Volume – 8 ASCO’s 06th October, 2012

Service Tax Counsellor Number – 41 Jaipur

(An inhouse weekly newsletter for private circulation) Contents

From Editor’s Desk

GST Update

Understanding Service Tax Law

News Room

Legislative Round-up

From the Government

Obligations under Service Tax

Problems in Service Tax

Literature Events

Tip for the Month

Quote of the Week

Humour of the Week

Announcements

Editorial Board

Disclaimer

Chief Editor Dr. Sanjiv Agarwal, FCA, FCS, ACIS (UK) Editors M.B.Maheshwari, FCA Archana Chitlangia, ACA Rajendra Kumar Sharma, ACA Technical Team Vishnu Khandelwal Deepak Goyal

The objective of Service Tax Counsellor is only to provide an updation on service tax / GST issues to the select associates. The editor & publisher have made all efforts to avoid errors or omissions in this publication and are not responsible for the consequences, whatsoever, of any action taken on the basis of this publications. In case of doubts, contents may be crosschecked with original Government publications / notifications only. Views expressed in Service Tax Counsellor should not construed as legal / professional opinion in any manner.

© The Service Tax Counsellor is the property of asandco. No part of the newsletter may be reproduced in any manner, whatsoever or translated in any other language or mode without permission in writing from the publisher.

FROM EDITOR’S DESKFROM EDITOR’S DESKFROM EDITOR’S DESKFROM EDITOR’S DESK

Dear Readers,

This week, the cabinet cleared two reform bills giving a clearance of 49 percent FDI investment in

insurance and the pension sector. The Purchasing Managers Index (PMI) for the services sector rose

to a seven month high of 55.8 points in September as against of 55 points in August, due to the growth

in new orders. Following a series of new economic measures, the centre is likely to bring in more

reforms in the future, including trying to implement the goods and service tax (GST) in states that are

willing to accept it.

A draft Circular has been issued by CBEC on 27th September, 2012 clarifying on certain doubts on levy

of Service Tax on transport of passengers by air. It is clarified that charges which are directly related to

journey such as re-confirmation fee, date change fee, seat upgrade fee etc. will be covered by

abatement and charges such as meal charges, escort charges which are not related to journey, will not

be covered by abatement. It is also clarified that place of provision of a passenger transportation

services is the place where the passenger embarks on the conveyance irrespective of where the ticket

is booked and where fees / charges are collected. The comments can be sent to 15th October, 2012.

According to the Order No. 137/22/2012-ST dated 28th September 2012, assessees have to provide

data only for period 1.4.2012 to 30.06.2012 in the first half yearly return with a due date on 25.10.2012

and for the period 1.7.2012 to 30.09.2012, data will have to be furnished in a revised return format. The

revised format of the return and the last date for filling will be informed separately. Thus, this time, a

quarterly return will be submitted and another quarterly return may be notified separately.

Date: 06th October, 2012 Dr. Sanjiv Agarwal

GST UPDATEGST UPDATEGST UPDATEGST UPDATE

Centre may implement GST in non-BJP ruled states

Following a series of new economic measures, the Centre would bring in more reforms in the future,

including trying to implement the goods and services tax (GST) in states that are ready to accept it.

The reforms are on the top of the UPA (United Progressive Alliance) government's agenda. We will

bring in more measures, including raising the FDI (foreign direct investment) cap to 49 per cent in

insurance sector.

The government is trying hard to bring about a consensus on the GST, the implementation of which

has been considerably delayed. The BJP (Bharatiya Janata Party) is unnecessarily delaying the

implementation of GST by opposing it. However, in case there is no consensus, the UPA government

could enter into separate agreements with states which are ready to accept the measure. At least

those states which want the implementation of the GST should not suffer at the cost of BJP-ruled

states. Barring the BJP-ruled states, the rest are in favour of implementing the GST. The government

would bring in a separate a bill on banking sector reforms. Reforms are the need of the hour. We will

continue our reform measures.

