K. VAITHEESWARAN ADVOCATE & TAX CONSULTANT

Flat No.3, First Floor,

No.9, Thanikachalam Road,

T. Nagar,

Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com

www.vaithilegal.com

Finance Act 2015 had amended Section 66D(a) of the Finance Act, 1994 in order to substitute ‘support services’ with ‘service’.

However the amendment was to take effect from a notified date and the Government has notified the effective date as 01.04.2016.

Changes have been made to Service Tax Rules, 1994 as well as Notification No. 30/2012 w.e.f. 01.04.2016.

Originally when support services were provided by Government or local authority to business entities, the business entities were required to pay service tax under reverse charge mechanism.

With effect from 01.04.2016, in respect of services provided or agreed to be provided by Government or local authority to business entities, the business entities are required to pay service tax under reverse charge mechanism.

The earlier exclusions in respect of renting of immovable property / postal department for certain services / services in relation to aircraft or vessel, inside or outside the precincts of a port or an airport / transport of goods or passengers continue.

Scope widened from ‘support service’ to ‘service’.

Section 65B(26A) was introduced by Finance Act, 2015 w.e.f. 14.04.2015 to define ‘Government’.

Government means: Departments of the Central Government; A State Government and its Department; A Union Territory and its Departments; But shall not include any entity whether created by a Statute or

otherwise, the accounts of which are not required to be kept in accordance with Article 150 of the Constitution and the Rules made thereunder.

Article 150 of the Constitution of India provides that the accounts of the Union and of the States shall be kept in such form as the President may on the advice of the CAG prescribe.

Government Accounting Rules, 1990, framed for Government Departments under Article 150.

Section 65B(31) defines ‘Local Authority’ to mean: (a) a Panchayat referred to in Article 243(d) of the Constitution; (b) a Municipality referred to in Article 243P(e) of the Constitution; (c) a Municipal Committee and a District Board legally entitled to or

entrusted by the Government with, the control or management of a municipal or local fund;

(d) a Cantonment Board as defined in Section 3 of the Cantonments Act, 2006

(e) a regional council or a district council constituted under the Sixth Schedule to the Constitution;

(f) a development board constituted under Article 371 of the Constitution; or

(g) a regional council constituted under Article 371A of the Constitution;

Section 65B(17) defines “Business entity” to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.

Am I a Business Entity? Have I made payment to a Government or

local authority which is not by way of rent or for services referred to Section 66D(i),(ii) or (iii)?

Is the payment for services provided by the Government or local authority?

Is any exemption applicable for the said service?

Services by Government, Local Authority or Governmental Authority by way of any activity in relation to any function entrusted to a municipality under Article 243W. (Amendment to Entry 39).

Article 243W refers to State by law endowing municipalities with powers and authority in respect of preparation of plans for economic development and social justice and implementation of schemes entrusted to them including those in relation to matters listed in the twelfth schedule.

1. Urban planning including town planning. 2. Regulation of land-use and construction of buildings. 3. Planning for economic and social development. 4. Roads and bridges. 5. Water supply for domestic, industrial and commercial purposes. 6. Public health, sanitation conservancy and solid waste management. 7. Fire services. 8. Urban forestry, protection of the environment and promotion of ecological aspects. 9. Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded. 10. Slum improvement and upgradation.

11. Urban poverty alleviation. 12. Provision of urban amenities and facilities such as parks, gardens, playgrounds. 13. Promotion of cultural, educational and aesthetic aspects. 14. Burials and burial grounds; cremations, cremation grounds; and electric crematoriums. 15. Cattle pounds; prevention of cruelty to animals. 16. Vital statistics including registration of births and deaths. 17. Public amenities including street lighting, parking lots, bus stops and public conveniences. 18. Regulation of slaughter houses and tanneries.

Services provided by Government or a local authority to another Government or Local Authority is exempt from service tax, however, this is not applicable to services specified in Section 66D(a)(i),(ii) and (iii) – (Insertion of Entry 54)

Services provided by Government or Local Authority by way of issuance of Passport, Visa, Driving License, Birth Certificate or Death Certificate. (Insertion of Entry 55).

