CORPORATE KNOWLEDGE FOUNDATION

Presents

Workshop

On

Understanding the Amended Law of Service Tax

Conducted by

Dr. Sanjiv AgarwalFCA, FCS

Friday, 29th August, 2014 @ New Delhi © Dr. Sanjiv Agarwal

1

Session – I

Overview of Service Taxation

2

OVERVIEW OF SERVICE TAXATION

This presentation covers -

• Origin & concept of Service Tax

• What is Service

• Declared Services

• Negative List

• Exemptions

• Highlights of major changes in Union Budget

2014-15 / Finance Act, 2014

3

INDIAN ECONOMY – AN OVERVIEW

• India’s economy is the 11th largest economy in the world and the third

fastest growing even in today’s recession, after China and Indonesia

(Present growth rate @ 4.7%)

• World is presently facing recession-II but Indian economy is still a long

term growth economy

• Inflation – food, lifestyle – growth trigger

• Tax GDP ratio 10.5%; ST contributes to about 13% of total tax revenue

and over one-third of indirect taxes

• Agriculture, services and industry are the major sectors of Indian

economy. Contribution of different sectors in March, 2013 was :

Agriculture 19%

Services 59%

Industry 22%

(@ 57 % in March, 2014) World average @63.6%

SHARE OF SERVICES IN GDP

ORIGIN & CONCEPT OF SERVICE TAX

• Chapter V, VA and VI of the Finance Act, 1994 (section 64 to 114) contains

provision of Service Tax.

• In 1994, Service Tax was introduced by levy on only three services with

selective approach.

• Service Tax is an indirect tax leviable on the provision of service

• Destination based consumption tax recoverable from consumer / recipient.

• Desirable from revenue, equity and economic view point.

• Governed by Finance Act, 1994 and a dozen of rules.

• Legislative dependence on over 25 other laws.

• Selective approach has been shifted to comprehensive approach in 2012

• Upto 30.06.2012, > 120 taxable services [section 65(105)]

• W.e.f. 01.07.2012, all services other than services specified in negative list

& exempted services liable to service tax.

• Negative List (17 in number) specified through statutory provisions –

section 66D

ORIGIN & CONCEPT OF SERVICE TAX

• Service tax is a tax on activity and is a Value added tax. The value

addition is on account of activity which provides value addition. Service

tax is a value added consumption tax wherein the burden of tax is

ultimately borne by the final consumer and business does not bear the

burden of tax. [All India Federation of Tax Practitioners’ v Union of India

(2007) 10 STT 166; (2007) 7 STR 625 (SC)]

• Sale and service are two different and distinct transactions. The sale

entails transfer of property whereas in service, there is no transfer of

property [Ranchi Club Ltd. v Chief Commissioner of CE&ST, Ranchi (2012)

26 STR 401 (Jharkhand)]

• Service tax is a value added tax , which in turn is a destination based tax

on consumption in the sense that it is levied on commercial activities and

it is not a charge on business but on the consumer. [ Paul Merchants Ltd

v CCE, Chandigarh (2013) 29 STR 257 (Cestat, New Delhi)]

GROWTH OF SERVICE TAXYear (March) No of new

servicesTotal No of services

Total collection (Rs. in crore)

1994 3 3 426

2001 - 26 2612

2005 13 72 14200

2008 7 103 51301

2010 3 112 58422

2012 0 120 97509

2013 - All 132600

2014 - All 164927(RE)

2015 - All 215973 (BE)

Tax-GDP Ratio at a Glance

Indirect Tax Revenue – At a Glance

• The term ‘service’ was not defined in erstwhile law

(upto 30.6.2012)

• The term ‘taxable service’ was defined under

section 65(105)

• Each taxable service and definitions related to

meaning of service were defined [clause (a) to

(zzzzw)]

• Around 120 definitions were in place

• W.e.f. 1.7.2012, ‘service’ has been defined in

section 65B(44)11

WHAT IS SERVICE

‘Service‘ defined in clause (44) of the section

65B and means –

• any activity

• For a consideration

• carried out by a person for another and

• includes a declared service (66E)

12

WHAT IS SERVICE

• Activity must be for a consideration (nexus / reciprocity)

• Activity – includes both activity as well as non-activity

• Consideration – includes both monetary and non

monetary consideration

• Two persons are involved –

Service provider

Service receiver

• Only services provided by one person to another are

taxable

• Person – natural as well as artificial

13

WHAT IS SERVICE

Activity

• Not defined in the Act

• In common understanding, activity includes –

An act done

A work done

A deed done

An operation carried out

Execution of an act

Provision of a facility etc.

