1. Change in Service Tax rate:

 ♣  The Service Tax rate is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Thus, effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.

The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

Till the time the revised rate comes into effect, the levy of ‘Education cess’ and ‘Secondary and Higher Education cess’ shall continued to be levied in Service Tax.

2. Swachh Bharat Cess:

 ♣  An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives.

This Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.

3. Broadening of tax base:

(A) Review of the Negative List [Amendment in the Finance Act, 1994]

 ♣ Service Tax to be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places. The Negative List entry that covers access to amusement facility is being omitted [section 66D (j)]. Consequently, the definition of “amusement facility” [section 65B(9)] is also being omitted.

These proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

 ♣  Service Tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions, if the amount charged is more than ` 500 for right to admission to such an event. For this purpose, the Negative List Entry that covers admission to entertainment events is being omitted [section 66D (j)]. Consequently, the definition of “entertainment event” [section 66B (24)] is being omitted.

However, the existing exemption to service by way of admission to entertainment events, namely, “exhibition of cinematographic film, circus, recognized sporting events, dance, theatrical performances including drama and ballets, by way of the Negative List entry shall be continued, irrespective of the amount charged for such service, through the route of exemption. For this purpose a new entry is being inserted in Notification No. 25/2012-ST, dated 20.6.2012.

The proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

 ♣  The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods [section 66D (f)] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration. In this context, the definition of the term “ process amounting to manufacture or production of goods” [ section 65B (40) is being amended] with a consequential amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

The proposed changes shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.

 ♣  Presently, services provided by the Government or a local authority, excluding certain services specified under clause (a) of section 66D, are in the Negative List. Service tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending [section 66D (a)(iv)], to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65B(49)] is being omitted.

These amendments shall come into effect from a date to be notified by the Central Government in this regard after the enactment of the Finance Bill, 2015.

Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any other entry in the Negative List, shall be liable to Service Tax .

(B) Review of general exemptions extended under Notification No. 25/2012-ST, dated 20.6.2012:

Exemption presently available on specified services of construction, erection, commissioning, etc. provided to the Government, a local authority or a governmental authority ( vide S. No. 12 of the said notification ) shall be limited only to,-

(a)     a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;

(b)     canal, dam or other irrigation work; and

(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. Exemption to other services presently covered under S. No. 12 of notification No. 25/1 2-ST is being withdrawn.

 ♣  Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn. The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

 ♣ Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.

 ♣  Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue.

 ♣  Exemptions are being withdrawn on the following services:

(a)   services provided by a mutual fund agent to a mutual fund or assets management company,

(b)  distributor to a mutual fund or AMC,

(c) selling or marketing agent of lottery ticket to a distributor.

Service tax on these services shall be levied on reverse charge basis.

 ♣  Exemption is being withdrawn on the following service,-

(a)     Departmentally run public telephone;

(b)     Guaranteed public telephone operating only local calls; and

(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued. All the above changes in notification No. 25/12-ST, dated 20.6.2012 shall come into effect from the 1st day of April, 2015.

4. New Exemptions:

 ♣  Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.

 ♣  Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.

 ♣  Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.

 ♣  Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or association of persons consisting of such exhibitor as one of it’s members is being exempted.

 ♣  Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from service tax. The scope of this exemption is being widened to include all ambulance services.

 ♣  Service provided by way of admission to a museum, zoo, national park, wild life sanctuary,and a tiger reserve is being exempted.

 ♣  Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

[All the above New Exemptions shall come into effect from the 1st day of April, 2015]

5. New entries being incorporated in notification No. 25/12-ST, to continue exemption to some of the services that are presently covered by the Negative List entries which are being omitted:

 ♣  Service by way of right to admission to,-

(i)     exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet.

(ii)    recognized sporting events.

(iii) concerts, pageants, award functions, musical or sporting event not covered by the above exemption, where the consideration for such admission is upto ` 500 per person.

These changes shall be brought into effect from the date the amendments being made in the Negative List, concerning the service by way of admission to entertainment events, come into effect.

6. Other changes being incorporated in the Finance Act, 1994

 ♣  Services, excluding few specified services, provided by the government have been included in the Negative List. Further, specified services received by the government are also exempt. Hitherto, the term “government” has not been defined in the Act or the notification. This has given rise to interpretational issues. To address such issues, a definition of the term “government” is being incorporated in the Act.

 ♣  The intention in law has been to levy Service Tax on the services provided by:

(i)     chit fund foremen by way of conducting a chit.

(ii)    distributors or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.

However, Courts have taken a contrary view in some cases, while in some cases the levy has been upheld.

An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and distributors or selling agents of lottery in relation to lotteries.

 ♣ Section 66F (1) prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such service. An illustration is being incorporated in this section to exemplify the scope of this provision.

 ♣  Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for service shall include:

(a)  all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically by this provision.

(b)  amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets;

 ♣  Section 73 is being amended in the following manner:

(i)     a new sub-section (1B) is being inserted to provide that recovery of the service tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73,; and

(ii)    sub-section (4A), that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.

 ♣  Section 76 is being amended to rationalize penalty, in cases not involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, in the following manner,-

(i)   penalty not to exceed ten per cent of service tax amount involved in such cases;

(ii)    no penalty is to be paid if service tax and interest is paid within 30 days of issuance of notice under section 73 (1);

(iii)   a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the service tax, interest and reduced penalty is paid within 30 days of such order; and

(iv)   if the service tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty ( 25% of penalty imposed) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.

