CA Bimal Jain
Amidst huge expectations, the Hon’ble Finance Minister Shri. Arun Jaitley presented the third full-year Budget of the Hon’ble Prime Minister Shri. Narendra Modi’s Government on February 29, 2016, Monday. The Budget 2016, a big test for Shri. Jaitley, is a tough balancing act between the fiscal consolidation and much-needed spending to revive growth in the economy. With an eye on supporting the small tax-payer and the small investor, the Minister announced a slew of schemes, and exemptions.
In his Budget speech, Shri. Jaitley has said that the Government shall also endeavour to continue with the ongoing reform programme and ensure the passage of the Constitutional amendments to enable the implementation of the Goods and Services Tax (“GST”), the passage of Insolvency and Bankruptcy law and other important reform measures, which are pending before the Parliament.
We are sharing with you the key highlights of the Union Budget 2016 in the arena of Indirect Taxes:
Changes under Service TAX
I. Changes in relation to the Negative List – Section 66D of the Finance Act:-
Presently, specified education services viz. services by way of pre-school education, higher secondary school education or equivalent, education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force, education as a part of an approved vocational education course, are covered under Section 66D(l) of the Finance Act. These services are proposed to be deleted.
However, corresponding exemption is inserted in the Mega Exemption Notification by amending the definition of “educational institutions” to include an institution providing such services as was specified in Section 66D(l) of the Finance Act [Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services in the Mega Exemption Notification].
Presently, Section 66D(o)(i) of the Finance Act covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage”, which is proposed to be deleted w.e.f 01.06.2016.Corresponding to this deletion, new entry No. 23(bb)] has been inserted in the Mega Exemption Notification to exempt services by a stage carrier other than air-conditioned stage carriage. [Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services in the Mega Exemption Notification]
Further, Service tax is proposed to be levied on service of transportation of passengers by air conditioned stage carriage, @ 40% after abatement of 60% (as applicable to transportation of passengers by contract carriage) without input tax credit, with effect from 01.06.2016 [Read with Notification No. 08/2016-ST dated 29.02.2016 vide which changes have been made in the Abatement Notification]
Presently, Section 66D(p)(ii) of the Finance Act covers “services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance”, which is proposed to be deleted w.e.f 01.06.2016.
Corresponding to this deletion, new entry [No. 53] has been inserted in the Mega Exemption Notification to such services by an aircraft.[Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services].
However, the services provided by vessels would be taxable and the domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.
In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India as export of services. Consequential amendments are being made in Cenvat Credit Rules, 2004.
II. Other Important Changes in the Finance Act:-
♠ Changes in Section 65B of the Finance Act:
It shall be incorporated in the Mega Exemption Notification with insertion of corresponding exemption thereunder.
♠ Changes in Section 66E of the Finance Act:
After clause (i), clause (j) is 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.
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. Consequently, Reverse charge Notification No. 30/2012-ST is being amended so as to delete the words “by way of support services” appearing at Sl. No. 6 of the Table in the said notification with effect from 01.04.2016. Further, 01.04.2016 is being notified as the date from which the words “by way of support services” shall stand deleted from paragraph 1, clause A (iv),item (C) of Reverse Charge Notification No. 30/2012-ST.The above changes shall come into effect from the 01.04.2016.
It is being provided that Cenvat credit of Service tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. It is also being provided that where the manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance Cenvat credit not exceeding the Service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year. It is also being provided that Cenvat credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.
♠ Changes in Section 67A of the Finance Act:
Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. (Corresponding amendments carried out in the Point of Taxation Rules, 2011, which would come into force w.e.f. the date of enactment of the Finance Bill, 2016).
The Point of Taxation Rules, 2011 (“POTR”) have been framed under provisions of clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is also being obtained under Section 67A to make rules regarding point in time of rate of service tax. Thus, any doubt about the applicability of Service tax rate or apparent contradiction between section 67A and POTR would be taken care of. Therefore, consequent modifications have been done in POTR.
Rule 5 of POTR applies when a new service comes into the service tax net. Further, in rule 5 of POTR, it is provided that in two specified situations the new levy would not apply. Another Explanation is being inserted therein stating that in situations other than those specified where new levy or tax is not payable, the new levy or tax shall be payable. The above changes shall come into effect from 01.03.2016.
♠ Changes in Section 73 of the Finance Act:
Section 73 is proposed to be amended to extend the limitation period for recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc., by one year, i.e., from 18 months to 30 months. 5 year limitation period in case of fraud etc., has not been changed.
♠ Changes in Section 75 of the Finance Act:
There is change in the rate of interest on delayed payment of Service tax, in the following manner:
|Serial No.||Situation||Rate of simple interest|
|1.||Collection of any amount as Service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due.||24%|
|2.||Other than in situations covered under serial number 1 above.||15%|
In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakhs, the rate of interest on delayed payment of Service tax will be 12%.
Further, for the amount collected in excess of the tax assessed or determined – Section 73B of the Finance Act, 15% rate of interest would be applicable as against 18%.
