The Finance Minister has, while presenting the Union Budget 2016-17, introduced the Finance Bill, 2016 in the Lok Sabha on the 29th of Fe...
The Finance Minister has, while presenting the Union Budget 2016-17, introduced the Finance Bill, 2016 in the Lok Sabha on the 29th of February, 2016. Clauses 145 to 157 of the Bill cover the amendments made to Chapter V of the Finance Act, 1994. Chapter VI of the Bill (clause 158) proposes to levy Krishi Kalyan Cess, on any or all the taxable services at the rate of 0.5% of the value of taxable services with effect from 1st June, 2016.
2.0
Changes are also proposed in,-
·
the Service Tax Rules, 1994 (STR);
·
the Point of Taxation rules, 2011;
·
the CENVAT Credit Rules, 2004(Cenvat Rules);
These and other changes are being given effect to by inserting new
entries, and amending/omitting existing entries in notification Nos.
25/2012-ST, 26/2012-ST, 30/2012-ST, 32/2012-ST, all dated 20-6-2012,
23/2004-CE(NT) dated 10.09.2004 and 27/2012-C.E. (N.T.) dated 18.06.2012 and by
issuing new notifications.
2.1 It
may be noted that changes being made in the Budget are coming into effect on
various dates, as indicated below:
(i)
Changes coming into effect
immediately w.e.f. the 1st day of March, 2016;
(ii)
Changes coming into effect from the 1st day of
April, 2016;
(iii)
The amendments which will get
incorporated in the Finance Act, 1994 on enactment of the Finance Bill, 2016;
(iv)
The amendments made in the
Finance Act, 1994, which will come into effect from 1st day of June, 2016 after the
enactment of the Finance Bill, 2016; and
(v)
Chapter VI of the Finance Bill,
2016, regarding levy of Krishi Kalyan Cess on all taxable services will come
into effect from 1st June 2016.
For ease
of reference, the Table at Annexure-I lists the changes being made and indicates
the dates on which these changes would come into effect.
The salient features of the changes being made are discussed below.
3.0
Enabling
provision for levy of “Krishi Kalyan Cess”:
3.1
Krishi Kalyan Cess is proposed to
be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on
the value of such taxable services. Credit of Krishi Kalyan Cess paid on input
services shall be allowed to be used for payment of the proposed Cess on the
service
provided
by a service provider.
(Chapter VI/Clause 158 of the
Bill refers)
4.0
Other
Legislative changes:
4.1
Negative List -The changes proposed in the
Negative List in Section 66 D are as
follows:
(A)
Presently, clause (l) of section
66D of the Act [Negative List] covers specified educational services. These
services are proposed to be omitted from the Negative List but the service tax
exemption on them is being continued by incorporating them in the general
exemption
notification (Notification
No. 25/2012-ST as amended by notification No. 09/2016-ST, dated 1st March, 2016 refers). Consequently, the
definition of „approved vocational education course‟ [clause (11) of
section 65B] is also proposed to be omitted from the Finance Act and is being
incorporated in the general exemption notification (Notification No. 25/2012-ST as amended by notification No 09/2016-ST,
dated 1st March, 2016 refers). This amendment in the
notification shall come into effect
from the date of enactment of Finance Bill, 2016.
(B)
The Negative List entry that
covers “service of transportation of passengers, with or without accompanied
belongings, by a stage carriage” is proposed to be omitted [section 66D (o)(i)]
with effect from 1.06.2016. Clause 146 of Finance Bill 2016 may please be seen.
As a consequence, the above services become taxable with effect from
1.06.2016. However, such services by a non-air-conditioned contract
carriage will continue to be exempted by way of exemption notification [Notification No. 25/2012-ST, as amended by
notification No. 09/2016-ST, dated
1st March, 2016 refers]. The service of
transportation of passengers by air-conditioned stage carriage is being
taxed at the same level of abatement (60%) as applicable to the transportation
of passengers by a contract carriage, with same conditions of non-availment of
Cenvat credit. [notification No. 08/2016-St dated 29th February, 2016 refers]
(C)
The entry in the Negative List
that covers services by way of transportation of goods by an aircraft or a
vessel from a place outside India up to the customs station of clearance
[section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016.
Clause 146 of Finance Bill 2016 may please be seen in this regard. However such
services by an aircraft will continue to be exempted by way of
exemption notification [Not. No.
25/2012-ST, as amended by notification
No. 09/2016-ST dated 1st March, 2016 refers]. The domestic shipping lines registered in
India will pay service tax under forward charge while the services availed from
foreign shipping line by a business entity located in India will get taxed
under reverse
charge at the hands of the business entity. The
service tax so paid will be available as credit with the Indian manufacturer or
service provider availing such services (subject to fulfillment of the other
existing conditions). It is clarified that service tax levied on such services
shall not be part of value for custom duty purposes.
