Union Budget 2017- Highlights of Service Tax Proposals

Amendments effective from 02.02.2017

Amendment in Mega Exemption Notification No. 25/2012 ST dated 20.06.2012

• Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government exempted from service tax vide new entry 26D inserted in Mega Exemption notification.
• Under the Regional Connectivity Scheme (RCS), exemption from service tax is provided in respect of the amount of viability gap funding (VGF) payable to the selected airline operator for the services of transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme (RCS) airport, for a period of 1 year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) as notified by Ministry of Civil Aviation vide new entry S. No. 23A inserted in Mega Exemption notification.
• The entry 9B exempts services provided by Indian Institutes of Management (IIMs) by way of two year full time residential Post Graduate Programmes (PGP) in Management for the Post Graduate Diploma in Management (PGDM), to which admissions are made on the basis of the Common Admission Test (CAT), conducted by IIM. The said entry is amended so as to omit the word ^‚residential^‛ appearing in the notification. The exemption remains the same in all other respects.

Amendments to be effective from the date of enactment of the Finance Bill, 2017

• The Negative List entry under section 66D(f) of the Finance Act, 1994 covering “services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption^‛ is proposed to be omitted. The said benefit would continue by way of exemption under Mega Exemption Notification.Consequently_ǰ the definition of ‘process amounting to manufacture’ [Section 65B(40)] is also proposed to be omitted from the Finance Act, 1994 and to be incorporated in the Mega Exemption Notification.
• Research and Development (R & D) Cess Act, 1986 to be repealed. Consequently, exemption from service tax equivalent to the amount of R & D cess payable on the import of technology under the said Act under Notification No. 14/2012 ST dated 17.03.2012 would not be available with respect to a taxable service involving import of technology.
• Rule 2A of the Service Tax (Determination of Value) Rules, 2006 to be amended so as to clarify that value of service portion in execution of works contract involving transfer of goods and land or undivided share of land, as the case may be, shall not include value of property in such land or undivided share of land. In view of the said amendment, the recent Delhi High Court judgment in case of Suresh Kumar Bansal v. UOI 2016 (43) ST5R 3 (Del.) no longer holds good. In this the High Court held that service tax cannot be charged in respect of composite contracts for purchase of units in a complex, entered into by the buyers with the builder, in view of the absence of the specific machinery provisions for the valuation of the same.

Amendments in Provisions of Advance Ruling

• Section 96A(d) relating to Advance Rulings proposed to be amended so as to substitute the definition of ^‚Authority^‛ to mean the Authority for Advance Ruling as constituted under section 28E of the Customs Act, Section 28 (E) of the Customs Act, 1962, is also to be amended so as to substitute the definition of ^‚Authority^‛ to mean the Authority for Advance Ruling as constituted under section 245-O of the Income-tax Act, 1961.
• Section 96B relating to vacancies not to invalidate proceedings also proposed to be omitted.
• Section 96C(3) to be amended so as to increase the application fee for seeking advance ruling from Rs. 2,500 to Rs. 10,000.
• Section 96D(6) to be amended so as to extend the existing time limit of pronouncement of advance ruling by the authority from 90 days to 6 months.
• A new section 96HA proposed to be inserted so as to provide for transferring the pending applications before the Authority for Advance Rulings (Central Excise, Customs and Service Tax) to the Authority constituted under section 245-O of the Income-tax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President.

Retrospective Exemptions

• With effect from 22.09.2016, Notification No. 41/2016 ST dated 22.09.2016 exempted one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for grant of long-term lease of industrial plots (30 years or more) by State Government industrial development corporations/ undertakings to industrial units. It is proposed that service tax would also not be leviable on such amounts during the period between 01.06.2007 [date on which service tax was levied on renting of immovable property service] and 21.09.2016 (both days inclusive).
• Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government are proposed to be exempted from service tax retrospectively during the period commencing from the 10.09.2004 [date on which life insurance service became leviable to service tax] and ending with the 01 .02.2016 (both days inclusive).

Source- ICAI