• Activity could be active or passive and forbearance to act

• Agreeing to an obligation to refrain from an act or to tolerate an act or a

situation - listed as a declared service u/s 66E

14

WHAT IS SERVICE

Consideration

• Means everything received or recoverable in return for a

provision of service which includes -

Monetary payment

Non-monetary payment

Deferred consideration

• Under Indian Contract Act, 1872, ‘consideration’ means -

“When, at the desire of the promisor, the promisee or any

other person has done or abstained from doing, or does or

abstains from doing, or promises to do or to abstain from

doing, something, such act or abstinence or promise is

called a consideration for the promise”15

WHAT IS SERVICE

Activity for a Consideration

• Activity should be carried out by a person for a

consideration

• Activity without consideration like-

Donation

Gifts

Free charities

outside the ambit of service

• Charity for consideration would be service and taxable

unless otherwise exempted

16

WHAT IS SERVICE

Money- 65B(33)

“Money" means legal tender, cheques, promissory note, bill of exchange,

letter of credit, draft, pay order, traveller cheques, money order, postal or

electronic remittance or any similar instrument but shall not include any

currency that is held for its numismatic value

No service tax on Tax on Money Remittance (Circular No. 163 dated

10.7.2012)

Actionable Claim –Section 3 of Transfer of Property Act, 1882 Claim to unsecured debts Claim to beneficial interest in movable property not in possession of claimant Right to insurance claim Arrears of rent

Service is an activity carried out by a person for another for consideration and

actionable claim is mere a transaction in money [ Delhi Chit Fund Association v

Union of India (2013) 30 STR 347 ; (2013) 39 STT955 (Delhi)]

17

WHAT IS SERVICE

Person-65B(37)"person" includes,–

• an individual,• a Hindu undivided family,• a company,• a society,• a limited liability partnership,• a firm,• an association of persons or body of individuals, whether

incorporated or not,• Government,• a local authority, or• every artificial juridical person, not falling within any of the

above

Government – Not defined• Section 3(22) of General Clause Act, 1897• Includes Central/State Government/ Union Territory• Actions taken in the name of President/ Governor• Most of services provided by Government are in Negative List

18

WHAT IS SERVICE

'Service' does not include -

• any activity that constitutes only a transfer in title of goods or

immovable property by way of sale, gift or in any other manner.

Sale of developed plots is a service [Narne Constructions Pvt. Ltd. v

Union of India 2013 (29)STR 3 (SC)]

• a transfer, delivery or supply of goods which is deemed to be a sale of

goods within the meaning of clause (29A) of article 366 of the

Constitution

• a transaction only in money or actionable claim

• a service provided by an employee to an employer in the course of the

employment.

• fees payable to a court or a tribunal set up under a law for the time

being in force19

WHAT IS SERVICE : EXCLUSIONS

This scope shall not apply to –

• functions performed by M.P., M.L.A., Members of Panchayats /

Municipalities who receive any consideration in performing the

functions of that office as such member; or

• duties performed by any person who holds any post in pursuance of

the provisions of the Constitution in that capacity; or

• duties performed by any person as a Chairperson or a Member or a

Director in a body established by the Central Government or State

Government or local authority and who is not deemed as an

employee before the commencement of this section.

20

WHAT IS SERVICE : EXCLUSIONS

WHAT IS SERVICE

For the purpose of scope of service -

• an unincorporated association or a AOP and a member

thereof shall be treated as distinct persons;

• an establishment of a person in the taxable territory

and any of his other establishment in a non-taxable

territory shall be treated as establishments of distinct

persons.

• A person carrying on a business through a branch or

agency or representational office in any territory shall

be treated as having an establishment in that territory

Draft Circular (F. No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification on certain activities / facilities / reimbursements to employees by the employers

(a) Treatment of supplies made by the employer to employees Amount deducted from salary / paid for service provided by the

employer to employee is for consideration and hence taxable Employer who provides some services free of cost (e.g. crèche,

gymnasium or a health club) are not liable to tax

(b) Treatment of reimbursements made by the employer to the employee

Reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a service, hence non-taxable

(c)Treatment of supplies and reimbursements made by the employer to ex-employees/ pensioners

Same tax treatment for ex- employees of the company –

Reimbursement of expenses on behalf of company – non-taxable ?

Facilities for consideration – taxable

Facilities free of cost - non taxable ?

