CA Pathik Shah

Service tax

(a)   Broadening the exemption for advertisement industry

(1)   Service tax leviable currently on sale of space or time for advertisements in broadcast media, namely radio or television, has been extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media, however, would remain excluded from service tax.

Old clause:

“section 66D (g): Selling of space or time slots for advertisements other than advertisement broadcast by radio or television”

It is proposed to substitute clause (g) of section 66D as follow:

“(g) selling of space for advertisements in print media”

This change will come into effect from a date to be notified later, after the Finance (No.2) Bill, 2014 receives the assent of the President.

(2)   In connection of above, definition of “Print Media” introduce:

New definition of “Print Media” has been introduced as new clause (39a) in section 65B which is as follow:

‘(39a) “print media” means,—

(i) “book” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

(ii) “newspaper” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867;’

(b)   Exemption to Radio taxis removed from negative list

(1)   Service tax to be levied on the services provided by radio taxis or radio cabs, whether or not air-conditioned. The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them on par.

Old clause:

“Section 66D (o) (vi): metered cabs, radio taxis or auto rickshaws”

It is proposed to substitute sub-clause (vi) of clause (o) of section 66D as follow:

“(vi) metered cabs or auto rickshaws”

Service tax on radio taxi services will come into effect from a date to be notified later, after the Finance (No.2) Bill, 2014 receives the assent of the President.

(2)   In connection of above, amendment in definition of “Metered Cab” – section 65B(32)

As per section 65B(32), metered cab means any contract carriage on which an automatic device, of the type and make approved under the relevant rules by the state Transport Authority, is fitted.

It is now proposed to exclude “Radio taxi” from definition of “Metered Cab”

As per notification 6/2014-St dated 11th July,2014, “Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two – way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS)

(c)    Rules to be prescribed for “rate of exchange”

As per explanation to section 67A, “rate of exchange” means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962.

However, it is proposed to introduce rules in service tax for determining “rate of exchange”.

(d)   Time limit prescribed for completion of adjudications

As per section 73, where any service tax has not been levied or paid or has not short levied or short-paid or erroneously refunded, the central excise officer may, within 18 months and in case of fraud, collusion etc, within 5 years from the relevant date, serve notice on the person requiring him to show cause why he should not pay the amount specified in the notice. However, there is no time limit prescribed for completion of such adjudications or determine amount of service tax due.

In connection of this, it is now proposed new clause (4B) in section 73 to determine time limit for the amount of service tax due under sub-section (2) of section 73 as follow:

Notice under Section issued Time limit of issue of notice Proposed time limit for determine the amount of service tax due
Sub- section (1) of section 73 18 months 6 months from the date of notice
Proviso to sub-section (1) of section 73 (in case of fraud, collusion etc.) or the proviso to sub-section (4A) of section 73 (in case of audit, investigation etc) In case of sub-section (1) – fraud, collusion – 5 years

 One year from the date of notice

(e)   For serious offences waiver of penalty not to be available

As per proviso to section 78, if service tax has not been levied or paid or has been short-levied or short paid or erroneously refunded in case of fraud, collusion etc, however, true and complete details of the transactions are available in the specified records. In such case, penalty would be levied equal to fifty per cent of such service tax. However, as per section 80(1), no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure.

However, it is now proposed that benefit of section 80(1) should be withdrawn for proviso to section 78. Accordingly, in case of serious offences as per section 78, waiver of penalty not to be available, though details may be available on records.

(f)    Power to approve search and seizer widen

As per section 82, only Joint commissioner of central excise has power to authorize any Superintendent of Central Excise to search for and seize any documents or books or things which will be useful for or relevant to any proceeding are secreted in any place.

Now it is proposed to widen authority to approve search to additional commissioner of central excise or such other Central Excise officer as may be notified by the Board. Such officers can authorize any Central excise officer to search and seize. Such provision has been amended in line of section 12F(1) of Central Excise Act.

(g)   Applicability of certain section of Central Excise Act

As per section 5A(2A) of central excise act, central government may for the purpose of clarifying the scope or applicability of any notification/ order, insert an explanation in such notification/ order within one year of issue of the notification/ order shall have the effect as if it has always been part of the notification.

As per section 15A of central excise act which proposed in current finance bill, Central government is empower to prescribe an authority to whom the information return shall be filed by the specified persons such as Income tax authorities, VAT authorities etc. to identify tax evaders or recover confirmed dues. It is also proposed to insert a new section 15B which provides for imposition of penalty if the information return is not submitted.

Above sections 5A(2A), 15A and 15B of Central excise act will be applicable for service tax also.

(h)   Power to recover dues of a predecessor from successor

New proviso to clause (c) of section 87 – recovery of any amount due to central government has been inserted.

