NEGATIVE LIST
IMPACT ON TRADE AND INDUSTRY
By
Mr. Vipin Jain
Advocate (CA, LLB)
Managing Partner, TLC Legal
October, 2012
Valuation, Abatement, CENVAT Credit
VALUATION
2
Introduction
No fundamental change in the
manner of valuation of service,
except with regard to works contract
(New Rule 2A)
Provision in Finance Act
4
As per Section 67 (1)
SECTION 67. Valuation of taxable services for charging
service tax. — (1) Subject to the provisions of this Chapter,
where service tax is chargeable on any taxable service with
reference to its value, then such value shall, —
(i)
in a case where the provision of service is for a
consideration in money, be the gross amount charged by the
service provider for such service provided or to be provided by
him;
(ii)
in a case where the provision of service is for a
consideration not wholly or partly consisting of money, be
such amount in money as, with the addition of service tax
charged, is equivalent to the consideration;
(iii)
in a case where the provision of service is for a
consideration which is not ascertainable, be the amount as
may be determined in the prescribed manner..
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(2) Where the gross amount charged by a service provider, for the service provided or to be
provided is inclusive of service tax payable, the value of such taxable service shall be such
amount as, with the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the
taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such
manner as may be prescribed.
Explanation. — For the purposes of this section, —
(a) “consideration” includes any amount that is payable for the taxable services provided or to be
provided;
[(b)
*
*
*]
(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and
any form of payment by issue of credit notes or debit notes and [book adjustment, and any
amount credited or debited, as the case may be, to any account, whether called “Suspense
account” or by any other name, in the books of account of a person liable to pay service tax,
where the transaction of taxable service is with any associated enterprise].]
RULE 2A(i)
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Subject to the provisions of section 67, the value of service
portion in the execution of a works contract, referred to in
clause (h) of section 66E of the Act, shall be determined in the
following manner, namely :(i) Value of service portion in the execution of a works contract
shall be equivalent to the gross amount charged for the works
contract less the value of property in goods transferred in the
execution of the said works contract.
Explanation. - For the purposes of this clause,-
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(A)Gross amount charged for the works contract shall not include
value added tax or sales tax, as the case may be, paid or
payable, if any, on transfer of property in goods involved in
the execution of the said works contract;
(B)Value of works contract service shall include, (i) labour charges for execution of the works;
(ii)amount paid to a sub-contractor for labour and services;
(iii)charges for planning, designing and architect’s fees;
(iv)charges for obtaining on hire or otherwise, machinery and
tools used for the execution of the works contract;
(v)cost of consumables such as water, electricity, fuel used in the
execution of the works contract;
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(vi) cost of establishment of the contractor relatable to supply of labour and
services;
vii)other similar expenses relatable to supply of labour and services; and
(viii)profit earned by the service provider relatable to supply of labour and
services;
(C) where value added tax or sales tax has been paid or payable on the
actual value of property in goods transferred in the execution of the
works contract, then, such value adopted for the purposes of payment of
value added tax or sales tax, shall be taken as the value of property in
goods transferred in the execution of the said works contract for
determination of the value of service portion in the execution of works
contract under this clause;
RULE 2A(ii)
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Where the value has not been determined under clause (i), the person liable
to pay tax on the service portion involved in the execution of the works
contract shall determine the service tax payable in the following manner,
namely :(A) in case of works contracts entered into for execution of original works,
service tax shall be payable on forty per cent of the total amount charged
for the works contract;
(B) in case of works contract entered into for maintenance or repair or
reconditioning or restoration or servicing of any goods, service tax shall be
payable on seventy per cent of the total amount charged for the works
contract;
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(C) in case of other works contracts, not covered under sub-clauses (A) and
(B), including maintenance, repair, completion and finishing services such as
glazing, plastering, floor and wall tiling, installation of electrical fittings of
an immovable property, service tax shall be payable on sixty per cent of
the total amount charged for the works contract;
Explanation 1. - For the purposes of this rule,(a) “original works” means(i) all new constructions;
(ii) all types of additions and alterations to abandoned or damaged structures
on land that are required to make them workable;
(iii)erection, commissioning or installation of plant, machinery or equipment or
structures, whether pre-fabricated or otherwise;
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(b)
“total amount” means the sum total of the gross amount charged for the
works contract and the fair market value of all goods and services
supplied in or in relation to the execution of the works contract, whether or
not supplied under the same contract or any other contract, after deducting-
(i) the amount charged for such goods or services, if any; and
(ii) the value added tax or sales tax, if any, levied thereon :
Provided that the fair market value of goods and services so supplied may
be determined in accordance with the generally accepted accounting
principles.
Explanation 2. - For the removal of doubts, it is clarified that the provider of
taxable service shall not take CENVAT credit of duties or cess paid on any
inputs, used in or in relation to the said works contract, under the provisions
of CENVAT Credit Rules, 2004.]
Works Contract-Key changes
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



