Service tax negative list based regime

An insight into Negative List based regime

SERVICE TAX

Prepared byAniruddha Bhide

INTRODUCTION

� In this emerging era of cut throat competition, it is inevitable for everyone, to

continuously improve and enhance to stand apart from the crowd

� But there are many hurdles in this race and the most complex being the

Taxation Laws and Governmental Compliances

Finance Act, 2012 revamped the entire structure of Taxation of Services in India

2

� Finance Act, 2012 revamped the entire structure of Taxation of Services in India

by the introduction of Negative List Based Taxation w.e.f. 1st of July, 2012

� Keeping this in mind we have come up with this presentation which is an All in

One Package covering all the changes in the Service Tax Regulation

� Kindly invest a few minutes instead of spending hours later !

� Paradigm Shift: Change in the

approach of taxation from selective to

comprehensive which has brought all

services under service tax net

� Reverse Charge: A new scheme of

taxation is being brought into effect

whereby the liability of payment of

service tax shall be both on the

service provider and the service

recipientNegative List Explicitly not taxable

Declared Services Explicitly Taxable

� Mega Exemption: Exempts

What’s NEW ???

3

� Place of Provision of Service

Rules

� Mega Exemption: Exempts

certain services from the tax net

� Point of Taxation Rules

� The entire Service Tax Law has undergone a change upside down

� Hence the entire system needs to be understood to get inline with the new

laws and regulations without affecting the stability of the organization

� Moreover these changes have been made effective from 1st July, 2012

How does it affect you ?

4

� Thus there seems to be an urgency for assimilating these into the

organization

It is evident that this is an emerging area of taxation and thus

the department is also on toes

� We wish that your organization prospers and reaches to greater heights

� To accomplish this goal you need to focus on the management

of your operations and not on the hurdles of taxation laws and

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� To accomplish this goal you need to focus on the management

of your operations and not on the hurdles of taxation laws and various compliances….

You focus on the operations

We will take care of the Taxation!!!

Take Off

So let us take a ride of the new regulations and make this journey of change a smoother

one !!!

6

NEW SERVICE TAX

REGULATIONS

Index

Sr. No. Topic Page No.

01 Introduction 09-11

02 Definition of Service 12

03 Place of Provision of Service 13-17

04 Point of Taxation 18-24

05 Reverse Charge Mechanism 25-28

06 Mega Exemption 29

8

06 Mega Exemption 29

07 Abatement 30-32

08 Valuation of Services 33-34

09 Miscellaneous 35

Selective

Approach

(Upto 30th

June,2012)

Comprehensive

Approach

(w.e.f. 1st

July,2012)

Finance Act, 2012Finance Act, 2012

Paradigm Shift

9

There has been a paradigm shift in the approach of taxation of Service Tax

from Selective Approach to Comprehensive Approach. Thus the onus has

been shifted from the department to the assessee

June,2012)July,2012)

Taxability

Not to scale

Illustrative only

10

� With the advent of Negative List Approach in the taxation of services, any activity

which meets the characteristics of a ‘service’ is taxable unless otherwise specifically

listed in the

� Negative List (Sec. 66D),

� Mega Exemption Notification (Not.No. 25/2012-ST) or

� such other notifications issued by the department from time to time.

Moreover, some services have been explicitly enumerated to be taxable to remove any

Taxability

11

� Moreover, some services have been explicitly enumerated to be taxable to remove any

ambiguities. These services are called ‘Declared Services’ defined and listed vide

section 66E.

Service

means

Any activity

includes

Declared Services (Sec.66E)

does not include

Any activity which constitutes merely

Provision of service by employee to

employer

Fees

taken by

court or tribunal

Definition of Service – Sec. 65B(44)

12

Carried out by a person for another

For consideration

Transfer of title in goods or immovable property

Transfer which is deemed to be sale

Transaction in money or actionable claim

court or tribunal

Place of Provision of Service Rules, 2012

� Finance Act, 2012, has removed the entire concept of Import and Export of Services andinstead defined the scope of taxation under the charging provision i.e. Sec.66B to be basedon the place of provision of services

� Section 66C of the act prescribes rules for determination of place of provision of service bysuperseding the ‘Export of Services, Rules, 2005’ and Taxation of Services ( Provided fromoutside India and received in India) Rules, 2006

� These rules determine the place where a service shall be deemed to be providedirrespective of the place of performance or consumption of the service

� As per these rules, if the services are deemed to be provided in the taxable territory then tax

