CA Jitendra Goyal, CA Ashish Garg

PROPOSED AMENDMENTS IN FINANCE ACT, 1994 I.E. IN SERVICE TAX PROVISIONS VIDE FINANCE BILL /UNION BUDGET 2016

Changes applicable w.e.f. 01.03.2016

ParticularsLegal Position prior to Union Budget 2016Legal Position post Union Budget 2016
AMENDMENT IN MEGA EXEMPTION NOTIFICATION
a) Services provided by Indian Institutes of ManagementNo specific provisionThere was certain confusion regarding the taxability of various education programmes conducted by Indian Institute of Management as to whether such programmes qualify as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force.

Therefore, in order to clarify the taxability of various education programmes conducted by IIM inserted a new exemption:

“9B. Services provided by the Indian Institutes of Management, as per the guidelines of the Central Government, to their students, by way of the following educational programmes, except Executive Development Programme, –

(a) two year full time residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management;

(b) fellow programme in Management;

(c) five year integrated programme in Management.

Thus, the above educational programme conducted by IIM shall not be subject to service tax.

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 alterationNo ExemptionLegislature in its Budget of the year 2015 withdrew the exemption to the 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,

(ii) a clinical, or

(iii) an art or cultural establishment; or

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

However many service providers who have entered into an agreement with government for providing aforesaid service were severly affected by this amendment as they had to bear additional burden of service tax.

Therefore, in order to safeguard various service providers, legislature has now provided exemption to the aforesaid services provided under a contract which has been entered prior to 01.03.2015 and on which appropriate stamp duty has been paid.

Further this exemption shall be available only upto 31.03.2020 and if the contracts entered prior to 01.03.2015 were not completed by this date, then they would be liable to pay service tax on services provided w.e.f. 01.04.2020

Services provided under Housing for All (Urban) Mission/ Pradhan Mantri Aawas YojnaNo exemptionHousing for all by 2022 with the main focus on urban poor is a vision of present government of India and in order to achieve that government needs to reduce the burden of tax on construction of houses.

Therefore, in order to achieve its vision, government has exempted the Services provided by way of constructionerection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-

a) a civil structure or any other original works pertaining to the In-situ rehabilitation of existing slum dwellers using land as a resource through private participation ‟under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers.

(b) a civil structure or any other original works pertaining to the Beneficiary led individual house construction/ enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana.

Services by way of construction, erection, commissioning, or installation of original worksServices by way of construction, erection, commissioning, or installation of original works pertaining to,-

(a) railways, including monorail or metro;

(b) a single residential unit otherwise than as a part of a residential complex;

(c)  low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

(d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

(e) mechanised food grain handling system, machinery or equipment for units  processing  agricultural produce as food stuff excluding alcoholic beverages

In the present budget, the legislature has withdrawn the benefit of exemption on services provided by way of construction, erection, commissioning, or installation of original works pertaining to monorail or metro.

However in order to safeguard the interest of various contractors who have entered into an agreement before 01.03.2016 and on which appropriate rate of stamp duty has been paid shall remain exempt. Thus all the contracts which are entered on or after 01.03.2016 shall be subject to service tax.

Further for the purpose of availing exemption pertaining to low cost houses upto a carpet area of 60 sq. mt., government has now specified the following schemes-

(i) the “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana;

(ii) any housing scheme of a State Government

Thus low cost houses other than approved by competent authority under aforesaid scheme shall be subject to service tax.

Services by way of construction, erection, commissioning, or installation of original works to an port or airportNo ExemptionLegislature in its Budget of the year 2015 withdrew the exemption to the services provided by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port.

However many service providers who have entered into an agreement with government for providing aforesaid service were severely affected by this amendment as they had to bear additional burden of service tax.

Therefore, in order to safeguard various service providers, legislature has now provided exemption to the aforesaid services provided under a contract which has been entered prior to 01.03.2015 and on which appropriate stamp duty has been paid. Further the service provider in order to avail the benefit of this exemption shall be required to take the certificate from Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, that the contract had been entered into before the 1st March, 2015:

Further this exemption shall be available only upto 31.03.2020 and if the contracts entered prior to 01.03.2015 were not completed by this date, then they would be liable to pay service tax on services provided w.e.f. 01.04.2020

AMENDMENTS IN POINT OF TAXATION RULES, 2011
Point of Taxation in case of new serviceWhere a service is taxed for the first time, then,—

(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;

(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.