As per new proviso where the person (hereinafter referred to as predecessor) from whom the service tax or any other sums of any kind is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof. In consequence of which he is succeeded in such business or trade by any other person then all goods, in the custody or possession of the person so succeeding may also be attached and sold by officer after obtaining the written approval of the Commissioner for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.

(i)     Power to make rule in case of evasion of duty or misuse of cenvat credit

As per section 94, Central government has power to make Rule for carrying out provision of service tax act. In connection of this, new clause has been inserted in section 94 to make provisions for withdrawal of facilities or imposition of restriction (including restrictions on utilization of Cenvat credit) on provider of taxable service or exporter, for dealing with evasion of tax or misuse of Cenvat credit.

(j)     Retrospective exemption for ESIC

Service provided by Employees’ State Insurance Corporation (ESIC) during the period prior to 1.7.2012 to be exempted from service tax.

(k)   Amendment in notification 25/2012-ST

In Notification 06/2014-ST dated 11th July, 2014 following amendments are made with immediate effect:

(1)   New exemptions:

Following new services are exempt from service tax:

i. Services provided by common bio-medical waste treatment facility operators to clinical establishments are being exempted. (clause 2A)

ii. Service provided by way of transportation by rail or a vessel from one place in India to another for “organic manure” will be exempt from service tax. (clause 20)

iii.        Service provided by way of loading, unloading, packing, storage or warehousing or transportation by rail or a vessel or by a goods transport agency from one place in India to another for “cotton, ginned or baled” will be exempt from service tax. (clause 21,40)

iv.  Life micro-insurance schemes for the poor, approved by IRDA, where sum assured does not exceed Rupees Fifty Thousand to be exempted from service tax. (clause 26A(C))

v. Specialized financial services received by RBI from global financial institutions in the course of management of foreign exchange reserves, e.g., external asset management, custodial services, securities lending services, etc. are being exempted. (clause 41)

vi. Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India are being exempted. (clause 42)

(2)   Exemption withdrawn

Following services are withdrawn from notification 25/2012 and the same will be taxable:

 i. As per clause 7, following service was exempt but the same is withdrawn:

Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India (clause 7)

ii. As per clause 23, transportation of passengers by a contract carriage excluding tourism, conducted tour, charter or hire will not be liable for service tax.

However, now, exemption extended to air-conditioned contract carriages like buses is being withdrawn.

(3)   Amended clause for clarification

 i.  Concept of “auxiliary educational service” has been withdrawn

Old provision was as follow:

(9) Services provided to an educational institution in respect of education exempted from service tax, by way of,-

(a)    auxiliary educational services; or

(b)    renting of immovable property

New provision is as follows:

(9) Services provided,-

(a)    by an educational institution to its students, faculty and staff;

(b)    to an educational institution, by way of,-

 i.      transportation of students, faculty and staff;

ii.      catering, including any mid-day meals scheme sponsored by the Government;

 iii.      security or cleaning or house -keeping services performed in such educational institution

iv.      services relating to admission to, or conduct of examination by, such institution

In respect of services received by educational institutions, presently, exemption is being operated through the concept of ‘auxiliary educational services’. Doubts have been raised and clarifications have been sought regarding the scope and meaning of ‘auxiliary educational services’. To bring clarity, it is proposed to omit the concept of ‘auxiliary educational services’ and specify in the notification, the services which will be exempt when received by the educational institutions.

Further, exemption extended so far in respect of renting of immovable property service received by educational institutions, stands withdrawn.

 ii.  Clarification for exemptions for places for lodging purpose

Old clause 18:

“Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent;”

With intent to bring clarity for exemption available to accommodation services provided by hotels, dharamshalas or ashrams when they provide rooms for less than Rupees One Thousand per day, is being re-worded as follow:

“Services by a hotel, inn, guest house, club or campsite, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent”

iii. Limited scope of services provided to government

As per clause 25, any service provided to government, a local authority or a governmental authority by way of carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation.

However, now scope will be limited to a service by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation and no exemption will be provided to any other activity in relation to such services.

(l)     SEZ – procedural simplification – notification 7/2014-ST dated 11th July, 2014

Procedural simplification has been done with respect to exemption on service provided to SEZ as follow:

1)      Time limit for issue of Form A-2

SEZ unit has to furnish declaration in Form A-1 to claim exemption from service tax and authorized shall be issued by jurisdictional Deputy Commissioner in form A-2. However, there was no time limit specified within which period Form A-2 should be issued. Hence, now, within 15 days from the date of receipt of Form A-1, Central excise officer needs to issue Form A-2.

2)      Effective validity of Form A-1

There was no clarity from which date exemption on service provided to SEZ would be applicable. Whether such exemption would be applicable from authorization of Form A-2 by Central excise officer or from Form A-1 by authorized officer of SEZ?

