Documenti di Didattica
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on Service Tax
[For Private Circulation]
Finance Minister, Mr. Pranab Mukharjee, has privileged to present his third (lucky
number) consecutive budget for year 2011 – 2012 and 80 th budget of Independent India
on 28-02-2011. This year budget proposals were set the grounds of the much awaited
Goods and Service Tax (GST), by bringing more goods and services in the tax net and
removing certain exemptions. In line with this new regime viz. GST, the budget has
brought 130 new items under Excise coverage and 240 items are still excluded and would
be covered on the rollout of GST. Rate of Service tax and Excise duty remains unchanged
to 10%.
It is proposed to introduce two new services in the gamut of taxable services from a date
to be notified after the enactment of Finance Bill, 2011 as under:
The levy is intended to be confined to the value of services contained in the composite
contract and shall not cover either the meal portion in the composite contract or mere
sale of food by way of pick up or home deliveries. Meal portion or sale of food in the
composite contract also attracts Local VAT. Further, Finance Minister has announced
in his speech that 70% abatement on this service, which means service tax would be
attracted on such portion which relates to deemed sale of meal and beverages.
Notification of the same would be issued when the levy is operationalized after the
enactment of the Finance Bill.
Finance Minister has announced in his speech that only those Hotels or Inn’s who’s
declared tariff is in excess of Rs. 1,000 per day. Further an abatement of 50% on the
declared tariff is announced. Notification of the same would be issued when the levy
is operationalized after the enactment of the Finance Bill.
It appears that even if Hotel or Inn whose declared tariff is more than Rs. 1,000 but
charges to client, less than Rs. 1,000, even than service tax would be attracted on the
declared tariff. Moreover, it is felt that Centre is transgressing in to the tax territory
reserved for the State by proposing levy of service tax on Hotel accommodations. At
present Hotels are paying Luxury tax and Local VAT.
Existing Provision:
Any repair, reconditioning or restoration services of Motor Cars, Light Motor Vehicles
[LMV] or two wheeled motor vehicles provided by Authorized Service Stations were
covered within the ambit of Service Tax.
Effect of amendment:
Any person whether authorized service station or not, providing services of repairs,
reconditioning or restoration or decoration or any other similar services carried out
for Motor Vehicle other than goods carriage would now under Service tax purview.
Proposed Provisions:
The taxable service definition has been amended radically. It is proposed to cover
services provided by Clinical establishments, diagnostic centers and services provided
by a doctor from clinical establishments for diagnosis, treatment or care for illness,
disease, injury, deformity, abnormality or pregnancy in any system of medicine.
Proposed Provisions:
Scope of the services has been expanded so as to cover services provided by Club or
Association to non members within its ambit.
Effect of amendment:
Contribution made by the non-members to Club or Association at the time of
obtaining membership. Moreover, number of clubs allows non-members to use their
facilities in their own capacity for a separate charge. Further, Clubs also entertain
members of other affiliated clubs. All such services to non members would now be
covered under the service tax net.
Proposed Provisions:
In order to correct such anomaly between recognized colleges and parallel colleges, it
is proposed to amend the definition of commercial coaching or training centre as
provided in Section 65(105)(27) so as to cover within its ambit all training centers or
institutes whether recognized or unrecognized by law, including pre school coaching
and training. However, it has been clarified that suitable exemption will be given after
the enactment of the Finance Bill to preschool coaching and training and to coaching
or training relating to educational qualifications that are recognized by law.
Effect of amendment:
All commercial training or coaching center’s whether recognized or not would be
under service tax purview.
Effect of amendment:
It is evident that now day business organizations out source their certain operational
and administrative functions to outsiders for a fee or charge and now such services
would be under service tax purview. It may so happen that certain services already
taxed under any other head of more specific description. The correct classification will
continue to be governed by Section 65A.
Proposed Provisions:
In order to provide level playing field, it is proposed to tax not only insurance
premium but also portion of premium which kept aside for investment from the total
premium received from the policy holders. Insurance companies have been given an
option to discharge service tax liability at composition rate, which has been enhanced
from 1% to 1.5% of the gross amount of premium charged from a policy holder. Such
option shall not be available in cases where the entire premium paid by the policy
holder is only towards risk cover in life insurance. [Rule 6(7A) of the Service tax Rules,
1994]
Proposed Provisions:
It is proposed to expand the scope of legal services to bring with in its ambit:
i. Service provided by a business entity to any person, in relation to advice,
consultancy or assistance in any branch of law, in any manner;
ii. Services provided by any person to any business entity in relation to
representational services before any court, tribunal or authority. Representational
services provided to individuals are continued to be out of service tax purview.
iii. Arbitration services provided to any business entity by an arbitral tribunal.
