Service tax: A new beginning...
ABHISHEK A. RASTOGI
June 2013
1
Agenda
1
Budget 2013-14- Snapshot on
service tax amendments
2
Scheme of Taxation
3
Liability under reverse charge
mechanism
4
Valuation of Services
5
Principles of Interpretation
6
Place of Provision of Services
7
Point of Taxation
8
Impact on specific transactions
2
Budget 2013-14- Snapshot on service tax
amendments
June 2013
3
Budget 2013-14- Snapshot on amendments
Changes in Negative List
Changes in Mega Exemption Notification
Changes in Abatement Notification
Penalties and Prosecution
Assessment and Appeals
Miscellaneous
VCES Scheme
June 2013
4
Changes in Negative List
(effective date: 10 May 2013)
MANUFACTURING SECTOR
• Scope expanded – Processes on which excise duty is leviable under
Medicinal Toilet Preparations (Excise Duties) Act, 1955 no longer
taxable
AGRICULTURE SECTOR
• Scope expanded – Initially, only ‘seed testing’ was not taxable
• All kinds of testing directly related to agriculture are now not taxable
EDUCATION SECTOR
• Courses in ‘designated trade’ run by State Council of Vocational
Training included in Negative List and therefore not taxable
• Courses run by institute affiliated to National Skill Development
Corporation are now taxable
June 2013
5
Changes in Mega Exemption Notification
(effective date: 1 April 2013)
Exclusions from Mega Exemption (now taxable)
• Services provided by an educational institution by way of:
- Renting of Immovable property
- Auxiliary educational services
• Services provided by air conditioned or central air heating
restaurants
• Vehicle parking
• Threshold limit of Rs.25 lacs for general public utility for charitable
organizations
• Repairs or maintenance of aircraft services to government
June 2013
6
Changes in Mega Exemption Notification…..
(effective date: 1 April 2013)
• Temporary transfer of copyrights in cinematograph film other than
films exhibited in cinema hall or cinema theatre
• Transportation of petroleum and petroleum products, etc. by
railways and vessels
Inclusions in Mega Exemption (now exempt)
• Transportation of goods by GTA extended to more products such as
newspapers and military equipments
June 2013
7
Changes in Abatement Notification
(effective date: 1 March 2013)
Reduction in Abatement
Abatement reduced from 75% to 70% in case of construction services of:
• residential properties having carpet area of more than 2000 sq.ft and
value more than 1 crore
• commercial properties
Note: Notification No.9/2013-ST dated 8 May 2013 has
replaced the word ‘or’ with ‘and’
June 2013
8
Penalty and Prosecution Provisions
(effective date: 10 May 2013)
Section 77(1)(a)
• Penalty for failure to take service tax registration will be Rs.10,000 Variable penalty of Rs.200 per day deleted
Section 78A – New section
• Imposition of penalty upto Rs. 1 lac on the defaulting officers of a
company involved in:
- evasion of service tax
- failure for depositing service tax beyond 6 months
- issuance of invoice without provision of service
- wrong availment of credit
June 2013
9
Penalty and Prosecution Provisions
(effective date: 10 May 2013)
Section 89
• Term of imprisonment increased from 3 years to 7 years for failure to
deposit tax (exceeding 50 lacs) within 6 months
Section 90 – new section
• Introduced to differentiate between cognizable and non cognizable
offence
• Failure to pay service tax (exceeding 50 lacs) beyond 6 months is the
only cognizable offence
• All other offences are non cognizable and bailable
June 2013
10
Assessment and Appeals
(effective date: 10 May 2013)
Section 73(2A) – new subsection
• If demand for a larger period i.e. 5 years is not sustainable, then
demand can be raised by the department for normal period i.e. 18
months
Section 86(5) – sub section (1) has been inserted
• Tribunal can accept assessee appeal or memorandum of objections
even after expiry of relevant period
Section 91 (new section)
• Provides for power to arrest a person for specified offences
particularly non payment of service tax
June 2013
11
Miscellaneous
(effective date: 10 May 2013)
Advance ruling extended to cover resident public limited
companies.
