INDIRECT TAXES – SERVICE TAX:
The amendments proposed by the Finance Minister with respect to Service tax are discussed herein below.
1. Roll out of Goods and Services Tax (‘GST’):
Like the last year, in his Speech this year, the Finance Minister has given reaffirmed commitment to ensure the passage of the Constitutional amendments to enable the implementation of the Goods and Service Tax, the passage of Insolvency and Bankruptcy law and other important reform measures which are pending before the Parliament.
2. Rate of Service Tax:
It is proposed to continue to tax services at the rate of 14% plus Swach Bharat Cess of 0.5% i.e. effective rate of 14.50%.
However, the Finance Minister has come introduced an additional Cess of 0.5% on all taxable services with effect from 1st June 2016, to be called as Krishi Kalyan Cess to finance and promote initiatives to improve agriculture.
Thus, the Effective service tax rate from 1st June 2016 is increased from the existing rate of 14.50% to 15%.
Further, the Finance Minister had stated in his Budget Speech that CENVAT Credit of this new cess will be available. However, no notification has been issued to this effect. It is expected that in due course of time notification to this effect may be issued.
The change in rate of Service Tax would be effective 1st June 2016. Till such time the effective rate of Service tax would continue to be 14.50%.
3. Clarification regarding scope of services of lottery distributor and selling agent:
Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended so as to clarify that, any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to Service Tax.
4. Rationalization of Interest Rate:
This is a welcome move by the Finance Minister, wherein it is proposed to rationalize the Interest rates on delayed payment of duty/tax across all indirect taxes uniformly at 15% per annum.
However, in case of Service Tax collected but not deposited to the exchequer, the rate of interest will be 24% per annum from the date on which the Service Tax payment became due.
Further, in case of Assessee, whose value of taxable services in the preceding year/years covered by the notice is less than Rs.60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.
[The above changes will come into effect on the day the Finance Bill receives the assent of the President.]
5. Clarity on deemed conclusion of proceedings against person liable under Section 78A:
This is another welcome move by the Finance Minister, wherein it is proposed to provide that penalty proceedings under section 78A shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under section 76 or section 78, by making suitable changes to section 78A by addition of an explanation.
6. Increase in monetary limit for certain offences specified in Section 89:
The Finance Minister has proposed to rationalize the monetary limit in case of offences specified in Clause (a), (b) or (c) of Section 89, to Rs.2 Crores against the existing limit of Rs.50 Lakhs, for imprisonment.
7. Restriction on power of arrest:
It is proposed to restrict the power to arrest in Service Tax only in situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of Rs.2 Crores.
Further, the monetary limit for launching prosecution is being increased from Rs.1 Crore to Rs.2 Crores of Service Tax evasion.
8. Broadening of tax base-Negative List pruned:
With the object of broadening the tax base, the list of services in the Negative List is proposed to be reduced by bringing the following services within the ambit of taxation of services, which were hitherto outside the levy of Service tax:
♣ Service of transportation of passengers, with or without accompanied belongings, by a stage carriage (w.e.f. 1st June 2016);
However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 1st March 2016
The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of Cenvat credit.
♣ Educational services by way of (a) pre-school education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course (This amendment would come into effect from the date of enactment of Finance Bill, 2016);
♣ Services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India (w.e.f. 1st June 2016).
However such services by an aircraft will continue to be exempted by way of exemption Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016.
9. Broadening of tax base-Declared services expanded:
With the object of broadening the tax base, the list of Declared services is proposed to be expanded by bringing the Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof within the ambit of taxation of services, which were hitherto outside the levy of Service.
This is done to as to make it clear that assignment of right to use the spectrum is a service leviable to Service Tax and not sale of intangible goods.
10. Broadening of tax base-Withdrawal of Exemptions:
In order to widen the tax base, the following exemptions are proposed to be withdrawn:
Further, it has been clarified that the Service tax in above two cases would be payable by the service provider (effective from 1st April 2016).