13

� As per these rules, if the services are deemed to be provided in the taxable territory then taxhas to be paid, otherwise no tax is attracted

� The rules specify the manner to determine the taxing jurisdiction for a service

� This is in line with the principle of service tax being a destination based consumption tax

� The general rule provides that the place of provision of service shall be the place of locationof the service receiver. However there are certain exceptions which have been dealt with inthe succeeding slides

Place of Provision of Service Rules, 2012General Rule( Illustration)

SP : Service Provider

SR: Service Receiver

14


Taxable and Non-Taxable Territory

Taxable Territory

India

15

Indian Land mass excluding Jammu

and Kashmir

Territorial Waters

Continental Shelf

Exclusive Economic

Zone

Maritime Zone

Sea Bed Air Space

Whether

registered

in India?

Whether

person has a

business

establishment

in India?

Whether

person has a

fixed

establishment

in India?

Whether

person has

his usual

place of

residence in

India?

Location is

not in India

Location is

N

N NN

Y

Y

YY


Location of Service Receiver / Provider

16

Location is

in India

Whether

person has

another

establishment

abroad?

Location

is in

India

Whether

person has a

fixed

establishment

abroad?

Location will be the establishment more directly concerned

Location will be the

business

establishment

Y

Y Y

N N

Rule Description Place of Provision of Service

3 General Rule Location of service receiver. If not available

then location of service provider

4 Services provided in respect of goods that are required to be

made physically available by the service receiver to the service

provider or in the physical presence of an individual, in order to

provide service

Place of Performance

5 Services in relation to immovable property Location of immovable property

6 Services in relation to Events Place where Event is actually held

7 Services provided at more than one location

(overrides rule 4,5,6)

Location in the taxable territory where the

greatest proportion of the service is


17

(overrides rule 4,5,6) greatest proportion of the service is

provided

8 When service provider and receiver are in Taxable Territory Location of Service Receiver

9 Specified Services such as Intermediary Services, Banking and

Financial Services, Online information and database access or

retrieval services, Hiring of means of transport

Location of service provider

10 Service of transport of goods Destination of goods

11 Passenger transportation Place of origin

12 On board a conveyance Place of origin

Point of Taxation Rules, 2011

Introduction

� The Point of Taxation Rules, 2011 were introduced vide Notification 18/2011-ST, dated

01/03/2011

� These rules were introduced to enable collection of service tax on accrual of taxable

value of service

� However, with advent of new approach w.e.f. 1st July, 2012, amendments were

18

� However, with advent of new approach w.e.f. 1 July, 2012, amendments were

introduced in the said rules to be in consonance with the new provisions of the Service

Tax vide Notification No. 04/2012-ST dated 17/03/2012

Rule 3

� Determination of Point of Taxation- For the purposes of these rules, unless otherwise

provided, 'point of taxation' shall be,

� the time when the invoice for the service provided or to be provided is issued

(Provided that where the invoice is not issued within thirty days of the completion of

the provision of the service, the point of taxation shall be date of such completion)

� in a case, where the person providing the service, receives a payment before the time

specified above, the time, when he receives such payment, to the extent of such


19

specified above, the time, when he receives such payment, to the extent of such

payment

� Explanation.- For the purpose of this rule, wherever any advance by whatever name

known, is received by the service provider towards the provision of taxable service, the

point of taxation shall be the date of receipt of each such advance

Rule 3

� General rule applies to cases not falling under

� Rule 4 - Change in tax rate

� Rule 5 - Where the service is taxed for the first time

� Rule 7 - Liability under reverse charge mechanism

� Transactions with associated enterprises

� Rule 8 - Transactions for copyright, patents, trademarks or design


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� In general, POT would be earlier of :

� Date of issue of invoice – where invoice is issued within 30 days from completion of

service

� Date of completion of service – where invoice is not issued within 30 days from

completion of service

� Date of receipt of consideration

� Date of receipt of advance

Sr Date of

Comp-

letion

Invoice

Date Payment Date Point of Taxation Remarks

1 April

10,2012

April

20,2012

April 30,2012 April 20,2012 Invoice issued in 30 days and before

receipt of payment

2 April

10,2012

May

26,2012

April 30,2012 April 10,2012 Invoice not issued in 30 days and

payment received after completion


Rule 3

21

10,2012 26,2012 payment received after completion

of service

3 April

10,2012

April

20,2012

April 15,2012 April 15,2012 Invoice issued in 30 days but

payment received before invoice

4 April

10,2012

May

26,2012

April 5,2012(part)

and April 25,2012

(remaining)

