Changes In Service Tax in Budget 2014 Clause By Clause with effective date

With the Promise of “Acche Din” there was great expectations of what would be delivered in the budget this led challenge for finance minis...

With the Promise of “Acche Din” there was great expectations of what would be delivered in the budget this led challenge for finance minister to balance the unduly high expectations built up pre Budget, with the economic realities prevailing at a ground level, with a view to help reshape investment sentiment both domestically and internationally. In his speech, the Finance Minister, rightly pointed to the fact that not everything could be addressed in one Budget and systemic changes would have to be made in the next few years to achieve our economic aspirations.

Amendments in Indirect Taxation

1. CHANGES IN SERVICE TAX
2. CHANGES IN EXCISE
3. CHANGES IN CUSTOMS
4. CHANGES IN CENVAT CREDIT RULES

1.   Service Tax

(i)                 Changes in Section 73 of the Finance Act 1994

An amendment has been proposed under Section 73 to prescribe time limits for completion of Adjudications by the authorities, similar to existing provision under the Central Excise Act.

Sub-clause (4B) has been newly inserted to prescribe the following:

The Central Excise Officer shall determine the amount of service tax due under subsection (2)—

(a) within six months from the date of notice where it is possible to do so, in respect of cases whose limitation is specified as eighteen months in sub-section (1);

(b) within one year from the date of notice, where it is possible to do so, in respect of cases falling under the proviso to sub-section (1) or the proviso to sub-section (4A).";

Presently, there was no time limit prescribed under the Finance Act, 1994 for the follow up of the SCN issued by the department.

(ii)               Amendment in Explanation to Section 67A

For the purposes of this section, "rate of exchange" means the rate of exchange determined in accordance with such rules as may be prescribed"

Earlier it was, For the purposes of this section, "rate of exchange" means the rate of exchange referred to in the Explanation to section 14 of the Customs Act, 1962 (52 of 1962).

The above proposal is in response to the industry requests for delinking the conversion rate

from the Customs notified rates of exchange.

The amendment shall come into effect from a date to be notified after the Finance Bill, 2014

receives the assent of the President

Industry has been invited to share their suggestions before such Rules are notified

(iii)             Amendment in Sec 80

It has been proposed to amend Section 80 to remove the power to waive the 50% penalty imposable in cases of default of payment of Service Tax on account of suppression of facts or willful misstatement etc., by deleting reference to first proviso to Section 78(1)

o   First proviso to Section 78(1) deals with applying reduced penalties in cases where true and complete details of transactions are available 

o   The above penalty, earlier, could have been waived by invoking Section 80 where the assessee demonstrated reasonable cause for default in payment of Service Tax

The essence of this amendment is that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of –

(a) Fraud

(b) Collusion

(c) Willful mis-statement; or

(d) Suppression of facts; or

(e) Contravention of any of the provisions of this chapter or of the rules made thereunder with the intent to evade payment of service tax.

Then in such cases the person cannot take the benefit of section 80 and plea for waiver of the penalty imposed u/s 78. Such persons are now necessarily required to pay the penalty as prescribed in section 78. Benefit of section 80 restricted to genuine default.

(iv)             Amendment in Sec 82

Sec 82(1) is amended along with sec 12F (1) of the central Excise Act 1944, Whereby the Joint Commissioner or Additional Commissioner or any other officer notified by the board can authorize any Central Excise officer to search & Seize.

(v)               Amendment in Sec 83

Section 83 has been proposed to be amended to make the following provisions of the Central Excise Act  applicable to Service Tax

 Section 5A(2) which provides that insertion of explanation in notifications/orders within one year from the date of such notification/ order shall have the effect as if it had always been part of the notification

Section 15A which provides that the assessees or specified authority (such as VAT / Sales Tax authorities, Income Tax authorities, State Electricity Board, Registrar of Companies etc.) will be required to submit an information return in prescribed format to an authority / agency as well as Section 15B which provides for penalty for non-compliance of Section 15A

The proposed substitution of Section 35F of CE Act, which provides for mandatory fixed pre-deposit of duties and penalties for filing appeals before Commissioner (Appeals) and Tribunal, will have reflective impact on Service Tax appeal proceedings.