• Notification No.4/2013-ST dated 1 March 2013 defines:
Public company as a public company under section 3 of
Companies Act and includes a private company converted to public
company by virtue of section 43A of the Companies Act
Resident as a resident under clause (42) of section 2 of the Income
Tax Act so far it applies to a company
Section 35C of Central Excise Act extended to service tax
• Now, stay shall stand vacated if appeal is not disposed off within 365
days of the stay order.
June 2013
12
Service Tax Voluntary Compliance
Encouragement Scheme, 2013 (‘Amnesty Scheme’)
(effective date: 10 May 2013)
Highlights of the Scheme
• New sections inserted - section 104 to 114
• Service tax under this scheme is payable for the period October
2007 to December 2012
• Declaration of service tax payable to be made before 31 December
2013
• 50% service tax is payable before 31 December 2013
• Balance 50% service tax is payable before 30 June 2014
June 2013
13
Amnesty Scheme…..
effective date: 10 May 2013
•
If service tax not paid till 30 June 2014, then balance service tax to
be paid till 31 December 2014 – with interest from 1 July 2014
•
On payment of dues, acknowledgement of discharge of dues
will be given by the department
•
Declaration becomes conclusive on issue of acknowledgement
•
Amount paid under this scheme is not refundable under any
circumstances
•
If dues declared and not paid, recovery provisions of section 87 will
be applicable
•
SCN can be issued by CCE in case of false declaration – within 1 year
of date of declaration
June 2013
14
Amnesty Scheme…..
No declaration can be made under
Amnesty Scheme if as on 1 March 2013:
Return filed but tax
not paid
Notice or order of
determination
issued by the
department
Inquiry for service
tax SP/SL/NP/NL
initiated by way of:
a) Audit
b) Search
c) Summons
d) Calling for
documents
June 2013
15
Service tax Voluntary Compliance Encouragement
Rules, 2013 (VCES Rules)
(effective date: 13 May 2013)
Highlights
•
For declaration under VCES, a person should first get registered
under service tax
•
Declaration Form – VCES – 1
•
Declaration Acknowledgement – VCES – 2
•
Acknowledgement of discharge of dues – VCES – 3 (to be issued
within 7 days of furnishing details of payment of dues)
•
CENVAT credit cannot be utilized for payment of service tax
June 2013
16
Scheme of Taxation
Identifying an activity as a service
(S. 65B)
• Includes declared services
Determining taxability of the service • Not a negative list service
(S. 66B)
• Not exempted
Determining whether place of
provision of service is in taxable
territory (S. 66B)
Identifying person liable to pay tax
(S. 68)
• As per Place of Provision of
Service Rules
• Service provider or
• Service recipient under reverse
charge
June 2013
17
Service - Section 65B(44)...
any activity carried
out by a person
Means
for another
for consideration
Service
Includes
declared services
June 2013
18
Service - Section 65B(44)...
mere transfer of
title in
goods/immovable
property
mere transaction in
money or actionable
claim
Service
Excludes
service by employee
to an employer
fees taken in Court
or Tribunal
June 2013
19
Negative List of Services - Section 66D
Manufacturing
Sector
Financial
Sector
Government /
Local
Authority
Trading &
Transport
Sector
Specific
Advertisement
space /time
slots
Agriculture
and Animal
Husbandry
Negative
List
Entertainment
and
Amusement
Miscellaneous
Power
Education
June 2013
20
Declared Service - Section 66E
Development, etc
of software
Refrain from,
tolerate or do an
act
Hire, lease,
license of goods
Temporary
transfer of IPR
Construction
Renting of
immovable
property
Declared
Service
Finance lease
Works contract
service
Supply of
food/drinks
June 2013
21
Liability under Reverse Charge Mechanism...
