RECENT CHANGES IN SERVICE TAX LAW ALAPPEY BRANCH OF SIRC OF ICAI 25TH May, 2012 BY CA. Tony. M.P,THRISSUR
Budget philosophy • Service tax collection far below its potential. • Law Is complex. • Service tax law different from excise law. • Service tax law completed adulthood by completing 18 years. • Eventual Transition to GST. • Taxation of services based on negative list proposed. • All services taxable except, negative list, exemption list, and abatement. • Harmonization and Simplification ( regn, returns, CENVAT, POT etc.) • Draft of Place of Provision of Services Rules introduced. • Rs. 18,660 additional revenue expected. (Total: 124000 Cr.)
Service tax changes effective from • Retrospective changes • 01.04.2012 • Date of enactment of Finance Bill • Notified date
Rate of service tax • Rate of service tax increased from 10% to 12% wef 01-04-2012 [Notification: 2/2012] why rate increase effective from 01-04-2012 ? Budget not to be passed? Invoice raised before 01-04-2012, realized on or after 01.04.2012, which rate applies? advance received prior to 01.04.2012 but service provided on or after 01.04.2012, which rate 10% or 12%?
Rate of service tax • Work Contract Compounding rate also increased from 4.12% to 4.94% wef 01-04-2012 There is an increase of 20% in service tax rate. (For Example: service tax rate on “construction of residential Complex service” has also gone up by 20% from 2.575% to 3.09%- if land value included; from 3.399% to 4.09% - if land value not included)
Rate of service tax • Rate of tax increases in the following cases (wef: 01.4.2012) (a) Purchase or sale of foreign currency. (b) Marketing of lottery (c) Life Insurance service (d) Transportation of passengers by air. (f) Reversal of CENVAT Credit under 6(3)(i)
Service Tax Rules - changes effective from 01.04.2012 • Partnership firm includes an LLP • Invoice to be issued within 30 days (earlier 14 days) • Banking & Financial Services – invoice within 45 days • No Invoice for minor receipts: If an amount upto Rs.1,000/- is received in excess of the amount indicated in the invoice and the provider has opted to determine POT based on the option in POT Rules, no invoice is required to be issued. .
Service Tax Rules - changes effective from 01.04.2012 • Self adjustment of excess tax paid: Excess amount can be adjusted without any monetary limits provided excess payment is not on account of interpretation of law, taxability, classification, valuation or applicability of any exemption Notification. (Rule 6 (4A)) • Small service providers to pay tax on receipt basis: In respect of individual / firms whose value of taxable services from multiple locations is Rs.50 lakhs or less in the previous financial year option available to pay tax upto Rs.50 lakhs in the current financial year based on receipt of payment.
POINT OF TAXATION • POT for reverse charge cases: For reverse charge cases, POT shall be date of payment provided payment made within 6 months. Otherwise, on invoice basis. • POT for “Big firms” on invoice basis: If the value of services exceeds Rs. 50 Lakhs in previous year, POT shall be on invoice basis. • POT for minor payments: Where payment upto Rs.1,000/- is received in excess of amount indicated in the invoice, POT to the extent of such excess amount, at the option of service provider, shall be determined based on invoice or date of completion of provision of service. (date of payment is ignored)
POINT OF TAXATION • Best Judgment to determine POT: New Rule 8A to provide that where the POT cannot be determined on the ground that date of invoice or date of payment or both are not available, Officer may require concerned person to produce accounts, documents, evidence and effective rate of tax prevalent at different point of time shall be applied by an order in writing, to the best of his judgment.