Similarly, the amendments as proposed under Sections 35B and 35C of the CE Act will have reflective impact on Service Tax litigations.

(vi)             Amendment in clause (i) of sub section (1A) of section 86 ie 86 (1A) (i)

The Board may, by order, constitute such Committees as may be necessary for the purposes of this Chapter

Earlier it was, The Board may, by notification in the Official Gazette, constitute such Committees as may be necessary for the purposes of this Chapter

The Purpose of the said amendment is providing greater actions and quick powers on part of board.

(vii)           Amendment in section 86 (6A)

Sec 86 (6A) is amended to provide that every application made before the Appellate Tribunal in an appeal for rectification of mistake or for any other purposes or for restoration of an appeal or an application only shall be accompanied by a fee of Rs. 500.

However, earlier the appeal for grant of stay was also to be accompanied by a fee of Rs. 500

(The words grant of Stay is now deleted).

(viii)         Proviso inserted in clause (c ) of section 87

The scope of Section 87 has been proposed to be broadened by insertion of proviso to clause(c)

The new proviso states that where the person from whom tax or other dues are recoverable, transfers or disposes his business or effects any change in the ownership thereof, then all goods in custody or possession of successor of such business may also be attached and sold for recovery of such tax or other dues. Such proceedings can be initiated by an officer empowered by Central Board of Excise and Customs after obtaining written approval of the Commissioner of Central Excise. 

After the said amendment, the business houses before taking over the business of any person must make sure whether the person is defaulter under service tax or not. If he is a defaulter then the department is eligible to recover the amount of default from the successor and in recovering the amount the department is eligible to attach and sell all the goods in the custody of the successor irrespective of the fact that whether the same are succeeded from the other person or belongs to him

(ix)             Amendment in Section 94

It has been proposed to amend Section 94 to provide for additional rule making powers to the Central Government on the following:

Rules in relation to furnishing information, keeping records and making returns and   specifying the manner in which they shall be verified [Clause (k) substituted]

Rules in relation to withdrawal of facilities or imposition of restrictions on utilization of CENVAT credit to check its misuse or evasion [Clause (l) inserted]

Rules in relation to authorizing CBEC or Chief Commissioner of Central Excise to issue instructions in supplemental or incidental matters [Clause (m) inserted]

(x)               Section 100 (New Section Inserted)

New Section 100 has been proposed to be inserted to provide for non levy of Service Tax in respect of taxable services provided by the Employees State Insurance Corporation during the period prior to July 1, 2012

(xi)             Exemptions Extended or Inserted.

The following are the new exemptions & concession introduced or extended

1.      Services by way of transportation of organic manure and cotton (ginned or baled) by:

·         Rail or a vessel from one place in India to another

·         Services of a goods transport agency by way of transport in a goods carriage

Earlier the exemption was in available in respect of various goods including Chemical fertilizers, oil cakes, agricultural produce,, etc. Vide this amendment exemption has been extended in respect of transportation of organic manure and cotton.

2.      Services by way of loading, unloading, packing, storage or warehousing of cotton (ginned or baled)

Earlier the exemption was available only in respect of rice and the same has now been extended to cotton

3.      Services provided by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio- medical waste or the processes incidental thereto.

4.      Services received by the RBI, from outside India in relation to management of foreign exchange reserves.

Earlier Services provided by RBI are covered under the Negative List of services and hence not chargeable to Service Tax. But no          exclusion /exemption was available for service received by RBI. Vide this amendment; specified services received by RBI have been exempted, thereby absolving RBI from payment of Service Tax on reverse charge basis on the same.

5.      Services provided by a Tour Operator to a foreign tourist in relation to a tour conducted wholly outside India

Services provided by a Tour Operator are covered under Rule 9 of the Place of Provision of Services Rules, 2012, being in the nature of intermediary services In such situations, location of the tour operator is deemed to be the place of provision of service. This new exemption entry seeks to carve out an exemption for services provided by Indian tour operators

6.      Services of life insurance business under life micro-insurance product as approved by the Insurance Regulatory and Development Authority having maximum amount of cover of INR 50,000.

