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Service Tax Amendments - Budget, 2014

Lalit Kumar Gupta 
on 18 July 2014

LinkedIn


AMENDMENTS IN “SERVICE TAX” – BUDGET, 2014

Service Tax changes and proposals are categorized in below manner:-

1.  Negative list of services

2.  Mega Exemptions Notification No. 25/2012-ST

3.  Notification No. 26/2012-ST

4.  Notification No. 30/2012-ST- Reverse Charge Mechanism

5.  Service Tax (Determination of Value) Rules, 2006

6.  Point of Taxation Rules, 2011

7.  Place of Provision of Services Rules, 2012

8.  CENVAT Credit Rules, 2004

9.  Procedural Simplification - SEZ

10. Other amendments in Chapter V of the Finance Act, 1994

1. Negative list of services

i) Presently, Service tax is leviable on sale of space or time for advertisements broadcast by radio or television. Now, it is proposed to amend section 66D(g) to cover such sale on other segments, other than print media, like online & mobile advertising. For example, the new levy would also effect to advertisement on:-

 a). Buildings

 b). Cell Phones

 c). Internet Website or Out – of – home Media

 d) Bills or Tickets

 e) Commercial Publication or Automated Teller Machine

 f) Film screen in theatres or cinema halls

 g) Means of Conveyances or Aerial Advertisement.

Thus, it can be said that selling of space for advertisement in print media would only fall within the purview of Negative list and sale of space or time slots for advertisement in any other way shall be subject to Service Tax.  

‘(39a) “print media” means,—

(i) “book” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

(ii) “newspaper” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867;

From the above definition, it is clear that only books and newspapers are defined as print media u/s 1(1) of the Press and Registration of Books Act, 1867 and all other print media which are primarily meant for commercial purpose kept out of purview from the definition of print media. Hence, only selling of space for advertisement in books and newspapers as defined above are exempted from the service tax. {Effective from the date to be notified after Enactment of Bill}

ii) Presently, transportation through Radio Taxis or Radio Cabs is exempted. Now, it is proposed to amend section 66D(o) to cover such transportation within the purview of service tax. Further, it is immaterial if such Radio Taxis or Cabs are air-conditioned or not.

The abetment of 60% is available to Rent – a – Cab service would also be available for Radio Taxis Service. {Effective from the date to be notified after Enactment of Bill}

Radio taxi has been defined as under:-

Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS);

2. Mega Exemptions Notification No. 25/2012-ST

a. Exemption regarding transportation of passengers by air-conditioned contract carriages withdrawn.

Changes in clause (b) of serial no. 23, the scope of exemption has been reduced by withdrawing the exemption in respect of air- conditioned contract carriage. As a outcome, any service provided for transport of passenger by air-conditioned contract carriage including which are used for point to point travel like buses, will attract Service Tax at an abated value of 40% i.e. 4.944%. Further, contract carriage is non air-conditioned, the exemption under serial no. 23(b) continues to be available. {Effective from 11.07.2014}

b. Exemption regarding technical testing of newly developed drugs, on human participants by a clinical research organization withdrawn.

Changes in the entry of serial no. 7, exemption to services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India [Sl.No.7] has been withdrawn. {Effective from 11.07.2014}

c. Rationalization of Exemption regarding Educational Institutional

Changes in the entry of serial no. 9, at present, all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculties and staff are exempted [section 66 D (l) of the Finance Act, 1994] and the same will be continued.

Regarding the services received by such educational institutions, presently, exemption is being operated through the concept of “auxiliary educational services” [Sl.No.9]. To avoid confusion the concept of “auxiliary educational services” has been omitted and accordingly only following services received by eligible educational institutions are exempted from service tax.

(i) Transportation of students, faculty and staff of the eligible educational institution;

(ii) Catering service including any mid-day meals scheme sponsored by the Government;

            (iii) Security or cleaning or house-keeping services in such educational institution;

(iv) Services relating to admission to such institution or conduct of examination.

Further, for the purposes of this exemption, “educational institution‟ is defined in the exemption notification 25/2012-ST as institutions providing educational services specified in the negative list.

It is relevant to add here that the scope of exemption remains the same as earlier in the case of services provided by eligible educational institutions and in the case of services received by the eligible educational institutions, exemption will be available only in respect of the services specified as above.

