service tax – recent budget amendments · service tax – recent budget amendments by:...
TRANSCRIPT
Service Tax – Recent Budget Amendments
By:
A.Saiprasad
B.Com,LLB,ACA,DISA,AMIMA
Advocate
Presentation Outline - I
Meaning, Net Effect & How Amendments made
What the FM said & didn‘t say
New Service & Expansion of Scope of Existing Services
Adjudication & Prosecution Provisions
Presentation Outline - II
Point of Taxation Rules, 2011
Cenvat Credit Rules, 2004
Service Tax Rules, 1994
Works Contract (Composition) Rules, 2007
Service Tax Valuation Rules, 2006
Export Rules, 2005 & Import Rules, 2006
SEZ Notification
Meaning of Budget
Derived from the French word, bougette,
Diminutive of bouge, meaning a Leather Bag.
Net Effect of Service Tax Amendments
NET REVENUE GAIN - Rs.4,000/- Crores.
How Amendments are Made ?
Parent Act – Orphan – A rich Orphan
Budget Amendments:
Finance Act, 2011 – S.71(A) to 71(P) & S.72
Notification No.1/11-ST to 18/11-ST
Post Budget Amendments:
Notification No.18/11-ST to 37/11-ST
What the Finance Minister Said..I
Retained the standard rate @ 10%
Closer fit between present service tax regime and its successor GST
ST on 2 new services
Short Term Accommodation Service
Restaurant Service
Scope Expanded for 7 existing services
What the Finance Minister Said.. II
Cenvat Credit provisions rationalized
Cenvat Credit vis-à-vis exempt goods & services
Audit Formalities & Reduced Interest for Turn over < Rs.60 lakhs
What the Finance Minister Said..III
Demand Provisions revisited
Penal Provisions Rationalized
What the Finance Minister Didn‘t Say…I
A CA‘s perspective- Representation services taxable
What the Finance Minister Didn‘t Say…II
Exempted Services
Provision related to prosecution reintroduced
Budget Amendments
Finance Act, 2011
Notification No.1/11-ST & 37/11-ST
Circulars & Explanatory Notes
New Services I - Restaurant Service
Air Conditioning Facility
Alcoholic Beverage
Notification No.34/11-ST - Abatement 70%
Circular No.139/8/2011 dt.10.5.11
New Services II - Short Term Accommodation Service
< 3 Months, Continuous Period
Declared Tariff Meaning
Notification No.31/11-ST – Declared Tariff < Rs.1,000/-
Notification No.34/11-ST – Abatement 50%
Declared Tariff & Discount
Circular No.139/8/2011 dt.10.5.11
Expansion of Scope I– Commercial
Training and Coaching Service
Deleted Exclusionary Clause in earlier definition
Effect – Now taxable service course based – Before institution based
Exclusion category now exempted vide notification no.33/11-ST
Expansion of Scope II– Club or
Association Service
means any person or body of persons providing services, facilities or advantages, primarily to its members, for a subscription or any other amount, but does not include—
(i) any body established or constituted by or under any law for the time being in force; or
(ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or
(iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or
(iv) any person or body of persons associated with press or media;‘;
Expansion of Scope III – Authorised Service Station
Service Provider: Previously – Authorised
Service Station, Now - Any persons
Vehicle: Previously – Car, LMV,
Motor Cycle. Now – Any Motor
Vehicle except Three Wheeler & Motor Vehicle for Goods Carriage
Expansion of Scope IV – Life Insurance Service
Previously - Risk Cover, Now – All Service including Management of Investment
Valuation Mechanism – R.7A, STR, 94
Taxable Value = (Gross Premium – Amount Allocated for investment), if bifurcation provided in policy
1.5% of Gross Premium, if no bifurcation provided
Entire policy towards Risk – Above option not available
Expansion of Scope V – Legal Services
Scope Increased Business Entity – Any
Person Arbitration Services Advice, Consultancy &
Assistance Individual to Individual
not taxable Scope increased –
Representation Parity – CA, CWA, CS
exemption withdrawn
Expansion of Scope VI – Health Services
Clinical Establishment – S.25(a): Hospital, clinic, sanatorium, by whatever name called
Diagnostic Centres Whether incorporated or
not Centralised A/c – Whole
or part > 25 Beds Excludes establishment
by Govt or Local Authority
Expansion of Scope VI – Health Services
Taxable Service – S.65(105)(zzzzo) by:
Clinical Establishment
Doctor who is not an employee of CE, who provides service from CE
Exempted – Notification No.30/11-ST dt.25.4.11.