April 5,2012 and

April 10,2012 for

Respective

amounts

Invoice not issued in 30 days. Part

payment before completion,

remaining later


Continuous Supply of Service

� Continuous supply of service which was initially defined under Rule 6 now falls under

General Rule w.e.f. 01.04.2012

In case of continuous supply of service

where the provision of the whole or part

of the service is determined

on the completion of an event in terms of

a contract,

22

determined periodically

a contract,

which requires the receiver of service to make any payment to

service provider,

the date of completion of each

such event as specified in the

contract

shall be deemed to be the date of completion of

provision of service

Issue of Invoice Receipt of Payment Point of Taxation

Provision of Service before change of Rate

After change of rate After Change of rate Date of Invoice or Date of payment, whichever is earlier

– New Rate will apply (Rule 4 (a) (i))

Before change of rate After Change of rate Date of Invoice – Old Rate will apply (Rule 4 (a) (ii))

After Change of Rate Before Change of Rate Date of payment – Old Rate will apply (Rule 4 (a) (iii))

Point of Taxation in case of change of rate


Provision of Service after change of Rate

Before change of rate After Change of rate Date of Payment– New Rate will apply (Rule 4 (b) (i))

Before change of rate Before Change of rate Date of Invoice or Date of payment whichever is earlier–

Old Rate will apply (Rule 4 (b) (ii))

After Change of Rate Before Change of Rate Date of Invoice – New Rate will apply (Rule 4 (b) (iii))

23

Point of Taxation Rules, 2011Rule 5 – Payment of Tax in case of new services

� Where a service is taxed for the first time, then

� 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

� No tax shall be payable if the payment has been received before the service becomes

taxable and invoice has been issued within 30 days of the date when the service is

taxed for the first time

Rule 7 – POT for reverse Charge transactions

24

Rule 7 – POT for reverse Charge transactions

� In case of service tax to be paid by the specified persons in case of specified services as

per the partial reverse charge mechanism, the Point of Taxation shall be the date on

which payment is made

� Where the payment is not made within a period of six months of the date of invoice, the

Point of Taxation shall be determined as if this rule does not exist

Service

Prima facie, liability to

discharge is that of the

service provider

In specified cases, the liability to

discharge service tax is vested

with the recipient of services

Reverse Charge Mechanism

Service provider

Service – AN ACTIVITY

Recipient

25

Reverse Charge Mechanism

Introduction

� With effect from 1st July , 2012 , a new scheme of taxation is being brought into effect

whereby the liability of payment of service tax shall be both on the service provider and

the service recipient

� Usually such liability is affixed either on the service provider or the service recipient, but

in the case of specified services and in specified conditions, such liability shall be on both

the service provider and the service recipient

26

� This is termed as Partial Reverse Charge Mechanism which has been provided by

insertion of proviso to Section 68 in the Finance Act, 2012

Sr Description of a service % of tax payable by

Provider Recipient

1 Insurance agent Nil 100

2 Transport of goods by road by a GTA Nil 100

3 Sponsorship Nil 100

4 Arbitral tribunal Nil 100

5 Individual advocate Nil 100

Reverse Charge Mechanism Notification 30/2012

27

6 Support service by Government or local authority excluding renting, and negative list

services

Nil 100

7 Services provided by any person who is located in NTT and received by any person

located in the taxable territory

Nil 100

8 Renting or hiring any motor vehicle designed to carry passenger on abated value Nil 100

9 Renting or hiring any motor vehicle designed to carry passenger on non abated value 60 40

10 Supply of manpower for any purpose ( includes Security Services) 25 75

11 Works contract 50 50

Reverse Charge MechanismSmall Service Provider Exemption

� The liability of the service provider and the service recipient are different and independent of each

other

� In case the service provider is availing exemption owing to turnover being less than Rs.10 lakhs, he

shall not be obliged to pay any tax

� However, the service recipient shall have to pay his portion of service tax which he is required to pay

under the reverse charge mechanism irrespective of the fact that whether the service provider pays

service tax or not

CENVAT Credit

28

CENVAT Credit

� The service recipient cannot utilize the CENVAT credit for payment of service tax under Reverse

charge mechanism

� However, the service receiver can utilize the amount of service tax paid under this mechanism as

CENVAT credit for payment of his output service tax, subject to the conditions specified in the rules

