Service Tax

Service Tax

Revenue from indirect taxes has become the most preferred source of generating revenue of the Finance Ministry. Revenue from service tax has increased over 500 times over the past 2 decades, from mere ` 407 crore to over ` 209682 crore during 2014-15.

Finince Ministry views service tax as a very important source of revenue to the exchequer since the number of registered assessees have gone from a mere 3,943 in 1994-95 to about 17.12 lakh registered assessees for the during 2012-13. Further the number of services covered under service tax have also increased substantially.

The finance bill for the year 2015-16 has shown government's intention to increase the revenue from Service tax.

Service Tax Rate

  1. Rate of service tax is being increased from 12 percent plus education cess to 14 percent. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. Thus, the effective increase in Service Tax rate will be from the existing rate of 12.36% (inclusive of cesses) to 14%, subsuming the cesses.

  2. In context of the aforesaid amendment, an amendment is being made in section 66B of the Finance Act, 1994. Further, it has been provided vide clauses 179 and 187 respectively of the Finance Bill, 2015 that sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007, levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect from a date to be notified by the Government.

  3. The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015. Till the time the revised rate comes into effect, the ‘Education Cess’ and ‘Secondary and Higher Education Cess’ will continue to be levied in Service Tax.

  4. to removal of admission to entertainment events or access to amusement facilities from the coverage of negative list. These recent developments have raised eyebrows of the common man since, hike in service tax rate and inculcation of new services under service tax will simply make a hole in the pocket of the common man.

Enabling provision for levy of “Swachh Bharat Cess”

The most ambitious cleanliness campaign “Swach Bharat” of our beloved Prime Minister Shri. Narendra Modi is set to be funded by way of service tax only. “There shall be levied and collected in accordance with the provisions of this Chapter VI, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto” said the finance minister in his budget speech.

Keeping in mind the words of the finance ministry an enabling provision is being incorporated in the Finance Bill, 2014 (Chapter VI/clause 117) to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. This cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015. The details of coverage of this Cess would be notified in due course.

The government has set a target to build 500 million toilets across the nation during a period of 5 years, whereas the target for the current financial year is 100 million toilets. But looking over government's current progress this target seems far fetched. Whats more important, is the utilization of funds that will be generated by the government through Swachh Bharat Cess ` 0.35 Lakh Crore is the expected funds that will be raised through Swachh Bharat cess and the current target is 100 lakh toilets this means that the government will spend about ` 3,50,000 for every toilet. Here the question of misappropriation of funds comes into existence. Will the government be able to provide transparency in the Swachh Bharat campaign movement that it boasts? What measures will be adopted by the government to curb the problem of misappropriation of funds.

  1. Other Legislative changes:

  1. Negative List - The changes proposed in the Negative List in Section 66 D are as follows:

  1. The Negative List entry that covers “admission to entertainment event or access to amusement facility” is being omitted [section 66D (j)]. Consequently, the definitions of “amusement facility” [section 65 B (9)] and “entertainment event” [section 65B(24)] are also being omitted. The implication of these changes are as follows,-

    1. Service Tax shall be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

    2. Service tax to be levied on service by way of admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. However, the existing exemption, by way of the Negative List entry, to service by way of admission to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical performance including drama and ballet shall be continued, through the route of exemption. For this purpose a new entry is being inserted in notification No. 25/12-ST. The term recognized sporting event has been defined in the proposed amendment in the said notification.

    3. The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods [section 66D (f)] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration. In this context, the definition of the term “ process amounting to manufacture or production of goods” [section 65 B (40)] is also being amended, along with the Negative List entry [section 66D (f)], with a consequential amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

    4. Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending section 66D (a)(iv), to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65 B (49)] is being omitted. Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax .

 

The above changes in the Negative List shall come into effect from a date to be notified later, after the enactment of the Finance Bill, 2015.

 

  1. Further amendments in Chapter V of the Finance Act, 1994:

  2. An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy Service Tax on activities undertaken by chit fund foremen in relation to chit, and lottery distributors and selling agents, in relation to lotteries [section 65 B (44)]. Further, an explanation is being added in entry (i) of section 66D to specifically state that these activities are not covered by the Negative List.

  3. Section 66F (1) prescribes that unless otherwise specified, reference to a service shall not include reference to any input service used for providing such services. An illustration is being incorporated in this section to exemplify the scope of this provision. As illustrated, reference to service provided by the Reserve Bank of India (RBI), in section 66D (b) does not include any agency service provided by other banks to RBI, as such agency services are input services used by RBI for provision of its main service. Accordingly, banks providing agency service to or in relation to services of RBI, are liable to pay Service Tax on the agency services so provided by virtue of the existing section 66F (1).

  4. Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for a taxable service shall include:

    (a) all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in section 67.

    (b) amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.

  5. Section 73 is being amended in the following manner:

    (a) a new sub-section (1B) is being inserted to provide that recovery of the Service Tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73; and

    (b) sub-section (4A) that provides for reduced penalty if true and complete details of transaction were available on specified records, is being omitted.

