Gist of Amendments in existing law
TAX RATES
1. Rate of service tax increased to 12.36%. It shall be effective from 1.04.2012. It is important to note that only following will be eligible for tax rate of 10.30%:
a. Where invoice or payment is received before 31.03.2012
b. Where service has already been provided before 31.03.2012 – Invoice must be issued within 30 days of completion of services.
c. Where advances are being received – the same must be PHYSICALLY credited in the bank account on or before 31.03.2012. Mere accounting entry in the books will not suffice. Further if the instrument is presented in bank on 31.03.2012, the same should be credited in the bank on or before 4.04.2012.
2. Effective from 1.04.2012 Tax Rate for airline companies have been increased drastically. The same has been made ad valorem in place of fixed rates. They will be required to pay tax at the rate of 4.944% on the value of the tickets, differential treatment for domestic and international sectors is being discontinued. A ticket from Mumbai to London which costs around Rs. 40000/- will be costlier by Rs. 1977 (Less Rs. 750 – tax which was charged earlier). The Indian aviation industry is facing one of the biggest challenges and some companies are fighting for their survival, this step will be considered as unnecessary and avoidable.
It must be noted that tax rates for Air Travel agents have not changed.
3. Tax rate for Foreign exchange dealers has also been increased proportionately by 20% as under w.e.f. 1.04.2012:
Transaction | Earlier | Proposed |
For Gross amount of currency exchanged upto the value of Rs. 1 lac. | 0.10% or Rs. 25 whichever is higher | 0.12% or Rs. 30 whichever is higher |
For Gross amount of currency exchanged exceeding Rs. 1 lac to 10 lacs | Rs. 100 + 0.05% | Rs. 120 + 0.06% |
For Gross amount of currency exchanged exceeding Rs. 10 lacs | Rs. 550 + 0.10% Max Rs. 5,000/- | Rs. 660 + 0.12% Max Rs. 6,000/- |
4. Tax rates for distributors and selling agents of lotteries have also been increased proportionately by 20% from the existing tax rates.
NEW SERVICES BROUGHT IN THE TAX NET
CONCEPT OF NEGATIVE LIST
5. Since 1994 (year when Service tax was introduced) till date – for 18 long years, Service tax has been administered on the basis of a positive list of taxable services whereby taxable service for different sets of transactions was defined in the law and if a given transaction fulfilled the conditions as specified in any of the defined services, than the same became taxable. Each Finance Minister kept on adding services in the same from one budget to the other and thereby casting the tax net wide enough to cover the almost the entire gamut of services. It was felt in the trade as well as revenue circles that this approach is fraught with intrinsic risk of friction where each person will interpret the provisions in his own dynamic ways thereby giving rise to classification based litigations. At the last count the taxable services as defined was more than 115. To stop these interpretational headaches and to make life easy for all stake holders the Finance Minister and his team has taken a step to introduce a Negative list based taxation concept.
Under this concept ALL SERVICES shall become taxable if they fulfil 3 basic criteria as laid down:
a. It has to be a service or declared service
b. It is not exempted under the prescribed negative list
c. It is not exempted by way of any exemption notification.
6. For the first time since 1994, the word SERVICE has been defined, that too in a negative sense. The statute says that,
Service means any activity carried out by any person for another person for consideration BUT SHALL NOT INCLUDE:
a. an activity which constitutes merely,––
i. a transfer of title in
- Goods / immovable property,
- by way of sale / gift / in any other manner
ii. a transaction in money / actionable claim;
b. a provision of service by an employee to the employer
c. fees taken in any Court or tribunal established
d. Functions performed by Members of parliament, legislative assemblies, and other local authorities
e. Persons who perform constitutional duties like The President of India or Judges of courts etc.
In other words the definition says what is not a service and then leads us to understand what service is.
