AdminThe Finance (No.2) Bill, 2009 (the Bill) has proposed to make certain changes in Chapter V of the Finance Act, 1994 (the Act), the law governing service tax, some of which are effective on the enactment of the Bill and some thereafter from a date to be notified. In addition to the above, the Central Government has also issued notifications making some changes in the Cenvat Credit Rules, 2004, Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and providing for exemptions and speedier refunds. All the notifications are effective from 7-Jul-09. However, the effective rate of service tax has been maintained at 10.3%.
1. CHANGES EFFECTIVE FROM 7-Jul-09
1.1. EXTENSION OF TERRITORIAL JURISDICTION
1.1.1. The Act is now amended to extend the provisions to installations, structures & vessels in the entire Continental Shelf of India (CSI) & Exclusive Economic Zones (EEZ) of India. Consequential changes are also made to Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 in the definition of India with regard to import of services.
1.2. CENVAT CREDIT RULES FOR SERVICE PROVIDERS
1.2.1. As per the existing provisions, Rule 3(5B) of the Cenvat Credit Rules provides that if the value of any `input’ or `capital goods’ on which Cenvat credit has been taken, is written off fully or where provision to write off has been made in the books of accounts before being put to use, the `manufacturer’ shall pay an amount equal to the Cenvat credit taken on such item. However, if the said input or capital goods is subsequently used in the manufacture of final products, the manufacturer shall be entitled to take credit of the said amount subject to the other provisions of the Cenvat Rules. The said Cenvat Credit Rule 3(5B) has now been amended to bring also the `taxable service provider’ within the ambit of the above restriction.
1.2.2. Rule 6(3) of the Cenvat Credit Rules provides that where the service provider opts not to maintain separate accounts as per Rule 6(2), he may avail the entire credit on inputs / input services but opt for either of the following:
a. Pay 8% of the value of exempted services and then utilise the entire credit available; or
b. Pay an amount equal to the Cenvat credit attributable to exempt services computed in a prescribed manner and then utilise the entire credit available.
Consequent to the reduction made in the rate of service tax from 12% to 10% w.e.f. 24-Feb-09, the amount of service tax payable as per (a) above on the exempted services has now been reduced from 8% to 6% of the value of exempt services.
1.2.3. Under the existing Cenvat Rules by virtue of Explanation to Rule 2(k), the definition of `inputs’ would include goods used in manufacture of capital goods which are further used in the factory of the manufacturer. The Rules are now amended to provide that cement, angles, Centrally Twisted Deform bar (CTD), or Thermo Mechanically Treated bar (TMT) and other items used for construction of factory shed, building, or foundation or structure for support of capital goods would not be considered as inputs.
1.3. WORKS CONTRACT COMPOSITION SCHEME
1.3.1. The Finance Act, 2007 had introduced service tax on execution of works contract w.e.f. 1.6.2007. Consequently, the Central Government provided two options to pay service tax on works contract —
a. pay service tax on gross value of contract after reducing the value of goods under Rule 2A of Service Tax (Determination of Value) Rules, 2006 (“Valuation Rules
