The changes brought about by the Union budget can be classified under three broad heads:-
- General changes
- Changes effecting provisions under current regime
- Changes effecting provisions under new regime (involving negative list)
A. GENERAL CHANGES
I. Change of rate: –
Notification No. 2/2012 –The rate of service tax has been changed w.e.f 01-04-2012. The Notification No. 8/2009 which had earlier provided for exemption of 2% in the rate of tax has now been withdrawn. The rate change shal be effective from 1st April 2012.
II. Changes in the Rules and procedures:
As provided in Notification No. 3/2012
- Partnership includes LLP. Now, the provisions related to Partnership firms shall also be applicable to LLP.
- The 14 Days time limit for issuing invoice increased to 30 days from the date of provision of service.
- The 14 Days time limit for issuing invoice increased to 45 days in case of banking company / financial institutions .
- In case of continuous supply of services, 14 days time limit increased to 30 days of the completion of each taxable event.
- No invoice is required to be issued in case of the amount received by service provider from service receiver is in excess of amount mentioned in the invoice by Rs. 1000/-.
- In case of individual / partnership firms (including LLPs) whose aggregate value from one or more premises is 50 lakhs or less in previous financial year , the service provider may pay tax on receipt basis upto 50 lakhs taxable value. Beyond 50 lakhs, service tax will have to be paid on the mercantile basis on the basis of issue of invoice.
- In case of adjustment of service tax amount on account of interpretation, taxability, classification, valuation or exemption now there is no monetary limit, also there is no requirement of intimation to jurisdictional Superintendent.
- In case of life insurer tax may be paid as under (a) 3 % in first year (b) 1.5 % in subsequent year [ earlier it was 1.5 % for all the year]
III. Not. 04/2012- Point of taxation Rules amended
- In case of new levy, no tax is chargeable on services for which invoice issued and payment received within 14 days of date of new levy.
- Normally, date of payment shall be earlier of the date when the payment is entered in the books or credited to bank account. However, in case of new levy or change of rate of service tax, the date of payment shall be taken to be the date when the payment is actually credited in the bank statement of the aseessee if it is later than four days from the date of new levy. By this budget, the rate of service tax shall change to 12.36% w.e.f 1st April 2012. Hence, any advances received upto 04th April 2012 shall be taxed at 10.3% whereas amounts credited beyond that date shall be taxed at the rate of 12.36%.
- Please also note that now the change in the rate of tax shall also mean change in the abatement value. Hence, even in such cases, four days time limit has to be kept in mind.
- In case of new levy, if the invoice issued and payment received before the date of levy- no tax. Also, in case payment received before the date of levy but invoice issued within 14 days of the date of levy- no tax.
- In case service recipient has been made taxable, the point of taxation is the date of payment.
IV. Not. 05/2012- – Small scale provider Exemption (Not No. 06/2005) fine tuned.
Earlier there was dictionary between the two phrases used in the notification.
- For the current turnover, the phrase was “aggregate value not exceeding four lakhs rupees” this was defined to mean aggregate consecutive payments.
- For the previous year the phrase was “aggregate value of taxable services” – this was generally understood to mean billed value of taxable services and not receipt. Also there was confusion whether the turnover which was exempt under notification had to be considered for this limit.
Now they have sorted out the difference in terminology defining aggregate value, in both cases, as sum total of taxable services charged in consecutive invoice not including value of services exempt under other notifications.
V. Special Audit introduced under section 72A. The Commissioner has to have reason to believe that there is no declaration of service, incorrect valuation, wrong availment, utlisation of credit, multiple locations and it is not possible or practicable to obtain a complete and true picture of his accounts. Opportunity of being heard shall be given to the auditee.
VI. The ‘normal’ (not involving fraud, collusion etc) time period for issuance of notice u/s 73 has been extended by six months.
VII. In case a notice has been issued on a particular issue earlier, then for subsequent years, for the same issue, the department needs to just issue a statement containing the demand of service tax.
VIII. No penalty to be paid if service tax on renting of immovable property is paid with interest within 6 months from enactment of bill.
IX. Time limit for filing appeal reduced from 3 months to 2 months.
X. No service tax in respect of management, maintenance or repair of roads for the period from 16-06-2005 to 26-07-2009. Hence, this activity was never taxable. Refund will be granted.
XI. No service tax in respect of management, maintenance or repair of non-commercial government buildings w.e.f 16-06-2005 to date of enactment of bill. Refund will be granted.
B. CHANGES EFFECTING PROVISIONS UNDER CURRENT REGIME – These are the changes which amend the position of service tax in respect of all those services which form part of the statute. As soon as the bill is enacted by the Parliament, the negative list shall come into force and these provisions and the corresponding changes shall cease to operate. In their place, the new provisions shall come into being.
I. Notification No. 6/2012- The abatement provided to aircraft operator service has been revised to be flat 60% without differentiating between domestic and international journey.