Further, exemption available to services provided by way of renting of immovable property to educational institutions stands withdrawn. {Effective from 11.07.2014}

d. Rationalization of Exemption regarding service provided to Government, local authority of Government Authority made more precise

Changes in the entry no. 25 (a), the exemption in respect of services provided to Government or local authority or governmental authority has been made more specific. Services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation will continue to remain exempted, however, due to these specification exemptions would not be available on other services such as consultancy, designing, etc. {Effective from 11.07.2014}

e. Rationalization of Exemption regarding Hotel, Inn or Gust House

Changes in the entry no. 18, in such entry the term “other commercial places meant” has been omitted and inserted the term “by whatever name called”. It has been done to avoid any ambiguity and made amply clear regarding chargeability of service tax on       accommodation services provided by ashrams and dharmshalas being not run for commercial purpose. {Effective from 11.07.2014}

f. New Exemptions granted

i). Life micro-insurance schemes are to be exempted from the service tax when the same is approved by the Insurance Regulatory Development Authority (IRDA) and sum assured does not exceed Fifty Thousand Rupees- Entry in serial No. 26A inserted.

ii) Transport of organic manure by vessel, rail or road (by GTA) is exempted by amending entries at Sl.No. 20 and 21. Therefore, organic manure will be on par with fertilizer which is already exempted.

iii) Services by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled, is exempted by amending entries at Sl. No. 20 & 21 and 40.

iv) Services provided by Common Bio-medical Waste Treatment Facility operators by way of treatment, disposal of bio medical waste or processes incidental to such treatment or disposal are exempted by inserting new entry at Sl. No.2B.

v) Specialized financial services received by RBI from outside India, in the course of management of foreign exchange reserves, e.g. external asset management, custodial services, securities lending services, are exempted by inserting new entry at Sl. No. 41.

vi) Services provided by the Indian tour operators to foreign tourists in relation to tours wholly conducted outside India are exempted. This exemption is available to Indian tour operators in cases where they organize tours for a foreign tourist wholly outside India, e.g., service provided to tourist of Japan for a tour conducted in Singapore. New entry inserted at Sl. No.42 to give this effect.   {Effective from 11.07.2014}                                                                                              

vii) Retrospective Exemption.

Service provided by Employees‟ State Insurance Corporation (ESIC) is proposed to be exempted w.r.e.f. 01.07.2012.

{Effective after Enactment of Bill}

3. Notification No. 26/2012-ST

a. Condition for availing abatement in case of GTA

Presently, in the entry of serial no. 7, it is not cleared that who has to comply with the condition led down, if the abetment option is taken, as liability to discharge whole service tax is on service recipients. However, the term “by the service provider” has been inserted to make amply clear that condition for non- availment of cenvat credit is required to be satisfied by the service providers only and  service recipient will not be required to establish satisfaction of this condition. {Effective from 11.07.2014}

b. Amendment in condition for availing abatement in case of renting of motor cab

Presently, in the entry of serial no. 9, no CENVAT credit is allowed if abetment option is opted. However, now the credit of input service of renting of a motor cab is allowed if such services are received from a person engaged in the similar line of business i.e. a sub-contractor providing services of renting of motor cab to the main contractor. CENVAT credit would be available in below manner:-

Situation

Percentage of CENVAT available

In case, where service provider opted abetment option

100% CENVAT credit

In case, where service provider not opted abetment option i.e. discharging ST on 12.36%

40% of CENVAT credit

{Effective from 01.10.2014}

c. Inserted serial no. 9A to give effect of abetment on transportation of passenger by air-conditioned contract carriages  

Service of transportation of passenger by air-conditioned contract carriages is taxable w.e.f. 11.07.2014. Hence, an entry has been inserted at Sl. No. 9A providing that the taxable portion of such service shall be 40% with the condition that CENVAT credit of inputs or capital goods or input services has not been taken.

9A

Transport of passengers, with or without accompanied belongings, by a contract carriage other than motorcab.

40%

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.”;

{Effective from 11.07.2014}

d. Reduction in the taxable portion in respect of goods transportation by vessels  

Taxable portion in respect of transport of goods by vessel is reduced from 50% to 40% by making amendment in the entry of serial no 10. Effective service tax will decrease from 6.18% to 4.944%.                                            

{Effective from 01.10.2014}

e. Input service is available to tour operators

By amending the entry of serial No. 11, tour operator service providers are also being allowed to avail CENVAT credit on the input service of another tour operator, which are used for providing the taxable service. This is provided to avoid cascading of taxes.    

