Synopsis of amendments to Service Tax effective from 01.05.2011

CA LALIT MUNOYAT

1)      The amendments to the provisions of Finance Act, 2011 pertaining to Service Tax  shall come into force from 1st day of May 2011. Notification No. 29/2011 – Service Tax the 25th April, 2011

2) Service tax on Medical Services  : EXEMPT FULLY from service tax w.e.f. 1st day of May, 2011.

Section 105(65)(zzzzo) was inserted by Finance Bill-2011 which  provided for levy of service tax on taxable services provided to any person (i) by a clinical establishment; or (ii) by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury, deformity, abnormality or pregnancy in any system of medicine. Notification No. 30/2011 – Service Tax the 25th April, 2011

3) Service tax on services provided  by a hotel, inn, guest house, club or campsite: EXEMPT FULLY from service tax w.e.f. 1st day of May,

Taxable services provided u/s 65(105)(zzzzw) was inserted by Finance Bill-2011 which  provided for levy of service tax on taxable services provided to any person by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months.

Full Exemption has now been provided when the declared tariff for providing of such  accommodation is less than rupees 1000 per day. “Declared Tariff” includes charges for all amenities provided in the unit of accommodation like furniture, air-conditioner, refrigerators etc., but does not include any discount offered on the published charges for such unit. Notification No. 31/2011 – Service Tax the 25th April, 2011

4)      Services of CAs, CSs, CWAs provided in respect of representing the client before statutory authority WITHDRAWN –Notification No.32/2011 – Service Tax the 25th April, 2011 w.e.f. 1st day of May,2011

Legal Consultancy Service: 65(105)(zzzzm) w.e.f. 01-09-2009

Any service provided or to be provided to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner is a taxable service provided the receiver and the provider both are non-individual Business Entity.

As in the case of management consultancy or engineering consultancy service, any consultancy, advice or technical assistance provided in any discipline of law is subjected to service tax.

However, the tax is limited to services provided by a business entity to another business entity. It has been defined that a business entity includes firms, associates, enterprises, companies etc. but does not include an individual. Thus, services provided by an individual advocate either to an individual or even to a business entity is outside the scope of the taxable service. Similarly, the services provided by a corporate legal firm to an individual is also outside the purview of taxable service.

Any service of appearance before any court of law or any statutory authority is  outside this levy.

The above provisions were applicable mainly to Advocates and Lawyers. CAs, CSs and CWAs were not covered by clause 65(105)(zzzzm).

However the services  of CAs, CSs and CWAs were covered under different classes and taxable since 01-03-2006 as under:

1)      65(105)(s)       Chartered Accountant

2)      65(105)(u)       Company Secretary

3)      65(105)(t)        Cost Accountant

rendered in his professional capacity, to a client, relating to representing the client before any statutory authority in the course of proceedings initiated under any law for the time being in force, by way of issue of notice, from the whole of service tax leviable thereon under section 66 of the said Finance Act.

Service tax is leviable on all the services provided  by a  practising  Chartered Accountant/Cost Accountant/Company Secretary to a client with effect from 1-3-2006.

Representations were received from the Institute of Chartered Accountants of India, the Institute of Cost and Works Accountants of India and the Association of Company Secretaries of India requesting the Government to consider exemption from levy of service tax on certain specified services provided by them which are also provided by other professionals and those other professionals providing similar services are not taxable. It has been stated that such an exemption is required till such time other professionals providing similar services are also taxed.

Government has considered the representations. Taking into account the views expressed by the Institutes and the Association and the other material facts, Government has exempted from levy of service tax only representational services provided to a client by a practising Chartered Accountant/Cost Accountant/Company Secretary to appear before a statutory authority in the course of proceedings initiated under any law for the time being in force, by way of issue of notice.

Accordingly Notification No.  25/2006-Service Tax Dated: July 13, 2006 was issued to provide full exemption to representational services provided to a client by a practising Chartered Accountant/Cost Accountant/Company Secretary to appear before a statutory authority in the course of proceedings initiated under any law for the time being in force, by way of issue of notice.

