The Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 has notified that the following changes in relation to the Negative List of services contained under Section 66D of the Finance Act, 1994 (“the Finance Act”) shall be effective from June 1, 2015:
♠ Section 66D(f): Services by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption brought under the Service tax net.
♠ Section 66D(i): Explanation inserted whereby the expression “betting, gambling or lottery” shall not include the activity as specified in substituted explanation 2 to Clause (44) of Section 65B of the Finance Act which reads as under:
“Explanation 2.—For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include––
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out––
(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;
(b) by a foreman of chit fund for conducting or organising a chit in any manner.”
Consequently, Service tax to be levied on the services provided by way of access to amusement facility such as rides, bowling alleys, amusement arcades, water parks, theme parks, etc;
Service tax to be levied on services by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts and award functions, if the amount charged for admission is more than Rs. 500.
Whereas services by way of admission to exhibition of the cinematographic film, circus, dance, or theatrical performances including drama, ballets or recognized sporting events shall continue to be exempt; [Read with Notification No. 16/2015-ST dated May 19, 2015 vide which changes has been made in the Mega Exemption List of Services effective from June 1, 2015]
However, as per TRU Clarification vide D.O.F.No.334/5/2015-TRU dated May 19, 2015, the effective dates to be notified later in respect of the changes proposed in Section 66D(a) of the Finance Act i.e. under clause (iv), the words ‘support services’ to be substituted by the words ‘any service’.
Accordingly, after such amendment, ‘Any services’ provided by the Government or local authority to a Business Entity would be exigible to Service tax, except for the services that are specifically exempted, or covered by any another entry in the Negative List.
Hence, ‘Support services’ provided by Government or Local Authority to Business Entity will continue to be taxed under Reverse charge mechanism except (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of Section 66D of the Finance Act.
Dilemma of change in taxability of new services effective from June 1, 2015: Rule 5 of the POT Rules Vs. Section 66B of the Finance Act:
With the new services becoming taxable w.e.f. June 1, 2015, the issue may crop up as to whether the services rendered prior to June 1, 2015 are exigible to Service tax when payments for such services are received later or invoices pertaining to such services are raised later.
Before taking insight into the uncertainties and ambiguities, it is pertinent here to understand the basic structure and concept of levy and collection of Service tax under the Finance Act governing taxability of a service.
Levy and Collection of Service tax under the Finance Act
In any taxing statute, the statutory provision containing the charging Section is of foremost importance. It is well settled law that levy of tax is one thing and collection thereof is quite different thing. Once the levy is attracted, the collection of tax may be at any different point/ stage/ event.
Under the Finance Act, Section 66B of the Finance Act is the charging Section which levy Service tax on taxable services. We are reproducing herewith Section 66B of the Finance Act for the ease of convenience:
“66B. Charge of service tax on and after Finance Act, 2012.
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
[It may be noted here that the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 has notified increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015.]
The literal interpretation of the charging Section 66B of the Finance Act means that the levy of Service tax is on those service ‘other than the one specified in the Negative List’, ‘provided or agreed to be provided’. However, the collection of Service tax may be shifted to any point/ stage/event, in any manner, as prescribed by the Rules made in this behalf.
Further as already quoted in our earlier newsletter, the Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST] has held that “a tax on a thing or goods can only be with reference to a taxable event” and the same contention was upheld again in the case of Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], wherein the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service.
Now, in view of the above discussions, the levy of Service tax is on the provision of service and accordingly, the service must be taxable service at the time of its rendition in order to attract Service tax levy. In other words, if at the time of rendition of service, it is covered under the Negative List, then as per Section 66B of the Finance Act, no Service tax may be levied on the same irrespective of the date of its payment or raising of invoice.
However, in this regard, Rule 5 of the Point of Taxation Rules, 2011 (“the POT Rules”) governing Point of taxation for levy of Service tax in case of new services, provides contradictory provisions.
Whether Rule 5 of the POT Rules can override Section 66B of the Finance Act:
Rule 5 of the POT Rules provides that where a service is charged to tax for the first time, then:
“(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;”
As per this Rule 5(a) of the POT Rules, no Service tax is payable even if services are rendered after such service becomes taxable only when the invoice has been issued and the payment received against such invoice before such service became taxable.
“(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time.”
Manifestly, the stated Rule provides that in cases of levy on new services, irrespective of date of completion of service, Service tax shall be payable if the payment is received on or after the date of levy and/ or if the invoice is not issued within 14 days of the date of levy.
Now, the moot question here is that whether Rule 5 of the POT Rules can override Section 66B of the Finance Act in terms of which the levy of Service tax is on the provision of service and accordingly, the service must be taxable service at the time of its rendition in order to attract Service tax levy.In view of the above discussed provisions, the matter is subjected to debate as to whether Service tax would be leviable on a service which was not a ‘taxable service’ at the time of its rendition as being covered under the Negative List, merely because its payment is received on or after the date of levy and/ or the invoice is not issued within 14 days from the date service is taxed first time.
Here we would like to mention that the POT Rules were framed by the Central Government in exercise of the powers conferred under Section 94 of the Finance Act and such delegated legislation cannot be extended to go beyond the vires of the Finance Act.
Hence, an illustrative clarification to this effect is much warranted from the Board before the new services becoming taxable effective from June 1, 2015.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Email: firstname.lastname@example.org)