Admin[By Shaleen Shah (Partner), VNCA]
Amendments relating to service tax proposed in the Finance (No.2) Bill, 2014 as passed by the Lok Sabha on 25-7-2014, with relevant Notifications issued, are discussed as under. The date on which the amendments are effective are indicated against each clause. The Bill will be enacted when assented to by the President.
[The Bill has been enacted on 6-Aug-2014]
[A] RATE OF SERVICE TAX, PAYMENT OF TAX & INTEREST FOR DELAYED PAYMENT:
1) The effective rate of service tax of 12.36% remains unchanged.
2) The basic exemption of Rs.10 lacs is maintained.
3) It is now mandatory for every assessee to pay service tax electronically through internet banking. [effective from 1-10-2014]
4) Interest on delayed payment will have to be paid as under: [effective from 1-10-2014]
(a) For delay upto 6 months – @18% p.a.; (b) For delay of more than 6 months & upto 1 year – @18% for first 6 months & @24% thereafter; and (c) For delay of more than 1 year – @18% for first 6 months, @24% for second 6 months and @30% for period beyond 1 year
Note: In the case of a service provider, whose value of taxable services provided in a financial year does not exceed sixty lakh rupees, the aforesaid rate of interest shall be reduced by 3% (i.e., 15% or 21% or 27%).
[B] ALTERATION IN TAX BASE:
1) Alteration to Negative List of Services: The service tax base is broadened by removing the following services from the Negative List:
a) Till now, `radio taxis’ as well as `metered cab’ were covered by the negative list and hence not taxable. Now the definition of `metered cab’ is amended to exclude `radio taxis’. Thus, service by `radio taxi’ will now be taxable. The abatement available to `rent-a-cab’ service will be available to `radio taxi’ as well. This will bring service by `radio taxi’ at par with `rent-a-cab’ service. [Effective from date of Notification after enactment]
b) Currently, selling of space or time slots is taxable only for advertisements broadcast by radio & TV. Now the scope of taxability is expanded. After the amendment, only sale of space for advertisement in `print media’ will be covered by the negative list. The relief available to `Print media’ includes only `book’ & `newspaper’. Business directories, yellow pages & trade catalogues which are primarily meant for commercial purposes are specifically excluded from the definition of `print media’ and hence sale of space therein will now be taxable. Sale of space or time slots for advertisements on internet websites, cell phones, bill boards & hoardings, conveyances, ATMs, aerial advertising, theatres, etc. are now taxable. [Effective from date of Notification after enactment]
2) New Exemptions: [effective from 11-7-2014] The following services will now be exempt:
a) Services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of such waste or processes incidental thereto.
b) Life micro-insurance schemes for the poor, approved by IRDA, where sum assured does not exceed Rs.50,000/-.
c) Specialised financial services received by RBI from outside India in relation to management of forex reserves.
d) Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India.
e) Transport within India of organic manure and cotton (ginned or baled) by a vessel, or by rail or by road by a GTA.
f) Services by way of loading, unloading, packing, storage or warehousing of cotton (ginned or baled). Till now, exemption was restricted to such activities in relation to rice only.
3) Withdrawal & Alterations to Existing Exemptions: [effective from 11-7-2014]
a) Exemption to clinical research on human participants is withdrawn.
b) At present, all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculty and staff does not attract service tax; this will continue. However, in respect of services received by such educational institutions, presently, exemption is being operated through the concept of ‘auxiliary educational services’. Several doubts & disputes had arisen in interpreting the scope and meaning of ‘auxiliary educational services’. To bring clarity, the concept of ‘auxiliary educational services’ is omitted. Now only specified services received by an eligible educational institution will be exempt:
(i) transportation of students, faculty and staff; (ii) catering service including any mid-day meals scheme sponsored by the Government; (iii) security or cleaning or house-keeping services in such educational institutions; and (iv) services relating to admission to such institution or conduct of examination.
In view of this rationalization, exemption extended so far in respect of renting of immovable property service received by educational institutions, stands withdrawn.
c) Exemption available to accommodation services having declared tariff of less than Rs.1,000/- per day is being redrafted. With this amendment, accommodation services provided by any entity, commercial or otherwise, will be covered by the exemption.
d) Exemption of transportation service to passengers by air-conditioned contract carriages (eg. buses) stands withdrawn. Here contract carriage does not include a radio taxi.
e) Exemption to services provided to Government, a local authority or a Governmental authority will be limited to specific services by way of water supply, public health, sanitation conservancy, solid waste management and slum improvement / upgradation. Any other activity not directly connected in relation to the aforesaid functions will not be exempt.
