CA Sanjeev Singhal, FCA, DISA

1. Service tax payable by builders – Composition scheme of 25% available to builders done away with?: As per Rule 2A of Service Tax (Determination of Value) Rules, as amended on 17-3-2012 composition scheme of payment of tax @ 25% on value of works contract of construction available to builder, where the total amount charged includes value of land. This rule is amended on 6-6-2012, which is to be effective from 1-7-2012, and provision relating to tax @ 25% of gross value has been deleted. It will be a big blow to builders. Service tax payable on flats will go up considerably.

2. Maintenance or repair contracts inclusive of value of material: So far, there was no specific provision for payment of service tax when the maintenance contracts of goods (like Annual Maintenance Contracts) were inclusive of parts/components used while providing the maintenance/repair service. Such contract is a ‘works contract’ as per revised definition of ‘works contract’ under service tax, hence, as per rule 2A(ii)(B), service tax will be payable on 70% of value of such contract (inclusive of material). This will even include material supplied free of cost by the customer, if any.

3. Outdoor catering contract: As per rule 2C of Valuation Rules (as amended on 6-6-2012) outdoor caterers had to pay service tax at 60% of total amount only when they do not provide any other service (like mandap, shamiana, convention etc.).

4. Interest on loans and deposits is ‘exempt service’: Rule 6(2)(iv) of Valuation Rules has been amended to provide that Value of taxable service does not include Interest on delayed payment of any consideration for the provision of services or sale of property, whether movable or immovable.

Thus, other interest (like interest on loans, deposits, debentures, advances) will not be considered as ‘Nil’ value service and will be treated as ‘exempted service’ for purpose of Cenvat Credit Rules and Rule 6 of Cenvat Credit Rules (of payment of 6% ‘amount’ or proportionate reversal) will apply.

5. Subsidies and grants disbursed by Government is ‘service’ only if it has direct relation with taxable service: Rule 6(2)(vii) of Valuation Rules being inserted w.e.f. 1-7-2012 makes it clear that value of service of subsidies and grants disbursed by Government is Nil if it is not directly affecting the value of service. Thus, such subsidy  will not be considered for purpose of rule 6 of Cenvat Credit Rules. However, if such subsidy and grant is with relation to a specific taxable service, such subsidy or grant will have to be added to value of the taxable service.

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