In addition, Cenvat credit of eligible inputs,
capital goods and input services is being allowed for providing the service by
way of transportation of goods by a vessel from the customs station of
clearance in India to a place outside India. Consequential amendments are being
made in Cenvat Credit Rules, 2004 [Not. No. 23/2004-CE (N.T.), as amended by
Sl. Nos. 2(b) and 5(h) of notification No. 13/2016-C.E. (N.T.) dated refers. ]
(Clause 146 of the Bill refers)
4.2
Further
amendments in Chapter V of the Finance Act, 1994:
A.
Lottery:
Section 4(c) of the Lotteries (Regulation) Act,
1998 provides that the State Government shall sell the tickets either itself or
through distributors or selling agents. Thus, as per the provisions of the
Lotteries (Regulation) Act, 1998, the transaction between the State Government
and the distributors or selling agents is on principal to agent basis. Any
contract contrary to the aforesaid legal provisions is ultra vires the provisions of Indian Contracts Act, 1872 and thus
not legally enforceable. Explanation 2
in section 65B(44) is proposed to be amended to clarify that activity carried
out by a lottery distributor or selling agents of the State Government under
the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is
leviable to service tax.‟
(Clauses 145 of the Bill refers)
B.
Declared Services (Section 66E):
Assignment by the Government of the right to use
the radio-frequency spectrum and subsequent transfers thereof is proposed to be
declared as a service under section 66E of the Finance Act, 1994 so as to make
it clear that assignment by Government of the right to use the spectrum as well
as subsequent transfers of assignment of such right to use is a service
leviable to service tax and not sale of intangible goods.
(Clauses 147 of the Bill refers)
C.
Section
67A of Finance Act, 1994.
Section 67A is proposed to be amended to obtain
specific rule making powers in respect of Point of Taxation Rules, 2011. Point
of Taxation Rules, 2011 is being amended accordingly. The amendment in the
rules would come into force with effect from the date of enactment of the
Finance Bill, 2016.
(Clause 148 of Finance Bill, 2016 and Sl. No. 2(1) of
notification No.
10/2016-ST refers)
D.
Amendment
in section 73 of the Finance Act:
The limitation period for recovery of service tax
not levied or paid or short-levied or short paid or erroneously refunded, for
cases not involving fraud, collusion, suppression etc. is proposed to be
enhanced by one year, that is, from eighteen months to thirty months by making
suitable changes to section 73 of the Finance Act, 1994.
(Clauses 149 of the Finance Bill,
2016 refers)
E.
Amendment
to section 75 of Finance Act
Section 75 of the Finance Act is proposed to be
amended so that a higher rate of interest would apply to a person who has
collected the amount of service tax from the service recipient but not
deposited the same with the
Central Government.
(Clause 150 of Finance Bill 2016
refers)
F.
Amendment in section 78A of the Finance Act, 1994
It is proposed to provide that penalty proceedings
under section 78A shall be deemed to be closed in cases where the main demand
and penalty
proceedings have been closed under section 76 or section 78, by making
suitable changes to section 78A by addition of an explanation.
(Clause 151 of Finance Bill 2016
refers)
G. Section 89 of the Finance Act, 1994
The monetary limit for filing complaints for
punishable offences is proposed to be enhanced to Rs. 2 crore.
(Clause 152 of Finance Bill 2016 refers)
H. Sections 90 and 91 of the Finance Act, 1994
The power to arrest in service tax law is proposed
to be restricted only to situations where the tax payer has collected the tax
but not deposited it with the exchequer, and amount of such tax collected but
not paid is above the threshold of Rs 2 crore. Sections 90 and 91 of the
Finance Act, 1994 are being amended accordingly.
(Clauses 153 and 154 of Finance Bill 2016
refers)
I. Section
93A: Power to grant rebate.
Section 93A of the Finance Act,1994 is being amended so as to enable
allowing of rebate by way of notification as well as rules.
(Clause 155 of the Bill refers)
J.
Retrospective
effect to notification No. 01/2016- ST
Notification No. 41/2012- ST, dated the 29th June,
2012 was amended vide notification No.1/2016-ST dated 3rd February, 2016 so as
to, inter alia, allow refund of
service tax on services used beyond the factory or any other place or premises
of production or manufacture of the said goods, for export of the said goods.
The said amendment is being given retrospective effect from the date of
application of the parent notification, i.e., from 01.07.2012. Time period of
one month is proposed to be allowed to the exporters whose claims of refund
were earlier rejected in absence of amendment carried out vide notification
No.1/2016-ST dated 3rd February, 2016.
(Clauses 157 of the Bill refers)
K.