The Point of Taxation Rules did not provide for point of taxation in case of new levy on services. With the introduction of Swachch Bharat Cess, there was confusion regarding applicability of service tax and rate of tax on provision of service. Therefore, in order to clear this confusion and to define point of taxation in case of new levy, amendment was made in Rule 5.

Accordingly, the provisions of rule 5 shall apply in case of new levy on services.

NEW EXEMPTIONS
Exemption to services provided by bio-incubatorsNo such exemptionEarlier the exemption was only provided to services provided by Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP).

However, now the benefit of exemption has been extended to bio-incubators recognized by the Biotechnology Industry Research Assistance Council, under Department of Biotechnology, Government of India.

Exemption on the service of Information technology Software.Service tax on the services of Information Technology Software on media bearing retail sale price is being exempted from Service Tax provided Central Excise duty is paid on retail sale price in accordance with Section 4A of the Central Excise Act.
AMENDMENTS IN CENVAT Credit Rules, 2004
Exempted ServiceTransportation of goods by a vessel from custom station of clearance in India to a place outside India was covered under the definition of exempted serviceAn amendment in definition of exempted service is made so as to exclude the services of transportation of goods by a vessel from custom station of clearance in India to a place outside India out of its ambit.

It is a major relief to shipping industry as they had to incurs huge cost on account of loss of service tax paid on inputs, capital goods and input services.

Utilization of CENVAT CreditPresently CENVAT Credit except NCCD shall not be allowed to utilized for payment of NCCD on goods falling under tariff items 85171210 and 85171290 respectively of the First Schedule of the Central Excise TariffNow, legislature has barred the utilization of CENVAT Credit against the NCCD leviable under Section 136 of the Finance Act, 2001 whereas earlier the restriction on utilization was only on goods falling under tariff items 85171210 and 85171290 respectively.
Utilization of CENVAT Credit for payment of Infrastructure CessNo provisionLegislature has levied a new cess namely “Infrastructure Cess” for development of infrastructure in India. Therefore, in order to collect the cash, they have restricted the utilization of CENVAT Credit for payment of infrastructure cess and hence, every assessee shall be liable to deposit the entire Infrastructure Cess in cash with the department.

Changes applicable w.e.f. 01.04.2016

ParticularsLegal Position prior to Union Budget 2016Legal Position post Union Budget 2016
AMENDMENT IN EXEMPTION PROVIDED BY WAY OF ABATEMENT
a) Transportation of Goods by railAbatement of 70% on transportation of goods by rail by any person i.e. whether provided by Indian Railways or any other person.

 

No CENVAT Credit on inputs, capital goods and input services was available to service providers availing the benefit of abatement on such services.

A distinction has been made between services provided by Indian railways and other than Indian Railways.

Union Budget 2016 has reduced the exemption percentage on transportation of goods services provided by other than Indian Railways. Such other person shall be liable to pay service tax on 40% value of service tax as compared to 30% prior to Budget 2016.

Further CENVAT Credit on input services shall now be available to all the service providers engaged in transportation of goods by rail.

Transportation of passengers in railNo CENVAT Credit on inputs, capital goods and input services was available to service providers availing the benefit of abatement on such services.CENVAT Credit on input services shall now be available to service providers availing the benefit of abatement.
Transportation of Goods by RoadTransportation of all kinds of goods (except those goods specifically excluded by way of exemption notification) were subject to service tax after availing the abatement of 70%Now, the legislature has reduced the percentage of abatement on transportation of used household goods. Abatement on transportation of used household goods has now been reduced from 70% to 60%.

Service providers engaged in provision of transportation of used household goods by road shall now be liable to pay service tax on 40% value of amount charged.

Services provided by Foreman of chit fund in relation to chitNo abatement was available on such servicesAn abatement of 30% has now been granted to services provided by Foreman of chit fund in relation to chit.

Such service providers shall be liable to pay service tax on 70% value of the amount charged towards provision of service.

Further CENVAT Credit on inputs, capital goods or input services shall not be available to the service provider availing the benefit of this abatement.

