Before discussing Notification No. 7/2014 –Service Tax dated 11-07-2014 came in response to Budget Speech of Shri Arun Jaitley, finance minster under Prime minister ship of Shri Narendra Modiiji. I would like to bring to your attention previous position for exemption from Service Tax/Refund of tax paid by Special Economic Zones – Developers/Units.
Central Board of Excise and Customs, Ministry of Finance has rescinded Notification No. 40/2012-ST dated 20th June 2012 and introduced new Notification No. 12/2013-ST dated 01-07-2013.
1. As per this Notification where the specified services received by the SEZ unit or the Developer are used exclusively for the authorized operations, the person liable to pay service tax has the option not to pay the service tax ab-initio, subject to certain conditions and procedures as stated in my earlier article titled – “Amendment in Exemption from Service Tax/Refund of Tax Paid by SEZ –Developers/Units” published in www.taxguru.in website on 25-07-2013. However certain important points I am bringing here,
a) The SEZ Unit or the Developer shall get an approval by The Approval Committee of the list of the services as are required for the authorized operations (referred to as the specified services) on which the SEZ Unit or Developer wish to claim exemption from service tax.
b) The SEZ Unit or the Developer shall furnish a declaration in Form A-1, verified by the Specified Officer of the SEZ, along with the list of specified services in terms of abovementioned condition a) ;
c) On the basis of declaration made in Form A-1, an authorization shall be issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be to the SEZ unit or the Developer in Form A-2;
d) The SEZ Unit or the Developer shall provide a copy of said authorization to the provider of specified services. On the basis of the said authorization, the service provider shall provide the specified services to the SEZ unit or the Developer without payment of service tax;
e) The SEZ Unit or the Developer shall furnish to the jurisdictional Superintendent of Central Excise a quarterly statement, in Form A-3, furnishing the details of specified services received by it without payment of service tax;
f) The SEZ Unit or the Developer shall furnish an undertaking, in Form A-1, that in case the specified services on which exemption has been claimed are not exclusively used for authorized operation or were found not to have been used exclusively for authorized operation, it shall pay to the government an amount that is claimed by way of exemption from service tax along with interest as applicable on delayed payment of service tax under the provisions of the said Act read with the rules made there under.
- The refund of service tax on i) the specified services that are not exclusively used for authorized operation, or ii) the specified services on which ab-initio exemption is admissible but not claimed, shall be allowed subject to the certain procedures and conditions as mentioned by me in my earlier article. However I am bringing to your notice following important conditions:
a) The SEZ Unit or the Developer who is registered as an assessee under the Central Excise Act, 1944 (1of 1944) or the rules made there under, or the said Service Tax Act, 1994 or the rules made there under, shall file the claim for refund to the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be, in Form A-4.
b) The amount indicated in the invoice, bill or, as the case may be, challan, on the basis of which this refund is being claimed, including the service tax payable thereon shall have been paid to the person liable to pay the service tax thereon, or as the case may be, the amount of service tax payable under reverse charge shall have been paid under the provisions of the said Act.
c) The claim for refund shall be filed within one year from the end of the month in which actual payment of service tax was made by such Developer or SEZ unit to the registered service provider or such extended period as the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, shall permit.
d) The SEZ unit or the Developer shall submit only one claim of refund under this notification for every quarter:
3 i) The service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in domestic tariff area [DTA unit(s)] shall be distributed amongst the SEZ Unit or the Developer and the DTA unit(s) in the manner as prescribed in Rule 7 of the Cenvat Credit Rules. For the purpose of distribution, the turnover of the SEZ Unit or the Developer shall be taken as the turnover of authorized operation during the relevant period.
ii) After distribution of service tax paid on the specified services that are common to the authorized operation in an SEZ and the operation in DTA units as mentioned in ‘3 i)’, SEZ Unit or the Developer can claim refund relating to SEZ as per procedures and conditions mentioned in point no 2..
iii) After distribution mentioned in ‘3 i)’ DTA units can claim CENVAT credit as per CENVAT credit Rules, 2004.
Please refer my detailed comments and other important points relating to this notification in my earlier article.
As per new notification no 15/2013- Service tax dated 21st November, 2013,
The SEZ Unit or the Developer shall furnish to the jurisdictional Superintendent of Central Excise a quarterly statement in Form A-3, furnishing the details of specified services received by it without payment of service tax by 30th of the month following the particular quarter.
My comments: Now as per this notification when the SEZ Unit or the Developer has to file a quarterly statement in Form A-3 i.e. time limit of filing a quarterly statement in Form A-3 is specified, which previously was not specified in earlier Notification No. 12/2013-ST dated 01-07-13.
Everyone was having great expectation from the interim budget of new finance minister Shri Arun Jaitley as he has delivered budget in a very short duration from coming into the power that too under the prime minster ship of iron man Shri Narendra Modiji to see whether direction of the budget will take us to “Acche din ayenge” or not as promised by Modiji during election campaign.
As per Notification No. 7/2014- Service tax following are important points i.e. followings are amendment to Notification No. 12/2013-Service Tax, dated the 1St July 2013:
i) A) On the basis of declaration made in Form A-1, an authorization shall be issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be to the SEZ unit or the Developer in Form A-2. Previously no time limit was prescribed for issuing form A-2 by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise. Now as per this notification Form A-2 has to be issued by the jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise within fifteen working days from the date of submission of Form A-1.