• Specified services liable to tax under the reverse charge mechanism:
Specified Services
Services provided by an Arbitral Tribunal
Services by individual advocate or a firm of advocates
Services by Goods Transport Agency
Services provided by persons in a non-taxable territory to persons in the taxable
territory
Sponsorship Services to any body corporate or partnership firm
Support services provided by Government / local authority
Services by insurance agent to insurance business
Services provided by a director of a company
Security services
June 2013
22
Liability under Reverse Charge Mechanism
• For following services, liability to pay tax on both as under:
Service description
Service Recipient
(Body corporate)
Service Provider
(Individual, firm or LLP)
(a) With abatement (60%)
100%
Nil
(b) Without abatement
40%
60%
Supply of manpower for any
purpose
75%
25%
Works contract service
50%
50%
Hiring of motor vehicle
designed to carry
passengers:
June 2013
23
A few Exemptions...
Mega Exemption Notification covering 39 items proposed such as:
Description of Service
Construction, erection, commissioning or installation of original works pertaining
to an airport, port or railways, including monorail or metro
Sub contractor providing services by way of works contract to another contractor
providing works contract which are exempt
Services by way of transfer of a going concern, as a whole or an independent part
thereof
Job work on specified goods
Services with respect to business exhibition held outside India
Services by way of collecting or providing news by an independent journalist,
Press Trust of India or United News of India.
Services by way of vehicle parking to general parking excluding leasing of space to
an entity for providing such parking facility
Services by specified persons
June 2013
24
Valuation of Services
June 2013
25
Valuation of Services...
•
Service is defined as any activity … for a consideration.
•
‘Consideration’ not defined – may be derived from Indian Contract Act,
1872 as anything done or abstain from doing.
•
Consideration can therefore, be in monetary / non-monetary terms.
•
Value of taxable service having non-monetary consideration:
Particulars
Value of Taxable Service
Consideration not wholly or
partly consisting of money
Value of taxable service shall be the monetary value
plus the value derived as per Rule 3 (for
unascertainable part of consideration)
Consideration is not
ascertainable
Rule 3
(i) Gross amount charged by the service provider for
similar service; or
(ii) Equivalent money value of such consideration,
not less than the cost of provision of such service
June 2013
26
Valuation of Services...
•
Amendments to the taxable value of service:
Value of Taxable
Service
Includes
Amount realised for
provision of service
beyond period
originally contracted
Excludes
Interest on deposits
and delayed payment
(Interest on loans
included in Negative list)
Accidental damages
due to unforeseen
actions
June 2013
27
Works Contract
•
Works contract services are declared services under section 66E(h) of the
Act.
•
Definition covers such contracts which involve transfer of property in goods
and are for carrying out the activities in respect of both movable and
immovable properties
•
Property in goods should pass on the principle of accretion, accession or
blending when the works contract is executed
•
Dominant intention need not be transfer of property
•
Main object should not be to transfer chattel as chattel
June 2013
28
Valuation of Services...
•
Value of service involved in the execution of works contract:
-
total value of works contract minus actual value of goods, or
-
percentage of total amount as under,
◦ Total amount includes value of all goods / services supplied free of
cost (excluding VAT).
Type of works contract
Taxable turnover as
percentage of total
amount
For execution of original works
40%
For execution of original works where the contract value
includes the value of land
25%
Other works contracts including completion and finishing
services
60%
June 2013
29
Valuation of Services...
•
Abatement for select services:
Description of Service
Taxable
Portion
Condition of non-availment of
Cenvat credit
Financial leasing services
10%
NA
Transport of goods by rail
30%
NA
Transport of passengers by rail
30%
NA
Transport of passengers by air
40%
On inputs and capital goods
Transport of goods by road by Goods
Transport Agency
25%
On inputs, capital goods and input
services
Bundled service by way of supply of
food or any other article of human
consumption
70%
On any goods classifiable under
Chapter 1 to 22 of the Central Excise
Tariff Act,1985
Renting of hotels, inns, guest houses,
clubs, campsites or other commercial
places meant for residential or lodging
purposes
60%
On inputs and capital goods
Services provided in relation to chit
70
On inputs, capital goods and input
services
Slide 30
Valuation of Services
Description of Service
Taxable
Portion
Condition of non-availment of
Cenvat credit
Renting of any motor vehicle to
carry passengers
40%
On inputs, capital goods and input
services
Transport of goods in a vessel in
India
50%
On inputs, capital goods and input
services
Construction of a complex,
building, civil structure or a
part thereof
25%
On inputs
June 2013
31
Principles of Interpretation
June 2013
32
Principles of Interpretation
• Reference to a service does not include reference to input service.