Transportation of Goods in a vesselNo CENVAT Credit on inputs, capital goods and input services was available to service providers availing the benefit of abatement on such services.CENVAT Credit on input services shall now be available to service providers availing the benefit of abatement.
Tour Operator Services
ParticularsValue of taxable service
Service by tour operator in relation to
(i)  a package tour25%
(ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour10%
(iii) any services other than specified at (i) and (ii) above.40%
ParticularsValue of taxable service
Service by tour operator in relation to
(i) a tour, only for the purpose of arranging or booking accommodation for any person10%
(iii) tours other than (i) above.30%
Construction of residential or commercial complexConstruction of complex, building, civil structure or a part thereof which is intended for a sale to buyer except where entire consideration is received after the issuance of completion certificate shall be subject to service tax as under

ParticularsValue of taxable service
a) for a residential unit satisfying both the following conditions, namely:-

(i) the carpet area of the unit is less than 2000 square feet; and

(ii) the amount charged for the unit is less than rupees one crore;

25%
(b) for other than the (a) above.30%
A flat rate of 30% has been prescribed as value of taxable service on construction of complex, building, civil structure or a part thereof which is intended for a sale to buyer except where entire consideration is received after the issuance of completion certificate.

Residential units having carpet area of less than 2000 square feet and where the amount charged is less than one crore shall attract higher service tax as earlier the taxable value of such service was 25% of the gross amount charged, whereas after the amendments brought out in union budget 2016, such services shall attract service tax on 30% of the gross amount charged.

Renting of motorcabNo provisionAn explanation has been inserted in Notification No. 26/2012-ST so as to clarify that in case of renting of motor cab, the gross amount charged shall include the value of all goods (including fuel) and services supplied by service recipient.

Some cab operators used to charge separately for the fuel etc so as to underrate the value of service. Thus, in order to safeguard the interest of revenue, the above explanation has been introduced.

AMENDMENTS IN MEGA EXEMPTION NOTIFICATION
Legal ServicesServices provided by

(a) an arbitral tribunal to –

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;

(b)  an individual as an advocate or a partnership firm of advocates by way of   legal services to,-

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial  year; or

(c)  a person represented on an arbitral tribunal to an arbitral tribunal.

Services provided by

(a) an arbitral tribunal to –

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to-

(i) an advocate or partnership firm of advocates providing legal services;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.

 

Earlier the services provided by senior advocate to specified person were exempted from payment of service tax. However, now the services provided by senior advocates shall now be exempt only if such services are provided to any person ordinarily not carrying out any activity relating to industry, commerce or any other business or profession.

Furthermore, the services provided by a person represented on an arbitral tribunal to an arbitral tribunal were also exempted from service tax prior to Union Budget, 2016, but now the exemption available on such services has been withdrawn. Thus arbitrator providing services to arbitral tribunal shall been subject to service tax.

Services by way of Assesement under Skill Development Initiative SchemeNo ExemptionExemption has been provided to services provided by assessing bodies in assessment of trainees which are empanelled centrally Directorate General of Training, Ministry of Skill Development and Entrepreneurship under Skill Development Initiative (SDI) Scheme.

Government of India has introduced Skill Development Initiative (SDI) Scheme to provide vocational training to school leavers, existing workers, ITI graduates, etc. to improve their employability by optimally utilizing the infrastructure available in Govt., private institutions and the Industry.

All the trainees are subject to assessment by independent assessing bodies. Such assessing bodies were liable to pay service tax on services provided by them. Therefore a new exemption has been inserted in mega exemption notification so as to exempt the aforesaid services.

Services provided under Deen Dayal Upadhyaya Grameen Kaushalya YojanaNo specific exemptionLegislature has exempted services provided by training providers under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council For Vocational Training

There was no exemption available to these services earlier. Legislature has now exempted these services

Services by an artistServices by an artist by way of a performance in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, if the consideration charged for such performance is not more than one lakh rupees:

Provided that the exemption shall not apply to service provided by such artist as a brand ambassador

Earlier the services provided by an artist by way of performance in folk or classical art forms were exempted if the amount charged for performance such service was not more than one lakh rupees:

However, now this limit has been enhanced from one lakh rupees to one lakh and fifty thousand rupees.

