A Presentation On Construction & GTA Services – An Overview 29th November 2012

Central Excise Commissionerate, Jaipur – I

Presents

Service Tax Seminar

A Presentation On

“Construction & GTA Services – An Overview”

Thursday By 29th November, 2012 Sanjiv AgarwalJaipur FCA, FCS

© Dr. Sanjiv Agarwal

This presentation covers –

Overview of Taxation of Services Construction ServicesGTA Services


Service Tax in India (The Past)

Introduced in India in 1994 as a simple, modest tax

with just three services

Service tax – an indirect tax

Approach to Service Tax – Selective as against

comprehensive one

Governed by Finance Act, 1994 and a dozen of rules

Legislative dependence on other laws

3


4

GDP CO MPO SITIO N IN MARCH, 2012

Agriculture19%

Industry22%

Service Sector59%

Brief Overview of Services / Service Tax Share of Services in

GDP


Service Tax in India (The Past)

Selective Approach to Service TaxSelective v. Comprehensive approach Taxation by choice Service not defined but taxable service

defined. > 120 taxable services [section 65(105)]Untapped tax potential Economically justified

5


Service Tax - Today

Shift to Comprehensive Approach

W.e.f. 1st July 2012Finance Act, 2012 – A land mark Act to shift

from positive to negative approach.All services to be taxed other than services

specified in the negative list and exempted services – Section 66B.

6


7

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Taxation of Services by Finance Act, 2012

(=)


8

The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S


Taxable Services w.e.f. 1.7.2012

All services Taxable [section 65B(44)] Declared services Taxable (section 66E) Services covered under Not Taxable

negative list of services (section 66D) Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions Exempted

9© Dr. Sanjiv Agarwal

10

Goods & Service Tax (The Future)

GST: A Common Tax

on

Goods Services


Service Tax on Construction Services

Service Tax on Construction Services Prior to 1.7.2012

Construction related services taxable before 1.7.2012

Commercial & Industrial Construction Services [65(105)(zzq)]

Construction of Complex Services [65(105)(zzzh)]Works Contract Services [65(105)(zzzza)]Erection, Commissioning or Installation Services

[65(105)(zzd)]Preferential Location Services [65(105)(zzzzu)]


13


What is Service (W. e. f. 1.07.2012)

‘Service' has been defined in clause (44) of the new section 65B and means –

any activity

for consideration

carried out by a person for another

and includes a declared service (66E)



Construction services will include –

No major changes in taxability from previous regime

All activities related to construction except those in the negative list (Section 66D)

Specified Declared Services (Section 66E) Construction of Complex, Building or Civil

Structure Service portion of Works Contract



Negative List (Section 66D)

No specific entry for construction related

activities

Construction services by Government or

local authority (Clause a)



Construction Activities (Clause b – Section 66E)

Construction of a complex, building, civil structure or a part thereof, including a

complex or building intended for sale to a buyer, wholly or partly, except where

the entire consideration is received after issuance of completion certificate by the

competent authority

Explanation.— For the purposes of this clause,—

(I) the expression “competent authority” means the Government or any authority

authorised to issue completion certificate under any law for the time being in

force and in case of non requirement of such certificate from such authority,

from any of the following, namely:––

(A) architect registered with the Council of Architecture constituted under the

Architects Act, 1972; or

(B) chartered engineer registered with the Institution of Engineers (India); or

(C) licensed surveyor of the respective local body of the city or town or

village or development or planning authority;

(II) the expression “construction” includes additions, alterations, replacements or

remodeling civil structure


Construction activities means construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority.It includes construction of -

Complex Building Civil structure or part thereof Complex or building intended for sale to a buyer except where

entire consideration is received after issuance of completion certificate by the competent authority.

Actual sale after construction - if any consideration received before such completion certificate, it will also be taxed.