The above stated exemption is NOW WITHDRAWN by rescinding the Notification No.  25/2006-Service Tax Dated: July 13, 2006. The effect of the rescinding the Notification is that the representational services of CAs, CSs, CWAs is now fully taxable. However Advocates and Lawyers are EXEMPT in respect of representational services.

Note: Lawyers providing the representational services are EXEMPT from service tax. As always, CAs, CSs, CWAs are on the receiving end vis-à-vis Lawyers. A classic example of discrimination against CAs, CSs, CWAs. ICAI, ICSE and ICWAI should join together to fight before appropriate authority against this discrimination. But which Lawyer would like to take this case where his own interest is involved.

5) Coaching or Training Services– FULL EXEMPTION- Notification No.33/2011 – Service Tax the 25th April, 2011 w.e.f. 1st day of May,2011

(i) Any preschool coaching and training;

(ii) Any coaching or training leading to grant of a certificate or diploma or degree or any     educational qualification which is recognised by any law for the time being in force;  when provided by any commercial coaching or training centre from the whole of the service tax leviable thereon under section 66 of the Finance Act, 1994.

6)      Service tax in respect of the services stated in the following table shall be EXEMPT PARTIALLY as provided in the Table:  Notification No.34/2011 – Service Tax , the 25th April, 2011 w.e.f. 1st day of May,2011

TABLE

7)      Life Insurance business [section 65 (105) (zx): Notification No.35/2011 – Service Tax , the 25th April, 2011 w.e.f. 1st day of May,2011

Life insurance companies provide services relating to risk cover and managing investment for the policy holders. The former is already subjected to service tax. The latter was brought into the tax net by Finance Bill 2011.

When the entire premium is only for risk cover the same shall continue to be taxed even in the revised definition. However in the case of other schemes, a significant portion of the premium is used towards investment, while the rest is allocated towards various overheads and mortality. IRDA in its circular Ref: IRDA/ACT/CIR/VIP/171/2010 dated November 21, 2010 has made it mandatory for the insurance companies to share this break-up with the policy holders in the case of “Variable Insurance Policies” under the heads:

1)      Premium received,

2)      Deductions towards mortality,

3)      Commission and expenses,

4)      Interest added and

5)      Closing balance.

Thus amounts relating to deductions for mortality, commission and expenses are not available for investment. It is now proposed to give an insurer carrying on life insurance business the option to pay tax :

1)      On the gross premium charged from a policy holder reduced by the amount allocated for investment, or savings on behalf of policy holder, if such amount is intimated to the policy holder at the time of providing of service;

2)      1.5 per cent of the gross amount of premium charged from a policy holder in all other cases;

towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Chapter V of the said Act. However such option shall not be available in cases where the entire premium paid by the policy holder is only towards risk cover in life insurance.

8 ) Export of Services Rules, 2005 have been amended by Notification No. 36/2011 – Service Tax, the 25th April, 2011 w.e.f. 1^st May 2011 so as to include the following services as export of services  provided in relation to an immovable property situated outside India; namely

1)      (zzzzv)  to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises;

2)      (zzzzw) Services provided or to be provided, to any person, by a hotel, inn, guest house, club or campsite, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months;

9) Import of Services : Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, have been amended by Notification No. 37/2011 – Service Tax, the 25th April, 2011 w.e.f. 1^st May 2011 so as to include the following services as Taxation of Services Provided from Outside India and Received in India namely :–

1)      (zzzzv)  to any person, by a restaurant, by whatever name called, having the facility of air-conditioning in any part of the establishment, at any time during the financial year, which has licence to serve alcoholic beverages, in relation to serving of food or beverage, including alcoholic beverages or both, in its premises;

2)      (zzzzw) Services provided or to be provided, to any person, by a hotel, inn, guest house, club or campsite, by whatever name called, in relation to providing of accommodation for a continuous period of less than three months;

Compiled by:

CA LALIT MUNOYAT

B.Com.(Hons.), CS, FCA, DISA

munoyat@gmail.com

98201 93508

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