Transport of passengers, with or without accompanied belongings,Transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway exempted from payment of service taxFinance Budget 2016 has withdrawn the exemption available on transportation of passengers by ropeway, cable car or aerial tramway. These services shall now be subject to service tax
Services of general insurance business provided under Nirmaya Health Insurance SchemeNo exemptionLegislature has exempted the services of general insurance provided under Nirmaya Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999

This scheme covers the people suffering with with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities. The people suffering with aforesaid illness doesnot have easy access to health insurance schemes. Therefore, in order to improve the general health condition & quality of life of people with development disability, legislature has exempted the general insurance services provided under Nirmaya Health Insurance Scheme

Services of life insurance business provided by way of annuity under the National Pension SystemNo exemptionA new exemption has been provided to services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013).

National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens.

New ExemptionsNo exemptionLegislature has granted following exemptions in its   Union Budget 2016:-

a) Services provided by EPFO to the persons governed under the Employees Provident Funds and Miscellaneous Provisions Act, 1952

b) Services provided by IRDA to the insurers under the Insurance Regulatory and Development Authority of India Act, 1999

c) Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market

d) Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination

Exemption to services provided by bio-incubatorsNo such exemptionEarlier the exemption was only provided to services provided by Technology Business Incubator (TBI) or a Science and Technology Entrepreneurship Park (STEP)

However, now the benefit of exemption has been extended to bio-incubators recognized by the Biotechnology Industry Research Assistance Council, under Department of Biotechnology, Government of India

Amendments in Finance Act, 1994
Support Services provided by GovernmentLegislature in the Union Budget 2015 brought all the services provided by the government to business entities under the service tax net.

However this amendment was not made effective

Legislature has appointed 01.04.2016 as the date for bringing this notification into effect and with this all the services received by the business entities from the government shall be liable to service tax.
AMENDMENTS IN REVERSE CHARGE MECHANISM
Any service provided by the government to business entitiesPresently only support services provided by the government to business entities were covered under the reverse charge mechanism, Legislature in the Union Budget 2015 brought all the services provided by the government to business entities under reverse charge mechanism.

 

However this amendment was not made effective

Legislature has appointed 01.04.2016 as the date for bringing this notification into effect and with this all the business entities receiving services from the government shall be liable to pay service tax under Reverse Charge Mechanism.

Further consequential amendment in the definition of person liable to pay service tax in service tax rules has also been made effective from 01.04.2016

Services provided by Mutual Fund agents or distributorsServices provided by Mutual Fund agents or distributors to mutual funds or asset management company were covered under Reverse Charge Mechanism.

The mutual funds or asset management company were liable to service tax under reverse charges on the services received from Mutual Fund agents or distributors

This provision has been deleted. Hence, now the Mutual Fund agents or distributors shall be liable to discharge their service tax liability on the services provided by them.

The mutual funds or asset management company have been relieved from the payment of service tax under Reverse Charge mechanism.

Services provided by Senior AdvocatesServices provided by all the advocates were covered under Reverse Charge mechanism and any business entity (having turnover of more than Rs. 10 lakhs) availing services from advocates or firm of advocates shall be liable to discharge service tax under Reverse Charge.Distinction has been made between senior advocates and other advocates. Now the services provided by senior advocates shall not be covered under Reverse Charge mechanism and such senior advocates shall be liable to pay service tax under Reverse Charge mechanism.
Services provided by selling or marketing agents of lottery ticketsLottery distributor or selling agents are liable to pay service tax under Reverse Charge mechanism on services received by them from selling or marketing agent of lottery ticketsA clarificatory amendment has been made to cover all the services provided by the selling or marketing agent of lottery tickets to lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 are covered under Reverse Charge.
AMENDMENTS IN SERVICE TAX RULES, 1994
Person liable to pay service taxIn the case of services provided by senior advocates and mutual funds or asset management company, the liability to pay service tax was casted on the recipient of service.Services provided by senior advocates and mutual funds or asset management company have been excluded from the reverse charge mechanism and hence, the definition of person liable to pay service tax was amended.
Payment of Service TaxOne person company were liable to pay service tax to the credit of Central Government by 5th or 6th of the month as the case may be immediately following the calendar month in which service is providedNow the one person company has been brought on the same footing with an individual or proprietary firm or partnership firm.

