Service Tax Changes in Union Budget 2015-16

By | March 11, 2015
These changes are discussed in chronological order i.e. changes applicable from 1 st March 2015,changes applicable from 1 st April 2015, changes applicable from date of assent to Finance Bill & changes applicable from the date of notification after assent to Finance Bill.

At the outset, it may be relevant to note that the rate of service tax remains 12.36% as it will change to 14% only with effect from a date to be notified after enactment of Finance Bill, 2015.

1. Amendments applicable from 1 March 2015

a. Aggregator brought under Reverse Charge Mechanism

Service Tax liability is cast on the ‘ aggregator’, or any of his representative office located in India, if the service is so provided using the ‘brand name’.

It is also provided that if an aggregator does not have any presence, including that by way of a representative, in such a case any agent appointed by the aggregator shall pay the tax on behalf of the aggregator.

[Refer Not. No. 5/2015-ST and Not. No. 7/2015-ST]

b. Issuing digitally signed invoices and maintaining records electronically made possible

A provision for issuing digitally signed invoices is being introduced along with the option of maintaining of records in electronic form. The conditions andprocedure in this regard shall be notified later by the CBEC.

[Refer Not. No. 5/2015-ST]

c. ‘Single’ premises registrations to be granted within 2 days

To enhance the ease of doing business in India, now, it has been provided that service tax registration for ‘single’ premises shall be granted within two days of filing the application with requisite documents. Verification, if any, by the Service Tax Authorities can be done post-facto.

[Refer Not. No. 5/2015-ST read with Order 1/2015- ST]

d. Time for availing CENVAT credit extended to 1 year

At present, an assessee is required to avail CENVAT credit on inputs and input service within 6 months of the date of issue of any of the documents specified in sub-rule (1) of Rule 9 else the credit may lapse. In this regard, representations were made by the industry chambers to extend the time limit of 6 months.

Accordingly, after paying heed to the demand, now the period for availing CENVAT Credit is being extended to 1 year.It is possible to take a view that this amendment will be applicable for all invoices on which credit is availed after 1 March 2015 irrespective of date of invoice by relying on the judgment of Apex Court in case of Osram Surya (P) Ltd. Appeal (Civil) – 2002-TIOL-64-SC-CX

It is pertinent to note that there is no time limit restriction for availment of CENVAT credit on capital goods.

[Refer Not. No. 6/2015-CE (NT)]

e. CENVAT credit availment on directly dispatched goods permitted

Now, it is permissible to avail /pass-on the CENVAT Credit on the goods which are directly dispatched to the end customerspremises without bringing the same to the registered dealer’s/ registered importer’s customers. This is beneficial provision.

[Refer Not. No. 6/2015-CE (NT) and 8/2015-CE (NT)]

f. CENVAT credit availed but not utilised can be recovered

Earlier there was no specific provision for recovery of CENVAT Credit taken but not utilized. Now, CENVAT Credit taken but not utilized can be recovered under the provision of section 73. Interest will not be applicable on such recovery, however, (strangely!) penalty could be applicable.

[Refer Not. No. 6/2015-CE (NT)]

g. Advance ruling extended to resident firms

Now, resident firms can also obtain Advance ruling. Thus, afterextending that facility to public limited companies (from 1 March 2013) and private limited companies (from 11 July 2014), now Advance ruling facility is extended to all ‘ resident firms’.

In this regard, the term ‘ resident firms’ is defined to include Limited Liability Partnerships (LLP), sole proprietorship and one person company.

[Refer vide Not. No. 9/2015-ST]

h. Not. No. 42/2012-ST rescinded

Not. No. 42/2012-ST provided for exemption from service tax (subject to certain conditions) on amounts paid to non-resident commission agent.

From 1 October 2014, in view of the amendment in Rule 9 of Place of Provision of Services Rules, 2012 (‘POPSR’),the place of provision of a non-resident ‘intermediary’ is outside the taxable territory and in-turn no service tax is payable. Thus, as Not. No. 42/2012-ST had lost it’s relevance, the has been rescinded.

