CA Kamlesh Singh Chauhan

CA Kamlesh Singh ChauhanPrevailing Service Tax Rate: @14% Cenvat Available

Swachchh Bharat Cess: @ 0.5% [w.e.f. 15/11/2015]- Cenvat Not Available

Krishi Kalyan Cess: @ 0.5% [w.e.f. 01/06/2016] New Levy- Cenvat Available

1. CHANGES IN NEGATIVE LIST AS GIVEN U/S 66D OF CHAPTER-V OF FINANCE ACT, 1994

A. ENTRY RELATED TO EDUCATIONAL SERVICES PROPOSED TO BE REMOVED FROM NEGATIVE LIST

i. Presently, clause (I) of section 66D of the Act [Negative List] covers specified educational services. These services are proposed to be omitted from the Negative List.

ii. But the service tax exemption on them is being continued by incorporating them in the general exemption notification (Notification No. 25/2012-ST as amended by notification No. 09/2016-ST, dated 01.03.2016);

iii. Consequently, the definition of “approved vocational education course” [clause (11) of section 65B] is also proposed to be omitted from the Finance Act and is being incorporated in the general exemption notification (Notification No. 25/2012-ST as amended by notification No 09/2016- ST, dated 01.03.2016). This amendment in the notification shall come into effect from the date of enactment of Finance Bill, 2016.

B. ENTRY RELATED TO “SERVICE OF TRANSPORTATION OF PASSENGERS” PROPOSED TO BE REMOVED FROM NEGATIVE LIST;

i. The Negative List entry that covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o) (i)] with effect from 01.06.2016.

ii. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification [Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 01.03.2016]

iii. Therefore, Service Tax will be levied on transportation of passengers by air conditioned stage carriage with effect from 01.06.2016, at the same level of abatement as applicable to the transportation of passengers by a contract carriage that is 60% without credit of inputs, input services and capital goods.

iv. As per Existing provision, Service of Transportation of passengers, with or without accompanied belongings, by a stage carriage is covered under the negative list, hence not liable to service tax. Consequently cenvat for the same are also not available.

c. ENTRIES RELATED WITH “SERVICE OF TRANSPORTATION OF GOODS” OF NEGATIVE LIST PROPOSED TO BE AMENDED;

i. The entry in the Negative List that 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 [section 66D (p) (ii)] is proposed to be omitted with effect from 01.06.2016.

ii. However such services by an aircraft will continue to be exempted by way of exemption notification [NN 25/2012-ST, as amended by NN. 09/2016-ST dated 01.03.2016].

iii. Therefore, Service Tax will be levied on provided services provided by a vessel by way of transportation of goods from outside India up to the customs station in India with effect from 01.06.2016.

iv. 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 fulfilment of the other existing conditions).

v. 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.

vi. Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of “exempted service”. This would allow shipping lines to take credit on inputs and input services used in providing the said service. [Amendment in rule 2, clause (e) refers]

vii. As per Existing provision, Service of Transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance in India is covered under the negative list, hence not liable to service tax. Consequently cenvat for the same are also not available.

EXEMPTED SERVICES CLARIFIED:

i. Export of service under Rule 6A of Service Tax Rules, 1994 has excluded the Service by way of transportation of goods by vessel from custom station of clearance in India to place outside India.

ii. The exclusion of outward transportation of goods by vessel from exempted services would enable the shipping lines to avail CENVAT credit of input services. The same is vital since the service of inward transportation of goods by shipping lines has been made taxable by excluding the same from negative list.

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

i. 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].

ii. 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.

iii. 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 Rules and Section 65B(49) of the Finance Act containing definition of the term ‘support services’ is also proposed to be deleted.

iv. 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, 2016 except

(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.

v. 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 of the Governmental services covered under the Service tax net.

vi. 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.

2. CHANGES IN DECLARED LIST AS GIVEN U/S 66E OF CHAPTER V OF FINANCE ACT, 1994

A. INSERTION OF NEW ENTRY IN DECLARED LIST

i. New Entry “J” Inserted as a Declared Service (Applicable w.e.f. the enactment of Finance Bill’ 2016)

ii. Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that 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.

iii. As per the existing provisions, the same was taxable but the same was not covered in the list of declared services. Now it is being covered in the list of declared services to remove all controversies.

