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SERVICE TAX EXEMPTIONS INCLUDING SEZ

CONFEDERATION OF INDIAN INDUSTRY

JULY 24, 2012

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DISCLAIMER This presentation provides general information existing as at the time of preparation. The presentation is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this publication will be accepted by BMR Advisors/ Legal. It is recommended that professional advice be taken based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements

CHARGEABILITY

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CHARGEABILITY

Negative List Not a service Other exemptions Mega Exemption

Service tax is attracted on ALL SERVICES Except above Services provided in a non-taxable territory not liable to tax No requirement to fulfil the export conditions Services Agreed to be provided also taxable
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EXEMPTIONS UNDER SERVICE TAX

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OVERVIEW
Exemptions under new law

Continuing exemptions Exemption Notifications Rescinded Mega exemption notification

Exemptions necessitate definitions

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EXEMPTIONS UNDER SERVICE TAX

Sovereign functions of Government Export of services Service Recipient based exemptions

Service Tax Exemptions


Sub contracts / Intermediary services Service Provider based exemptions

Activity based exemptions


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SOVEREIGN FUNCTIONS OF GOVERNMENT

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SOVEREIGN FUNCTION BASED EXEMPTIONS


Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243 W of the Constitution
Municipalities entrusted with powers and authority to enable them to function as institutions of self-government

Performance of functions and the implementation of schemes as may be entrusted to them including those in relation to the matters listed in the Twelfth Schedule

Services by way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets

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SERVICE RECIPIENT BASED EXEMPTIONS

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SERVICE RECIPIENT BASED EXEMPTIONS


Services provided to the United Nations or a specified
international organization

Services Provided to Government

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ACTIVITY BASED EXEMPTIONS


Health care, charitable and religious activities Sports and Educational services Construction Services Transportation services Business related exemptions Other Exemptions

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SERVICE PROVIDER BASED EXEMPTIONS

SERVICE PROVIDER BASED EXEMPTIONS


Services Provided by Arbitral Tribunal and Advocates

Services Provided by a person in a non-taxable territory


Services provided by an incubatee up to a turnover of INR 50 lacs in a financial year subject to conditions

Services by Employees State Insurance Corporation to persons governed under the Employees Insurance Act, 1948
Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador

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SERVICE PROVIDER BASED EXEMPTIONS


Service by an unincorporated body or a non- profit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution as a trade union; for the provision of carrying out any activity which is exempt from the levy of service tax; up to INR 5000 per month per member of a housing society or a residential complex

Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India

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SUB CONTRACTS / INTERMEDIARY SERVICES

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SUB CONTRACTS/INTERMEDIARY SERVICES


Services by the following persons in respective capacities

sub-broker or an authorised person to a stock broker;


authorised person to a member of a commodity exchange; mutual fund agent to a mutual fund or asset management company;

distributor to a mutual fund or asset management company;


selling or marketing agent of lottery tickets to a distributer or a selling agent; selling agent or a distributer of SIM cards or recharge coupon vouchers; business facilitator or a business correspondent to a banking company or an insurance company, in a rural area; or sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt

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EXEMPTED SERVICE UNDER CENVAT

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EXEMPTED SERVICE UNDER CENVAT


Exempted service means a

(1) taxable service which is exempt from the whole of the service tax leviable thereon; or
(2) service, on which no service tax is leviable under section 66B of the Finance Act; or (3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken; but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994 Whether exempted service include activities which are not a service ?

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NEGATIVE LIST vs EXEMPTED LIST


Negative List Services Part of the Finance Act (may be more Static) Exempted List Services Exemptions through Notifications

Excluded from charge of service tax

Chargeable to tax but exempt Option not to avail exemption?


Qualifies as Exports?

Does not qualify as export of services

Compliance formalities required? Person liable for paying service tax to register etc

Registration required for 100 % exempted service providers? If 100% exports?