17



Construction is not defined

But Construction Includes additions,

alteration,

replacement, or

remodeling

of any existing civil structure

Thus, it includes new construction as well as services on

existing construction

18



Who is Competent Authority to Issue Completion Certificate (CC)

Government

Any authority authorized to Issue CC under any law

In absence of any requirement to issue CC,

• Architect under Architect Act, 1972

• Chartered Engineer registered with Institution of Engineers

• Licensed surveyor (of local body / development or planning

authority) of respective city / town /village

19




Works Contract (Clause h- Section 66E)

Works contract as such is not taxable

Only service portion in the execution of a

works contract is taxable


21


Works Contract [65B(54)]

“Works Contract” means a contract wherein transfer of

property in goods involved in the execution of such contract

is leviable to tax as sale of goods and such contract is for

the purpose of carrying out construction, erection,

commissioning, installation, completion, fitting out, repair,

maintenance, renovation, alteration of any movable or

immovable property or for carrying out any other similar

activity or a part thereof in relation to such property.


22


Works Contract covers ConstructionErection Commissioning CompletionFitting out Repair Maintenance RenovationAlteration, or Any other similar activity or part there of


23


Such activities could be in relation to any – Movable property (plant, machinery,

equipments etc.) Immovable property (land, building,

structures etc.) This definition is very vast and covers

almost everything


24


Some issues in works contracts

Labour contracts Excluded

Repair & Maintenance of motor vehicles

yes if property in goods transferred in execution of WC

Construction of pipeline / conduit yes, structures on land

Painting/repair/renovation of building , wall tiling, flooring etc.

yes if involves provision of material also

Erection/commissioning installation of plant/ machine etc

yes if transfer of property in goods is involved and machinery etc


25



Value of service portion in execution of work contract = gross amount charged for works

contact less value of transfer of property in goods involved in execution of works contract

Gross amount includes Gross amount does not include

Labour charges for execution of the works Amount paid to a sub-contractor for labour and servicesCharges for planning, designing and architect’s fees

Value of transfer of property in goods involved in the execution of the said works contract.where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract. (Rule 2A explanation)

Cost of establishment of the contractor relatable to supply of labour and services and other similar expenses relatable to supply of labour and services

Value Added Tax (VAT) or sales tax, as the case may be, paid, if any, on transfer of property in goods involved in the execution of the said works contract

Profit earned by the service provider relatable to supply of labour and services


26


Alternative valuation model (Rule 2A of Valuation Rules) Where works contract is for… Value of the service portion shall

be…

(A) execution of original works forty percent of the total amount charged for the works contract

(B) maintenance or repair or reconditioning or restoration or servicing of any goods

seventy per cent of the total amount charged including such gross amount

(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.

sixty percent of the total amount charged for the works contract


27


Total Value = Sum total of + gross amount charged + value of goods and services supplied free of

cost for use in or in relation to execution of WC whether us same contract /any other contract

+ value of land charged as part of total consideration

- amount charged for such goods / services, if any

- VAT levied, if any If value of FOC goods / services is not ascertainable, it will be

determined on basis of fair market value having close resemblance FMV based on generally accepted accounting principles No Cenvat available on goods / inputs used in works contract to

service provider



Exemptions under N. No. 25/2012-ST , Dated 20.6.2012

(w.e.f. 1.07.2012)

Services provided to the Government, a Local Authority or a Governmental

Authority (S. No. 12)Services provided to the Government, a ocal authority or a governmental authority by way of

construction, erection, commissioning, installation, completion, fitting out, repair, maintenance,

renovation, or alteration of -

(a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 ;

(c) a structure meant predominantly for use as

(i) an educational,

(ii) a clinical, or

(iii) an art or cultural establishment;

(d) canal, dam or other irrigation works;

(e) pipeline, conduit or plant for

(iv) water supply

(v) water treatment, or

(vi) sewerage treatment or disposal; or

(f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act



Authority (S. No. 12) Services to Government (States or Central) or any local

authority (such as municipal corporation, development authority etc) or governmental authority (such as Revenue Board, Water Board etc) shall be exempt from levy of service tax on• construction, • erection,• commissioning, • installation, • completion, • fitting out, • repair, • maintenance,• renovation, or• alteration, in relation to specified structure, buildings or complex.



