Ist Full Year Budget of New Government has been introduced in Parliament on 28th February, 2015. This Article intends to outline key amendments made in Service Tax.
A. Changes effective from enactment of Finance Bill
I. Rate of service tax
Present rate: 12.36% (12% + 3% as Education Cess)
Revised rate: Consolidated 14% (subsuming Education & Secondary Education Cess)
Impact: Cost of all services to get costlier viz. food, flats, insurance, mobile, transport to name a few.
II. Enabling Provision for Swachh Bharat Cess (Date to be notified)
An enabling provision is being incorporated to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at 2% on the value of such taxable services.
As per Budget Speech by FM, the same shall be notified, if required.
III. Negative List compressed and consequent change in Exemptions.
1. Admission to Entertainment events etc. in service tax net
Present: Clause ‘admission to entertainment event or access to amusement facility’ is at present exempted under Negative List.
Proposed: The same is being omitted and exemption is being provided under Mega Exemption Notification 25/2012 on certain specific events viz. Theatrical/cinematographic events, recognised sports event and award functions/concerts/musical performance (in case consideration upto Rs. 500 per head).
Impact: Service Tax shall 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 and theme parks.
2. Manufacture of alcoholic liquor for human consumption under service tax.
Present: Clause ‘any process amounting to manufacture or production of goods’ is covered in negative list
Proposed:
- The same is being amended to exclude service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption.
- Consequently, Notification 25/2012 is being amended to exclude intermediate production of alcoholic liquor for human consumption from its ambit.
Impact: Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration.
3. Not only Support Services, but all services by Government taxable
Present: Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the “support service” provided by the Government or local authority to a business entity.
Proposed: An enabling provision is being made 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” is being omitted. Further to address confusion, term ‘Government’ is being defined in Finance Act.
Impact: As and when this amendment comes into effect, All services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax.
4. Activities in respect of Chit funds and lotteries taxable
On account of contrary views by Courts, Government has clarified by way of explanation in Definition of Service and Negative List to levy Service Tax on the services provided by:
(a) chit fund foremen by way of conducting a chit.
(b) distributor 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.
IV. Other Amendments in Finance Act, 1994
1) Reimbursable Expenditure includable in value of taxable service
An amendment is being made in Section 67 to include following as part of consideration for value of taxable services:-
i. all reimbursable expenditure or cost incurred and charged by the service provider.
ii. 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.
Impact:- This will nullify landmark judgment of Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd. wherein HC has quashed Rule 5(1) of Service Tax Rules, 1994 which provide for inclusion of expenditure or costs incurred by the service provider in the taxable value.
2) Section 73 is being amended in the following manner:
(a) 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
(b) sub-section (4A) that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.
3) Rationalisation of Penalties – Section 76 & 78
| Section 76 | Section 78 | |
| When applicable | Cases other than fraud, suppression etc. | Fraud, Collusion, wilful misrepresentation Suppression, |
| Maximum | 10% of Service Tax | 100% of Service Tax |
| In case ST+ Interest+ Penalty(sec 78) paid within 30 days of Show Cause Notice | No Penalty | 15% of Service tax |
| In case ST+ Interest+ Penalty paid within 30 days of Order of CE Officer | 25% of penalty imposed | 25% of Service tax |
| In case ST amount subsequently reduced in Appellate Order | Benefit of reduced penalty (25%) available if ST+ Interest +Reduced Penalty paid within 30 days of such order. | |
A transition provision by way of Section 78B is being provided in respect of pending cases.
4) Section 80 struck off
The most beneficial Section 80 of Finance Act, 1994 which provides for waiver of penalty in certain bonafide circumstances is being omitted. It is surprising that no reasonable justification has been provided in the Budget where it is being frequently used by Courts to waive penalty in unreasonable demands. This ensures penalty for every non-payment of service tax whatever is the reason.
5) Appeals in respect of issue pertaining to rebate of service tax on input services or inputs used in export of service shall be lied before Central Government as Revision Application as against present before CESTAT.
6) The facility of Advance Ruling is being extended to all resident firms by specifying such firms under section 96A (b)(iii) of the Finance Act, 1994
