Snap shots of Budget 2010-11 on Service tax

1. GST to be implemented by April 1, 2011.

2. No change in rate structure – Rate foundation for GST?

3. Introduction of 8 new services into tax net. (To cover Specified Health Service & Electricity Exchanges)

4. Expansion/modification of tax net of eleven services.

5. Addition or reduction of exemptions in various services.

6. Renting Service – Retrospective amendment to supersede decision of Delhi High Court in case of Home Solutions Retail India Ltd. Now activity of ‘Renting’ made taxable.

7. Construction Service – receiving any amount from prospective buyer before completion certificate would be considered as service.

8. Simplification of Export Rules – Condition of ‘provided from India and used outside India’ omitted.

9. Change in refund mechanism for accumulated CENVAT credit to exporters.

10. No penalty – If Service Tax along with interest has been paid before issuance of SCN.

11. CENVAT Credit – Wrong availment or utilization – liable for penalty.

EFFECTIVE DATES OF VARIOUS CHANGES:

Particulars Date from when effective
New Services & Expansion/modification in existing services From a date to be notified later (after enactment of Finance Bill, 2010)
Addition/reduction in exemptions of existing services February 27, 2010 (certain on April 1, 2010)
Other legislative amendments From a date to be notified later (after enactment of Finance Bill, 2010)
Amendments to Export & Import Rules February 27, 2010

NEW SERVICES:

1. Promotion, Marketing or organizing of Games of Chance (including Lottery, Bingo, Lotto) [Section 65(105)(zzzzn)]

By who to whom • • By any Person

To any other Person

Coverage • • Earlier covered by explanation to Business Auxiliary Service.

Scope increased into separate service as earlier under BAS, services provided ‘to client’ was taxable.

 2. Health Service [Section 65(105)(zzzzo)]

By who to whom • • By any hospital, nursing home or multi-specialty clinic

To

i) An employee of a business entity, where the business entity makes direct payment to the service provider for the health check-up or preventive care of its employees.

ii) Any person covered by health insurance scheme, where the insurance company makes direct payment to the service provider for the health check up or treatment.

Coverage Medical services partially covered in last budget by including cosmetic
& plastic surgery.
This service tends to cover medical services generally called as cashless treatment or check-up.
However words ‘health care/preventive care/ treatment’ not defined.

3. Maintenance of Medical Records of Employees of Business Entity [Section 65(105) (zzzzp) J

By who to whom • • By any other Person To any business entity
Coverage Generally such records are maintained by specialized hospitals or independent record keeper.
Services provided by such persons are intended to be cover – move to tax outsourced activities.

4. Promotion of a ‘brand’ of goods, services, events, business entity etc. [Section 65(105) (zzzzq)J

By who to whom

By any Person (through a business entity or otherwise under a contract)

To any other person

Coverage Under BAS, promotion or marketing – of sale of goods produced, provided or belonging to client and services provided by client is already covered.
Under proposed service, promotion of ‘BRAND’ is covered and not particular goods or services.
Taxable service here is linked with the contract.

5. Permitting Commercial Use or Exploitation of any event. [Section 65(105) (zzzzr)J

By who to whom • • By any person

To any other person

Coverage Granting the right or by permitting commercial use or exploitation of any event including an event relating to art, entertainment, business, sports or marriage, organized by such other person.
Service seeks to tax amounts received by the person or organization that permits the recording and broadcasting of event from broadcaster or any other person.
Telecast rights of events such as IPL matches, awards shows, marriage clips etc.

6. Electricity Exchange Service. [Section 65(105) (zzzzs)]

By who to whom

By an Electricity Exchange approved by the Central Electricity Regulatory Commission constituted under section 76 of the Electricity Act, 2003

To any person

Coverage Services provided by an electricity exchange, by whatever name called in relation to trading, processing, clearing or settlement of spot contracts, term ahead contracts, seasonal contracts, derivatives or any other electricity related contract.
Services provided by Commodity Exchanges and Processing and Clearing Houses are covered under the Service tax net. Levy did not extend to services provided by Electricity exchanges as these were not in relation to forward contracts covered by the Forward Contract (Regulation) Act, 1952.

7. Copyright Services. [Section 65(105) (zzzzt)]

By who to whom • • By a person

To any other person

Coverage Any:

– temporary transfer; or

– permitting the use or enjoyment of any copyright defined in the Copyright Act, 1957.

There are 3 types classes of work defined under section 13 of Copyright Act, 1957, out of which 2 have been bought to tax net. Viz. Sec. 13(b) – Recording of cinematographic films; & Sec. 13(c) – Sound recordings.
Sec 13(a) is kept out of preview of service tax viz.

– Original literary, dramatic, musical and artistic works.

Use or transfer of copyright was specifically excluded from the purview of the taxable service of ‘Intellectual Property Services’.
Entertainment industry bought into tax net.

8. Preferential Location Services. [Section 65(105) (zzzzu)]

By who to whom

By a builder of residential complex or a commercial complex or any other person authorised by the builder

To buyer

Coverage Service of providing Preferential Location or Development of such Complex
Preference location include choice of floors, direction of flats like

sea facing/park facing, choice of flat numbers, Vastu flats, internal/ external developments of parks, sewage and water pipelines, connecting roads, common lighting, fire fighting installation, power back up, etc.

Charges for providing parking space have been specifically excluded from the scope of this service.

