The budget for the F. Y. 2015-2016 has been presented by the H’ble Finance Minister, Sh. Arun Jaitely Ji on 28th February, 2015 with a focus for smooth transition of all the Indirect Taxes towards the Goods & Services Tax (GST) proposed to be enacted from 01-04-2016.
Besides the proposal to increase the rate of Tax from 12.36% to 14%, the government has expanded the coverage of Service Tax to new areas and applied stringent penal provisions to minimise tax evasion by service providers.
A brief summary of the proposals under the Service Tax Laws are given below for your ready reference:-
1. Changes to be effective from the date to be notified after the enactment of the Finance Bill, 2015
i) Rate of Service Tax increased from 12.36% to 14%
Finance Minister has proposed to revise the rate of Service Tax Rate from 12.36% (inclusive of Education Cesses) to 14% (subsuming ‘Education Cess’ and ‘Secondary and Higher Education Cess’)
ii) Swachh Bharat Cess
The Central Government is empowered to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services. It will not have an immediate effect.
iii) Entry to amusement facilities /entertainment events will become costlier:
FULLY TAXABLE - Access to amusement facilities providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places which were earlier exempted under negative list of services has now been brought under the ambit of service tax.
PARTIALLY TAXABLE - Fees for admission to entertainment event of concerts, non-recognised sporting events, pageants, music concerts, award functions etc are still exempted, if the amount charged for admission to such event is not more than Rs. 500/-.
FULLY EXEMPT - Existing exemption to service by way of admission to entertainment events, namely, “exhibition of cinematographic film, circus, recognized sporting events, dance, theatrical performances including drama and ballets, by way of the Negative List entry shall be continued, irrespective of the amount charged for such service, through the route of exemption.
iv) Job Work for production of alcoholic liquor is now taxable:
v) ‘Support Services’ provided by Govt or Local Authority to business entity is now taxable:
Presently, services provided by the Government or a local authority, excluding certain services specified under clause (a) of section 66D, are in the Negative List. Service tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending [section 66D (a)(iv)], to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65B(49)] is being omitted.
Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any other entry in the Negative List, shall be liable to Service Tax.
vi) Upward revision in the ‘Alternative Rate’ for Air Travel Agent, Insurance Service, Lottery Distributor and Selling Agents
In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately.
2. Changes that are applicable w.e.f. 1st March, 2015
i) CENVAT Credit can be availed upto 1year:
[Ref : Para 120 of Budget Speech]
Time limit for taking CENVAT credit on inputs and input services is being increased from six months to one year (from the date of invoice) as a measure of business facilitation.
ii) Registration for single premises shall be granted within two days of online filing of the application.
iii) Permission to maintain Records in Electronic format:
The Government has allowed issuing of digitally signed Invoices along with an option to maintain records in the electronic form subject to authentication by the assessee with the use of digital signature.
iv) Liability of Tax Payment under ‘Aggregator model’ on Indian Representative/ Office:
In respect of any service provided under aggregator model, the aggregator, or any of his representative office located in India, is being made liable to pay Service Tax if the service is so provided using the brand name of the aggregator in any manner. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator.
3. Changes applicable w.e.f. 1st April, 2015
i) Changes under Reverse Charge Mechanism:-
a) Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.
b) Services provided by mutual fund agents, mutual fund distributors and agents of lottery distributor are being brought under full reverse charge consequent to withdrawal of the exemption on such services.
ii) Credit of service tax paid allowed under partial reverse charge by the service receiver without linking it to the payment to the service provider.
iii) Rationalisation/ Uniformity in abatement for transport by rail, road and vessel:
A uniform abatement is now being prescribed for transport by rail, road and vessel thereby service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of CENVAT Credit on inputs, capital goods and input services.
iv) Air Transport will hit the pocket of Higher Class flights:
At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and service tax would be payable on 60% of the value of such higher classes.
v) Reduction in General Exemptions extended under Notification No. 25/2012-ST
a) Services provided to Government for building A) Civil Structure and residential complex, B) Educational, C) Clinical, or D) art or cultural establishment are now taxable under service tax.
b) Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn.
c) Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.
d) Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue.
e) Exemptions are being withdrawn on (A) services provided by a mutual fund agent to a mutual fund or assets management company, (B) distributor to a mutual fund or AMC, (C) selling or marketing agent of lottery ticket to a distributor
f) Exemption is being withdrawn on (A) Departmentally run public telephone; (B) Guaranteed public telephone operating only local calls; and (C) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.
vi) New Exemptions included under Notification No. 25/2012-ST
a. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.
b. Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.
c. Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.
d. Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or association of persons consisting of such exhibitor as one of it’s members is being exempted.
e. Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from service tax. The scope of this exemption is being widened to include all ambulance services.
f. Service provided by way of admission to a museum, zoo, national park, wild life sanctuary,and a tiger reserve is being exempted.
g. Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).
h. Relief in relation to precondition, pre-cooling ripening labeling of fruits and vegetables is allowed by which end cost of fruit and vegetable would get reduced.
4. Changes to be effective from the date Finance Bill, 2015 receives the assent of the president
i) Valuation of Taxable Service
It is being prescribed specifically in this section that consideration for service shall include:
a. All reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically by this provision.
b. Amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.
ii) Revised recovery and penalty provisions
Section 80 that provides waiver of penalty in specified situation is omitted and penalty provisions made more stringent with maximum penalty equal to 100 % of Service Tax in cases of fraud or collusion or wilful mis-statement. However, in certain cases the benefit of reduced penalty will also be allowed to the assessee.
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