The Finance Bill, 2015 has proposed Lot of changes in Service tax provisions. These changes will be coming into effect on various dates. Based on date of applicability of provisions, the various changes can be categorized as follows:
(i) Changes coming into effect immediately w.e.f. the 1st day of March, 2015;
(ii) Changes coming into effect from the 1st day of April, 2015;
(iii) The amendments which will get incorporated in the Finance Act, 1994 immediately on enactment of the Finance Bill, 2015;
(iv) The amendments made in the Finance Act, 1994, including the change in service tax rate that will come into effect from a date to be notified by the Government in this regard after the enactment of the Finance Bill, 2015.
We have analyzed the changes/ amendments which will be applicable with effect from 01st April 2015:
RATIONALISATION OF EXEMPTIONS
A. EXEMPTIONS WITHDRAWN
1. Exemption presently available on specified services provided to the Government, a local authority or a governmental authority by way of construction‘ erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of – (vide S. No. 12 of the notification No. 25/12-ST ) shall be Limited only to,-
(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;
(b) canal, dam or other irrigation work; and
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.
Hence, exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn. These services include services provided to government by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:
- a civil structure meant for use other than for commerce, industry, etc.
- a structure meant predominantly for use as an educational, clinical, or an art or cultural establishment.
- a residential complex predominantly meant for self-use or the use of their employees.
2. Exemption to services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST). The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.
3. 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 1,00,000 for a performance (S. No 16 of notification No. 25/12-ST). It is further clarified that the exemption shall not apply if services provided by artist as a brand
4. 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 (S. Nos. 20 and 21 of notification No. 25/12-ST).
Therefore, the services by way of transportation of foodstuff except milk, salt and food grain (including flour, pulses and rice) would be liable to service tax.
5. Exemptions are being withdrawn (S. No 29 of notification No. 25/12-ST)) 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.
Service Tax on these services shall be Levied on reverse charge basis.
6. Exemption is being withdrawn (S. No. 32 of notification No. 25/12-ST) on the following service,-
- departmentally run public telephone;
- Guaranteed public telephone operating only local calls;
- Service by way of making telephone calls from free telephone at airport and hospital where no Bill is issued.
B. NEW EXEMPTIONS INTRODUCED
1. 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. (Amended in the entry at S. No. 2 of notification No. 25/12-ST refers).
2. Life insurance service provided by way of Varishtha Pension Bima Yojna is being (Amendment in entry at S. No. 26A of notification No. 25/12-ST refers)
3. Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted. (New entry at S. No. 43 of notification No. 25/12-ST).
4. Services by way of pre-conditioning‘ pre-cooling‘ ripening‘ waxing‘ retail packing‘ labeling of fruits and vegetables is being exempted. (New entry at S. No. 44 of notification No. 25/12-ST).
5. Service provided by way of admission to a museum‘ zoo‘ national park‘ wild life sanctuary and a tiger reserve is being exempted. These services when provided by the Government or local authority are already covered by the Negative List. (New entry at S. No. 45 of notification No. 25/12-ST).
6. Service provided by way of 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 is being exempted. (New entry at S. No. 46 of notification No. 25/12-ST).
7. 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). (Amendment in notification No. 31/12-ST refers).
CENVAT CREDIT RULES, 2004
Amendment of Rule 4(7): earlier, as per rule 4(7), in case of service tax paid by the service receiver full reverse charge mechanism, CENVAT credit was allowed to be availed on making of service tax payment even if value of service is not paid to service provider.
Similarly, in case of service tax paid under partial reverse charge mechanism, CENVAT credit was allowed to be availed on making payment of value of service as well as portion of service tax payable by the service receiver.
Now as per the proposed amendment, the service tax paid both under partial and full reverse charge by the service receiver, credit of service tax payable by the service recipient is allowed to be availed after making the payment of service tax and even if value of service is not paid.
REVERSE CHARGE MECHANISM
- Manpower supply and security services when provided by an individual, HUE, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism. (Notification under sub-section (2) of section 68 – Reverse Charge – Notification No. 30/2012 – Dated 20-6-2012 – Service Tax as amended time to time)
- 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.
RATIONALIZATION OF ABATEMENTS
- At present, 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 vessel. The conditions also vary.
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.
- 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.
|Type of Service||Earlier (Taxable Value after abatement)||Proposed (Taxable Value |
|Transport of goods and passengers by Rail||30%||30%|
|Transport of goods by Road||25%||30%|
|Transport of goods by vessels||40%||30%|
|Transport of Passenger by air (Economy)||40%||40%|
|Transport of Passenger by air (Other than economy)||40%||60%|
- 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.
SERVICE TAX – RATE CHANGES
(effective from a date to be notified after the enactment of the Finance Bill, 2015)
The rate of Service Tax is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Thus, the effective increase in Service Tax rate will be from the existing rate of 12.36% (inclusive of cesses) to 14%, subsuming the cesses.
|Service Tax Rate||Earlier 12.36%||New 14.00%|
In respect of certain services Like money changing service, service provided by air travel agent, insurance service and service provided by Lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. Amendments to this effect have been proposed in the Service Tax rules. The new rates are summarized in the table below:
|Service||Old Rate||New Rate|
|Air Travel Agent|
|Domestic booking||0.6 per cent||0.7 per cent|
|International booking||1.2 per cent||1.4 per cent|
|First year premium||3 per cent||3.5 per cent|
|Subsequent year premium||1.5 per cent||1.75 per cent|
|Money changing service|
|Amount of currency exchanged upto INR 0.1 million||0.12 per cent subject to |
minimum of INR 30
|0.14 per cent subject to minimum of INR 35|
|Amount of currency exchanged exceeding INR 0.1 million and upto INR1 million||INR 120 and 0.06 per cent||INR 140 and 0.07 per |
|Amount of currency exchanged exceeding INR1 million||INR 660 and 0.012 per cent subject to maximum of INR 6,000||INR 770 and 0.014 per cent subject to |
maximum of INR 7,000
|Where guaranteed prize payout is more than 80 per cent||INR 7,000||INR 8,200|
|Where guaranteed prize payout is Less than 80 per cent||INR 11,000||INR 12,800|
SWACHH BHARAT CESS
An enabling provision is being incorporated in the Finance Bill, 2014 to empower the central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. The cess shall be levied from the date to be notified after the enactment of the Finance Bill 2014.
( Author – CA. Chitresh Gupta, B.Com(H), FCA, IFRS (Certified), IDT (Certified) is Author of Book “An Insight Into Goods & Service Tax” and also Managing Partner at M/s Chitresh Gupta & Associates)