22

EMPLOYER’S FACILITIES TO EMPLOYEES

DIRECTOR’S SERVICES TO COMPANY - TAXABLE

• Director’s services to the company are taxable w.e.f

1.7.2012

• Sitting fees, commission, bonus, etc. are subject to service

tax

• 1.7.2012 upto 6.8.2012 - deposited by the directors

• From 7.8.2012 -deposited by the company under RCM

• W.e.f. 11.07.2014, services provided by the director of body

corporate are also covered under RCM

• WTDs /MDs /EDs who are under contractual employment

with the company and receive salary or remuneration will

not be covered - considered as employees of the company

23

REMUNERATION TO PARTNER – NOT A SERVICE

• Partnership firm is not a distinct legal entity apart from the

partners under the Partnership Act, 1932

• Partner is not an employee of the firm -contract of employment

requires two distinct firms, viz., employer and employee

• Partners are the real owners of the assets of firm to the extent

of their share

• Salary paid to partner is only profit known by a different name

• It is only a transaction in money

• Incomes received from firm treated as income from Profits and

Gains of Business or Profession under I T Act, 1961

• Partnership Act, 1932 can not be over-looked

24

25

TAXABILITY OF SERVICES W.E.F. 1.7.2012

All services [section 65B (44)]

Taxable

Declared services (section 66E)

Taxable

Services covered under negative list of services (section 66D)

Not Taxable

Services exempt under Mega Notification No. 25/2012-ST dated 20.6.2012

Exempted

Other specified Exemptions Exempted

26

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

TAXATION OF SERVICES BY FINANCE ACT, 2012

(=)

27

TAXABILITY CONCEPT

Taxable

3. Exemptions (48)

1. Non -

Taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S

CHARGE OF SERVICE TAX

W.e.f. 1.7.2012

There shall be levied a tax at the rate of

twelve per cent on the value of all

services, other than those services

specified in the negative list, provided or

agreed to be provided in the taxable

territory by one person to another and

collected in such manner as may be

prescribed 28

CHARGE OF SERVICE TAX

Essential ingredients for charge of Service Tax (Section 66B)

• There should be a service involved.

• Such service should not be one included in the negative

list as defined in section 66D.

• Services should be provided or agreed to be provided.

• Services should be provided in the taxable territory only.

• Services should be provided by one person to another

person.

• Tax shall be levied on value of services so provided or

agreed to be provided.

• Collection shall be in prescribed manner [section 68(1) or

(2)].

29

CHARGE OF SERVICE TAX

Provided or agreed to be provided

• Before actual provision of service is made, all relevant information on

chargeable event must be known

• On account advance payment without any identification of services or

activities may not be liable to service tax

• Services which have only been agreed to be provided but are yet to

be provided are taxable

• Receipt of advances for services agreed to be provided become

taxable before the actual provision of service

• Advances retained by the service provider in the event of cancellation

of contract of service by the service receiver become taxable as these

represent consideration for a service that was agreed to be provided.

30

DECLARED SERVICES [SECTION 66E]

31

DECLARED SERVICES

32

• Clause 44 of section 65B defines service–it includes a declared service

• What is declared services is defined in section 65B(22) to mean any

activity carried out by a person for another person for a consideration and

declared as such under section 66E of the Act

• There are 9 categories of services or activities as declared services

implying that on all such nine declared services, Service Tax shall be

payable

• Does not include any such transfer, delivery or supply of any goods which

is deemed to be a sale within the meaning of Article 366(29A) of the

Constitution of India

• They are amply covered by the definition of service but have been

declared with a view to remove any ambiguity for the purpose of uniform

application of law all over the country

33

LIST OF DECLARED SERVICES

Following constitute Declared Services (Section 66E)

• Renting of immovable property;

• Construction of a complex, building, civil structure or a part thereof,

including a complex or building intended for sale to a buyer, wholly

or partly, except where the entire consideration is received after

issuance of certificate of completion by a competent authority;

• Temporary transfer or permitting the use or enjoyment of any

intellectual property right;

• Development, design, programming, customization, adaptation, up

gradation, enhancement, implementation of information technology

software;

34

LIST OF DECLARED SERVICES

• Agreeing to an obligation to refrain from an act, or to tolerate an act

or a situation, or to do an act;

• Transfer of goods by way of hiring, leasing, licensing or any such

manner without transfer of right to use such goods;

• Activities in relation to delivery of goods on hire purchase or any

system of payment by installments;

• Service portion in execution of a works contract;

• Service portion in an activity wherein goods, being food or any

other article of human consumption or any drink (whether or not

intoxicating) is supplied in any manner as part of the activity.

