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Service Tax Amendments applicable w.e.f 14th May 2015

Alok Agarwal 
on 19 May 2015

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On 14-05-2015, Finance Bill 2015 has become Finance Act 2015 as it received assent from the president. Let us analyse certain provisions which become applicable on enactment of the Finance Bill 2015

Section

Amendment

Analysis

(i) Insertion of new definition to specify the term “government” [section 65B (26A)]

The word ‘Government has been defined as follows:

“Government means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made thereunder”

As per the Educational Guide on Service tax issued by CBEC in the year 2012, a reference was made to clause (23) of section 3 of the General Clauses Act, 1897.

To avoid litigation, now the definition has been added in the Finance Act 1994 itself by inserting Section 65B (26A)

Insertion of Explanation 2 in the definition of

service [section 65 B(44)]

Explanation 2 – For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include-

(i)  any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a

separate consideration is charged;

(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim,  including the activity carried out––

(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;

(b) by a foreman of chit fund for conducting or organising a chit in any manner.’

This amendment has been made with a view to nullify the judgment rendered in the case of Union of India vs. Delhi Chit Fund Association 32 Taxmann 332 (Del.), wherein it was held that Chit fund is a transaction only in money and hence not liable to service tax.

In my view, this has brought clarity to the taxation of chit funds and put to rest the long pending litigation with respect to taxability of business chit funds.

Insertion of an illustration in sub-section (1) of

section 66F to explain the scope of this sub-

section

Illustration: The services by the Reserve Bank of India, being the main service within the meaning of clause (b) of section 66D, does not include any agency service provided or agreed to be provided by any bank to the Reserve Bank of India. Such agency service, being input service, used by the Reserve Bank of India for providing the main service, for which the consideration by way of fee or commission or any other amount is received by the agent bank, does not get excluded from the levy of service tax by

virtue of inclusion of the main service in clause (b) of the negative list in section 66D and hence, such service is leviable to service tax.’.

Section 66F(1) reads as under:

“reference to a service (hereinafter referred to as the “main service”) shall not include reference to a service which is used for providing the main service”

An illustration has been inserted in Section 66F(1) to clarify the scope of the section

Amendment in the definition of the terms

“consideration” in section 67

(a) “consideration” includes:

(i) any amount that is payable for the taxable services provided or to be provided;

(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and

subject to such conditions, as may be prescribed;

(iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.’.

High court in the case of  Intercontinental Technocrats 2013

(29) STR 9 held that -

Rule 5(1) of the Service Tax (determination of Value) Rules, 2006 runs counter and is repugnant to section 67 of the Act and to that extent it is ultra vires the Finance Act, 1994.

Hence, reimbursements incurred during the provision of service are not includible in gross taxable value of service.

You guessed it right!!

This amendment nullifies the above judgement and once again a long pending litigation buried forever.

Amendments in sections 73

Section 73 (1B) has been inserted to apply in cases where Service tax

has been declared in Service tax returns but has not been paid. In such

cases, recovery can be made under Section 87 of the Act without

issuance of any show cause notice.

Section 73 (4A) which provided for reduced penalty to the extent of

25% in cases of fraud etc before issuance of show cause notice has been omitted.

Earlier a similar provision was contained in Rule 6(6A) of Service tax rules which has now been omitted

This provision has become ineffective due to the amendments made in Sec 78 by Finance Bill 2015

Amendments in sections 76

Case 1:  Service tax and interest paid  within 30 days of issuance of SCN

Penalty = Nil

If payment not made within 30 days as above, then penalty = 10%

Case 2:  Service tax, interest and reduced penalty paid  within 30 days of the

communication of the order against SCN

Penalty = 25% of the penalty imposed in the order

Case 3:  Appellate Authority modifies the service tax determined and the amount of penalty shall also stand modified accordingly and if such service tax, interest and reduced penalty so payable, is paid within a period of 30 days from the date of receipt of the appellate order

Penalty = 25% of the penalty imposed in the order

Penalty provisions have been detailed with the amendment in Sec 76.

Sec 76 is generally invoked in case of failure to pay service tax and there is no intent to evade the payment (absence of mensrea)

Amendments in sections 78

Case 1:  Service tax and interest paid  within 30 days of issuance of SCN

Penalty = 15% of service tax

Case 2:  Service tax, interest and reduced penalty paid  within 30 days of the

communication of the order against SCN

Penalty = 25% of service tax determined in the order

Case 3:  Appellate Authority modifies the service tax determined and the amount of penalty shall also stand modified accordingly and if such service tax, interest and reduced penalty so payable, is paid within a period of 30 days from the date of receipt of the appellate order

Penalty = 25% of the service tax determined in the order

Note:  In all other cases, penalty under Section 78 shall be equal to 100% percent of Service tax

Penalty provisions have been detailed with the amendment in Sec 78.

Sec 78 is generally invoked in case of failure to pay service tax and the failure is intentional

Section 80 omitted

N.A.

As per Sec 80 certain penalties were discretionary in nature. With the deletion of Sec 80, penalty provisions has been made mandatory

Amendments in section 86

Where an order, relating to a service which is exported, has been passed under

section 85 [by Comissioner (Appeals)] and the matter relates to grant of  rebate of service tax on input services, or rebate of

duty paid on inputs, used in providing such service, have now been entrusted to Central Government in terms of Section 35EE

There are certain other amendments which become operational from a date to be notified after the enactment of Finance Act 2015. Let us wait for the notification to be issued for notifying the effective date for those amendments in addition to the above changes which have already become effective from 14.05.2015.

I wish this analysis is useful in your professional endeavours.

Warm Regards,
Alok Agarwal, B.Com, FCA.
Proprietor: Alok K Agarwal & Co, Hyderabad
Email: alok.agarwal@live.com


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