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EXPORT OF SERVICE / REVERSAL OF CENVAT


S No 1 2 3 4 5 Particulars Taxable services Exempted list services Negative list services Activity which is not a service Services to a SEZ Construed as exports of service x x x Reversal of Cenvat Credit x x ? x
Export
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EXEMPTIONS TO A SEZ UNIT

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SEZ EXEMPTION NOTIFICATION

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EXEMPTION TO A SEZ UNIT NOTIFICATION KEY POINTS


SEZ Act gives exemption from Service Tax on taxable services provided to a SEZ developer/ unit Notification 40/ 2012 ST dated June 20, 2012 (which superseded 17/ 2011-ST, dated March 1, 2011) provides for an refund/ outright exemption for services received by a SEZ developer/ unit

Upfront exemption would be available in case of

Wholly Consumed

The services that are wholly consumed inside the SEZ would have to be determined based on Rule 4 and 5 of the PPS Rules (which pertain to performance and property based services)

In respect of other services (ie, services not falling under Rule 4 and 5) the same would be exempt upfront only in the case of entities carrying on operations entirely from an SEZ

The option of refund continues to apply for services not wholly consumed within the SEZ

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CONDITIONS FOR AVAILING BENEFIT (EXEMPTION / REFUND)


SEZ unit to obtain Form A-1 verified by the Specified Officer of the SEZ for claiming ab initio exemption from levy of service tax this is required for any service (Category 1, 2 or 3) for claiming exemption SEZ unit to obtain approval of list of services required for authorized operations from the Unit Approval Committee No CENVAT credit to be availed on specified services for which benefit under this notification is availed Services on which exemption/ refund is being claimed must be used for authorized operations of the SEZ unit SEZ unit to maintain proper account of receipt and use of the specified services on which exemption/ refund claimed for authorized operations Refund claim to be filed within 1 year from date of payment of service tax No specific provision for refund of 100% of service tax with respect to services exclusively used by the SEZ unit for which upfront exemption is not available
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SEZ NOTIFICATION VS EARLIER NOTIFICATION


SEZ Notification Determination of services wholly consumed as per services falling under Rule 4 and 5 of PPS Rules Upfront exemption for services specified under Rule 4 of the PPS Rules, actually performed within the SEZ Form A-1 to be given by ALL units for claiming ab initio exemption Earlier Notification Determination of services wholly consumed as per specific service tax categories under Export of Service Rules Upfront exemption on services listed under Rule 3(1) (ii) of the Export of Services Rules, wholly performed within the SEZ Form A-1 to be given by developer or Unit of SEZ who does not own or carry out any other business operations
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Impact / issues Types of services that can potentially qualify as wholly consumed to be re-determined for availing upfront exemption or refund To determine whether services partially performed within the SEZ would qualify as actually performed Earlier Form A-1 to be given only by standalone SEZ units Now by ALL units seeking ab initio exemption

SEZ NOTIFICATION VS EARLIER NOTIFICATION


SEZ Notification Refund of service tax paid on services not wholly consumed formula prescribed Earlier Notification Services not wholly consumed to claim proportionate refund on Shared services Impact / issues The term shared service is not mentioned specifically under the new SEZ Notification

Refund for exclusive services in full or proportionately to be examined? SEZ Circular clarified earlier that 100% refund for services used exclusively available
While the new formula shall impact amount claimed as refund, SEZ Unit to maintain proof of FIRC to substantiate computation of export turnover

Export turnover for refund purposes based on receipts from customers and completion of services

Export turnover for refund purposes to be computed on basis of invoices raised

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THANK YOU

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ANNEXURES

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MUNICIPALITY TWELFTH SCHEDULE


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Urban planning including town planning. Regulation of land-use and construction of buildings. Planning for economic and social development. Roads and bridges. Water supply for domestic, industrial and commercial purposes. Public health, sanitation conservancy and solid waste management. Fire services. Urban forestry, protection of the environment and promotion of ecological aspects. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded. Slum improvement and upgradation. Urban poverty alleviation. Provision of urban amenities and facilities such as parks, gardens, playgrounds. Promotion of cultural, educational and aesthetic aspects. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. Cattle pounds; prevention of cruelty to animals. Vital statistics including registration of births and deaths. Public amenities including street lighting, parking lots, bus stops and public Conveniences Regulation of slaughter houses and tanneries
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DETERMINATION OF WHOLLY CONSUMED