Accordingly, now clarification has been provided. Exemption would be available from the date when list of service on which SEZ is entitled to upfront exemption is endorsed by authorized officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later, exemption would be available from the date on which Form A-1 is so furnished.

3)      Service provider to pay service tax if Form A-1 is not furnished to service provider

If SEZ unit provides Form A-2 to service provider then service provider can supply service without charging service tax.

Now, it is clarified that if issuance of Form A-2 is pending then exemption will be available subject to condition that authorization issued by Central Excise officer will be furnished to provider within a period of three months from provision of service. If such Form A-2 is not provided within 3 month then service provider should pay service tax on services provided to SEZ unit or developer.

4)      Specified “services used exclusively for the authorized operation of SEZ”

A service shall be treated as used exclusively for the authorised operations if the service is received by the SEZ Unit or the Developer under an invoice in the name of such Unit or the Developer and the service is used only for furtherance of authorised operations in the SEZ.

5)      As regards services covered under reverse charge, the requirement of furnishing service tax registration number of service provider in form A-1, A-2 & A-3 shall be dispensed with.

(m)Amendment in Abatements notification no. 26/2012-ST dated 20th June, 2012 by notification no. 8/2014-ST, dated 11th July, 2014

1)      Input Service tax allowed on renting of any motor vehicle

The word “any motor vehicle designed to carry passengers” will be substituted with word “motor cab” from 1st October, 2014.

Earlier, if any service tax paid by sub-contractor in line of business of renting of any motor vehicle would not be eligible for input service tax credit on service tax paid to the main service provider.

Now, input tax credit of renting motor vehicle would be allowed in following manner:

a. Full CENVAT credit of such input service received from a person who is paying service tax on forty percent of the value; or

b. Up to forty percent CENVAT credit of such input service received from a person who is paying service tax on full value;

CENVAT credit on input services other than those specified in above, has not been taken under the provisions of the CENVAT Credit Rules, 2004

2)      Abatement available on transport of passengers by contract carriage

New clause has been added for abatement on transport of passengers by contract carriage:           

  1. No.
Description of taxable
service
Tax to be levied on Percent-age Conditions
9A Transport of passengers, with or without accompanies belongings, by a contract carriage other than motor cab 40% CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

Further, above clause shall be substituted as follow from date as central government may notify for omission of word “radio taxi” in section 66D(o)(vi):

“Transport of passengers, with or without accompanied belongings, by –

(a)   A contract carriage other than motor cab

(b)   A radio taxi”

3)      Taxable portion in respect of transport of goods by vessel to be reduced from 50% to 40%. Effective service tax will decrease from the present 6.18% to 4.944%. This will come into force from 1st October 2014.

4)      For tour operator, service tax paid on main tour operator services will be allowed as Cenvat credit from 1st October, 2014.

(n)   Amendment in reverse charge mechanism notification no. 30/2012-ST dated 20th June, 2012 by notification no. 09 & 10/2014-ST dated 11th July, 2014

(1)   New clause inserted relating to services provided by recovery agent

S. No. Description of a service Percentage of  service tax payable by the person providing service Percentage of service tax payable by the person receiving the service
1A In respect of services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a NBFC NIL 100%

(2)   Amended clause relating service provided by director

Earlier, only if director of company provide services to company were covered under reverse charge mechanism.

Now, services provided by a Director of body corporate to body corporate will be covered under reverse charge mechanism.

(3)   Renting of motor vehicle portion of service tax payable change

S. No. Description of a service Percentage of  service tax payable by the person providing service Percentage of service tax payable by the person receiving the service
7(b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not enaged in the similar line of business Old New Old New
60% 50% 40% 50%

  (o)   Service tax on service portion in works contracts – rationalization – notification 11/2014-ST, dated 11th July, 2014

Clause (ii) of Rule 2A of Service tax (determination of value) Rules, 2006 has been amended as follow:

Where works is for… Value of the service portion shall be…
(B) maintenance or repair or reconditioning or restoration or servicing of any goods Old rate New rate
70% of total amount charged 70% of total amount charged
(C) in case of other works contracts , not included in serial nos. (A) and (B) above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings. 60% of total amount charged 70% of total amount charged

Based on above, category ‘B’ and ‘C’ of works contracts proposed to be merged into one single category, with service portion as 70%; this change will come into effect from 1st October, 2014.

(p)   Simple interest rate enhanced – notification no. 12/2014-ST, dated 11th July, 2014

As per section 75, interest on delayed payment of service tax would be as follows:

o     Turnover below Rs. 60lacs in F.Y/preceding F.Y.–15% p.a

o     Turnover above Rs. 60lacs in F.Y/preceding F.Y. – 18% p.a.

