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Hon’ble Finance Minister Sh. Arun Jaitley tables the Union Budget 2016 on 29 Feb-2016, citing that 0.5% of Krishi Kalyan Cess to be levied on all the services making the effective service tax rate 15% (i.e. 14% + Swachh Bharat Cess 0.5% + Krishi Kalyan Cess 0.5%) {the same will be applicable w.e.f.01-06-2016 after the enactment of Finance Bill}

In totality, approx 60 changes have been made in service tax, out of which Certain changes are applicable with immediate effect and other are either applicable w.e.f. 01-04-2016 or after the enactment of Finance Bill 2016.

This article focuses on bringing an insight to the major changes introduced in service tax, which are applicable with immediate effect {i.e. w.e.f. 01-03-2016}, w.e.f. 01-04-2016, and with the enactment of Finance Bill 2016.

I. Changes in Service Tax applicable with Immediate Effect

A. Services by IIM- To start with, the services provided by IIM are made exempted vide Notification 9/2016 by adding a new entry no.9B in the Mega Exemption Notification 25/2012.

The New entry 9B states as follows:

Services provided by the Indian Institutes of Management, as per the guidelines of the Central Government, to their students, by way of the following educational programmes, except Executive Development Programme:

(a) two year full time residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;

(b) fellow programme in Management;

(c) five year integrated programme in Management.”

B. Restoration to exemption on services provided to the Government, a local authority or a governmental authority by way of construction, erection - Entry 12A of notification 09/2016 has been introduced to provide restoration to exemption from Service Tax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of –

(i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;

The above said exemption was withdrawn with effect from 1.4.2015,however, the same is being restored {with immediate effect}, for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date.

Further, the point pertinent to be noted here is that the supra exemption is being restored till 31.03.2020

C. Restoration to exemption on services to an airport, port - Entry 14A of notification 09/2016 has been introduced to provide restoration to exemption from Service Tax on services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date.

It is necessary here that Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March, 2015.

Further, the point pertinent to be noted here is that the supra exemption is being restored till 31.03.2020

D. Construction service to monorail/metro withdrawn - Sl. No (vi) A of notification No. 9/2016-ST, dated 1st March, 2016 provides that Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro (which was earlier provided under S. No 14 of the notification No. 25/2012-ST) is being withdrawn, in respect of contracts entered into on or after 1st March 2016.

E. New exemptions- Notification 25/2012 has been amended by adding various new exemptions for services, vide notification 9/2016 dated 1-3-2016, applicable w.e.f. 01-03-2016

a) New entry at S. No. 13(ba) of notification No. 25/2012-ST- Services by way of construction, erection etc. of a civil structure or any other original works pertaining to the “In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation” component of Housing for All (HFA) (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling units of the projects which are not constructed for existing slum dwellers.

b) New entry at S. No. 13(bb) of notification No. 25/2012-ST- Services by way of construction, erection etc., of a civil structure or any other original works pertaining to the “Beneficiary-led individual house construction / enhancement” component of Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY).

c) New entry at S. No. 14(ca) of notification No. 25/2012-ST- Services by way of construction, erection, etc., of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government.

F. Applicability of Service Tax on Information Technology Software - Vide notification 11/2016 it has been clarified that service in relation to Information Technology Software, {earlier leviable to service tax under section 66B read with section 66E of the said Act when such Information Technology Software is recorded on a media} is exempted from whole of the service tax, on which it is required to declare the retail sale price under the provisions of the Legal Metrology Act, 2009 (1 of 2010) or the rules made thereunder or under any other law for the time being in force.

On the contrary, if the declaration of RSP is not a pre condition under the law, then the service tax will be applicable on the Information Technology Software which is recorded on a media.

G. Determination of Point of taxation in case of SBC –An explanation to rule 5 of POT Rules has been added vide notification 10/2016, so as to provide that provisions of Rule 5 shall apply mutatis mutandis in case of new levy on services.