♠ Changes in Section 78A of the Finance Act:
Explanation is proposed to be inserted to provide that penalty proceedings under Section 78A (Penalty for offences by director, etc., of company) shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under Section 76/ Section 78 of the Finance Act.
♠ Changes in Section 89 of the Finance Act:
Section 89 of the Finance Act (Offence and Penalties), is proposed to be amended to enhance the monetary limit for filing complaints for punishable offences to Rs. 2 crores from Rs. 50 lakhs.
♠ Changes in Section 90 of the Finance Act:
Sub-section (2) to Section 90 of the Finance Act is proposed to restrict the power to arrest only to situations where the tax payer has collected the Service tax but not deposited it with the exchequer, and amount of such tax collected but not paid exceeds Rs. 2 crore (as provided under amended Section 89).
♠ Changes in Section 91 of the Finance Act:
Section 91 of the Finance Act is proposed to be amended to delete reference of Section 89(1)(i) of the Finance Act under Sub-Section (1) and to delete Sub-Section (3) thereof, again to restrict the power to arrest only to situations where the tax payer has collected the Service tax but not deposited it with the exchequer, and amount of such tax collected but not paid exceeds Rs. 2 crore (as provided under amended Section 89).
♠ Changes in Section 93A of the Finance Act:
Section 93A of the Finance Act, is proposed to be amended so as to enable allowing of rebate by way of notification as well as rules. Application for rebate may be allowed to be filed within a period of 1 month from the date on commencement of the Finance Bill, 2016.
♠ New Section 101 inserted to allow retrospective Service tax exemption to canal, dam or other irrigation works:
Definition of “Governmental authority” as contained under the Mega exemption Notification was amended with effect from 30.01.2014. Earlier where as both conditions of Government control/equity and setting up under State/Union law were required, w.e.f. 30.01.2014, either setting up under law is required or Government control/equity for functions under Article 243W of Constitution are required, so as to qualify as Government Authority, by ‘and’ being substituted by ‘or’.
Consequently, services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature were exempted w.e.f. 30.01.2014 [Entry No. 12(d) of the Mega Exemption Notification]. However, services provided prior to 30.01.2014 to such bodies remained taxable.
Now, a new Section 101 is proposed to be inserted to provide Service tax exemption to canal, dam or other irrigation works with retrospective effect in the following manner:
a) The benefit of exemption is proposed to be extended to the said services provided during the period from the 01.07.2012 to 29.01.2014;
b) Refund of Service tax paid on the said services during the period from 01.07.2012 to 29.01.2014, shall also be allowed in accordance with the law including the law of unjust enrichment;
c) Application for refund may be allowed to be filed within a period of 6 months from the date on which the Finance Bill, 2016 receives the assent of the President.
♠ New Section 102 inserted to allow restoration of certain exemption withdrawn w.e.f 1-4-2015:
Exemption from Service tax on services provided to the Government, a local authority or a Governmental authority by way of construction, erection, commissioning etc. of:
i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to Section 65B(44) of the Finance Act.
was withdrawn with effect from 01.04.2015 [Entry No. 12 of the Mega Exemption Notification].
Now, a new Section 102 is proposed to be inserted to provide restoration for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date.
♠ New Section 103 inserted to allow restoration of certain exemption withdrawn on Airport or port w.e.f 1-4-2015:
Exemption from Service tax on services by way of construction, erection, commissioning and installation of original works pertaining to an airport, port was withdrawn with effect from 01.04.2015 [Entry No. 14 of the Mega Exemption Notification].
Now, a new Section 103 is proposed to be inserted to provide restoration for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date, subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping, as the case may be, to that effect.
♠ Entry No. 6(b) & (c): Exemption Withdrawn
Entry No. 6(b) & (c) has been amended to withdraw exemption in respect of the following:
Hence, 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 continued i.e. under Reverse Charge. [Read with Notification No. 18/2016 – ST dated 01.03.2016, amending the Reverse Charge Notification]
♠ Entry No. 13: Scope expanded to also cover the following:
Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:
(ba) a civil structure or any other original works pertaining to the ‘In-situ rehabilitation of existing slum dwellers using land as a resource through private participation’ under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers;
(bb) a civil structure or any other original works pertaining to the ‘Beneficiary led individual house construction / enhancement under the Housing for All(Urban) Mission/Pradhan Mantri Awas Yojana’.
♠ Entry 14(a): Exemption to construction, erection, commissioning or installation of original works pertaining to monorail or metro is being withdrawn.
However, the said services, where contracts were entered into before 01.03.2016, on which appropriate stamp duty, was paid, shall remain exempt.
♠ 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 No. 23(c) deleted: Exemption to services for transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn.