Transport of Passengers by Air Service
Revised Rates as follows:
(a) Domestic (economy) : From Rs.100 to Rs.150
(b) International (economy) : From Rs.500 to Rs.750
(c) Domestic (other than economy) : Standard rate of 10%
Provisions Relating to Demand
S. 73(1A) & proviso to 73(2) – Deleted
Benefit u/s 73(4A) – ‗true & Complete‘ details in specified records.
Assessee to pay tax, interest and reduced penalty – during course of audit, investigation or verification.
Penalty @1% p.m. – max – 25%
Provisions Relating to Interest
Increased to 18% p.a S. 73B & S.75
amended Value of taxable
service < Rs. 60 Lakhs – Reduction of 3% p.a.
Notification No.14/11 ST – S.75 & Notification No.15/11 ST – S.73B
Provisions Relating to Penalty
U/s 76 – Normal Period of Limitation
2% to 1%
Rs.200 to Rs.100
100% amount to 50% of demand
U/s 77 – Increased to Rs.10,000/-
Provisions Relating to Penalty
U/s 78 – Extended Period Max Penalty reduced from
200% to 100% of ST
True & Complete (T & C) – 50% of ST
T & C + 30/ 60 days of OIO– 25%
Transaction not recorded – No mitigation of 50% or 25%, though paid within time period
Penalty – Summary I Situation Position
in
Records
Penalty &
Provision
Mitigation Complete
Waiver
No fraud,
suppression
etc.
Captured 1% of tax or Rs
100 per day upto
50% of tax
amount: Sec 76
Totally mitigated if tax and
interest paid before issue of
notice: Section 73(3)
On showing
reasonable
cause under
section 80
Penalty – Summary II Situation Position
in
Records
Penalty &
Provision
Mitigation Complete
Waiver
Cases of fraud, suppression etc
Captured true and correct position in records
50% of tax amount: Proviso to Section 78
(a) 1% per month; max of
25% if all dues paid before
notice: Sec 73(4A);
(b) 25% of tax if all dues
paid within 30 days (90 days
for small assesses): Provisos
to Section 78
On showing
reasonable
cause under
section 80
Penalty – Summary III
Situation Position in
Records
Penalty &
Provision
Mitigation Complete
Waiver
Cases of fraud, suppression etc
Not so
captured
Equal amount
:Section 78
No mitigation at all
Not possible
Offences & Prosecution - I
Reintroduced –S.89 Previous Sanction – Chief
Commissioner of Central Excise
Offences: (i) Provision of service
without issue of invoice; (ii) Availment and utilization
of Cenvat credit without actual receipt of inputs or input services;
Offences & Prosecution - II
Offences Contd..
(iii) Maintaining false books of accounts or failure to supply any information or submitting false information;
(iv) Non-payment of amount collected as service tax for a period of more than six months
Offences & Prosecution - III
Offence amount > Rs 50 Lakhs
Imprisonment - Min - 6 months, Max - 3 years
Any other case upto 1 year
Second & Subsequent Offence – Min – 6 months, Max – 3 years.
Offences & Prosecution - III
Following not restrictions for prosecution: First Conviction Penalty or other action
initiated Not principal offender –
Acting as an agent Age of Accused
Circular F.No.354/45/2011- TRU dt.12.5.11
Other Amendments
S. 70 - Furnishing of Returns – Late Fee – Rs.2,000 to Rs.20,000/-
Existing Rate retained in Rule 7C of STR,94
Liability to be First Charge
S.529A of Companies Act, 1956
Recovery of Debts Due to Banks & Financial Institutions Act, 1993
SRFASI Act, 2002
Point of Taxation Rules:
Notification No.18/2011-ST & 25/2011-ST
Validity ?