Services provided by Government or Local Authority where the gross amount charged for such services does not exceed Rs.5000/-. However, this is not applicable to services specified in Section 66D(a)(i),(ii) and (iii).

In case there is a continuous supply of service by the Government or Local Authority, the section shall apply only where the gross amount charged for such service does not exceed Rs.5,000/- in a Financial Year – (Insertion of Entry 56).

Services provided by Government or Local Authority by way of tolerating non-performance of a contract for which consideration in the form of fines or liquidated damages is payable to the Government or the Local Authority under such contract. - (Insertion of Entry 57).

Services provided by the Government or Local Authority by way of:

(a) registration required under any law for the time being in force; (b)testing, calibration, safety check or certification relating to protection or safety of workers, consumers or public at large required under any law for the time being in force. - (Insertion of Entry 58) Services provided by Government or Local Authority by way

of assignment of rights to use natural resources to an individual farmer for the purposes of agriculture. – (Insertion of Entry 59)

Services by Government, Local Authority or Governmental Authority by way of any activity in relation to any function entrusted to a Panchayat under Article 243G of the Constitution – (Insertion of Entry 60)

Article 243G refers to State by law endowing Panchayat with powers and authority in respect of preparation of plans for economic development and social justice and implementation of schemes entrusted to them including those in relation to matters listed in the eleventh schedule.

1. Agriculture including agricultural extension; 2. Land improvement, implementation of land reforms, land

consolidation and soil conservation; 3. Minor irrigation, water management and watershed

development. 4. Animal husbandry, dairying and poultry. 5. Fisheries. 6. Social forestry and farm forestry. 7. Minor forest produce. 8. Small scale industries, including food processing industries. 9. Khadi, village and cottage industries. 10. Rural housing. 11. Drinking water

12. r

12. Fuel and fodder. 13.Roads, culverts, bridges, ferries, waterways and other means of communication. 14. Rural electrification, including distribution of electricity. 15.Non-conventional energy sources. 16.Poverty alleviation programme. 17. Education, including primary and secondary schools. 18.Technical training and vocational education. 19.Adult and non-formal education. 20. Libraries. 21.Cultural activities. 22.Markets and fairs.

23. Health and sanitation, including hospitals, primary health centres and dispensaries. 24. Family welfare. 25. Women and child development. 26. Social welfare, including welfare of the handicapped and

mentally retarded. 27. Welfare of the weaker sections, and in particular, of the

Scheduled Castes and the Scheduled Tribes. 28. Public distribution system. 29. Maintenance of community assets.

Services provided by Government or a Local Authority by way of assignment of rights to use any natural resource where such right to use was assigned by the Government or the Local Authority before the 1st of April 2016; However the exemption shall apply only to service tax payable on one time charge payable, in full upfront or in installments, for assignment or right to use such natural resource. - (Insertion of Entry 61)

Services provided by Government or a Local Authority by way of allowing a business entity to operate as a telecom service provider or use radio frequency spectrum during the financial year 2015-16 on payment of licence fee or spectrum user charges, as the case may be; - (Insertion of Entry 62)

Services provided by Government by way of deputing officers after office hours or on holidays for inspection or container stuffing or such other duties in relation to import export cargo on payment of Merchant Overtime Charges (MOT); - (Insertion of Entry 63)

Taxes, Cesses or Duties levied are not consideration for any particular service as such and hence not leviable to service tax. These taxes, cesses or duties include excise duty, customs duty, service tax, State VAT, CST, Income Tax, Wealth Tax, Stamp Duty, Taxes on profession/ trade/ callings/ employment, octroi, Entertainment Tax, Luxury Tax and Property Tax.

Fines and penalty chargeable by Government or a Local Authority imposed for violation of a statute, bye laws or regulations are not liable to service tax.

Any activity undertaken by the Government or local authority against a consideration constitutes a service and the amount charged for performing such activities is liable to service tax. It is immaterial whether such activities are undertaken as a statutory or mandatory requirement under the law and irrespective of whether the amount charged for such service is laid down in a statute or not. As long as the payment is made (or fee charged) for getting a service in return (i.e. as a quid pro quo for the service received), it has to be regarded as a consideration for that service and taxable irrespective of by what name such payment is called. It is also clarified that service tax is leviable on any payment in lieu of any permission or license granted by the Government or local authority. However registration, testing etc. has been exempted.