AMENDEMENTS IN FINANCE ACT 1994(Effective only from a date to be notified after enactment of Finance Bill, 2012) • All services become taxable, except:- • Services in the negative list • Exemptions • Abatements / Compounding. • To make all services taxable, the following existing sections are made inoperative:- • Section 65 (definitions) • Section 65A ( Classification of services) • Section 66 (Rate of service tax) • Section 66A (Import of services)
AMENDEMENTS IN FINANCE ACT 1994(Effective only from a date to be notified after enactment of Finance Bill, 2012) • To make all services taxable the following sections are introduced:- • Section 65B (Interpretations) • Section 66B (Charge of service tax) • Section 66C (Determination of place of provision of service) • Section 66D ( Negative list of services- 17 Nos) • Section 66E (Declared services) • Section 66F ( Principles of interpretation of bundled services)
AMENDEMENTS IN FINANCE ACT 1994(Effective only from a date to be notified after enactment of Finance Bill, 2012) • New Reverse Charge mechanism (sec: 68(2)) New concept of reverse charge partly on service provider and partly on service receiver introduced for the following three services: Serv. ProviderSer. Recever (a) Renting / hiring of motor vehicle for carrying passengers - Without abatement nil 100% - With abatement 60% 40% (b) Supply of man power 25% 75% (c) Works contract by individuals, 50% 50% firms etc to Companies • X • X • X • x • ion
AMENDEMENTS IN FINANCE ACT 1994(Effective from the date of enactment of Finance Bill, 2012) • Special audit in service tax: (Sec. 72A) If Commissioner has reason to believe that tax payer has failed to declare the correct value of service, taken CENVAT by fraud, services in multiple locations etc, he can order special audit by CA/CWA even if it is already audited under any other law. • Time limit to issue SCN extended The time limit increased from “one year” to “18 Months”
AMENDEMENTS IN FINANCE ACT 1994(Effective from the date of enactment of Finance Bill, 2012) • SCN is statement form: (Sec. 72A) Follow on notices issued on the same grounds need not repeat the grounds but only state the amount of tax due for the subsequent period. Such statement of tax due shall be treated as a notice issued. • Penalty waiver for renting service (Sec. 80 (2)) No Penalties under any sections if tax due on 6.3.2012 paid with interest within 6 months from the date of enactment of Finance Bill.
AMENDEMENTS IN FINANCE ACT 1994(Effective from the date of enactment of Finance Bill, 2012) Time limit for filing appeal goes down The time limit to file appeal to Commissioner (A) brought down from 3 months to 2 months. Similarly, the earlier condonation limit of 3 months came down to 1 month. This time limits only for orders passed on or after the enactment of finance Bill. Orders passed before the enactment of finance Bill, the earlier time limit will continue. Time limit for filing appeal by Dept. goes up The time limit to file appeal by the Department to Tribunal increased from 3 months to 4 months.
AMENDEMENTS IN FINANCE ACT 1994(Changes with retrospective effect) • Retrospective exemption to: (secs. 97 & 98) (a) Management, maintenance or repair of roads for the period from 16.06.2005 to 26.07.2009. Refund to be claimed within 6 months from enactment of Bill. (b) Management, maintenance or repair of non commercial Government Buildings. for the period from 16.6.2005 till the section 66B takes effect Refund to be claimed within 6 months from enactment of Bill. (c) Club or association service for recycling of effluents and solid waste. for the period from 16.6.2005.
New system of taxation of services (from a date to be notified after the enactment of finance bill) • All services to be taxed other than services specified in the negative list – Sec. 66B • Negative list (17 Nos) specified through statutory provisions – Sec. 66D • Some more services (34 Nos) exempt through Notification No.12/2012 which shall come into force after Section 66B comes into force. • 9 more exemption notifications to be issued soon. • Section 65, 65A, 66 and 66A have no application after the effective date.
“Service” defined in sec. 65B(44) • An activity carried out by a person to another for consideration and includes a declared service. • Excludes an activity which constitutes transfer of title in goods or immovable property by way of sale, gift or in any other manner. • Excludes an activity which constitutes transaction in money or actionable claim. • Excludes provision of service by an employee to an employer in the course of or in relation to its employment. • Excludes Court / Tribunal fees.
“Service” defined in sec. 65B(44) • Section 65B(44) not to apply to:- • functions performed by MP / MLA / Members of anchayat / Members of Municipality and Members of Local uthority who receive any consideration in performing the unctions of that office as such member. • Duties performed by constitutional authorities in that capacity, not a service. • Duties performed by chair person / member / director of a Government body who is not deemed as an employee is excluded.
“Service” defined in sec. 65B(44) • Unincorporated associations or body of persons and a member shall be treated as distinct persons. • Establishments in taxable territory and establishment in non-taxable territory treated as establishment of distinct persons. • Taxable territory means the territory to which the provisions of this chapter apply. • Non-taxable territory means the territory which is outside the taxable territory.