SERVICES IN NEGATIVE LIST

[SECTION 66D]

35

36

NEGATIVE LIST OF SERVICES

What is Negative List

• Defined in new section 66D

• Section 66D specifies seventeen (17 ) broad

categories of services.

• Effective from 1-7-2012

• If an activity meets the characteristics of service , it

is taxable unless specified in Negative List.

• Based on socio-economic–tax criterion

37

NEGATIVE LIST OF SERVICES(a)Services by Government or a local authority excluding the

following services to the extent they are not covered elsewhere:

(i)Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;

(ii)Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;

(iii)Transport of goods or passengers; or

(iv)Support services, other than services covered under clauses (i) to (iii) above, provided to business entities;

(b) Service by Reserve Bank of India

(c) Services by a foreign diplomatic mission located in India

NEGATIVE LIST OF SERVICES

(d)Service relating to Agriculture or Agricultural Produce by way of -

(i) agricultural operations directly related to production of any agricultural produce including

cultivation, harvesting, threshing, plant protection or seed (omitted w.e.f. 10.5.2013)

testing;

(ii) supply of farm labour;

(iii)processes carried out at an agricultural farm including tending, pruning, cutting, harvesting,

drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk

packaging and such like operations which do not alter the essential characteristics of

agricultural produce but make it only marketable for the primary market;

(iv)renting or leasing of agro machinery or vacant land with or without a structure incidental to

its use;

(v)loading, unloading, packing, storage or warehousing of agricultural produce;

(vi)agricultural extension services;

(vii)services by any Agricultural Produce Marketing Committee or Board or services provided

by a commission agent for sale or purchase of agricultural produce

NEGATIVE LIST OF SERVICES

(e) Trading of Goods

(f) Any process amounting to manufacture or production of goods

(g)Selling of space or time slots for advertisements in print media

other than advertisements broadcast by radio or television

(w.e.f. 1.10.2014)

(h)Service way of access to a road or a bridge on payment of toll

charges

(i) Betting, Gambling or Lottery

(j)Admission to entertainment events and access to amusement

facilities

(k)Transmission or distribution of Electricity by an electricity

transmission or distribution utility

NEGATIVE LIST OF SERVICES

(l) Service by way of -

(i) Pre-school education and education up to higher secondary school or

equivalent

(ii) Education as a part of a prescribed curriculum for obtaining a

qualification recognized by law for the time being in force;

(iii) education as a part of an approved vocational education course;

(m) Services by way of renting of residential dwelling for use as residence

(n) Services by way of—

(i) extending deposits, loans or advances in so far as the consideration is

represented by way of interest or discount;

(ii) inter se sale or purchase of foreign currency amongst banks or

authorised dealers of foreign exchange or amongst banks and such

dealers;

NEGATIVE LIST OF SERVICES

o)Services of transportation of passengers with or without

accompanied belongings, by—

(i) a stage carriage;

(ii) railways in a class other than—

(A) first class; or

(B) an airconditioned coach

(iii) metro, monorail or tramway;

(iv) inland waterways;

(v) public transport, other than predominantly for tourism

purpose, in a vessel, between places located in India; and

(vi) metered cabs, radio taxis (w.e.f. 1.10. 2014 ) or auto

rickshaws;

NEGATIVE LIST OF SERVICES

(p) services by way of transportation of goods—

(i) by road except the services of—

(A) a goods transportation agency; or

(B) a courier agency;

(ii) by an aircraft or a vessel from a place outside India upto the

customs station of clearance in India ; or

(iii) by inland waterways;

(q) funeral, burial, crematorium or mortuary services including

transportation of the deceased.

42

EXEMPTIONS [ N. NO. 25/2012-ST DATED 20.6.2012 AS AMENDED TO DATE]

43

GENERAL EXEMPTIONS

• Small Scale Exemption (Notification No. 33/2012-ST dated 20.6.2012)

• Exemption for Exporters/SEZ (Notification Nos. 31 /2012- ST dated

20.6.2012; 39/2012-ST dated 20.6.2012; 41/2012-ST dated 29.6.2012;

42/2012-ST dated 29.6.2012 ; 12/2013-ST dated 01.07.2013 ; 15/2013 –

ST dated 21.11.2013 and 7/2014-ST dated 11.07.2014)

• Exemption to Import of Technology (Notification No. 14/2012-ST dated

17.3.2012)

• Exemption for Services to Foreign Diplomatic Mission (Notification No.