From 1st October, 2014, Simple interest rates per annum payable under section 75, to vary on the basis of extent of delay in payment of service tax:

Extent of delay Simple interest rate per annum
Up to six months 18%
From six months and up to one year 24%
More than one year 30%

 (q)   Point of taxation in case of reverse charge mechanism amended – notification no. 13/2014-ST, dated 11th July, 2014

As per Rule 7 of point of taxation, in case of service tax payable under reverse charge mechanism, point of taxation will be date on which payment is made. However, where the payment is not made within a period of six months of the date of invoice then Rule 7 would not be applicable to determine point of taxation.

Now to bring clarity in the determination of point of taxation, it is proposed to provide that point of taxation will be the payment date or first day after three months from the date of invoice, whichever is earlier. The amended point of taxation will apply to invoices issued after 1st October 2014.

Further, as transition to new rule, invoices issued before 1st October, 2014, but payment has not been made as on said day, the point of taxation shall be

  • if payment is made within a period of six months of the date of invoice, be the date on which payment is made
  • if payment is not made within a period of six months of the date of invoice, be determined as if rule 7 and this rule do not exist

(r)    Amendment in Place of Provision Rules, 2012 – Notification no. 14/2014-ST, dated 11th July, 2014 – effective from 1st October, 2014

1)      “Intermediary of goods” included in definition of “intermediary”

As per Rule 9 of Place of provision of Rule, place of provision of services in case of intermediary service shall be location of the service provider. In definition of “intermediary” only intermediary service provider like broker, agents were included.

Now it is proposed to include intermediary of goods who is providing service or arranges a supply of goods to be given the same treatment as is given to intermediary of services.

2)      Amendment in place of provision of performance based service

As per Rule 4 of place of provision of service Rules, 2012, Rule 4 (location shall be services are actually performed) shall not be apply in the case of a service provided in respect of goods that are temporarily imported in to India for repairs, reconditioning or re-engineering for re-export.

Now above clause has been reworded. Rule 4 shall not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs and are exported after the repairs without being put to any use in the taxable territory, other than that which is required for such repair.

3)      Vessels (excluding yachts) and aircraft to be excluded from Rule 9(d)

As per Rule 9 of Place of provision of Rules, the place of provision in case of service consisting of hiring of means of transport, up to period of one month shall be location of the service provider.

Now in above Rule, Vessels (excluding yatchs) and aircraft would be excluded from term “hiring of means of transport”. Accordingly, hiring of vessels or aircraft, irrespective of long term or short term, will be covered by the general rule, which is place of location of service receiver.

(s)    Inclusion of “resident private company” as applicant for advance ruling – notification no. 15/2014-ST, dated 11th July, 2014

As per section 96A(b)(iii) of finance act, 1994, the central government has power to specify certain class of persons as applicant for advance ruling. In connection of this, Government specifies “the resident Private Limited Company” as class of person who can make application for advance ruling.

“Private limited company” shall have the same meaning as is assigned to “private company” in clause (68) of section 2 of the Companies Act, 2013.

(t)     Time limit for taking credit on input and input services

There was no time limit for taking credit on input and input services on invoice, challans or other documents specified in Rule 9.

From 1st September, 2014, credit shall be taken within six months from the date of the invoice or challans or other documents specified.

(u)   Amendment in taking cenvat credit in case of reverse charge mechanism

In case of reverse charge mechanism, cenvat credit of an input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or challan.

Now, Cenvat credit will be allowed in case of reverse charge mechanism as follow:

Condition Credit allowed on…
in respect of input service where whole of the service tax is liable to be paid by the recipient of service credit shall be allowed after the service tax is paid
where the service recipient is liable to pay a part of service tax and the service provider is liable to pay the remaining part CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill

Further, in case of value of input service and the service tax paid or payable as indicated in the invoice, bill except in respect of input service where the whole of the service tax is liable to be paid by the recipient of service, is not made within three months of the date of the invoice, bill the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service. Such credit would be allowed only after payment is made.

(v)   Re-credit of cenvat credit reversed on account of non-receipt of export proceed allowed

As per Rule 6(8) of Cenvat credit Rule, 2004, if service provided which satisfies conditions specified under Rule 6A of service tax Rule as export of service and payment for the service is to be received in convertible foreign exchange; However, such payment has not been received for a period of six months or such extended period as may be allowed by RBI, such export of service would not be an exempted service. On such export of services, service provider shall follow Rule 6(3).

However, now new proviso has been inserted to Rule 6(8) and as per said proviso if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.

(Compiled by CA Pathik Shah (shahpathik123@gmail.com / 9870148084)        

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Category : Service Tax (3411)
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Tags : Budget (1957) Budget 2014 (172)

One response to “Service Tax Proposals – Budget 2014-15”

  1. Ganeshan says:

    Sir, The service tax applicable on radio taxi will that fall under reverse charge mechanism. And, Please clarify regarding the applicability of revised interest rate.

    regards,
    ganeshan

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