Presentation on Service Tax Amendments

An introduction to changes made by Finance Act,2012Effective from 01st July, 2012

Compiled By: Rahul Agarwal S.P. NAGRATH & CO.

CHARTERED ACCOUNTANTS

A-380, Defence Colony New Delhi-110024 India-+91(11) 49800000 www.spnagrath.com

Flow of Presentation

Service Tax Key Features at a Glance Negative List Exemptions Reverse charge mechanism New abatement scheme Amendments (i) Procedural (ii) Point of Taxation Rules (iii) Cenvat Credit (iv) Others

SERVICE TAX

Key features at a Glance

Tax rate increased from 10% to 12%

Negative list (of 17 heads) based approach introduced, positive list based
approach discontinued Huge list of services which have been exempted, vide Notification No. 12/2012-ST dated 17-03-2012. Draft Place of Provision of Services Rules, 2012 proposed to enable the negative list approach Existing Export of Service Rules and Import Rules to be discontinued on introduction of Place of Service Rules.

Key features at a Glance (Contd)

New sections 65B, 66B, 66C, 66D, 66E and 66F introduced Section 65B 66B 66C 66D 66E 66F Description Definitions New charging section Place of Provision of Service Negative list of services Declared services Principles of interpretation of bundled services

Above provisions will be applicable from 01.07.2012 vide Notification No.19/2012-ST dated 05.06.2012.

Key features at a Glance (Contd)

New charging section under ST provisions (Sec.66B)

Any activity carried out by a person for another for consideration, and includes a declared service (Sec.65B)
Declared services being- (i) renting of Immovable property (ii) Construction related services (iii) Temporary transfer of IPRs (iv) service portion in WC Service (v) transfer by way of hire purchase, leasing Bundled service means a bundle of provision of various services wherein an element of provision of one service is combined with an element of provision of any other service(s) (Sec.66F) Services are naturally bundled in ordinary course of business or not.

Negative List

Negative list shall comprise of the following services Government or local authorities except Department of Posts Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport Transport of goods or passengers Support services to business entities Reserve Bank of India Foreign Diplomatic Missions located in India Specified services relating to agriculture Trading of goods Process amounting to manufacture/ production Space selling for advertisement (except radio or television) Access to Road/ bridge for toll charges Betting, gambling or lottery

Negative List (Contd)

Entertainment/ amusement Transmission or distribution of electricity by a utility Education namely, pre-school, higher secondary, curriculum/ qualification recognized by law, approved vocational courses Renting of residential dwelling Interest/discount on deposits, loans or advances Inter se-sales/ purchase of FOREX by Banks/ Authorized Dealers Transportation of passengers by stage carriage, railway (not being 1st class/AC,), metro, monorail, tram way, inland water ways, public transport (not being for tourism), metered cabs, radio taxis and auto rickshaws Transportation of goods by road ( except by a GTA or courier), aircraft or vessel from abroad to India, inland water base Funeral, burial, crematorium or mortuary services including transportation of the deceased

Exemptions

Retrospective exemptions granted for repair of roads to management, maintenance or repair services undertaken in relation to non commercial Government buildings for supply of taxable services by DTA units to authorized operations of SEZ to services provided by Association of Dyeing units in relation to common effluent treatment plants Scheme for penalty waiver for renting of immovable property

Penalty would be waived for those tax payers who pay the service tax due on the renting of immovable property service (as on 6th day of March, 2012) in full along with interest within 6 months.

Exemptions (Contd)

Some Proposed Exemptions of Services:

Given to UN and International Organisations Healthcare services Veterinary Clinics Charitable services under Income tax Renting for religion Advocates to individuals Technical testing for clinical research Training / Coaching in arts, culture, sports

Specified services to educational institutes

Specified services of a recognised sports body Sponsorship of tournaments Construction for Government etc.,

New Reverse Charge mechanism

The new scheme is being introduced for three services. The services and portion of tax payable are as follows: Sl. No. 1. Description of service Service recipient Service provider

Hiring of a motor vehicle designed to carry passengers: (a) with abatement 100% (b) without abatement 40% Supply of manpower for any purpose Works contract service 75% 50%

Nil 60% 25% 50%

2. 3.

i.e. Now the recipient of above services is also required to get it self registered, if recipient is a body corporate and provider is either an individual, firm or LLP.