27/2012-ST dated 20.6.2012)

• Exemption to Services by TBI or STEP (Notification No. 32/2012-ST dated

20.6.2012)

• Exemption to Renting of an Immovable Property (Notification No.

29/2012-ST dated 20.6.2012)

44

SPECIFIC EXEMPTED SERVICES

(Vide mega Exemption Notification No. 25/2012-ST dated

20.6.2012)

• W.e.f. 1.7.2012

• Covers 48 specific exemptions

• Negative List services – not taxable at all ; can be

amended only by Parliament

• Exempted services – taxable but exempt under

notification; can be modified by notification.

45

EXEMPTED SERVICES

• Services provided to the United Nations or a Specified

international organization

• Health care services by a clinical establishment, an

authorised medical practitioner or para-medics

• Services provided by cord blood banks by way of

preservation of stem cells or any other service in relation to

such preservation ( w.e.f. 17.2.2014)

• Services provided by operators of the Common Bio-medical

Waste Treatment Facility to a clinical establishment by

way of treatment or disposal of bio-medical waste or the

processes incidental thereto (w.e.f. 11.07.2014)

• Services by a veterinary clinic in relation to health care of

animals or birds

46

EXEMPTED SERVICES

• Services by an entity registered under section 12AA of

the Income tax Act, 1961 by way of charitable activities

• Services by a person by way of-

• renting of precincts of a religious place meant for

general public or

• conduct of any religious ceremony

• Services by a specified organization

(Kumaon Mandal Vikas Nigam Ltd and Haj Committee)

in respect of a religious pilgrimage facilitated by the

Ministry of External Affairs, Government of India, under

bilateral arrangement (w.e.f. 20.08.2014)47

EXEMPTED SERVICES• Services provided by-

(a) an arbitral tribunal to -

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding

financial year;

(b) an individual as an advocate or a partnership firm of advocates by way of

legal services to,-

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding

financial year; or

(c) a person represented on an arbitral tribunal to an arbitral tribunal

• Services by way of technical testing or analysis of newly developed drugs,

including vaccines and herbal remedies, on human participants by a clinical

research organization approved to conduct clinical trials by the Drug

Controller General of India ( w.e.f. 11.07.2014)

48

EXEMPTED SERVICES

• Services by way of training or coaching in recreational activities

relating to arts, culture or sports

• Services provided to an educational institution in respect of

education exempted from service tax, by way of - (upto

10.07.2014 )• auxiliary educational services or • renting of immovable property

• Services provided (w.e.f. 11.07.2014) (a) by an educational institution to its students, faculty and staff;(b) to an educational institution, by way of,—

(i) transportation of students, faculty and staff;(ii)catering, including any mid-day meals scheme sponsored by

the Government;(iii)security or cleaning or house-keeping services performed in

such educational institution; (iv)services relating to admission to, or conduct of examination

by, such institution;49

EXEMPTED SERVICES• Any services provided by - ( W.e.f. 10.09.2013)

(i) the National Skill Development Corporation set up by the Government of India;

(ii) A Sector Skill Council approved by the National Skill Development Corporation;

(iii) an assessment agency approved by the Sector Skill Council or the National Skill Development

Corporation;

(iv) a training partner approved by the National Skill Development Corporation or the Sector Skill

Council

in relation to (a) the National Skill Development Programme implemented by the

National Skill Development Corporation; or (b) a vocational skill development

course under the National Skill Certification and Monetary Reward Scheme; or (c)

any other Scheme implemented by the National Skill Development Corporation.

• Services provided to a recognised sports body by—

(a) an individual as a player, referee, umpire, coach or team manager for participation in a

sporting event organized by a recognized sports body;

(b) another recognised sports body

EXEMPTED SERVICES

• Services by way of sponsorship of sporting events organized—

(a) by a national sports federation or its affiliated federations, where the participating teams or individuals represent any district, state, zone or country ( w.e.f. 10.01.2014);

(b) by Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat;

(c) by Central Civil Services Cultural and Sports Board;

(d)as part of national games, by Indian Olympic Association; or

(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme;

EXEMPTED SERVICES

• Services provided to the Government, a local authority or a governmental

authority by way of construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance, renovation, or alteration of -

a) a civil structure or any other original works meant predominantly for use other

than for commerce, industry, or any other business or profession;

b) a historical monument, archaeological site or remains of national importance,

archaeological excavation, or antiquity specified under the Ancient Monuments

and Archaeological Sites and Remains Act, 1958;

c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or

(iii) an art or cultural establishment;

d) canal, dam or other irrigation works;

e) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage

treatment or disposal; or

f) 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;