[Refer vide Not. No. 3/2015-ST]

2. Amendments applicable from 1 St April2015

New exemptions included in the Not. No. 25/2012-ST [vide Not. No. 6/2015-ST]

a. At present, ‘services by way of transportation of the patient to and from a clinical establishment’ by a clinical establishment is not liable to service tax.

Service tax exemption now would be available even when an entity other than clinical establishment (such as say an individual or firm) provides ambulance for transportation of a patient.

[refer Sr. No.2 of Not. No.25/2012-ST)

b. At present, construction, erection, commissioning, repairs etc of a Common Effluent Treatment Plant (‘CETP’) is not liable to service tax.

Service tax exemption now would be available, even in respect of service of treatment of effluent provided by an operator of CETP. This appears to be in line with Governments pet project ‘Swachha Bharat Abhiyan’

[refer Sr. No.43 of Not. No.25/2012-ST]

c. At present, services such as cooling, bulk packaging etc in respect of agricultural produce carried out at farm to make it marketable for primary market is not liable to service tax [vide Section 66D (d)].

Service tax exemption now would be available, even in respect of service by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetablesprovided it does not alter the essential characteristics of fruits or vegetables.

[refer Sr. No.44 of Not. No.25/2012-ST]

d. At present, services when provided by the Government or local authority are already covered by the Negative List.

Service tax exemption now would be available even in respect of service provided of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve provided by non-government entity.

[refer Sr. No.45 of Not. No.25/2012-ST]

e. Service tax exemption now would be available even in respect of service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of its members. Thus, it can be construed from the amendment that the Government is recognizing the fact that service tax should not be applicable, inter-alia, on profit made by Association of Persons.

[refer Sr. No.46 of Not. No.25/2012-ST]

f. Now, life insurance service provided by way of Varishtha Pension Bima Yojana will not attract service tax.

[refer Sr. No.26A of Not. No.25/2012-ST]

Withdrawal/ amendment to exemptions included in the Not. No. 25/2012-ST [vide Not. No. 6/2015-ST] [serial no. g to l below]

g. Now, exemption will not be available in respect of following services of construction, repair, maintenance, renovation or alteration service provided to the Government, a local authority, or a governmental authority:

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

· a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

· 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;

[refer omission of Sr. No.12 (a), (c) and (f) of Not. No.25/2012-ST]

h. Now, exemptions will not be available in respect of following services:

· Service of Departmentally run public telephone;

· Service of Guaranteed public telephone operating only local calls;

· Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued

[refer omission of Sr. No.32 of Not. No.25/2012-ST]

i. Now, exemption will not be available in respect of service by way of construction, erection, commissioning, or installation of original works pertaining to an airport and port.

[refer Sr. No.14 (a) of Not. No.25/2012-ST]

j. At present, exemption from service tax is available in respect of services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii)theater, excluding services provided by such artist as a brand ambassador.

Now, the exemption is limited in cases where the consideration for such performance is not more than Rs 1 lac. Services provided by an artist as a brand ambassador will continue to attract service tax.

[refer Sr. No.16 of Not. No.25/2012-ST]

k. At present, exemption is available in respect of service of transportation by rail or a vessel or a goods transport agency of goods being foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages

Now, this exemption is restricted to ‘milk, salt and food grain including flours, pulses and rice’ . Thus, it can be inferred that exemption may not be, inter-alia, available in respect of tea, coffee, jaggery, sugar, milk products and edible oil.

[refer Sr. No.20 and 21 of Not. No.25/2012-ST]

l. Now, exemption will not be available in respect of following services:

· Services provided by a mutual fund agent to a mutual fund or assets management company (‘AMC’)

· Services provided by distributor to a mutual fund or AMC

· Services provided by selling or marketing agent of lottery ticket to a distributor

It is pertinent to note that for the aforesaid services liability to pay service tax is cast upon the recipient of service.

[refer omission of Sr. No.29 (c), (d) and (e) of Not. No.25/2012-ST]

m. At present, services provided to an exporter for transportation of goods by Goods transport agency to port or airport (including transportation to and from Inland container depot or container freight station) are not liable to service tax vide Not. No. 31/2012-ST.