The main reason for such insertion is that the Finance Act 2015 had introduced new levy in the name of Swachh Bharat Cess, however, at that time ambiguity arose regarding determination of POT, as at that time rule 5 was restricted to the determination of POT in case of service taxed for the first time.

Now with the insertion of explanation discussed supra, the point of taxation in case of new levy shall also be determined as per the provisions of rule 5.

Further, since the amendment has been made by way of explanation, it shall be construed as retrospective amendment.

H. CENVAT Credit of input service being allowed to service providers providing service by way of transportation of goods by vessel from India to abroad – Amendment has been made in Rule 2(e) of the CENVAT Credit Rules, vide notification 13/2016-CE (NT) whereby the service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India, has been excluded from the definition of exempted service.

I. 'One Year' has been specified as the time limit for filing refund claim - Notification 27/2012-CE(NT) has been amended vide notification 14/2016-CE to specify the relevant date for filing refund claims. Accordingly, the refund claim can be filed before the expiry of one year from the date of –

(a) receipt of payment in convertible foreign exchange, where provision of service had been completed prior to receipt of such payment; or

(b) issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice.”

J. Services provided by Indian Railways to Container Train Operators – clarification has been provided to the fact that service provided by the Indian Railways to Container Train Operators (CTOs) of haulage of their container train (rake of wagons with containers) is a service of “Transport of Goods by Rail” and is, therefore, eligible for abatement and tax treatment accordingly, that is, for abatement at the rate of 70% with credit of input services.

II. Changes in Service Tax Applicable w.e.f. 01-04-2016

A. Services by Senior Advocate levied under Forward Charge

a) S No. 6 of Mega exemption notification as per Notification 25/2012, has been amended vide Notification 9/2016, dated 1-3-2016 whereby, exemption in respect of Services provided by a senior advocate to an advocate or partnership firm of advocates has been withdrawn.

Further, the said service tax by senior advocate is payable under forward charge. (rule 2(1)(d)(i)(D)(II), modified accordingly vide notification 19/2016-ST)

In simple words, w.e.f 01-04-2016, the services provided by senior advocate has been made taxable and that too under forward charge.

b) The exemption earlier provided under Clause (c) of the S No. 6, i.e. A person represented on an arbitral tribunal to an arbitral tribunal, has also been withdrawn

B. Services of transport of passengers by ropeway, cable car or aerial tramway

Exemption provided under Sl. No. 23 (c) of the Mega Exemption Notification No.25/2012-ST regarding transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn, vide notification 9/2016 dated 1-3-2016.

C. New exemptions for services

Notification 25/2012 has been amended by adding various new exemptions for services, vide notification 9/2016 dated 1-3-2016, applicable w.e.f. 01-04-2016. The same are penned down as under:

a) New entry at S. No. 9C of notification No. 25/2012-ST- Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship

b) New entry at S. No. 9D of notification No. 25/2012-ST- Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners.

c) Entry no. 16 of notification No. 25/2012-ST revised- The threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art forms of music, dance or theatre, is being increased from Rs 1 lakh to Rs 1.5 lakh per performance.

d) New entry at S. No. 26C of notification No. 25/2012- The services of life insurance business provided by way of annuity under the National Pension System (NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India

e) New entry at S. No. 26(q) of notification No. 25/2012- Services of general insurance business provided under “Niramaya” Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies.

f) New entry at S. No. 49 of notification No. 25/2012- Services provided by Employees’ Provident Fund Organisation (EPFO) to employees.

g) New entry at S. No. 50 of notification No. 25/2012-ST- Services provided by Insurance Regulatory and Development Authority (IRDA) of India.

h) New entry at S. No. 51 of notification No. 25/2012-ST- Services provided by Securities and Exchange Board of India (SEBI) set up under SEBI Act, 1992, by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market.

i) New entry at S. No. 52 of notification No. 25/2012-ST- Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, Government of India, by way of knowledge dissemination

j) Amendment in notification No. 32/2012-ST- Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubates.