4) Retrospective Exemption:
a) Service provided by Employees’ State Insurance Corporation (ESIC) during the period prior to 1-7-2012 will be exempt.
[C] MODIFICATION IN ABATEMENTS:
1) GTA service: It is clarified that the restriction on availing CENVAT Credit is only on the service provider if he takes benefit of the abatement. The service receiver may avail abatement, without having to obtain non-availment of CENVAT Credit certificate from service provider. [effective from 11-7-2014]
2) Conditions for availing abatement on Renting of any motor vehicle designed to carry passengers is modified as under:
a) Renting of Motor Cab (except radio taxi) designed to carry passengers – Rent-a-cab operator can avail Abatement of 60% if –
(i) CENVAT Credit on inputs & capital goods is not taken;
(ii) CENVAT Credit on input service from sub-contractor in same line of business is taken in following manner (1) Full CENVAT Credit if on such input service, the sub-contractor has charged service tax after availing abatement; or (2) Upto 40% of CENVAT Credit if on such input service, the sub-contractor has charged service tax at full rate. This provision will avoid double taxation. [effective from 1-10-2014]
(iii) CENVAT Credit on any other input service (other than from sub-contractor state above) is not taken.
b) Transport of passengers by a contract carriage (including radio taxi) – Passenger Contract Carriage operator can avail Abatement of 60% if CENVAT Credit is not availed at all either on inputs, capital goods or input services. [effective from 11-7-2014]
3) Tour Operator Service: The service provider is currently ineligible for any CENVAT Credit. Now the condition for abatement is amended to allow the tour operator to avail CENVAT Credit of input service received from any other tour operator. This provision will avoid double taxation. [effective from 1-10-2014]
4) For service in relation to transport of goods in a vessel, the abatement is now reduced to 40% instead of 50% earlier. [effective from 1-10-2014]
[D] AMENDMENTS IN VALUATION OF TAXABLE SERVICE:
1) Works Contract: The service provider rendering works contract service has an option to pay service tax under the `identification method’ or the `composition scheme’. Currently, under the composition scheme, the works contract are categorised into `original works’ (40% taxable portion), `maintenance & repair of goods’ (70% taxable portion) and `other works contracts‘ (40% taxable portion). Rule 2A of the Valuation Rules is being amended and the categories of `maintenance & repair of goods’ and `other works contracts’ are merged into one. With this amendment, for all `original works contract’ service tax will be payable on 40% of the amount charged and for all other works contracts, service tax will be payable on 70% of the amount charged. [effective from 1-10-2014]
2) Value of Taxable Service: Hitherto, conversion of foreign currency transactions was done at custom notified rates of exchange. The amendment to Section 67A delinks the custom notified exchange rates and separate rules will be prescribed for determining the value of taxable service. [Effective from date of Notification after enactment]
[E] AMENDMENTS IN REVERSE CHARGE MECHANISM:
1) In relation to service by a recovery agent to a banking company, financial institution or NBFC, the recipient of service will now be liable to pay entire service tax (100%) on reverse charge basis. [effective from 11-7-2014]
2) Service provided by directors of a company is already covered by the reverse charge mechanism. Now the services provided by directors to a body corporate eg. RBI will also be covered under reverse charge. [effective from 11-7-2014]
3) In case of service by way of renting of motor cab (where abatement is not availed) by a rent-a-cab operator to a company not in similar line of business, the portion of service tax payable by service provider & service receiver will be 50% each. [effective from 1-10-2014]
4) In case of reverse charge services, the point of taxation for the service recipient will be the date of payment of invoice or 3 months of invoice date, whichever is earlier. Earlier this period was 6 months from of invoice date. This amendment is applicable only to invoices issued on or after 1-10-2014.
