CA Varun Dhawan
Background
From the date the Finance Bill 2012 was introduced on March 17, 2012 until date, there have been numerous amendments made in the service tax law. Several notifications have been issued over the last three months and many of them have already been superseded by a fresh set of notifications issued on June 20, 2012. In all 40 Notifications have been issued under service tax over the last three months.
The service tax law has undergone a complete overhaul and with these amendments. The most significant changes being the shift to the new system of taxation popularly known as “Negative List of Services” and the introduction of “Place Of Supply Rules”. These were the two missing links for roll out of the GST law and with introduction of both these we are almost ready as a country for adoption of the GST regime.
Besides these two changes, there are certain changes in the service tax rules, CENVAT credit rules and valuation rules.
Some of major changes in service tax law to the extent relevant to us are as under:
1. Key new sections introduced in Service tax law:
| Section 65B | Definitions | Important definitions include that of “service”, “taxable service”, “taxable territory”, “India” |
| Section 66B | Charging Section | This section says that all services will be taxed at 12% except those services as specified in the Negative List |
| Section 66C | Place of Provision of Service Rules, 2012 (Notification 28/2012) | Determine the place where the service is provided or deemed to have been provided |
| Section 66D | Negative List | Services that would not be considered for service tax |
| Section 66E | Declared Services | This section deems certain types of contract to be deemed services |
2. New Definitions introduced – Section 65 B
♠ Service
For the first time the Act now defines the term “Service” which was not defined earlier. Service “means any activity carried out by a person for another for consideration and includes a declared service but does not include transfer or sale of goods and immovable property and provision of service by employee to employer. All activities other than these will be considered as a “service” liable for service tax.
♠ Taxable Service
Any service on which service tax is leviable under section 66B.
♠ Taxable and non taxable territory
“Taxable territory means the territory to which the provisions of this Chapter apply. Non-taxable territory means the territory which is outside the taxable territory”.
♠ India
Amongst the definition of India, it includes the territorial waters, continental shelf, exclusive economic zone, sea bed, subsoil underlying the territorial waters, air space above India’s territory and air space above the territorial waters.
3. Charge of Service Tax – Section 66B
Service tax to be levied at 12% on the value of all services, other than those specified in the negative list, provided or agreed to be provided in a taxable territory by one person to another.
4. Negative List of Services – Section 66D
Negative List of services introduced which is a shift in the basis of taxation. Before the introduction of the negative list of services, there was a definition for each and every “Taxable Service”. It was a lengthy list of 119 taxable services defined which were serially numbered from (a) to (zzzw). This list was defined under Section 65(105) of the Finance Act 1994. (Commonly referred to as the Positive List). This positive list finally gets repealed with introduction of the Negative List of services.
Therefore, any activity which meets the definition of a “service” as defined, and does not feature in the negative list will be chargeable to service tax.
5. Declared Service – Section 66E
Declared service means any activity carried out by a person for another person for consideration and declared as such under section 66E (Section 65B). This section basically is a deeming section and deems the below activities also to be “service”.
There are nine specific activities under the List of declared services as given under section 66E as under:
|
SN |
Description of Service |
Brief Description
|
|---|---|---|
|
1 |
Renting of immovable property | Renting of immovable property |
|
2 |
Construction activity | Construction (including additions, alterations. Replacements or remodelling of existing civil structure) of a complex, building, civil structure or a part thereof, intended for sale wholly or partly to a buyer. However it will exclude in case where the entire consideration is received after issuance of a Completion Certificate. |
|
3 |
Intellectual Property Rights | Temporary transfer or permitting use or enjoyment of any IPR |
|
4 |
Information Technology software | Development, design, programming, customisation, adaption, up-gradation, enhancement, implementation of information technology software. |
|
5 |
Non compete arrangements | Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act. |
|
6 |
Supply of goods on hire | Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods. |
|
7 |
Hire purchase | Activities in relation to delivery of goods on hire purchase or any system of payment by instalments. |
|
8 |
Works contract | “Service portion” in the execution of works contract. |
|
9 |
Catering | “Service portion” in an activity wherein goods, being food or any other article for human consumption or any drink is supplied as a part of the activity. |
6. Reverse Charge Mechanism
Per Notification No. 30/2012 and Notification 36/2012
For the below list of services the Service Recipient is required to discharge the service tax liability in full, or both the service recipient and service provider has to discharge the tax liability as per the prescribed ratio.
|
SN |
Description of a Service |
Percentage of Service tax payable by Service Provider |
Percentage of Service tax payable by Service Recipient |
|
(1) |
Insurance agent to insurance agent |
NIL |
100% |
|
(2) |
Transport of goods by road |
NIL |
100% |
|
(3 ) |
Sponsorship service |
NIL |
100% |
|
(4) |
Arbitral services |
NIL |
100% |
|
(5) |
Legal services by Individual advocate or a firm of advocates |
NIL |
100% |
|
(6) |
Support services by Government or local authority (excluding renting of immovable property and certain other specified services) |
NIL |
100% |
|
(7) |
Renting of passenger motor vehicles *- With abatement-Without abatement |
Nil 60% |
100% 40% |
|
(8) |
Supply of manpower for any service * |
25% |
75% |
|
(9) |
Works Contract service * |
50% |
50% |
|
(10) |
Any taxable service where the Service provider is located in a non taxable territory and service recipient located in a taxable territory |
NIL |
100% |
* in case where the service provider is a non corporate entity and the service recipient is a corporate entity.
