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ST insights in Union Budget 2015-2016

Deepak Bansal 
on 01 March 2015

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1.0 Rate of Service Tax

[Effective from a date to be notified by Central Government after enactment of Finance Bill]

For alignment of Service Tax Rate with GST Rate, it has been proposed to increase the rate of Service Tax from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Till the time the revised rate comes into effect, the ‘Education Cess’ and Higher Education Cess’ will continue to be levied in the Service Tax. The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

2.0 Amendments made to the Negative List

[Effective from date of enactment of Finance Bill, unless otherwise stated]

2.1 The Negative List entry that covers “admission to entertainment event or access to amusement facility” has been proposed to be omitted [section 66D(j)]. Consequently, the definitions of “amusement facility” [section 65B (9)] and “entertainment event” [section 65B(24)] are also being omitted [Effective from a date to be notified by Central Government after enactment of Finance Bill].

2.2 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. An enabling provision is being made, by amending section 66D (a)(iv), to exclude all services from the Negative List. 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 [Effective from a date to be notified by Central Government after enactment of Finance Bill].

2.3 Service tax to be levied on service by way of carrying out any processes as job work for production or manufacture of alcoholic liquor for human consumption.

3.0 Other amendments in Finance Act

[Effective from date of enactment of Finance Bill, unless otherwise stated]

3.1 Insertion of /Amendment in Definition

(a) Government - Previously in the Finance Act’1994, the term “Government” was not defined which has given rise to interpretational issues. Therefore, to address such issues the definition is being incorporated in the act. For the sake of clarity, Government has been defined in Section 65B (26A) as:

“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;’;

(b) Service - The definition of the term “service” amended with the intention to levy Service Tax on the services provided by the (a) Chit fund foreman by way of conducting a chit; and (b) Distributor or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

Further, an explanation is being added in entry (i) of section 66D to specifically state that these activities are not covered by the Negative List.

(c) Consideration – The term ‘consideration for a taxable service’ shall include all reimbursable expenditure or cost incurred and charged by the service provider [this is against the well settled position of law, however, the intention of law is to include reimbursable expenditure in the value of taxable service]

3.2 Recovery of self-assessed Service Tax in the return furnished and pending to be paid [sub-section (1B) inserted in Section 73 of the Finance Act]

Sub-section (1B) inserted in Section 73 of the Finance Act providing that where the amount of service tax payable has been self-assessed in the return, but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in section 87, without service of notice.

3.3 Waiver of Penalty on payment of Service Tax not paid for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts, along with Interest within 30 days from the date of receipt of the Show Cause Notice [Section 76(1) and (2) of the Finance Act]

Section 76 (1) has been substituted to provide that maximum penalty imposable for non-payment of Service Tax due to any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts would be 10% of the tax so determined.

A proviso has been inserted to Section 76 (1) stating that no penalty would be levied on the assessees who have paid Service Tax [unpaid for any reason other than the reasons of collusion or any wilful mis-statement or suppression of facts], along with Interest within 30 days from the date of receipt of the Show Cause Notice.

If the tax so determined along with interest is paid within 30 days from the date of receipt of the Order-In-Original, penalty payable shall be 25% of the penalty determined. If the tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty shall be admissible if tax, interest and reduced penalty is paid within 30 days of such appellate order.

3.4 Concessional Penalty on payment of Service Tax not paid for reasons of collusion or any wilful mis-statement or suppression of facts, along with Interest within 30 days from the date of receipt of the Show Cause Notice [Section 78(1) and (2) of the Finance Act]

Section 78 has been substituted to provide that penalty imposable for non-payment of Service Tax due to reasons of collusion or any wilful mis-statement or suppression of facts would be 15% of the tax demanded, where any tax demanded in a show cause notice and the interest payable thereon, issued is paid within thirty days of the communication of show cause notice.

If the tax so determined along with interest is paid within 30 days from the date of receipt of the Order-In-Original, penalty payable shall be 25% of the penalty so determined, provided that such reduced penalty is also paid within 30 days of the date of communication of such order. If the tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty shall be admissible if tax, interest and reduced penalty is paid within 30 days of such appellate order.