♠ New Entries inserted to exempt the following:
(a) Entry 9B w.e.f. 01.03.2016: Services provided by the Indian Institutes of Management (IIM), as per the guidelines of the Central Government, to their students, by way of the following educational programmes, except Executive Development Programme, –
a. two year full time residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;
b. fellow programme in Management;
c. five year integrated programme in Management;
(b) 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;
(c) 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;
(d) Entry 12A and 14A w.e.f. 01.03.2016: Restoration of certain exemptions withdrawn last year for projects, contracts in respect of which, contract were entered into before withdrawal of the exemption. [Refer changes discussed supra under newly proposed Section 102 and Section 103 of the Finance Act, for details];
(e) Entry 14 (ca): Services by way of construction, erection, commissioning, installation of original works pertaining to low cost houses up to a carpet area of 60 sq. m per house in a housing project approved by the competent authority under the “Affordable housing in partnership” component of PMAY or any housing scheme of a State Government;
(f) Entry No. 23(bb): Service of transportation of passengers, with or without accompanied belongings, by a stage carriage, was in the Negative list of services vide Section 66D(o)(i) of the Finance Act. With the proposed deletion of said entry under the Negative List, a new entry is being inserted under the Mega Exemption Notification so as to exempt services by a stage carriage other than air conditioned stage carriage;
(g) 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);
(h) 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);
(i) 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);
(j) 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);
(k) 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;
(l) 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;
(m) Entry No. 53 w.e.f 01.06.2016: Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.
♠ New definition provided for certain terms in paragraph 2 relating to definition of –
a) (ba) w.e.f. the date when the Finance Bill, 2016 receives the assent of the President “approved vocational education course” means, –
(i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or
(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship
b) (zdd) “senior advocate” has the meaning assigned to it in Section 16 of the Advocates Act, 1961 (25 of 1961).
♠ Definition of “educational institutions” provided under clause (oa) will be substituted with the following w.e.f. the date when the Finance Bill, 2016 receives the assent of the President:
“(oa) “educational institution” means an institution providing services by way of:
(i) pre-school education and education up to higher secondary school or equivalent;
(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;
(ii) education as a part of an approved vocational education course;”
♠ Under Rule 2 of the Service Tax Rules, 1994:
Consequently, vide Notification No. 17/2016 – ST dated 01.03.2016, 01.04.2016 is being notified as the date from which the word “support” shall stand deleted from Rule 2(1)(d)(i)(E) of Service Tax Rules, 1994 so as to provide that the liability to pay Service tax on any service provided by Government or local authorities to business entities shall also be on the service recipient on Reverse Charge Basis.
♠ Under Rule 6 of the Service Tax Rules, 1994:
a) Quarterly payment of Service tax and
b) Payment of Service tax on receipt basis
♠ Under Rule 7 of the Service Tax Rules, 1994:
♠ Under Rule 7B of the Service Tax Rules, 1994:
♠ Under Rule 7C of the Service Tax Rules, 1994:
Corresponding changes have also been made in Table contained under Paragraph II.
Now, a uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions.;
It is also clarified that service provided by the Indian Railways to Container Train Operators (CTOs) of haulage of their container train (rake of wagons with containers) is a service of “Transport of Goods by Rail‟ and is, therefore, eligible for abatement at the rate of 70% with credit of input services.
In respect of transactions involving supply of such media bearing RSP, not amounting to sale/deemed sale, Service tax is being exempted. Thus, only Central Excise duty is levied on such transactions.
In certain situations like delivering customised software on media, such media with recorded Information Technology Software, is not required to bear the RSP when supplied domestically or imported. Difficulties are being experienced in the assessment of such media to Central Excise duty/CVD besides giving rise to the issue of double taxation – levy of Central Excise duty/CVD as well as service tax. In order to resolve the issue, media with recorded Information Technology Software which is not required to bear RSP, is being exempted from so much of the Central Excise duty/CVD as is equivalent to the duty payable on the portion of the value of such Information Technology Software recorded on the said media, which is leviable to service tax. In such cases, manufacturer/importer would therefore be required to pay Central Excise duty/CVD only on that portion of value representing the value of the medium on which it is recorded along with freight and insurance. The exemption is subject to the fulfilment of certain conditions. Thus, the levy of Central Excise duty/CVD and service tax will be mutually exclusive. (Refer Notification No. 11/2016-CE and 11/2016-Customs, both dated 01.03.2016).
♠ Changes in Rule 2(a) of the Credit Rules – Definition of ‘capital goods’:
♠ Changes in Rule 2(e) of the Credit Rules – Definition of ‘exempted service’:
♠ Changes in Rule 2(k) of the Credit Rules – Definition of ‘inputs’:
♠ Changes in Rule 3(4) of the Credit Rules w.e.f 01.03.2016:
♠ Changes in Rule 4 of the Credit Rules:
♠ Changes in Rule 6 of the Credit Rules:
(a) No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available;
(b) Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;
(c) Credit left thereafter is common credit and shall be attributed towards exempted goods and exempted services by multiplying the common credit with the ratio of value of exempted goods manufactured or exempted services provided to the total turnover of exempted and non- exempted goods and exempted and non-exempted services in the previous financial year;
(d) Final reconciliation and adjustments are provided for after close of financial year by 30thJune of the succeeding financial year, as provided in the existing rule;
♠ Changes in Rule 7 of the Credit Rules:
♠ Insertion of Rule 7B in the Credit Rules:
♠ Changes in Rule 9 of the Credit Rules:
♠ Changes in Rule 9A of the Credit Rules:
♠ Changes in Rule 14 of the Credit Rules:
The existing sub- rule (2) of Rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said sub-rule 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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