Now, this exemption is extended even when goods are exported through Land Customs Station (LCS). This will benefit export to Pakistan, Bhutan, Nepal by LCS.

[refer Not. No. 4/2015-ST]

Changes in abatment provided in Not. No. 26/2012-ST [vide Not. No. 8/2015-ST]

a. Transportation of goods by road attracts service tax on 25% value whereas transport of goods and passengers by rail attracts service tax on 30%. In case of passengers transport by vessel service tax is payable on 40%.

Now, uniform taxable value of 30% for all aforesaid services is prescribed. Also, a uniform condition of non-availment of CENVAT Credit on inputs, capital goods and input services is prescribed.

b. At present, transport of passengers by air (without discrimination between aam and khaas aadmi!) attracts service tax on 40% value.

Now, in case of economy class (aam aadmi class!) service tax will continue to be payable on 40% value, however, for the classes other than economy, service Tax would be payable on 60%.

c. Abatement of 30% available to services in relation to chit is withdrawn.

Changes in Reverse Charge Mechanism [vide Not. No. 7/2015-ST]

a. At present, when a manpower supply agency and security service agency being an individual/ firm etc provides services to a body corporate, service tax of 25% is to be paid by service provider and 75% is payable by service receiver.

Now, in aforesaid cases, the entire (100%) liability is cast on the service receiver.

b. In respect of services provided by mutual fund agents/ distributorsto Mutual fund or AMC and services provided by selling or marketing agent of lottery tickets to a lottery distributor or selling agent, the entire liability to pay service tax is cast on service receiver.

Changes in CENVAT Credit [vide Not. No. 6/2015- CE( NT)]

a. Cenvat Credit of service tax paid under partial reverse charge by the service receiver is allowed on payment of service tax (without linking it to the payment to the service provider).

Changes applicable from date of assent to Finance Bill, changes applicable from the date of notification after assent to Finance Bill will be discussed in Part II of this article.

A. Service Tax on Chit Fund

In the case of Delhi Chit Fund Association – 2013-TIOL-331-HC-DEL-ST the Hon’ble High Court held that in a chit business, the subscription is tendered in any one of the forms of ‘money’ as defined in section 65B(33). It would, therefore, be a transaction in money. So considered, the transaction would fall within the exclusionary part of the definition of the word ‘service’ as being merely a transaction in money and thus, not liable to service tax. Even the SLP against the High Court order was dismissed by Supreme Court in UoI v Delhi Chit Fund Association – 2014-TIOL-23-SC-ST.

Now, Explanation 2 to section 65B (44) has been amended to, inter-alia, include any activity carried out, for a consideration by a foreman of chit fund for conducting or organising a chit in any manner. This, abatement appears to be introduced to overcome the decision of in the case of Delhi Chit Fund (supra).

B. Service tax on ‘reimbursement’ of expenses

In the case of Intercontinental Consultants And Technocrats Pvt Ltd – 2012-TIOL-966-HC-DEL-ST wherein the Delhi High Court held inclusion of reimbursable costs as ultra vires Section 66 and 67 of the Act. Now, in to overcome aforesaid judgment, by way of Explanation to Section 67 it is clarified that ‘consideration’ includes ‘any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service’. as may be prescribed now been specifically provided in the section that reimbursement of expenses, incurred for providing taxable service by service provider, will chargeable to service tax

It is pertinent to note that ‘Pure agent’ reimbursement (subject to fulfillment of prescribed conditions under per Rule 5(2) of STR) will continue to be excluded from value of taxable service.

C. Definition of ‘Government’ introduced

The term Government was not defined in the Finance Act, 1994 and it led to interpretational issues. Thus, now, to address this anomaly the term ‘Government’ is defined under section 65B (26A).

D. Recovery of service tax without issue of Show Cause Notice

A new sub clause (1A) has been inserted under Section 73 which provides for recovery of the Service Tax amount self-assessed and declared in the return but not paid, without issuance of show cause notice.