(Source: Business Standard dated 01.10.2012)

Understanding Service Tax LawUnderstanding Service Tax LawUnderstanding Service Tax LawUnderstanding Service Tax Law

Receiver cannot avail the benefit of exemption scheme under Notification No. 33/2012-ST dated

20.06.2012

The exemption scheme is meant only for service providers. The exemption cannot be availed by

service providers who are not liable to pay service tax on the services rendered by them. Similarly,

service receivers who avail the services but are person liable to pay the tax under Section 68(2) as a

special case are not the service providers. As such, service receivers cannot claim the benefit of

exemption scheme. Thus, this scheme will not be of any benefit to either the service receiver or the

service provider in such cases. Uptil 30 June, 2012, these included mutual fund distribution, services

rendered from outside India, life insurance, general insurance auxiliary services, recipient of goods

transport service etc.

The exemption scheme does not apply to person liable under section 68(2) of the Finance Act, 1994 or

person other than service providers as specified under rule 2(1)(d) of Service Tax Rules, 1994. To

avail the exemption, the person should be a service provider only. However, CENVAT credit can be

taken as per rules subject to fulfillment of the specified condition of being an input service.

Thus, exemption scheme meant for small service providers does not applied to following persons

paying service tax under reverse charge method —

— Recipient of service

— Importers of service

— Input service distributors

— Insurance agents

— Mutual fund AMC's

— Specified consignors or consignee for GTA services

— Sponsors for sponsorship services

— Service providers under franchise or brand.

The reverse charge mechanism has been expanded w.e.f. 1 July 2012. As such, the service recipients

of services such as arbitral tribunal, legal services, support services provided by the Government,

renting of vehicles, works contracts, manpower supply, security services, director's service etc covered

under reverse charge as per Notification No 30/2012-ST dated 20.6.2012 shall have to pay service tax

and in such cases, benefit of exemption scheme will not be available to service receiver.

The service receiver is only liable to pay service tax and by doing so, he does not become service

provider. The liability to pay service tax has only been shifted.

NEWS ROOMNEWS ROOMNEWS ROOMNEWS ROOM (News on Service Tax which matters)

Services PMI rose to 7-month high in Sept

The HSBC’s Purchasing Managers Index (PMI) for the services sector rose to a seven-month high of

55.8 points in September versus 55 in August, on the back of growth in new orders. The data, compiled

from a survey of about 350 private companies, showed new orders in September expanded the fastest

in seven months. However, as manufacturing PMI was stagnant at 52.8 points in September compared

with that in August, the composite indices went up only to 55 points from 54.3 in August. A reading

above 50 points denotes expansion and below this, a contraction.

Service sector activity grew at a faster clip in September, led by firm demand, underscoring the

resilience of the services sector .This further lifted employment, which helped businesses keep up with

orders. The volume of incoming new work increased steeply in the private sector, leading to an

increase in job creation. This expanded for the seventh month in a row.

There is no separate official data on services to compare PMI figures. In India, services data comes

once in a quarter, as part of GDP data. In the first quarter of the current financial year, the services

sector, particularly financial and construction activities, pushed up GDP, which nonetheless grew by

just 5.5 per cent as manufacturing pulled it down. Service providers also registered input cost inflation,

though at a slower pace than manufacturers. Labour, fuel, petroleum and gold prices were higher, with

some mentions of increasing taxes and excess demand.

(Source : Business Standard dated 05.10.2012)

LEGISLATIVE ROUNDUPLEGISLATIVE ROUNDUPLEGISLATIVE ROUNDUPLEGISLATIVE ROUNDUP (Brief commentary on recently reported cases)

Cenvat Credit on Capital Goods

In Signor Polymers Pvt. Ltd. v. CCE, Rajkot (2012) 36 STT 461 (Cestat, Ahmedabad), where assessee

claimed threshold small service provider's exemption and exemption was denied as assessee availed

Cenvat Credit of duty paid on capital goods, it was held that once assessee availed Cenvat Credit on

capital goods received in the premises from where he provides taxable services, benefit of threshold

exemption under Notification No. 6/2005-ST dated 1.3.2005 would not be available.