3.5 Section 80 providing waiver of Penalty under Section 76 and Section 78 for any failure, if the assessee proves that there was reasonable cause for the said failure -OMITTED

3.6 Order relating to a service which is exported, has been passed under Section 85 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 – to be dealt in terms with Section 35EE of the Central Excise Act, 1944 i.e. Revision Application to be filed before the Central Government i.e. no appeal lies before Tribunal

4.0 Swachh Bharat Cess

[Effective from a date to be notified by Central Government after enactment of Finance Bill]

An enabling provision is being made to empower the Central Government 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 with the objective of financing and promoting Swachh Bharat initiatives

5.0 Amendment made in Service Tax Rules, 1994

5.1 Simplification of Service Tax Registration Process - Key Highlights

[Order No. 1/2015-Service Tax dated 28-02-2015]

• Online Application for Registration to be mandatory filed with ACES website;

• Applicants other that government departments shall not be granted registration in absence of PAN - Existing temporary registrants (i.e. Non Pan based registrants) shall apply online for conversion of temporary registration to PAN based registration within three months from the date of publication of this notification, failing which the temporary registration shall stand cancelled;

• Applicant shall quote e-mail address and mobile number in the application form - Existing registrants who have not submitted the aforesaid information shall submit an amendment application by 30-04-2015;

• Registration application shall be granted within two days of the receipt of duly completed online application form, thus initiating trust-based registration - No signature of issuing authority required;

• Submit self attested copy of the following documents by registered post/ Speed Post to the concerned Division, within 7 days of filing the Form ST-1 online – (i) Copy of PAN Card; (ii) Photograph and proof of identity of the person filing the application; (iii) Document to establish possession of the premises to be registered; (iv) Details of the main Bank Account; (v) Memorandum/Articles of Association/List of Directors; (vi) Authorisation by the Board of Directors/Partners/Proprietor for the person filing the application; & (vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No (BIN No), IEC, VAT/CST Number , CIN, Excise Registration Number, which have been issued prior to the filing of the service tax registration application.

5.2 Other amendments made in Service Tax Rules, 1994

[Notification No. 5/2012-Service Tax dated 01-03-2015]

• Authentication by digital signature - Any invoice, bill or challan or consignment note may be authenticated by means of a digital signature;

• Preservation of Records - Records may be preserved in electronic form and every page of the record so preserved shall be authenticated by means of a digital signature;

• Rule 6(6A) which provided for recovery of service tax self-assessed and declared in the return under section 87 is being omitted consequent to the amendment in section 73 for enabling such recovery. [Effective from date of enactment of the Finance Bill, 2015];

• Change in rate of payment of Service Tax under composition scheme for Air Travel Agent [Rule 6(7)], Life Insurer [Rule 7A]; Foreign Currency Dealer [Rule 7B] and lottery distributor or selling agent [Rule 7C] [Effective from date of as to be notified by the Central Government]

6.0 Amendment made in existing Exemption Notification

[Vide Notification no.04/2015-ST dated 01-03-2015, effective from 01-04-2015 and Notification no .06/2015-ST dated 01-03-2015, effective from 01-04-2015]

Exemptions Added:

• Service provided to an exporter for transport of the said goods by goods transport agency in a goods carriage from any container freight station or inland container depot to the Land Custom Station, from where the goods are exported;

• Service provided to an exporter in relation to transport of the said goods by goods transport agency in a goods carriage directly from their place of removal, to Land Custom Station, from where the goods are exported;

• Service provided by operator of Common Effluent Plant by way of treatment by effluent;

• Service provided by way of pre – conditioning, ripening, waxing, retail packing, labeling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables;

• Services provided by way of admission to museum, national park, wildlife sanctuary, tiger reserve or zoo;

• Services provided for exhibition of movie by an exhibitor to the distributor or association of persons where the exhibitor is one of the member of the association;

