Basis of Service Tax as applicable to port service

- CA. Sudhir V S

Coverage this evening

• General Overview • History of services relating to port services

under the law prior to July 2012• Present taxability and exemptions • Q&A

History

• It was collected 3000 Years back like

– Tax on transportation of goods including ferry tax

– Tax on entertainment

• 46 services in all as per Kautlaiyas Arthashastra

• Initially started with 3 Services, increased to more than 100-

Covers not only Organized sector but also Unorganized sectors

• In 2012 moved to negative based taxation.

Birth of Service Tax

• Service Tax was introduced w.e.f 1st July, 1994

on:- (407 Crs)

– General Insurance

– Stock Broking

– Telephone

• No separate Act. Governed by Chapter V of

Finance Act.

Birth contd..

• Completed 18 years in June 2012 – Change to

Negative list law

• “Service” defined for the first time

• All services will be taxed except for

– Negative list

– Exemptions

Sources of Service Tax Law

Source

Finance Act, 1994

Rules

Notifications

Circulars

Case Laws

Trade Notice

Constitutional Aspect

• Union List – List 1

• Entry No. 92C : “Taxes on Services”

But levied under Entry 97 - Any other matter not

enumerated in List II or List III including any tax not

mentioned in either of those lists.

Levy – Extent & Application• Extends to whole of India except the State of

Jammu & Kashmir; - Taxable Territory

• Applies to Taxable service provided

Charging Section – 66B• There shall be levied service tax at the rate of fourteen per cent

• on the value of all services,

• other than those 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.

Definition of Service • Any activity carried out by a person for

another for consideration + Declared Service – Negative List

• Exclusion – Transfer of title in goods or immovable property

by way of sale, gift or in any other manner– Transaction in money and actionable claim – Deemed Sale as per 366(29A) of Constitution– Provision of service by employee to employer in

course of or in relation to his employment – Fees taken in any court or tribunal established

Declared Service (9) – Sec. 66E

• Renting of immovable property

• Construction of complex, building, civil structure/part

– Excludes Complex sold after Completion Certificate

• Temporary Transfer or permitting – Use or enjoyment of IPR

• Software - development, design, programming, customization,

adaptation, upgradation, enhancement, implementation

• Agreeing to - obligation - to do an act, refrain from doing, tolerating an

act or situation

Declared Service (9) – Sec. 66E

• Transfer of goods - hiring, leasing, licensing of Goods without transfer

of right to use goods

• Activities in relation to delivery of goods on hire purchase/installment

• Service Portion in Works Contract

• Service portion in activity involving Food/drinks/ bevarages supply

Tax Rate

Normal Rates • Service Tax Rate – 14% (earlier 12.36%)Special Rates• Money Exchange • Ticketing

Negative List of Service

• Services by Government or a local authority with some exclusions

• Services by the Reserve Bank of India;• Services by a foreign diplomatic mission

located in India;• Services relating to agriculture or agricultural

produce • trading of goods

Negative List of Service

• selling of space for advertisements in print media.

• service by way of access to a road or a bridge on payment of toll charges

• betting, gambling or lottery• transmission or distribution of electricity by an

electricity transmission or distribution utility

Negative List of Service

• services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption

• extending deposits, loans or advances • service of transportation of passengers, with

or without accompanied belongings• services by way of transportation of goods

Negative List of Service

• funeral, burial, crematorium or mortuary services including transportation of the deceased.

Place of Provision of Service

• To determine whether the service is provided in taxable territory

• Around 10 rules giving PPS in different scenario

• To apply the rule from reverse

Valuation

• Section 67: Gross amount charged • Non-monetary consideration and not

determinable• Service Tax Determination of Value Rules, 2006• Specific Exclusion and Inclusion• Reimbursement vis-a-vis pure agent; • Works Contract Valuation; money changing;

restaurants

CENVAT Credit• CENVAT Credit means the amount of taxes paid at

the stage of procurement of CG & input services from vendors.

• Contractors can claim the CENVAT credit on following and can pay the net tax to department

• Input services • Capital Goods

• Time limit for availment- 12 months• Invoice – rule 4A • For export, place of removal extended to load port hence

Credit can be availed on shipping services.

Point of Taxation

• Earlier of • Receipt of money • Date of Invoice if within 30days • Completion of service/milestone • Other provisions deal with – Reverse charge – Rate change – New rate etc.

