Ist Full Year Budget of New Government has
been introduced in Parliament on 28th February, 2015. This Article
intends to outline key amendments made in Service Tax.
A. Changes effective from enactment of Finance
Bill
I. Rate
of service tax
Present
rate:
12.36% (12% + 3% as Education Cess)
Revised
rate: Consolidated 14% (subsuming
Education & Secondary Education Cess)
Impact: Cost of all services to get costlier viz. food, flats, insurance,
mobile, transport to name a few.
II. Enabling
Provision for Swachh Bharat Cess (Date to be notified)
An enabling provision is being incorporated to empower the Central
Government to impose a Swachh Bharat Cess on all or any of the taxable services
at 2% on the value of such taxable services.
As
per Budget Speech by FM, the same shall be notified, if required.
III. Negative List compressed and consequent
change in Exemptions.
1.
Admission to Entertainment events etc. in service tax net
Present:
Clause ‘admission to entertainment event or access to amusement
facility’ is at present exempted under Negative List.
Proposed:
The same is being omitted and exemption is being
provided under Mega Exemption Notification 25/2012 on certain specific events
viz. Theatrical/cinematographic events, recognised sports event and award
functions/concerts/musical performance (in case consideration upto Rs. 500 per
head).
Impact:
Service Tax shall be levied on the service provided by way of
access to amusement facility providing fun or recreation by means of rides,
gaming devices or bowling alleys in amusement parks, amusement arcades, water
parks and theme parks.
2.
Manufacture of alcoholic liquor for human consumption under service tax.
Present:
Clause ‘any process amounting to manufacture or production of
goods’ is covered in negative list
Proposed:
·
The same is being
amended to exclude service by way of carrying out any processes for production
or manufacture of alcoholic liquor for human consumption.
·
Consequently,
Notification 25/2012 is being amended to exclude intermediate production of
alcoholic liquor for human consumption from its ambit.
Impact:
Service Tax shall be levied on contract manufacturing/job work for
production of potable liquor for a consideration.
3. Not only Support
Services, but all services by Government taxable
Present:
Presently, services provided by Government or a local authority,
excluding certain services specified under clause (a) of section 66D, are
covered by the Negative List. Service Tax applies on the “support service”
provided by the Government or local authority to a business entity.
Proposed:
An enabling provision is being made 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” is being
omitted. Further to address confusion, term ‘Government’ is
being defined in Finance Act.
Impact:
As and when this amendment comes into effect, 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.
4.
Activities in respect of Chit funds and lotteries taxable
On account of contrary views by Courts, Government has clarified by way
of explanation in Definition of Service and Negative List to levy Service Tax
on the services provided by:
(a) chit fund foremen by way of conducting a chit.
(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.
IV. Other Amendments in Finance Act,
1994
1) Reimbursable
Expenditure includable in value of taxable service
An amendment is
being made in Section 67 to include following as part of consideration for
value of taxable services:-
i.
all reimbursable expenditure or
cost incurred and charged by the service provider.
ii.
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.
Impact:- This
will nullify landmark judgment of Delhi High Court in case of Intercontinental
Consultants & Technocrats Pvt. Ltd. wherein HC has quashed Rule 5(1) of
Service Tax Rules, 1994 which provide for inclusion of expenditure or costs
incurred by the service provider in the taxable value.
2) Section 73 is
being amended in the following manner:
(a) a new
sub-section (1B) is being inserted to provide that recovery of the Service Tax
amount self-assessed and declared in the return but not paid shall be made
under section 87, without service of any notice under sub-section (1) of
section 73; and
(b) sub-section
(4A) that provides for reduced penalty if true and complete details of
transaction were available on specified records, is being omitted.
3) Rationalisation
of Penalties - Section 76 & 78
|
Section 76
|
Section 78
|
When applicable
|
Cases other than
fraud, suppression etc.
|
Fraud, Collusion,
wilful misrepresentation Suppression,
|
Maximum
|
10% of Service
Tax
|
100% of Service
Tax
|
In case ST+
Interest+ Penalty(sec 78) paid within 30 days of Show Cause Notice
|
No Penalty
|
15% of Service
tax
|
In case ST+
Interest+ Penalty paid within 30 days of Order of CE Officer
|
25% of penalty
imposed
|
25% of Service
tax
|
In case ST amount
subsequently reduced in Appellate Order
|
Benefit of
reduced penalty (25%) available if ST+ Interest +Reduced Penalty paid within
30 days of such order.
|
|
|
|
|
A transition
provision by way of Section 78B is being provided in respect of pending cases.
4) Section 80
struck off
The most beneficial
Section 80 of Finance Act, 1994 which provides for waiver of penalty in certain
bonafide circumstances is being omitted. It is surprising that no reasonable
justification has been provided in the Budget where it is being frequently used
by Courts to waive penalty in unreasonable demands. This ensures penalty for every
non-payment of service tax whatever is the reason.
5) Appeals in
respect of issue pertaining to rebate of service tax on input services or
inputs used in export of service shall be lied before Central Government as
Revision Application as against present before CESTAT.
6) The facility of Advance Ruling is being
extended to all resident firms by specifying such firms under section 96A
(b)(iii) of the Finance Act, 1994
B. Changes effective from 01.04.2015 unless
specified otherwise.