Authority (S. No. 12) Construction of buildings or structures such as hospitals or

educational institutes for the government or local authority or governmental authority –Exempt

if such construction is for others – Taxable A civil structure or any other original works meant predominantly

for use other than for commerce, industry, or any other business or profession – Exempt

If service receiver is other than the Government, a local authority or a governmental authority, service tax is required to paid

Service tax is payable on construction of a residential complex having more than one single residential unit


Residential Complex

Complex comprising of one or more buildings having more than

one residential unit

Even two units would be called ‘complex’

Single residential unit – self contained residential unit designed for

use, wholly / principally, for residence of one family

Original work – new construction and all type of addition / alteration

to abandoned / damaged structures on land as are required to

make them workable / erection , commissioning, installation.

32



33

Services provided to the Government, a Local Authority or a Governmental Authority

(S. No. 12)Government – Not defined Section 3 (22) of General Clause Act, 1897 Includes Central/State Government/ Union

Territory Actions taken in the name of President/

Governor Most of services provided by government

are in Negative List


34

Services provided to the Government, a Local Authority or a Governmental Authority

(S. No. 12)

Local Authority - Section 65B(31) A Panchayat as referred to in clause (d) of article 243 of the

Constitution A Municipality as referred to in clause (e) of article 243P of the

Constitution A Municipal Committee and a District Board, legally entitled

to, or entrusted by the Government with, the control or management of a municipal or local fund

A Cantonment Board as defined in section 3 of the Cantonments Act, 2006

A regional council or a district council constituted under the Sixth Schedule to the Constitution

A development board constituted under article 371 of the Constitution, or

A regional council constituted under article 371A of the Constitution.


35


Authority (S. No. 12)

Governmental Authority (N. No. 25/2012-ST)board/ Authority / other body established with > 90% participation of government control/ equityset up by Act of Parliament or State Legislatureto carry out any functions entrusted to

municipality u/s 243W of constitution


Services provided by way of construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance, renovation, or

alteration ( S. No. 13)Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of,-

a) a road, bridge, tunnel, or terminal for road transportation for use by general public;

b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;

c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;

d) a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased


Services provided by way of construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance, renovation, or

alteration ( S. No. 13)• Construction of roads for use by general public – Exempt

(body of people at large sufficiently defined by some common quality of public or

impersonal nature)

• Construction of roads which are not for general public use e.g. construction of

roads in a factory, residential complex etc –Taxable

• Construction of a building owned by an entity registered under section 12 AA

of the Income tax Act, 1961 and meant predominantly for religious use by

general public – Exempt

• Repair, maintenance of airports, ports and railways -Taxable

• These services will be taxable if rendered to government or otherwise


Services by way of construction, erection, commissioning, or installation

of original works (S. No. 14)Services by way of construction, erection, commissioning, or installation of original works pertaining to,-a) an airport, port or railways, including monorail or metro;b) a single residential unit otherwise than as a part of a residential

complex;c) low- cost houses up to a carpet area of 60 square metres per

house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India;

d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or

e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;


Services by way of construction, erection, commissioning, or installation of original works

(S. No. 14)

• “Original works” as defined in Valuation Rules means –

(a) all new constructions; or

(b) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable,

(c) erection, commission or installation of plant, machinery or equipment or structures, whether prefabricated or otherwise

• No service tax liability on erection or installation of machineries or

equipments for units processing agricultural produce • Erection or installation of machineries or equipments for dal mills,

rice mills, milk dairies or cotton ginning mills -Exempt • Only erection and construction of original works is covered • Exemption will cover low cost houses under the scheme of

affordable housing in partnership


Services provided by intermediaries ( S. No. 29)

Services by the following persons in respective capacities -a) sub-broker or an authorised person to a stock broker; b) authorised person to a member of a commodity exchange;c) mutual fund agent to a mutual fund or asset management

company;d) distributor to a mutual fund or asset management company;e) selling or marketing agent of lottery tickets to a distributer or a

selling agent; f) selling agent or a distributer of SIM cards or recharge coupon

vouchers; g) business facilitator or a business correspondent to a banking

company or an insurance company, in a rural area; orh) sub-contractor providing services by way of works contract to

another contractor providing works contract services which are exempt;



Abatement N. No. 26/2012-ST dated 20.6.2012

Sl.