D. Reverse Charge Mechanism

a) Services by Mutual Fund Agents to Asset Management Co- The exemption to services provided by mutual fund agents/distributors to an asset management company was withdrawn, in Union Budget, 2015, as a policy decision to prune exemptions.

However these services were put under reverse charge liability, i.e., the Asset Management Company was made liable to pay service tax for the services received from such agents/distributors.

Vide Union Budget 2016, Services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under forward charge, i.e. the service provider is being made liable to pay service tax. The small sub-agents down the distribution chain will still be eligible for small service provider exemption [threshold turnover of Rs 10 lakh/year] and a very small number will be liable to pay service tax.

Accordingly, Rule 2(1)(d)(EEA) of Service Tax Rules, 1994 making service recipient, as the person liable for paying service tax, that is, mutual fund or Asset Management Company is being deleted along with consequential changes in Notification No. 30/2012-ST,vide notification 19/2016-ST.

b) Services provided by Government- The liability to pay service tax on any service provided by Government or a local authority to business entities shall be on the service recipient.

Consequently, notification No. 30/2012-ST (notification governing reverse charge) is being amended so as to delete the words “by way of support services” appearing at Sl. No. 6 of the Table in the said notification with effect from 1st April, 2016.

E. Rationalization in abatement rates and conditions

a) Abatement in transport of goods by rail- vide Notification 8/2016-ST, amendment is being made in notification 26/2012 so as to provide admissibility of CENVAT credit of input services for transport of goods by rail (other than “transport of goods in containers by rail by any person other than Indian Railway”), however abatement of 70% will continue to be available.

Further, Clause 2A has been newly inserted in Notification 26/2012 vide Notification 8/2016-ST, to provide a reduced abatement rate of 60% with credit of input services for transport of goods in containers by rail by any person other than Indian Railway.

b) Abatement in tour operator services- the definition of package tour is being omitted and thus the Abatement rates in respect of services by a tour operator in relation to a tour other than a tour, only for the purpose of arranging or booking accommodation for any person, is being rationalised to 70%, thus taxable @30%.

c) Abatement in transport of passengers by rail- vide Notification 8/2016-ST, amendment is being made in notification 26/2012 so as to provide admissibility of CENVAT credit of input services for transport of passengers by rail.

d) Abatement in shifting of household goods by GTA- Abatement on transport of used household goods by a Goods Transport Agency (GTA) is being rationalised at the rate of 60%(i.e. taxable @40%) without availment of cenvat credit on inputs, input services and capital goods by the service provider, vide the said notification 8/2016.

e) Abatement in foreman to a chit fund- Earlier said entry existed was omitted wef. 1st April, 2015. However, w.e.f. 01-04-2016 the Services provided by foreman to a chit fund under the Chit Funds Act, 1982 are proposed to be taxed with abatement of 30%, subject to the condition that CENVAT credit of inputs, input services and capital goods has not been availed.

f) Abatement in renting of motor cab services- An explanation ‘BA’ is being inserted in the notification No. 26/2012-ST that cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement.

g) Abatement in transport of goods by vessel - An amendment vide notification 8/2016 has been made so as to allow CENVAT credit of input service. Thus now the shipping lines would be eligible to take credit on input services used in providing the said service.

h) Abatement in Construction of complex service- At present, two rates of abatement have been prescribed for services of construction of complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in case of a residential unit having carpet area of less than 2000 square feet and costing less than Rs 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both subject to fulfilment of certain conditions prescribed therein.

However, a uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfillment of the existing conditions.

F. Changes in Service Tax Rules-

a) Benefits to OPC And HUF - The benefits of (a) quarterly payment of service tax and (b) payment of service tax on receipt basis, which are available to individual and partnership firms, are being extended to One Person Company (OPC) whose aggregate value of services provided is up to Rs. 50 lakh in the previous financial year.