EXPANSION/MODIFICATION IN SCOPE OF EXSISTING SERVICES:

Service Category Expansion/modification
Airport service, port service and Other port service
  • Any service provided wholly within the airport/port premises covered
    irrespective of category.
  • Prior to this, authorization of service was required from airport/port authorities which done away now.
Auctioneer’s service
  • The term ‘auction by government’ clarified by way of explanation to mean an auction of government property by any person acting as auctioneer.
  • · Prior to this, there was confusion as to whether the expression ‘auction by    government’   refers   to   the   fact   of property     belonging   to   the Government or the Government conducting the auction.
Management of investment

under ULIP

service

  • · Value of taxable service to either be actual amount charged by insurer from policy holder or maximum amount fixed by IRDA as fund management charges, which ever is higher.
  • · Prior to this, value of taxable service was computed as difference between the premium paid for ULIP reduced by risk premium and amount for aggregated investment.
Transport of passenger by air Service
  • · To include domestic as well as international journey in any class, for passenger embarking in India.
  • · Prior to this, only travel by business class for international journey was
    covered.
IT software service
  • · To include IT software service whether or not for use in the course of, or furtherance of, business or commerce.
  • · Prior to this, IT software service provided for personal use was not taxable.
Sponsorship service
  • · To include service in relation to sponsorship of sports event.
Commercial training or coaching Service
  • ·The expression ‘commercial training or coaching centre’ defined to clarify training service provided against consideration are taxable whether or not there is profit motive of organization conducting such training classes (Retrospectively amended from 1 July, 2003).
  • ·Prior to this, it was assumed that only ‘COMMERCIAL’ training or coaching centre is covered under tax net.
Commercial or

industrial

construction

service

And

Construction of

Complex service industrial

• To be considered as service if the builder or his authorised representative receives any consideration from prospective buyer before obtaining the completion certificate.

• A distinction is proposed to be drawn between:

a) Outright sale of immovable property after completion of construction, and

b) Booking of premise either before commencement of construction or before completion of construction.

• This Explanation has been inserted to streamline the different approaches adopted by assesses resulting in diverging tax positions.

Renting of

immovable

property

Service

• ‘Renting’ activity itself regarded as taxable service (Retrospectively amended from 1 June, 2007)

• Renting of vacant land for construction of building/temporary structure at later stage for furtherance of business or commerce made taxable.

Commercial training or coaching Service
  • ·The expression ‘commercial training or coaching centre’ defined to clarify training service provided against consideration are taxable whether or not there is profit motive of organization conducting such training classes (Retrospectively amended from 1 July, 2003).
  • ·Prior to this, it was assumed that only ‘COMMERCIAL’ training or coaching centre is covered under tax net.
Commercial or

industrial

construction

service

And

Construction of

Complex service industrial

• To be considered as service if the builder or his authorised representative receives any consideration from prospective buyer before obtaining the completion certificate.

• A distinction is proposed to be drawn between:

a) Outright sale of immovable property after completion of construction, and

b) Booking of premise either before commencement of construction or before completion of construction.

• This Explanation has been inserted to streamline the different approaches adopted by assesses resulting in diverging tax positions.

Renting of

immovable

property

Service

• ‘Renting’ activity itself regarded as taxable service (Retrospectively amended from 1 June, 2007)

• Renting of vacant land for construction of building/temporary

structure at later stage for furtherance of business or commerce made taxable.

OTHER CHANGES IN SERVICES

Service Category Expansion/modification
Transport of Goods by Rail Service
  • · Exemption is given in relation to transport of specified goods.
  • · An abatement of 70% of the gross value of the freight charged on goods, other than exempted provided.
Commercial Training or Coaching Service Exemption will be available only to Industrial Training Institutes or Industrial Training Centers affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered under Schedule I of the Apprentices Act, 1961.
General Insurance Service Exemption from service tax, presently available to Group Personal Accident Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn.
Information Technology Software Service
  • Pre-packed I.T. Software in retail packages for single use is exempted.
  • · This exemption is available only if document providing the right to use such software is packed along with the software, excise duty (custom duty) has been paid on the entire amount of software received from the buyer and the benefit under notification No. 17/2010-CE (31/2010 – Customs) is not availed.
Transport of Goods by Road Service Scope of exemption has been widened to include transportation of food grains and pulses along with the existing list of fruits, vegetables, eggs or milk by road.
Technical Testing and Analysis Service and Technical Inspection and Certification

Service

  • Services provided by Central or State Seed Testing Laboratory and
    Central or State Seed Certification.
  • Agency specified under the Seeds Act, 1966.
Service provided by Electricity Exchange Transmission of Electricity
Erection, Commissioning or Installation Service Erection, commissioning and installation of

i)   Mechanized Food Grain Handling Systems,

ii) Equipment for setting up or substantial expansion of cold storage; and

iii) Machinery/ equipment for initial setting up or substantial expansion of units for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine products or meat.

Online Information Database Access or Retrieval Service

i) Business subject to certain conditions.

Exemption to services provided by any notified Indian News Agencies subject to certain conditions.

KEY LEGISLATIVE CHANGES

  • Amended Section 73:

–    Insertion of explanation in Section 73 (3) of the Act

–   Clarifies that penalty shall not be imposed in a case where Service tax that is short paid or not
paid and interest thereon is paid by the assessee before the issuance of a Show Cause Notice.

–   Thus sub-section provides that if Service tax and interest is paid by the assessee on the basis of his own ascertainment or on the basis of ascertainment by a Central Excise Officer before a Show Cause Notice is served on the assessee and the Central Excise Officer is informed of such payment, he (Central Excise Officer) shall not serve a Show Cause Notice on the said assessee.

  • Insertion of a clause (19b) in section 65 – Business Entity:

– “business entity” includes an association of persons, body of individuals, company or firm but does not include an individual.

Note: Other procedural changes mainly related to Import of service & Export of service is not discussed here.

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0 Comments

  1. Abhijeet says:

    Increase in Car prices above 2.5 Lakh Cars was expected. Food is made cheaper in Hotels and Restaurants is good news…..Overall good Budget…

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