Compliances

• Self-Assessment by ST-3 • Audit and Investigation by Department • Demand – 18months and 5 years • Penalties u/s 76,77,78• Personal Penalties on Directors etc.• Prosecution

Due dates for paying service tax

Constitution of Service Provider

Periodicity Due date

Individual Quarterly 6th day of month immediately following quarter

Partnership firms

Quarterly 6th day of month immediately following quarter

Company/Body Corporate

Monthly 6th day of month immediately calendar month

March Month/quarter – 31st March

Rate of interest for delay in paying service tax

Delay Rate of interest

Up to 6 months 18%

For next 6 months 24%

For period beyond one year 30%

Due dates for filing Service Tax Returns

Period Due dateApril to September 25th of October October to March 25th of April

1. No turnover/ exempt turnover – Nil returns needs to be filed

2. SP needs to observe the notifications – extension of due date for return

S.NO. Description of Service %ST

SP SR

1. Insurance Agent to a person carrying Insurance business

NIL 100%

2. Goods Transportation Agency NIL 100%

3. Sponsorship Services NIL 100%

4. Advocate or firm of advocates 2 NIL 100%

5. Support Services by Govt. except Renting , Posts, transportation of goods or passengers 2

NIL 100%

6. Manpower/Security services NIL 100%

7. Service portion in Works Contract1 50% 50%

8. Hiring of Vehicles (Abated value)1 NIL 100%

9. Hiring of Vehicles (Non-Abated)1 50% 50%

10. Import of services NIL 100%

11. Directors Remuneration( incl. Sitting Fees)

NIL 100%

12. Recovery Agency to Bank & NBFC Nil 100%

Reverse Charge-Joint Charge

S.NO. Description of Service %ST

SP SR

13 Mutual fund agent or distributor to a mutual fund or asset management company

NIL 100%

14 Selling or marketing agent of lottery tickets to a lottery distributor or selling agent

NIL 100%

15 Aggregator services NIL 100%

Reverse Charge-Joint Charge

Services Relating to Port Service

• Cargo Handling Service• C & F • Construction Services • Repairs and Maintenance Services• Transportation service – Road & Rail

• Renting of Immovable Properties • Renting of Equipment

Services Relating to Port Service

• Ship Management Service • Steamer Agent Service • Storage and Warehousing Service • Technical Inspection and Certification Service• Port Service • C & F Agents• Stevedores • Dredging services

Construction Service • Form 10.09.2004• Earlier Exemption – Construction, repair, alteration and renovation of

wharves, quays, docks, stages, jetties, piers and railways wholly within the port

• Present Exemption – Nil – Upto 31.03.2015 Construction, erection

commission or installation of port was exempted

Works Contract Service

• Works contract defined u/s 65B(54)

Scope of Works Contract• Activity should be subject to sales tax.• Valuation

Scope of works contract

• The basic requirement is that the activity should be subject to sales tax. However, definition of works contract under service tax and CST/ State VAT is quite different.

• Buildings and structures on land means not only buildings or structures attached to earth but also things permanently fastened to a building or structure attached to earth.

• Pipeline or conduit are structures on land contracts for construction of such structure would be covered under works contract

Scope of works contract

• Contracts for erection commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise be treated as a works contract if

• Transfer of property in goods is involved in such a contract; and

• The machinery equipment structures are attached or embedded to earth after erection commissioning or installation

Scope of works contract

• Contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under ‘works contract’

• Pure labour contracts are not works contracts

Works Contract-Valuation

• Taxable value = Gross Bill-Value of material used/sold-VAT paid thereon.

• If the actual value of material sold not known-then-have to follow rules

Works Contract-ValuationNature of work Taxable value Construction of buildings, jetty, conveyors, harbor, culverts and erection & installations (original works)

40% of gross bill (after deducting VAT) (5.6% on gross bill)

Maintenance or repair or reconditioning or restoration or servicing of any goods. Completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property

70% of gross bill (9.8% on gross bill)

Sub-contractor

• Sub contractor is exempted from service tax if the main contractor is exempted in case of execution of works contract. Serial No. 29(h) of Notification No. 25/2012-S.T dated 20.06.2012 provided such exemption, subject to satisfaction of conditions as follows.

Exemptions withdrawn w.e.f 01.04.2015

• Government non commercial constructions/erection/repair & maintenance

• Residential complex/houses/quarters for government employees for their use

• Construction/installations within port• Construction/installations within airport • SP is liable for ST – even if SR has not

reimbursed the ST component.

Tax implications on Site formation/site leveling/site excavation works within port area

• Site formation/levelling works provides within Port area prior to June 2012 --fully exempted. (Notification No. 17/2005-S.T)

• From 01.07.2012 Site formation/levelling works are liable for service tax

• Therefore Site formation/levelling works taxable at full rate -- No abatement.

