18 th Jul 2014

CA Arvind Singh Chawla, ISA, CS.com

18th Jul 2014

“Impact on Service TaxBudget 2014”

Raipur - ICAI


SECTORAL CHANGES


Sale of Space for Advt.

• Present provision: Sale of space or time slots for advertisements other than advertisements broadcast by radio or television is non-taxable under negative list.

• Budget provision: Sale of space for advertisements in ONLY print media non-taxable


Sale of Space for Advt.• Impact: Advt. in internet websites, out-of-home

media, on film screen in theatres, bill boards, conveyances, buildings, cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising, etc.

• Tax Rate: 12.36%

• Date of Applicability: w.e.f. Finance Bill(No.2),2014 enactment

• Note: Print media includes books and newspapers but excludes business directories


Radio Taxi Services

• Present provision: Metered cabs, radio taxis or auto rickshaws not taxable under negative list

• Budget provision: Only metered cabs or auto rickshaws non-taxable

• Impact: Radio taxis will be taxable

• Tax Rate: After abatement of 40%,effective rate 4.944%

• Date of Applicability: w.e.f. FB,2014,enactment


Radio Taxi Services• Note: Radio taxi defined u/n 25-2012 as 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)


Passenger Transportation by a contract carriage

• Present provision: A contract carriage for transportation of passengers, excluding tourism, conducted tour, charter or hire is exempted.

• Budget provision: Only non-air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire will be exempted.

• Impact: Transport of passengers by AC contracts carriage vehicles now taxable


Passenger Transportation by a contract carriage

• Tax Rate: Tax on abated value of 40%. Effective rate 4.944%

• Date of Applicability: w.e.f. 11-07-2014 (u/s 25& 26/2012-ST)


Rent-a-cab

• Present provision: No cenvat if tax paid at abated rate of 4.944% (40%)

• Budget provision:

Service Provider(Vendor)

Cenvat Allowed to Rent-a-Cab-operator

Effect

Pays tax after claiming abatement (4.944%)

100%

Cenvat of 4.944% of total value allowedPays tax at full rate

(12.36%)40%


Rent-a-cab

• Impact: Cascading impact of taxes lowered

• Date of Applicability : w.e.f. 11-Jul-14


Tour Operator

• Present provision: Abatement is provided as per existing table if no cenvat is claimed.

Nature of Service

Taxable %

(i)Tour operator in relation to a package tour[Bill inclusive of charges for Tour] 25%

(ii) Solely Arranging accommodation in relation to a tour{Bill inclusive of charges for Accommodation and not only service charges for arranging such accommodation}

10%

(iii) Services, other than services (i) and (ii) above, by a tour operator in relation to a tour[Bill inclusive of gross charges for Tour]

40%


Tour Operator

• Budget Provision: The amended provision allows for cenvat credit on input service provided by other tour operator.

• Impact : Cascading impact of taxes lowered

• Date of Applicability: w.e.f. 11-07-2014 (u/n 25/2012-ST)


Technical Testing

• Present provision: Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India;

• Budget provision: Exemption rescinded


Technical Testing

• Impact: Clinical Drug Trials will become expensive.

• Tax Rate: 12.36%

• Date of Applicability : w.e.f. 11-Jul-2014 (u/n 25/2012-ST)


Education

Present provision:

Education services of following nature are exempted under Negative list

• Pre-school education and education up to higher secondary school or equivalent, eg. CIE

• Education as a part of a prescribed curriculum for obtaining a qualification recognized by “Indian” law for the time being in force

• Approved vocational course by NCVT and SCVT


Education

Other exemptions

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

• auxiliary educational services; or

• renting of immovable property


Education

Budget provision :

• Negative list entry non-taxable as it is.

• Concept of auxiliary education services deleted and scope of exemption redefined to exclude the following:o Services provided by an educational institution

to its students, faculty and staffo Service provided to an educational institution, by

way of,-


Education

Transportation of students, faculty and staff catering, including any mid-day meals scheme

sponsored by the Government security or cleaning or house-keeping services

performed in such educational institution


Education

• Impact: Conducting entrance and admission tests, providing places and faculty for examination, renting of property to education institutions taxable

• Rate of tax: 12.36%



Services by hotel, inn etc.

• Present provision: 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 Rs. 1,000/- per day or equivalent.


Services by hotel, inn etc.

• Budget provision: 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


Services by hotel, inn etc.• Impact: Deletion of word “services by way of

renting of a hotel…” meant for lodging…below Rs. 1,000/- may be interpreted as renting of the hotel property itself will be exempted.

• Deletion of word “commercial” expands the scope of services of renting o rooms by dharamshalas, ashrams and like.