V. Review of Exemptions (Mega Exemption Notf. No.
25/2012)
Several major
exemptions have been withdrawn in this Budget tabulated as under:
Sr. No.
|
Service
|
Exemption
withdrawn /limited
|
12
|
Construction
related service provided to the Government, a local authority or a governmental authority
|
· a civil structure or any other original
works meant predominantly for use other than for commerce, industry, or
any other business or profession;
· a structure meant predominantly for use
as (i) an educational, (ii) a clinical, or (iii) an art or cultural
establishment
· a
residential complex predominantly meant for self-use or the use of their
employees or other persons specified in the Explanation 1 to
clause 44 of section 65 B of the said Act;
|
14
|
Construction
related services
|
Construction
related works pertaining to an airport or port
|
16
|
services
provided by a performing artist in folk or classical art form of (i) music,
or (ii) dance, or (iii) theatre
|
Exempt upto Rs 1,00,000 for a performance
|
20& 21
|
Transport by
Road/Rail/Vessel
|
Exemption
withdrawn on all activities except
transportation
of food grains including rice and pulses, flour, milk and salt and
agriculture produce
|
29
|
Sub-Contract
Services
|
(a) 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.
|
32
|
Telephone related
service
|
(a)
Departmentally run public telephone; (b) Guaranteed public telephone
operating only local calls; (c) Service by way of making telephone calls from
free telephone at airport and hospital where no bill is issued
|
New Exemptions
introduced as under:
Sr. No.
|
Service
|
2
|
Transportation
of a patient in an ambulance
|
26A
|
Life
insurance service provided by way of Varishtha Pension Bima Yojna
|
43
|
Service
provided by a Common Effluent Treatment Plant operator for treatment of
effluent
|
44
|
Pre-conditioning,
pre-cooling, ripening, waxing, retail packing, labeling of fruits and
vegetables
|
45
|
Admission
to a museum, zoo, national park, wild life sanctuary and a tiger reserve
|
46
|
Exhibition
of movie by the exhibitor (theatre owner) to the distributor or an
association of persons consisting of such exhibitor as one of it’s members
|
*
|
transport
of export goods by road from the place of removal to a land customs station
(LCS)
|
*By amendment in
Notf. No. 31/2012.
VI. Change
in Abatement rates and conditions
Particulars
|
Present
taxable rate
|
Proposed
taxable rate
|
Transport by
(a) Road (Goods)
(b) Rail(Goods + Passenger)
(c) Vessel(Goods)
|
25%
30%
40%
|
30%
30%
30%
Subject to condition that no Cenvat on inputs, input services and
capital goods is allowed.**
|
Air Transport of Passenger other than in Economy Class
|
40%
|
60%
|
Services provided in relation to chit
|
70%
|
100%
|
**Earlier in case of transport by rail, there was no
restriction on Cenvat credit, now aligned for all modes of transport.
VII. Changes in Reverse Charge Mechanism
1.
Manpower supply and
security services in full reverse charge
Present: Partial Reverse Charge is applicable in case of Manpower Supply
and Security Service i.e. 50% payable by
Service provider and balance 50% by Service Receiver when provided by an
individual, HUF, or partnership firm to a body corporate
Proposed: The same is being brought to full reverse charge i.e. entire
service tax payable by Service Receiver.
Impact:
This will reduce unnecessary compliance burden on small
contractors and agencies.
2. Following Services
have been brought under full reverse charge consequent to withdrawal of the
exemption on such services -
(i) Service
provided by mutual fund agents, mutual fund distributors; and
(ii) Service
provided by agents of lottery distributor.
3. Aggregator
or Representative made liable to pay service tax
In case
of service provided or agreed to be provided by a person involving an
aggregator in any manner, the aggregator or 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 under reverse charge
scheme. 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.
The
term “aggregator” has been defined to 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’.
VIII. Amendments in Rules (w.e.f.
01.03.2015):
A. Service
Tax Rules, 1994
(1) To move towards
ease of doing business, it has been prescribed to grant registration for single
premises within 2 days of filing of application. The modalities of the same
have been issued by Order No. 1/15-ST, dated
28.2.2015 w.e.f. 01.03.2015.
(2) A provision for issuing digitally signed invoices is being
added along with the option of maintaining of records in electronic form and
their authentication by means of digital signatures.
(3) To align with
revised general service tax rate, alternative rates of service tax under
optional scheme for following services have been revised as under (effective on
enactment of Finance Bill):
Service
|
Present
|
Revised
|
Air Travel Agent
|
Domestic- 0.6%
International-
1.2%
|
Domestic- 0.7%
International- 1.4%
|
Life Insurance
Service
|
Ist Year- 3%
Subsequent
Years-1.5%
|
Ist Year- 3.5%
Subsequent
Years-1.75%
|
Money Changers’
Services
|
Upto Rs. 1 Lac-
0.12% subject to max. Of Rs. 30
1 Lac-10 Lac:
0.06%
Above 10 Lac:
0.012%
|
Upto Rs. 1 Lac-
0.14% subject to max. Of Rs. 35
1 Lac-10 Lac:
0.07%
Above 10 Lac:
0.014%
|
Service of
organizing Lottery
|
Guaranteed
payout>80%:Rs. 7000
Guaranteed
Payout<80%: Rs. 11000
|
Guaranteed
payout>80%:Rs. 8200
Guaranteed
Payout<80%: Rs. 12800
|
|
|
|
B. Cenvat
Credit Rules, 2004
1. Cenvat Credit
allowed on service tax payment in partial reverse charge
Present:
In cases where partial reverse charge is applicable,
Service Recipient can avail the credit only after payment of the value of input
service and service tax (unlike Full reverse charge where credit is allowed on
payment of service tax).
Proposed:
The provision has been aligned to allow Cenvat
Credit in such cases on payment of service tax.
2. Time period for
availment of credit extended to one year
Present:
The time period for availment of Cenvat credit is 6
months from the date of invoice (introduced in Budget 2014.
Proposed:
Now
it has been extended from 6 months to 1 year.
Impact:
It is a major relief for all manufacturers and
service providers.
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