Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Wednesday, July 4, 2012

Service Tax: Amendments in Brief


A Negative List of services has been introduced, which has brought a shift in the basis of taxation. Before the introduction of the negative list of services, there was a definition for each and every “Taxable Service”. This positive list finally gets repealed with introduction of the Negative List of services.

Therefore, any activity which meets the definition of a “service” as defined, and does not feature in the negative list will be chargeable to service tax.

Declared Service – Section 66E
Declared service means any activity carried out by a person for another person for consideration and declared as such under section 66E (Section 65B). This section basically is a deeming section and deems the below activities also to be “service”.

There are nine specific activities under the List of declared services as given under section 66E as under:
S.No.
Description of Service
Brief Description
1
Renting of immovable property
Renting of immovable property for commercial or industrial use, or for use to any company.
2
Construction activity
Construction (including additions, alterations, replacements or re-modeling of existing civil structure) of a complex, building, civil structure or a part thereof, intended for sale wholly or partly to a buyer.  However, it will be excluded in the case where the entire consideration is received after issuance of a Completion Certificate.
3
Intellectual Property Rights
Temporary transfer or permitting use or enjoyment of any IPR
4
Information Technology software
Development, design, programming, customisation, adaption, up-gradation, enhancement, implementation of information technology software.
5
Non compete arrangements
Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act.
6
Supply of goods on hire
Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods.
7
Hire purchase
Activities in relation to delivery of goods on hire purchase or any system of payment by installments.
8
Works contract
“Service portion” in the execution of works contract.
9
Catering
“Service portion” in an activity wherein goods, being food or any other article for human consumption or any drink is supplied as a part of the activity.


Reverse Charge Mechanism (As per Notification No. 30/2012 and Notification 36/2012)
For the list of services given below, the Service Recipient is required to discharge the service tax liability in full, or both the service recipient and service provider have to discharge the tax liability as per the prescribed ratio.

S.No.
Description of a Service
% of Service tax payable by Service Provider
Percentage of Service tax payable by Service Recipient
1
Insurance agent to insurance agent Not Applicable to Business Development Expenses
2
Transport of goods by road
NIL
100%
3
Sponsorship service
NIL
100%
4
Arbitral services
NIL
100%
5
Legal services by Individual advocate or a firm of advocates
NIL
100%
6
Support services by Government or local authority (excluding renting of immovable property and certain other specified services)
NIL
100%
7
Renting of passenger motor vehicles*-          With abatement-
          Without abatement
Nil
60%
100%
40%
8
Supply of manpower for any service*
25%
75%
9
Works Contract service*
50%
50%
10
Any taxable service where the Service provider is located in a non taxable territory and service recipient located in a taxable territory
NIL
100%

 *in case where the service provider is a non corporate entity and the service recipient is a corporate entity.
“Renting of immovable property” to extend to include any other service in relation to such renting also.
“Supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

Exempted Services

§ Notification No. 25/2012 – A single consolidated notification issued for exemptions, called the “Mega Exemption Notification”. It lists 39 services which will be exempted under service tax.

§ Notification No. 34/2012- Consequential to the Mega list of exemptions, 81 exemption notifications issued in the past 18 years stand rescinded. There will now be only one single mega list of exemption from service tax.

§ Notification 27/2012- Exemption for services rendered to foreign diplomatic mission or consular post in India, or for personal use or for the use of the family members from service tax. Detailed provisions made, including the invoice issued to such person to carry additional information. (HO to direct based on case to case basis)

Abatement of Service tax

§ Notification No. 26/ 2012: Abatement will be allowed at the following rates for the following services on the levy of service tax i.e. Service tax will be charged on the balance value after abatement.

S. No.
Description of Taxable Service
Taxable Value
1
Financial leasing and Hire purchase
10%
2
Transport of goods in a vessel
50%
3
Transport of goods by road
25%
4
Transport of goods by rail
30%
5
Transport of passengers by rail
30%
6
Transport of passengers by air
40%
7
Renting of passenger vehicles
40%
8
Renting of hotels, guest houses
60%
9
Bundled service including food and hotel rent, convention center, etc.
70%
10
Tour operator
10%, 25%, 40%
11
Construction activity (per Section 66E)
25%

Amendments to Service tax Valuation Rules (Notification no. 24/2012)
Rule 2B inserted. This Rule states how to determine the service portion in the execution of a works contract.

Rule 2C inserted. Thus Rule states how to determine the service portion in supply of food and drinks in a restaurant or in outdoor catering.

Demurrage charges liable to service tax.

Interest on delayed payments is not liable for service tax.

Accidental damages not related to the service, would not be liable for service tax.

Export of Service

Rule 6A to Service Tax Rules, 1994 introduced vide Notification 36/2012. Provision of any service provided to agreed to be provided shall be treated as export of service when-

(a) The service provider is located in the Taxable Territory
(b) The service recipient is located outside India
(c) The service is not falling under the Negative List
(d) Place of Provision of Service is outside India
(e) Payment for such service has been relieved in convertible foreign exchange, and
(f) The service provider and service recipient are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 section 65B (44)

If a service qualifies as an export service, the Central government may by way of notification grant rebates.

Accordingly, conditions have been laid down for claiming rebate of service tax on export of services. Rebate follows a refund method only. There is no outright exemption. (For further details refer Notification 39/ 2012)

Amendments to Point of Taxation Rules (Notification No. 4/2012)

a. Definition of “Continuous service” extended to include where service is provided continuously or on recurrent basis, under a contract, for a period exceeding three months with an obligation for periodic payment.
b. Point of taxation is the date when the invoice for the service provided or agreed to be provided is issued. Where no invoice is issued within the time period of 30 days, point of taxation will be the date of completion of service.
c. In case where service tax is payable under the Reverse charge mechanism, point of taxation will be the date on which the payment is made for the service, or six months.
d. In case of “associated enterprises” for import of services, the point of taxation shall be the date of debit in the books of account or date of payment, whichever is earlier.

Other Important Amendments to Service Tax Rules, 1994

Notification No. 3/2012- Service Tax (Amendment) Rules, 2012:
• Every person providing a taxable service to issue an invoice within 30 days from the date of completion of such taxable service or receipt of payment, whichever is earlier.
• No invoice to be issued if the excess payment received is up to Rs. 1000 and where the invoice will be issued subsequently.
• Individual and partnership firms providing taxable services up to Rs. 50 Lacs, will have the option to pay service tax on collection basis.
• Excess payment of service tax allowed to be adjusted against the subsequent month’s service tax liability without intimation to the jurisdictional Superintendent of Central Excise.

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