CA Ashu Dalmia
1:- INTRODUCTION OF NEGATIVE LIST APPROACH:
A Negative List approach to taxation of services is being introduced vide new sections, namely, 65B, 66B, 66C, 66D, 66E and66F proposed in Chapter V of the Finance Act, 1994 (please refer clause 143 of the Finance Bill, 2012). The services specified in the ‘Negative List’ (section 66D) shall remain outside the tax net. All other services, except those specifically exempted by the exercise of powers under section 93(1) of the Finance Act, 1994, would thus be chargeable to service tax. Negative list approach to taxation of services shall come into effect from a date to be notified, after the Finance Bill, 2012 receives the assent of the President. For operational zing the Negative List approach, a number of changes have been proposed in Chapter V of the Finance Act, 1994. Detailed information regarding these changes is being made available as a Guidance Paper, which will be placed in the public domain. The consequential changes in Service Tax Rules, 1994, Service Tax (Determination of Value)Rules, 2006 and Cenvat Credit Rules, 2004 also form part of this Guidance Paper. Provisions relating to positive list approach, namely, sections 65, 65A, 66, and 66A currently appearing in Chapter V of the Finance Act, 1994, will cease to operate from a date to be notified later, as and when the negative list approach begins to operate. To support the negative list approach to taxation of services, draft Place of Provision of Services Rules, 2012 is being proposed. The draft Place of Provision of Services Rules contains principles on the basis of which taxing jurisdiction of a service can be determined. The Place of Provision of Services Rules, 2012 will be notified after (section 66C) the Finance Bill, 2012 receives the assent of the President. When the Place of Provision of Services Rules comes into effect, existing ‘Export of Services Rules,2005’ and ‘Taxation of Services (Provided from outside India and received in India) Rules, 2006’ will be rescinded.
2:- RATE OF SERVICE TAX (applicable w.e.f. 01.04.2012)
- The rate of service tax is being restored to the statutory rate of 12%.
Notification No. 8/2009-ST dated February 24, 2009.
- Consequent changes have also been made in composition rates as follows:
a) For life insurance:
|Gross Amount of Premium Charged||Rate|
b) Money changing:
|Gross Amount of Currency Exchanged||Rate|
|Upto Rs. 1,00,000||0.12% subject to minimum of Rs. 30|
|For an amount exceeding Rs. 1,00,000 and upto Rs. 10,00,000||Rs. 120 and 0.06%|
|For an amount exceeding Rs. 10,00,000||Rs. 660 and 0.012% subject to maximum of Rs. 6,000|
c) Distributor or selling agent of lotteries:
|Guaranteed Prize Payout||Rate|
|More than 80%||Rs. 7,000/- on every Rs. 10 Lakh (or part of Rs. 10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw|
|Less than 80%||Rs. 11,000/- on every Rs. 10 Lakh (or part of Rs. 10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw|
d) Works contract service:
Rate of tax under Composition Scheme has been changed from 4% to 4.8% plus cess.
e) Transport of passengers embarking in India for domestic and international journey by air :
The dual rate structure of maximum service tax of Rupees 150 and Rupees 750 in case of economy class travel is being replaced by an ad valorem rate of twelve per cent. with abatement of sixty per cent subject to the condition that no credit on inputs and capital goods is taken. Therefore, w.e.f. effective rate of tax on journey by air would be 4.8%, subject to availement of abatement.
3:- CHANGES IN VALUATION RULES
a. Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:-
At present value of goods is allowed to be reduced from Gross Amount Charged If the value of goods is intimated for State VAT purpose. Now it is proposed to allow the benefit even if value is not intimated for VAT purpose, it can be done on the basis of documentary evidence showing value of goods sold under Work Contract.
In case value of goods cannot be determined, gross value for service tax purpose would be:-
a) In case of original work (all new constructions and all types of additions and alterations to abandoned or damaged structures to make them workable):- 40% of total amount,
b) Otherwise:-60% of total amount,
c) For contracts involving construction of complex or building for sale where any part of the consideration is received before the completion of the building: 25% of the total amount
Note-For this purpose the total amount will be gross amount plus the value of any material supplied under the same contract or any other contract.