Service Tax exemption to canal, dam or other irrigation works with
retrospective effect:
(a)
Definition of Governmental
authority was amended with effect from 30.01.2014 so as to exempt services
provided by way of construction,
erection, maintenance, or alteration etc. of canal, dam or other irrigation
works provided to entities set up by Government but not necessarily by an Act
of Parliament or a State Legislature. However, services provided prior to
30.01.2014 to such bodies
remained taxable. The benefit of exemption is
proposed to be extended to the said services provided during the period from
the 1st July, 2012 to 29.01.2014.
(b)
Refund of Service Tax paid on the
said services during the period from the 1st July, 2012 to 29.01.2014 shall
also be allowed in accordance with the law including the law of unjust
enrichment. Application for refund may be allowed to be filed within a period
of six months from the date on which the Finance Bill, 2016 receives the assent
of the President.
[New
section 101 is being inserted in the Finance Act, 1994] (Clauses 156 of the
Finance Bill, 2016 refers)
L.
Restoration of certain exemptions withdrawn last year for projects,
contracts in respect of which were entered into before withdrawal of the
exemption.
(a)
Exemption from Service Tax on
services provided to the Government, a local authority or a governmental
authority by way of construction, erection, etc. of -
(i)
a civil structure or any other
original works meant predominantly for use other than for commerce, industry,
or any other business or profession;
(ii)
a structure meant predominantly
for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural
establishment;
(iii)
a residential complex
predominantly meant for self-use or the use of their employees or other persons
specified in the Explanation 1 to clause 44 of section 65B of the said Act;
was withdrawn with effect from 1.4.2015. The same is being restored for
the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp
duty, where applicable, had been paid prior to that date. The exemption is
being restored till 31.03.2020. [Notification
No. 25/2012-ST as amended by notification
No. 09/2016-ST dated 1st March, 2016 refers] The
services provided during the period
from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be
exempted from service tax.
[New
section 102 is being inserted in the Finance Act, 1994] (Clauses 156 of the Bill
refers)
(b)
Exemption from Service Tax on
services by way of construction, erection, etc. of original works pertaining to
an airport, port was withdrawn with effect from 1.4.2015. The same is being
restored for the services provided under a contract which had been entered into
prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had
been paid prior to that date subject to production of certificate from the
Ministry of Civil Aviation or Ministry of Shipping, as the case may be, that the
contract had been entered into prior to 01.03.2015. The exemption is being
restored till 31.03.2020.
[Notification
No. 25/2012-ST as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The services provided during the period
from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be
exempted from service tax.
[New
section 103 is being inserted in the Finance Act, 1994]
(Clauses 156 of the Bill refers)
The above changes in the Finance Act, 1994 shall come into force on the
day the Finance Bill, 2016 is enacted.
5.0
Information Technology Software:
5.1 With effect from 21.12.2010,
media falling under Chapter 85 with recorded Information Technology Software
has been notified under section 4A of the Central Excise Act. Accordingly,
Central Excise duty/CVD is to be paid on the value of such media with recorded
Information Technology Software and the assessable value of such media is
required to be determined on the basis of the retail sale price (RSP) affixed
on the package of such media
under the Legal Metrology Act, 2009 (1 of 2010) or the rules made
thereunder. In respect of transactions involving supply of such media bearing
RSP, not amounting to sale/deemed sale, service tax is being exempted. Thus,
only Central Excise duty is levied on such transactions. (Notification No. 11/2016-CE dated 1st March 2016 refers)
5.2 In certain situations like
delivering customised software on media, such media with recorded Information
Technology Software, is not required to bear the RSP when supplied domestically
or imported. Difficulties are being experienced in the assessment of such media
to Central Excise duty/CVD besides giving rise to the issue of double taxation –
levy of Central Excise duty/CVD as well as service tax. In order to resolve the
issue, media with recorded Information Technology Software which is not
required to bear RSP, is being exempted from so much of the Central Excise
duty/CVD as is equivalent to the duty payable on the portion of the value of
such Information Technology Software recorded on the said media, which is
leviable to service tax. In such cases, manufacturer/importer would therefore
be required to pay Central Excise duty/CVD only on that portion of value
representing the value of the medium on which it is recorded along with freight
and insurance. The exemption is subject to the fulfillment of certain
conditions. Thus, the levy of Central Excise duty/CVD and service tax will be
mutually exclusive. (Notification No.
11/2016-CE and 11/2016-Customs, both
dated 1st March 2016 refers)
6.0
Review of
Exemptions:
6.1
Exemption in respect of the
following services is being withdrawn,-
·
Services provided by a senior
advocate to an advocate or partnership firm of advocates, and
·
A person represented on an arbitral tribunal to an
arbitral tribunal;
Service tax in the above instances would be levied under forward charge.