Point of Taxation

� In case of Reverse Charge Mechanism, as stated earlier, the Point of Taxation shall be governed by

the Rule 7 of Point of Taxation Rules, 2011

Mega Exemption� The provisions of Service Tax as prevailing before 01/07/2012 contained 88

exemption notifications

� The need for exemptions is not obliterated with the introduction of the negative list

� While some existing exemptions have been built into the negative list, others,

wherever necessary, have been retained as exemptions

29

� In addition, new exemptions are proposed to be introduced in the context of the

negative list. For ease of reference and simplicity most of the exemptions are part

of one single mega exemption notification bearing no. 25/2012-ST dated

20/06/2012

Introduction

� Notification No. 26/2012-ST, dated 20/06/2012 exempts certain specified taxable

services from service tax leviable thereon as is in excess of the service tax calculated on

a value which is equivalent to a specified percentage of the gross amount charged by

such service provider, for providing the said taxable service, subject to the certain

conditions

Abatement

Sr. Taxable Service Abate-

ment

Conditions

30

ment

1 Financial Leasing service including hire

purchase

90% Nil

2 Transport of goods by rail 70% Nil

3 Transport of passengers, with or without

accompanied belongings, by rail

70% Nil

4 Mandap Keeper 30% CENVAT Credit on goods under Ch.1-22 of

CETA, 1985 cannot be taken

Sr. Taxable Service Abate-

ment

Conditions

5 Transport of passengers by air, with or

without accompanied belongings

60% CENVAT Credit cannot be taken of the goods

and capital goods

6 Accommodation Service 40% CENVAT Credit cannot be taken of the goods

and capital goods

7 Goods Transport Agency 75% CENVAT Credit cannot be taken of the goods,

services and capital goods

8 Services provided in relation to chit 30% CENVAT Credit cannot be taken of the goods,

Abatement

8 Services provided in relation to chit 30% CENVAT Credit cannot be taken of the goods,


9 Renting of any motor vehicle designed

to carry passengers

60% CENVAT Credit cannot be taken of the goods,


10 Transport of goods in a vessel 50% CENVAT Credit cannot be taken of the goods,


11 Services by a tour operator in relation

to a package tour

75% i)CENVAT Credit cannot be taken of the goods,


ii) The bill issued for this purpose indicates

that it is inclusive of charges for such a tour.

31

Sr. Taxable Service Abate

-ment

Conditions

12 Services by a tour operator in

relation to a tour, if the tour

operator is providing services

solely of arranging or booking

accommodation for any person in

relation to a tour

90% i)CENVAT Credit cannot be taken of the goods,


ii) The invoice, bill or challan issued indicates that it

is towards the charges for such accommodation.

iii) This exemption shall not apply in such cases

where the invoice, bill or challan issued by the tour

operator, in relation to a tour, only includes the

service charges for arranging or booking

Abatement

service charges for arranging or booking

accommodation for any person and does not

include the cost of such accommodation

13 Services by a tour operator in

relation to any services other

than specified at (11) and (12)

above.

60% i)CENVAT Credit on goods cannot be taken

1i)The bill issued indicates that the amount charged

in the bill is the gross amount charged for such a

tour

14 Works Contract Services 75% i)CENVAT Credit cannot be taken of the goods,


ii)The value of land is included in the amount

charged from the service receiver

32

Valuation

Value of Service

can be determined cannot be

determined

Works Contract

33

Gross Value of Materials

VAT assessment acceptable if on

actuals

determined

Execution of original works

40%

Maintenance or repair or reconditioning or

servicing of any goods

70%

Other works contract

60%

Valuation

� The manner of determination of service portion in Restaurant and Outdoor

Catering Services is governed by the Rule 2C of Service Tax (Determination of

Value) Rules, 2006 (amended) w.e.f. 01/07/2012

Sr. Nature of Service Taxability (% of Total Amount)

1 Restaurant Service 40%

Restaurant and Food Services

34

1 Restaurant Service 40%

2 Outdoor Catering Services 60%

Miscellaneous

� The time limit for issuing an invoice has been increased to 30 days from 14 days

and to 45 days in case of Banking and Financial Services by amending Rule 4A of

Service Tax Rules,1994

� Excess amounts paid now can be adjusted without any monetary limits provided

excess payment is not on account of interpretation of law, taxability, classification,

valuation or applicability of any exemption notification by amending Rule 6(4A) and

(4B) of Service Tax Rules,1994

35

� Time limit to issue Show Cause Notice has been increased to 18 months

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