CENVAT Credit on input services and capital goods will be allowed in all three cases.
b. Determination of value of taxable service involved in supply of food and drinks in a restaurant or as outdoor catering:-
The revised taxable portion shall be as follows:
|Description of service||Taxable portion||CENVAT Credit availability|
|Service portion in the supply of food or any other article of human consumption or drink at a restaurant||40%||Yes|
|S. No.1 provided from a premises elsewhere(outdoor catering)||60%||Yes|
c. Amendment in Rule 3:-
It is proposed to amend Rule 3 of valuation rules to provide that ‘prescribed manner’ in Rule 3 will be applicable only in the cases where valuation is not ascertainable. At present Rule 3 has been inadvertently made applicable to situation where consideration received is not wholly or partly consisting of money, which is fully covered by the Act.
d. Amendment in Rule 6:-
a) Any amount realized as demurrage, or by any other name, for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service will be included in taxable value.
b) Accidental damages due to unforeseen actions not relatable to the provision of service will be excluded from the value of service.
c) Interest on loan has been substituted with (a) Interest on Deposits and ( b) Interest on delayed payments. Interest on loans will now be an exempt income rather than an exclusion from value hence credit reversal will take place in case of interest on loans.
4:- CHANGES IN CENVAT CREDIT RULES
a) Existing rule 5 to be replaced with a new rule to simplify the procedure for refund of unutilized credit on the account of exports;
(b) Credit is being allowed on motor vehicles (except those of heading nos. 8702, 8703, 8704, 8711 and their chassis).
The credit of tax paid on the supply of such vehicles on rent, insurance and repair shall also be allowed;
(c) Credit of insurance and service station service is being allowed to—
(i) insurance companies in respect of motor vehicles insured and re-insured by them; and
(ii) manufacturers in respect of motor vehicles manufactured by them.
(d) At present, credit on goods can be taken only after they are brought to the premises of the service provider. Rule 4(1) and 4(2) are being amended to allow a service provider to take credit of inputs or capital goods whenever the goods are delivered to him, subject to specified conditions.
(e) Rule 7 for input service distributors is being amended to provide that credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit and that the credit of service tax attributable to service used in more than one unit shall be distributed prorata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates.
5:- RETROSPECTIVE CHARGES
a) Rule 6(6A) 0f Cenvat Credit Rules will is being given effect from February 10, 2006. This will neutralize the investigations or demands for reversal of credits in respect of services provided to SEZs for the past.
b) Exemption provided for the setting up of common facilities for treatment and recycling of effluents and solid wastes by Notification 42/2011-ST dated 25th July, 2011 shall be made applicable effective June 16, 2005.
c) Repair of roads has been exempted from service tax by Notification 24/2009-ST dated 27th July, 2009. By virtue of power under section 97, exemption relating to roads is extended for the earlier period commencing from June 16, 2005.
d) Service tax exemption has also been granted with retrospective effect on management, maintenance or repair service in relation to non-commercial Government buildings from 16th June, 2005 till the coming into force of the negative list when such repair will be exempted by the new mega notification.
6:- CHANGES IN POINT OF TAXATION
a) The time period for issuance of invoice is being increased from 14 days to 30 days ordinarily and 45 days for banks and financial institutions.
b) In case of export of services and eight specified services provided by individuals or firms, the point of taxation is the date of payment. The special dispensation is being shifted from the POT Rules to the Service Tax Rules.
c) In case of exporters, the period extended by the Reserve Bank of India is now explicitly included in the period for which the tax is allowed to be deferred.
d) The benefit available to individuals and firms to determine POT on the basis of date of payment for eight specified services is being modified so as to provide the benefit in respect all services in cases where turnover of the unit did not exceed Rs 50 lakh previous F.Y. This benefit will also be available to LLPs.
e) The definition of continuous supply of service is being amended to capture the concept in a more wholesome manner, namely the recurrent nature of services and the obligation for payment periodically or from time-to-time.
f) In case of a new levy, no tax is chargeable on services where payment has been received and invoice issued within a period of 14 days. To provide certainty, clause (b) is being amended to specify that invoice should be issued within 14 days of the date of the new levy.