The scope of the exemption in respect of services of life insurance business has been broadened to include these services.

(xii)           Existing exemption / Concession Amended

1.      Various services received by an Educational Institution providing education services not chargeable to Service Tax

Earlier , exemption was available in respect of auxiliary education services received by an Education Institution Vide this amendment, concept of auxiliary education services has been done away with and only specified services received by an Education Institution are exempted which are: -

·         Transportation of students, faculty and staff

·         Catering including mid-day meal scheme

·         Security, cleaning and housekeeping services performed within premises of such institution

·         Services relating to admission to, conduct of examination by such institution

However, Rent of immovable property paid by an Educational Institution is now exigible to Service Tax.

2.      Renting of hotel inn or guest house, club, campsite or other commercial places

The words “or other commercial places” has been replaced with “by whatever name called”

The exemption on service by way of renting for residential or lodging purposes has been extended to include within its ambit dharmashalas or ashram or such other entities, having declared tariff of a unit of accommodation below INR 1000 per day or equivalent.

3.      Transportation of passengers by contract carriage

Serial No. 23 of the Notification provided exemption to “Transport of passengers, with or without accompanied belongings, by a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire

The words “contract carriage” have been replaced by “non air conditioned contract carriage other than radio taxi”.

The scope of exemption is withdrawn The scope of exemption is Withdrawn contract carriage and radio taxi and Service Tax has been levied at abated rates.

The term “radio taxi” has been defined to mean a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS).

Therefore, Service Tax services of transport of passengers Therefore, Service Tax services of transport of passengers contract carriage and radio taxi would now attract Service Tax at an abated rate on 40% of the amount charged from service receiver provided CENVAT credit on inputs, capital goods and input services used for providing such services has not been availed

4.      Services provided to Government, a local authority or a governmental authority

Serial No. 25 of the Notification provided exemption to

“Services provided to Government, a local authority or a governmental authority by way of carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up gradation;

The words “carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to” have been omitted.

5.      Services by way of technical testing or analysis of newly developed drugs

This exemption has now been omitted.

(xiii)        Simplification of procedure for service tax refund to SEZ (w. e. f 11 July 2014)

o   Central Excise Officer shall issue an authorization (Form A2) within 15 working days of receipt of application in Form A1 from SEZ unit/ developer

o   Authorization issued by Central Excise Officer shall be valid from the date when Form A1 is verified by the Specified Officer of SEZ

o   Pending issuance of Form A2, SEZ unit or developer shall avail service without payment of tax subject to furnishing of Form A2 within 3 months from the date of receipt of specified services.

o   A service shall be deemed as exclusively used for SEZ operations if the recipient of service is SEZ unit/ developer or the invoice is in the name of such unit/ developer and such services are exclusively used for authorized operations.

o   Jurisdictional Deputy Commissioner/ Assistant Commissioner of Central Excise shall be the appropriate authority for the purpose of grant of refund,

o

(xiv)         Amendment in Reverse Charge (w.e.f 11.07.2014)

Addition/amendment in the definition of “persons liable for paying Service Tax” under Rule 2(1)(d)

Ø  New sub-rule (AA) provides that banking company, financial institution or a non banking financial company availing services of recovery agent shall be liable to pay Service Tax.

Ø  Amendment to sub-rule (EE) provides that a company or a body corporate shall be liable to pay services tax in respect of services provided by a director of the said company or body corporate. (Earlier only company was liable to pay Service Tax on such services)

- In both the above cases 100% Service Tax is payable by the recipient of the services

 - Insertion of the Term :Body Corporate” has widen the scope of reverse charge

(xv)     Amendment in Partial Reverse Charge Mechanism (w.e.f 1.10.2014)

Notification No. 30/2012-ST dt June 20, 2012: In respect of services of renting of motor vehicle designed to carry passengers where the Service Provider does not take abatement, the percentage of Service Tax payable by Service Receiver and Service Provider has now been revised to 50% each. Previously Service Receiver was liable to pay 40% whereas 60% of Service Tax was to be paid by Service Provider.

