Admin[By Shaleen Shah (Partner), VNCA]
Budget-2010 proposed several amendments under Service Tax. The Finance Bill, 2010 presented on 26-Feb-2010 was enacted & received the assent of the President on 8-May-2010. Post Budget, several notifications were issued to effect certain budget proposals. In a further Notification No. 24/2010-ST dtd. 22-Jun-2010, the Government has notified 1-Jul-2010 as the date on which the remaining provisions of The Finance Act, 2010 shall come into force.
The significant changes to Service Tax law are listed below.
FOLLOWING NEW SERVICES ARE INTRODUCED: [W.E.F. 1-Jul-2010]
1. Service by granting the right or by permitting commercial use or exploitation of any event including an event relating to art, entertainment, business, sports or marriage organised by such other person.
2. The existing taxable service ‘Intellectual Property Right (IPR)’ excludes copyright from its scope. The service of transferring temporarily or permitting the use or enjoyment of Copyrights on (a) cinematographic films and (b) sound recording are now brought under the ambit of service tax. However, copyright on original literary, dramatic, musical and artistic work would continue to remain outside the scope of service tax.
3. Following health services provided by any hospital, nursing home or multi-specialty clinic:
a) health check up undertaken by hospitals or medical establishments for the employees of business entities; and
b) health services provided under health insurance schemes offered by insurance companies.
(The tax on these health services would be payable only if the payment for such health check up or preventive care or treatment, etc. is made directly by the business entity or the insurance company to the hospital or medical establishment).
4. Services provided by any hospital or any other independent entity in relation to storing, keeping or maintaining of medical records of employees of a business entity.
5. Services provided by Electricity Exchanges in relation to trading, processing, clearing or settlement of spot contracts, term ahead contracts, seasonal contracts, derivatives or any other electricity related contract.
6. Additional services provided to a buyer, by a builder of a residential complex, or a commercial complex, or any other person authorised by such builder, for providing preferential location or external or internal development of complexes on extra charges. The term ‘‘preferential location’’ means any location having extra advantage which attracts extra payment over and above the basic sale price. However, service of providing vehicle-parking space would not be subjected to tax.
7. Services provided for promoting a `Brand’ of Goods, Services, Events, Business Entity, Endorsement of name, etc. by appearing in advertisement and promotional event or carrying out any promotional activity for such goods, service or event shall be covered under service tax. The term `Brand’ includes symbol, monogram, label, signature, etc. The term `name’ with reference to endorsement of name includes, trade name, logo or house mark of a business entity.
8. Services provided for promotion, marketing, organising or in any other manner assisting in organising games of chance, including lottery is being introduced as a separate service. This service was hitherto covered under `Business Auxiliary Service’.
SCOPE OF CERTAIN EXISTING SERVICES IS EXPANDED OR ALTERED AS FOLLOWS: [W.E.F. 1-Jul-2010]
1. The scope of Air Passenger Transport Service is expanded to include domestic journeys & international journeys in any class subject to following exemptions:
a) vide Notifications No. 25/2010-ST dtd. 22-Jun-2010, exemption is provided to in-transit passengers and to aircraft crew. [W.E.F. 1-Jul-2010]
b) vide Notifications No. 26/2010-ST dtd. 22-Jun-2010, service tax levy will be limited to Rs.100/- per travel for domestic journey in any class and Rs.500/- per travel for international journey in economy class subject to the condition that no CENVAT credit is availed. [W.E.F. 1-Jul-2010]
c) vide Notifications No. 27/2010-ST dtd. 22-Jun-2010, domestic travel to & from specified North-Eastern states is exempt. [W.E.F. 1-Jul-2010]
2. At present, under `Information Technology Software Service’ the levy of tax is limited only to cases where IT software is used for furtherance of business or commerce. The scope of the taxable service is expanded to cover all cases irrespective of its use.
3. In the case of ‘Commercial training or coaching’ service, an Explanation is added to clarify that commercial training or coaching centre includes any centre or institute imparting training or coaching for a consideration. It is clarified that service tax shall apply to such centre or institute even if it is registered as a trust, society or non-profit organization carrying on its activity with or without profit motive. This change is being given retrospective effect from 01.07.2003.