(The above changes would come into effect from the 1st April 2016.)
(The above change would come into effect from the 1st March 2016.)
11. New Exemptions:
The Finance Minister has proposed to provide the following new exemptions:
(All the above changes in would come into effect from the 1st April 2016, except specifically stated otherwise.)
12. Special Provision for exemption in certain cases:
The Finance Minister has proposed to provide the following which were withdrawn earlier:
It is proposed that taxable Services provided to an specified authority, board or any other body set up by an Act of Parliament or a State Legislature or established by the government, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works would not attract Service Tax for the period 1st July 2012 to 29th January 2014.
Where Service tax has already been paid for the above period, refund will be available provided such refund application is made within six months from the date on which the Finance Bill, 2016 receives the assent of the President.
The above two exemptions are proposed to be restored in respect of services provided under contracts which had been entered into prior to 1st March 2015 on payment of applicable stamp duty, with retrospective effect from 1st April 2015 to 29th February 2016.
(The above changes would come into effect retrospectively after enactment of the Finance Bill, 2016.)
13. Other exemption:
In order to avoid an overlap between Service Tax and Excise/ Customs Duty, a new exemption notification has been introduced in relation to information technology software recorded on a media in respect of which the Retail Sale Price is required to be declared under the provisions of the Legal Metrology Act, 2009.
14. Rationalization of Abatements:
(The proposed rationalization in abatements shall come into effect from the 1st April, 2016.)
15. Amendments in Reverse Charge Mechanism:
It is proposed to provide that the services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from 1st April 2016, so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs.10 Lakhs per year, subject to fulfillment of other conditions prescribed.
Currently, Service tax is leviable on ‘Support service’ provided by Government or Local authority and such tax is collected under Reverse Charge mechanism.
It is now proposed to levy Service Tax on ‘Any Service’ instead of ‘Support Service’ provided by Government or Local Authority by expanding the scope of reverse charge to include ‘Any service’ provided by Government or Local authority to a business entity.
16. Section 73- Increase in period of limitation in cases not involving fraud, suppression etc.:
Section 73 of the Finance Act, 1994 is being amended so as to enhance the limitation period by one year, that is, from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax.
17. Rebate to an exporter of Goods-Retrospective effect to Notification No. 01/2016:
Notification No. 41/2012- ST, dated the 29th June 2012 was amended by notification No.1/2016-ST dated 3rd February, 2016 so as to, inter alia, allow refund of Service Tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods, for the export of the said goods.
Further, time period of one month is proposed to be allowed to the exporters whose claims of refund were earlier rejected in absence of amendment carried out vide notification No.1/2016-ST dated 3rd February 2016.
(This amendment is proposed to be made effective from the date of application of the parent notification i.e. 1st July 2012).
18. Rationalization of Service Tax Rules, 1994:
Further, the benefit of quarterly payment of service tax is also being extended to HUF.
(The above changes would come into effect from 1st April 2016, except as otherwise stated.)
19. CENVAT Credit:
With a view to simplify and rationalize the CENVAT Credit Rules, 2004, a number of amendments are being carried out in them. Following are the important changes relevant to Service tax:
(The above amendments would be effective from 1st April 2016)
20. Refund of CENVAT Credit
Notification No. 27/2012 – C.E. (N.T.) is being amended so as to provide that time limit for filing application for refund of CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004, in case of export of services, shall be one year from the date of –
a) receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or
b) the date of issue of invoice, where payment for the service has been received in advance prior to the date of issue of the invoice.
21. Indirect tax Dispute Resolution Scheme, 2016
A scheme in respect of cases pending before Commissioner (Appeals) is proposed, wherein the Assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the Assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.
22. Annual Return
A new concept of furnishing of Annual Return is proposed to be introduced in service tax. Such annual return shall be required to be filed in addition to the existing system of Half Yearly returns.
Key features of the proposed Annual return are as under:
(The above amendment in the rules would come into force with effect from the date of enactment of the Finance Bill, 2016.)