Recent changes in Service tax w.e.f. 22.01.2017
Services by way of transportation of goods by a vessel: Entry 34(c) in mega exemption notification exempts services provided by a person located in non-taxable territory to a person located outside taxable territory.
Notification No. 01/2017-ST which would be effective from 22nd January 2017 has been issued to exclude from the above exemption, the services by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India and thereby making such activity subject to service tax even when the service provider and receiver are located in J&K or outside India.
Further, in relation to services of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, the liability to pay service tax is on the person in-charge in India who complies with relevant custom provisions when the vessel arrives in India. Service tax rules and notification 30/2012-ST have been amended accordingly.
Impact: Place of provision of services of transportation of goods is the place of destination of the goods. In case of transportation of goods by a vessel from a place outside India to customs stations of clearance of India, the Place of Provision would be in India (taxable territory). Hence levy under Service Tax would get attracted.
Earlier, before 01.06.2016, such services were covered under negative list and then the entry has been removed and there by became taxable. However, those cases where both service provider and receiver were in J&K or outside India, were still be exempted vide entry 34(C) of mega exemption notification.
Now as a result of amendment, the service tax liability arises on those people who act on behalf of persons (both service provider and service receiver) located outside taxable territory (J&K & outside India) and undertake transportation of goods by a vessel from a place outside India up to the customs station through a service provider located outside taxable territory.
Business facilitator or a business correspondent to a banking company:
Currently, services of business facilitator or a business correspondent provided to a banking company only with respect to a Basic Savings Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company’s rural area branch, by way of account opening, cash deposits, cash withdrawals, obtaining e-life certificate, Aadhar seeding were exempted from payment of service tax vide entry 29(g) of the mega exemption notification w.e.f 21.10.2015.
Now, 01/2017 has been issued to expand the coverage of exemption by substituting the entry by words “business facilitator or a business correspondent to a banking company with respect to accounts in its rural area branch.”
Impact: The services provided by business facilitator to a banking company would be exempt as far as it pertains to accounts in its branch located in rural area. The nature of services was also not specified and therefore any service in such respect would be exempted. This benefit could be due to demonetisation effect.
Aggregator in case of Hotels, inns, guest house, clubs etc:
“aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator.
Notification 02/2017-ST has been issued to exclude such person who enables a potential customer to connect with persons providing services by way of renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.
Impact: The provisions under service tax in respect of aggregators such as reverse charge mechanism would not be applicable to the persons enabling the said services subject to following conditions:
- the person providing such stay services (hotel owner) has a service tax registration under service tax,
- Consideration shall be received directly by such service provider and not aggregator (who enables the service).
When either of the above conditions do not satisfy, then the person enabling the potential customer to connect with hotel owner shall continue to be considered as aggregator as far as he fits in the definition of aggregator.
Tour operator services:
Abatement notification 26/2012-ST has been amended to increase the effective tax rate on tour operator services. Presently tour operator services are subject to service tax on 10% of the value when such services are in relation to a tour, only for arranging or booking accommodation for any person and in other cases its 30% of the value making effective rate of tax 1.5% and 4.5% respectively. Further no Cenvat credit was eligible in either of the cases.
Impact: W.e.f 22/01/2017, in case of all kinds of tour operator services, service tax shall be applicable on 60% of the value and thereby making effective rate of tax at 9% (including Cess). Further, Cenvat credit on input services would be eligible for the service providers. Cenvat credit on capital goods and inputs would continue to be ineligible.
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