• Rate of tax: 12.36% ; taxable: 60%



Works contractPresent Provision: Presently valuation of works contract u/r 2A of valuation rules is done as :

• Method 1: Gross amount charged (xl. VAT) (-) value of property in goods transferred in execution of works contract [material cost]

• Method 2: If VAT payable then deduction of “actual value adopted” for goods transferred.

• Method 3: If not determined as above then Value as specified %


Works contractValue =

% of Amt.Particulars Effective

Rate40% In case of original Works 4.944%

70% For maintenance, repair, reconditioning, restoration of goods

8.652%

60% Other works contract, including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property

7.416%


WCT-proposed% of Particulars Effective

Rate40% In case of original Works 4.944%

70% For maintenance, repair, reconditioning, restoration of goods

8.652%

70% Maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property

8.652%

• Impact: Rationalization exercise to avoid confusion• Date of applicability: w.e.f. 01-Oct-2014


Repairing of goods in India• Present provision: Place of provision of service w.r.t.

goods is where goods are physically located at the time of service.

• Rule n.a. goods temporarily imported into India for repairs, reconditioning or reengineering for re-export

• Budget provision: The PPs rule will not apply to goods temporarily imported into India for repairs and exported after repairs without being put to use in India.


Repairing of goods in IndiaImpact

oRepairing at Indian Service Centre-tax free

oNo exclusion to goods imported during normal course of business.

oNo exclusion to camera repair of an international tourist

• Date of Applicability: w.e.f. 01-Oct-2014 (u/n 14/2014-ST)


Service provided by a broker

• Present Provision: Intermediary = a person, who arranges or facilitates a provision of a service between two or more persons.

• Budget provision: Intermediary includes a person who facilitates both provision of service or supply of goods.


Service provided by a broker

• Impact : Earlier taxability of a broker providing service w.r.t. goods was taxable on the basis of location of client (service receiver as per general Rule 3). After the amendment, the location of broker (service provider) will be the deciding factor for taxability as per Rule 9.

• Date of Applicability: w.e.f. 01-Oct-2014 (u/n 14/2014-ST)


Service provided to Government

• Present provision: Services 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 upgradation.


Service provided to Government

• Budget provision: Services provided to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation.

• Impact: The amendment provides clarity and widens scope of exemption



GTA Services

• Present provision: Cenvat credit is not allowed if benefit of abatement of 75% is availed.

• Budget provision: Abatement is available if cenvat is aviled by service provider.


GTA Services

• Impact: Rest to issues regarding disallowance cenvat credit to persons who are discharging their liabilities as service recipients and are otherwise liable to tax either as service provider/manufacturer.

• Date of Applicability: w.e.f. 11-07-2014 (u/n 8/2014)


Recovery agent services

• Present provision : Services provided by Recovery Agents to Banks, Financial Institutions and NBFC, the recovery agent is liable for tax.

• Budget provision : After amendment the Service receiver (Banks, FI.. ) will be liable to tax.

• Date of Applicability: w.e.f. 11-07-2014 (u/n 9& 10/2014-ST)


Director services

• Present provision : Director Services to a company are covered under reverse charge w.e.f. 07-Aug-12.

• Budget Provision: To include body corporate

• Impact: Service provided by a director to a body corporate, like RBI will be payable by body corporate. Similarly foreign company directors will be covered in tax net.


Director services

• Note:"Body corporate" includes a company incorporated outside India but does not include -

(a) a corporation sole ; (b) a registered co-operative society; and (c) any other body corporate as notified by CG,

Tax now payable by body corporate. For prior period, director is responsible subject to threshold exemption of 10 lacs.


Miscellaneous Amendments

• ESIC : Service provided by Employees State Insurance Corporation (ESIC) during the period prior to 1.7.2012 exempted. (w.e.f. FB,2014 enactment)

Service provided by ESIC to persons governed under the Employees Insurance Act, 1948 is already exempted under negative list. • Vessel Transport: Abatement on transport of goods

by vessel increased from 50% to 60%w.e.f. 01-10-2014 u/n 26/2012-ST).


Exemptions u/n 25/2012-ST w.e.f. 11-07-14

Insurance

All life micro-insurance schemes approved by the Insurance Regulatory Development Authority (IRDA), where sum assured <= 50,000

Organic Manure Transport

Transport of organic manure by vessel, rail or road (by GTA) to bring it on par with fertilizer which is already exempted.

Cotton Handling

Services by way of loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled, exempted.


Exemptions u/n 25/2012-ST w.e.f. 11-07-14

Bio-Medical Waste Treatment

Services provided by Common Bio-medical Waste Treatment Facility operators by way of treatment, disposal of bio medical waste or processes incidental to such treatment or disposal

RBI

Services received by RBI, from outside India in relation to management of foreign exchange reserves (For eg. External asset management, securities lending etc.)