{Effective from 01.10.2014}

4. Notification No. 30/2012-ST- Reverse Charge Mechanism

a. Below services are brought under the reverse charge mechanism by imposing liability to pay service tax in full by service recipients.

i. Services provided by Recovery Agents to Banks or Financial Institutions or NBFC;

ii. Services provided or agree to be provided by a director of a body corporate to body corporate. Earlier there was no concept of body corporate.{Effective from 11.07.2014}

b. Simplification of Partial Reverse Charge mechanism

In renting of motor vehicle, where the service provider does not take abatement, the portion of service tax payable by the service provider and service receiver will be modified as 50% each. Earlier the same was 60% and 40%.     

{Effective from 11.07.2014}

5. Service Tax (Determination of Value) Rules, 2006

a. Service tax on service portion in work contract.

In Rule 2A of the Service Tax (Determination of Value) Rules, 2006, category B‟(70%) and category C‟ (60%) of works contracts are merged into one single category of 70%. This rationalization by way of merger of categories has been made to avoid disputes of classification between these two categories.  W.e.f 01.10.2014, there will be only two categories under works contracts i.e. category A- 40% (that is relating to execution of original works) and category B-70% (for any other work not covered in category A).                                    

{Effective from 01.10.2014}

6. Point of Taxation Rules, 2011

a. Amendment in Point of Taxation when services subject to Reverse Charge Mechanism.

In first proviso of rule 7, presently, the date of payment of invoice is the point of taxation. However, w.e.f. 01.10.2014 the point of taxation in respect of reverse charge will be the payment date of invoice or the first day that occurs immediately after a period of three months from the date of invoice, whichever is earlier. {Effective from 01.10.2014}                         

In the case where invoice has been issued before 01.10.2014 and payment has not been made up to 30.09.2014, the point of taxation will be in below manner:- (inserted rule 10 for this purpose)

Situation

Point of Taxation

When payment is made within six month of the date of invoice

The date of payment

When payment is not made within six month of the date of invoice

The date of invoice

7. Place of Provision of Services Rules, 2012

a. Amendment in the definition of “Intermediary”

The definition of intermediary is amended to include the intermediary of goods in its scope. Accordingly, an intermediary of goods, such as a commission agent or consignment agent shall be covered under rule 9(c) of the Place of Supply of Services Rules.

{Effective from 01.10.2014}

b. Omission of repair service carried out on temporarily imported goods  

Provision for prescribing conditions for determination of place of provision of repair service carried out on temporarily imported goods to be omitted. This has been because the goods imported for repair are exported after repair without being put to any use other than that which is required for such repair.  {Effective from 01.10.2014}

c. Place of provisioning on hire of vessels or aircraft.

Service consisting of hiring of Vessels (excluding yachts) and Aircraft is excluded from rule 9(d). Accordingly, hiring of vessels, or aircraft, irrespective of whether short term or long term, will be covered by the general rule, that is, the place of location of the service receiver. Hiring of yachts would however continue to be covered by rule 9 (d).  

{Effective from 01.10.2014}

8. CENVAT Credit Rules, 2004

a. Time limit for availing CENVAT credit.

A manufacturer or a service provider shall take credit on inputs and input services within a period of six months from the date of issue of invoice, bill or challans. Presently there is no such type of time limitation.        {Effective from 01.09.2014}

b. Payment of Service Tax is enough to avail CENVAT credit in case full reverse charge

In case of service tax paid under full reverse charge, the condition of payment of invoice value to the service provider for availing credit of input services is being withdrawn. However, there is no change in respect of partial reverse charge. {Effective from 11.07.2014}

c. Re-credit of CENVAT credit reversed on account of non-receipt of export proceeds

Re-credit of CENVAT credit reversed on account of non-receipt of consideration in convertible foreign currency in respect of export of services within the specified period or extended period, to be allowed, if export proceeds are received within one year from the period so specified or extended period. This can be done on the basis of documents evidencing receipt of export proceeds.               

{Effective from 11.07.2014}

9. Procedural Simplification - SEZ

The following amendments have been made vide Notification No. 07/2014-ST.

