Service tax: Key Development
CA ABHISHEK A. RASTOGI
January 2013
1
Agenda
1
Snapshot – 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
Other relevant changes
9
Impact on specific transactions
2
Snapshot – Service tax amendments...
• Finance Act, 2012 introduced a comprehensive approach to tax services:
 All services other than Negative List and exempted services but includes declared services.
 ‘Service’ has been defined for the first time.
•
Specified services liable to tax under the reverse charge mechanism:

Joint liability to pay service tax in few cases.
• Export of services now governed Place of Provision of Services Rules, 2012 (‘POPS
Rules’) and Service Tax Rules, 1994 (‘ST Rules’).
• Amended conditions of export as specified under ST Rules:
 the provider of service is located in the taxable territory,
 the recipient of service is located outside India,
 the service is not a service covered under the Negative List of services.
January 2013
3
Snapshot – Service tax amendments
 the place of provision of the service is outside India (i.e. as per POPS Rules),
 the payment for such service has is received in convertible foreign exchange; and
 the provider of service and recipient of service are not merely establishments of the same entity
(i.e. services are not provided by a branch to a head office).
• Benefits of export of services
•

Refund of CENVAT Credit under CENVAT Rules (Under Notification No 27/2012 N.T. Central
Excise).

Rebate of excise duty/ service tax paid on inputs and inputs services (Notification No 39/2012
ST).
Notification No. 17/ 2011 S.T. for exemption to services provided to SEZ units or
Developer of SEZ replaced by Notification No. 40/2012 S.T.
January 2013
4
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
January2013
5
Service - Section 65B(44)...
any activity carried
out by a person
Means
for another
for consideration
Service
Includes
declared services
January 2013
6
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
January 2013
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Negative List of Services - Section 66D
Manufacturing
Sector
Financial
Sector
Government /
Local
Authority
Trading
Sector
Specific
Advertisement
space /time
slots
Agriculture
and Animal
Husbandry
Negative
List
Entertainment
and
Amusement
Miscellaneous
Power
Transport
January 2013
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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
January 2013
9
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
January 2013
10
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:
January 2013
11
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
January 2013
Slide 12
Valuation of Services
January 2013
13
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
January 2013
Slide 14
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
January 2013
Slide 15
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
January 2013
Slide 16
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%
January 2013
Slide 17
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 18
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
January 2013
Slide 19
Principles of Interpretation
January 2013
20
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.
January 2013
Slide 21
Place of Provision of Services
January 2013
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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
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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
January 2013
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Amendment to the Point of Taxation Rules, 2011
January 2013
25
Amendment to the 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
January 2013
Slide 26
Amendment to the 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%
January 2013
Slide 27
Other relevant changes
January 2013
28
Other relevant changes
•
Limitation period for issuing a Show Cause Notice extended from 12 months to 18
months.
•
New combined return EST 1 for excise duty and service tax proposed.
•
Time period for issue of invoice:
-
30 days from the date of provision of service.
-
45 days from date of provision of service, for services provided by banking and financial
institutions.
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Some Key Aspects
January 2013
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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
January 2013
Slide 31
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
January 2013
Slide 32
Thank You