7. As now there would be no positive list of taxable services, provisions for classification of services are being deleted, instead a concept of bundled services is being introduced to tax the composite services by introduction of section 66F. This provision is drafted in such a manner so as to give rise to litigation of unlimited proportions due to concept of unnaturally bundled services where if more than 1 service is being provided and the department feels that the same is unnaturally bundled to decrease the tax liability than he has been given power to tax the entire service at the highest rate of service tax leviable on any of the service so bundled. Judicial pronouncements in the cases of Daelim and thereafter BSBK and so on and so forth will now be unbundled so to speak and new round of litigations will start to interpret what is ‘NATURAL’ and ‘NOT NATURAL’
8. Settlement commission provisions have been proposed to be made applicable to service tax sector as well, some salient features of this are as under:
a. The application for approaching the commission for settlement of case can be done only prior to the issuance of adjudication order (OIO).
b. The applicant will have to declare an amount of tax and interest out of the total disputed demand which he agrees to pay and shall be required to pay the same before filing of application.
c. The entire process of settlement will have to be completed by the commission within 9 months of the date of application which may be extended by further 3 months.
d. If the applicant doesn’t agree with the settlement order awarded to him, he can re-instate the adjudicating process without any prejudice to his admission before the commission.
e. For Ahmedabad jurisdiction the Settlement Commission bench sits in Mumbai.
In my view this is a welcome step for cases in which the assesses want a way out of litigation.
9. Many of the services proposed to be kept out of the tax net are similar to the services which are exempt at present. Following is a gist of the services kept in the negative list
SERVICE EXEMPT BY WAY OF NEGATIVE LIST – SECTION 66 D
1. Services by Government or a local authority.
2. Services by the Reserve Bank of India
3. Services by a foreign diplomatic mission located in India
4. Services relating to agriculture
5. Trading of goods
6. Any process amounting to manufacture or production of goods
7. Selling of space or time slots for advertisements other than advertisements broadcast by radio or television;
8. Service by way of access to a road or a bridge on payment of toll charges;
9. Betting, gambling or lottery – don’t understand why is this kept out.
10. Admission to entertainment events or access to amusement facilities
11. Transmission of electricity by an electricity transmission utility
12. Education services provided by pre-schools, schools and colleges
13. Renting of residential premises
14. Service of providing loans and inter-bank sale purchase of foreign exchange
15. Service of transportation of passengers by railways other than air-conditioned class, metered taxis, waterway and stage carriage
16. Services by way of transportation of goods by certain persons except by GTA and courier agencies.
17. Funeral, burial, crematorium or mortuary services including transportation of the deceased.
SERVICE EXEMPT BY WAY OF NOTIFICATION NO. 12/2012 – DATE TO BE NOTIFIED
18. Services provided to the United Nations or a specified international organization;
19. Health care services
20. Services by a veterinary clinic in relation to health care of animals or birds
21. Charitable Services by an entity registered under section 12AA of the Income tax Act
22. Renting of religious precincts, conducting religious ceremony
23. Services provided by Individual advocate to any non commercial person
24. Services by way of technical testing or analysis on human participants
25. Training or coaching in recreational activities relating to arts, culture or sports
26. Catering Services to mid day meals scheme sponsored by Government
27. Transport services for students or staff for educational institutes which are exempt
28. Services in relation to admission to educational institutes which are exempt
29. Services provided to a recognised sports body by-
§ An individual as a player, referee, umpire, coach or manager for participation in a tournament or championship organized by a recognized sports body;
§ Another recognised sports body
30. Services by way of sponsorship of tournaments or championships organised by national federation approved by the government
31. Services provided to the Government or local authority by way of Erection, construction, maintenance, repair, alteration, renovation or restoration of –
§ Structure meant predominantly for a non-industrial or non-commercial use
§ a historical monument, archaeological site –
§ Structure meant for use as an educational, clinical, or cultural establishment
§ Canal, dam or other irrigation works
§ Pipeline, conduit or plant for drinking water supply, water treatment or sewerage treatment or disposal
§ Residential complex predominantly meant for self-use or the use of their employees or Member of parliament, legislative assemblies or constitutional post holders
32. Erection, construction, maintenance, repair, alteration, renovation or restoration of,-
§ Road, bridge, tunnel, or terminal for road transportation for use by general public
§ building owned by an entity registered under section 12 AA of the Income tax Act, and meant predominantly for religious use by general public
§ Pollution control or effluent treatment plant, except located as a part of a factory
§ Electric crematorium
33. Services by way of erection or construction of original works pertaining to,-
§ Airport, port or railways
§ Single residential unit otherwise as a part of a residential complex
§ Low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by Ministry of Housing
§ Post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or
§ Mechanised food grain handling system,
34. Certain services in relation to copyright relating to original literary, dramatic, musical, artistic works or cinematograph films.