B. Changes effective from 01.04.2015 unless specified otherwise.
V. Review of Exemptions (Mega Exemption Notf. No. 25/2012)
Several major exemptions have been withdrawn in this Budget tabulated as under:
| Sr. No. | Service | Exemption withdrawn /limited |
| 12 |
Construction related service provided to the Government, a local authority or a governmental authority |
· a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; · a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment · 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; |
| 14 |
Construction related services |
Construction related works pertaining to an airport or port |
| 16 |
services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre |
Exempt upto Rs 1,00,000 for a performance |
| 20& 21 | Transport by Road/Rail/Vessel |
Exemption withdrawn on all activities except transportation of food grains including rice and pulses, flour, milk and salt and agriculture produce |
| 29 | Sub-Contract Services |
(a) 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. |
| 32 | Telephone related service |
(a) Departmentally run public telephone; (b) Guaranteed public telephone operating only local calls; (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued |
New Exemptions introduced as under:
| Sr. No. | Service |
| 2 | Transportation of a patient in an ambulance |
| 26A | Life insurance service provided by way of Varishtha Pension Bima Yojna |
| 43 | Service provided by a Common Effluent Treatment Plant operator for treatment of effluent |
| 44 | Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables |
| 45 | Admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve |
| 46 | Exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it’s members |
| * | transport of export goods by road from the place of removal to a land customs station (LCS) |
*By amendment in Notf. No. 31/2012.
VI. Change in Abatement rates and conditions
| Particulars | Present taxable rate | Proposed taxable rate |
| Transport by(a) Road (Goods)(b) Rail(Goods + Passenger)(c) Vessel(Goods) | 25%30%40% | 30%30%30% Subject to condition that no Cenvat on inputs, input services and capital goods is allowed.** |
| Air Transport of Passenger other than in Economy Class | 40% | 60% |
| Services provided in relation to chit | 70% | 100% |
**Earlier in case of transport by rail, there was no restriction on Cenvat credit, now aligned for all modes of transport.
VII. Changes in Reverse Charge Mechanism
1. Manpower supply and security services in full reverse charge
Present: Partial Reverse Charge is applicable in case of Manpower Supply and Security Service i.e. 25% payable by Service provider and balance 75% by Service Receiver when provided by an individual, HUF, or partnership firm to a body corporate
Proposed: The same is being brought to full reverse charge i.e. entire service tax payable by Service Receiver.
Impact: This will reduce unnecessary compliance burden on small contractors and agencies.
2. Following Services have been brought under full reverse charge consequent to withdrawal of the exemption on such services –
(i) Service provided by mutual fund agents, mutual fund distributors; and
(ii) Service provided by agents of lottery distributor.
3. Aggregator or Representative made liable to pay service tax
In case of service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator or 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 under reverse charge scheme. 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.
The term “aggregator” has been defined to means a ‘person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator’.
VIII. Amendments in Rules (w.e.f. 01.03.2015):
A. Service Tax Rules, 1994
(1) To move towards ease of doing business, it has been prescribed to grant registration for single premises within 2 days of filing of application. The modalities of the same have been issued by Order No. 1/15-ST, dated 28.2.2015 w.e.f. 01.03.2015.
(2) A provision for issuing digitally signed invoices is being added along with the option of maintaining of records in electronic form and their authentication by means of digital signatures.
(3) To align with revised general service tax rate, alternative rates of service tax under optional scheme for following services have been revised as under (effective on enactment of Finance Bill):
| Service | Present | Revised |
| Air Travel Agent | Domestic- 0.6%International- 1.2% | Domestic- 0.7%International- 1.4% |
| Life Insurance Service | Ist Year- 3%Subsequent Years-1.5% | Ist Year- 3.5%Subsequent Years-1.75% |
| Money Changers’ Services | Upto Rs. 1 Lac- 0.12% subject to max. Of Rs. 301 Lac-10 Lac: 0.06%Above 10 Lac: 0.012% | Upto Rs. 1 Lac- 0.14% subject to max. Of Rs. 351 Lac-10 Lac: 0.07%Above 10 Lac: 0.014% |
| Service of organizing Lottery | Guaranteed payout>80%:Rs. 7000Guaranteed Payout<80%: Rs. 11000 | Guaranteed payout>80%:Rs. 8200Guaranteed Payout<80%: Rs. 12800 |
B. Cenvat Credit, 2004
1. Cenvat Credit allowed on service tax payment in partial reverse charge
Present: In cases where partial reverse charge is applicable, Service Recipient can avail the credit only after payment of the value of input service and service tax (unlike Full reverse charge where credit is allowed on payment of service tax).
Proposed: The provision has been aligned to allow Cenvat Credit in such cases on payment of service tax.
2. Time period for availment of credit extended to one year
Present: The time period for availment of Cenvat credit is 6 months from the date of invoice (introduced in Budget 2014.
Proposed: Now it has been extended from 6 months to 1 year.
Impact: It is a major relief for all manufacturers and service providers.
3. Certain other changes are being made in the provisions of the Cenvat Credit Rules, 2004, which, inter-alia, include allowing Cenvat Credit on input and capital goods received directly by job workers, defining “export goods” for the purposes of rule 5, defining “exempt goods” for the purposes of rule 6, making applicable the provision of rule 9(4) to importer dealers, authorizing imposition of restrictions on registered dealers under rule 12AAA, and provisions relating to recovery of credit wrongly taken and imposition of penalty.