52

EXEMPTED SERVICES

• Services provided by way of construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance, renovation,

or alteration of,-

a) a road, bridge, tunnel, or terminal for road transportation for

use by general public;

b) a civil structure or any other original works pertaining to a

scheme under Jawaharlal Nehru National Urban Renewal

Mission or Rajiv Awaas Yojana;

c) a building owned by an entity registered under section 12 AA

of the Income tax Act, 1961 and meant predominantly for

religious use by general public;

d) a pollution control or effluent treatment plant, except located

as a part of a factory; or

e) a structure meant for funeral, burial or cremation of deceased 53

EXEMPTED SERVICES

• Services by way of construction, erection, commissioning, or

installation of original works pertaining to,-

a) an airport, port or railways, including monorail or metro;

b) a single residential unit otherwise than as a part of a residential

complex;

c) low- cost houses up to a carpet area of 60 square metres per house in a

housing project approved by competent authority empowered under the

‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of

Housing and Urban Poverty Alleviation, Government of India;

d) post- harvest storage infrastructure for agricultural produce including a

cold storages for such purposes; or

e) mechanised food grain handling system, machinery or equipment for

units processing agricultural produce as food stuff excluding alcoholic

beverages

54

• Temporary transfer or permitting the use or enjoyment of a copyright

covered under clause (a) or (b) of sub-section 91 of section 13 of the

Indian Copyright Act, 1957, relating to original literary, dramatic,

musical, artistic works or cinematograph films for exhibition in a

cinema hall or cinema theatre(w.e.f. 1.04.2013)

• Services by a performing artist in folk or classical art forms of (i) music,

or (ii) dance, or (iii) theatre, excluding services provided by such artist

as a brand ambassador

• Services by way of collecting or providing news by an independent

journalist, Press Trust of India or United News of India

• Services by way of renting of a hotel, inn, guest house, club, campsite,

by whatever name called or other commercial places meant for

residential or lodging purposes, having declared tariff of a unit of

accommodation below rupees one thousand per day or equivalent

(w.e.f.11.07.2013)55

EXEMPTED SERVICES

EXEMPTED SERVICES

• Services provided in relation to serving of food or

beverages by a restaurant, eating joint or a mess, other

than those having (i) the facility of air-conditioning or

central air-heating in any part of the establishment, at

any time during the year, and (ii) a licence to serve

alcoholic beverages (w.e.f.1.04.2013)

• Services provided in relation to serving of food or

beverages by a Canteen maintained in a factory covered

under the Factories Act, 1948, having the facility of air-

conditioning or central air-heating at any time during the

year.(w.e.f. 22.10.2013)56

EXEMPTED SERVICES

• Services by way of transportation by rail or a vessel from one place in India to

another of the following goods -

a) petroleum and petroleum products falling under Chapter heading 2710 and 2711 of

the First Schedule to the Central Excise Tariff Act, 1985 (w.e.f. 1.04.2013)

b) relief materials meant for victims of natural or man-made disasters, calamities,

accidents or mishap;

c) defence or military equipments;

d) postal mail or mail bags (w.e.f.1.04.2013)

e) household effects (w.e.f.1.04.2013)

f) newspaper or magazines registered with the Registrar of Newspapers;

g) railway equipments or materials;

h) agricultural produce;

i) foodstuff (includes milk) including flours, tea, coffee, jaggery, sugar, milk products, salt

and edible oil, excluding alcoholic beverages; or

j) chemical fertilizer, organic manure and oil cakes ( w.e.f.11.07.2014);

k) cotton, ginned or baled (w.e.f. 11.07.2014)

57

EXEMPTED SERVICES• Services provided by a goods transport agency by way of

transportation in a goods carriage of -

a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage agriculture

produce (w.e.f. 1.04.2013);

b) Goods, where gross amount charged for the transportation of goods on a consignment

transported in a single goods carriage does not exceed one thousand five hundred

rupees; or

c) goods, where gross amount charged for transportation of all such goods for a single

consignee in the goods carriage does not exceed rupees seven hundred fifty;

d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil,

excluding alcoholic beverages (w.e.f. 1.04.2013)

e) chemical fertilizer, organic manure ( w.e.f. 11.07.2014) and oilcakes (w.e.f. 1.04.2013) ;

f) newspaper or magazines registered with the Registrar of Newspapers (w.e.f. 1.04.2013)

;

g) relief materials meant for victims of natural or man-made disasters, calamities,

accidents or mishap (w.e.f. 1.04.2013) ;

h) defence or military equipments (w.e.f. 1.04.2013)

i) Cotton, ginned or baled (w.e.f. 11.07.2014)58

EXEMPTED SERVICES

• Services by way of giving on hire -

a) to a state transport undertaking, a motor vehicle

meant to carry more than twelve passengers; or

b) to a goods transport agency, a means of transportation

of goods

• Transport of passengers, with or without accompanied

belongings, by —• air, embarking from or terminating in an airport located in the state of

Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland,

Sikkim, or Tripura or at Bagdogra located in West Bengal;

• non-air conditioned contract carriage other than radio taxi, (w.e.f.