My Comments: Hence now government has made Deputy Commissioner of Central Excise or Assistant Commissioner of central Excise accountable by specifying the time limit of issuing form A-2 i.e. in simpler terms hardship of the SEZ unit/Developer will reduce.
B) The authorization in Form A-2 shall be valid from the date of verification of Form A-1 by the Specified Officer of The SEZ;
Provided that if Form A-1 is not submitted by the SEZ Unit or the Developer to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise having jurisdiction, as the case may be, within fifteen days of its verification by the Specified Officer of the SEZ, the authorization shall be valid from the date on which it is submitted.
My Comments: Hence if the SEZ Unit or Developer submits A-1 form to the Assistant Commissioner of central Excise or Deputy Commissioner of Central Excise having jurisdiction, within fifteen days of its verification by the Specified officer of the SEZ, the authorization shall be valid from the date of verification of Form A-1 by the Specified officer of the SEZ. Therefore if the SEZ Unit or the Developer submits form A-1 after fifteen days then as the delay in submitting the same is from the SEZ unit or the Developer and not from the department side hence the authorization shall be valid from the date on which A-1 form is submitted.
C) The SEZ Unit or the Developer shall provide a copy of the said authorization to the provider of specified services, where such provider is the person liable to pay service tax and on the basis of the said authorization, the service provider may provide specified services to the SEZ Unit or the Developer without payment of service tax:
My Comments: The SEZ Unit or the Developer shall provide a copy of the said authorization to the provider of specified services, where service tax is payable by the service provider i.e. not the case in which service tax is payable by the service receiver under reverse charge mechanism, then the service provider based on the said authorization shall provide specified services to the SEZ Unit or the Developer without payment of service tax.
Provided that pending issuance of said authorization, the provider of specified services may, on the basis of Form A-1, provide such specified services, without payment of service tax, and the SEZ Unit or the Developer shall provide a copy of authorization to the service provider immediately on receipt of such authorization:
My Comments: If the said authorization in form A-2 is not issued then also the provider of specified service may on the basis of Form A-1, provide such specified services, without payment of service tax only based on the condition that the SEZ Unit or The Developer shall provide a copy of authorization in form A-2 immediately on receipt of the said authorization to the service provider.
Provided further that if the SEZ Unit or the Developer does not provide a copy of the said authorization to the provider of specified services within a period of three months from the date when such specified services were deemed to have been provided in terms of the Point of Taxation Rules, 2011, the service provider shall pay service tax on specified services so provided in terms of the first proviso.
My Comments: The service provider has to pay service tax if the SEZ Unit or the Developer does not provide a copy of the said authorization to the provider of service tax within a period of three months from the date when such specified services were deemed to have been provided in terms of the Point of Taxation Rules, 2011. Here in my view as now within fifteen working days Form A-2 has to be issued by the jurisdictional Deputy Commissioner of Central excise or Assistant Commissioner of Central Excise, therefore if the SEZ Unit or the Developer does not give the said authorization within three months then fault will be of the SEZ Unit or The Developer provided department will adhere to the timelines fixed by the said notification.
iii) a) In Form A-2, in item B, in the table, for sub-heading of column (4), under sub-heading Service Tax Registration no. of the service provider has to be mentioned. But if specified service is covered under full reverse charge then Service Tax Registration No. column is not applicable.
b) In Form A-2, after item B, now the following item shall be inserted,
“C: The authorization is valid with effect from …………
Here date is to be captured as per point i) B).
iv) in Form A-3, in the TABLE, for column heading of column 4) Service tax registration no. of service provider has to be mentioned but if specified service is covered under full reverse charge then Service tax registration no. is not applicable.
I also wanted to touch upon one killer provisions introduced in this budget;
Changes in Interest rates in late payment of service tax as per Notification No. 12/2014 –Service Tax dated 11-07-2014 w.e.f 01st day of October 2014.
| Period of Delay | Rate of Simple Interest |
| Up to Six months | 18 percent |
| More than six months and up to one year | 18 percent for first six months of delay and 24 percent for the delay beyond six months |
| More than one year | 18 percent for first six months of delay, 24 percent for the delay beyond six months and up to one year and 30 per cent for any delay beyond one year |
Conclusion: As per this budget on one hand as per Notification No. 7/2014-Service Tax dated 11th July 2014, by inserting time limit of fifteen working days under which Form A-2 has to be issued by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise,, government wants to make officers of Service tax department accountable hence one can rightly conclude that “Acche din ayenge” because by imposition time limit on the department cases of corruption can be reduced.
But on another hand as per Notification No. 12/2014- Service Tax dated 11-07-2014 w.e.f. 1st day of October, 2014, by imposing slab wise interest rate which can go as high as 30 percent beyond one year, government has crossed all the limits of tolerance as credit card companies are also not charging such high interest rates hence one can say that for businessmen “Acche din ayenge” as promised by Modiji is doubtful.
However one has to not lose hope but best thing is to keep faith in the Government because at least it is visible that this government as per this interim budget wants to perform and therefore they have given most importance to infrastructure development & achieving higher growth by bringing inflation to lower level, lesser fiscal deficit and managing current account deficit.
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