New abatement scheme

The increase in taxable portion of some services covered under abatement scheme are accompanied with liberalisation in input tax credits admissibility Existing New taxable taxable portion portion 60% 70% 75% 50% 30% New levy 70% 70% 50% 60% 30% 30% Cenvat credit admissibility

Sl. Description of service No. 1. 2. 3. 4. 5. Convention Centre or mandap with catering Pandal or Shamiana with catering Coastal shipping Accommodation in hotel etc. Railways: Goods Passengers

All credits, except on inputs of chapter 1to 22, now available Same above No credit as at present Credit on input services allowed All credits will be allowed

Amendments- Procedural

Rule 4A of Service Tax Rule- Issuance of invoice

For all assessees

and 45 days for banks and other financial institutions

Self adjustment of service tax without any monetary limit and intimation to department. Normal limitation for issuing Show Cause Notice increased from 12 to 18 months. Statement of tax due for subsequent period by referring to earlier Show Cause Notice deemed to be proper Show Cause Notice. Settlement of Service Tax disputes by Settlement Commission introduced Revision Mechanism made applicable to Service Tax Limitation period reduced from 90 to 60 days for filling appeals before Commissioner Appeals Offences can be compounded

Amendments- PoTR, 2011

Definition of continuous supply of service is being amended to capture the subject in a more wholesome manner Rule 7 of PoTR amended Before amendment Rule 7 states PoT for: (i) Export of Services (ii) Specified Services by firms (iii) Services, where tax is payable under reverse charge After amendment Rule 7 states PoT for: (i) Services, where tax is payable under reverse charge

PoT on the basis of date of payment is also extended to individuals and firms upto a turnover of Rs. 50 lakh. In case of a new levy no tax if payment has been received and invoice issued within a period of 14 days of the date of new levy

Amendments Cenvat Credit

Simplified procedure for refund of unutilized credit relating to exports. Cenvat Credit now allowed on specified categories of motor vehicles used for all taxable services. Cenvat Credit to insurance companies on insurance and service station service for re-insurance/third party insurance of motor vehicles. Cenvat Credit to be taken on delivery of the inputs/capital goods to the service provider. Cenvat Reversal for exempt services increased from 5% to 6% Cenvat Credit of Service tax on services in respect of multi-unit assessee to be: exclusively allocated to a unit which wholly uses such input service. proportionately distributed to all the units on pro-rata basis based on their respective turnovers in case such service is used by all the units.

Amendments- others

Special rates in Service Tax: For life insurance under Rule 6(7A)(ii) of STR, 1994 Gross amount of premium charged New Rate Old Rate

1st year 3% 1.5% For money changing under Rule 6(7B) of STR, 1994 Gross Amount of Currency Exchanged Upto Rs. 100,000 Amount >100,000<1,000,000 New Rate Old Rate

0.12% subject to 0.10% subject to maximum of Rs. 30 minimum of Rs. 25 Rs.120 and 0.06% Rs.100 and 0.05%

>1,000,000

Rs.660 and 0.012% Rs.550 and 0.01% maximum of subject to maximum Rs.6,000 of Rs.5,000

Amendments- others (Contd)

Works contract service , composition rate has been changed from 4% to 4.8% Challan of payment of service tax to be a duty paying document for CENVAT purposes where the service receiver pays the service tax on reverse charge basis. Specific provision for Special Audit introduced as in Excise. Amendment to Small scale exemption to provide that the first clearances upto Rs.10 lakhs will be considered on the basis of invoices issued and not merely on payments received. Revision in period of filing of appeal: Earlier Now Commissioner (A) 3 month 2 month Appellate Tribunal 3 month 3 month Departmental 3 month 4 month

Amendments- others (Contd)

Common Service Tax Return called EST (Excise and Service Tax)

(A) Quarterly (B) Monthly (i) Individuals/Firms/LLP Other than covered in (A) (ii) Others whose tax liability < Rs. 25lakh (preceding yr.) Common simplified registration for Central Excise and Service Tax The above changes will come into force after inviting comments from stakeholders.

S. P. NAGRATH & CO.

CHARTERED ACCOUNTANTS