Sl Category no 1 Category I Type of services Treatment

Services specified in Rule 4 of the PPS Rules, when these are actually performed within the SEZ Category II Services specified in Rule 5 of the PPS, when these are performed in respect of property located or intended to be located within the SEZ Category III When entity has no operations Services other other than in the SEZ than those When entity has operations Category I outside the SEZ and II above

Such services shall be upfront exempt from the levy of service tax
Such services shall be upfront exempt from the levy of service tax

Upfront exemption available on such services Upfront exemption not available and such services shall be eligible for refund of service tax paid as per conditions laid out

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SERVICE PROVIDER BY ARBITRAL TRIBUNAL AND ADVOCATES


Services provided by an arbitral tribunal to any person other than a business entity; or a business entity with a turnover up to rupees ten lakh in the preceding financial year; Partnership firm includes LLP?

an individual as an advocate or a partnership firm of advocates by way of legal services to, an advocate or partnership firm of advocates providing legal services ; any person other than a business entity; or a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

a person represented on an arbitral tribunal to an arbitral tribunal

legal service means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority
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SERVICE PROVIDER BY A PERSON IN A NON-TAXABLE TERRITORY


Services received from a provider of service located in a non- taxable territory by Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession; an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or a person located in a non-taxable territory

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GOVERNMENT AS SERVICE RECIPIENT


Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of Civil structure or other original works meant predominantly for use other than for commerce, industry, or any other business or profession Historical monument, archaeological site etc Structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; Canal, dam or other irrigation works; Pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or Residential complex predominantly meant for self-use or the use of their employees etc

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GOVERNMENT AS SERVICE RECIPIENT


Services provided to Government, a local authority or a governmental authority by way of carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or Repair or maintenance of a vessel or an aircraft

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HEALTH CARE, CHARITABLE AND RELIGIOUS SERVICES


Health care services by a clinical establishment, an authorized medical practitioner or paramedics Services by a veterinary clinic in relation to health care of animals or birds Services by way of technical testing or analysis of newly developed drugs etc on human participants by a approved clinical research organisation Services by an entity registered under section 12AA of the Income tax Act by way of charitable activities Services by a person by way of(a) renting of precincts of a religious place meant for general public; (b) conduct of any religious ceremony
general public means the body of people at large sufficiently defined by some common quality of public or impersonal nature
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SPORTS AND EDUCATIONAL SERVICES


Services by way of training or coaching in recreational activities relating to arts, culture or sports; Services provided to a recognised sports body by an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body another recognised sports body

Services by way of sponsorship of sporting events organised by notified boards/ federations Services provided to or by an educational institution in respect of education exempted from service tax, by way of auxiliary educational services; or renting of immovable property;

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CONSTRUCTION BASED EXEMPTIONS


Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, a road, bridge, tunnel, or terminal for road transportation for use by general public a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana a building owned by an entity registered under section 12 AA of the Income tax Act and meant predominantly for religious use by general public a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased
general public means the body of people at large sufficiently defined by some common quality of public or impersonal nature
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CONSTRUCTION BASED EXEMPTIONS


Services by way of construction, erection, commissioning, or installation of original works pertaining to, an airport, port or railways, including monorail or metro; a single residential unit otherwise than as a part of a residential complex Approved low- cost houses up to a carpet area of 60 square metres per house Post- harvest storage infrastructure for agricultural produce etc Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages
residential complex means any complex comprising of a building or buildings, having more than one single residential unit single residential unit means a self-contained residential unit which is designed for use, wholly or principally, for residential purposes for one family
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CONSTRUCTION BASED EXEMPTIONS


Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of Civil structure or other original works meant predominantly for use other than for commerce, industry, or any other business or profession Historical monument, archaeological site etc Structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; Canal, dam or other irrigation works; Pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or Residential complex predominantly meant for self-use or the use of their employees etc
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TRANSPORTATION SERVICES
Services by way of transportation by rail or a vessel from one place in India to another of the following goods petroleum and petroleum products relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; defence or military equipments; postal mail or mail bags; household effects; newspaper or magazines registered with the Registrar of Newspapers; railway equipments or materials; agricultural produce; foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or chemical fertilizer and oilcakes;