35. Services by a performing artist in folk or classical art forms of music/dance/theatre.
36. Services of an independent journalist, Press Trust of India or United News of India.
37. Services by way of renting of a hotel having declared tariff of a room below rupees one thousand per day or equivalent.
38. Services provided in relation to serving of food or beverages by a restaurant, NOT having facility of air-conditioning or central air-heating and NOT having licence to serve alcoholic beverages.
39. Services by way of transportation by rail or a vessel from one port in India to another for certain goods
40. Services provided by a goods transport agency by way of transportation of -
§ Fruits, vegetables, eggs, milk, food grains or pulses
§ Exempt upto Rs. 1500 if gross amount charged on a consignment transported in a single goods carriage
§ Exempt upto Rs. 750 if gross amount charged for transportation of all such goods for a single consignee in the goods carriage
41. Services by way of giving on hire -
§ To a state transport undertaking, a motor vehicle meant to carry more than twelve passengers
§ To a goods transport agency, a means of transportation of goods
42. Transport of passengers, by air to North Eastern states of India
43. Transport of passengers by Stage carriage or a contract carriage excluding tourism, conducted tour, charter or hire.
44. Services provided for parking to general public excluding leasing of space to an entity for providing such parking facility.
45. Services provided to the Government or a local authority by way of -
§ Repair of a ship, boat or vessel
§ Effluents and sewerage treatment
§ Waste collection or disposal
§ Storage, treatment or testing of water for drinking purposes
§ Transport of water by pipeline or conduit for drinking purposes
46. Services of general insurance business provided in certain cases
47. Services provided by an incubatee up to a total business turnover of fifty lakh rupees in a financial year subject to certain conditions
48. Service by an unincorporated body or an entity registered as a society to own members by way of reimbursement of charges or share of contribution -
§ As a trade union;
§ For the provision of exempt services by the entity to third persons; or
§ Up to an amount of five thousand rupees per month per member for sourcing of goods or services from a third person for the common use of its members in a housing society or a residential complex;
49. Services by the following persons in respective capacities -
§ Sub-broker or an authorised person to a stock broker
§ An authorised person to a member of a commodity exchange
§ A mutual fund agent or distributor to mutual fund
§ A selling or marketing agent of lottery tickets to a distributer or a selling agent
§ A selling agent or a distributer of SIM cards or recharge coupon vouchers
§ A business facilitator or a business correspondent to a banking company or an insurance company in a rural area
50. Job work in relation to -
§ agriculture, printing or textile processing
§ cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals
§ any goods on which appropriate duty is payable by the principal manufacturer
§ processes of electroplating, zinc plating, etc, during the course of manufacture of parts of cycles or sewing machines upto 1.50 Crores in a FY subject to the condition that such turnover had not exceeded 1.50 Cr during the preceding FY
51. Services by an organizer in respect of a business exhibition held outside India
52. Services by way of making telephone calls in certain small cases
53. Services by way of slaughtering of bovine animals;
54. Services received from a service provider located in a non- taxable territory by the Government, a local authority or an individual in relation to any purpose other than industry, business or commerce; or An entity registered under section 12AA of the Income tax Act, 1961 for the purposes of providing charitable activities.
Above list is a gist of all the exemptions proposed to be given when the negative list is implemented. Given list is just meant to give a general feel of the exemption and in no circumstances must be relied upon to take a legal or commercial decision.
PENAL & ADJUDICATION PROVISIONS
This year there are minimal changes in the Penal and adjudication provisions – following is the gist of them:
- Section 73 (1) has been amended. Where an assessee has short paid the tax the department had the power to issue a show cause notice to him demanding tax for a period covering 12 months backward from the relevant date, in cases where there was no suppression, wilful misrepresentation, fraud or collusion with an intent to evade tax. This period of 12 months has now been increased to 18 months. Effectively this means that the department has now got more time on its hands to issue SCN’s to defaulting assessees. However the maximum period for which an SCN can be issued remains to be 5 years in case of suppression etc.
- Once an SCN is issued to assessee the department is bound to issue periodical SCN’s in cases where the assessee has not started complying with the demands alleged against him. Such SCN’s are popularly known as periodical SCN. The officers were required to collect the revenue/income figures from the concerned assessee for subsequent periods and again draft a full SCN as was given to him earlier. This requirement has now been done away with. Instead the officer will now be required to serve only a statement containing the details of the tax so demanded, given that the grounds relied upon for the periodical demand are the same as were there in the earlier SCN.