(i) It is provided that the Central Excise Officer would issue authorization in Form A-2, within fifteen working days from the date of receipt of Form A-1 by the Central Excise Officer.

(ii) Authorization will have validity from the date on which Form A-1 is verified by the Specified Officer of SEZ. However, if Form A-1 is furnished after a period of 15 days from the date of its verification by the Specified Officer, the authorization shall have validity from the date of furnishing of Form A-1 to the Central Excise Officer.

(iii) SEZ Units or the Developer will, pending issuance of Form A-2, be entitled to avail upfront exemption on the basis of Form A-1. However, in such a case, the SEZ Unit/Developer would be required to furnish a copy of authorization issued by the Central Excise Officer within 3 months from the date of receipt of specified services. If a copy of authorization is not provided within the said period of three months, the service provider shall pay service tax on the service so provided availing the exemption.

(iv) As regards services covered under full reverse charge, it is being mentioned specifically in Form that there would be no requirement of furnishing service tax registration number of service provider.

(v) It is being provided that a service shall be treated as exclusively used for SEZ operations if the recipient of service is SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in SEZ.

(vi) On the basis of certain doubts raised by field formations as regards the jurisdiction for the purposes of granting refunds under notification No. 12/2013-ST to the SEZ Units and SEZ Developers. It is clarified that the jurisdictional Deputy Commissioner / Assistant Commissioner of Central Excise for all purposes under the said notification would be the authority with whom SEZ Units or the Developers are registered for taking upfront exemption or for the purposes of Chapter V of the Finance Act, 1994. In this context, attention is also invited to Circular No. 105/08/2008-ST, dated 16.9.2008. If SEZ units have obtained a centralized registration under the Service Tax Rules, it will have option to file a common service tax refund in respect of all units covered under the Centralized Registration or file a unit-wise refund at its option, to the authority having jurisdiction over centralized registration.

{Effective from 11.07.2014}

10. Other amendments in Chapter V of the Finance Act, 1994

a. Amendment in simple interest rate on delay payment of service tax u/s 75

Interest u/s 75 is to be calculated as under and it to vary on the basis of period of delay.

S.No.

Period of delay

Simple interest rate

1.

Up to six months

18% pa

2.

Up to one year

18% pa for first six months and 24% pa for delay beyond six month

3.

More than one year

18% pa for first six months, 24% pa for next six months  and 30% pa for delay beyond one year

Note: - Period of delay shall be calculated from the date when service tax became payable.            

{Effective from 01.10.2014}

b. Compulsion of the department to adjudicate SCN within specified time limit.

As per newly inserted sub-section (4B) of section 73, the adjudication is proposed to be completed as under:-

S.No.

Situation

Time limit

1.

If there is a limitation period of 18 months

Within six months from the date of notice

2.

Where extended period of limitation has been invoked

Within one year from the date of notice

However, aforesaid time limits would need to be followed as far as possible.

c. No waiver of penalty, if serious offence.

Section 80 is proposed to be amended to exclude the reference of first proviso to section 78. This amendment, in effect, removes the power to waive the 50% penalty imposable in cases where service tax has not been levied, not paid or short levied or short paid on account of suppression of facts or willful misstatement but details of transactions are available in the specified record.

d. Power to search and seizer.

Section 82(1) is proposed to be amended, along the lines of section 12F (1) of the Central Excise Act, so that Joint Commissioner or Additional Commissioner or any other officer notified by the Board can authorize any Central Excise Officer to search and seize.  

e. Amendment in section 83 regarding mandatory fixed pre-deposit

Vide section 83, Section 35F of the Central Excise Act is already applicable to service tax. Section 35F of the Central Excise Act is proposed to be substituted with a new section which prescribes a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both, for filing appeal before the Commissioner (Appeals) or the Tribunal at the first stage and 10% of the duty demanded or penalty imposed or both, for filing the second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs.10 Crore. All pending appeals/stay applications would be governed by the statutory provisions prevailing at the time of filing such stay applications/appeals. When the amended section 35F in the Central Excise Act comes into force, it would, mutatis mutandis, apply to service tax by virtue of section 83.

f. Corresponding amendments to section 86 (6A)

Sub-section (6A) of section 86 is proposed to be amended to omit the words “for grant of stay or”. In other words, it can be said that application for grant of stay shall not be required to submit to Tribunal.                                    {Effective after Enactment of Bill}


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