(Author-CA Nikhil M. Jhanwar, Delhi-NCR, nmjhanwar@gmail.com, +8860876960)
Author Bio
Hi,
I booked one apartment 2 years back. Now the house is ready by may-15. Is there any impact of Service tax on house registration. will the registration cost incrase b’cos of service tax or any other tax.
Thanks,
Gautam
dear sir,
please insure my to how to calculated the service tax 14 % tax I am maintenance work so please give me answer
regard
daksh singhal
sir
most of your above answer to the above querry you replayed that the new amendment in ST is may be in June. but some consultant says 01-4-15. plz let me know sir. also requesting you to send the new simplified tabulated provisions to my mail
regards
MDPoojari
Dear Rupesh Ji
New rate of service tax will be single rate of 14%. Edcuation cess of 3% will be done away with. Hence you have to simply apply 14% as rate of service tax whenever it becomes applicable.
Dear Devendra Ji,
Changes in respect of mutual fund distributors are applicable w.e.f. 01/04/2015, hence, business done in March will be out of purview of the Service tax changes.
Dear Nikhil ji
Please let me know that whether service tax on mutual fund distributors will be apllicable on the business done in the month of March for which brokerage is to be paid in month of April. As brokerage is paid on the next month of all the business done in previous month.
Regards
Dear Sir,
Service tax registration is compulsory if gross receipts exceeds 9 Lacs and return filing is also mandatory. In any case it may be the case where Manpower supplier or security SP is providing service to firms/individuals.
Dear Sir,
we are housekeeping service company so we have service tax applicable as per new amendment 14.36%. can you tell me description how we calculate?
Sir,
I am a Manpower supplier and paying service tax 25% at present.I heard that from 01.04.2015 onwards 100% reversal hence shall I retain service tax registration?
pls reply
ph 9947300588
Dear Girish Ji
At present rate is 3.09%. The new rate 3.50% will apply after Finance Bill gets assented by President. it is likely that the new rate may become applicable w.e.f. June 2015.
Dear Patel Ji
Your query is not clear.
Kindly drop your mail id here or at nmjhanwar@gmail.com I will send you the simplified tabulated provisions.
Regards,
Mr. Kamath Ji
The new rate of 14% and remmoval of education cess will apply from the same date whenever notified by government.
Pl update service tax% on property
At present it is 3.05%
Regards
Girish
Hi
I will be getting possession of my new flat in May 15. I have paid 80% amoun to Builder and balance is to be paid in april or may.
Pl let me know the service tax % on property purchase.
Regards
Girish
Respected Sir.
As BUDGET 2015 changes in REVERSE CHARGE MECHANISM i.e. MANPOWER SUPPLY SERVICE & SECURITY SERVICE provider who’s are provided by an individual, HUF, or partnership firm are does not cover under REVERSE CHARGE MECHANISM. Now my question is “WHETHER BOTH ABOVE SERVICE PROVIDER ARE REQUIRED TO CONTINUE THEIR REGISTRATION?” If yes than why?
PAP PATEL
Me also interested to know from when revised rates are applicable. In a reply by you for a comment you said it needs to be taken up in parliament session in June. what about education cess?
Dear Rao Ji
Service tax is applicable on renting of godowns either under renting of immovable property (if simply let out) or storage and warehousing service (if storage or warehousing is responsibility of Service Provider/Godown owner.
Dear Jasbir & S K Somani Ji
Reverse Charge Mechanism is applicable on Works contract if Service provider is Individual, HUF, Partnerships, proprietorship firms, AOP and service receiver is business entity registered as body corporate.
Dear GGG and Bhupendra Ji
Construction activities executed for Railways, roads, bridges, canal, dam is exempted from service tax even after present changes.
Dear Madhu,
Changes in RCM provisions related to Manpower Supply are applicable w.e.f. 01.04.2015
Sir,
In context to your following reply,please confirm whether Works Contract has been covered under reverse charge mechanism for proprietor ship or partnership firms.
Dear Sutu
Reverse Charge Mechanism in case of Manpower Supplies, Security Service, Works COntract Service, Rent-a-cab service is applicable only if service provider is either individual, HUF, Firm or AOP and Service Receiver is Business Entity including Body Corporate, otherwise not applicable
Sir,
Government contractor working in Railway will also be under service tax libility or still exmpted ?
A fellow has rendered his godowns for storing tobacco (un processed). Hehas obtained a service tax registration under the category of “Renting of Immovable Property”. Whether he is required to pay service tax since there is no exemption from service tax under the category of Renting of Immovable property.
After the present changes Is service tax applicable to Govt contractors engaged in road and bridge works.for the states and centre?
Hi
Job work done for production or contract manufacturing,
Service tax rate applicable as per reverse charge rules.