3. UNIFORM RATE OF INTEREST FOR DELAYED PAYMENT OF TAX

Section 73 amended: Interest rates on delayed payment of tax is proposed to be made uniform at 15% (earlier 18% in some cases), except in case of service tax collected but not deposited with the Central Government, where the rate of interest will be 24% (earlier as per the slab) from the date on which the service tax payment became due. [NN 13/2016-ST and NN 14/2016-ST dated 01/03/2016]

Date of Effect – From the date of enactment of Finance Bill, 2016

Interest rates under Service Tax at various point of time are as hereunder;

Sr. No.PeriodRate of Interest
1.Till 11.05.20011.5% per month
2.11.05.2001 to 11.05.200224% per annum
3.11.05.2002 to 10.09.200415% per annum
4.From 10.09.2004 to 31.03.201113% per annum
5.From 01.04.201118% per annum
6.From 01.10.2014 to date of enactment of Finance Bill, 2016• Upto 6 months of delay……… 18% p.a.

• Delay more than 6 months and upto 12 months.…. 24% p.a.

• Delay more than a year……..30% p.a

7.From date of enactment of Finance Bill, 2016 onward@15% per annum

4. AMENDMENTS IN REVERSE CHARGE MECHANISM

I. MUTUAL FUND AGENTS SERVICE IS NO LONGER UNDER REVERSE CHARGE

Services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under direct charge mechanism, i.e. the service provider is being made liable to pay service tax.

The small sub-agents down the distribution chain will still be eligible for small service provider exemption [threshold turnover of Rs 10 lakh/year] and a very small number will be liable to pay service tax. Earlier the same was taxable under reverse charge mechanism.

Date of Effect Immediate effect i.e. from 01 April 2016

II. LEGAL SERVICE PROVIDED BY SENIOR ADVOCATE IS NO LONGER UNDER REVERSE CHARGE

From 01/04/2016 onwards, the amendment in Notification No. 30/2012 (Reverse Charge….removed) is that legal service provided by senior advocate to:-

(i) Advocates or firm of advocates

(ii) Business entity,

will be chargeable to service tax on forward basis, i.e. service tax will be charged by senior advocates to the above persons. Other services provided by senior advocates are exempted by entry 6 of Notification Number 25/2012-ST.

Now, ‘senior advocates’ are liable to pay service tax under direct charge mechanism as service providers since payment of service tax by a service receiver under reverse charge mechanism is no longer applicable.

On the other hand, legal service provided by a firm of advocates or an advocate (other than senior advocate) is continued to be taxable under reverse charge mechanism.

Date of Effect Effective from 01 April 2016

5. AMENDMENT IN MEGA EXEMPTION NOTIFICATION NO. 25/2012-ST DATED 20.06.2012

A. Withdrawal of existing entries from exemption notification number 25/2012-ST

I. Exemption on services provided by,-

i. a senior advocate to an advocate or partnership firm of advocates providing legal service; and

ii. a person represented on an arbitral tribunal to an arbitral tribunal,

is being withdrawn with effect from 01.04.2016 Refer Entry No. 6 [substituted]

and Service Tax is being levied under forward charge.

Presently the same are covered under the exemption notification, hence the same are not liable to service tax.

II. Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from 01.04.2016. Refer Entry No. 23(c) [withdrawn]

Presently, the same are covered under the exemption notification, hence the same are not liable to service tax.

III. Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 01.03.2016, is being withdrawn with effect from 01.03.2016. Refer Entry No. 14(a) [partially withdrawn]

Presently the same are covered under the exemption notification, hence the same are not liable to service tax.

B. New entries in Mega Exemption Notification

S.No.Particulars
1Services by way of construction etc. in respect of-

i. housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY);

ii. low cost houses up to a carpet area of 60 square meters in a housing project under “Affordable housing in Partnership” component of PMAY;

iii. low cost houses up to a carpet area of 60 square meters in a housing project under any housing scheme of the State Government; Refer new Entry 14(ca)

are being exempted from Service Tax with effect from 01.03.2016.

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @5.6%.

2The service of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India is being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 26C

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 3.5%.