11.07.2014) for the transportation of passengers, excluding tourism,

conducted tour, charter or hire; or

• ropeway, cable car or aerial tramway;59

EXEMPTED SERVICES

• Services by way of vehicle parking to general public excluding leasing of

space to an entity for providing such parking facility ( w.e.f. 1.04.2013)

• Services provided to Government, a local authority or a governmental

authority by way of -

a) carrying out any activity in relation to any function ordinarily entrusted to a

municipality in relation to water supply, public health, sanitation conservancy, solid

waste management or slum improvement and upgradation; or

b) repair or maintenance of a vessel or an aircraft (w.e.f. 1.04.2013)

• Specified schemes of general insurance business are exempt

• Services of life insurance business provided under following schemes—

a) Janashree Bima Yojana (JBY); or

b) Aam Aadmi Bima Yojana (AABY);

c) life micro-insurance product as approved by the Insurance Regulatory and

Development Authority, having maximum amount of cover of fifty thousand rupees

(w.e.f.11.07.2014)60

EXEMPTED SERVICES• Services provided by an incubatee up to a total turnover of fifty lakh

rupees in a financial year subject to the following conditions, namely:—

(a) the total turnover had not exceeded fifty lakh rupees during the

preceding financial year; and

(b) a period of three years has not been elapsed from the date of entering

into an agreement as an incubatee;

• Service by an unincorporated body or a non- profit entity registered under

any law for the time being in force, to its own members by way of

reimbursement of charges or share of contribution -

a) as a trade union;

b) for the provision of carrying out any activity which is exempt from

the levy of service tax; or

c) up to an amount of five thousand rupees per month per member for

sourcing of goods or services from a third person for the common

use of its members in a housing society or a residential complex

61

EXEMPTED SERVICES• Services by the following persons in respective capacities -

a) sub-broker or an authorised person to a stock broker;

b) authorised person to a member of a commodity exchange;

c) mutual fund agent to a mutual fund or asset management

company;

d) distributor to a mutual fund or asset management company;

e) selling or marketing agent of lottery tickets to a distributer or a

selling agent;

f) selling agent or a distributer of SIM cards or recharge coupon

vouchers;

g) business facilitator or a business correspondent to a banking

company or an insurance company, in a rural area; or

h) sub-contractor providing services by way of works contract to

another contractor providing works contract services which are

exempt; 62

EXEMPTED SERVICES• Carrying out an intermediate production process as job work in

relation to -

a) agriculture, printing or textile processing;

b) cut and polished diamonds and gemstones; or plain and studded

jewellery of gold and other precious metals, falling under Chapter 71 of

the Central Excise Tariff Act, 1985

c) any goods on which appropriate duty is payable by the principal

manufacturer;

d) processes of electroplating, zinc plating, anodizing, heat treatment,

powder coating, painting including spray painting or auto black, during

the course of manufacture of parts of cycles or sewing machines upto an

aggregate value of taxable service of the specified processes of one

hundred and fifty lakh rupees in a financial year subject to the condition

that such aggregate value had not exceeded one hundred and fifty lakh

rupees during the preceding financial year;

• Services by an organizer to any person in respect of a business

exhibition held outside India

• Services by way of slaughtering of [bovine omitted by N. No.

44/2012- ST] animals;

EXEMPTED SERVICES• Services by way of making telephone calls from —

a) departmentally run public telephone;

b) guaranteed public telephone operating only for local calls; or

c) free telephone at airport and hospital where no bills are being

issued;

• Services received from a provider of service located in a non-

taxable territory by -

a) Government, a local authority, a governmental authority or an

individual in relation to any purpose other than commerce,

industry or any other business or profession;

b) an entity registered under section 12AA of the Income tax Act,

1961 (43 of 1961) for the purposes of providing charitable

activities; or

c) a person located in a non-taxable territory

• Services of public libraries by way of lending of books, publications or

any other knowledge- enhancing content or material

EXEMPTED SERVICES• Services by Employees’ State Insurance Corporation to persons

governed under the Employees’ Insurance Act, 1948;