 ♣  Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, in the following manner,-

(i)   penalty shall be hundred per cent of service tax amount involved in such cases;

(ii)  penalty equal to 15% of the service tax amount is to be paid if service tax, interest and reduced penalty is paid within 30 days of service of notice in this regard;

(iii) a reduced penalty equal to 25% of the service tax amount determined by the Central Excise Officer, by an order, is to be paid if the service tax, interest and reduced penalty is paid within 30 days of such order; and

(iv) if the service tax amount gets reduced in any appellate proceeding, then penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.

 ♣  A new section 78 B is being inserted to prescribe, by way of a transition provision, that,-

(i)     amended provisions of section 76 and 78 shall apply to cases where either no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015; and

(ii)    in respect of cases covered by sub-section (4A) of section 73, if no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015, penalty shall not exceed 50% of the service tax amount.

 ♣  Section 80, that provided for waiver of penalty in specified situations, is being omitted.

 ♣  Section 86 is being amended to prescribe that matters involving rebate of service tax shall be dealt with in terms of Section 35EE of the Central Excise Act.

7. Rationalization of Abatements:

 ♣  At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road provided by a goods transport agency and 40% for goods transport by vessels. The conditions also vary. A uniform abatement is now being prescribed for transport by rail, road and vessel. Service Tax shall be payable on 30% of the value of such services subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.

 ♣  At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and service tax would be payable on 60% of the value of such higher classes.

 ♣  Abatement is being withdrawn from chit fund service. Consequently, Service Tax shall be paid by the chit fund foremen at full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit.

The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015.

8. Service Tax Rules:

 ♣  In respect of any service provided under aggregator model, the aggregator, or any of his representative office located in India, is being made liable to pay Service Tax if the service is so provided using the brand name of the aggregator in any manner. If an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator. In this regard appropriate amendments have been made in rule 2 of the Service Tax Rules, 1994 and notification No. 30/2012-ST dated 20.6.2012.

This change comes into effect immediately i.e. w.e.f. 1.3.2015.

 ♣  Rule 4 is being amended to provide that the CBEC, by way of an order, specify the conditions, safeguards and procedure for registration in service tax.

 ♣ Provision for issuing digitally signed invoices are being added along with the option of presentation of records in electronic form. The conditions and procedure in this regard shall be specified by the CBEC.

 ♣ Rule 6 (6A) which provided for recovery of service tax self-assessed and declared in the return under section 87 is being omitted consequent to amendment in section 73 for enabling such recovery.

 ♣ In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. Amendments to this effect have been proposed in the Service Tax Rules. These amendments shall come into effect as and when the new service tax rate comes into effect.

9. Reverse charge mechanism:

 ♣  Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

This change will come into effect from 1.4.2015.

 ♣ Services provided by mutual fund agents, mutual fund distributors and agents of lottery distributor are being brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agents and mutual fund distributors services shall be paid by assets management company or, as the case may be, by the mutual fund receiving such services. In respect of sub-agents of lottery, Service Tax shall be paid by the distributor or selling agent of lottery.

This change will come into effect from 1.4.2015.

10. Cenvat Credit Rules, 2004:

 ♣  Rule 4(7) is being amended to allow credit of service tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider.

This change will come into effect from 1.4.2015

11. Miscellaneous:

Existing exemption, vide notification No. 42/2012-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territor

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0 responses to “Budget 2015- Proposed Service Tax Amendments- A detailed Analysis”

  1. Ritu says:

    Sir,

    I am a government contractor providing service to government after the amendment in S.No. 12 of the notification 25/12-ST service tax is applicable on construction of schools and construction of hospitals so i have to pay service tax on bill which were raised after 31.3.2015 but the work orders for the same were recived before the amendment.

    Please Explain

  2. Trilok Maheshwari says:

    D/Sir,
    I am a regd. contractor in MES (ARMY) department I wants to know from when & how the new service tax will be applicable for me and at which tax rate???.

  3. Nirmal Shah says:

    Dear Sir,

    I am associate with a Pvt Ltd company who deal in manpower supply and house keeping services, So now service tax is applicable for us or not in case of new ammendment from 1st april 2015

  4. TUSHAR says:

    Sir,

    Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge but does in include LLP because LLP is treated as Partnership firm for service tax? pls explain

  5. Arpit Shah says:

    Dear Sir,

    Since your services are not a part of the negative list, Service tax has to be levied on the services provided i.e. (tickets issued). I suppose before this exemption also, Service tax was applicable to your business services.

    Further, even after this exemption, you will have to charge service tax irrespective of the amount of services provided (ticket price) since the services provided are not specified in the amendment.

    I hope this clarifies your query.

  6. Ashray says:

    Dear Team,

    I am the Director of an Entertainment Firm (Humour Me) who does theatre shows across the country, and shows for companies/individuals/hotels. I wanted to understand the tax implication :

    1.Service Tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions, if the amount charged is more than ` 500 for right to admission to such an event. For this purpose, the Negative List Entry that covers admission to entertainment events is being omitted [section 66D (j)]. Consequently, the definition of “entertainment event” [section 66B (24)] is being omitted. However, the existing exemption to service by way of admission to entertainment events, namely, “exhibition of cinematographic film, circus, recognized sporting events, dance, theatrical performances including drama and ballets, by way of the Negative List entry shall be continued, irrespective of the amount charged for such service, through the route of exemption. For this purpose a new entry is being inserted in Notification No. 25/201 2-ST, dated 20.6.201 2. – See more at: https://taxguru.in/service-tax/budget-2015-proposed-service-tax-amendments-detailed-analysis.html#sthash.9vDdpXqC.dpuf

    2.Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance. – See more at: https://taxguru.in/service-tax/budget-2015-proposed-service-tax-amendments-detailed-analysis.html#sthash.9vDdpXqC.dpuf

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