Prior to 30.6.2012 there were two schemes for
valuation of works contract services
one being under the rule 2A of the Valuation
Rules and
second under the Works Contract (Composition
Scheme for Payment of Service Tax) Rules 2007
Both of these have now been replaced with a
unified scheme under the new rule 2A of
Service Tax (Determination of Value) Rules,
2006 vide Notification No. 24/2012 ST w.e.f
01/07/2012
Conceptually, the new valuation provisions in respect of works contract
service seeks to segregate all works contract, however composite they
may be, into the following two portions
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Work contract
Contracts of sale of goods
Contract of provision of service
Issue
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When do the valuation rules apply?
Are they applicable only when value cannot be
determined u/s 67(i),
OR
Do they prescribe the manner by which the value is
determinable u/s 67(i)
Issue
15
Rules are invocable in two situations / purposes
1. Where consideration is unascertainable
2. For the purpose of determination of the value
under section 67
Issue
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


Is the method of valuation under section 2(a)(ii) an
optional one or not- confusion between the TRU
Circular dates 16.03.2012 and the Valuation Rules.
Para 13 (iii) f the TRU Circular , while dealing with
clause (ii) of Rule 2(a) begins with the words “If the
value is not deduced, and not merely as an option,
the value shall be a specified percentage………”
On the other hand sub clause (ii) of Rule 2A begins
with the words, “ Where the value has not been
determined under clause (i)…………”
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Where the CENVAT Credit can be availed on
inputs(goods) in respect of which property has been
transferred by the service providers to the service
recipient of the works contract service ?
1. in case value is determined under clause (i) of
section 2A
2. in case value is determined under clause (ii) of
section 2A

Changes in Rule 5
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
1.
2.
Exclusions inserted in addition to
existing
exclusion
for
reimbursement
expenditure
messured as Pure Agents w.e.f.
1.07.2012
accidental damage due to unforseen
actions not relatable to provision of
service
Interest charged or paid on delayed
payments
CENVAT CREDIT
June 9, 2012
Major changes in CENVAT Credit Rules
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i.
Calculation of Cenvat Credit Reversal on Capital Gain cleared after used.
ii.
Service providers are permitted to receive input and CG at any premise
iii. Method of calculation of Refund of the unutilized Cenvat credit changedRule 5
iv. Rule framed for providing refund of accumulated Cenvat Credit in the hands
of the service provider where the liability is being discharged by the service
recipient- Rule 5B
v. Manner of distribution of credit by an ISD changed- Rule 7
vi. Manufacturers permitted to transfer unutilized SAD from one unit to another
unit- Rule 10B
ABATEMENTS IN
SERVICES
Abatements in Services
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



Powers conferred by sub-section (1) of section 93 of the Finance Act,
1994
Notification No. 26/2012 dated 20.6.2012 issued in supersession of
Notification No. 13/2012 dated 17.03.2012
Central Government has exempted a few taxable services from a
specified percentage of the taxable value for calculation of service
tax leviable thereon subject to the relevant conditions specified.
Abatements are granted, subject to the condition of Non- availment
of CENVAT Credit on inputs and/or input services and/or Capital
Gains.
Transfer of passengers by “Rail”
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Description of taxable
service
Conditions
Deemed
to be
Value
followed
Transport of passengers
No
with or without
Condition
accompanied belongings by
Prescribed
rail
30%
Old
New levy
Bundled Services
24
Description of taxable Condition to be
service
followed
Catering in a
premises, including
hotel, convention
center, club, pandal,
shamiana or any place
specially arranged for
organizing a function
Deemed
Old
Value
CENVAT credit on
any goods
classifiable under
chapter 1 to 22
70%
used for providing
the taxable service
has not been
taken
Convention center
or mandap
catering- 60%
pandal or
shamiana catering
– 70%
Transport of passengers by “Air”
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Description Conditions
of taxable to be
service
followed
CENVAT
credit on
Transport
inputs and
of
capital
passengers
goods has
by air
not been
taken
Deemed
Value
Old
Upto 31.03.2012
Domestic travel-upto Rs.150/-
40%
International Travel-upto Rs.750/w.e.f. 01.04.2012
All Class
Exemption 60%
Levy of ST on 40%
Renting of Hotels
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Description of taxable service
Conditions to be
followed
Deemed
Old Rate
Value
Renting of hotels, inns, guest
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes.
CENVAT credit on
inputs and capital
60%
goods has not
been taken
50%
Transport of goods in a “vessel”
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Description of taxable
service
Conditions to be
followed
CENVAT credit on
Transport of goods in a
inputs, capital goods
vessel from one port in
and input services,
India to another
has not been taken.
Deemed
Value
50%
Old
75%