POT – Definition R.2(e) – Point in time when service DEEMED to have been provided
Transitional Provision
Clarification - Circular F.No.341/34/2010 dt.31.3.11
POT – R.3 – General Rule
Rule 3 has been amended to provide that the point of taxation shall be as follows:
(a) Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service.
(b) Date of completion of service or payment, if the invoice is not issued within the prescribed period as above.
POT – R.3 - Illustration S. No.
Date of completion of service
Date of invoice Date on which payment recd.
Point of Taxation
Remarks
1.
April 10, 2011
April 20, 2011
April 30, 2011
April 20, 2011
Invoice issued in 14 days and before receipt of payment
2.
April 10, 2011
April 26, 2011
April 30, 2011
April 10, 2011
Invoice not issued within 14 days and payment received after completion of service
3. April 10, 2011 April 20, 2011 April 15, 2011 April 15, 2011 Invoice issued in 14 days but payment received before invoice
4.
April 10, 2011
April 26, 2011
April 5, 2011 (part) and April 25, 2011 (remaining)
April 5, 2011 and
April 10, 2011 for respective amounts
Invoice not issued in 14 days. Part payment before completion, remaining later
POT R.4 – Change in Effective Rate of Tax -I
Taxable Service Provided BEFORE change in Effective Rate of Tax
When either invoice OR payment received PRIOR to change in rate, POT = Earlier Rate i.e. Before change made.
Only When both invoice AND payment received POST change in rate, POT = Subsequent Rate i.e. Changed Rate
POT R.4 – Change in Effective Rate of Tax -II
Taxable Service Provided AFTER change in Effective Rate of Tax
When either invoice OR payment received POST to change in rate, POT = Subsequent Rate i.e. Changed Rate
Only When both invoice AND payment received PRIOR change in rate, POT = Earlier Rate i.e. Before change made.
POT – R.5 – New Services
Payment AND Invoice issued PRIOR to Service Becoming Taxable – NO Tax
Payment PRIOR AND Invoice POST Service Becoming Taxable – No Tax
Inv to be issued within 14 days of receipt of payment. – R.5(b) - POTR,11, r/w R.4A(1) - STR - 94
POT – R.6 – Continuous Supply of Services (CSS)
Continuous Supply of Service – R.2(c)
Under a Contract
Period > 3 Months
Notification No.28/2011-ST
(1)Commercial or Industrial Construction Service, (2)Telecommunication Service, (3)Internet Telephony Service, (4)Works Contract Service
POT – R.6 – Continuous Supply of Services (CSS)
Overrides R.3,4 & 8
POT = Time of issue of invoice for such CSS – (A)
When invoice not issued within 14 days of completion, POT = Date of completion of service
Payment Received before (A) above, POT = Time of receipt of payment
POT – R.6 – Continuous Supply of Services (CSS)
Where provision of service determined periodically i.e.
On Completion of event, specified in contract
Requiring payment to Service Provider
POT = Dt of Completion of each such event
POT – R.7 – Specified Services
POT = Date of Payment for the following specified services
Services specified in R.3(1) of Export of Service Rules, 2005 – services exported
Persons Liable to pay service tax – S.68(2) r/w Notification No.36/04-ST – services imported, GTA, sponsorship service etc.
POT – R.7 – Specified Services
Individuals, proprietary firm & partnership firms providing:
CA, CWA & CS Service
Architect Service
Interior Decorator Service
Scientific or Technical Consultancy Service
Legal Service
POT – R.8 – Copyrights etc.,
Whole amount not ascertainable when service performed AND
Subsequent use by person other than PROVIDER gives raise to payment
Service shall be treated as having been provided each time
Payment received or Invoice issued – which ever is earlier
POT – Transitional Provision
Service completed or Invoice issued prior to 1.4.11 – POT Not Applicable
Service completed on or before 30.6.11 OR Invoice issued upto 30.6.11
POT = Date on which Payment is received or made – Option of taxpayer
Cenvat Credit Rules, 2004
Exempted Service Definition Amended
Input Services Definition Substituted
Availment of Input Service Credit – On Receipt of Invoice
Supplementary Invoices
Common Input Services – Provider of taxable & exempted services
Exempted Service – R.2(e)
(e) ―exempted services‖ means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act [and taxable services 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.