3Services provided by Employees’ Provident Fund Organisation (EPFO) to employees are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 49

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

4Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 50

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

5The regulatory services provided by Securities and Exchange Board of India (SEBI) are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 51

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

6The 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 in collaboration with private/public insurance companies are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 26(q)

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

7Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer’s Welfare, Government of India, by way of knowledge dissemination are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 52

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

8Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubates are being exempted from Service Tax with effect from 01.04.2016.

Earlier the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

9Services provided by way of skill/vocational training by training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 9D

Earlier the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

10Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from Service Tax with effect from 01.04.2016. Refer new Entry 9C

Earlier the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

11The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from Rs 1 lakh to Rs 1.5 lakh charged per event with effect from 01.04.2016. Entry 16 amended
12Exemptions on services of:

(a) Construction provided to the Government, a local authority or a governmental authority, in respect of construction of govt. schools, hospitals etc.

(b) construction of ports, airports, are being restored in respect of services provided under contracts which had been entered into prior to 01.03.2015 on payment of applicable stamp duty, with retrospective effect from 01.04.2015. Refer new Entry 12A

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 5.6%.

13Services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature, during the period from the 1st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment. Refer new Entry 14A

Presently, the same are not covered under the exemption notification, hence the same are liable to service tax @ 5.6%.

14Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programme in Management (PGPM) (other than executive development programme), Integrated Programme in Management and Fellowship Programme in Management (FPM) are being exempted from Service Tax with effect from 01.03.2016. Refer new Entry 9B

Earlier the same are not covered under the exemption notification, hence the same are liable to service tax @ 14%.

ENABLING PROVISIONS FOR CONSEQUENTIAL REFUNDS

FOR THE PERIOD……….01/04/2015 TO 29/02/2016

Section 101. (1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of July, 2012 and ending with the 29th day of January, 2014 (both days inclusive) in respect of taxable services provided to an authority or a board or any other body––

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by the Government,

with ninety per cent. or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

Section 102. (1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of taxable services provided to the Government, a local authority or a Governmental authority, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of––

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession;

(b) a structure meant predominantly for use as––

(i) an educational establishment;

(ii) a clinical establishment; or

(iii) an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or for the use of their employees or other persons specified in Explanation 1 to clause (44) of section 65B of the said Act,

under a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all the material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

Section 103. (1) Notwithstanding anything contained in section 66B, no service tax shall be levied or collected during the period commencing from the 1st day of April, 2015 and ending with the 29th day of February, 2016 (both days inclusive), in respect of services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport or port, under a contract which had been entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that date, subject to the condition that Ministry of Civil Aviation or, as the case may be, the Ministry of Shipping in the Government of India certifies that the contract had been entered into before the 1st day of March, 2015.

(2) Refund shall be made of all such service tax which has been collected but which would not have been so collected had sub-section (1) been in force at all material times.

(3) Notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.”.

6. AMENDMENTS IN ABATEMENT NOTIFICATION NUMBER 27/2012-ST) All changes are effective from 01/04/2016

S.No.PARTICULARS
1Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%. Refer Entry 3

Presently service tax payable on 30% of the value of transport of passengers by rail without the credit of input service. The proposed amendment will come into effect from 01.04.2016.

2Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%. Refer Entry 2A

Presently service tax payable on 30% of the value of transport of goods, other than in containers, by rail without the credit of input service. The proposed amendment will come into effect from 01.04.2016.

3Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%. Refer Entry 2

Presently service tax payable on 30% of the value of transport of goods in containers by rail without the credit of input service. The proposed amendment will come into effect from 01.04.2016.

4Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%. Refer Entry 10

Presently service tax payable on 30% of the value of transport of goods by vessel without the credit of input service. The proposed amendment will come into effect from 01.04.2016.

5The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70% by merging the two existing rates (70% for high end flats and 75% for low end flats) hence the taxable portion will be 30%. Refer Entry 12

The proposed amendment will come into effect from 01.04.2016.

6The abatement rate in respect of services by a tour operator in relation to packaged tour (defined where tour operator provides to the service recipient transportation, accommodation, food etc) and other than packaged tour is being rationalized at 70%, hence the taxable portion will be 30%. Refer Entry 11 & 11(i)

Presently service tax payable on 25% and 40% of the value of tour operator in relation to packaged tour. The proposed amendment will come into effect from 01.04.2016.

7Abatement on transport of used household goods by a Goods Transport Agency (GTA) is being rationalised at the rate of 60% without availment of cenvat credit on inputs, input services and capital goods by the service provider. Refer Entry 7A

Existing rate of abatement of 70% allowed on transport of other goods by GTA continues unchanged. The proposed amendment will come into effect from 01.04.2016.

8The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods. Refer Entry 8

Presently, services of a foreman to a chit fund, is liable to service tax without any abatement. The proposed amendment will come into effect from 01.04.2016.

Insertion of Explanation ‘BA’ after paragraph B: At present, there is abatement of 60% on the gross value of renting of motor-cab services, provided no Cenvat credit has been taken. It is being made clear by way of inserting an explanation that cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement.

7. Important changes in STR & CCR w.e.f. 01.04.2016

I. Changes in Service Tax Rules Vide Notification Number 19/2016-ST dated March 1, 2016

Relevant RuleParticulars
Rule 2Legal services provided by a senior advocate shall be on forward charge[Rule 2(1)(d)(i)(D)(II)]

Services provided by mutual fund agents/distributor to a mutual fund or asset management company put under forward charge [Rule 2(1)(d)(EEA)]

Liability to pay Service tax on any service provided by Government or local authorities to business entities shall be on the service recipient under reverse charge [Rule 2(1)(d)(i)(E) read with Notification No. 17/2016 – ST dated March 1, 2016]

Rule 6Rule 6(1): Following benefits presently available to individual or proprietary firm or partnership firm, are being extended to One Person Company (OPC) whose aggregate value of taxable services provided from one or more premises is up to Rs. 50 lakhs in the previous financial year:

• Quarterly payment of Service tax and

• Payment of Service tax on receipt basis

Further, the benefit of quarterly payment of Service tax is also being extended to HUF.

Rule 6(7A): The Service tax liability on single premium annuity (insurance) policies is being rationalised and the effective alternate Service tax rate (composition rate) is being prescribed at 1.4% of the total premium charged, in cases where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service

Rule 7Annual Return:

• Service tax assessees above a certain threshold limit shall also submit an annual return for the financial year, in such form and manner as may be specified by the CBEC, by the 30thday of November of the succeeding financial year.

II. Changes in Cenvat Credit Rules, 2004 (“the Credit Rules”) vide NN 13/2016-Central Excise (N.T) dated March 1, 2016

Relevant RuleParticulars
Rule 2(a)Definition of ‘capital goods’:

• Wagons of Sub Heading 8606 92 of the CETA and equipment and appliance used in an office located within a factory are being included in the definition of capital goods;

• Cenvat credit on inputs and capital goods used for pumping of water, for captive use in the factory, is being allowed even where such capital goods are installed outside the factory.

Rule 2(e)Definition of ‘exempted service’:

• Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of “exempted service”. This would allow domestic shipping lines to take credit on inputs and input services used in providing the said services.

Rule 2(k)Definition of ‘inputs’

All capital goods having value up to Rs. 10,000 per piece are being included in the definition of inputs. This would allow an assessee to take whole credit on such capital goods in the same year in which they are received.

Rule 4Rule 4(5)(b): Manufacturer of final products is being allowed to take Cenvat credit on tools of Chapter 82 of the CETA in addition to credit on jigs, fixtures, moulds & dies, when intended to be used in the premises of job-worker or another manufacturer, who manufactures the goods as per specification of manufacturer of final products. It is also being provided that a manufacturer can send these goods directly to such other manufacturer or job-worker without bringing the same to his premises;

Rule 4(6): The validity of permission given by an Assistant Commissioner or Deputy Commissioner to a manufacturer of the final products for sending inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty is extended from a financial year to 3 financial years;

Rule 4(7):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.

Rule 6Revamp 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 :

Option 1 The assessee can pay an amount equal to 6% of value of the exempted goods and 7% of value of the exempted services. This amount will be capped at a maximum of the total credit taken with the assessee at the end of the period to which the payment relates;

Option 2 Pay an amount as determined under Rule 6(3A) Formula. Cenvat credit on common inputs/input services is to be identified and the same is to be apportioned based on the exempted/dutiable turnover as only proportionate Cenvat credit on common inputs/input services will be allowed;

• No Cenvat credit will be allowed on inputs/input services used exclusively in the manufacture of exempted goods / services;

• Full credit is allowed on the inputs/input services used exclusively in the manufacture of dutiable goods / taxable service;

• 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;

ü Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing Credit Rules

No Cenvat credit on capital goods used for the manufacture of exempted goods or provision of exempted service for 2 years from the date of commencement of commercial production/date of installation or provision of service.

Ø Explanation 3 to substituted Rule 6(1) of the Credit Rules provides that for the purpose of Rule 6 of the Credit Rules, ‘exempted services’ as defined in Rule 2(e) of the Credit Rules shall include an activity, which is not a ‘service’ as defined in Section 65B(44) of the Finance Act.

Rule 7Distribution of Cenvat credit by Input Service Distributor (“ISD”)

• Credit can be distributed to outsourced manufacturing unit – Outsourced manufacturing unit means job-worker paying duty under 10A of Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000 or contract manufacturer paying under Section 4A of the Central Excise Act, 1944;

• Credit common to more than one unit to be distributed to respective unit;

• Credit common to all units to be distributed to all the units;

• Credit on services with ISD upto March 31, 2016 not to be distributed to outsourced manufacturing unit

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 9AAnnual 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.

8. TIME LIMIT FOR RECOVERY OF SERVICE TAX INCREASED

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. is proposed to be enhanced by one year, that is, from eighteen months to thirty months by making suitable changes in the Bill

Analysis: After the proposed amendment, the supremacy of the department would be enhanced as department can ask for the records of the assessee, required for recovering the impugned service tax, within thirty months from the relevant date

Date of Effect – From the date of enactment of Finance Bill, 2016

9. CLARIFICATION PROVIDED – THE POINT OF TAXATION RULES (POTR)

Addition of two explanations are proposed in Rule 5 of POTR i.e.

Explanation 1.- This rule shall apply mutatis mutandis in case of new levy on services

Explanation 2.- New levy or tax shall be payable on all the cases other than specified above

Analysis: This is a much needed clarification that was required from the department and has been finally provided in the Bill. The genesis of the confusion was the introduction of the Swachh Bharat Cess that was levied under Rule 5. As per the bare reading, the applicability of rule 5 comes into existence when the service is taxed for the first time. Thus, in order to place Swachh Bharat cess and Krishi Kalyan Cess under rule 5, the said explanation has been added

Date of Effect – 01 April 2016

10. DISPUTE RESOLUTION SCHEME

Finance Bill, 2016 has attempted to bridge the issues faced by the assessee at the level of Commissioner (Appeals) through ‘Indirect Tax Dispute Resolution Scheme, 2016’.

The scheme shall provide as under:

The scheme shall come into force with effect from June 01, 2016. Assessees who have filed an appeal with Commissioner (Appeals) till March 01, 2016 are required to make a declaration till December 31, 2016. Such declaration is required to be made to Commissioner (Appeals)

Application can only be made in disputes relating to Central Excise Act, 1944, Customs Act, 1962 or Chapter V of 25 Finance Act, 1994he Commissioner (Appeals) shall issue an acknowledgement for such declaration. The assessee is required to pay tax, interest and 25% of penalty mentioned in impugned order within 15 days of the receipt of acknowledgment and shall disclose payment to Commissioner (Appeals) within 7 days of making payment. The Commissioner Appeals, within 15 days of receipt of the proof of payment, shall pass the Order disposing the appeal.

The scheme shall not apply in the following cases:

i. Search & seizure proceedings have been initiated

ii. Assessee is charged for a prosecution of a punishable offence instituted before June 01, 2016

iii. Subject goods are narcotic drugs or any other prohibited goods

iv. Order is in respect of an offence under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the Prevention of Corruption Act, 1988

v. Detention order under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974 has been passed

Following issues merit consideration:

i. The order passed under this scheme shall not be deemed to be an ‘order-on-merits’

ii. It will have no binding effect on other disputes on similar subject matters except the one on which it stands disposed,

iii. Assessees shall have immunity from all the proceedings under this act.

iv. On the basis of declaration made by assessee, the order would be issued, which shall become conclusive. No matter relating to the impugned order shall be reopened thereafter in any proceedings under the Act before any authority or court.

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