- Section 73 (4A) has been amended to say that it shall not override provisions of section 73 (3). In other words, if tax and interest are paid by the assessee on his own or on ascertainment of the officer than there will be no penalty as prescribed under 4A. It may be noted that section 73 (3) shall not apply in case the tax was not paid due to suppression, collusion etc.
- Section 80 has been amended whereby all penalties have been abolished in cases of short payment of taxes in service of renting of immovable property if the assessee pays the tax which is outstanding upto 6.03.2012 within 6 months from the date when the President signs the Finance Bill.
- Period for filing of appeal with the Commissioner Appeals has been reduced to 2 months from the presently available 3 months. Further if due to some sufficient cause the appeal was not filed within the aforesaid 2 months, than the same can be filed in a further period of 1 month (earlier this also was 3 months. In other words now the appeal will have to filed within a period of 2 months from the date of receipt of the order with an additional month available if reasonable cause for non filing of appeal within normal period of 2 months is there.
- The department shall be allowed to file an appeal with the Tribunal within a period of 4 months of the date of receipt of the order by the committee of chief commissioners. Earlier this was to be done in 3 months. Assessees will still get only 3 months.
- In the previous budget, prosecution provisions were introduced to curb tax evasion. Therein prosecution was possible in case an assessee was found to provide services without issuance of invoices. In the current budget this clause has been deleted to soften the same and a new clause is introduced which says that prosecution can lodged in cases where an assessee knowingly evades the payment of tax.
CHANGES IN POINT OF TAXATION RULES
- ‘Date of payment’ has now been defined to say that the same shall be the earlier of the dates on which the payment is entered in the books of accounts or is credited in the bank account of the assessee. This rule will be relevant on the dates on which the change in tax rate will become effective.
- Rule 6 has been amended to provide that the value of taxable service shall
- Include demurrage or other charges taken for provision of services after the prescribed time limit under the contract
- Not include
a. Interest on deposits given for trade or business
b. Interest on delayed payment of consideration
c. Charges for accidental damages due to unforeseen actions
- Where a service is taxed for the first time, then no tax shall be payable in the following cases
§ To the extent the invoice has been issued and the payment received against such invoice before such service became taxable; or
§ No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.
CHANGES IN SERVICE TAX RULES
Some changes are made which are as under:
- Limited Liability Partnership (LLP) will now be considered as partnership firms under the service tax law.
- Every assessee was required to issue an invoice within 14 days from the date of the completion of the service or receipt of payment. This time-limit is increased to 30 days.
- In case of continuous supply of services also the prescribed time limit to issue an invoice has been increased to 30 days. Henceforth service providers falling under this category will be required to issue an invoice within 30 days from the date of an event prescribed by the contract which obligates the service recipient to make a payment to the service provider.
§ All assessees being either individuals or Partnership firms (including LLP) as proposed from a date to be notified will be required to pay tax on payment basis as was the case prior to 1.07.2011. Subject to a condition that the value of taxable services PROVIDED by them in Previous Financial year is below Rs. 50 Lacs. Consequently Rule 7 of the Point of taxation rules (POTR) is being deleted which hitherto provided that certain professionals like chartered Accountants, Consulting Engineers etc were given a exemption from the application of POTR. This change is effective from 1.04.2012 so all CA firms having turnover more than 50 Lacs will now be required to pay tax on accrual basis. One point which will need to be thought of is that CA’s maintain accounts on cash basis whereas tax will be payable on accrual basis – strange compliance and reporting issues will crop up.
§ In case where an assessee had paid amount in excess of the tax required to be paid, he was allowed to adjust the same against the tax liability of subsequent period subject to certain restriction and further he was also required to intimate the department of such adjustments in prescribed time limit. Rule 6 (4B) has now been amended whereby now the assessees will be eligible to make adjustment without any monetary limits and will also not be required to intimate the same to the department.
CHANGES IN CENVAT CREDIT RULES
There are certain minor changes in CENVAT Credit Rules till now as the same are expected to be amended in a big way in tune with the notifying of negative list. Certain relevant changes are discussed:
- Definition of capital goods is amended to include certain motor vehicles like tractors, cycles etc. Hence forth the service providers who are eligible to take credit of capital goods will get credit of such motor vehicles. However major Motor vehicles like trucks, buses, cars and 2 wheelers are still kept out of the definitions.
