Service Tax Changes in Union Budget 2014-15

Dr. Sanjiv Agarwal

Union Budget 2014-15 (Main)

Full Budget for 2014-15 was presented in the Parliament on 10^th July, 2014 by the new Union Government wherein it has been said that Government’s objective is to prepare the indirect tax regime for smooth transition to Goods and Service Tax and keeping this in mind, amendments have been minimal. The twin objectives of indirect tax proposals are to widen tax base and enhance compliance.

To broaden the tax base, negative list and exemptions have been pruned to the extent possible. The negative list has been reviewed and Service Tax currently leviable on sale of space or time for advertisements in broadcast media has been extended to cover such sales on other segments like online and mobile advertising (except in print media). Tax on services provided by radio-taxies has been levied to bring them on par with rent-a-cab services. Certain exemptions have been withdrawn including those on services by air-conditioned contract carriage and technical testing of newly developed drugs on human participants. Some exemptions have been expanded and few new exemptions announced as well as rationalized including those in education, agriculture, transportation and insurance sectors. Interest on delayed payment of tax has been made more stringent by enhancing rate of interest upto 30 percent if delay is more than one year. Valuation rules in respect of works contracts have been rationalized. Services by directors to body corporates and services of recovery agents have been included in reverse charge. In case of serious offences, waiver of penalty shall not be allowed under section 80.

Pre-deposit requirements for filing appeals have been made mandatory vide new section 35F in Central Excise Act, 1944 and as made applicable to Service Tax. Some changes have also been brought in Cenvat Credit Rules, Place of Provision of Services Rules, valuation rules, advance ruling provisions etc.

On GST it has been stated that the question of whether to introduce Goods and Service Tax (GST) should be introduced or not must now come to an end. It is hoped that Government would be able to find a solution to issues of surrendering tax jurisdiction by states and compensation so that a solution is found in the course of year itself and legislative scheme is introduced which enable the introduction of GST. The budget states that this will streamline the tax administration, avoid harassment of business and result in higher revenue collection, both for the centre and the states. The aim has been to prepare the indirect tax regime for a smooth transition to goods and service tax.

Highlights of Finance Act, 2014 (July 2014) and other Amendments in FY 2014-15 (Relating to Service Tax)

• India has the second fastest growing service sector in the world with a compound annual growth rate at 9 percent.
• Contribution of Services in GDP composition over 60 percent.
• GDP growth in 2013-14 @ 4.7 percent; expected to be 5.4 percent in 2014-15.
• Tax- GDP ratio expected to be 10.5 percent in FY 2014-15.
• No changes in service tax rate.
• Hints at time line for GST and legislative changes in December 2014 and GST expected in 2015-16.
• Budget estimate for Service tax collections for year 2014-15 at Rs. 2,15,973 crore.
• E-payment of service tax made mandatory for all assessees from the 1st October 2014. Relaxation permitted with discretion by the Deputy Commissioner/Asst. Commissioner on case to case basis.
• Resident Private Limited Company has been included as a class of persons eligible to make an application for Advance Ruling in Service tax.
• Taxable services provided by the Employees State Insurance Corporation (ESIC) set up under the Employees State Insurance Act, 1948 exempted from service tax retrospectively for the period prior to July 1, 2012
• Place of Provision of Service Rules amended so as to reduce tax incidence on transport of goods through coastal vessels to promote Indian shipping industry.
• The Point of Taxation for reverse charge will be the payment date or the first day that occurs immediately after a period of 3 months from the date of invoice, whichever is earlier.
• Rate of interest increased upto 30 percent w.e.f 01.10.2014 based on period of delay.
• Mandatory fixed pre-deposit of 7.5% and 10% of the duty demanded or penalty imposed or both, for filing appeal before the Commissioner (Appeals) and appeal before Tribunal respectively. It would also mean that, no stay application would have to be filed henceforth.
• Ceiling for mandatory pre-deposit fixed at 10 crore rupees.
• To broaden the tax base in service tax, sale of space or time for advertisements in broadcast media, namely radio or television, extended to cover such sales on other segments like online and mobile advertising.
• Exemption to air-conditioned contract carriages like buses withdrawn.
• Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India exempted.
• Abatement in respect of transport of goods by vessel increased from 50% to 60%.
• Renting of motor vehicle – service recipient and service provider, both to pay 50% each under reverse charge (change w.e.f 01.10.2014)
• Under works contract services, value of service portion in repair, maintenance or reconditioning or restoration or servicing activities increased from 60% to 70%.
• The definition of intermediary amended to include the intermediary of goods in its scope.
• Cenvat Credit shall be taken within six months from the date of the invoice or challans or other documents specified (change w.e.f 01.09.2014)
• Cenvat credit allowable when Service tax paid under full reverse charge without waiting for the payment of invoice value to the service provider.
• Service tax paid by sub-contractor in the same line of business would be allowed as eligible credit to the main service provider to avoid double taxation, subject to certain conditions (change w.e.f 01.10.2014)
• Section 80 benefit not to be applicable for serious offences.