Further, the benefit of quarterly payment of service tax is also being extended to HUF. Rule 6 of the Service tax Rules, 1994, which deals with the payment of service tax and prescribes relaxation for individual or proprietary firm or partnership firm, is being amended accordingly vide notification 19/2016-ST.

b) Rationalization to single premium annuity policies - The service tax liability on single premium annuity (insurance) policies is being rationalized and the effective alternate service tax rate (composition rate) is being prescribed at 1.4% of the total premium charged, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service. Vide Notification 19/2016, amendments are being made in rule 7A of Service Tax Rules, 1994.

III. Changes in Service tax applicable from the date of enactment of Finance Bill 2016

A. The new section 102 has been introduced in the Finance Bill 2016 from the date when the Finance Bill 2016 will be enacted to provide exemption to services as referred in entry 12A {notification 25/2012} provided during the period from 01.04.2015 to 29.02.2016 under such contracts.

B. The new section 103 has been introduced in the Finance Bill 2016 from the date when the Finance Bill 2016 will be enacted to provide exemption to services as referred in entry 14A {notification 25/2012} provided during the period from 01.04.2015 to 29.02.2016 under such contracts.

C. The rate of interest has been rationalized where is service tax is collected and not credited in Govt. account and others. Thus, w.e.f. enactment of Finance Bill 2016, vide notification 13/2016, simple interest at the rate of 24% will be applicable, in case of Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due. However in other cases, rate of 15% will be applicable.

D. Clause 149 of the Finance Bill provides that, the limitation period for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to be enhanced to thirty months by making suitable changes to section 73 of the Finance Act, 1994.

E. It is pertinent to note that the definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature.

However, services provided prior to 30.01.2014 to such bodies remained taxable. The benefit of exemption is proposed to be extended to the said services provided during the period from the 1st July, 2012 to 29.01.2014, by inserting section 101 to the Finance Act 1994, vide clause 159 of the Finance Bill 2016.

Further, the refund of Service Tax paid on the said services during the period from the 1st July, 2012 to 29.01.2014 shall also be allowed in accordance with the law including the law of unjust enrichment.

Further it is provided that application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

F. Presently, clause (l) of section 66D of the Act, i.e. Negative List covers specified educational services. These services are proposed to be omitted from the Negative List but the service tax exemption on them is being continued by incorporating them in the general exemption notification, thus the Notification 25/2012 is being amended vide notification 09/2016.

Consequently, the definition of “approved vocational education course” [clause (11) of section 65B] is also proposed to be omitted from the Finance Act and is being incorporated in the general exemption notification 25/2012.

G. Amendment in Returns (Rule 7) - Notification 19/2016 has proposed an amendment in rule 7 of Service Tax Rules, whereby sub rule 3A provides that every assessee shall submit an annual return for the financial year to which the return relates, in such form and manner as may be specified in the notification in the Official Gazette by the Central Board of Excise and Customs, by the 30th day of November of the succeeding financial year.

IV. Changes in Service tax applicable from 01-06-2016 after the date of enactment of Finance Bill 2016

A. As per Clause 146 of the Finance Bill 2016, the Negative List entry that covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o)(i)] with effect from 1.06.2016.

Consequently, the above services become taxable with effect from 1.06.2016. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification 25/2012,as the said Notification is being amended by notification No. 09/2016-ST , by insertion of clause23(bb).

Further, notification 8/2016, provides that the service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement i.e. 60% as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of CENVAT Credit.

B. As per Clause 146 of Finance Bill 2016, the entry in the Negative List that covers services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance [section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016.

However such services by an aircraft will continue to be exempted by way of exemption notification 25/2012-ST, as amended by notification No. 09/2016-ST,by inserting entry no. 53 in the said notification.

The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity.

The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.

In addition, CENVAT credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India.

Notification No. 23/2004-CE (NT) has been amended by Sl. Nos. 2(b) and 5(h) of notification No. 13/2016-C.E. (N.T.), to provide Consequential amendments in CENVAT Credit Rules, 2004.

C. As per Chapter VI of the Finance Bill 2016, Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services.

Further, Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.

By: Priyanka Gupta
APRA & Associates
(Indirect Tax Team)


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