However, the existing dispensation regarding legal
services provided by a firm of advocates or an advocate other than senior
advocate is being continued.
(Sl. No. (i) of Notification No.
9/2016-ST, dated 1st March, 2016 refers).
6.2
Exemption under Sl. No. 23 (c) of
the notification No.25/2012-ST on transport of passengers, with or without
accompanied belongings, by ropeway, cable car or aerial tramway is being
withdrawn.
( Sl. No (ix)
B of notification No. 9/2016-ST, dated 1st March, 2016 refers).
6.3
Exemption to construction,
erection, commissioning or installation of original works pertaining to
monorail or metro (under S. No 14 of the
notification No. 25/12-ST) is being withdrawn, in respect of contracts
entered into on or after 1st March 2016. The other exemptions under S. No. 14 of notification No.
25/12-ST shall continue unchanged.
( Sl. No(vi)A
of notification No. 9/2016-ST, dated 1st March, 2016 refers).
The above changes in notification No. 25/12-ST, except the change
mentioned in para 6.3, shall come into effect from the 1St day of April 2016. The change
mentioned in para 6.3 will come into effect from 1st March, 2016.
7.
New
Exemptions:
7.1
The services of life insurance
business provided by way of annuity under the National Pension System (NPS)
regulated by Pension Fund Regulatory and Development Authority (PFRDA) of India
is being exempted from service tax.
(New entry at S. No. 26C of notification No.
25/2012-ST refers)
7.2
Services provided by Securities
and Exchange Board of India (SEBI) set up under SEBI Act, 1992, by way of
protecting the interests of investors in securities and to promote the
development of, and to regulate, the securities market are being exempted from
service tax.
(New entry at S. No. 51 of notification No.
25/2012-ST refers)
7.3
Services provided by Employees‟
Provident Fund Organisation (EPFO) to employees are being exempted from service
tax.
(New entry
at S. No. 49 of notification No. 25/2012-ST refers)
7.4
Services provided by
Biotechnology Industry Research Assistance Council (BIRAC) approved
biotechnology incubators to the incubatees are being
exempted
from service tax.
(Amendment in notification No.
32/2012-ST refers)
7.5
Services provided by National Centre for Cold Chain
Development under
Department of Agriculture, Cooperation and Farmer‟s Welfare, Government
of India, by way of knowledge dissemination are being exempted from service
tax.
(New
entry at S. No. 52 of notification No. 25/2012-ST refers)
7.6
Services provided by Insurance
Regulatory and Development Authority (IRDA) of India are being exempted from
service tax.
(New
entry at S. No. 50 of notification No. 25/2012-ST refers)
7.7
Services of general insurance business provided
under „Niramaya‟ Health
Insurance scheme launched by National Trust for the Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in
collaboration with private/public insurance companies are being exempted from
service tax.
(New entry at S. No. 26(q) of
notification No. 25/2012-ST refers)
7.8
The threshold exemption limit of
consideration charged for services provided by a performing artist in folk or
classical art forms of music, dance
or
theatre, is being increased from Rs 1 lakh to Rs 1.5 lakh per performance.
( Notification No.09/2016-ST,
dated 1st March 2016 refers)
7.9
Services provided by way of
skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana
training partners are being exempted from service tax.
(New
entry at S. No. 9D of notification No. 25/2012-ST refers)
7.10
Services of assessing bodies
empanelled centrally by Directorate General of Training, Ministry of Skill
Development & Entrepreneurship are being exempted from service tax.
(New
entry at S. No. 9C of notification No. 25/2012-ST refers)
7.11
Services by way of construction,
erection etc. of a civil structure or any other original works pertaining to
the “In-situ Rehabilitation of existing slum dwellers using land as a resource
through private participation” component of Housing for All (HFA) (Urban)
Mission / Pradhan Mantri Awas Yojana (PMAY), except in respect of such dwelling
units of the projects which are not constructed for existing slum dwellers, is
being exempted from service tax.
(New entry at S. No. 13 (ba) of
notification No. 25/2012-ST refers)
7.12
Services by way of construction,
erection etc., of a civil structure or any other original works pertaining to the
“Beneficiary-led individual house construction / enhancement” component of
Housing for All (HFA) (Urban)
Mission/ Pradhan Mantri Awas Yojana (PMAY) is being exempted from
service tax.
(New entry at S. No. 13 (bb) of
notification No. 25/2012-ST refers)
7.13
Services by way of construction,
erection, etc., of original works pertaining to low cost houses up to a carpet
area of 60 sq.m per house in a housing project approved by the competent
authority under the “Affordable housing in partnership” component of PMAY or
any housing scheme of a State
Government
are being exempted from service tax.