Dredging • Dredging services like widening, deepening depth

and desilting in sea continuous availability of the desired depths in shipping channels.

• Dredging – Taxable – No abatement - not covered in Sec 66D and Notf. 25/2012

• Removal of material such as silt, sediments, rocks etc. of ports, harbor are also taxable.

• Dredging Corporation of India is a Body Corporate -- RCM will apply

Shipping & shipping agents • Import transaction completes only when goods reach

customs barriers and bill of entry for home consumption is filed. Service tax is not liable on daughter vessel charges used for transportation of imported goods from mother vessel to jetty -- United Shippers Ltd Vs CCE 2015 (37) S.T.R. 1043 (Tri. - Mumbai)

Shipping & shipping agents

• Ocean freight, currency adjustment charges, bunkering charges, advance manifest charges-Most of these charges form part of TV in respect of customs matters, -- question of levy of ST on a customs transaction would not arise at all -- APL (India) Pvt. Ltd Vs CST 2015 (37) S.T.R. 301 (Tri. - Mumbai)

• Hiring of ships, vessels and barges along with crew for offshore operations

• activity of berthing and mooring charges, port dues, pilotage and towage

• Repairing, chipping, cleaning and painting of ship except provided to Govnt./Govnt authority

• Exemption is available to Government vessels• recreational or pleasure trips

Liable for ST:

Contd…

• Purchase & Sale of cargo space on vessels by shipping agent

• Commission passed on by shipping line to shipper (exporter of goods)

• Booking of cargo space in shipping lines• Services of advertising or canvassing of cargo

for shipping lines are also taxable

Contd…

• Ocean freight collected by shipping agent on behalf of shipping may hit by new amended explanation unless Government specifically exclude it.

• Steamer agents incur various types of expenses on behalf of the shipping line such as pilottage and berth hire charges, Indian Coast light dues paid to the port authorities, For all the above charges the Steamer agent is ordinarily reimbursed by the shipping line. These reimbursements may attract the service tax in terms of explanation added.

Shipping agent in relation to export cargo

• Handling of foreign shipping lines/export cargo by steamer/shipping agent India liable for service tax.

• It cannot be considered as export of service even though the amount received in foreign exchange

Logistics/transport services• Transport of goods by inland water ways – No

ST• Transport is for the purpose of export of goods

- all the transport of goods by all water ways exempted from ST if it is in relation to export

• Rule 10 of POPS Rules – POPS is destination of goods – No ST on freight charges paid to shipping lines-in respect of export goods

Logistics/transport services

• Transportation of goods from outside India to India by vessel/flight up to Customs Station is exempted from service tax.

• The above exemption is available even up to place of Inland Container depot as ICD is part of Customs Station

• The transportation of agriculture products not liable for service tax

C & F, Cargo handling AgentFull rate of ST is to be applied on following services:• Handling of Export/import goods in port• packing• Stevedores-loading & unloading of cargo from

ship to wharf• Stuffing of containers & Terminal handling.• No exemption to handling of export cargo• reimbursement expenditure unless specifically

excluded (w.e.f 14.5.15)

C & F, Cargo handling Agent

• Rack hiring charges/ haulage charges etc., incurred on behalf of shipper liable for service tax --- in hands of C & F agent or Customs Agent may be taxable in terms of new explanation.

• Unless otherwise specified if the port fees, statutory levies, landing and container charges, dock fees, examination charges, terminal handling charges, etc paid by the CHA on behalf of shipper – CHA is liable.

C & F, Cargo handling Agent

No ST:• Loading, unloading, packing, storage or warehousing

of rice & cotton/ of agricultural produce – No ST• If C & F agent or Stevedores handles the agricultural

products, such services are not liable for service tax No Abatement:• Cargo handling service & Stevedores services, have

to discharge the service tax on full value of consideration

Other important points

• Port demurrage charges & Container detention charges (not ship demurrage)- liable for ST w.e.f 01.07.12

• Supply of crew to shipping lines or offshore companies – ST is liable

• RCMSupplier of crew Not body corporate

Receiver Body corporate

Receiver liable under RCM

Refund in respect of export cargo

• If the above services used in respect of export goods, exporter eligible for rebate (Notf No. 41/2012-S.T dated 29.06.2012)

or • refund of taxes paid under Rule 5 of CENVAT Credit

Rules, 2004

Acknowledgements to CA Anil Bezawada for preparation of ppt.

madhukar@hiregange.comsudhir@hiregange.com