Allocation or auction of natural resources to categories of persons other than individual farmers would be leviable to service tax.

Rule 6 of the Service Tax Valuation Rules 2006 provides for items which will be included or excluded in value and Rule 6(2) deals with exclusions.

Clause (iv) covers interest on delayed payment of any consideration for the provision of services or the sale of property whether movable or immovable.

Notification No.23/2016 dated 13.04.2016 has inserted a proviso to this clause to provide that this clause shall not apply to any service provided by Government or Local Authority to a business entity where payment for such service is allowed to be deferred on payment of interest or any other consideration.

Rule 7 Notification No.24/2016 dated 13.04.2016 has inserted a

fourth proviso as per which in case of services provided by the Government or Local Authority to any business entity, the point of taxation shall be the earlier of the dates on which

(a) any payment part or full, in respect of such service becomes due as specified in the invoice, bill, challan or any other document issued by the Government or Local Authority demanding such payment or

▪ (b) payment for such services is made.

Services provided by a Senior Advocate Originally in respect of all legal services, reverse charge mechanism was

applicable when the services are provided to business entities. Service Tax Rules amended whereby in respect of service provided or

agreed to be provided by a firm of advocates or an individual advocate other than a Senior Advocate by way of legal services, the business entity shall be liable to pay service tax.

Legal services of a senior advocate to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession is exempted.

Non-senior advocates / firms – services to law firms or advocate or any person other than a business entity or business entity upto Rs.10 lakhs turnover continues to be exempt.

Amendments stayed by various courts.

Services of a person represented on an Arbitral Tribunal to an Arbitral Tribunal taxable.

Earlier exemption through Notification No.25/2012 withdrawn from 01.04.2016.

Section 2(d) of the Arbitration and Conciliation Act, 1996 defines ‘Arbitral Tribunal’ to mean a sole arbitrator or a panel of arbitrators.

Concept of service Under the new Section 11(14), High Court is to frame Rules for

determination of fees of the Arbitral Tribunal. Sole Arbitrator ? On whom should the person represented on the arbitral tribunal charge

service tax?

Transportation of passengers with or without accompanied belongings by ropeway, cable car or aerial tramway is taxable.

Gulmarg Gondola, Manali Ropeway, Raigad Ropeway, Glenmorgan Ropeway, Srisailam Ropeway, etc.

Pre 01.07.2012 in respect of services provided by agent or distributors to MF or AMC, service tax was payable by MF or AMC.

Post 01.07.2012, services of agent or distributor to MF or AMC was exempted. Exemption withdrawn from 01.04.2015 and MF or AMC made liable under reverse

charge mechanism. Services by mutual fund agents / distributors to MF or AMC taxable from

01.04.2016. Commission accrues as on 31.03.2016 and is paid only after 01.04.2016. The Point of Taxation Rules amended vide Notification No.21/2016 dated

30.03.2016 by way of insertion of a third proviso to Rule 7 which reads as under: ‘Provided also that where there is change in the liability or extent of liability of a

person required to pay tax as recipient of service notified under sub-section (2) of Section 68 of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice.’

Services of assessing bodies empanelled centrally by the Directorate General of Training, Ministry of Skill Development by way of assessments under skill development initiative schemes.

Services provided by project implementation agencies under Deen Dayal Upadhyaa Grameen Koushalya Yojana under Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council for Vocational Training.

Service tax exemption in respect of service in relation to IT software leviable to service tax under Section 66B read with Section 66E where such IT software is recorded on a media which requires affixation of RSP under Legal Metrology Act subject to conditions.

Excise exemption in respect of media with recorded IT software on which there is no requirement to affix RSP under the Legal Metrology Act subject to conditions.

