Comprehensive Note on Implementation of Negative List Regime

Dayal R Kundani

The Union Budget 2012-13 had proposed taxation of services based on a ‘Negative list’.

With the enactment of the Finance Act, 2012 (the Act) on 28 May 2012, the concept of ‘negative list’ is made applicable and made effective for implementation from 01-07-2012.

The Department of Revenue has issued Service tax notifications on 1 June 2012, 5 June 2012 and 6 June 2012 providing effective dates of implementing the ‘Negative List’ and also for phasing-out the existing regime of taxing services.

A summary of these notifications along with new provisions is clarified in tabular form for its implementation:

Summary of Notification Nos. 18 to 24 – ST dated 5.6.2012

APPLICABILITY OF CHANGES

Sr. No 2 – Transport of Goods By RoadWe have to pay service tax on 25% of the Freight Value as is being paid now – No change in the % of abatement but it is clarified that this abatement is subject to condition that the transport operator has not claimed cenvat credit on inputs, capital goods and input services, Hence we should take attached letter from all our transporter every year

Sr. No 3- Sponsorship Services

If any sponsorship fees are paid for any event service tax will have to be paid on such fees without any abatement, except sponsorship of tournaments or championships provide by national sports federation, or its affiliated federations which will stand to be exempt.

Sr. No 4- Arbitral Tribunal

If any services are availed, service tax is to be paid by us on all such fees paid to AT

Sr. No 5- Individual Advocate ServicesIf any services are availed from Individual advocate for consultancy or for any representation before any statutory authority in the course of proceedings initiated under any law, service tax is to be paid on all such professional fees.

Sr. No 6- Government or Local Authority

If any services are availed from Government or Local authority we have to pay service tax on such fees/ charges paid. [Intention is to tax that portion of the services where Government or Local Authorities compete with private entities in providing similar services]

“local authority” means-

i. a Panchayat as referred to in clause (d) of article 243 of the Constitution;

ii. a Municipality as referred to in clause (e) of article 243P of the Constitution;

iii. a Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;

iv. a Cantonment Board as defined in section 3 of the Cantonments Act, 2006; (41 of 2006.)

v. a regional council or a district council constituted under the Sixth Schedule to the Constitution;

vi. a development board constituted under article 371 of the Constitution; or

vi. a regional council constituted under article 371A of the Constitution;

vii. if speed post services are availed , the service tax liability shall be discharged as recipient

Sr. No 7- Renting hiring of Motor Vehicle [Rent-a-Cab]Incase if any services are availed from  “RENTING/HIRING OF MOTOR VEHICLE” (eg: Car hiring, Bus hiring etc) where the service provider is Individual, HUF, Partnership firm, or AoP, then we will have to pay service tax to instead of paying service provider:

 Sr. No 8- Manpower Supply Agency

i. if any services are availed from  “MANPOWER SUPPLY AGENCY” (eg: Housekeeping, Recruitment agents, supply agency for skilled /unskilled Workers/labourers, etc) and the service provider is Individual, HUF, Partnership firm, or AoP [Association of Person], then we will have to pay service tax instead of paying to service provier as under:

ii. to pay on 75% of Taxable Amount.

Sr. No 9- Works Contract Services

Works Contract – means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation, alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to any building or structure on land.

i. If any of the above services are availed falling under “WORKS CONTRACT SERVICES” and if the service provider is an Individual, HUF, Partnership firm, or AoP, then we will have to pay service tax as under

ii. to pay on 50% of Taxable Amount.                

Note: In case of service tax on services where abatement is available then the service tax provider shall charge service tax on basic value less abatement X Service Tax rate. On availing of services we are required to pay service tax on the abatement amount. We will get credit for the same.

SUITABLE EXAMPLE OF MANPOWER SUPPLY

Service tax payable by Service provider

This means the service provider should charge only 3,090/- if erroneously he has charged 12,360/- the Invoice should not be processed and returned to the service provider for necessary amendment.