S K Somani
Nice work Mr Nikhil
but would like to know the date of change in manpower rate
Regards
CA Madhu
Dear Sir,
Law is silent on taxability in cases where both bollywood music(which is fully taxable) and folk/classical music (which is taxable if amount for performance is above Rs. 1 Lac). In such cases of simultaneous activity of taxable and non taxable character, the same has to be inferred based on essential/major character (dominant test) and to classify the activity under taxable or non-taxable charactor accordingly.
Please let me know if singers performing Bollywood music as well as western and folk music will be exempted from service tax.
Presently musicians performing only folk or classical music are being mentioned in the negative list but nowhere is anything mentioned about musicians performing bollywood or western music.
Kindly clarify this confusion and let me know the present and final situation as far as exemption is concerned for musicians/singers who perform all kinds of music. Thanks.
Dear Pankaj
As such there is no specific change in respect of Business Auxiliary Service.
No Penalty is payable if Service tax is paid before SCN alongwith Interest.
Dear Subhash,
What you are saying will make entire service tax effectively exempt and Government will end up with no revenue on service tax.
Anyways, nice idea make a pitch to Modi Ji at mogov.in.
This is certainly unreasonable that all salaried class due to TDS provisions cannot avoid tax and most of business class doesnt pay even a single rupee of tax.
In India still Tax is treated as Terror instead of facilitation.
Dear Aravind P
Education fees or College Fees is covered under negative List (Section 66D(l) of Finance Act, 1994 and therefore, exempt from service tax.
Relevant Extract
(l) 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;
Dear Raja Roy, DK Patidar, Shyam Rathi, Ganesh, Nitin
Service Tax rate is governed by Finance Act, 1994 which can only be amended by Finance Bill. Hence, the new rate of service tax shall be applicable from the date which shall be notified by government after enactment of Finance Bill by way of passing in Parliament and assent of President. Likely by June 2015.
Dear Sutu
Reverse Charge Mechanism in case of Manpower Supplies, Security Service, Works COntract Service, Rent-a-cab service is applicable only if service provider is either individual, HUF, Firm or AOP and Service Receiver is Business Entity including Body Corporate, otherwise not applicable.
Dear Rao Ji
Points noted and seperately issued as Corrigendum.
Thanks
Dear Readers
Corrigendum
1. In case of Manpower & Security, at present 25% ST payable by SP and 75% by SR instead of 50%(as written above in article)
2. Changes relating to aggregator model are effective from 01.03.2015 instead of 01.04.2015.
Dear Readers,
Corrigendum
Kindly note following in the above Article
1. In case of Manpower & Security Service at present 25% payable by SP and 75% by SR instead of 50%(written above).
2. Changes related to aggregator model are effective from 01.03.2015 instead of 01.04.2015
Thanks
Dear Rengaraj Ji
Thanks for the feedback. You are absolutely right. Its typo error.
which date for applicable service tax as per budget 2015-16
can we making invoice 12.36% as on 31st march and 1st april 14% plz confirm
For Educational Fees (School Fees, College Fees, etc..) Service TAx applicable or not?
service tax changes 12.36 to 14 the effect form 1 March 2015 or 1 April 2015.
Dear Sirs,
I like other 3 crores Indians pay income tax while more than 30 crores evade payment of Income tax.
My submission is that individual tax payers should be allowed to take credit of service tax paid on bills covering electricity,mobile n telephone bills n other services on filing Income Tax returns for respective FY/AY.
The GOI may please give incentives to honest tax payers.
This idea may prompt other citizens to pay taxes .
Thanks CA Nikhil M. Jhanwar,its very good and useful ….
what is the date of effect of the new service tax rate.
When the service tax rate is effective ?
service tax changes 12.36 to 14 the effect form 1 March 2015 or 1 April 2015.
Regards,
Nitin Pachpande
M:9869394998
I WANT TO KNOW,IF THERE IS ANY CHANGE IN BUSINESS AUXILARY CATAGORY OF SERVICE RENDERED TO CUSTOMER?
ALSO I WANT TO KNOW WHETHER I HAVE TO PAY PENALTY , IF SERVICE TAX WITH INTEREST AND PENALTY IS PAID BY DOING SELF ASSESSMENT BEFORE GETTING SCN.
pl guide me soon
pankaj
Dear Sir,
What will be the consequences if service provide is Ltd Co. & service recepient is a firm?
Thanks.
Dear sir
Please up date on payment of service tax on manpower supply
Thanking You
C sreenivasa rao
9059859706
Dear Sir,
The present abatement for Manpower supply and security service is not 50% it is 25% by the service provider and 75% by the service recipient. In this budget it is proposed as 100% by service recipient, under reverse charge mechanism.
Other than this, your article is very good.
rengaraj r.k
advocate