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TRANSPORTATION SERVICES
Services provided by a goods transport agency by way of transportation of
Fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; Gross amount charged on a consignment transported in a single goods carriage does not exceed INR 1500; Gross amount charged for transportation of all such goods for a single consignee does not exceed INR 750

Services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more
than twelve passengers; or to a goods transport agency, a means of transportation of goods;

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TRANSPORTATION SERVICES
Transport of passengers, with or without accompanied belongings, by Air, embarking from or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or Tripura or at Bagdogra located in West Bengal; A contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or ropeway, cable car or aerial tramway

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BUSINESS RELATED EXEMPTIONS


Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing; cut and polished diamonds and gemstones etc Any goods on which appropriate duty is payable by the principal

manufacturer
Processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of INR 150 lacs in a financial year

Services by way of transfer of a going concern, as a whole or an independent part thereof;


(Slump sale etc would now trigger reversal of credits?)
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BUSINESS RELATED EXEMPTIONS


Temporary transfer or permitting the use or enjoyment of a copyright relating to original literary, dramatic, musical, artistic works or cinematograph films Renting of a hotel etc having declared tariff of below INR 1,000 for a unit of accommodation Serving of food or beverages by Air-conditioned restaurants etc having a licence to serve alcoholic beverages Services by an organiser to any person in respect of a business exhibition held outside India Services of general insurance business provided under various notified schemes

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OTHER EXEMPTIONS

Telephone calls from departmentally run public telephone etc Slaughtering of bovine animals

Public libraries
Vehicle parking to general public

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CHARITABLE ACTIVITIES
Charitable activities means activities relating to Public health Advancement of religion or spirituality Advancement of specified educational programmes or skill development relating Preservation of environment including watershed, forests and wildlife; or Advancement of any other object of general public utility up to(a) INR 18.75 lacs for the year 2012-13 (b) INR 25 lacs in any other financial year (Total value of such activities had not exceeded INR 25 lacs during the preceding financial year)

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RULE 6A OF SERVICE TAX RULES EXPORT OF SERVICES


Provision of any service shall be treated as export of service when:

Service provider in the taxable territory Service recipient outside India Not Negative list services Place of provision of service outside India

Receipt in convertible foreign exchange


Service provider and recipient of service not merely establishments of a distinct person

Receipt in Foreign Exchange to be within the time allowed by the Reserve Bank of India to claim the benefit of Cenvat/Rebate

CONTINUING EXEMPTIONS
Threshold Exemption of INR 10 lacs to service provider Research and Development Cess paid on import of technology Property tax paid in respect of renting of immovable property Services for the official use of foreign diplomatic missions Exemptions that have moved to Negative list (transmission of electricity, education, agriculture related etc) Exemptions under the Mega Exemption Notification Activities treated as provided in non-taxable territory as per PPS (transport of goods by air, transit goods etc) Abatements for various services Exemption/Refund for SEZ developers/Units Exemption/Rebate to exporters

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EXEMPTIONS RESCINDED
Services provided by banks & Financial Institutions in relation to collection of duties and taxes on behalf of government Services provided to the Reserve Bank of India in cases of reverse charge tax liability (domestic/import) Club or Association service - Exemption to association of dyeing units in relation to effluent treatment Import of Services by Hotel - Hotel accommodation booking by and for non-resident Value of goods/materials sold by the service provider to the service recipient (12/2003) Mere transfer? Packaged or canned software exemption from service tax where excise/customs duty paid

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EXEMPTIONS RESCINDED
Site formation and clearance, excavation and earthmoving and demolition and such other similar activities for roads, airports, railways, transport terminals, bridges, tunnels, dams, ports Transport of export goods by air within port or airport Repair of Ships/Boards/Vessels belonging to Govt. within port or airport Supply of Water, Electricity within the port or airport

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ORIGINAL WORKS
Original works has been defined to mean the following:
(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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