“Renting of immovable property” to extend to include any other service in relation to such renting also.
“Supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.
7. Exempted Services
♠ Notification No. 25/2012 – A Single consolidated notification issued for exemptions. Called as the “Mega Exemption Notification”. It lists 39 services which will be exempted under service tax.
♠ Notification No. 34/2012– Consequential to the Mega list of exemptions, 81 exemption notifications issued in the past 18 years stand rescinded. There will now be only one single mega list of exemption from service tax.
♠ Notification 27/2012- Exemption for services rendered to foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members from service tax. Detailed provisions made, including the invoice issued to such person to carry additional information. (HO to direct based on case to case basis)
8. Abatement of Service tax
♠ Notification No. 26/ 2012: Abatement will be allowed at the following rates for the following services on the levy of service tax. i.e. Service tax will be charged on the balance value after abatement.
| SN | Description of Taxable Service |
Abatement (standard Deduction of value) |
|---|---|---|
| 1 | Financial leasing and Hire purchase |
10% |
| 2 | Transport of goods in a vessel |
50% |
| 3 | Transport of goods by road |
75% |
| 4 | Transport of goods by rail |
30% |
| 5 | Transport of passengers by rail |
30% |
| 6 | Transport of passengers by air |
40% |
| 7 | Renting of passenger vehicles |
40% |
| 8 | Renting of hotels, guest houses |
60% |
| 9 | Bundled service including food and hotel rent, convention center, etc. |
70% |
| 10 | Tour operator |
10%, 25%, 40% |
| 11 | Construction activity (per Section 66E) |
25% |
9. Amendments to Service tax Valuation Rules (Notification no. 24/2012)
- Rule 2B inserted. This Rule states how to determine the service portion in the execution of a works contract.
- Rule 2C inserted. Thus Rule states how to determine the service portion in supply of food and drinks in a restaurant or as outdoor catering.
- Demurrage charges liable to service tax.
- Interest on Delayed payments not liable for service tax
- Accidental damages not related to the service, would not be liable for service tax
10. Export of Service
♠ Rule 6A to Service Tax Rules, 1994 introduced vide Notification 36/2012. Provision of any service provided to agreed to be provided shall be treated as export of service when,-
(a) The service provider is located in the Taxable Territory
(b) The service recipient is located outside India
(c) The service is not falling under the Negative List
(d) Place of Provision of Service is outside India
(e) Payment for such service has been relieved in convertible foreign exchange, and
(f) The service provider and service recipient are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 section 65B (44)
♠ If a service qualifies as an export service, the Central government may by way of notification grant rebates.
♠ Accordingly, conditions have been laid down for claiming rebate of service tax on export of services. Rebate follows a refund method only. There is no outright exemption. (For further details refer Notification 39/ 2012)
11. Amendments to Point of Taxation Rules (Notification No. 4/2012)
a. Definition of “Continuous service” extended to include where service is provided continuously or on recurrent basis, under a contract, for a period exceeding three months with an obligation for periodic payment.
b. Point of taxation is the date when the invoice for the service provided or agreed to be provided is issued. Where no invoice is issued within the time period of 30 days point of taxation will be the date of completion of service.
c. In case where service tax is payable under the Reverse charge mechanism, point of taxation will be the date on which the payment is made for the service, or six months.
d. In case of “associated enterprises” for import of services, the point of taxation shall be the date of debit in the books of account or date of payment, whichever is earlier.
12. Other Important Amendments to Service Tax Rules, 1994
Notification No. 3/2012- Service Tax (Amendment) Rules, 2012:
• Every person providing a taxable service to issue an invoice within 30 days from the date of completion of such taxable service or receipt of payment, whichever is earlier.
• No invoice to be issued if the excess payment received is upto Rs. 1000 and where the invoice will be issued subsequently.
• Individual and partnership firms providing taxable services utp Rs. 50 Lacs, will have the option to pay service tax on collection basis.
• Excess payment of service tax allowed to be adjusted against the subsequent month’s service tax liability without intimation to the jurisdictional Superintendent of Central Excise.
(Author Varun Dhawan is a Chartered Accountant by profession having a rich experience of over 14 years in Tax laws across varied service industries of transportation, logistics, telecom and hospitality sectors and currently working as VP – Taxation in Blue Dart Express Ltd.)