Explanation.- For the removal of doubts, it is hereby clarified that ―exempted services‖ includes trading;]
Input Service – R.2(l) – A Real Setup ??
(l) ―input service‖ means any service, - (i) used by a provider of taxable service for providing an output
service; or (ii) used by a manufacturer, whether directly or indirectly, in or in
relation to the manufacture
of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
Input Service – Set Up – The Sequel
but excludes services,-
(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they
are 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 one or more of the specified services; or
Input Service – Gone in Sixty Seconds
(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or
Input Service – Employee Related
(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;‟;
Input Service Credit
R.4(7) - Receipt of invoice – Before Payment.
Reversals Payment beyond 3 months
Partial Payment/ Credit Note
Reverse charge – On Payment
R.9(bb) - On Supplementary Invoice Except due S.71(1) proviso cases
Rule 6 – Common Input & Input Services - I
Four Options
Option I – Maintain Separate A/cs for receipt, consumption and inventory of INPUT & INPUT SERVICES – Take credit only for providing dutiable products and taxable service – R.6(2)
Rule 6 – Common Input & Input Services - II
Option II – Not Maintaining separate Books of Accounts – Three sub options
Sub Option I
Pay 5% of value of exempted goods and exempted services – R.6(3)(i)
Reversal = (Exempted value X 5%) for Partially Taxable Services -
Sub Option II
Pay amount as per formula R.6(3)(ii) r/w 6(3A).
Rule 6 – Common Input & Input Services - III
Sub Option III – Maintain separate Books of Accounts for receipt, consumption and inventory of INPUTS ONLY
Avail credit on Inputs only for dutiable goods and taxable output services.
Apply R.6(3A) formula for INPUT SERVICE only.
Provision w.e.f. 1.4.11
Rule 6 – Common Input & Input Services - IV
Banking & Other Financial Services – Reversal of 50% of Cenvat credit – R.6(3B)
Life Insurance, Investment Management Service under ULIP - Reversal of 25% of Cenvat credit – R.6(3C)
Payment U/r 3 – Deemed as Credit not taken for Exemption Notification – R.6(3D)
Rule 6(5) deleted - Contained 16 services
Rule 6 – Common Input & Input Services - V
Explanation below R.6(3D) - Value for R.6(3) & 6.(3A)
Service – S.67 of FA, 94
Excisable Goods – S.3,4 & 4A of CEA,44
Trading – (S.P. - COGS) OR 10% of COGS, which ever is HIGHER
Rule 6 – Common Input & Input Services - VI
R.6(6A) – R.6(1) to R.6(4) – not applicable for:
Provision of taxable service
Without payment of tax
Unit, Developer of SEZ
For Authorised Operations
For goods R.6(6)(i) already existed
Service Tax Rules, 1994 - I
Rule 5B – Rate when services deemed to be provided as per POT Rules, 11
R.6(1) – Payment of ST by Service Provider
Before – When payment are received towards value of taxable services
Now – When services are deemed to be provided as per POTR, 11
Service Tax Rules, 1994 - II
R.6(3) – Adjustment of Excess Service Tax
Received payment, Issued invoice for a service, which is later not provided
Such services may not have been provided either wholly or partially
Amount of invoice re-negotiated for deficient provision of service
Service Tax Rules, 1994 - III
Re credit of such excess tax paid Refunded payment
Issued credit note
Max Excess Adjustment Rs Two Lakhs from Rs. One Lakh
Tax Self Assessed but not paid Recovery u/s 87
No need to resort to demand provisions
Works Contract Composition Rules, 2007
Rule 2A – Works Contractor can avail Credit of only 40% of tax paid on:
Erection Commissioning & Installation Service
Commercial or Industrial Construction Service