(new
entry at S. No. 14 (ca) of notification No. 25/2012-ST refers)
7.14
Services provided by the Indian
Institutes of Management (IIM) by way of 2 year full time Post Graduate
Programme in Management(PGPM) (other than executive development programme),
admissions to which are made through Common Admission Test conducted by IIMs, 5
year Integrated Programme in Management and Fellowship Programme in Management
are being exempted from service tax.
7.15
It has
been informed by
Secretary, Ministry of
Human Resource
Development (MHRD) vide letter D. O. No.2-14/2009-TS.V dated 8th July, 2014 and 5th February, 2014 that MHRD is
vested with the power to
recognise educational courses [DoPT O.M. dated 08.01.1975], for the
purpose of recruitment to posts under Government of India. It has been further
stated by MHRD in their above mentioned letters that IIMs have been conducting
Post Graduate Programmes in Management and Fellowship Programmes which are
equivalent to MBA and Ph.D degrees. It has been reiterated by Secretary, MHRD
vide letter D.O. 3/5/2013-TS.V dated 15.1.2016 that the IIMs have been
conducting Post Graduate Programmes in Management and Fellowship Programmes
which are equivalent to MBA and Ph.D degrees, respectively, (as also clarified
by associations like Association of Indian Universities, Inter –University
Board of India etc.). In view of this, the exemption being given to the above
programmes of IIMs is clarificatory in nature and in view of the same,
liability to pay service tax in respect of the said programmes for the past
period will also become infructuous.
(New entry at S. No. 9B of notification No. 25/2012-ST refers)
The above changes in notification No. 25/12-ST, except the change
mentioned in para 7.11, 7.12, 7.13 and 7.14 (which will come into effect from 1st March, 2016), shall come into
effect from the 1St day of April 2016.
8. New entries being incorporated
in notification No. 25/2012-ST, to continue exemption to certain activities
that are presently covered by the Negative List entries which are being
omitted:
8.1
Services by way of transportation
of goods by an aircraft from a place outside India up to the customs station of
clearance in India were in negative list of services [clause (p)(ii) of section
66D]. As this entry is proposed to be omitted through the Finance Bill
2016[para 4.1(C) above refers], the said service is being exempted by amending
notification No.25/2012-ST.
(New
entry at S. No 53 of notification No. 25/2012-ST refers)
8.2
Services by a stage carriage were
in the negative list of services [clause (o)
(i)
of section 66D]. As this entry is
proposed to be omitted through the Finance Bill 2016 [para 4.2 above refers], a
new entry is being inserted in
notification No.25/2012-ST so as to exempt services by a stage carriage
other than air conditioned stage carriage
(New entry at S. No. 23(bb) of
notification No. 25/2012-ST refers)
These changes shall be made
effective from 1st of June, 2016.
9.
Abatements:
9.1
In cases where the tour operator
is providing services solely of arranging or booking accommodation for any
person in relation to a tour, abatement of 90% is available with specified
conditions. However, this abatement of 90% cannot be claimed in such cases
where the invoice, bill or challan issued by the tour operator, in relation to
a tour, only includes the service charges for arranging or booking
accommodation for any person and does not include the cost of such
accommodation. There is no change in the rate of abatement or the conditions
required to be fulfilled for claiming the said abatement.
(Entry at S. No. 11(i) of
notification No. 26/2012-ST as amended vide
notification No. 8/2016-ST dated
1.03.2016 refers)
9.2
Abatement rates in respect of
services by a tour operator in relation to a tour other than in para 9.1 above,
is being rationalised from 75% and 60% to 70%. Consequently, the definition of “package
tour” as provided in the relevant notification is being omitted.
(Amendment
in entry at S. No. 11 of notification No. 26/2012-ST refers)
9.3
Services provided by foreman to a
chit fund under the Chit Funds Act, 1982 are proposed to be taxed at an abated
value of 70% [i.e., with abatement of 30%], subject to the condition that
Cenvat credit of inputs, input services and capital goods has not been availed.
(Amendment
in entry at S. No. 8 of notification No. 26/2012-ST refers)
9.4
At present, there is abatement of
60% on the gross value of renting of motor-cab services, provided no cenvat
credit has been taken. It is being made clear by way of inserting an
explanation in the notification No. 26/2012-ST that cost of fuel should be
included in the consideration charged for providing renting of motor-cab services
for availing the abatement.
(Insertion
of Explanation ‘BA’ in notification No. 26/2012-ST refers)
9.5
At present, two rates of
abatement have been prescribed for services of construction of complex,
building, civil structure, or a part thereof,- (a) 75% of the amount charged in
case of a residential unit having carpet area of less than 2000 square feet and
costing less than Rs 1 crore, and (b) 70% of the amount charged in case of
other than (a) above, both subject to fulfilment of certain conditions
prescribed therein. A uniform abatement at the rate of 70% is now being
prescribed for services of construction of complex, building, civil structure,
or a part thereof, subject to fulfilment of the existing conditions.