Main items in the negative list • Government services excluding certain specific services. • Services relating agriculture • RBI • Foreign diplomatic mission in India • Trading of goods • Any process amounting to manufacture or production of goods • Selling of space or time slots for advertisement other than radio / TV • Toll charges • Betting, gambling or lottery
Main items in the negative list • Admission to entrainment events / amusement facilities. • Distribution of electricity • Education • Residential renting • Financial services of lending, advances with consideration of interest. Purchase/sales of foreign currency among banks/auth. Dealers. • Transportation of passengers • Transportation of goods • Funeral, crematorium or mortuary services.
Declared services (Sec. 66E) • Renting of immovable property • Construction of a complex prior to issue of completion certificate. • Temporary transfer or permitting use or enjoyment of IPR. • Software related services • Agreeing to refrain from an act or tolerate an act or a situation or to do an act. • Hire / lease / license of goods without transferring the right to use such goods. • Service portion in the execution of works contract. • Service portion in supply of food and other article.
Draft Place of provision of Services Rules, 2012 • Section 66C • Draft Rules introduced for public comments • Detailed Guidance paper also introduced. • Will be effective from negative list of taxation of services. • Export / Import of services Rules will be withdrawn • This rule will determine the taxing jurisdiction for service tax. • It will also help in GST introduction to tax inter-state services.
Draft Place of provision of Services Rules, 2012 • Place of provision of service generally – Location of service receiver. (Rule 3). (if location not available, location of service provider) • Performance based services – Location of performance • Immovable property related services – Location of immovable property. • Services relating to events – Location of event held.
Draft Place of provision of Services Rules, 2012 • Services provided at more than one location – Location in the taxable territory where the greatest proportion of service is provided. • Services where both service provider and receiver are located in the taxable territory – Location of service receiver • Specified services – Location of service provider. • Goods transportation services – Place of destination of goods. (In GTA Service – Location of the person liable to pay tax
Draft Place of provision of Services Rules, 2012 • Passenger Transportation service – Place were the passenger embarks. • Services provided on board a conveyance – Location of first scheduled point of departure. • Services for certain purposes ( to avoid double taxation or double non taxation) – Central Govt can notify the place of enjoyment of such service. • ORDER OF APPLICATION OF THIS RULE: (notwithstanding anything stated in any rule where the provision of a service is determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.)
Changes in Valuation Rules (The changes in this rule is only when the Negative list based taxation starts) VALUATION FOR WORK CONTRACT SERVICE (R 2A) • Gross value of contract Less Value of materials Or • Original Work – 40% of total is value of service • Work with land – 25% • Other works - 60%
Changes in Valuation Rules (The changes in this rule is only when the Negative list based taxation starts) VALUATION FOR SUPPLY OF FOOD (R 2B) • In Restaurant – 40% of total is value of service • As outdoor caterer – 60%
Mega exemption Notification ( Notification No : 12/2012) Presently there are 88 exemption notifications Out of which 34 exemptions are retained with some modification and included in the mega notification. Other exemption notifications will be withdrawn The mega notification will be effective from the date on which negative list based taxation starts.
Other exemption Notification ( Notification No : XXXX) There will be nine other exemptions in this notification. This notification so far not issued but only the gist of such exemptions proposed. This notification will be effective from the date on which negative list based taxation starts.
Abatement Notification ( Notification No : 13/2012) Presently abatements are covered by Notification 1/2006 New abatement notification issued with some modifications. Construction services and supply of food services removed from abatement notification. Cenvat also partially allowed in certain cases. This notification will be effective from the date on which negative list based taxation starts.
Reverse Charge ( Notification No : 15/2012) Mutual fund distributors are removed from reverse charge and given full exemption from service tax. Following new items are included:- - Services provided by an individual advocate / arbitral tribunal - Support services by Government to any business entity - Renting of motor vehicles to carry passengers - Supply of man power. - Work contract by an individual / firm etc to companies. This notification will be effective from the date on which negative list based taxation starts.
Proposed simplification • Simplified common registration format for central excise & service tax. • Common & One page return format for Central Excise & Service tax • Periodicity of return filing & payment of tax proposed to be monthly for larger assessees and Quarterly for others. These proposed changes are only in draft form and not yet introduced.
Thank you for your participation in this discussion