Construction of Residential Complex Service
When such service providers paid ST on gross value without abatement
Service Tax Valuation Rules, 2006 - I
Foreign Exchange Broking Service & Banking & Other Financial Service
R.2B -Valuation of Sale of Foreign Currency $1,000 sold @ Rs.45/$
RBI Reference Rate Rs.45.50
Taxable Value = (Selling Rate - RBI reference Rate) X Total Units of Currency
(Rs.45.50 – Rs.45) X 1,000 = Rs.500
Service Tax Valuation Rules, 2006 - II
R.2B – Valuation of Purchase of Foreign Currency
INR 70,000 changed for GBP @ Rs.70/GBP
Hence 1,000 GBP exchanged
RBI Reference Rate – Rs.69
Taxable Value = (Rs.70 – Rs.69) X 1,000 = Rs.1,000
Service Tax Valuation Rules, 2006 - III
RBI Reference Rate not available Taxable Value = 1% of the Gross Amount
of INR PROVIDED OR RECEIVED
Neither Currency exchanged in INR Taxable Value = 1% of the LESSER of the
two amounts the person charging the money would have RECEIVED by converting any of the two currencies into INR at the reference rate provided by RBI
Export & Import Rules - I
Changed From Recipient based to Location Based – Preferential Location service – R.3(1)(iii) to R.(1)(i)
Changed from Recipient based to Performance based – Rail Travel Agent & Health Check up services – R.3(1)(iii) to R.3(1)(ii)
Export & Import Rules - II
Changed from Performance based to Recipient based Credit Rating Agency, Market Research Agency, Technical Testing & Analysis, Transport of Goods by Air & Rail, GTA, Opinion Poll – R.3(1)(ii) to R.3(1)(iii)
Corresponding Changes in Import of Service Rules
SEZ Refunds-I
Notification No.17/11-ST dt.1.3.11, rescinds Notification No.9/09-ST dt.3.3.09
Exempts services from S.66 & 66A
Exemption provided to:
Receiver i.e. Unit or a Developer of SEZ
Exemption provided for:
For ‗Specified Services‘
SEZ Refunds-II
Method of providing exemption:
Exemption by way of REFUND
Of ST paid by Unit/ Developer
On ‗specified services‘
For ‗Authorised Operations‘ in SEZ
Later refund application to be filed
SEZ Refunds-III
Abinitio Exemption – Instead of Claiming Refund
ST need not be paid initially by Unit/ Developer either as service provider (S.66) or service receiver (S.66A – Reverse Charge Mechanism)
Conditions:
Specified Services for Authorised Operations
‗Wholly consumed‘ within SEZ
SEZ Refunds-IV
Services ‗Wholly Consumed‘ means:
Taxable Services, received for Authorised Operations as listed in:
R.3(1)(i), Export of Service Rules, – when used in relation to IMP situated in SEZ
R.3(1)(ii), Export of Service Rules, – when wholly performed within the SEZ
SEZ Refunds-V
Services Wholly Consumed means:
Services other than (i) & (ii) above – when provided to a Developer/ Unit, who does not carry on any business other than operations in SEZ
Circular No.142/11/2011-ST dt.18.5.11 – Clarification – An entity carrying out business operations in SEZ & DTA
SEZ Refunds-VI
Unit/ Developer – Obtain Approval for List of services required for Authorised Operations from Approval Committee
Unit/ Developer – Not owning or carrying on business other than SEZ Operations – Declaration in Form A-1.
SEZ Refunds-VII
Services not wholly consumed in SEZ
Refund restricted to the ratio of export turn over to total turnover of Unit/ Developer
Max Refund =
(Export Turnover / Total Turnover) X (ST paid for specified services, used for Authorised Operations & DTA operations)
SEZ Refunds-VII
Total Turnover includes Output Service + exempted service,
including services exported Excisable + Non Excisable Goods +
Export Goods Bought Out Goods
ST must be paid before claiming refund
Input Service credit for specified services cannot be availed under CCR, 04
Open House
Thank You.