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

Not No

Date

Effective Date

Regarding

What this change means

(1)

(2)

(3)

(4)

(5)

18

 

1.6.2012

1.6.2012

01.07.2012 to be the effective date of section 143(A, B, D, E) of Finance Act, 2012A – Section 65                   B – Section 65AD – Section 66                   E – Section 66A Old provisions under the said sections is proposed to be deleted by virtue of powers vested vide Sec 143.

19

5.6.2012

1.7.2012

1.7.2012 to be the effective date for -Section 68(t2) – Reverse Charge Section 68(2) has been amended to consider he service provider and service receiver both as person liable to pay service tax to the extent specified against each one of them in certain cases [Refer Annex A]
Section 65B (New Definition); New definition of ‘services’ put in place. Now “Services” means all the activity performed by a person for certain consideration.
Section 66B (Charge of Service Tax); Prescribes the rate of Service tax to be 12%
Section 66C (Place of Provision of Services); Determining the place of provision of service [ however this is still in draft stage]
Section 66 D (Negative list), Negative list or in other term list of Exempt services
Section 66E (Declared Services); 9 specific services covered under the head and deemed to be declared services for payment of service tax.
Section 66F (Principles of Interpretation); New Section relating to determination of Classification of a service.
Section 67 – Omission of Explanation Clause (b) Deletes the clause of considering the value for service received to be inclusive of service tax, where recipient does not pay service tax or Advance received against a service to be provided.

20

5.6.2012

1.7.2012

Old Section 65 not applicable w.e.f.1.7.2012 Definition of services as provided under section 65 shall no longer exist. Every transaction except the negative list is taxable service.

21

5.6.2012

1.7.2012

Old Section 65A not applicable w.e.f. 1.7.2012 Section relating to Classification [disputes] of services will cease to exist.

22

5.6.2012

1.7.2012

Old Section 66 not applicable w.e.f. 1.7.2012 Charging section stands to be deleted – New sec 66B

23

5.6.2012

1.7.2012

Old Section 66A not applicable w.e.f. 1.7.2012 Reverse charge section for services received from outside India stands to be deleted.

24

6.6.2012

1.7.2012

Further amendment in the Service Tax (Determination of Value) Rules, 2006,w.e.f. 1.7.2012 Determination of value where the service is in relation to works contract [Refer Annexure B]

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

Where service provider has not availed Cenvat to pay on 25% of Freight Amount
Where service provider has availed Cenvat to pay on 100% of Freight Amount

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:

Where service provider has not availed Cenvat to pay on 40% of Taxable Amount
Where service provider has availed Cenvat to pay on 40% of Taxable Amount

 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

Particulars Amount (in Rs)
Invoice Value (excluding tax) 100,000/-
Abatement @75% for service tax  75,000/-
Service Tax on 25000/-    3,090/-
Total Invoice Value including Service Tax payable to service provider by recipient 103,090/-


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

Particulars Amount (in Rs)
Invoice Value (excluding tax) 100,000/-
Abatement 25%   25,000/-
Service Tax on 75000/-     9,270/-
Service tax payable by recipient to the government as a service recipient     9,270/-

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 30th 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.

———————

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 ]

SrNo Description of a service %  of  service tax payable by the person providing service % of service tax payable by the person receiving the service

Abatement     %

For the

receiver

Condition

1

in respect of  services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business

Nil

100%

Nil

2 in respect of  services  provided or agreed to be provided  by a goods transport agency in respect of  transportation  of goods by road

Nil

100%

75% @

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CC Rules, 2004.
3 in respect of  services  provided or agreed to be provided  by way of sponsorship

Nil

100% *

Nil

4 in respect of  services  provided or agreed to be provided  by an arbitral tribunal

Nil

100% *

Nil

5 in respect of  services  provided or agreed to be provided  by individual advocate

Nil

100% *

Nil

6 in respect of  services  provided or agreed to be provided  by way of support service by Government or local authority

Nil

100% *

Nil

7 in respect of  services  provided or agreed to be provided  by way of renting or hiring any motor vehicle designed to carry passenger on abated value.

Nil

100% *

60%

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CC Rules, 2004.
in respect of  services  provided or agreed to be provided  by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.