(Amendment
in entry at S. No. 12 of notification No. 26/2012-ST refers)
9.6
At present, service tax is
leviable on 30% of the amount charged for the service of transport of
passengers by rail, without cenvat credit of inputs, input services and capital
goods. Thus, abatement of 70% is presently available in respect of the said
services. It is proposed to continue with the same level of abatement with
cenvat credit of input services for the said service.
(Amendment
in entry at S. No. 3 of notification No. 26/2012-ST refers)
9.7
At present, service tax is
payable on 30% of the value of service of transport of goods by rail without
cenvat credit on inputs, input services and capital goods. Thus, abatement of
70% is presently available in respect of the said service. It is now proposed
to continue with the same level of abatement with cenvat credit of input
services for transport of goods by rail (other than “transport of goods in
containers by rail by any person other than Indian Railway”). A reduced
abatement rate of 60% with credit of input services is being prescribed for
transport of goods in containers by rail by any person other than Indian
Railway.
(Existing
entry at S.No. 2 and new entry at S. No. 2A of notification No.
26/2012-ST refers)
9.8
At present, service tax is
leviable on 30% of the value of service of transport of goods by vessel without
Cenvat credit on inputs, input services and capital goods. Thus, abatement of
70% is presently available in respect of
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the said service. It is now proposed to continue with the same level of
abatement with cenvat credit of input services for the said service.
(Amendment in entry at S. No. 10
of notification No. 26/2012-ST refers)
9.9
Abatement on transport of used
household goods by a Goods Transport Agency (GTA) is being rationalised at the
rate of 60% without availment of cenvat credit on inputs, input services and
capital goods by the service provider (as against abatement of 70% allowed on
transport of other goods by GTA).
(New
entry at S. No. 7A in notification No. 26/2012-ST refers)
The
proposed rationalization in abatements shall come into effect from the 1st day of April, 2016.
10.
Reverse
Charge Mechanism
10.1
In Union Budget, 2015, as a
policy decision to prune exemptions, the exemption to services provided by mutual
fund agents/distributors to an asset management company was withdrawn. However
these services were put under reverse charge liability, i.e., the Asset
Management Company was made liable to pay service tax for the services received
from such agents/distributors. Services provided by mutual fund
agents/distributor to a mutual fund or asset management company are being put
under forward charge, i.e. the service provider is being made liable to pay
service tax. The small sub-agents down the distribution chain will still be
eligible for small service provider exemption [threshold turnover of Rs 10
lakh/year] and a very small number will be liable to
pay service tax. Accordingly, Rule 2(1)(d)(EEA) of
Service Tax Rules, 1994 making service recipient, that is, mutual fund or Asset
Management Company as the person liable for paying service tax is being deleted
along with consequential changes in notification No. 30/2012-ST.
10.2
The liability to pay service tax
on any service provided by Government or a local authority to business entities
shall be on the service recipient.
Consequently, notification No. 30/2012-ST is being
amended so as to delete the words „by way
of support services‟ appearing at Sl. No. 6 of the Table in the said
notification with effect from 1st April, 2016. Further, 1st April, 2016 is being notified as the date from which the words „by way of support services‟ shall stand deleted from paragraph 1, clause A
(iv), item (C) of notification No.
30/2012-ST.
The above
changes shall come into effect from the 1St day of
April 2016.
11.
Service
Tax Rules
11.1
The concept of One Person Company
(OPC) in India was introduced through the Companies Act, 2013 to support
entrepreneurs who on their own are capable of starting a venture by allowing them
to create a single person economic entity with limited liability. One person
Company has been defined in Section 2(62) of the Companies Act, 2013. The
benefits of (a) quarterly payment of service tax and (b) payment of service tax
on receipt basis, which are available to individual and partnership firms, are
being extended to One Person Company (OPC) whose aggregate value of services
provided is up to Rs. 50 lakh in the previous financial year. Further, the
benefit of quarterly payment of service tax is also being extended to HUF. Rule
6 of the Service tax Rules, 1994, which deals with the payment of service tax
and prescribes relaxation for individual or proprietary firm or partnership
firm, is being amended accordingly.
11.2
Rule 2(1)(d)(i) (D)(II) is being
modified so that legal services provided by a senior advocate shall be on
forward charge.
(Notification
No. 19/2016-ST dated 1.03.2016 refers)
11.3
The service tax liability on
single premium annuity (insurance) policies is being rationalised and the effective
alternate service tax rate (composition rate) is being prescribed at 1.4% of
the total premium charged, in cases where the amount allocated for investment
or savings on behalf of policy holder is not intimated to the policy holder at
the time of providing of service. Amendments are being made in rule 7A of Service Tax Rules, 1994
accordingly.
