Amendments In Service Tax Through Finance Bill 2016

(Applicable from the date on the enactment of Finance Bill’ 2016)

SOME DEFINITIONS AMENDED

1. In the definition of the term “Service”, sub-clause (ii)(a) of “Explanation 2” is proposed to be amended to clarify that activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998, is leviable to service tax. Section 4(c) of the Lotteries (Regulation) Act, 1998 provides that the State Government shall sell the tickets either itself or through distributors or selling agents. Thus, as per the provisions of the Lotteries (Regulation) Act, 1998, the transaction between the State Government and the distributors or selling agents is on principal to agent basis. Any contract contrary to the aforesaid legal provisions is ultra vires the provisions of Indian Contracts Act, 1872 and thus not legally enforceable.

SOME DEFINITIONS DELETED

1. Definition of “Approved Vocational Education Course” deleted

The definition of “Approved Vocational Education Course” [clause (11) of section 65B] is proposed to be omitted from the Finance Act and is being incorporated in the general exemption notification (Notification No. 25/2012-ST as amended by notification No 09/2016-ST, dated 1st March, 2016). This amendment in the notification shall come into effect from the date of enactment of Finance Bill, 2016.

1. Education Services Deleted from Negative List (Applicable w.e.f. the enactment of Finance Bill’ 2016)

Presently, clause (l) of Section 66D of the Act [Negative List] covers specified educational services. These services are proposed to be omitted from the Negative List but the service tax exemption on them is being continued by incorporating them in the general exemption notification (Notification No. 25/2012-ST as amended by notification No. 09/2016-ST, dated 1st March, 2016).

2. Services of Transportation of Passengers by Stage Carriage excluded from Negative List (Applicable w.e.f. 1^st June’ 2016)

The Negative List entry covering “Service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o)(i)] with effect from 1.06.2016. As a consequence, the above services become taxable with effect from 1.06.2016. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification [Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 1st March, 2016]. The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of Cenvat credit. [Notification No. 08/2016-St dated 29th February, 2016]

3. Services of Transportation of Goods by an Aircraft or a Vessel from a place outside India up to the customs station of clearance in India excluded from Negative List (Applicable w.e.f. 1^st June’ 2016)

The entry in the Negative List that covering “Services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance” [section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016.

Such services by an aircraft will continue to be exempted by way of exemption notification [Not. No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016 – New entry at S. No 53].

The domestic shipping lines registered in India will pay service tax under direct charge while the services availed from foreign shipping line by a business entity located in India will get taxed under Reverse Charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfilment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes. In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India. Consequential amendments are being made in CCR’2004.

1. New Entry “J” Inserted as a Declared Service (Applicable w.e.f. the enactment of Finance Bill’ 2016)

“Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof.”

The present entry is proposed to be declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a service leviable to service tax and not sale of intangible goods.

DATE OF DETERMINATION OF RATE OF TAX, VALUE OF TAXABLE SERVICE AND RATE OF EXCHANGE

In Section 67A, a new sub section has been inserted which states as follows:-

“(2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed.”

(Thus, the issue with regards to the rate of service tax was disputed by various interpretations of the stake holder. For some, the rate of service tax is to be taken from the date prescribed by POT Rules’ 2011 i.e. deemed provision of service and for some, the rate of service tax is to be taken from the date specified by Section 67A of Finance Act’ 1994 i.e. actual provision of service. In order to overcome this difficulty, Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. Point of Taxation Rules, 2011 is being amended accordingly. Thus, the rate of service tax shall now be taken from the Point of Taxation Rules’ 2011. The present amendment would come into force from the date of enactment of the Finance Bill, 2016.)

RECOVERY OF SERVICE TAX NOT LEVIED OR PAID OR SHORT-LEVIED OR SHORT-PAID OR ERRONEOUSLY REFUNDED

Section 73 speaks for issuance of Show Cause Notice for recovery of service tax.

