Affirming that the economy is right on track, the Hon’ble Finance Minister Shri. Arun Jaitley presented the Union Budget for 2016-17 on February 29, 2016. Although, Shri. Arun Jaitley in his ‘Make in India’ Budget speech laid more emphasis on agriculture, farmers welfare, infrastructure, social sector etc., but there are slew of changes in Indirect Taxes also, requiring attention of the Trade & Industry.
Some of the changes were made effective from March 01, 2016 itself like withdrawal of exemption on services to monorail or metro, exemption to specified services provided by the IIM, retrospective Service tax exemption allowed on certain contracts etc., flurry of changes are yet to make their advent from April 1, 2016 and many others will come into force from the date of enactment of the Finance Bill, 2016.
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We are summarizing herewith the changes in Service Taxand Cenvat Credit Rules, 2004 that are effective from April 1, 2016 for easy digest:
A: Service Tax leviable under Reverse Charge on any services provided by Government or Local Authority to a Business Entity w.e.f April 1, 2016
Effective from April 1, 2016, under clause (iv) of Section 66D(a) of the Finance Act, 1994 (“the Finance Act”), the words ‘support services’ will be substituted by the words ‘any service’ thereby, to exclude from the Negative List, any services provided by the Government or Local authority to a Business Entity [Section 109(1) of the Finance Act, 2015 read with Notification No. 06/2016-ST dated February 18, 2016].However, the services provided by Government or Local authority to a Business Entity having turnover upto Rs. 10 lakh in the preceding Financial Year would remain exempt [New entry inserted vide after Entry No. 47 in the Mega Exemption Notification No. 25/2012- ST dated June 20, 2012 (“the Mega Exemption Notification”) amended vide Notification No. 07/2016-ST dated February 18, 2016]. Amendment in the Reverse Charge Notification: The Union Budget, 2016 vide Notification No. 18/2016-ST dated March 1, 2016, has amended Reverse Charge Notification No. 30/2012-ST dated June 20, 2012 (“the Reverse Charge Notification”), to delete the words “by way of support services” appearing at Sl. No. 6 of the Table in the said notification with effect from April 1, 2016.
Corresponding changes in the Service Tax Rules, 1994 (“the Service Tax Rules”) & the Finance Act:Corresponding changes have also been made in Rule 2(1)(d)(i)(E) of the Service Tax Rulesand Section 65B(49) of the Finance Act containing definition of the term ‘support services’ is also proposed to be deleted. Thus, the liability to pay Service tax on any service provided by Government or a Local Authority to Business Entities shall be on the service recipient w.e.f. April 1, 2016except (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of Section 66D of the Finance Act. Immediate clarification required:Given that the definition of the term ‘service’ under Section 65B(44) of the Finance Act is wide enough to cover any activity carried out by a person for another for consideration, it appears that effective from April 1, 2016, all Governmental services (sovereign, regulatory fees, statutory charges etc.) would be exigible to Service tax – Immediate clarification is required from the Board to provide exclusion list ofthe Governmental services covered under the Service tax net. Amendment in Section 66E of the Finance Act to be effective from date of enactment of the Finance Bill, 2016(“FB, 2016”)–Mismatch in taxability for interim period:In the Union Budget, 2016, under Section 66E of the Finance Act, after clause (i), clause (j) is proposed inserted to include “assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof” under the list of Declared services. Meaning thereby, assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a ‘service’ leviable to Service tax and not sale of intangible goods and the liability to pay Service tax will on the Business Entity under Reverse Charge. But such changes shall be effective from the date of enactment of FB, 2016, leading to dispute for taxability for the interim period i.e. from April 1, 2016 to date of enactment of FB, 2016.