g) The “date of payment” could be a subject of litigation particularly when effective rate changes. A new rule has been created: Rule 2A, keeping in view the impending change in rate effective April 1, 2012 and introduction of Negative List at a later date. In normal circumstances this date shall be the earlier of the dates of entry into books of accounts or actual credit in the bank account (when applicable). However, when there is change in effective rate of tax or a new levy between the said two dates, the date of payment shall be the date of actual credit in the bank account, if the amount is credited through a banking instrument more than four working days after the date of such change. This will have no impact where invoice is the basis for point of taxation. Thus business may be advised to take steps to deposit all advances received up to March 31, 2012 in their bank accounts suitably. Any delay in this regard will lead to charging tax at higher rate.
h) As a measure of added facilitation, an option has been provided to determine the point of taxation in respect of small advances up to Rs 1000, in excess of the amount indicated in the invoice, on the basis of invoice or completion of service rather than payment. Such provision is expected to address the accounting problems faced by service providers in telecommunications, credit card businesses who regularly receive minor excess payments from their customers. A residual rule has been made by way of best judgment to handle situations where the tax-payer is unable to furnish one or more of the details needed i.e. date of payment or date of invoice or both to determine POT.
7:- CHANGES WITH RESPECT TO SMALL SERVICE PROVIDER (SSI)
a) In extreme situations the small service provider is also being allowed the refund of unutilized Cenvat credit. Suitable changes will be made in Cenvat Credit Rules, to this effect.
b) The small scale exemption has been amended to provide that the first clearances up to Rs 10 lakhs will be in considered on the basis of invoices issued and not merely on payments received. However, this will be effective from 01.04.2012. CG has issued notification no 05/2012-ST dated 17.03.2012 to incorporate above changes. The definition of ‘aggregate value’ as provided in explanation (b) to notification no 06/2005-ST dated 01.03.2005 is amended.
8:- CHANGES WITH RESPECT TO APPEALS
Revision in period of filing of appeal
Appeal to Commissioner (Appeals) -
In case of Both assesses appeal as well as departmental appeal with in the period of 2 months.
Appeal to Appellate Tribunal-
In case of assessee appeal with in the period of 3 months.
In case of Departmental with in the period of 4 months.
Note-Revised period is applicable only for the decisions or orders passed after the date on which Finance Bill, 2012
9:- REVERSE CHARGE PROVISIONS
New term Taxable Territory has been introduced.“Taxable Territory”-Only service provided in the taxable territory will be liable to Service Tax.
Any service provided in the state of j& K will not be liable to Service Tax. Newly introduced Place of Supply Rules, 2012 shall determine whether the Service is being provided in the state of J & K. However, if service is provided from the state of J & K in the taxable territory, in such case the service receiver located in the taxable territory shall be liable to make the payment of service tax.
To give effect to this new reverse charge mechanism, a proviso has been added to the subsection (2) of the section 68.Both the service provider and receiver will be considered as person liable to make the payment of service tax.
The scheme is introduced for three services in case of specified service provider as mentioned in the below table:
|Description of Service||Service Recipient (Body Corporate)||Service Provider (Individual, Firm, LLP)|
|Hiring of Motor vehicles designed to carry passenger|
60%Supply of manpower for any purpose75%25%Works contract service50%50%
10:- CHANGE IN RATE OF TAXABLE PORTION AS PER NOTIFICATION NO 13/2012
|S.No.||Service||Proposed taxable portion||Existing taxable portion||Cenvat credits|
|1||Convention center or mandap with catering||70%||60%||All credits, except on inputs, of chapter 1 to 22, will now be available.|
|2||Pandal or Shamiana with catering||70%||70%|
|3||Coastal shipping||50%||75%||No credits as at
|4||Accommodation in hotel etc.||60%||50%||Credits on input services allowed|
|5||Railways: goods||30%||30%||All credits will be allowed|
|6||Railways: passengers||30%||New levy||All credits will be allowed|
|7||Service portion in the supply of food or any other article of human consumption or drink at a restaurant||40%||30%||All credits, except on inputs, of chapter 1 to 22, will now be available.|
|8||Outdoor catering||60%||50%||All credits, except on inputs, of chapter 1 to 22, will now be available.|
Compiled by :-
Ashu Dalmia & Associates, chartered Accountants
web: www.ada.org.in, Mailemail@example.com