Services provided by an artist by way of a performance in folk or classical art forms of (i) music, or (ii) dance or (iii) theatre if the consideration charged for such performance is not more than one lakh and fifty thousand rupees is exempted from service tax. Limit increased from one lakh to one lakh and fifty thousand.

Services provided by Employees” Provident Fund Organisation (EPFO) to persons governed under the Employees” Provident Funds and Miscellaneous Provisions Act, 1952 is exempted.

Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 is exempted.

Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market is exempted.

Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge dissemination is exempted.

Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 is exempted.

Definition of capital goods now covers parts of wagon falling under sub-heading 8606 92.

Equipments or appliance used in an office in the factory is covered. Usage outside the factory for pumping of water for captive use is permitted. No cenvat credit shall be allowed on capital goods used exclusively in the

manufacture of exempted goods or in providing exempted services for a period of two years from the date of commencement of the commercial production or provision of services, as the case may be, other than the final products or output services which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made or services provided in a financial year provided that where capital goods are received after the date of commencement of commercial production or provision of services, as the case may be, the period of two years shall be computed from the date of installation of such capital goods.

Exempt service shall not include a service. which is exported in terms of Rule 6A by way of transportation of goods by a vessel from

customs station of clearance in India to a place outside India.

Effective from 01.03.2016.

Goods used for pumping of water are covered. All capital goods which have value upto

Rs.10,000/- per piece shall be treated as input. The definition of inputs excludes capital good

except when the value of capital goods is upto Rs.10,000/- per piece.

ISD amended to mean an office of a manufacturer of final products or service provider which receives invoices and issues invoice for the purpose of distributing credit to such manufacturer or service provider or outsourced manufacturing unit.

Effective 01.03.2016 Far reaching amendment. Section 4A Rule 10A of the Valuation Rules. Rule 7 of the Cenvat Credit Rules.

Input service tax credit attributable to a particular unit shall be distributed only to that unit.

Service tax credit attributable to more than one unit but not to all the units shall be distributed only amongst such units to which the input service is attributable and the distribution shall be on a pro rata basis of the turnover of such units during the relevant period to the total turnover of all such units to which such input service is attributable.

Input service credit attributable to all units shall be distributed to all the units on a pro rata basis on the basis of turnover of such units to the total turnover of all the units.

Outsourced manufacturing unit (OMU) shall maintain separate accounts for input service credit received from each of the ISD and shall use it only for payment of duty on goods manufactured for the ISD concerned.

Credit of input service available to an ISD as on 31.03.2016 shall not be transferred to an OMU and credit shall be distributed amongst other units excluding OMU.

Rule 6 shall apply to units manufacturing goods and providing services and shall not apply to the ISD.

NCCD can be used only for payment of NCCD.

Cenvat credit shall not be used for payment of infrastructure cess.

Amendments effective from 01.03.2016.

Cenvat credit shall be allowed to a manufacturer in respect of jigs / fixtures / moulds / dies / tools sent to another manufacturer for production or to a job worker for production on behalf as per specifications.

Credit can be availed even if these items are sent by the manufacturer of final products to the premises of another manufacturer or job worker without bringing to his own premises.

Deferred credit in respect of service tax paid on assignment of right to use any natural resource based on a formula.

If the manufacturer further assigns in any financial year, balance cenvat credit not exceeding service tax payable shall be allowed.

Credit of user charges on assignment of rights to use natural resources shall be allowed in the same financial year.

Rule 6(1) has been amended with effective from 01.04.2016. A service provider who provides non exempted services as well as

exempted services / a manufacturer who manufactures non-exempted goods removed and exempted goods removed shall follow any one of the following options:

Pay 7% of the value of the exempted services and 6% of the value of the exempted goods subject to a maximum of the sum total of opening balance of credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period or

Pay an amount as determined under Rule 6(3A).

Rule 2(e) defines ‘exempted service’ to mean

A taxable service which is exempt from the whole of service tax leviable thereon;

Service on which no service tax is leviable under Section 66B of the Finance Act, 1994;

Taxable service whose part of value is exempted on the condition that no credit of inputs and input services used for providing such taxable service shall be taken but

But shall not include a service –

Which is export in terms of Rule 6A of the Service Tax Rules, 1994, or

By way of transportation of goods by a vessel from a Customs Station of Clearance in India to a place outside India.