Arbitrational services provided to individuals are out of the service tax purview.
Arbitration pursuant to Section 2(a) of the Arbitration and Conciliation Act, 1996
means “any arbitration whether or not administered by permanent arbitral institution”.
Arbitral Tribunal pursuant to Section 2(d) of the Arbitration and Conciliation Act,
1996 means “a sole arbitrator or a panel of arbitrators.”
c. Procedural changes:
Existing scheme relating to compliance has been proposed for a total revamp with a view
to strike a healthy balance between the interest of the revenue and legitimate business
and to promote voluntary compliance. This philosophy is based on the following
principal’s:
(i) Improve voluntary compliance by encouraging self correction, wherever the
deviations are unintentional omissions;
(ii) Reduced penalties may be imposed if the transactions are captured fully and
truthfully in records and further abated if timely admission and payment is made;
(iii) Intentional and unrecorded violations should be dealt with severely with no
concessions whatsoever.
AYG & ASSOCIATES - Chartered Accountants Budget 2011 - Analysis Page 11
These procedural changes would be applicable from a date to be notified after the
enactment of Finance Bill, 2011.
1. Late filing fees for furnishing half yearly service tax return:
Every person who is liable pay the service tax shall himself assesess the tax due on
the services provided by him and furnish the same on or before 25 th of the following
month from the end of the relevant half year. In case if assessee furnish return
beyond due date, he is required to pay late filing fees. However such late filing fees
should not be more than Rs. 2,000. It is proposed to enhance such late filing fees to
Rs. 20,000.
6. Penalty for contravention of rules and provisions of Act for which no penalty is
prescribed elsewhere: [Section 77]
It is proposed to enhance the penalty amount from existing Rs. 5,000 wherever occur
to Rs. 10,000.
However, if true and complete details of the transactions are available in the
specified records, penalty shall be equivalent to 50% of service tax so not levied or
paid or short levied or short paid. Further, if such taxes, interest and penalty are paid
within 30 days from the communication of the order, the penalty would be further
reduced and 25% of such taxes have to be paid by way of penalty. Relaxation has
been provided to service provider whose taxable services provided does not exceeds
Rs. 60 Lacs during any of the years covered under the notice or during the last
preceding financial year, such penalty to be paid within 90 days from the
communication of order, instead of 30 days.
It is explicitly made clear that if penalty is payable under section 78, penalty
prescribed under section 76 would not be applicable.
10. Application of certain provisions of Central Excise Act, 1944 [Section 81]
Certain sections of Central Excise Act, 1944 is also applicable in Service Tax. It is
proposed to insert 6 (six) more sections of Central Excise Act as under:
Section Particulars
9A Certain offence to be non-cognizable
9AA Offence by Companies
9B Power of Court to publish name, place of business etc of persons
convicted under the Act.
9E Application of Section 562 of the Code of Criminal Procedure 1898 and
It is explicitly made clear that determination of special and adequate reasons for
awarding a sentence of imprisonment for a term of less than 6 months, following
reason would not be considered:
i. Accused has been convicted for the first time;
ii. In proceedings, other than offence, accused has been ordered to pay a penalty or
any other action has been taken against him for the same act;
iii. Accused was not the principal offender and was acting as a secondary party in the
commission of offence;
iv. Age of the accused.
The sanction for the prosecution will have to be granted by Chief Commissioner of
Central Excise.
Sub rule (1) has been amended so as to provide that payment of service tax to be
made when service is deemed to be provided as per the rules framed under POTR
2011. Similar amendment made in the provisos. In other words, tax has to be
discharged on (i) provision of service; or (ii) issuance of invoice; or (iii) receipt of
payment, whichever is earlier.
Sub rule (3) has been amended so as to provided that when an invoice has been
issued or a payment received for a service which is not subsequently provided, the
assessee may take the credit of the service tax earlier paid when the amount has
been refunded by him to the recipient or by the issue of credit note, as the case may
be.
Adjustment of excess amount of tax paid pursuant to sub rule (4B) was Rs. 1 Lacs
has been enhanced to Rs. 2 Lacs.