Now the one person company whose turnover in previous year is rupees fifty lakhs or less shall be liable to discharge their service tax liability by 5th or 6th as the case may be of the month as the case may be immediately following the quarter in which service is provided.

Further an option has been granted to one person company whose turnover in previous year is rupees fifty lakhs or less to discharge their service tax liability on receipt basis rather than discharging service tax liability on the basis of Point of Taxation Rules.

Special rate of tax on single premium annuity policiesNo specific rate was defined for single premium annuity policiesA reduced rate of 1.4% of the single premium charged from the policy holder has been provided to insurers in case of single premium annuity policies.
Annual Return of service taxNo such provisionA new concept of annual return of service tax has been introduced by the legislature. Now all the assessee who are liable to file their service tax return shall be liable to file annual return by 30th November of the succeeding financial year in the prescribed form.

This is a welcome step as it has been seen that many assessee are unable to revise their return after the period of 90 days. Therefore, in order to rectify their return, they had no option. Now with this annual return, the assessees can now file annual return with all the corrections and true data.

Further power has been granted to the Central Government to exempt specified class of person from filing the annual return as referred above.

Revision of Annual Return of Service TaxNo provisionA period of one month has been granted for revision of annual return and such one month shall be calculated from the date of submission of the original annual return
Penalty for late filing of Annual ReturnNo provisionA penalty of Rs. 100 per day for the period of delay in filing of such return, subject to a maximum of twenty thousand rupees has been specified so as to ensure the compliance of this provision
AMENDMENTS IN CENVAT CREDIT RULES, 2004
Capital Goodsa) Wagons covered under sub heading 860692 was not covered under the definition of capital goods

b) Equipments or appliances used in an office were excluded from the definition of capital goods

c) Further the capital goods used in pumping of water were excluded from the definition of capital goods

In this budget, legislature has enlarged the scope of capital goods and extended the benefit of CENVAT Credit on capital goods on following

a) Wagons covered under sub heading 860692

b) Equipments or appliances used in an office

c) Capital goods used in pumping of water

All the aforesaid shall now be eligible as Capital Goods and all the assessee shall be ne entitle to avail the benefit of CENVAT Credit.

InputFollowing goods were not covered under the definition of inputs

a) Goods used in pumping of water

b) Capital Goods which have a value upto Rs. 10,000/- per piece

The definition of input service has been enlarged to cover the goods used in pumping of water.

Further in order to reduce the burden of documentation, legislature has covered the capital goods having a value upto Rs. 10,000/- per piece under the definition of input. Now the assessee can avail full CENVAT Credit of such capital goods immediately on receipt of goods in their factory.

Input service distributorInput service distributor could not distribute the credit of service tax paid on input services to outsourced manufacturing unit.Input service distributors were not allowed to distribute the credit of service tax on invoices received by them to the outsourced manufacturing unit and now they can adjust the same against their output tax liability.

It has now been provided that an Input Service Distributor shall distribute CENVAT credit in respect of Service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to the conditions specified therein

CENVAT Credit on jigs, fixtures, moulds, dies or tools falling under Chapter 82 of the First Schedule to the CETACENVAT Credit was not available on tools falling under Chapter 82 of the First Schedule to the CETA when it was intended to be used by another manufacturer or job worker for the production of goods on the behalf of manufacturer.

Further earlier the manufacturer had to first bring the goods in its own premises in order to avail the benefit of CENVAT Credit

Manufacturer of final products is being allowed to take CENVAT credit on tools of Chapter 82 of the CETA, when the same was 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.

Further a relaxation has been provided to the manufacturer from bringing the jigs, fixtures, moulds, dies or tools in its own premises before sending the same to such other manufacturer or job-worker.

Permission to manufacturer to send inputs or partially processed inputs outside his factoryEarlier the permission given by Assistant Commissioner or Deputy Commissioner to the manufacturer to send inputs or partially processed inputs outside his factory to job worker was valid for one financial year.However, now the time limit of one year has been extended to three financial years meaning thereby the manufacturer does not have to seek permission every year.
Utilization of CENVAT Credit of service tax paid by way of assignment of the right to use any natural resourcesNo provisionLegislature has levied service tax on assignment by the government or any other person of the right to use natural resources.