FROM THE GOVERNMENTFROM THE GOVERNMENTFROM THE GOVERNMENTFROM THE GOVERNMENT

DRAFT CIRCULAR -- SERVICE TAX -- TRANSPORT OF PASSENGERS BY AIR DATED 27TH

SEPTEMBER, 2012

Representation has been received seeking clarification regarding certain doubts which arise during

the course of levy and collection of service tax on transport of passengers by air.

2. The issues have been examined and the guidance is as follows:

Issue (a) : Whether service tax of 4.944% (60% abatement) will apply to related charges such as

reconfirmation fee, upgrade fee, date change, additional collection, etc., levied by airlines to

passengers?

Clarification: These charges could be levied in either of the following manners: (a) as a consolidated

charge without any break-up; (b) with break-up for individual services or at a point later to the initial

booking. In case of (a) above the provisions of section 66F will apply and the service that imports the

essential character will determine the applicability of both the Place of Provision of Services (POP)

Rules as well as abatement. In the case of (b) above, the individual components will need to be

analyzed on their respective merits.

Various charges collected by airlines from a passenger can be broadly put into two categories: (a)

charges which are directly related to the journey; and (b) charges which are not so related. Charges

which are directly related will be covered by abatement. Re-confirmation fees, date-change fee,

upgrade fee, preferred seat charges, additional collection in the nature of differential ticket fare

towards the journey and unaccompanied minor charges are directly related charges. For the charges

which are not directly related to the particular journey, abatement is not available. Sky-meal-on-order

and escort charges are not directly related to the journey.

Issue (b): Whether abatement meant for transport of passenger by air service, is applicable for

excess baggage charges?

Where a passenger embarks on an international journey, excess baggage charges are not leviable to

service tax as the place of provision of such service will be outside India under Rule 10 of POP

Rules. However, in the case of journey within the taxable territory, excess baggage charge is leviable

to service tax without abatement. Similar will be the tax treatment for pet charges.

Issue (c): When a passenger puts a ticket for refund, whether full rate of 12% will apply to

cancellation fee, refund fee, no show fee, since the passenger is not availing air transportation

service?

Clarification: In terms of section 66B of the Finance Act, 1994, service tax is leviable on service

provided or agreed to be provided. Thus service tax becomes payable when a booking is made, i.e.

when the service is agreed to be provided, the subsequent cancellation of the ticket does not take it

outside the purview of tax absolutely.

However, Rule 6(3) of the Service tax Rules, 1994, provides that where an assessee has issued an

invoice, or received any payment, against a service to be provided which is not so provided by him

either wholly or partially for any reason, the assessee may take credit of such excess service tax paid

by him, if the assessee,-- (a) has refunded the payment or part thereof, so received for the service

provided to the person from whom it was received; or (b) has issued a credit note for the value of the

service not so provided to the person to whom such an invoice had been issued.

Thus the amount retained by the airlines in the event of cancellation of ticket, out of the original fare

will remain liable to be taxed as originally taxed and hence is entitled to abatement applicable in this

regard. However, if the ticketed amount is fully refunded to the passenger, but no-show (late

cancellation charges) or cancellation fee is separately collected through an invoice or bill, abatement

will not be applicable. Here, cancellation fee takes the nature of administrative charge.

Issue (d ): (i) whether service tax will apply on related fees/charges on journeys starting outside India,

even if the transaction for related charges is made in India? ; (ii) Whether service tax will apply on

related fee charges on journeys starting in India, even if the transaction for related charges is made

outside India?

Clarification: According to Rule 11 of Place of Provision of Services Rules, 2012, the place of

provision of a passenger transportation service is the place where the passenger embarks on the

conveyance for a continuous journey. Therefore, if place of embarkation of passenger is located

within the taxable territory, service tax is leviable on the gross amount payable for such continuous

journey, irrespective of where the ticket is booked and where fees/charges are collected. If the place

of embarkation of a passenger on a continuous journey falls outside the taxable territory, service tax

is not leviable, irrespective of where the tickets are booked and where fees/charges are collected.