11.4
At present, support services
provided by Government or local authorities to business entities are taxable
under reverse charge mechanism that is the liability to pay service tax on such
services is on the service recipient. With effect from 1st April, 2016, any
service (and not only support
services) provided by Government or local
authorities to business entities shall be taxable. Consequently, 1st April, 2016 is being notified as
the date from which the word “support” shall stand deleted from rule
2(1)(d)(i) (E) of Service Tax Rules, 1994 so as to
provide that the liability to pay service tax on any service provided by
Government or local authorities to business entities shall also be on the
service recipient on reverse charge basis.
11.5
Recipient of services availed
from foreign shipping line by a business entity located in India will get taxed
under reverse charge at the hands of the business entity. (No fresh provision
is being made in this regard, as it is already covered by Place of Provision of
Service Rules.)
11.6 Technical amendment to rule 6 (4)
Rule 6(4) is being amended so as to substitute the
reference to the Central Excise (No. 2) Rules, 2001, with a reference to the
Central Excise Rules, 2002.
The above changes, except the changes mentioned in para 11.5 (which will
come into effect from 1st June, 2016), shall come into effect from the 1St day of April 2016.
12.
The Pont of Taxation Rules (POTR).
The Point of Taxation Rules, 2011 have been framed under provisions of
clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is
also being obtained under section 67A to make rules regarding point in time of
rate of service tax. Thus, any doubt about the applicability of service tax rate or apparent contradiction between section 67A and POTR would be
taken care of. Therefore, consequent modifications have been done in POTR.
(a)
Rule 5 of POTR applies when a new
service comes into the service tax net. Although in the case of new levy,
provisions of Chapter V of the Finance Act, 1994, and rules made thereunder,
are invariably made applicable in relation to the levy and collection of the
new levy. However, doubts have been raised regarding its applicability in case
of new levy. Therefore, an Explanation
is being inserted in Rule 5 stating that the same is applicable in case of new
levy on services.
(b)
Further, in rule 5 of POTR, it is
provided that in two specified situations the new levy would not apply.
Another Explanation is being inserted
therein stating that in situations other than those specified where new levy or
tax is not payable, the new levy or tax shall be payable.
The above changes shall come into effect from 1st March, 2016.
13.
Cenvat
Credit Rules, 2004
With a view to simplify and rationalize the Cenvat Credit Rules, 2004, a
number of amendments are being carried out in them. The important changes have
been discussed in brief in Annexure-II.
14.
Rationalisation
Interest rates on delayed payment of duty/tax across all indirect taxes
is proposed to be made uniform at 15%, except in case of service tax collected
but not deposited with the Central Government, in which case the rate of
interest will be 24% from the date on which the service tax payment became due.
Notifications under section 73B and section 75 of the Finance Act,
1994 are being issued accordingly.
(Notification
Nos. 13 and 14/2016-ST dated 1st March, 2016 refer)
In case of assessees, whose value of taxable services in the preceding
year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest
on delayed payment of service tax will be 12%.
(Notification Nos. 13 and 14/2016-ST dated 1st March, 2016 refer)
15.
Certain
issues clarified:
15.1 Incentives received by air travel agents from computer reservation
system companies (CCRS)
15.1.1 High Level Committee (HLC) in their Second Half Yearly Report in
December 2015 have stated that Air Travel Agents (ATA) reportedly have been
representing to CBEC since 2012 for a clarification about levy of service tax
on the incentives received by them from the Companies providing Computer
Reservation System (CCRS) like Galileo, Amadeus, etc. The CCRS do not charge
any amount for providing access to their internet system for booking of air
tickets by the ATAs. Rather, the CCRS are providing certain incentives either
for achieving the targeted booking of air tickets or for loyalty for booking of
air tickets using their software system.
15.1.2
It is clarified that incentives
received by the Air Travel Agents (ATAs) from the Companies providing Computer
Reservation System (CCRS) are for using the software and platform provided by
the CCRS like Galileo, Amadeus, etc. The CCRS are providing these incentives
either for achieving the targeted booking of air tickets or for loyalty for
booking of air tickets using their software system. Thus, the service provided
by CCRS is to the Airlines and Air Travel Agent is promoting the service
provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is
neither covered in the negative list (Section 66D of the Finance Act, 1994) nor
exempt by a notification. Therefore, service tax is leviable on the same.
15.2
Services provided by government or local authorities to business
entities;
Finance Act, 1994 was amended vide Finance Act, 2015 so as to make any
service (and not only support services) provided by Government or local authorities to business entities taxable from a date to be notified
later. 1st April, 2016 has already been notified as the date from which any
service provided by Government or local authorities to business entities shall
be taxable. Consequently, 1st April, 2016 is also being notified as the date from which the
definition of support services shall stand deleted from the Finance Act, 1994
[notification No. 15/2016-ST
dated refers].
