of 18months (earlier 1 year) from the relevant date, however in case there was fraud, collusion, misrepresentation etc. then the notice could have been issued invoking the extended period of limitation of 5 years. Practically in case the notice was issued invoking the extended period of limitation (5 year notice) and Department failed to establish such allegation of fraud, collusion, etc. then there was not demand in total failed even for the past 18months/1year demand is sustainable on merits even in the absence of fraud, collusion etc. Collector of C. EX., Jaipur vs Alcobex Metals 2003 (153) ELT 0241 S.C. decision has been nullified.

7. The Penalty for failure to take registration is restricted to maximum of 10,000/- which has no upper limit earlier

8. Personal Liability similar in case of Central Excise has been introduced in service tax on  Personal Liability of Penalty upto Rs.100,000/- has been proposed to levy on Director, Manager, Secretary or other officer who is responsible for conduct of business at time when company has committed any of the following contraventions:-

(a) Evasion of service tax

(b) Issuance of bill, invoice, challan in contravention of provisions

(c) Availment and utilization of credit on taxes without actual receipt of services or goods in contravention with the rules.

(d) Failure to pay amount collected as service tax  to credit of central government for period beyond 6 months

9. Earlier, the condonation of delay by appellate tribunal for filing appeal or memorandum of cross objections is available only for appeals by Department. Now, the same has been extended to an assessee who is filing appeal.

10. In case of a person collecting service tax and not paying to central government for period beyond 6 months from date on which payment is due and amount so not paid is greater than Rs. 50,00,000/-, the maximum imprisonment has been increased from 3 years to 7 years. The same has been made applicable even for second and subsequent offence. The offence has been made cognizable offence (i.e. person can be arrested without a warrant)

11. Commissioner of Central Excise has been given the power to authorize a central excise officer to arrest.

12.  Advance ruling can be sought by resident public limited companies also.

13. A scheme by name ‘Voluntary compliance encouragement scheme, 2013’ is proposed to provide amnesty by way of (i) waiver of interest and penalty; and (ii) immunity from prosecution, to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October 2007 to December 2012) who pay the "tax dues". [ A separate article has been hosted for those who wish to understand this better on this web site]

Changes in Exemption

14. The exemption relating to educational services, which are covered under the negative list earlier read as service provided by to an educational institution, now the same has been applicability to an educational institution and hence making the provider irrelevant. The exemption is now for Auxiliary educational service & Renting of immovable property to an educational institution. Earlier renting by educational institution was exempted, but now would be taxable if the same is not leased to educational institution.

15. Services provided by way of temporary transfer or permitting the use or enjoyment of copyright of cinematographic films was fully exempt previously but now exemption is restricted only for cinematographic films for exhibition in a cinema hall or cinema theatre. This would not help the movie makers to take the CENVAT credit on various input service such as remuneration to artist etc. and can pay the service tax on exploitation of copy right other than exhibition in cinema halls.  It is also important to apply rule 6 of CENVAT Credit Rules in such cases

16. Earlier services provided by air-conditioned restaurant and which has liquor license was taxable under service tax but now it is proposed to bring all air-conditioned/central air-heating restaurants, eating joints or mess into service tax net. And also all bars, whether or having liquor. 

17. Services by way of Transport of following goods by rail or vessel from one place in India to another was earlier exempt but now made taxable:-

(a) Petroleum and petroleum products

(b) Postal mail or mail bags

(c)  Household effects.

18. Services by way of transportation of following goods by goods transport agency have been brought into exemption list:-

(a) Agricultural produce

(b) Foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages

(c) Chemical fertilizer and oilcakes

(d) Newspaper or magazines registered with the Registrar of Newspapers

(e) Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap

(f) Defence or military equipments

19. Service by way of vehicle parking to general public has been brought into service tax net which was earlier exempted.

20. Services provided to Government, a local authority or a governmental authority by way of repair of aircraft which was earlier exempted was now made taxable.

21. Definition of ‘Charitable activities’ has been amended to exclude the advancement of any other object of general public utility.

22. % of Abatement for construction of complex, building, civil structure or part thereof intended for sale to a buyer, wholly or partly except where consideration is received after issuance of completion certificate by competent authority has been amended as follows:-

a. Residential unit having carpet area upto 2000 sq.ft or where amount charged is less than Rs. 1 Crore - Abatement continues to be 75%

b. Any other case – Abatement reduced to 70%

These highlights are by the first cut and in due course after deeper study the analysis and impact of ST could be done in greater detail. For further queries please host on pdicai.org.

Madhukar N Hiregange FCA & V.S.Sudhir FCA