New sub rule (6A) has been inserted so as to provide that if an amount of service tax
has been self assessed at the time of filing of half yearly return, but not paid, either
III. Works Contract (Composition Scheme for payment of Service Tax), Rules 2007
Amendment have been carried out in Works Contract (Composition Scheme for
payment of Service Tax), Rules 2007 by introducing Works Contract (Composition
Scheme for payment of Service Tax) Amendment Rules, 2011 with effect from 01-03-
2011 [Notification No. 1/2011 – dated 01-03-2011] as under:
New sub rule (2A) has been inserted so as to restrict the Cenvat Credit to 40% of the
tax paid on services relating to Erection, Commissioning & Installation (zzd);
Commercial or Industrial Construction (zzq); Construction of Residential Complex
(zzzh), in cases where tax has been paid in full value of the services after availing
Cenvat Credit on inputs i.e. without availing exemption Notification No. 1/2006
dated 01-03-2006. This provision has been introduced to ensure that the credit on
inputs is not availed of indirectly while availing of the composition scheme.
New Rule (2B) has been inserted to determine the value of services rendered in
relation to money changing. Taxable value of such services would be equal to the
difference in the buying or selling rate, as the case may be, and the RBI reference rate
ii. Revision in the rate of tax in respect of travel by air services. These new rates
would be effective from 01-04-2011 as under: [Notification No. 4/2011 – dated
01-03-2011]
vi. Exemption has been given to air craft operator, in relation to transport of goods
by air craft, from value of taxable services an amount equal to the amount of air
freight included in the value determine under section 14 of the Custom Act for
the purpose of charging custom duties with effect from 01-04-2011 [Notification
No. 9/2011 – dated 01-03-2011]
vii. Exemption has been provided to service provider for execution of works under
Works Contract Services when provided wholly within Air port, from whole of
service tax with effect from 01-03-2011 [Notification No. 10/2011 – dated 01-03-
2011]
viii. Exemption has been provided to service provider for execution of works
under Works Contract Services when provided wholly within port or other port
ix. Rate of interest on delayed payment of service tax has been enhanced from 13%
p.a.to 18% p.a. with effect from 01-04-2011 [Notification No. 14/2011 – dated 01-
03-2011] Similarly rate of interest on amount collected in excess pursuant to
section 73B has also been enhanced from 13% p.a. to 18% p.a. with effect from 01-
04-2011 [Notification No. 15/2011 – dated 01-03-2011]
x. Exemption by way of abatement of 25% from the taxable value being provided in
respect of services rendered in relation to “transport of coastal goods”, “goods
transported through “national waterways” or “inland water ways” with effect
from 01-03-2011 [Notification No. 16/2011 – dated 01-03-2011]
a. The point of taxation in case of continuous supply of service will be the date on
which payment is liable to be made periodically or from time to time, as
prescribed in the contract.
b. If any payment is received or any invoice is issued before the period mentioned in
the contract, then the point of taxation will be the date on which payment is
received or the date of which invoice is issue, which ever is earlier.
c. In case of import of service under section 66A, the point of taxation will be the date
on which payment is made or the date on which invoice is received, which ever is
earlier.
added to the list containing immovable property related services in Rule 3(1)(i). The
said service introduced from 01-07-2010 was covered by Rule 3(1)(iii) having a
property.
(ii) Categories of rail travel agent and health check-up or preventive care are shifted
from the recipient based criterion in Rule 3(1)(iii) to performance based criterion in
Rule 3(1)(ii). Thus, these services will be considered exported only if they are
(iii) Categories of credit rating agency, market research agency, technical testing or
analysis, transportation of goods by air, goods transport agency, opinion poll and
transport of goods by rail are shifted from performance based criterion in Rule
3(1)(ii) to recipient based criterion in Rule 3(1)(iii). These services therefore would be
Identically, Import Rules are also amended by regrouping the above stated services
Similarly, in case of a service provider provides any taxable services along with
indulge in sale and purchase of goods i.e. trading activity, it is clarified the he can
avail the credit by taking in to consideration the profit earned from such trading
activity. This amendment is in line with the observation held be Tribunal in Orion
Appliances Ltd. – 2010 (19) STR 205 (Tri – Ahem).
