Change in Rate of Service Tax Rate

The Service Tax rate is being increased from 12% plus Education Cesses to 14%. Effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.

w.e.f: 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

Enabling provision to introduce Swacch 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.

Review of Negative List

♣ Earlier 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 was covered in the Negative list. Budget 2015-16 has proposed to omit the clause (j) of Section 66D. Hence, the same will be taxable from the date to be notified by the Central Government.

♣  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 INR 500 for right to admission to such an event.

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.

♣  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.

Review of General Exemptions [w.e.f. 01-04-2015]

♣  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 historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;
  • canal, dam or other irrigation work; and
  • pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

In other words, other entries of Sl. No. 12 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:

  • services provided by a mutual fund agent to a mutual fund or assets management company,
  • distributor to a mutual fund or AMC,
  • selling or marketing agent of lottery ticket to a distributor.

It must be noted herein that Service tax on these services shall be levied on reverse charge basis.

♣  Exemption is being withdrawn on the following service,-

  • Departmentally run public telephone;
  • Guaranteed public telephone operating only local calls; and
  • Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

Introduction of Certain new exemptions [w.e.f. 01-04-2015]

♣ 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).

Rationalization of Abatements [w.e.f. 01-04-2015]

♣ 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. Presently, 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.

♣ 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.

Review of 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.

♣ 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.

Miscellaneous

♣ 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.

♣ Existing exemption, vide notification No. 42/12-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 Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.

♣ 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.

♣ 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.

♣ 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;

(Article Compiled by CS Aditya Singhania and Nischal Agarwal)

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