4. Presently sports sponsorship is exempt under `Sponsorship service’. This blanket exemption to sports sponsorship is withdrawn.
5. The scope of `Construction of Residential Complex service’ and `Commercial or Industrial Construction service’ are expanded to cover sale of flats / units under construction. Builders / developers are now liable to service tax if any payment towards sale consideration is received before the grant of Completion Certificate by the competent authorities. The Govt. has expanded the meaning of `competent authority’ to include registered architect, chartered engineer & licensed surveyor.
6. Amendments are made in the definition of the ‘Renting of immovable property service’ to,-
a) provide explicitly that the activity of ‘renting’ itself is a taxable service [with retrospective effect from 01.06.2007]; and
b) the scope of service is expanded to levy service tax on rent of vacant land where there is an agreement or contract between the lessor and lessee for undertaking construction of buildings or structures on such land for furtherance of business or commerce during the tenure of the lease.
7. Definitions of ‘Airport Services, ‘Port services’ and ‘Other port services’ are amended to provide that,-
a) all services provided entirely within the airport/port premises would be classified under these services; and
b) an authorization from the airport/port authority would not be a pre-condition for taxing these services.
8. An explanation is added in ‘Auctioneer’s service’ to clarify that the phrase ‘auction by government’ means an auction involving sale of government property and not when the government acts as an auctioneer for sale of the private property.
9. Definition of ‘Management of Investment under ULIP Service’ is amended to provide that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by the Insurance Regulatory and Development Authority (IRDA), whichever is higher.
NEW EXEMPTIONS & ABATEMENTS:
1. Notifications No. 02/2010-ST & No. 17/2010-ST dtd. 27-Feb-2010: Under `Information Technology Service’ exemption is granted to packaged or canned software for single use subject to conditions. [W.E.F. 27-Feb-2010]
2. Notification No. 04/2010-ST dtd. 27-Feb-2010: amends Notification No. 33-2004 dtd. 3-Dec-2004. Consequently, exemption for transport by road service to `eggs & milk’ is extended to `foodgrains & pulses’. [W.E.F. 27-Feb-2010]
3. Notification No. 10/2010-ST dtd. 27-Feb-2010: exempts the `technical testing and analysis service’ and ‘technical inspection and certification service’ provided by Central or State Seed Testing Laboratory /Certification Agency. [W.E.F. 27-Feb-2010]
4. Notification No. 11/2010-ST dtd. 27-Feb-2010: exempts the taxable service provided to any person, by any other person for transmission of electricity under `Business Auxiliary Service’. [W.E.F. 27-Feb-2010]
5. Notification No. 12/2010-ST dtd. 27-Feb-2010: under `Erection, Commissioning or Installation Service’, exemption is provided to erection, commissioning or installation of mechanised food grain handling systems; of equipment for setting up or substantial expansion of cold storage; of machinery or equipment for initial setting up or substantial expansion of units for processing agricultural, apiary, horticultural, dairy, poultry, aquatic and marine products and meat. [W.E.F. 27-Feb-2010]
6. Notification No. 13/2010-ST dtd. 27-Feb-2010: exempts the taxable service provided in relation to on-line information and database access or retrieval services and business auxiliary services by any Indian news agency subject to conditions. [W.E.F. 27-Feb-2010]
7. Notification No. 23/2010-ST dtd. 29-Apr-2010: extends exemption on `Commercial coaching or training service’ to Modular Employable Skill courses approved by specified agencies. [W.E.F. 29-Apr-2010]
8. Notification No. 28/2010-ST dtd. 22-Jun-2010: exempts `Construction of Complex service’ provided to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana. [W.E.F. 1-Jul-2010]
9. Notification No. 29/2010-ST dtd. 22-Jun-2010: Abatement under `Construction of Residential Complex service’ and `Commercial or Industrial Construction service’ is enhanced from 67% to 75% where the gross value charged includes the value of land. [W.E.F. 1-Jul-2010]
10. Notification No. 30/2010-ST dtd. 22-Jun-2010: Exemption is provided to specified Sports Tournaments & Championships under `Sponsorship service’ . [W.E.F. 1-Jul-2010]
11. Notification No. 31/2010-ST dtd. 22-Jun-2010: Exemption is provided to specified services provided within a port or an airport . [W.E.F. 1-Jul-2010]
12. Notification No. 32/2010-ST dtd. 22-Jun-2010: exempts the taxable service provided to any person, by any other person for distribution of electricity under `Business Auxiliary Service’. [W.E.F. 22-Jun-2010]
WITHDRAWAL / RESTRICTIONS TO EXISTING EXEMPTIONS & ABATEMENTS: [W.E.F. 27-Feb-2010]
1. Notification No. 03/2010-ST dtd. 27-Feb-2010: amends Notification No.24-2004 dtd. 10-Sep-2004 restricting exemption to vocational training institute to specified Industrial Training Institute or an Industrial Training Centre affiliated to the National Council for Vocational Training under `Commercial training or coaching service’.