[F] AMENDMENTS IN CONDITIONS FOR AVAILING & DISTRIBUTING CENVAT CREDIT:
1) Time Limit for CENVAT Credit: CENVAT Credit of duty / service tax paid on inputs or input services cannot be taken after 6 months of the date of issue of invoice, challan or other specified documents. [effective from 1-9-2014]
2) Till now, where 100% service tax was to be paid by the service recipient on reverse charge basis, CENVAT Credit was allowed only after invoice value was paid to the service provider. Now this condition is dispensed with and hence where 100% service tax is payable on reverse charge basis, the service recipient can take CENVAT credit immediately after payment of service tax irrespective whether invoice value is paid to the service provider or not. However, there is no change in conditions for availing CENVAT credit in respect of payments made under partial reverse charge. [effective from 11-7-2014]
3) In case of exported services, CENVAT Credit is allowed conditionally. The condition is that if payment for such exported service is not received in convertible foreign currency within 6 months or such extended period hat is allowed by RBI, CENVAT credit taken in relation to such exported service will have to be reversed. This condition is relaxed and the export service provider will now be able to take re-credit of such CENVAT if such export proceeds are received within 1 year after the lapse of the 6 months or specified period on the basis of documentary evidence of the receipt of export proceeds. [effective from 11-7-2014]
4) Transfer of CENVAT credit by a large tax payer from one unit to another is now permitted to allow distribution of input service credit to all units in the ratio of their turnover irrespective of whether such common input services were used in all the units or in some of the units. [effective from 11-7-2014]
[G] SEZ – PROCEDURAL SIMPLIFICATION: [effective from 11-7-2014]
1) The jurisdictional Dy. Comm. will now be required to issue authorisation in Form A-2 within 15 working days of submission of Form A-1.
2) Exemption would be available from the date when list of service on which SEZ is entitled to upfront exemption is endorsed by the authorised officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later, exemption would be available from the date on which Form A-1 is so furnished.
3) Pending issuance of Form A-2, the provider of specified service may provide such service without payment of tax on the basis of Form A-1 and the SEZ unit / developer shall provide Form A-2 to the service provider within 3 months from date of provision of specified service. If the service receiver does not receive Form A-2 within 3 months, then the service provider will be liable to pay service tax on such service.
4) A service shall be treated as exclusively used for SEZ operations if the recipient of service is a SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in the SEZ.
5) For services covered under 100% reverse charge, the requirement of furnishing service tax registration number of service provider in Forms A-1 & A-3 is dispensed with.
[H] AMENDMENTS TO PLACE OF PROVISION OF SERVICES RULES: [effective from 1-10-2014]
1) The definition of `intermediary’ is amended to also include an intermediary of goods i.e. a broker, an agent or any other person, by whatever name called who arranges or facilitates supply of goods. Thus for all commission agents & brokers, the location of service provider will be the place of provision for service.
2) The place of performance rule is not applicable where service is provided in relation to goods that are temporarily imported into India for repairs & re-exported after such repairs without being put to use in India.
3) In case of hiring of vessels (excluding yachts) & aircraft, irrespective of the period of hiring, the place of provision of service will be the location of the service receiver.
[I] OTHER STATUTORY AMENDMENTS:
1) Time limit to complete adjudication: Wherever show cause notice is issue, now time limit is prescribed to pass the adjudication order. Normal time limit to pass the order will be 6 months which can be extended upto 12 months.
2) In cases of suppression or misstatement of facts, etc. waiver of Penalty will now not be allowed even where complete details are available from specified records.
3) In addition to the Jt. Comm., power for search & seizure is granted to Addl. Comm. or any other notified Central Excise Officer.
4) Amount of pre-deposit for filing first / second appeal is made mandatory. The amount of pre-deposit will be 7.5% of tax only (7.5% of penalty if only penalty is demanded) for first appeal and 10% for second appeal, subject to a ceiling of Rs.10 crore. With this amendment, the right to apply for stay of demand before appellate authorities is effectively withdrawn. The amendment will not affect appeals & stay applications already filed. Consequent to the amendment, there will not be any filing fee for stay application before the Tribunal.
5) The Commissioner is now empowered to recover dues of a predecessor assessee from the assets transferred to his successor.
6) More provisions of Central Excise Act to apply to service tax viz. Power to clarify on exemption notification or order within 1 year, power to call for information from third party sources like banks, etc.
7) CBEC is empowered to constitute a committee of Commissioners to review orders, by passing an order instead of a notification.
8) Central Government is given additional powers to make rules.