Tour

Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India


PROCEDURAL AMENDMENTS


Interest• Present Provision: Interest rate @ 18% p.a.

computed on a daily basis. Interest band 10% to 36% u/s 75. Small service provider-15%

• Budget provision: Variable interest rate

Delayed payment from due date

Rate Rate for SSP

Upto 6 months 18% 15%6 mths to one year 24% 21%

More than one year 30% 27%


Interest

• Date of applicability : w.e.f. 01-Oct-14

• Note : Small service provider whose, a) value of taxable services provided in financial year(s) covered under notice or during the last preceding financial year does not exceed sixty lakh rupees, allowed 3% concession in interest.


E-payment

• Present provision: Rule 6(2) of STR,1994 provides for payment through internet banking if tax payment (cash+cenvat) exceeds Rs. one lac in previous FY.

• Budget provision: E-payment mandatory for ALL assesses. Relaxation granted by AC/DC on a case to case basis.

• Impact: Small assesses with no internet banking will suffer

• Date of applicability: W.e.f. 01-Oct-14


Compulsory Penalty • Present provision : u/s78, penalty is levied

compulsorily to the tune of 100% of tax in case transactions are not recorded in books of records and cannot be waived u/s 80.

• Penalty in other cases of suppression (transactions truly recorded in books but tax not paid) can be waived.


Compulsory Penalty • Budget provision: No waiver of penalty in case of

suppression

• Impact: Only recourse is to prove bonafide in case of non-payment of tax

• Date of applicability: w.e.f. FB,2014 enactment


POT: Reverse Charge• Present provision : POT incase of reverse charge

mechanism ,(where service receiver is liable to pay tax) Rule 7 is determines as below:

i. Date of payment of invoice.

ii. In case of non-payment within 6 months of invoice, POT as per date of invoice.


POT: Reverse Charge

• Budget provision: The amendment provides for POT as below:i. Date of payment of invoiceii. In case of non-payment within 3 months of

invoice, POT immediately after completion of 3 months.

• Impact: The amended provision simplifies procedural issues and gives relief from retrospective penal actions in case of non-payment / delay in payment of invoice.

• Date of applicability: w.e.f. 01-Oct-2014 (u/n 13/2014-ST)


Reverse Charge: Rent-a-Cab

• Present provision: Partial reverse charge is applicable in case of Rent-a-Cab service where:

• Service provider (SP) : Individual/HUF/Partnership/ AOP

• Service recipient (SR) : Company in Taxable Territory (India) not in a similar business line



• Present provision

% Of Liability Effective Tax Rate Total Tax

Service tax payable on SP SR SP SR

(a) On abated value (40%) 0% 100%

0.000% 4.944% 4.944%

(b) Non abated value (100%) 60% 40%

7.416% 4.944% 12.360%


Reverse Charge: Rent-a-Cab• Budget provision

% Of Liability Effective Tax Rate Total Tax

Service tax payable on SP SR SP SR

(a) On abated value (40%) 0% 100%

0.000% 4.944% 4.944%

(b) Non abated value (100%) 50% 50%

6.180% 6.180% 12.360%



• Impact: Complicated simplificationSR should obtain a declaration regarding availing/ non-availment of abatement to levy appropriate rate of tax.

• Date of Applicability: w.e.f. 11-Jul-14 (u/n 10/2014-ST)


SEZ Provisions a. Basic Provisions:

Exemption to service tax on “specified services” (as approved) received by SEZ Unit/developer granted as follows:

• Ab initio exemption for services used exclusively for authorized operations, or

• Exemption by way of refund for a) ab initio exemption available but not claimed and b) services not exclusively used for SEZ operations


SEZ Provisionsb. Ab-Initio Exemption:

• SEZ Unit to furnish a declaration in Form A-1• Authorization issued in Form A-2 within 15 working

days by AC/DC• Authorization valid from the date of verification by

Specified officer of SEZ; if submitted after 15 days then date of submission to AC/DC.

• A-2 provided to service providers to obtain tax-free services.


SEZ Provisions

• During pendency of A-2, service provider can provide tax-free services on basis of A-1. If default in providing A-2 to service provider within 3 months , tax payable by service provider

• Invoice to be in the name of SEZ Unit only.

• Quarterly statement (Form A-3) for tax-free services obtained.


SEZ Provisionsc. Refund Mode:

• Services used exclusively for SEZ operations but tax paid are allowed in toto

• Common services used for SEZ unit and DTA unit distributed on turnover basis

• Refund to be filed in form A-4 within one year of payment of tax

d. Date of Applicability: Of the amendments w.e.f. 11- Jul-14 (u/n 07/2014-ST)


Cenvat ProvisionsTime Limit of taking Credit u/r 4 of CCR

Nature Present Provision Budget Provision

Inputs

May be taken immediately on receipt of inputs

Within 6 months of the date of invoice / bill/ challan

Input Service

On receipt of Invoice

Within 6 months of the date of invoice / bill /challan

S.T. if payment of invoice not made in 3 months , pay cenvat availed and re-avail on payment of invoice


Cenvat Provisions

Nature Present Provision Budget Provision

Input Service-100% Reverse Charge

When payment of both, invoice and tax indicated are made

On payment of service tax

Input Service-Partial Reverse Charge

When payment of both, invoice and tax indicated are made

Input Service-Partial Reverse Charge

To avoid any dispute, it is advisable to avail credit of eligible invoices before 01-Sep-14.