• Services by way of transfer of a going concern, as a whole or an

independent part thereof

• Services by way of public conveniences such as provision of facilities

of bathroom, washrooms, lavatories, urinal or toilets;

• Services by a governmental authority by way of any activity in relation

to any function entrusted to a municipality under article 243 W of the

Constitution

•Services received by RBI from outside India in relation to FOREX

management (w.e.f. 11.07.2014)

•Tour operator service to foreign tourist for tour wholly outside India

(w.e.f. 11.07.2014)65

66

HIGHLIGHTS OF MAJOR BUDGET CHANGES AND BY FINANCE ACT, 2014

• Tax –GDP ratio expected to be 10.5 percent in FY 2014-15 (marginal

increase)

• No changes in Service Tax rate

• Hints at time line for GST and legislative changes in December 2014

and GST expected in 2015-16; no date announced

• Reverse charge provisions amended / expanded

• Definition of intermediary to include intermediary of goods in its scope.

• Place of Provision of Service Rules amended so as to reduce tax

incidence on transport of goods through coastal vessels to promote

Indian shipping industry.

• POT for reverse charge will be the payment date or the first day that

occurs immediately after a period of 3 months from the date of invoice,

whichever is earlier.

• Abatement in respect of transport of goods by vessel increased from

50% to 60%.

• Rate of interest increased upto 30 percent w.e.f 01.10.2014 based on

period of delay.

67

HIGHLIGHTS OF MAJOR CHANGES IN FINANCE ACT, 2014

• Renting of motor vehicle – service recipient and service provider, both

to pay 50% each under reverse charge instead of 60 : 40 (change w.e.f

01.10.2014)

• Under works contract services, value of service portion in repair,

maintenance or reconditioning or restoration or servicing activities

increased from 60% to 70% by merging two categories

• E-payment of service tax made mandatory for all assessees from

1.10.2014. Relaxation permitted by discretion of the DC /AC on case

to case basis.

• Resident Private Limited Company eligible to make an application for

Advance Ruling.

• Retrospective exemption to ESIC on the services provided prior to

1.07.2012

• Certain provisions of CEA made applicable to ST (15A, 15B) –

obligation to furnish information and consequences for not doing so

• Procedural simplication in exemption to SEZ developer / unit

• SCN’s to be adjudicated within stipulated time

• No more stay application as mandatory fixed pre-deposit of 7.5% and

10% of the duty, in case where duty or duty and penalty are in

dispute, or penalty, where such penalty is in dispute imposed or both,

for filing of appeal at first / second stage appeal has been prescribed

• Ceiling for mandatory pre-deposit fixed at 10 crore rupees.

• Section 80 benefit not to be applicable for serious offences

• Cenvat Credit shall be taken within six months from the date of the

invoice or challans or other documents specified (change w.e.f

01.09.2014)

• Cenvat credit allowable when Service tax paid under full reverse

charge without waiting for the payment of invoice value to the service

provider.

• Service tax paid by sub-contractor in the same line of business would

be allowed as eligible credit to the main service provider to avoid

double taxation, subject to certain conditions (change w.e.f

01.10.2014)

HIGHLIGHTS OF MAJOR CHANGES IN FINANCE ACT, 2014

69

GOODS & SERVICE TAX (THE FUTURE)GST: A Common Tax

on

Goods Services

•Need to find a solution to issue of surrendering tax jurisdiction

by States

•Consensus on CST compensation to be emphasized (States

want a 5 year relief for loss due to reduction in CST rate)

•Constitutional Amendment Bill, 2011- Report of Standing

Committee received; legislative scheme to be introduced

•Tussle between legal powers / administrative powers.

•No clear road map and commitment on time lines on GST

implementation

•Hope for consensus in next few months and GST being

introduced in 2015-16

•Phased roll out of GST likely

GST – WHAT NEXT

•Time to wrap up loose ends

•Consensus required at Empowered Committee on GST to abolish small

taxes

•States want octroi / entry tax not to be subsumed in GST

•Agreement on dropping Dispute Settlement Body

•States may be empowered to raise GST rates in case of distress

(flexibility in tax rate)

•Inclusion / exclusion of alcohol / petroleum products to be decided

•Revenue sharing mechanism to be rationalized

•Composition scheme likely, besides threshold exemption ( may be Rs.

10 Lakh)

•What could be a suitable GST rate?

•Need for drafting a GST Law by States and Centre

GST –AN UPDATE

72