- However certain service providers like courier agents, rent a cab scheme operators, pandal & shamiana will still get credit of all motor vehicles as before.
- Credit of components and spares for these motor vehicles will also now be considered as capital goods.
- In an event where capital goods on which credit has been taken in the past is being removed as such or as waste or scrap, then proportionate credit as prescribed will have to reversed and paid. This provision was there earlier also but the amendment made further provides that if the duty calculated on the scrap value or the sale value of the capital goods is more than the prescribed rates of reversal than the duty so calculated will have to be paid. In my view this will raise unnecessary hassle for the assessees as documentation and related procedural issues will arise.
- Rule of 5 of the CCR is completely changed and as said in the circular that refund procedures for exporters of goods and services will be made simpler. Related notifications and clarifications have not been issued yet so I will refrain from making any comments till the same are put in public domain.
- Rate of tax to be paid on exempted goods and services in case option as prescribed in rule 6 (3) (i) of the CCR is opted, has been increased from 5% to 6%.
- A big controversy erupted when the honourable Supreme Court in the case of Ind-Swift said that interest in case of wrong availment of credit will be payable from the date of availment credit and not utilisation thereof. The relevant rule 14 of CCR is now amended to say that interest will become payable only from the date of utilisation. This is a good amendment even though the ruling of the Supreme Court was in the favour of the revenue.
IMPACT ANALYSIS FOR CERTAIN SERVICE PROVIDERS
Now I would like to discuss certain industry specific changes to highlight the impact of the budget on them. It may be noted that the proposed law is still in liquid state and many clarifications will be issued by the department post clearance of the budget, hence any concrete analysis will be possible only after all law is put completely in public domain.
Works Contract and Construction Service providers
Earlier the law for construction industry was construed and understood through 3 different definitions of Works Contract, Commercial Construction and Residential Construction. In the negative list concept this has been brought down to 2 –
- Works contract services
All construction and allied activities where transfer of property in goods is involved in relation to a building or structure on land shall only be considered as a works contract. There is a sea change in the definition and its exact meaning will only be understood with time and real transaction based analysis. Following issues need to be understood:
- Only the service part of the entire transaction has been made taxable – not the entire contract.
- The option for charging full rate of tax on the total value of the contract including goods and services will not be allowed now.
- If the assessee is able to differentiate/bifurcate the value of the goods and service in a contract either from the records submitted to the Vat department or independently than the value of the service shall only be taxed at full rate. If the above said bifurcation is NOT possible than the following method shall be employed:
- If the contract is for construction of new or damaged structures on land then the taxable value of service would be 40% of the total contract value. It means that the effective tax rate in such contracts would be 4.944%
- If the contract is for works other than construction of new or damaged structure (like completion finishing, electrification etc) than the taxable value of the service would be 60% - effective tax rate would be 7.416%.
- Value of free supply of goods will have to be added in the total contract value.
- If any works contract is undertaken in case of new construction which is inclusive of the value of Land + goods + service – in that case the taxable value of the service would be 25% - effective tax rate would be 3.06%.
- Credit of capital goods and input services shall be allowed in all cases.
- Construction of Complex
Both commercial and residential construction services shall now be taxable as one category. Following issues need to be understood:
§ Any construction contract which does not include value of goods shall be taxable under this category of declared service. In other words labour contracts would be taxable here.
§ Construction of residential complex having less than 13 units was not taxable till date – but as proposed now all residential construction (having more than 1 unit) will be taxable.
§ A builder selling flats or offices etc will also be taxable under this category. Any property sold prior to issuance of completion certificate shall be taxable just as earlier (w.e.f. 1.07.2010).
§ Surprisingly no abatement rates have been yet prescribed for this service – In my view this is a legislative miss and would be corrected sooner than later. I also believe that abatement rates would remain the same as of now – 25% – with additional benefits of credit availment on Capital goods and input services. Circular issued by the department after budget however says that this benefit has already been given to builders but I am unable to find the same anywhere in the legal documents issued so far.