Pre amendment – The time limit for issuance of SCN in bonafied cases was 18 months.

Post amendment – The time limit for issuance of SCN in bonafied cases is proposed to be 30 months.

The present amendment would come into force from the date of enactment of the Finance Bill, 2016.

Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government.

Further, vide Notifications 13/2016 and 13/2016 both Dt. 1^st March, 2016, the provisions of interest across all Indirect Taxes have been rationalised.

Interest rates on delayed payment of duty/tax across all indirect taxes is proposed to be made uniform as follows:-

The present rates of Interest shall be applicable both under section 73B and section 75 of the Finance Act, 1994.

It is pertinent to note that, in case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of service tax will be 12%.

The present amendment would come into force from the date of enactment of the Finance Bill, 2016.

The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it with the exchequer, and amount of such tax collected but not paid is above the threshold of Rs 2 crore. Sections 90 and 91 of the Finance Act, 1994 are being amended accordingly.

Section 93A of the Finance Act, 1994 is being amended so as to enable allowing of rebate by way of notification as well as rules.

Section 102,

Section 103

(New Sections Inserted)

CANAL, DAM, ETC., GOVERNMENT BUILDINGS, AIRPORT OR PORT.

1. Service Tax exemption to canal, dam or other irrigation works with retrospective effect (Section 101)

Definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature. However, services provided prior to 30.01.2014 to such bodies remained taxable. The benefit of exemption is proposed to be extended to the said services provided during the period from the 1^st July, 2012 to 29.01.2014.

Refund of Service Tax paid on the said services during the period from the 1st July, 2012 to 29.01.2014 shall also be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

2. Section 102

Notification 06/2015 dated 1^st March’ 2015 had withdrawn the exemption given to certain construction related services to Government, Local Authority or a governmental authority w.e.f. 01^st April’ 2015. The same is being restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date. The exemption is being restored till 31.03.2020. [Notification No. 25/2012-ST as amended by notification No 09/2016-ST, dated 1st March, 2016]. The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be exempted from service tax. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

3. Section 103

Exemption from Service Tax on services by way of construction, erection, etc. of original works pertaining to an airport, port was withdrawn with effect from 1.4.2015. The same is being restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping, as the case may be, that the contract had been entered into prior to 01.03.2015. The exemption is being restored till 31.03.2020. [Notification No. 25/2012-ST as amended by notification No 09/2016-ST, dated 1st March, 2016]. The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be exempted from service tax. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

(2) It shall be applicable to the declarations made up to the 31st day of December, 2016.

(3) It shall come into force on the 1st day of June, 2016.

(b) “Indirect Tax Dispute” means a dispute in respect of any of the provisions of the Act which is pending before the Commissioner (Appeals) as an appeal against the impugned order as on the 1^st day of March, 2016;

– The declarant shall pay tax due alongwith the interest thereon at the rate as provided in the Act and penalty equivalent to 25% of the penalty imposed in the impugned order, within 15 days of the receipt of acknowledgement and intimate the designated authority within 7 days of making such payment giving the details of payment made along with the proof thereof.

– On receipt of the proof of payment of tax, interest and penalty, the designated authority shall, within 15 days of the receipt of such proof, pass an order of discharge of dues in such form as may be prescribed.

(a) The impugned order is in respect of search and seizure proceeding; or

(b) Prosecution for any offence punishable under the Act has been instituted before the 1st day of June, 2016; or

(c) The impugned order is in respect of narcotic drugs or other prohibited goods; or

(d) Impugned order is in respect of any offence punishable under the Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985 or the Prevention of Corruption Act, 1988; or

(e) Any detention order has been passed under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974.

– A declaration made shall become conclusive upon the issuance of an order and no matter relating to the impugned order shall be reopened thereafter in any proceedings under the Act before any authority or court.

– Any order passed shall not be deemed to be an order on merits and has no binding effect.