Since, the benefit of the rights is spread across number of years, legislature has spread the benefit of availment of CENVAT Credit over the period of time for which the right to use has been assigned.

Further where a person further assigns such to any other person for consideration, than it shall be entitle to avail the benefit of CENVAT Credit equivalent to tax payable on such consideration

However, where the annual or monthly user charges are payable in respect of assignment of the right to use natural resources.

Availment of CENVAT CreditWhere a manufacturer or producer of final products and a provider of output service is engaged in manufacture of dutiable goods and exempted goods or provider of output services and exempted services, then it shall be entitle to avail CENVAT Credit as under:

a) No CENVAT Credit shall be allowed in respect of inputs and input services exclusively used in relation to manufacture of exempted goods or provision of output service

b) A service provider of output service or manufacture of final goods shall take CENVAT credit of inputs and input services used for manufacture of dutiable goods or provision of output service provided it maintains separate accounts for receipt, consumption and inventory of input and input services

 

c) However where it is not possible to maintain separate accounts, then a manufacturer or provider of output service shall have following option:-

i) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services; or

ii) avail proportionate CENVAT Credit

iii) maintain separate accounts for inputs and avail proportionate CENVAT credit on input services

The manufacturers or provider of output service were facing difficulties in availing CENVAT credit as where it is not possible to maintain separate accounts, they had to forego proportionate CENVAT credit for even input and input services used exclusively in manufacture of final goods and provider of output service.

Union Budget 2016 has made following amendments:-

a) No CENVAT Credit shall be allowed in respect of inputs and input services exclusively used in relation to manufacture of exempted goods or provision of output service

b) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services; or

c) i) Avail full CENVAT credit on input or input services used exclusively for manufacture of dutiable goods or provision of output service; and

ii) Reverse CENVAT Credit on input or input services used exclusively for manufacture of exempted goods or provision of exempted service; and

iii) Avail proportionate CENVAT credit on common input and input services.

No provisionWhere a person failed to exercise the option of availment of CENVAT credit, the jurisdictional central excise officer may allow such manufacturer or provider of output service to follow the procedure and such person shall be allowed to avail the benefit of this option and such person shall pay the amount along with interest at the rate of 15% p.a.
CENVAT Credit for Banking Company and a financial institution including a non-banking financial companyBanking Company and a financial institution including a non-banking financial company were entitle to avail the 50% of the CENVAT credit availed on inputs and input services in that monthBanking Company and a financial institution including a non-banking financial company now in addition to availment of 50% CENVAT Credit also has following options to avail CENVAT Credit:

a) No CENVAT Credit shall be allowed in respect of inputs and input services exclusively used in relation to manufacture of exempted goods or provision of output service

b) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services; or

c) i) Avail full CENVAT credit on input or input services used exclusively for manufacture of dutiable goods or provision of output service; and

ii) Reverse CENVAT Credit on input or input services used exclusively for manufacture of exempted goods or provision of exempted service; and

iii) Avail proportionate CENVAT Credit on common input and input services.

CENVAT Credit on capital goods used exclusively in the manufacture of exempted goods or in providing exempted servicesNo provisionLegislature has allowed the benefit of CENVAT Credit on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services. However such CENVAT Credit shall be available after the period of two years from the date of commencement of the commercial production or provision of service.
Distribution of credit on inputs by warehouse of manufacturerNo such provisionA manufacturer of dutiable goods having one or more factories shall be eligible to distribute CENVAT credit from warehouse of the said manufacturer under the cover of invoice issued by such warehouse
Annual Return of CENVAT CreditNo provisionA manufacturer of final products or provider of output service shall be liable to file annual return by 30th November of the succeeding financial year in the prescribed form.