15.3 Services provided by
Container Train Operators (CTOs)
As discussed above, notification No. 26/2012-ST is being amended to
provide that transport of goods by rail (other than transport of goods in
containers by any person other than Indian Railway) shall be eligible for
abatement at the rate of 70% with credit of input services. Transport of goods
in containers by any person other than Indian Railway shall be eligible for
abatement at the rate of 60% with credit of input services.
It is hereby also clarified that service provided by the Indian Railways
to Container Train Operators (CTOs) of haulage of their container train (rake
of wagons with containers) is a service of „Transport of Goods by Rail‟ and is,
therefore, eligible for abatement and tax treatment accordingly, that is, for
abatement at the rate of 70% with credit of input services.
15.4
Refund of
CENVAT Credit
Notification No. 27/2012 – C.E. (N.T.) is being amended so as to provide
that time limit for filing application for refund of Cenvat Credit under Rule 5
of the Cenvat Credit Rules, 2004, in case of export of services, shall be 1
year from the date of –
(a)
receipt of payment in convertible
foreign exchange, where provision of service has been completed prior to
receipt of such payment; or
(b)
the date of issue of invoice,
where payment for the service has been received in advance prior to the date of
issue of the invoice.
[Notification
No. 14/2016-CE(NT) dated 01.03.2016
refers].
15.5
Indirect
tax Dispute Resolution Scheme, 2016
Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in
respect of cases pending before Commissioner (Appeals), the assessee, after
paying the duty, interest and penalty equivalent to 25% of duty, can file a
declaration, is being introduced. In such cases the proceedings against the
assessee will be closed and he will also get immunity from prosecution.
However, this scheme will not apply in certain specified type of cases.
15.6 Returns.
Service tax assessees above a certain threshold will also be required to
file an annual return. This change shall come into effect from 1st April, 2016.
15.7 Services provided by institutes of language
management (ILMs)
15.7.1High Level Committee (HLC)
on Tax Laws in its IInd Half Yearly Report has observed that Institutes of
Language Management (ILMs) are engaged by various schools/institutions to
develop knowledge and language skills of students. Since the ILMs are providing
coaching/teaching to the students in a school or college, as a part of a
curriculum for obtaining a qualification recognized by any law for the time
being in force it should be clarified that the services provided by ILMs are
not liable to service tax.
15.7.2The matter has been
examined. The services provided by the ILMs are not covered by Section 66D (l)
of the Finance Act, 1994 or Entry 9 of Notification No. 25/2012 - ST as they
are not providing pre-school education or education up to higher secondary
school (or equivalent) or education for obtaining a qualification recognized by
law. It is the schools/colleges/institutions (in which the students take
admissions) which provide such education. The ILMs provides services to such
educational institutions, which helps such educational institutions in
providing services specified in the negative list. Thus, it is clarified that
services provided by
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of 38
the Institutes of Language Management (ILMs) are not eligible for
exemption under Section 66D (l) of the Finance Act, 1994 or under Sl. No.
9 of
Notification No. 25/2012-ST.
16.
General
16.1
Changes explained above are not
intended to be exhaustive and are meant only to draw attention to major
changes. The text of the statutory provisions and the wordings of the
notifications should be read carefully for interpreting the law.
16.2
Field formations are requested to
go through the changes made in the Budget carefully. Any issues or doubts which
may arise or any omission/error observed may kindly be brought to the notice of
the undersigned or Shri Ram Tirath, Member(Budget), Phone No. 011-23094788, Dr.
Somesh Chander, Director at somesh.chander@nic.in, Ph. 011-23095522, or Shri Pramod Kumar, OSD (TRU) at pramodkumar.dor@nic.in, Ph. 011-23092274, as soon as possible.
16.3
Despite best efforts it is but
human to make some errors and omissions in the drafting of various provisions.
I shall be extremely thankful if you could either inform me or my colleagues of
such inadvertent errors as soon as possible. You may also inform about any
operational, administrative or any other difficulty faced or anticipated in the
implementation of the new proposals either by the trade or by the field
formations.
16.4
I would like to express my
gratitude for the pre-budget suggestions and inputs which have been received
from field formations. I would like to say a special thank you to the Director and
Officer on Special Duty who have very diligently carried through the budgetary
process. I would be found wanting if I do not thank the three Technical
Officers, Dr Abhishek Chandra Gupta, Dr. Ravinder Kumar and Shri Abhishek Verma, who put in
their best.
With
regards,
Yours
sincerely,
(Amitabh
Kumar)
COMMENTS