However, as mentioned at (a) above, only such charge will be determined under Rule 11 of POP as

are directly related to the continuous journey. The POP of other charges will be judged on their own

merits.

3. Field formations, business and industry chambers are requested to offer their comments,

views and suggestions on the draft circular. It is requested that comments, views and suggestions

may be forwarded to the undersigned on or before 15th October, 2012. The same also may be e-

mailed to jm.kennedy@nic.in

F. NO. 137/22/2012-SERVICE TAX DATED 28TH SEPTEMBER, 2012

Subject : Filing of ST-3 only for the period 1st April to 30th June 2012

In terms of sub-rules (1) and (2) of Rule 7 of the Service Tax Rules, 1994, the half yearly return for the

period 1st April to 30th September 2012, is to be filed by 25th October, 2012. In the current financial

year, an assessee would have had to give data with respect to specific services and the corresponding

legal provisions for the period 1-4-2012 to 30-6-2012. The data for the period 1-7-2012 to 30-9-2012,

would have been with respect to different services and the corresponding legal provisions.

Combination of all these provisions into one return would have made the return complex for the

assessees.

2. I am directed to inform you that it has been decided that assessees have to provide data only for the

period 1-4-2012 to 30-6-2012 in the first half yearly return which is due on 25-10-2012. (The data for

the period from 1-7-2012 to 30-9-2012 should not be filed. Modifications will be made in the ACES so

that any data filed for this period is rejected. Till such time as the modifications are made, ACES will

not be accepting returns) Accordingly notification 47/2012 dated 28-9-2012 has been issued today.

3. Data for the period 1-7-2012 to 30-9-2012 will have to be furnished in a return in a revised format.

The revised format of the return and the last date for filing it will be indicated separately.

4. The above information may be communicated to departmental officers and assessees. Hindi version

to follow.

OBLIGATIONS FOR THE WEEK OBLIGATIONS FOR THE WEEK OBLIGATIONS FOR THE WEEK OBLIGATIONS FOR THE WEEK

• Monthly Return - Last Date for filing of Return of Central Excise and Cenvat Credit for the

previous month For non SSI Units ER - 1 Rule 12(1), Dated 10.10.2012.

• Monthly Return - Last Date for filing of Return of Central Excise and Cenvat Credit for the

previous month for EOU units ER - 2 Rule 17(3), Dated 10.10.2012.

• Monthly - Details of receipt and consumption of principal inputs and finished excisable goods -

Declarations under central excise to be filed by a unit paying total duty (Cenvat Credit + Cash)

of more than 1 crore ER - 6 Rule 9A(3), Dated 10.10.2012.

• Quarterly Return - Return of Central Excise and Cenvat Credit for the Quarter ending previous

month For SSI Units ER - 3 Rule 12(1), Dated 10.10.2012.

PROBLEMS IN SERVICE TAXPROBLEMS IN SERVICE TAXPROBLEMS IN SERVICE TAXPROBLEMS IN SERVICE TAX

Query

What is the meaning and scope of the phrase ‘transfer of right to use such goods ?

Reply

Transfer of right to use goods is a well recognized constitutional and legal concept. Every transfer of

goods on lease, license or hiring basis does not result in transfer of right to use goods. ‘Transfer of

right of goods’ involves transfer of possession and effective control over such goods in terms of the

judgment of the Supreme Court in the case of State of Andhra Pradesh vs RashtriyaIspat Nigam Ltd

[Judgment dated 6/2/2002 in Civil Appeal no. 31 of 1991]. Transfer of custody along with permission to

use or enjoy such goods, per se, does not lead to transfer of possession and effective control. The test

laid down by the Supreme Court in the case of Bharat Sanchar Nigam Limited v. Union of India

[2006(2)STR161(SC)] to determine whether a transaction involves transfer of right to use goods, which

has been followed by the Supreme Court and various High Courts, is as follows:

• There must be goods available for delivery.

• There must be a consensus ad idem as to the identity of the goods.

• The transferee should have legal right to use the goods – consequently all legal consequences of

such use including any permissions or licenses required therefore should be available to the

transferee.