II. Works Contract Scheme amended – Notification No. 10/2012
Service Tax Composition Rate increased from 4 % to 4.8 % w.e.f 1st April 2012.
C. CHANGES EFFECTING PROVISIONS UNDER NEW REGIME (INVOLVING NEGATIVE LIST)
These are the provisions which do not come into effect at once. They shall be in the statute book but shall come into force when Bill is enacted and a notification is issued to bring the new provision into existence.
The following Notifications are relevant for the service tax provisions in the new regime:-
12/2012- NEGATIVE LIST
15/2012- REVERSE CHARGE MECHANISM
- 11/2012 – VALUATION RULES SHALL BE AMENDED AS UNDER:-
Rule 2A substituted– As pert this new sub-rule, the valuation of works contract shall be determined as under. Please note that the current provisions of Works Contract Composition scheme shall cease to exist. The value shall be adopted by sequentially following the under mentioned steps. As per the language used, it seems that there is no option available with the assessee. He has to follow these steps.
Case-I:- Default case
Valuation of services involved in the execution of works contract
- value shall be gross amount charged for the works contract less value of transfer of property in goods.
- Value shall not include vat
- Shall include / exclude certain declared inclusions/exclusions.
- Value of material to be deducted shall be as declared to vat department.
Case-II: Where value has not been determined under cause (1)
(A)value shall be 40 % of the total amount charged in case of original works (original works mean new constructions and addition and alteration to abandoned or damaged structure). If land value included in total amount charged than value shall be 25 % of total amount charged
(B) in case of other work contracts:- value shall be 60 % of the total amount charged.
In both the above cases, the total amount charged shall include cost of material supplied free of cost. The credit of excise duty paid on inputs shall not be available. However, credit of excise duty paid on capital goods and service tax paid on input services shall be available. It shall be available in case I as well as Case II.
Rule 2 C inserted
Valuation of service included in supply of food and drinks in a restaurant / outdoor catering.
- Restaurant – value shall be 40 % ; abatement 60%
- Outdoor catering – value shall be 60 % ; abatement 40 %
- 13/2012- Abatement’s provided (w.e.f date when section 66B is notified)
|Tax rate||Abatement rate|
|Financial leasing||10 %||90%|
|Transport goods by rail||30 %||70%|
|Supply of food in hotel||70%||30%|
|Transport of passenger by air||40%||60%|
|Renting of hotel||60%||40%|
|Transport of goods by road||25%||75%|
|Chit fund services||70%||30%|
|Renting of motor vehicle||40%||60%|
|Transport of goods in Transport of goods in a vessel from one port in India to another||
|Package tour operator||25%||75%|
|Tour operator only accommodation service||10%||90%|
|Other tour or services||40%||60%|
15/2012- REVERSE CHANGE MECHANISM
In the following services, the government has provided for payment of service tax on reverse charge mechanism.
- Insurance services by insurance agent to Insurance company
- Transport of goods by road.
- Sponsorship services to company / partnership
- Service provided by arbitral tribunal
- Service provided by an individual advocate
- Support service provided by government to business entity in taxable territory
- Renting / hiring of motor vehicle by ind./ partnership to company.
- Supply of man power by ind./ partnership to company.
- Works contract by ind./ partnership to company.
- Service provided by any person located in non taxable territory to person in taxable territory
The service tax has to be paid on the basis of following percentages:-
|Case||Service provider||Service recipient|
|Insurance services by insurance agent to Insurance company||NIL||100%|
|Transport of goods by road to specified persons||NIL||100%|
|Sponsorship services to company / partnership||NIL||100%|
|Service provided by arbitral tribunal to any business entity||NIL||100%|
|Service provided by an individual advocate to any business entity||NIL||100%|
|Support service provided by government to business entity in taxable territory||NIL||100%|
|Renting / hiring of motor vehicle by ind./ partnership to company. – IF ABATEMENT AVAILED (60%)||NIL||100%|
|Renting / hiring of motor vehicle by ind./ partnership to company. – IF ABATEMENT NOT AVAILED||60%||40%|
|Supply of man power by ind./ partnership to company.||25%||75%|
|Works contract by ind./ partnership to company.||50%||50%|
|Service provided by any person located in non taxable territory to person in taxable territory||NIL||100%|
Note: Please note that the above notification specifies the extent to which the service tax is to be paid by the service recipient. In this regard, please note that the basic exemption limit of Rs. 10 lakhs shall be available to the service provider but it shall not be available to the service recipient. Hence, in all the cases, where the service tax is to be paid by the service recipient, there is no basic exemption and the service tax shall have to be paid irrespective of the turnover. A very harsh provision indeed.
Note 2: In case service recipient has been made taxable, the point of taxation is the date of payment.
