The Service Tax department has come out with an exemption bonanza for various sectors ranging from air travel to construction industry. These exemptions will come in effect from July 1, 2010.
The services related to air transport of passengers embarking on international journey in India have been given a special thought to curtail the cost of air transport and encourage air passengers. From July 1, 2010, there will be no Service Tax on air transport of passengers in case where a person who has arrived at a customs airport from a place outside India and is in transit through India, provided that he does not pass through immigration and does not leave customs area and continues his journey to a place outside India.
The ministry has also exempted from Service Tax, the cost of air transport in case of a person employed or engaged by the aircraft operator in any capacity on board the aircraft. In all other cases, the ministry vide Notification No. 26/2010 has exempted the services from Service Tax as in excess of, - (a) ten per cent of the gross value of the ticket or Rs100 per journey, whichever is less, for passengers travelling in any class within India; (b) ten percent of the gross value of the ticket or Rs 500 per journey, whichever is less, for passengers embarking on international journey in economy class from India.
Further, the ministry with an intention to boost air travel in northeast India has given a special package for those flying to and from the northeastern states - Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Bagdogra (in West Bengal). All these sectors are, henceforth, exempted from air travel Service Tax.
The ministry vide Notification No. 28/2010 dated June 22, 2010 has exempted from Service Tax the construction of residential complexes when provided to low-cost housing schemes under Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana. It is pertinent to note that there are many cases pending for adjudication where the department has demanded Service Tax from builders who have provided construction services to JNNURM. All these litigations will not be effected as the notification will come into effect from July 1, 2010 and not with retrospective effect.
However, apart from these two lower-income housing schemes, all other schemes will attract Service Tax if any advance or booking amount has been received by the builder or any of his representative from the buyer.
The ministry of finance vide Order No. 1/2010 has clarified the meaning and scope of the expression "Authority Competent". In the Budget 2010, the definition of taxable services in relation to construction was modified and a provision was made that unless the entire consideration for the property is paid after the completion of construction (i.e. after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and Service Tax would be charged accordingly.
Now, with effect from July 1, 2010, the competent authority will include, besides any government authority, (i) Architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972); or (ii) Chartered Engineer registered with the Institution of Engineers (India); or (iii) licensed surveyor of the respective local body of the city or town or village or development or planning authority; who is authorised under any law for the time being in force, to issue a completion certificate in respect of residential or commercial or industrial complex, as a precondition for its occupation.
With the introduction of this ministry of finance order, the ambiguity about who will issue the certificate stands resolved. Now the only precondition remains with respect to payments received before issuance of this completion certificate. Practically, in the construction industry, builders or promoters always secure their bookings by receiving advance amounts. Even buyers prefer to confirm their bookings so that they can approach financial institutions for processing their housing loans. With the insertion of this new provision, the situation has become more complex as builders or developers are looking for ways and methods to bring down the cost of a housing unit. This becomes extremely vital in the times of cut-throat competition, as the dark clouds of recession have not yet dispersed.
Apart from the above, a conditional exemption is provided to the construction industry where the cost of the land has not been separately recovered from the buyer by the builder or his representative.
Exemption in the field of Service Tax has been further extended in the case of transportation of goods by rail. Earlier, these exemptions were available till July 2010, which have now been extended to January 2011. The ministry has also exempted certain services in relation to electricity distribution services which were recently introduced. In case of services provided within a port or an airport, the ministry videNotification No. 31/2010 has exempted some specific services. In case of a port area, these services include repair of ships or boats belonging to the Government of India, such as naval ships or vessels belonging to the customs or Coast Guard.
The ministry has also exempted services of supply of water and electricity, pollution control services and fire agency services when provided within the airport or port. With the issuance of this notification, ambiguities regarding port services will be resolved. However, as this notification will come into effect from July 1, 2010, the past Service Tax demands and litigations will not be affected and will have to reach their logical end in the court of law