Changes applicable from the date of enactment of Finance Act, 2016

Particulars Position prior to Union Budget 2016Position post Union Budget 2016
AMENDMENTS IN MEGA EXEMPTION NOTIFICATION
Amendment in definitionEarlier the definitions were given in Finance Act, 1994. However in this budget, the same were proposed to be deleted from the Finance Act, 1994The following terms were earlier defined in the Finance Act, 1994, however legislature had no intention to bring the following activities under the service tax net, therefore the following terms were inserted in the mega exemption notification.

a) “approved vocational education course” means, –

(i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or

(ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training, run by a person registered with the Directorate General of Training, Ministry of Skill Development and Entrepreneurship.

b) “educational institution” means an institution providing services by way of: (i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force; (iii) education as a part of an approved vocational education course.

Definition of Senior AdvocateNot definedLegislature has brought the services provided by senior advocate to person other than carrying on business activities under the ambit of service tax. Therefore, there was a need to define the term “senior advocate”.

According the said definition, “Senior advocate‟ has the meaning assigned to it in section 16 of the Advocates Act, 1961.

Rate of Interest on late payment of service tax
Rate of InterestDelay in payment of service tax
18%Delay upto 6 months
24%More than six months and upto one Year
30%More than One Year
Now, the legislature has substantially reduced the interest on late payment of service tax. However legislature has specified higher rate of interest for person who collect service tax where service tax is not leviable.

 

ParticularsRate of Interest
Collection of any amount as Service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due.24%
Other than in situations covered specified above.15%
AMENDMENTS IN FINANCE ACT, 1994
Declared list of serviceNo provisionLegislature has covered the services of assignment by the government of right to use the radio frequency spectrum and subsequent transfers thereof under Declared list of services.
Amendments in Section 73Presently department can issue show cause notice within a period of 18 months if the  service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded provided there was no intention to evade payment of service tax.Now this limitation period of 18 months has been increased to 30 months and now department can issue show cause notice within 30 months for recovery of service tax not been levied or paid or has been short-levied or short-paid or erroneously refunded
Rate of interest on late payment of service taxNo provisionLegislature in order to penalize the person who collects service tax without authority has inserted a proviso in section 75 of the act. With the insertion of this proviso, central government has been empowered to specify different rate of interest for persons who collect any amount as service tax.
Penalty for offenses by director etc. of the companyNo such provisionIt has been provided that where the proceedings are concluded in case where the person has discharged its entire service tax liability along with interest and penalty within 30 days from the date of service of notice, then the proceedings pending against any person shall also be deemed to be concluded.
Offences and PenaltiesProsecution provisions are applicable where the default in payment of service tax or CENVAT credit exceeds Rs. 50 lakhsThe limit of Rs. 50 lakhs has been enhanced to Rs. 200 lakhs meaning thereby the prosecution proceedings shall be initiated where the offence exceeds Rs. 200 lakhs.
Cognizable offencesLegislature has made certain offences non cognizableThe provision of non cognizable offence has been deleted.
Power to arrestPrinciple Commissioner of Central Excise or Commissioner of Central Excise has the power to arrest a person where such person committed any fraud specified in section 89(1) of the actThe power to arrest has been restricted only in the cases where a person has collected any amount as service tax but failed to pay the same beyond the period of six months from the date on which such payment becomes due.
Retrospective ExemptionNo provisionLegislature has granted a retrospective exemption w.e.f. 01.07.2012 to 29.01.2014 in respect of taxable services of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal dam or other irrigational work provided to an authority or a board or any other body setup by an act of parliament or state legislature or government with 90% or more participation to carry out functions entrusted to municipality.

Further refund shall be made in cases where service tax has been collected which would not have been so collected had this provision been in force. However, such person shall file refund within 6 months from the date of enactment of finance act.

Retrospective ExemptionNo provisionLegislature has granted a retrospective exemption w.e.f. 01.04.2015 to 29.02.2016 in respect of taxable services of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a civil structure predominantly meant for non commercial purpose or for use as educational or clinical or art or cultural establishment. Further exemption has also been provided for aforesaid period to services provided in connection with residential complex predominantly meant for self use or for the use of their employees or other specified person.

However the benefit of this exemption shall be available only to those person who have entered into a contract before 01.03.2015 and appropriate stamp duty has been paid.

Further refund shall be made in cases where service tax has been collected which would not have been so collected had this provision been in force. However, such person shall file refund within 6 months from the date of enactment of finance act.

Retrospective ExemptionNo provisionLegislature has granted a retrospective exemption w.e.f. 01.04.2015 to 29.02.2016 in respect of taxable services of construction, erection, commissioning or installation, of original work pertaining to port or airport.