DISCUSSION ON NEGATIVE LIST:
The definition of service provided by the Finance At, 1994 in itself is a “negative definition” in as much as it includes every activity excluding the activities specifically mentioned therein. The exclusions are:-
- Transfer of title in goods/ property by way of sale, gift or in other manner. (governed by Transfer of Property Act, 1885).
- Transaction in money or actionable claim.
- Service by employee to employer
- Court Fees
- Service provided by MPS, MLAs, member of panchayat, municipalities etc.
- Service in pursuance to constitutional duties.
- Government Corporations
Once it is made certain that it is service, then we have to apply the test of negative list given in section 66C of the Act.
The main points in negative list are as under:-
- Service by Dept of posts covered under service tax.
- Services provided for transport of goods or passengers covered
- Support services provided by Govt. to business entities covered
- Service tax provided by foreign diplomatic mission not covered
- Agricultural operations, supply of farm labour not covered.
- Renting of vacant land or agro machinery not covered
- Loading, unloading, storage warehousing of agricultural products not covered.
- Trading of goods not covered.
- Selling of space or time slots for advertisement other than radio or television not covered.
- Toll charges not covered.
- Betting, gaming or lottery not covered.
- Pre-school education, education for degree and vocational education not covered.
- Renting of residential dwelling not covered.
- Interest or discount not covered
- Transport of goods from place outside India to customs port in India not covered.
If a particular activity is not excluded by the negative list, then we have to apply the test as to whether it is exempted by the general exemption Notification No. 12/2012. The ‘main’ exempted services are as under:-
1. Health care services by a clinical establishment, an authorised medical practitioner or para-medics; veterinary clinic
2. Charitable activities by an entity registered under section 12AA of the Income tax Act.
“charitable activities” means activities relating to -
(a) public health by way of -
(I) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or preventive health, family planning or prevention of HIV infection;
(b) advancement of religion;
(c) advancement of educational programmes or skill development relating to,-
abandoned, orphaned or homeless children; physically or mentally abused and traumatized persons; prisoners; persons over the age of 65 years residing in a rural area;
(d) preservation of environment including watershed, forests and wildlife; or
(e) advancement of any other object of general public utility up to a value of twenty five lakh rupees in a financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year.
3. Services by a person by way of-
(a) renting of precincts of a religious place meant for general public; or
(b) conduct of any religious ceremony;
4. Services provided to any person other than a business entity by –
(a) an individual as an advocate; or
(b) a person represented on and as arbitral tribunals;
5. Technical testing or analysis by way of of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India;
6. Services by way of training or coaching in recreational activities relating to arts, culture or sports;
7. Services provided-
(a) mid – day meals scheme of any educational institution.
(b) transportation of students or staff;
(c) admission services of educational institution
8. Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of –
(a) a civil structure for a non-industrial or non-commercial use;
(b) a historical monument, archaeological site etc
(c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;
(d) canal, dam or other irrigation works;
(e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or
(f) a residential complex predominantly meant for self-use or the use of their employees or MPs , MLAs etc
9. Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,-
(a) road, bridge, tunnel, or terminal for road transportation
(b) building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) for religious use by general public (Please note that in respect of services other than erection, construction etc., the entity needs to be registered under section 12AA for charitable activity. However, for erection, construction activity, the scope is limited- it has to be registered for religious use. Hence, construction services not exempt for hospitals, educational institution.)
(c) pollution control or effluent treatment plant, except located as a part of a factory; or (d) electric crematorium;
10. Services by way of erection or construction of original works pertaining to,-
(a) airport, port or railways;
(b) single residential unit otherwise as a part of a residential complex; (The concept of minimum 12 residential units is gone now).
(c) low- cost housing
(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or mechanised food grain handling system,
11. Temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, artistic works or cinematograph films
12. Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent;
13. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and which has a licence to serve alcoholic beverages;
14. Services provided by a goods transport agency by way of transportation of
(a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage;
(b) gross consignment charge equal to or below one thousand five hundred rupees
(c) single consignment charge equal to or below seven hundred fifty;
15. Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;
16. Services provided to the Government or a local authority by way of –
(a) repair of a ship, boat or vessel;
(b) effluents and sewerage treatment;
(c) waste collection or disposal;
(d) storage, treatment or testing of water for drinking purposes; or
(e) transport of water by pipeline or conduit for drinking purposes;
17. Services by the following persons in respective capacities –
(a) a sub-broker or an authorised person to a stock broker;
(b) an authorised person to a member of a commodity exchange;
(c) a mutual fund agent or distributor to mutual fund or asset management company for distribution or marketing of mutual fund;
(d) a selling or marketing agent of lottery tickets to a distributer or a selling agent;
(e) a selling agent or a distributer of SIM cards or recharge coupon vouchers; or
(f) a business facilitator or a business correspondent to a banking company or an insurance company in a rural area;
18. Services by an organiser to any person in respect of a business exhibition held outside India;
19. Services received from a service provider located in a non- taxable territory by –
(a) the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or
(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities.