Friday, March 15, 2013

Budget 2013-14: Amendment in Service Tax Related provisions

I. AMENDMENTS PROPOSED IN CHAPTER V OF THE FINANCE ACT, 1994: Chapter V of the Finance Act, 1994, is being amended:

(i) Definition of ‘approved vocational education course’ provided in section 65B (11) is being amended: firstly, the words, ‘or State Council of Vocational Training’ (SCVT) is being inserted in (i), and secondly, entry at item serial number (iii) is being omitted, for NSDC is not an affiliating body. After the proposed amendment takes effect, courses in ‘designated trades’ offered by Industrial Training Institute or Industrial Training Center affiliated to State Council of Vocational Training will also be covered by the negative list;

(ii) Definition of “process amounting to manufacture or production of goods”, in section 65B(40) being amended to include processes on which duties of excise are leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955(16 of 1955);

(iii) Explanation contained in Removal of Difficulty Order 2/2012 is being introduced as a separate section, namely 66BA. By the authority of this section, references to section 66 (charging section under the positive list approach) in Chapter V of the Finance Act, 1994 or any other act, will be construed as reference to section 66B (charging section under the negative list approach), with effect from the 1st day of July, 2012. Reference to section 66 appearing in the Finance (No.2) Act, 2004 and the Finance Act, 2007, in the context of education cesses will be read as 66B, in accordance with this new section;

(iv) The word, ‘seed’ is being omitted from the expression ‘seed testing’ found in section 66D (d)(i). As a result, testing activities directly related to production of any agricultural produce like soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes will be covered by the negative list;

(v) In section 73, a new sub-section (2A), similar to sub-section (9) of section 11A of Central Excise Act, 1944, is being inserted to harmonize the Central Excise and Service Tax law. As a result, if a show cause notice issued under proviso to sub-section (1) of section 73, is not found sustainable by an appellate authority or tribunal or court, the same will be deemed to be a notice issued for a period of eighteen months;

(vi) Section 77, sub-section (1), clause (a), is being amended, in such manner that, maximum penalty imposable for failure to obtain registration will be ten thousand rupees only;

(vii) Section 78A is being introduced, to make provision for imposition of penalty on director, manager, secretary or other officer of the company, who is in any manner knowingly concerned with specified contraventions;

(viii) In section 86, sub-section (5), it is proposed to insert the expression “sub-section (1) or” appropriately. Therefore, in case of assessee appeal also, appellate tribunal can admit an appeal or permit the filing of memorandum of cross objections after the expiry of the relevant period;

(ix) Section 89 is being amended: (i) in the case of an offence specified in clauses (a), (b) and (c ) of sub-section (1) where the amount exceeds fifty lakh rupees, punishment shall be for a term which may extend to three years, but shall not, in any case, be less than six months; (ii) in the case of failure to pay service tax collected, to the credit of the Central Government within six months, an offence specified in section 89(1 )
(d), if such non-payment exceeds fifty lakh rupees, punishment shall be imprisonment for a term which may extend upto seven years but not less than six months; (iii) in the case of any other offence, the punishment shall be imprisonment for a term which may extend to one year;

(x) Section 90 is being introduced to specify and differentiate cognizable offences from non-cognizable and bailable offences;

(xi) Section 91 is being introduced to provide for power to arrest; Commissioner of Central Excise is empowered to authorize any officer of Central Excise not below the rank of Superintendent of Central Excise, to arrest a person for specified offences particularly nonpayment of collected service tax;
(xii) Section 95 is being amended to empower the Central Government for removal of difficulty in respect of amendments carried out through the Finance Act, 2013.

Retrospective exemption is being extended to the Indian Railways on the service tax leviable on various taxable services provided by them during the period prior to the 1st day of July 2012, to the extent show cause notices have been issued upto the 28th day of February 2013. Section 99 is being added for this purpose, in Chapter V of the Finance Act, 1994.

At present taxable portion for service tax purpose is prescribed as 25% uniformly for constructions where value of land is included in the amount charged from the service recipient. This is being rationalized. Accordingly, where the carpet area of  residential unit is upto 2000 square feet. or the amount charged is less than One Crore Rupees, in the case of ‘construction of complex, building or civil structure, or a part thereof, intended for sale to a buyer, wholly or partly except where the entire consideration is received after issuance of completion certificate by the competent authority’, taxable portion for service tax purpose will remain as 25%; in all other cases taxable portion for service tax purpose will be 30%. This change will come into effect from the 1st day of March, 2013.

IV. REVIEW OF EXEMPTIONS (to take effect from 1st day of April, 2013):
(A) The following exemptions are being rationalized:
* Rationalization of exemption limit prescribed for charitable organizations, providing service towards any other object of general public utility. So far, the limit was 25 Lakh Rupees per annum. Now, they will be covered by the threshold exemption.
* Exemption provided to restaurants other than those having (i) air-conditioning and (ii) license to serve liquor, is being rationalized; condition regarding ‘license to serve liquor’ is being omitted. Therefore, with effect from 1st April, 2013, service tax will be leviable on taxable service provided in restaurants with air-conditioning or central air heating in any part of the establishment at any time during the year.
* Rationalization of exemption to transport of goods by road and rail/vessel.

(B) The following exemptions are being withdrawn:
* Services provided by an educational institution by way of renting of immovable property.
* Temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films was fully exempt so far; now, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theatre.
* Services by way of vehicle parking to general public.
* Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft.

To encourage voluntary compliance and broaden the tax base, it is proposed to provide one time amnesty by way of (i) waiver of interest and penalty; and (ii) immunity from prosecution, to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October 2007 to December 2012) who pay the “tax dues”. Details of the scheme are available in Chapter VI of the Finance Bill, 2013. The scheme will be operational from the date on which the Finance Bill, 2013 receives the assent of the President.

Scope of advance ruling is being extended to cover resident public limited companies; a notification is being issued for this purpose, under section 96A (b) (iii) of the Finance Act, 1994.