(xv)           Changes in Mode of Payment of Service Tax

Amendment to Rule 6(2):

 Every assessee will be required to pay Service Tax through internet banking. Earlier, only in case of taxpayers whose Service Tax liability in the preceding financial year was more than Rs. 10 lakhs were required to pay electronically.

Assistant Commissioner / Deputy Commissioner of Central Excise shall have the power to allow the assessee to deposit tax by mode other than internet banking.

(xvi)         Valuation Rules (w.e.f 1.10.2014)

Works contract services in relation to repairs, maintenance, restoration and reconditioning of immovable and movable property have been merged into one single category with 70% of the contract value made exigible to service tax.

(xvii)      Point of Taxation (w.e.f 1.10.2014)

o   In case of service tax payable on reverse charge mechanism, the point of taxation, where the payment of invoice is not made within 3 months shall be date when such period of 3 months expires.

o   For invoices issued prior to 1 October 2014, the period of 6 months shall continue.

o

(xviii)    Imposition of Interest Slab Rate w.e.f 1.10.2014

Notification No. 12/2014-ST dt. July 11, 2014 has been issued to revise the interest rates as under:

- 18% per annum for delay upto six months

- 24% per annum for delay beyond six months and upto one year

- 30% per annum for delay beyond one year

(xix)     Section 96

Section 96A has been amended to notify Private Limited Companies as a class of persons entitled for Advance Ruling Provisions w.e.f 1.07.2014.

(xix)         Abatements

1.      Services of goods transport agency in relation to transportation of goods

1.Condtions

Earlier , CENVAT credit on Inputs, Capital Goods and Input services, used for providing the taxable service, has not been taken under the provisions of the CCR

Amended , CENVAT credit on Inputs, Capital Goods and Input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CCR

The insertion of the expression “by the service provider” makes it clear that the restriction in respect of availment of CENVAT credit is applicable only to the service provider and not to service recipient

2.      Transport of goods in a vessel

2.

Taxable portion in respect of transport of goods in a vessel has been reduced from 50% to 40% that means Increase in the exemption from 50% to 60%.

3.      Renting of Motor Cab

Earlier, CENVAT credit was not available on any Inputs, Capital goods or Input Services. The amendment relaxes the restrictions of CENVAT credit only on input services by allowing credit in respect of Input services of motor cab, subject to the cap of 40%.

4.      Service of Tour Operator

Tour operators availing services of another tour operator are now entitled to avail CENVAT credit of tax paid on such services

5.      Transport of passengers, with or without accompanied belongings, by a contract carriage other than a motor cab.

Service Tax will be attracted at an abated value of 40% of the amount charged from service receiver (w.e.f date as may be notified).


Negative List

Amendment in clause (g) of Section 66D 

Earlier, selling of space or time slots for advertisements other than advertisements broadcast by radio or television

Amended, selling of space for advertisement

The scope of exemption on advertisement has been narrowed. Now, onwards the advertisement only in print media is exempted from service tax and the term print media is defined u/s 65B (39a) by deletion of the words “or time slots & other than advertisements broadcast by radio or television”

Therefore, the advertisement in following means shall only be exempted –

1. Newspaper

2. Books except business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

3. Every Sheet of music, map, chart of plan separately printed.

As a result of the proposed amendment, the levy of Service Tax will extend to advertisements in internet websites, out-of-home media, on film screen in theatres, bill boards, conveyances, buildings, cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising, etc.

Amendment in sub clause (vi) of clause (o) of Section 66D 

Earlier, metered cabs, radio taxis or auto rickshaws

Amended, metered cabs, radio taxis or auto rickshaws

Radio Taxis are excluded from the ambit of negative. Hence travelling in radio Taxi will now cost more.

CA. Vineeta Chhatwani Chartered Accountant, M.COM

Email : vineeta.chhatwani03@gmail.com

Address: 302, Purab Paschim Apt, Nehru Chowk,Ulhasnagr -421 002. Mumbai. Co: +91-9028207905