No

Description of taxable service Taxable

value(%)

Conditions

1 Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

25 (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii) The value of land is included in the amount charged from the service recipient.



Partial reverse charge under N. No. 30/2012-ST dated 20.6.2012

service portion in execution of works contract -

Provided or agreed to be provided

by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of

persons,

located in the taxable territory

to a business entity registered as body corporate,

located in the taxable territory Reverse charge shall not be applicable if provider of service was

liable before 1.7.2012



Sr. No Description of Service Service provider

Service receiver

1. Services provided in service portion in execution of works contract

50% 50%

Explanation- Valuation of services by services provider and service receiver can be on different principles, if permitted by law



Place of Provision of Service

POP of services relating to immovable property shall be place where such property is located or intended to be located (Rule 5)


Service Tax on GTA Service

Service Tax on GTA Service

Taxability prior to 1.07.2012 Taxable w.e.f. 1.1.2005 Section 65(105)(zzp) Services by GTA in relation to transport of

goods by road in a goods carriage Service tax payable by service receiver under

reverse charge GTA, goods, goods carriage and consignment

note defined


Service Tax on GTA Services

GTA Services will include –

No major changes in taxability from previous regime

All activities related to GTA except those in the negative list (Section 66D)

New definition of goods so as to include ‘securities’ instead of ‘stock and shares’





No specific entry for GTA related activities

GTA services provided by Government or Local Authority have been

specifically excluded from negative list (Clause a)

Services provided in relation to transportation of goods by road

except the services of goods transportation agency is in negative list

(Clause p)



Nature of service relating to transportation of Goods

Whether covered in the negative list entry

By railways No

By air within the country or abroad

No

By a vessel in the coastal waters

No

By a vessel on a national waterway

Yes

Services provided by a GTA No



Exemptions under N. No. 25/2012-ST dated 20.6.2012 (Entry No. 21)Services provided by a goods transport agency by way of transportation of – a) fruits, vegetables, eggs, milk, food grains or pulses in a goods

carriage;b) goods where gross amount charged for the transportation of goods

on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or

c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty.



Exemption under N. No. 25/2012-ST dated 20.6.2012 (Entry No. 22)

Services by way of giving on hire to a goods transport agency, a means of transportation of goods Hiring of goods carriage will not be a taxable



Specific Abatement

Sl.

No

Description of taxable service Taxable

value(%)

Conditions

1 Transport of goods by road by Goods

Transport Agency

25 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.



Specific Abatement - Conditions Cenvat credit of inputs used for providing services should not be

taken. Cenvat credit of input services and capital goods can be taken

besides, abatement. Cost of land should form part of value of service. The complex / building should be meant for sale / intended for sale. The entire consideration should be received after issuance of

completion certificate by the Competent Authority. The floor rise charges would be eligible for the abatement but not

for other components like "Preferential Location Service" which may cover other services (CST, Mumbai vide F.No. V/ST-I/Tech-II/463/11 dated 31st August, 2012 )



Reverse Charge Mechanism

Sr. No Description of Service Service provider

Service receiver

1. Services provided by a goods transport agency in respect of transportation of goods by road

Nil 100%

Explanation-I. - The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service.


Person liable under reverse charge mechanism

For services provided by a goods transport agency in respect of transportation of goods by road, the person liable to pay tax is one who pays freight and is—

(a) any factory registered under or governed by the

Factories Act, 1948;

(b) any society registered under the Societies Registration Act, 1860 or under

any other law for the time being in force in any part of India;

(c) any co-operative society established by or under any law;

(d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made thereunder;

(e) any body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons




Exemption to exporters

Services relating to transportation of export goods by Goods Transport Agency in a goods carriage received by an exporter for transport of the said goods directly from –

(i) any container freight station or inland container depot to the port or airport ,from where the goods are exported;

(ii) his place of removal, to an inland container depot, a container freight station, a port or airport, from where the goods are exported.

are exempt from service tax

(Refer Notification No.31/2012- ST dated 20.6.2012)


THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

[email protected]

[email protected]

Documents

A Presentation On Construction & GTA Services – An Overview 29th November 2012