Exempted service shall include an activity which is not a service as defined in Section 65B(44).

Value of such activity shall be the invoice / agreement value or value determined by using reasonable means.

Exempted goods means excisable goods which are exempt from the whole of the duty of excise leviable thereon and includes goods which are chargeable to nil rate of duty and goods in respect of which the benefit of exemption under Notification No.1/2011 or under Serial Nos.67 and 128 of Notification No.12/2012 is availed.

A manufacturer or a service provider has to exercise the option of payment or the method under Rule 6(3A) for all the exempted services provided by him / exempted goods manufactured by him and the option shall not be withdrawn during the remaining part of the financial year.

Total credit of inputs and input services taken during the month. Denoted as ‘T’.

Credit attributable to inputs and input services used exclusively in or in relation to manufacture of exempted goods removed or provision of exempted services called as ‘ineligible credit’ to be paid. – Denoted as ‘A’.

Credit attributable to inputs and input services used exclusively in or in relation to manufacture of non-exempted goods removed or provision of non-exempted services called as ‘eligible credit’ need not be paid. – Denoted as ‘B’.

Credit left after attribution as above, would be called as ‘common credit’. – Denoted as ‘C’.

C = T – (A+B) Common credit attributable towards exempted goods and exempted

services shall be called as ineligible common credit and paid.

Ineligible common credit – Denoted as ‘D’ D = C x E/F E = Value of exempted services provided and value of

exempted goods removed during the preceding financial year.

F is the sum total of Value of non-exempted services provided,

Value of exempted services provided,

Value of non-exempted goods removed, and

Value of exempted goods removed, during the preceding financial year.

In case no final products were manufactured or no output service was provided during the preceding financial year, the cenvat credit attributable to ineligible common credit shall be deemed to be 50% of the common credit.

Remainder of common credit shall be called as eligible common credit and denoted as ‘G’.

G = C – D Out of the total credit T which is a sum total of A, B, D and G, the manufacturer

/ service provider shall be able to attribute provisionally and retain credit of B and G namely, eligible credit and eligible common credit and shall provisionally pay the amount of credit of A and D namely ineligible credit and ineligible common credit.

These reversals are done every month provisionally based on the preceding year data.

Similar calculations are carried out based on actual data at the end of the year. If there is a shortage in reversal, the differential amount should be paid by the

30th June of the succeeding financial year. If there is an excess reversal, the excess amount reversed can be taken back as

credit. Intimation to Superintendent

Where a manufacturer or service provider has failed to exercise the option under Rule 6(3) and follow the procedure provided under Rule 6(3A), the central excise officer competent to adjudicate a case based on the amount involved may allow the manufacturer or service provider to follow the procedure and pay the amount referred to in Rule 6(3)(ii) calculated for each of the months mutatis mutandis in terms of Rule 6(3A)(c) with interest calculated at the rate of 15% per annum from the due date for payment of amount for each of the month till the date of payment thereof.

An assessee who has opted to pay an amount under clause (ii) or (iii) of Rule 6(3) in the financial year 2015-16, shall pay the amount along with interest or take credit for the said financial year in terms of clauses (c) to (i) of Rule 6(3A) as they prevail on the date of publication of this notification and for the purpose of these provisions, shall be deemed to be in existence till 30.06.2016.

Manufacturer can take credit on inputs received under the cover of an invoice issued by the warehouse of the said manufacturer who receives inputs under the cover of invoices on purchase of such inputs. Provisions applicable to FSD, SSD shall apply to such warehouses.

Annual return to be filed by manufacturer or service providers 30th November of the succeeding year

FIFO omitted.

K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT

Flat No.3, First Floor,

No.9, Thanikachalam Road,

T. Nagar,

Chennai - 600 017, India

Tel.: 044 + 2433 1029 / 4048

402, Front Wing,

House of Lords,

15/16, St. Marks Road,

Bangalore – 560 001, India

Tel : 080 22244854/ 41120804

Mobile: 98400-96876

E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com

www.vaithilegal.com