Hotel and catering services
This is one more industry which will now get affected:
- All services provided by them were already made taxable in the last years’ budget with appropriate abatement benefits given to them. These abatement benefits have now been decreased by 10% across the board with additional benefits of credit availment. The changes are tabulated as under:
Transaction | Abatement Provisions | Credit Eligibility | |||||
Existing taxable portion | Effective tax rates | Proposed taxable portion | Proposed tax rates | Capital Goods | Input Goods | Input Svs | |
Hiring of hotel rooms | 50% | 5.15% | 60% | 7.416% | No | No | Yes |
Restaurant | 30% | 3.06% | 40% | 4.944% | Yes | Yes (See Note) | Yes |
Mandap Keeper | 60% | 6.18% | 70% | 8.652% | Yes | Yes (See Note) | Yes |
Pandal & Shamiana | 70% | 7.21% | 70% | 8.652% | Yes | Yes (See Note) | Yes |
Convention | 60% | 6.18% | 70% | 8.652% | Yes | Yes (See Note) | Yes |
Outdoor Caterer | 50% | 5.15% | 60% | 7.416% | Yes | Yes (See Note) | Yes |
Note:
Credit of Goods falling under chapter 1 to 22 – i.e. foods and beverages of Central Excise Tariff Act, 1985 shall not be available.
Construction of infrastructure and other facilities
Infrastructure builders were not taxable till date that position continues in the concept of negative list as well. However there are many grey areas where the services were not taxable earlier which will now become taxable due to lack of legal provisions or clarity with regards to the interpretation of the proposed exemptions. Some of the issues with regards to taxability that might arise are:
- Site formation services for Roads/water bodies/ports/airport/railway
- Services provided by Sub contractors to main contractors for construction and other allied works of certain infrastructural and construction facilities because the notification only provides for exemption of services provided to the Government with regards to the following assets:
- Non Commercial Buildings
- Historical Monument
- Educational, clinical or cultural structure or building
- Canal, Dam or irrigation works
- Pipeline works for drinking water supply, water treatment or sewerage treatment or disposal.
- Residential construction for self use
- Income by way of collection of toll charges for allowing use of road and bridge are exempt as per the proposed negative list. The Governments across India are constructing various facilities be it Border check posts, hospitals, schools and other such public assets other than road and bridge under the PPP model (Public Private Partnership) whereby the developer is given a right to collect toll/service charges from the users of these facilities in order to recover the cost of construction. The question that will arise is that are such toll charges being proposed to be taxable under the Negative List concept.
CHANGES THROUGH NOTIFICATIONS
§ Threshold exemption of Rs. 10 lacs was allowed on cash basis till now even though POTR was introduced last year. Notification no. 5/2012 has been issued to bring it on par with POTR requirements and henceforth the limit of 10 lacs shall be construed on accrual basis only.
§ Exemption provided to services of railways for transportation of goods which was to end on 31.03.2012 has been further extended to 30.06.2012. This has been done umpteen number times now which reflects the political scenario of Railways.
§ As we all know that service tax in case of GTA and sponsorship services tax is payable by the service recipient. This system is now being extended to certain more services. Notification 15/2012 has been issued which prescribes who will responsible to pay tax in prescribed services.
§ This change will be applicable only in those cases where the service provider is an individual, HUF, Proprietary concern or partnership firm and the service recipient is a company. The table is as under:
Sl.No. | Description of a service | % age of tax payable by the Service PROVIDER | % age of tax payable by the Service RECEIVER | Did this provision Existed or is it New |
1 | Service provided by an insurance agent to any person carrying on insurance business | Nil | 100% | No Change |
2 | Services provided by a goods transport agency | Nil | 100% | No Change |
3 | Sponsorship Services | Nil | 100% | No Change |
4 | Services provided arbitral tribunal | Nil | 100% | New provision |
5 | Services provided by an individual advocate | Nil | 100% | New provision |
6 | Support service provided by Government or local authority | Nil | 100% | New provision |
7 | Renting or hiring any motor vehicle designed to carry passenger on abated value. Renting or hiring any motor vehicle designed to carry passenger on non abated value. | Nil 60% | 100 % 40% | New provision New provision |
8. | Supply of manpower Services | 25% | 75 % | New provision |
9. | Works Contract Services | 50% | 50% | New provision |
10. | On services imported into India | Nil | 100% | No Change |
- A new abatement notification is proposed to be issued which will be effective only the enactment of Finance Act, 2012. It proposes to give abatement benefits along with right to avails certain credits in certain cases. Following is the table of abatement proposed to be given:
Sl. No. | Description of taxable service | Taxable portion | Credit Eligibility and other conditions | ||
Capital Goods | Inputs - Goods | Input Services | |||
1 | Financial leasing services including equipment leasing and hire purchase | 10 | Yes | Yes | Yes |
2 | Transport of goods by rail | 30 | Yes | Yes | Yes |
3 | Transport of passengers by rail | 30 | Yes | Yes | Yes |
4 | Supply of food or drink, in a premises, including hotel, convention center, club, Pandal, shamiana for organizing a function | 70 | Yes | Yes (See Note) | Yes |
5 | Transport of passengers by air | 40 | No | No | Yes |
6 | Renting of hotels rooms | 60 | No | No | Yes |
7 | Transport of goods by road (GTA) | 25 | No | No | No |
8 | Services provided in relation to chit | 70 | No | No | No |
9 | Renting of any motor vehicle designed to carry passengers | 40 | No | No | No |
10 | Transport of goods in a vessel from one port in India to another | 50 | No | No | No |
11 | (i) Services provided by a tour operator in relation to a package tour | 25 | No | No | No |
(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour. | |||||
(ii) Services provided solely of arranging or booking accommodation for any person in relation to a tour | 10 | No | No | No | |
The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. | |||||
This exemption shall not apply in such cases where the invoice issued by the tour operator only includes the service charges for arranging or booking hotel room and does not include the cost of such accommodation. | |||||
Services, other than services specified in (i) and (ii) above, provided in relation to a tour | 40 | No | No | No | |
(ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour. | |||||
CONCLUSION & SUGGESTIONS
In his speech the Finance Minister said and I Quote:
“I have to be cruel in order to be kind”
The above line in some sense captures the whole impact of the proposed changes in the budget more so in the Service tax field. All stake holders will find it challenging and in some cases surprising to interpret certain given transaction whether the same are taxable or not. In my view, certain corrections to the proposed law and some clarifications will make this law prudent enough for acceptance by the trade. Much is yet to come on the subject so final comments will become possible only after everything is in public domain.
I would like the honourable Finance Minister to make the following amendments before this Negative List approach is implemented.
a. All activities done in or in relation to construction and maintenance of basic infrastructure like roads, dams, canals, port, airport and railways must be included in the negative list.
b. Toll charges collected for any governmental awarded project must be included in the negative list.
c. Definition of works contract as defined in section 65A (54) must be amended to included the services provided by builders/developers or else give suitable abatement benefits to them alongwith credit availment benefits.
d. Roll back the amendments made vide notification 15/2012 whereby in case of 4 new services the recipient will be responsible to make the payment of tax either fully or partially. This will open a pandoras box for all stakeholders.
e. Industry should be allowed to charge 10.30% on the full value of a works contract if it wants to avail the benefit of credit on inputs, Government should not in principle decide what scheme of tax out of all must be opted for by a particular industry.
f. Plain reading of rule 2A of Valuation Rules as proposed to be amended by notification no. 11/2012 gives an understanding that valuation as prescribed vide amended clause 2A (i) is mandatory and one has to adopt the process given there. Earlier the same was an option and the service provider was free to choose whichever scheme he felt was best suitable for him. This undemocratic means of tax compliance will make life miserable for the works contract industry as a whole.
g. Last but not the least, Rule 7 of the Point of Taxation Rules (POTR) has been deleted w.e.f. 1.04.2012 thereby making all professionals (CA, CS, Engineers, etc) liable to pay tax on accrual basis if their taxable turnover for previous is above Rs. 50 lacs. In the near past (on 1.07.2011) they were given an exemption from following POTR. Income tax act however gives them the right to follow cash basis of accounting system. So henceforth their books shall be maintained on cash basis whereas they will be required to pay tax on accrual basis. It would be my suggestion that the rules must be amended providing that all persons who are allowed to maintain books on cash basis under the Income tax act must also be allowed to pay service tax on cash basis irrespective of their turnover levels.
DISCLAIMER The analysis/views in this booklet do not purport to be and should not be treated as legal opinion. Nothing contained herein can substitute appropriate legal opinion in fact specific situations that affect you or your enterprise. The stated law is yet in a liquid state and the above comments must be understood in that context. |
At the end I regret the sheer bad formatting of the above blog as the available blog settings are not enough to bring something as it is from my original word file.
Formulated by:
Nitesh Jain
Visit us at : www.niteshjain.co.in