Cenvat ProvisionsExport Realization• Rule 6(7) of CCR: No reversal of cenvat credit for tax-

free services provided to SEZ unit/ export of services

• Rule 6(8) : Non-realization of export proceeds in time; services cease to be export; proportionate reversal of cenvat.

• NOW provided: If proceeds realized within one year of stipulated time; credit reversed may be taken again.


Other amendments• Stay application in CESTATApplication for waiver from pre-deposit and grant of stay before CESTAT can be filed without an application fee of Rs. 500.

• Exchange Rate for servicesExplanation to Sec 67A is amended to enable the Government to prescribe rules for determination of rate of exchange for calculation of taxable value in respect of certain services. Rules will be prescribed in due course, after the Bill receives the assent.


ADMINISTRATIVE AMENDMENTSW.E.F. FB,2014 ENACTMENT


Time limit for Adjudication• Present provision : No time limit for adjudication

prescribed in law

• Budget provision: Adjudicating SCN :

o SCN with normal period of limitation(18 months period): 6 months of SCN date

o SCN with extended period: one year from date of SCN

• Impact : Timely disposal of cases, low penal burden on assessee, though presently provision is not mandatory.


Search & Recovery

Officers authorizing search and seizureApart from JC/ADC search and seizure can now be authorized by any specified by CBEC u/s 82

Recovery of amount dueSec 87 provides for recovery of any sum (including tax) due from predecessor of a business or trade from its successor to whom the business or trade is disposed in whole or part, by attaching and selling the goods so transferred.


Calling Information • Sec 15A and Sec 15B inserted in CEA,1944)• Information to be provided to dept.• Within such time as prescribed• By various classes of persons who are maintaining

various information and records.

• Defect in information provided to be corrected in 30 days/extended time as allowed.

• Non- provision of the information as desired, notice to furnish the same within 90 days is served failing which penalty of Rs. 100/- per day.


information provider• An assessee

• Local authority or other public body or association

• Any authority of the State Government responsible for the collection of VAT/sales tax

• Income tax authority

• A banking company


information provider • A Registrar within the meaning of the Companies

Act, 2013

• The registering authority empowered to register motor vehicles under Motor Vehicles Act, 1988

• State Electricity Board; or an electricity distribution or transmission licensee

• Any other entity entrusted, with such functions by the Central Government or the State Government


information provider• Registrar or Sub-Registrar appointed under

Registration Act,1908

• Collector referred to in clause (c) of section 3 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013

• Recognized stock exchange

• A depository as per Depositories Act, 1996

• An officer of RBI


AppealNew indirect tax proposal provides for pre-deposit of % of amount demanded (tax / penalty or both) before filing an appeal subject to maximum Rs. 10 crore.

oFirst appeal before Comm. (Appeals): 7.5% oFirst appeal before CESTAT: 7.5%oSecond appeal before CESTAT: 10%

The provision in not applicable to applications filed before enactment.


ADVANCE RULINGScope of obtaining advance ruling under the provisions of indirect tax extended to a resident private limited company also, for both service tax and excise.(u/n 15/2014-ST).


OTHER INDIRECT TAX PROPOSALS


Appeals• Time limit for filing appeals : Before CESTAT: 3

months further extended by one month for department.

• CESTAT may refuse to admit an appeal where penalties are less than Rs. 2,00,000 (earlier 50,000)

• Appeal to Supreme Court against order by CESTAT lies for• Determination of rate of duty of excise • Valuation of goods• Determination of taxability or excisability of goods

(FB,2014 proposal) Above provisions w.e.f. FB,2014 enactment.


Tax payment

• W.e.f. 01-10-2014, e-payment of duty is mandatory subject to relaxation from AC/DC on a case to case basis.

• In case of delay beyond payment of excise duty within one month from due date, penalty of 1% for each month or part of month till the default continues

• The erstwhile provision of payment of duty for each consignment without availing Cenvat in case of default is done away with.


Other Indirect tax proposals3. Valuation

• In case of sale below cost of production, the value for purpose of levy of duty will be transaction value only.( FB,2014 enactment)

• No other consideration, directly or indirect should be flowing to the manufacturer.

• Amendment nullifies Supreme Court case of Fiat India Ltd. wherein it was held that revenue could reject transaction value where it was below cost of production.


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Documents

18 th Jul 2014