• For the period during which the transferee has such legal right, it has to be the exclusion to the

transferor – this is the necessary concomitant of the plain language of the statute, viz., a ‘transfer of

the right to use’ and not merely a license to use the goods.

• Having transferred, the owner cannot again transfer the same right to others.

Whether a transaction amounts to transfer of right or not cannot be determined with reference to a

particular word or clause in the agreement. The agreement has to be read as a whole, to determine the

nature of the transaction.

Do you have any doubt or query on Service Tax? Why not seek an expert reply from STC. Email your query to asandco@gmail.com.

LITERATURLITERATURLITERATURLITERATUREEEE

• Now Railway and Freight Go Up – Dr. Sanjiv Agarwal, Hindustan Times, dated 01.10.2012.

• Dutiability of waste and scrap – N. Prabhakaran, Excise Law Times, Vol. 284: Part 1, dated

01.10.2012.

• Goods and Service Tax – Reality or dream – S. Balakrishnan, Excise Law Times, Vol. 284: Part

1, dated 01.10.2012.

• Reverse Charge Mechanism in Service Tax – Dr. Sanjiv Agarwal,

www.taxmanagementindia.com, dated 03.10.2012.

• GST in a Year, with Some Give & Take – Sumit Dutt Majumder, The Economic Times, dated

04.10.2012.

EVENTSEVENTSEVENTSEVENTS

Topic : Seminar on Sectorial Impact of Changes in Service Tax

Day / Date : Saturday, 13th October, 2012

Venue : Walchand Hirachand Hall, 4th Floor, IMC, Churchgate, Mumbai – 400 020

Time : 10.00 a.m. to 6.00 p.m.

Organized by : The Institute of Chartered Accountant of India (WIRC)

TIP FOR THE MONTHTIP FOR THE MONTHTIP FOR THE MONTHTIP FOR THE MONTH

You have to file Service Tax return for April – June 2012 (not six months) in Form ST-3 by 25th

October, 2012 and wait for new return format for subsequent period

QUOTE OF THE WEEKQUOTE OF THE WEEKQUOTE OF THE WEEKQUOTE OF THE WEEK

"Be the change you want to see in the world."

Mahatma Gandhi

Humour of the WeekHumour of the WeekHumour of the WeekHumour of the Week

Service Tax on Corruption Proceeds

Politician (To CA) - Whether my corruption proceeds are taxable !

CA - It is an issue of interpretation ! It involves an activity, is in between two

persons and has a consideration ! Let me study.

Politician - Ok, please also let me know that if taxable, will I get Cenvat Credit as I'll

also pass it on to someone.

KnowledgeKnowledgeKnowledgeKnowledge Extra Extra Extra Extra Corner Corner Corner Corner

CONFIDENTIAL v. CLASSIFIED

While information shared between two people is confidential, classified has to do with weightier

national or diplomatic affairs. They are usually slugged under restricted, protected, secret or top-secret

tags. These documents are declassified after many years

Confidential Information:

Ø Confidential information is data which is not available in the public domain.

Ø Information that a person would not want to share with his acquaintances.

Ø Though it is an umbrella term, it is usually used in relation to personal information.

Ø For instance, you’ve hidden your income from everybody apart from your chartered accountant.

Ø Not just personal information even commercial information such as client data, company

strategy or budgetary allocations is confidential.

Classified Information:

Ø Classified information is also confidential, but is used mostly when we talk of a country's

security.

Ø Sensitive military information and diplomatic exchanges are classified.

Ø For instance, a country's nuclear programme, identity of spies and minutes of some cabinet

meetings.

Ø Some of this information is declassified later on. Declassified documents throw light on recent

political history.

Announcements

FOR EXCLUSIVE AND IN HOUSE

SEMINAR / WORK SHOP

On

NEW REGIME OF SERVICE TAX

Conducted by

Dr. Sanjiv Agarwal FCA, FCS,

Please Contact at:

asandco@gmail.com, himadri@ckfindia.org sanjivservicetax@gmail.com malini@ckfindia.org

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