• Service capable of differential treatment on the basis of its description specific description will prevail over general description.
• Bundled services are those services which contain elements of one or more
services :
- If bundled in the ordinary course of business - the description which gives
its essential character will prevail.
- If bundled not in the ordinary course of business - the service which gives
the highest service tax liability will be considered.
June 2013
33
Place of Provision of Services
June 2013
34
Place of Provision of Services
•
The Government notified rules for determining the place of provision of a service
effective from 1 July 2012.
•
POPS Rules replace the current Export Rules / Import Rules.
•
Place of provision of service to be determined on the basis of the following :
Rule No
Rule 3
Rules
Default Rule
Place of Provision of Service
Location of service receiver
If location of service receiver is not
determinable location of the service provider
Rule 4
Performance based service
Location where the services are actually
performed
Rule 5
Immovable property based
service
Location of immovable property
June 2013
35
Place of Provision of Services
Rule No
Rules
Place of Provision of Service
Rule 6
Services related to events
Place where event is actually held
Rule 7
Services provided in more
than one location
Location in taxable territory where greatest
proportion is provided
Rule 8
Services where the provider as
well as the receiver is located
in the taxable territory
Location of service receiver
Rule 9
Specified services
Location of service provider
Rule 10
Service of transportation of
goods
Place of destination of goods
For GTA – Location of person liable to pay tax
Rule 11
Passenger transportation
services
Place where passenger embarks
Rule 12
Services provided on board
conveyance
First scheduled point of departure
June 2013
36
Point of Taxation Rules, 2011
June 2013
37
Point of Taxation Rules, 2011
• Recurring service also treated as ‘Continuous supply of services’
• ‘Date of payment’ is the earlier of the dates on which the payment is - Entered in the books of accounts; or
- Credited in the bank account of the person liable to pay tax
• Point of taxation to be ascertained by way of best judgment, where the
assessee is unable to submit the details regarding the date of payment or date
of invoice or both
• Relevance of section 67A
June 2013
38
Point of Taxation Rules, 2011
• Applicable service tax rates under different circumstances:
Date of
Provision
of Service
Date of
Invoice
Date of
Payment
Point of Taxation
Applicable
Rate
Before 31
March 2012
After 31 March
2012
After 31
March 2012
Date of issue of invoice or date
of payment, whichever is earlier
12%
Before 31
March 2012
Before 31
March 2012
After 31
March 2012
Date of issue of invoice
10%
Before 31
March 2012
After 31 March
2012
Before 31
March 2012
Date of payment
10%
After 31
March 2012
Before 31
March 2012
After 31
March 2012
Date of payment
12%
After 31
March 2012
Before 31
March 2012
Before 31
March 2012
Date of issue of invoice or date
of payment, whichever is earlier
10%
After 31
March 2012
After 31 March
2012
Before 31
March 2012
Date of issue of invoice
12%
June 2013
39
Some Key Aspects
June 2013
40
Some Key Aspects
• Employer – employee relationship
• Valuation of taxable services where consideration is received partly in nonmonetary terms
• Valuation of barter services
• Taxability of liquidated damages
• Service provider and service recipient for place of provision of services
• Place of provision of services which are ancillary to the provision of another
service in the ordinary course of business
• Pure reimbursements of expenses by Indian subsidiary in respect of expenses
incurred by overseas group company
• Out of pocket expenses
• Impact of non- fulfillment of any of the export conditions under Rule 6A of the
Service Tax Rules e.g. payment is not received in convertible foreign exchange
June 2013
Slide 41
Some Key Aspects
• Bundling of services in case of hotels/ telecom
• Whether PLC is bundled service along with construction service
• Taxability of development rights
• Should Completion Certificate (‘CC’) be considered at par with Occupancy
Certificate (‘OC’)
• Surrender or transfer of flats before the CC
• Taxability of medicinal products containing alcohol
• Remittance of foreign currency in India
June 2013
Slide 42
Thank You