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Amidst huge expectations, the Hon’ble Finance Minister Shri. Arun Jaitley presented the first full-year Budget of the Hon’ble Prime Minister Shri. Narendra Modi's Government on February 28, 2015, Saturday in the backdrop of easing inflation and interest rates but continued growth challenges which the Government needs to address.

While considering Goods and Service Tax (“GST”) as a ‘game changing reform’, Shri Arun Jaitley said that ‘GST will put in place a state-of-the-art indirect tax system by 1st April, 2016’.

We are sharing with you the key highlights of the Union Budget 2015 in the arena of Indirect Taxes:

CHANGES UNDER SERVICE TAX

A. Hike in Service tax rates (From date to be notified):

a. Service tax rate has been increased from 12.36% (including Education Cess and Secondary and Higher Education Cess) to flat 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the new Service tax rate. The revised rate shall come into effect from a date to be notified.

b. An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or certain taxable services at a rate of 2% on the value of such taxable services. The proceeds from this Cess would be utilized for Swachh Bharat initiatives. This Cess will be effective only from a date to be notified;

B. Changes In Chapter V Of The Finance Act, 1994 (Will Come Into Force When the Finance Bill, 2015 is enacted):-

I. Changes in relation to the Negative List – Section 66D of the Finance Act, 1994:-
 

a. Section 66D(a): Presently, services provided by Government or a local authority, excluding certain services specified under Section 66D(a) of the Finance Act, 1994 are covered under the Negative List. Further, by virtue of clause (iv), Service tax applies on the ‘support services’ provided by the Government or local authority to a business entity under Reverse Charge.

Under clause (iv) of Section 66D(a) of the Finance Act, 1994, the words ‘support services’ has been proposed to be substituted by the words ‘any service’ to exclude all
services provided by the Government or local authority to a business entity from the Negative List by amending Section 66D(a)(iv) of the Finance Act, 1994.

In other words, after such amendment, all services provided by the Government or local authority to a business entity would be exigible to Service tax, except for the services that are specifically exempted, or covered by any another entry in the Negative List.

b. Section 66D(f): Section 66D(f) of the Finance Act, 1994 has been proposed to be substituted to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption under the Service tax net. In other words, Service tax shall be levied on contract manufacturing/ job work for production of alcoholic liquor for a consideration.

At present, Section 66D(f) of the Finance Act, 1994 covers service by way of any process amounting to manufacture or production of all the goods.

c. Section 66D(i): Explanation inserted whereby the expression “betting, gmbling or lottery shall not include the activity as specified in substituted explanation 2 to Clause (44) of Section 65B.

d. Section 66D(j): Proposed to be Omitted. At present, it covers ‘admission to entertainment event or access to amusement facility’.

Consequently, Service tax to be levied on the services provided by way of access to amusement facility such as rides, bowling alleys, amusement arcades, water parks, theme parks, etc;

Service tax to be levied on services by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts and award functions, if the amount charged for admission is more than Rs. 500.

Whereas Services by way of admission to exhibition of the cinematographic film, circus, dance, or theatrical performances including drama, ballets or recognized sporting events shall continue to be exempt; [Read with the Notification No. 6/2015-ST dated 01-03-2015 vide which changes has been made in the Mega Exemption List of Services).

II. Other Important Changes in the Finance Act, 1994:-

1. Changes in Advance Ruling Under Section 96A(b)(iii) of the Finance Act, 1994 Vide Notification No. 9/2015-ST dated 01-03-2015:-
 

The facility of Advance Ruling has been extended to all resident firms by specifying such firms as a class of persons for the purposed of Section 96A (b)(iii).

2. Other Changes:

i. Changes in Section 65B of the Finance Act, 1994:

ii. Definition of the terms ‘amusement facilities’ [Section 65B(9)], ‘entertainment event’ [Section 65B(24)] and ‘support services’ [Section 65B(49)] have been omitted;

Definition of following terms have been inserted:

a) ‘foreman of chit fund’ – Section 65B(23A);

b) ‘Government’ – Section 65B(26);

c) ‘lottery distributor or selling agent’ – Section 65B(31A);

In the definition of ‘process amounting to manufacture or production of goods’, the words, ‘alcoholic liquors for human consumption’ has been omitted;

Explanation 2 to Section 65B(44) of the Finance Act, defining the term ‘Service’ is amended to specifically state the intention of the legislature to levy Service tax on activities undertaken by Chit fund foremen in relation to Chit, and lottery distributors and selling agents, in relation to lotteries.

Changes in Section 66B of the Finance Act, 1994:

Section 66B is amended to substitute the rate of Service tax from 12% to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the new Service tax rate. The revised rate shall come into effect from a date to be notified.

Changes in Section 66F of the Finance Act, 1994:-

Section 66F(1) prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such services. An illustration has been incorporated in the stated Section to exemplify the scope of this provision.

Changes in Section 67 of the Finance Act, 1994:-

Explanation (a) to Section 67 is amended to specifically include the following in the definition of the term ‘Consideration’:

a) any reimbursable expenditure or cost incurred and charged by the service provider;

b) any amount retained by the lottery 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.

Changes in Section 73 of the Finance Act, 1994:-

Section 73 has been amended to insert a new sub-section (1B) to provide that the Service tax amount self-assessed and declared in the return but not paid (either in part or full) shall be recovered under Section 87 thereof, without service of any notice under Section 73(1). Further, Section 73(4A) providing for reduced penalty if true and complete details of transaction are available on specified records has been omitted.

Changes in Section 76 of the Finance Act, 1994:-

Section 76 has been amended to rationalize the provisions relating to penalties in cases not involving fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service tax, in the following manner:

a) Ceiling of 10% of Service tax amount on penalty has been incorporated;

b) No penalty leviable if Service tax and interest is paid within 30 days of issuance of SCN under Section 73(1);

c) Reduced penalty equal to 25% leviable if the Service tax, interest and reduced penalty is paid within 30 days of receipt of Order of the Central Excise Officer; and

d) If the Service tax amount gets reduced in any Appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (i.e. 25%) shall be admissible if Service tax, interest and reduced penalty is paid within 30 days of such Appellate Order.

Changes in Section 78 of the Finance Act, 1994:-

Section 78 has been amended to rationalize the provisions relating to penalties in cases involving fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service tax, in the following manner:

a) Penalty shall be of 100% of Service tax amount;

b) Reduced penalty equal to 15% shall be leviable if Service tax, interest and reduced penalty is paid within 30 days of issuance of SCN under Section 73(1);

c) Reduced penalty equal to 25% leviable if the Service tax, interest and reduced penalty is paid within 30 days of receipt of Order of the Central Excise Officer; and

d) If the Service tax amount gets reduced in any Appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (i.e. 25%) shall be admissible if Service tax, interest and reduced penalty is paid within 30 days of such Appellate Order.

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