E. Rationalisation of penalty under section 76Penalties in cases where fraud or collusion or willful misstatement etc is not involved would be as under-

i. Penalty not to exceed 10% of service tax amount involved in such casesii. No penalty is to be paid if Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1) i.e. within 30 days of issuance of show cause noticeiii. A reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order

iv. If the Service Tax amount gets reduced in any appellate proceeding, benefit 25% of penalty imposed shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order

F. Rationalisation of penalty under section 78Penalties in cases where fraud or collusion or willful misstatement etc is involved would be as under-

i. Penalty shall be 100% of service tax amount involved in such cases ii. A reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax, interest and reduced penalty is paid within 30 days of service of notice in this regard iii. A reduced penalty equal to 25% of the service tax amount, determined, is to be paid if the service tax, interest and reduced penalty is paid within 30 days of such order

iv. If the Service Tax amount gets reduced in any appellant proceeding and benefit of 25% penalty shall be admissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellate order

G. Transitional provisions section 78B

Section 78B provides that amended provisions of section 76 and section 78 shall apply to cases where either no notice is served, or notice is served under subsection (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015

In respect of cases covered by section 73(4A) (i.e. issue being identified during the course of any audit, investigation or verification), if no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015, penalty shall not exceed 50% of the Service Tax amount.

H. Waiver of penalty omitted

Section 80 provides for waiver of penalty if the assessee proves that there was reasonable cause for the said failure. Now, this provision is proposed to be omitted.

I. Services provided by Government to business entity

Earlier, ‘support services’ by Government or a local authority provided to business entities were liable to service tax (in the hands of recipient of service). The term ‘support service’ was defined.

Now, the term “support service” [section 65 B (49)] is being omitted. Thus, in-effect all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax.

J. Illustration inserted in section 66F

Section 66F (1) prescribes that unless other wise specified, reference to a service shall not include reference to any input service used for providing such services. Anillustration is being incorporated in this section to clarify the scope of this provision. This being a clarificatory change may have retrospective effect.

2. Amendments applicable from the date to be notified after enactment of Finance Bill, 2015

A. Rate of service tax to be 14%

At present, service tax is charged at the rate of 12.36%. However, in order to prepare service consumers for GST, rate is being proposed to be increased to 14% and the cesses are proposed to be subsumed.

B. Introduction of Swachh Bharat Cess

An enabling provision is being incorporated in the Finance Bill, 2015 to empower the Central Government to impose a Swachh Bharat Cess. This cess will be levied on the value of all or any of the taxable services at a rate of 2%. This will further hike up the rate of service tax upto 16%.

C. Admission to entertainment event or access to amusement facility will be liable to tax

At present, services by way of admission to entertainment event or access to amusement facility are not liable to tax as these services are covered under Negative List [section 66D (j)].

Now, these services are proposed to be omitted from section 66D and covered under Not. No. 25/2012-ST. However, few services such as service by way of admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 would be liable to service tax. Services by way of admission, irrespective of amount being charged, to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical performance including drama and ballet, shall be continued, through the route of exemption (refer Sr. No. 47 to Not. No. 25/2012-ST).

[Refer Not. No. 6/2015-ST]

D. Process amounting to manufacture of alcoholic liquor liable to service tax

The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods [section 66 D (f)] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall belevied on contract manufacturing / job work for production of potable liquor for a consideration.

Further, Sr. No. 30 of Not. No. 25/2012-ST is amended to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

E. Amendments in alternative rates of service tax

In respect of services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent, the service provider has been allowed to pay service tax at an alternative rate (as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994).

Consequent to the upward revision in Service Tax rate, the said alternative rates shall is also being revised proportionately. Amendments to this effect have been proposed in the Service Tax Rules (vide Not. No. 5/2015-ST).

ConclusionIt can be observed that there are numerous changes in Service Tax provisions and the rate of service tax is proposed to be hiked to 14% (16% after including 2% Swachh Bharat Cess). However, perhaps the assessees may not complain as the intent of the Government seems to build momentum for the next biggest tax reforms being Goods and Service Tax (‘GST’).

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