However the benefit of this exemption shall be available only to those person who have entered into a contract before 01.03.2015 and appropriate stamp duty has been paid.

Further refund shall be made in cases where service tax has been collected which would not have been so collected had this provision been in force. However, such person shall file refund within 6 months from the date of enactment of finance act.

Changes applicable w.e.f. 01.06.2016

Particulars Position prior to Union Budget 2016Position post Union Budget 2016
NEGATIVE LIST OF SERVICES
Services provided by way of transportation of passengers by stage carriageSuch services were covered under Negative List of services, hence no service tax was leviable on such servicesLegislature has deleted the services provided by stage carriage from the negative list of services, thereby bringing such services under the net of service tax.

The services provided by stage carriage by way of transportation of passengers shall be subject to service tax.

AMENDMENT IN EXEMPTION PROVIDED BY WAY OF ABATEMENT
Transportation of passengers in stage carriageNo ProvisionLegislature has brought the services of transportation of passengers by stage carriage under the service tax net by deleting the same from negative list of services.

However the benefit of exemption of 60% of the amount charged has been extended to such services i.e. now the services providers provided services of transportation of passengers by stage carriage shall be liable to pay service tax on 40% value of the service.

Services provided by an aircraft or a vessel from a place outside India upto the customs station of clearance in IndiaSuch services were covered under the negative list of services and no service tax was payable on such servicesThis entry has been deleted from the negative list of services making such services liable to service tax.

However, legislature has granted an exemption to services provided by an aircraft from a place outside India upto the customs station of clearance in India.

AMENDMENTS IN MEGA EXEMPTION NOTIFICATION
Transportation of passengers in non air conditioned stage carriageNo provisionLegislature has exempted the services provided by way of transportation of passengers in a non air conditioned stage carriage.

Services provided by air conditioned stage carriage shall be subject to service tax, however they are entitle to avail the benefit of abatement as stated in above discussion.

Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in IndiaThese services were covered under Negative list of services.

 

 

 

 

 

 

 

 

The services by way of transportation of goods by an aircraft and vessel from a place outside India upto the customs station of clearance in India were earlier covered under negative list of services.

This entry has been deleted from negative list of service. Consequent to this deletion, a new entry has been inserted in the Mega Exemption Notification so as to exempt the services provided by way of transportation of goods by an aircraft.

However, the services provided by way of transportation of goods by a vessel would be liable to service tax. Further reverse charge mechanism shall be applicable on such services.

IMPOSITION OF KRISHI KALYAN CESS
Krishi Kalyan CessNo provisionIn order to improve agriculture sector, Krishi Kalyan Cess of 0.50% has been imposed in addition to service tax and other cess on the value of taxable service. All the provision of Chapter V of the Finance Act, 1994 shall be applicable in relation to levy and collection of Krishi Kalyan Cess
THE INDIRECT TAX DISPUTE RESOLUTION SCHEME 2016

In order to reduce litigation and speedy recovery of service tax, The Indirect Tax Dispute Resolution Scheme 2016 has been introduced. All the appeals pending before the Commissioner (Appeals) as on 01.03.2016 under the Central Excise Act, 1944 or the Customs Act, 1962 or the Finance Act, 1994 are eligible for settlement under this Scheme.

However, certain specified cases have been excluded from availing the benefit of this scheme. Further, proceedings against the eligible assessees shall stands concluded if they discharge the disputed tax liability along with interest and penalty equal to 25% of the penalty imposed under the impugned order. The central government shall notify the form and procedure in which the application for availing the benefit of this scheme can be made.

Ashish Garg+ Jitendra GoyalDisclaimer: The information provided in this document is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.

(Prepared by: A R A J & Associates, CHARTERED ACCOUNTANTS, 247-248, Vardhman Mall, Road No. 43,  Pitampura, New Delhi-110034, Ph: 011-45564490, 9811440509 , Email id: mail@arajassociates.com, arajassociates@yahoo.com)

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  • CW

    Thanks for this !!

    There is a mention at top – “Changes applicable w.e.f. 01.03.2016”

    Is it confirmed as my developer said it is 1st June 2016 onwards.

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