(i) all goods used in the factory by the manufacturer of the final product; or
(ii) any goods including accessories, cleared along with the final product, the value
of which is included in the value of the final product and goods used for
providing free warranty for final products; or
(iii) all goods used for generation of electricity or steam for captive use; or
(iv) all goods used for providing any output service;
but excludes-
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
(B) any goods used for-
(a) construction of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of any taxable service specified in sub-clauses (zn),
(zzl), (zzm),(zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance
Act;
(C) capital goods except when used as parts or components in the manufacture of a
final product;
Following are the important changes when compared with the existing definition of
“input”
At present, it was a mandatory requirement to qualify any goods as Input; it
has to be used in or in relation to manufacture of final products whether
directly or indirectly. Now under amended definition it provides that such
goods have to be used in the factory. Thus all goods used by the manufacturer
of final product in the factory shall be covered with in definition of Input.
All goods used for generation of electricity or steam being used for captive
consumption have specifically been included in the said definition.
There is no change in the eligibility of goods used for providing output
services.
Specifically excluded goods used for construction of building or civil structure
or laying foundation for making of structure for support of capital goods
except for the provision of certain specified taxable services such as Port (zn),
Other Port (zzl), Airport (zzm), Commercial or Industrial Construction Services
(zzq), Construction of Complex Services (zzzh) and Works Contract Services
(zzzza).
Motor Vehicle exclusion is applicable to service provider as well as
manufacturer.
Specific exclusion of any goods, such as food items, goods used in a guest
house, residential colony, club or recreation facility and clinical establishment,
Certain specified services are categorically excluded viz. Architect (p), Port (zn),
Other Port (zzl), Airport (zzm), Commercial or Industrial Construction (zzq),
Residential Complex Service (zzzh), Works Contract Services (zzzza), not to be
treated as “Input Services” if they are used for –
(i) Construction of building or Civil Structure or part thereof; or
(ii) Laying foundation or making of structures for support of capital goods.
Certain specified services are categorically excluded viz. General Insurance (d),
Rent-a-cab (o), Authorized Service Station (zo) and Supply of tangible goods service
(zzzj), not to be treated as “Input Service” if they relate to Motor Vehicle. However,
said exclusion shall not be applicable if the said motor vehicle is used for providing
taxable service and the same is treated as capital goods.
b. In sub rule (1) after clause (vii) a proviso has been inserted so Cenvat Credit shall
not be allowed in excess of 80% of the additional duty of customs (CVD) paid under
section 3(1) of Custom Tariff Act on Ships, boats, and other floating structure for
breaking up falling under tariff item 8908 00 00 of the First Schedule to Custom
Tariff Act. This proviso is applicable from 01-03-2011.
c. In sub rule (4) a proviso has been inserted so Cenvat Credit shall not be utilized for
payment of any Excise duty on goods in respect of which benefit of exemption
under notification no. 1/2011 – CE dated 01-03-2011 is availed. This proviso is
applicable from 01-03-2011.
d. In sub rule (5) a proviso has been inserted so as to provide that payment is not
required to be made where any inputs are removed outside the factory for providing
free warranty for final products. This proviso is applicable from 01-03-2011.
b. Sub rule 7 provides that Cenvat Credit with respect of “Input Service” is eligible on
payment basis. Proviso has been inserted to provide that in case any payment or
part thereof has been refunded on such services then the proportionate Cenvat
Credit availed on the same will have to be paid.
Major changes have been brought in this rule which are applicable from 01-04-2011 and
salient feature of the same are as under:
For the provision of output Yes For the provision of output Yes
service excluding exempted service excluding
services exempted services
e. New sub rule 3B is inserted for the service providers who are a banking company
and a financial institution including NBFC providing services under the category
of “Banking and Financial Services”. Such assessee .
f. New sub rule 3C is inserted for the service providers who are providing services
under Life Insurance and Management of ULIP services. Such assessee have to
reverse an amount equivalent to 20% of value availed on input and input services.
Further, such assessee need not have to follow any other provisions of Rule 6.
h. Amount mentioned in sub rules (3), (3A), (3B) and (3C) shall be paid by the
manufacturer of goods or the provider of output services by debiting to the Cenvat
Credit account or other wise on or before 5th of the following month / quarter.
When such payment relates to March, same should be paid on or before 31 st
March. If manufacturer or service provider fails to make such payment, it would
be recovered in the manner as provided in rule 14, for recovery of Cenvat credit
wrongly taken.