60%

40% *

Nil

Without availing Cenvat
8 in respect of  services  provided or agreed to be provided  by way of supply of manpower for any purpose

25%

75% *

Nil

9 in respect of  services  provided or agreed to be provided  by way of works contract

50%

50%

See work contract below

10 in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Nil

100%

Import of services and services received from Nepal

@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]

———————————-

 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]

Sr.No. Particulars Old Provisions New Provisions
1. Composition scheme in Works Contract Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Merged into Rule 2A of Valuation Rules
Rate of Composition Tax on all works contract4% upto 31-3-20124.8% w.e.f. 1-4-2012 Original workRate of tax 12% of 40%Effective rate = 4.8%
Works contract where value of land is includedRate of Tax = 12% of 25%Effective rate = 3.0%
Other works contracts including completion and finishing services –Rate of Tax = 12% of 60%Effective rate = 7.2%
2 Valuation method in works Contract Rule 2A – Gross value minus of value of goods sold No change
3 Supply of food and drinks in a restaurant or as outdoor catering Determination of value of taxable – new Rule 2C Not existing However, exemption was granted through Exemption Notification no. 1/2006 ST dated 1.3.2006Effective Rate w.e.f. 1.4.2012 New Valuation rule to determine the value of services involved.Value of Service involved in the supply of food or any other article of human consumption or any drink:
Restaurant12% of 30% = 3.6% Restaurant12% of 40% = 4.8%
Outdoor catering12% of 50% = 6% Outdoor catering12% of 60% = 7.2%
4. Manner of determination of Value – Rule 3- where value is not ascertainable “where the consideration received is not wholly or partly consisting of money”- substituted “where such value is not ascertainable” .
5. Inclusion in or exclusion from value of certain expenditure or costs Rule 5- explanation to sub rule(1) “services specified in sub-clause (zzzx) of clause (105) of section 65 of the Finance Act, 1994”,- substituted “telecommunication service”
6. Inclusion in Value – .Rule 6(1) Not existing new clause(x) inserted in Sub rule(1)amount realized as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service- included
7 Exclusion from value – Rule 6(2) “interest on loans” – interest on,-(a) deposits; and(b) delayed payment of any consideration for the provision of services or sale of goods;
Not existing Accidental damages due to unforeseen actions not relatable to the provision of service

8

Actual consideration to be the value of taxable service provided from outside India -Rule 7 omitted Omitted- this means reimbursement of expenses made outside India to the service provider, to be included in taxable value.

EXEMPTION OR ABATEMENT ALLOWED with condition.

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

Sl.No.

Description of taxable service

Tax Payable on value –  %

Exemption/
Abatement on value – %

Conditions

(1)

(2)

(3)

 

(4)

1

Financial leasing services including equipment leasing and hire purchase

10

90

Nil.

2

Transport of goods by rail

30

70

Nil.

3

Transport of passengers, with  or without accompanied belongings by rail

30

70

Nil.

4

Supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function

70

30

CENVAT credit on any goods classifiable under chapter 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

5

Transport of passengers by air, with or without accompanied belongings

40

60

CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

6

Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.

60

40

Same as above.

7

Transport of goods by road by Goods Transport Agency

25

75

CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under CCR 2004

8

Services provided in relation to chit

70

30

Same as above.

9

Renting of any motor vehicle designed to carry passengers

40

60

Same as above.

10

Transport of goods in a vessel from one port in India to another

50

50

Same as above.

11

(i)Services provided or to be provided to any person, by a tour operator in relation to a package tour

25

75

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of CCR, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
(ii)Services provided or to be provided to any person, by a tour operator in relation to a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

10

90

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CCR, 2004(ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.(iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
(iii) Services, other than services specified in (i) and (ii) above, provided or to be provided to any person, by a tour operator in relation to a tour

40

60

(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CCR, 2004.(ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.

—————————————–

  [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 dayalkundani@gmail.com)

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0 responses to “Comprehensive Note on Implementation of Negative List Regime”

  1. Saikat Banerjee says:

    I want to know in Manpower Consultancy is it compulsory to every Bill only 25% S.T. Charged. If the recipient has no S.T. No. then what % of Tax will charges in Bill.

  2. B.S. Bisht says:

    Sir,

    Can we take cenvat credit ( Input ) in restaurant business
    Service like -expenses repair, telephone, rent, security service and other capital nature.

    kindly advice us.

    Thanks

    Bisht

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