Budgetary Changes In Service Tax
By MONISH BHALLA
With the presentation of the Finance (No.2) Bill, 2009 the Finance Minister has proposed certain amendments and the said changes will come into effect from a date to be notified, after the enactment of the Finance Bill, 2009. With respect to the Service Tax the said bill proposes amendments in Section 65, Section 66, Section 84 and Section 94.
(I) Section 65 is being amended to :
(a) specifically include and define the following services, in the list of taxable services, namely:-
(i) Service provided in relation to transport of coastal goods and goods
(ii) Service provided in relation to transport of goods by rail,
(iii) Cosmetic and plastic surgery service,
(iv) Legal consultancy service.
(b) extend or modify the scope of certain services, namely:-
(i) Business auxiliary service [Section 65 (19)], so as to provide that only those processes which result in the manufacture of excisable goods (as defined in the Central Excise Act) are excluded from the purview of Business auxiliary service.
(ii) Information technology service [Section 65 (105) (zzzze)], to replace the word, 'acquiring', with the word, 'providing' [appearing in serial number (iv) and (v) of the definition].The amendment is being given retrospective effect from 16.05.2008.
(iii) Stock-broker service [Section 65 (101)], to exclude sub-broker from its ambit. As a result sub-brokers will be outside the ambit of service tax.
(II) Section 66 pertaining to "charge of service tax" is being amended, to include the services which are individually specified, for inclusion in the list of taxable service.
(III) Section 84 is being amended, to abolish the revision procedure prescribed in Section 84. Revision of orders by the Commissioner is being replaced, with the filing of departmental appeals before the Commissioner of Central Excise (Appeals), similar to the Central Excise provisions. Consequential changes are effected in Section 86. A saving clause is being provided, to protect the pending cases.
(IV) Section 94 is being amended, to empower the Central Government, to frame rules with respect to the place of supply of taxable services, and the relevant date for determination of service tax.
All the above changes will come into effect from a date to be notified, after the enactment of the Finance Bill, 2009.
The Service Tax Rules, Cenvat Credit Rules, Work Contract Rules have been suitable amendment so has to modify the Works Contract provisions and Cenvat Credit principles. Accordingly, certain changes have been brought into immediate effect.
(I) The scope of notification No.1/2002-ST dated 01.03.2002 is being enlarged, by extending the applicability of service tax provisions to installations, structures and vessels in the entire Continental Shelf of India and Exclusive Economic Zone of India [refer notification No. 21/2009-ST dated 07.07.2009].
(II) Explanation provided in the Works Contract Rules, 2007 is being modified, so as to allow the benefit of optional composition scheme, only for such works contracts, where the taxpayer declares the entire value of goods (whether supplied under any other contract for a consideration or otherwise) and services used in the execution of the works contract, as the 'gross value' charged for the works contract. This restriction would not apply to the current works contracts where either the execution has commenced or any payment been made on or before 07.07.2009 [refer notification No.23/2009-ST dated 07.07.2009].
(III) Rule 6(3) of the Cenvat Credit Rules, 2004 is being amended, to reduce the amounts to be paid on clearances of exempted goods and on provision of exempted services, from 10% to 5% in case of Central Excise and from 8% to 6% in case of service tax respectively [refer notification No.16/2009-CE(N.T.) dated 07.07.2009].
(IV) Rule 3(5B) of the Cenvat Credit Rules, 2004 is being amended, so as to provide that a service provider shall pay back the amount of credit taken on inputs/capital goods fully written off [refer notification No. 16/2009-CE(N.T.) dated 07.07.2009].
The Finance Bill also proposes certain exemptions from Service Tax which will come into immediate effect.
(I). Exemption from service tax is being provided, to inter-state or intra-state transportation of passengers, in a vehicle bearing' contract carriage permit', with specified conditions [refer notification No. 20/2009-ST dated 07.07.2009].
(II). Exemption from service tax (leviable under "club or association" service) is being provided, to the Federation of Indian Export Organizations (FIEO) and specified Export Promotion Councils, on the membership or any other fee collected by them. This exemption is valid up to 31.03.2010 [refer notification No.16/2009-ST dated 07.07.2009].
(III). Exemption from service tax (leviable under "banking and other financial services" or "foreign exchange broker" services) is being provided, to inter-bank purchase and sale of foreign currency between scheduled banks [refer notification No. 19/2009-ST dated 07.07.2009].