Service tax liability of Recipient under reverse charge

CLARIFICATION UNDER REVERSE CHARGE

1. Section 68(2) of the Act does not provide Threshold exemption of 10 Lakhs in case of Reverse Charge mechanism where service tax is payable by person other than service provider. This means service tax is payable irrespective of whether it is charged by service provider or not. This is in continuation of the above example if service provider does not charge us still our liability of Rs. 9,270/- remains.

2. Rule 2(1)(d) shall accordingly stand amended to accommodated the service recipient liable to pay service tax after availing the abatement as per Notification No 15/2012.

3. One is allowed to take the credit of the service tax paid under reverse charge method on the basis of Challan as being specified under Rule 9(1)(e) of the Cenvat Credit Rules, 2004. Notification No. 18/2012 – CE(NT) dated 17-03-2012 amends Rule 9(1) of Cenvat Credit rules, 2004 by providing that service tax paid by challan under reverse charge is the valid document for availing of Cenvat Credit.

4. All expenditure to be booked under the particular expense head, if booked wrongly in some other head, then there is a possibility of non-compliance of reverse charge.

5. In the case of services where the company is obligated to pay service tax under rule 2(1)(d) of Service Tax Rules i.e. on reverse charge basis, the point of taxation shall be the date of making the payment  [As per Rule 7 of POT Rules]. All unpaid bills as of 30^th June payable in July will be subject to reverse charge for categories explained above and service tax shall be payable by the recipient after considering the abatement  .

IT PERSPECTIVE CHANGES TO BE ADOPTED

The following services will have similar treatment as applicable to Services tax payable on GTA where Service tax is payable under reverse charge, namely:

i. Sponsorship services

ii. Manpower Supply services provided by Individual / Proprietary / Firms

iii. Rent-a-cab services provided by Individual / Proprietary / Firms

iv. Works Contract Services provided by Individual / Proprietary/ Firms

v. Individual Advocate services

vi. Services by Government / Local bodies  [e.g.- Speed Post Services]

The current practice that is being pursued is creating tax code similar to withholding tax for creation of Liability under reverse charge.

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Annexure A

Service tax amendments,

Service receiver is liable to pay the service tax at the rate mentioned below:

(Notification No. 15/2012 dated 17-03-2012 – effective from 01-07.2012 [section 68 of the Finance Act ]

@Earlier the condition of obtaining declaration was done away with but in the new proposal it has again been brought back. This means now we need to obtain a certificate from transporters to this effect. [Draft declaration provided at the end]

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 Annexure B- Old vs. New

Service Tax (Determination of Value) Rules, 2006

[Notification no 11/2012 ST dated 17-3-12 now effective from 01-07-12]

EXEMPTION OR ABATEMENT ALLOWED with condition.

(Notification No.13/2012 ST dated 17-3-2012 effective from 01-07-2012)

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  [ON LETTER HEAD OF THE TRANSPORTER / SERVICE PROVIDER]

To,

M/s. X Y Z Limited

(Address of the location)

Sir,

I/We,                                                                     (name of the signing person) on behalf of _____________________________________________________                        (Transport Company)   do hereby declare that during the period from ____________ to _______________

a) I./We have not taken any CENVAT credit of excise duty on inputs or capital goods or CENVAT credit of service tax paid on any input services, for the purpose of providing taxable service in relation to GTA services under the provisions of the CENVAT Credit Rules, 2004.

b) We undertake not to avail the aforesaid credits or benefits for the period mentioned above.

c) We undertake to indemnify the service recipient against any payment of liability or loss of credit arising out of our non-compliance of this declaration.

For _________________________

(Transport Agency)

Authorised Signatory

Place:

Date:

Note : This declaration is to be obtained on quarterly basis beginning from Oct 2012 [ for the period July to Sept 2012 where service provider has not provided declaration on consignment note to this effect.

( Author can be reached at [email protected])

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