A. Enabling provision for levy of “KrishiKalyan Cess” (w.e.f 01.06.2016):
• An enabling provision is being made to empower the Central Government to impose a Krishi Kalyan Cess on any or all the taxable services at a rate of 0.5% on the value of any or all taxable services.
• The proceeds from this Cess would be utilized for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.
• Credit of this Cess shall be allowed after due amendment yet to be made in the Cenvat Credit Rules, 2004 to be used for payment of the proposed Cess on the service provided by a service provider.
• The provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services.
B. Changes In Chapter V of the Finance Act, 1994 [“the Finance Act”] (Will come into force when the Finance Bill, 2016 is enacted unless otherwise stated):-
I. Changes in relation to the Negative List – Section 66D of the Finance Act:-
• Section 66D(l):Proposed to be deleted
Presently, specified education services viz. services by way of pre-school education, higher secondary school education or equivalent, education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force, education as a part of an approved vocational education course,are covered under Section 66D(l) of the Finance Act. These services are proposed to be deleted.
However, corresponding exemption is inserted in the Mega Exemption Notification by amending the definition of “educational institutions”to include an institution providing such services as was specified in Section 66D(l) of the Finance Act [Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services in the Mega Exemption Notification].
• Section 66D(o)(i):Proposed to be deleted w.e.f. 01.06.2016
Presently, Section 66D(o)(i) of the Finance Act covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage”, which is proposed to be deleted w.e.f 01.06.2016.Corresponding to this deletion, new entry No. 23(bb)] has been inserted in the Mega Exemption Notification to exempt services by a stage carrier other than air-conditioned stage carriage. [Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services in the Mega Exemption Notification]
Further, Service tax is proposed to be levied on service of transportation of passengers by air conditioned stage carriage, @ 40% after abatement of 60% (as applicable to transportation of passengers by contract carriage) without input tax credit, with effect from 01.06.2016 [Read with Notification No. 08/2016-ST dated 29.02.2016 vide which changes have been made in the Abatement Notification]
• Section 66D(p)(ii):Proposed to be deleted w.e.f. 01.06.2016
Presently, Section 66D(p)(ii) of the Finance Act covers “services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance”, which is proposed to be deleted w.e.f 01.06.2016.
Corresponding to this deletion, new entry [No. 53] has been inserted in the Mega Exemption Notification to such services by an aircraft.[Read with Notification No. 9/2016-ST dated 01.03.2016 vide which changes have been made in the Mega Exemption List of Services].
However, the services provided by vessels would be taxable and the domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.
In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India as export of services. Consequential amendments are being made in Cenvat Credit Rules, 2004.
II. Other Important Changes in the Finance Act:-
• Changes in Section 65B of the Finance Act:
Section 65B(11) of the Finance Act is proposed to be deleted containing the definition of the term “approved vocational education course”, with the deletion of Section 66D(l) of the Finance Act.
It shall be incorporated in the Mega Exemption Notification with insertion of corresponding exemption thereunder.
Section 65B(44) of the Finance Act provides definition of the term ‘service’. Explanation 2(ii)(a) in Section 65B(44) of the Finance Act, is being amended so as to clarify that any activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), are liable to Service tax.
Section 65B(49) of the Finance Act containing definition of the term ‘support services’ has been deleted w.e.f 01-04-2016 vide Notification No. 15/2016 – ST dated 01.03.2016.
• Changes in Section 66E of the Finance Act:
After clause (i), clause (j) is inserted to include “assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof”under the list of Declared services.Meaning thereby, assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a ‘service’ leviable to Service tax and not sale of intangible goods.
The liability to pay Service tax on any service provided by Government or a local authority to business entities shall be on the service recipient.Consequently, Reverse charge Notification No. 30/2012-ST is being amended so as to delete the words “by way of support services” appearing at Sl. No. 6 of the Table in the said notification with effect from 01.04.2016. Further,01.04.2016 is being notified as the date from which the words “by way of support services” shall stand deleted from paragraph 1, clause A (iv),item (C) of Reverse Charge Notification No. 30/2012-ST.The above changes shall come into effect from the 01.04.2016.
It is being provided that Cenvat credit of Service tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. It is also being provided that where the manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance Cenvat credit not exceeding the Service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year. It is also being provided that Cenvat credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.
• Changes in Section 67A of the Finance Act:
Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. (Corresponding amendments carried out in the Point of Taxation Rules, 2011, which would come into force w.e.f. the date of enactment of the Finance Bill, 2016).
The Point of Taxation Rules, 2011 (“POTR”) have been framed under provisions of clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is also being obtained under Section 67A to make rules regarding point in timeof rate of service tax. Thus, any doubt about the applicability of Service tax rate or apparent contradiction between section 67A and POTR would betaken care of. Therefore, consequent modifications have been done inPOTR.
Rule 5 of POTR applies when a new service comes into the service tax net.Further, in rule 5 of POTR, it is provided that in two specified situations the new levy would not apply. Another Explanation is being inserted therein stating that in situations other than those specified where new levy or tax is not payable, the new levy or tax shall be payable. The above changes shall come into effect from 01.03.2016.
• Changes in Section 73 of the Finance Act:
Section 73 is proposed to be amended toextend the limitation period for recovery of Service tax not levied or paid or shortlevied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc., by one year, i.e., from 18 months to 30 months.5 year limitation period in case of fraud etc., has not beenchanged.
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