• Services provided by way of transportation of a patient to and from clinical establishments by a clinical establishment and is hence not liable to service tax;

• Life insurance service being provided by way of Varishtha Pension Bima Yojna;

• Services provided by way of right to admission to (a) exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet; (b) recognised sporting event; and (c) award function, concert, pageant, musical performance or any sporting event other than recognised sporting event where the consideration for admission is upto INR 500/- per person;

Exemptions Withdrawn:

• Services provided by mutual fund agent to a mutual fund or Asset Management Company;

• Services provided by distributor to a mutual fund or AMC;

• Service provided by selling or marketing agent of lottery ticket to a distributor;

• Service provided by way of making telephone calls from (a) Departmentally run public telephone; (b) Guaranteed public telephone operating only local calls; and (c) telephone at airport and hospital, where no bill is issued.

Exemptions Amended:

• Exemption on specified services of construction, erection, commissioning restricted to (a) historical monument, archaeological site or remains of national importance, archaeological excavation or antiquity; (b) canal, dam or other irrigation work; (c) pipeline, conduit or plant for water supply, water treatment, sewerage treatment or disposal;

• Services provided by performing artist in folk or classical art form of (a) music, or (b) dance, or (c) theatre, where amount charged as consideration exceeds INR 1,00,000/-;

• Exemption available on the transportation of food stuff vide rail, road or vessel restricted to milk, salt and food grains including flours, pulses and rice; and

• Service Tax to be levied for carrying out any process amounting to manufacture of alcoholic liquor for human consumption. In this context, “Process amounting to manufacture” has been amended and excludes intermediate production of alcoholic liquor for human consumption from its scope.

7.0 Amendment in Reverse Charge Mechanism

[Vide Notification no. 7/2015-ST dated 01-03-2015 w.e.f. 1st March 2015, unless otherwise stated ]

• Services provided by agreed to be provided by a mutual fund agent or distributor, to a mutual fund or asset management company – 100% Service Tax would be payable by Service Recipient [Applicable from 1st April, 2015] - Exemptions are being withdrawn on the following service;

• Services provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent - 100% Service Tax would be payable by Service Recipient [Applicable from 1st April, 2015] - Exemptions are being withdrawn on the following service;

• Any Services provided or agreed to be provided Government or local authority except for service of renting of immovable property and services provided as specified in the Negative list, to any business entity – 100% Service Tax would be payable by Service Recipient [Applicable from 1st April, 2015] – Earlier only business support services rendered by Government or local authority was covered under the Reverse Charge Mechanism - Consequently, the definition of “support service” [section 65 B (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 another entry in the Negative List, shall be liable to service tax;

• Services provided or agreed to be provided by a person involving an aggregator in any manner – 100% Service Tax would be payable by Service Recipient [Applicable from 1st March, 2015] – “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

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.

8.0 Amendment in percentage of Taxable Portion and the conditions for availing the exemption therein

[Vide Notification no.08/2015-ST dated 01-03-2015 w.e.f. 01-04-2015 ]

SI No.

Description of taxable service

Earlier Taxable Value

Amended Taxable Value

Condition

1

Transport of goods by rail

30%

30%

Condition inserted - No CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has been taken

2

Transport of passengers by rail

30%

30%

Same as above

3

Transport of passengers by air, in Economy Class

40%

40%

No Change

4

Transport of passengers by air,

in other Class

40%

60%

No Change

5

Services of goods transport agency for transportation of goods

25%

30%

No Change

6

Services provided in relation to chit

70%

100%

Omitted from the

Exemption Notification

7

Transport of goods in a vessel

40%

30%

No Change

9.0 Scope of Advance Ruling further Expanded

[Vide Notification no. 09/2015-ST dated 01-03-2015 w.e.f. 1st March, 2015]

In the last year budget, the Central Government had included ‘Resident Private Limited Company’as class of person’s eligible to apply for Advance Ruling. In this year, the Central Government has included the‘Residential Firm’as class of person’s eligible to apply for Advance Ruling.


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