2. Notification No. 05/2010-ST dtd. 27-Feb-2010: rescinds Notification No.1-2000 dtd. 9-Feb-2000. Consequently exemption available to Group Personal Accident Insurance Scheme provided by Govt. of Rajashtan to its employees under `General Insurance Service’ is withdrawn.
AMENDMENTS IN THE ACT:
1. The Act is amended to provide that no penalty shall be imposed U/S 73 where service tax along with interest has been paid before issuance of notice by the department. [W.E.F. 8-May-2010]
2. The definition of the term ‘business entity’ is amended to include an association of persons, body of individuals, company or firm but not an individual. [W.E.F. 1-Jul-2010].
AMENDMENTS IN RULES & NOTIFICATIONS: [W.E.F. 27-Feb-2010]
1. Notification No. 14/2010-ST dtd. 27-Feb-2010: The application of Service Tax is extended to include any service provided for all activities pertaining to construction or operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oil and natural gas in Exclusive Economic Zone or Continental Shelf of India and supply thereof. Suitable amendments are also made to Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 [vide Notification No. 16/2010-ST dtd. 27-Feb-2010]
2. Notification No. 15/2010-ST dtd. 27-Feb-2010 amends Service Tax (Determination of Value) Rules, 2006 to exclude from the `taxable value’ the taxes levied by any Government on any passenger traveling by air, if shown separately on the ticket, or the invoice for such ticket, issued to the passenger.
3. Notification No.5/2006-CE (NT) dtd. 14-Mar-2006 has been amended and given partial retrospective effect to remove bottlenecks in refund of accumulated credit to exporters.
4. Import & Export of Services Rules are amended so as to move following taxable services from one category to another:
a) `Mandap Keeper service’ from `Performance Based’ to `Situs of Immovable Property’.
b) ‘Practicing Chartered Accountant/ Cost Accountant/ Company Secretary service’ from `Performance Based’ to `Location of Service Receiver’.
5. Rule 3 of Export of Services Rules, 2005 is amended vide Notification No. 06/2010-ST dtd. 27-Feb-2010 to delete the condition `such service is provided from India and used outside India’.
AMENDMENT IN CENVAT CREDIT RULES – RELEVANT TO SERVICE PROVIDERS: [W.E.F. 27-Feb-2010]
1. Currently, Rule 3(5) of the CENVAT Credit Rules, 2004 provides that in cases where Capital Goods on which CENVAT Credit is taken are removed after use, the manufacturer or service provider shall reverse the amount of credit taken after deducting 2.5% for each quarter of the year from the date of taking such credit. This rule is amended to provide accelerated depreciation in the case of computers and computer peripherals cleared after use.
2. Rule 15 of the CENVAT Credit Rules, 2004 is amended to harmonize the penal provisions for incorrect availment of CENVAT credit of duty paid on inputs or capital goods or input services.
PROPOSALS DEFERRED:
1. The Budget proposed to remove the exemption given to Transport of goods by rail service. Consequently, the following Notifications were issued:
a) Notification No. 07/2010-ST dtd. 27-Feb-2010 to withdraw Exemption to Transport of goods by rail service;
b) Notification No. 08/2010-ST dtd. 27-Feb-2010 to exempt `specified goods’ under Transport of goods by rail service; and
c) Notification No. 09/2010-ST dtd. 27-Feb-2010 to provide Abatement of 70% of gross value of freight charged in relation to Transport of goods by rail service
However, vide subsequent notifications, currently the effective dates of aforesaid Notifications is deferred to 1-Jan-2011.