B: Changes in the Mega Exemption List of Services Vide Notification No. 9/2016-ST dated March 1, 2016 amending Notification No. 25/2012-ST dated June 20, 2012
|Relevant Entry||Status of Exemption|
|Entry No. 6(b) & (c)||
Service tax in the above instances would be levied under forward charge. However, legal services provided by a firm of advocates or an advocate other than senior advocate is being continuedunder Reverse Charge[Read with Notification No. 18/2016 – ST dated March 1, 2016, amending the Reverse Charge Notification]
|Entry No. 23(c)||Exemption to services for transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway|
|Entry 16||The threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre, has been extended from Rs. 1 lakh to Rs. 1.5 Lakhs per performance (except brand ambassador).|
|Entry 9C||Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative (SDI) Scheme|
|Entry 9D||Services provided by training providers (Project implementation agencies) under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council For Vocational Training|
|Entry No. 26(q)||Services of general insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability Act, 1999 (44 of 1999)|
|Entry No. 26C||Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013)|
|Entry No. 49||Services provided by Employees’ Provident Fund Organisation (EPFO) to persons governed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)|
|Entry No. 50||Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 (41 of 1999)|
|Entry No. 51||Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market|
|Entry No. 52||Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination|
C: Changes in Abatement Vide Notification No. 8/2016-ST dated March 1, 2016 amending Notification No. 26/2012-ST dated June 20, 2012
|Relevant S. No.||Status of Abatement|
|Present Abatement(s) amended|
|S. No. 2||Transport of goods by rail (other than “transport of goods in containers by rail by any person other than Indian Railway”) - Cenvat credit of input services available: Abatement of 70% presently available is continued but with Cenvat credit of input services being made available|
|S. No. 3||Transport of passengers by rail - Cenvat credit of input services available: Abatement of 70% presently available is continued but with Cenvat credit of input services being made available|
|S. No. 10||Transport of passengers by vessel - Cenvat credit of input services available: Abatement of 70% presently available is continued but with Cenvat credit of input services being made available|
|S. No.7||Services of GTA in relation to transportation of goods other than used household goods: Abatement for “services of goods transport agency in relation to transportation of goods” is now substituted byterm “services of goods transport agency in relation to transportation of goods other than used household goods” with same abatement of 70% presently available.|
|S. No. 11||
Tour Operator services:
|S. No. 12||Construction of complex, building, civil structure, or a part thereof - Uniform abatement of 70%: Present abatements of 75% (in case of a residential unit having carpet area of less than 2000 square feet and costing less than Rs. 1 crore) and 70% (in other cases)is amended to provide a uniform abatement at the rate of 70%, subject to fulfilment of the existing conditions.|
|S. No. 2A||Transport of goods in containers by rail by any person other than Indian Railway: Reduced abatement rate of 60% with Cenvat credit of input services|
|S. No. 7A||Transport of used household goods by a GTA: Abatement at 60% without availment of Cenvat credit on inputs, input services and capital goods by the service provider (as against abatement of 70% allowed on transport of other goods by GTA)|
|S. No. 8||Services provided by foreman to a chit fund under the Chit Funds Act, 1982: Abatement of 30% subject to the condition that Cenvat credit of inputs, input services and capital goods has not been availed|
|Explanation ‘BA’ after paragraph B||Renting of motor-cab services:It is being made clear that cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement of 60% with no Cenvat credit on inputs, capital goods and input services (subject to specified conditions)|
D: Changes in Reverse Charge Mechanism Vide Notification No. 18/2016-ST dated March 1, 2016 amending Notification No. 30/2012-ST dated June 20, 2012
|Paragraph I, in clause (A), sub-clause (ib)||Omitted to provide that services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under forward charge|
|In Paragraph I, in clause (A), sub-clause (iv), item (B)||Substituted to provide that legal services provided by a senior advocate shall be underforward charge|
|In Paragraph I sub clause (iv) in Item C||Term ‘support’ has been omitted for services provided or agreed to be provided by Government or Local authority to a Business Entity (supra) [Refer Notification No. 16/2016-ST dated March 1, 2016]|
|Corresponding changes have also been made in Table contained under Paragraph II.|
E: Changes in Service Tax Rules Vide Notification No. 19/2016-ST dated March 1, 2016
Further, the benefit of quarterly payment of Service tax is also beingextended to HUF.
F: Changes in Cenvat Credit Rules, 2004 (“the Credit Rules”) vide Notification No. 13/2016-Central Excise (N.T) dated March 1, 2016
Definition of ‘capital goods’:
Definition of ‘exempted service’:
Definition of ‘inputs’
Revamp changes in Rule 6 of Credit Rules providing for reversal of Cenvat credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, on following broad principles :
Distribution of Cenvat credit by Input Service Distributor (“ISD”)
|Rule 9(a)(i)||Invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing Cenvat credit|
|Rule 9A||Annual return by a manufacturer of final products or provider of output services for each financial year to be filed by the 30th day of November of the succeeding year in the form as specified by a notification by the Board|
|Rule 14(2)||FIFO method for determining whether a particular credit has been utilized is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.|
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FCA, FCS, LLB, B.Com (Hons)
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