  6. Section 76 is being amended to rationalize the provisions relating to penalties, in cases not involving fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax, in the following manner,-

    (a) penalty not to exceed ten per cent. of Service Tax amount involved in such cases;

    (b) no penalty is to be paid if Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

    (c) a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

    (d) if the Service Tax amount gets reduced in any appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty ( 25% of penalty imposed) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.

  7. Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or wilful mis-statement of suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax, in the following manner,-

    (a) penalty shall be hundred per cent of Service Tax amount involved in such cases;

    (b) a reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax, interest and reduced penalty is paid within 30 days of service of notice in this regard;

    (c) a reduced penalty equal to 25% of the Service Tax amount, determined by the Central Excise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

    (d) if the Service Tax amount gets reduced in any appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be admissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellate order.

  1. Review of Exemptions :

  1. Exemption presently available on specified services of construction, repair, maintenance, renovation or alteration service provided to the Government, a local authority, or a governmental authority ( vide S. No. 12 of the notification No. 25/12-ST ) shall be limited only to,-

    (a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;

    (b) canal, dam or other irrigation work; and

    (c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal. Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn.

  2. Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST). The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

  3. Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.

  4. Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue.

  5. Exemptions are being withdrawn on the following services:

    (a) services provided by a mutual fund agent to a mutual fund or assets management company,

    (b) distributor to a mutual fund or AMC,

    (c) selling or marketing agent of lottery ticket to a distributor. Service Tax on these services shall be levied on reverse charge basis.

  6. Consequent to imposition of Service Tax levy on service by way of manufacture of alcoholic liquor for human consumption, an amendment is being made in the entry at S. No. 30 of notification No. 25/12-ST to exclude carrying out of intermediate production process of alcoholic liquor for human consumption on job work from this entry.

  7. Exemption is being withdrawn on the following service,-

    (a) Departmentally run public telephone;

    (b) Guaranteed public telephone operating only local calls;

    (c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

  8. Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.

 

The above changes, except the change mentioned in para 6, shall come into effect from the 1st day of April 2015. The change mentioned at para 6 shall come into effect from a date to be notified after the enactment of the Finance Bill, 2015. The change mentioned at S. No. 8 comes into effect immediately.

  1. New Exemptions: Following services have been provided exemption:

  1. Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment. The scope of this exemption is being widened to include all ambulance services.

  2. Life insurance service provided by way of Varishtha Pension Bima Yojna.

  3. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables.

  4. Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve. These services when provided by the Government or local authority are already covered by the Negative List.

  5. Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it’s members.

  6. Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/12-ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

All the above New Exemptions shall come into effect from the 1st day of April, 2015.

  1. New entries being incorporated in notification No. 25/12-ST, to continue exemption to certain activities that are presently covered by the Negative List entries which are being omitted:

Service by way of right to admission to,-

  1. exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet.

  2. recognized sporting events.

  3. concerts, pageants, award functions, musical performances or sporting events not covered by S. No. ii, where the consideration for such admission is upto Rs. 500 per person.

These changes shall be made effective from the date the amendments being made in the Negative List concerning the service by way of admission to entertainment events come into effect.

  1. Abatements

  1. At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road by a goods transport agency and 40% for goods transport by vessels. The conditions prescribed also vary. A uniform abatement is now being prescribed for transport by rail, road and vessel and Service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.

  2. At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and Service Tax would be payable on 60% of the value of such higher classes.

  3. Abatement is being withdrawn from services provided in relation to chit. Consequently, Service Tax shall be paid by the chit fund foremen on the full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit.

    The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015.

  1. Reverse Charge Mechanism:

  1. Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

  2. Services provided by,-

    (i) mutual fund agents, mutual fund distributors; and

    (ii) agents of lottery distributor

    are being brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agent and mutual fund distributor services shall be paid by the assets management company or, as the case may be, by the mutual fund receiving such services. In respect of agents of lottery, Service Tax shall be paid by the distributor of lottery.

This above changes in reverse charge mechanism will come into effect from the 1 st day of April, 2015.

From having a peaceful dinner in a hotel to some happy moments in amusement parks everything is going to be costly. The explanation of finance ministry that the hike is a small step towards implementation of GST is working as salt on the wounds of the citizens of the nation. Honorable Finance Minister Shri Arun Jaitley in a recent press conference told media that increase in service tax rate is a step towards implementation of GST. He further stated that during the GST regime rate of tax will be around 22% and a sudden increase to 22% will not go well with the general public, keeping this in mind rate of service tax has been raised from 12.36% to 14%. However, the increment will not come into effect till the time a separate notification is issued in this regard.

The Finance Budget has quashed the aspirations of the common man as it nowhere consists any benefiting provisions for the general public. The budget after providing minimal relief has utilized complete scope of revenue generation. The recent turn of events has taken away the ball from the court of the general public and has place it in the court of the government. With deeper holes in the pocket dissatisfaction common man seems obvious.

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