Changes in Service Tax Law by Union Budget 2016-17 & There after

till dateCA. Vijay MaheshwariStudy Circle Meeting 22th June 2016 CPE Chapter

Bilapsur of CIRC

There shall be levied and collected, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto. Credit of KKC paid on input service shall be allowed for payment of proposed cess on output services.

Particular Rate of Service Tax

Service Tax 14.00% of Taxable Services

Swachh Bharat Cess 0.50% of Taxable Services

Krishi Kalyan Cess 0.50% of Taxable Serviecs

Effective Rate of Service Tax 15% of Taxable Services

Particular Rate of Service Tax

Service Tax 14.00% of Taxable Services

Swachh Bharat Cess 0.50% of Taxable Services

Krishi Kalyan Cess 0.50% of Taxable Serviecs

Effective Rate of Service Tax 15% of Taxable Services

Peiod Effective Rate

Remark

Till 31-05-15 12.36 EC +SHEC01-06-15 to 14-11-15 14.00 ST Only15-11-15 to 31-05-16 14.50 SBC

From 01-06-16 15.00 SBC+KCC

Breakup of Present Effective Rate

KKC Some Critical Issues KKC would be required to be mentioned separately in invoice & to pay separately? Yes, It is a levy separate from Service Tax

KKC in case of Abated value of Services?Would apply in same percentage of taxable value as mentioned for ST

(NT 26/2012 & NT 28/2016) For Example :-Goods Transport Agency Service – Taxable % = 30%Accordingly 0.50x30% = 0.15 would be KCC

KKC in case of Reverse Charge (NT 30/2012) ?Same as Service Tax

KKC in case of Service Tax (Determination of Value Rules)?Taxed on same value as Service tax (NT 28/2016 )

KKC Some Critical Issues KKC CENVAT ?

To whom allowed : Provider of Output ServiceOn what input : on Taxable service (Input Services) Against which tax : KCC on Taxable service against KCC on taxable service onlyOther tax can be adjusted to pay KCC No ST/ED can not be adjusted against KCC on taxable service

(NT CE- 28/2016 )Practical's :-X a manufacturer pays KCC to Security agency service : can he take CENVAT ?X a manufacturer an also service provider then ?X ‘s KCC payable for Jun 16 month comes to Rs. 1000/-, he is having CENVAT on service tax paid on reverse charge ST- 5000/- , KCC –Rs. 179/-, can he adjust Rs. 1000/- to KCC payable?

KKC Some Critical Issues KKC and POT ?

Rule 5 of POT will apply on new levy (WEF 01-03-16)No Tax if :a ) Invoice issued and payment received b) Payment received and Invoice issued within 14 days

In all other cases tax payable Practical's :-Service completed & Invoice issued on 15-05-2016 & money received on 01-06-2016 ?Service completed on 31-05-16 & Invoice issued on 14-06-2016 & money received on 15-06-2016 ?Service completed on 31-05-16 & money received on same day & Invoice issued on 14-06-2016?Service completed on 31-05-16 & money received on same day & Invoice issued on 16-06-2016?

X a manufacturer an also service provider then ?X ‘s KCC payable for Jun 16 month comes to Rs. 1000/-, he is having CENVAT on service tax paid on reverse charge ST- 5000/- , KCC –Rs. 179/-, can he adjust Rs. 1000/- to KCC payable?

Legal Services (Advocates) Position till 31-03-2016 (Sl. No. 6 of NT 25/2012)

Exemption of legal services provided to :1. An advocate of firm of advocates 2. Any person other then a business entity 3. A business entity with TO < 10 Lacs in preceding FY

In other words was Legal services was taxable in case of services received by a business entity T.O. > 10 L in preceding FY.

100% Reverse charge was applicable by virtue of Sec. 68(2), Rule 2 & NT 30/2012

Legal Services (Advocates) Amendment made by Finance Act 2016 W.e.f. 01-04-2016 (Sl. No. 6 of NT 25/2012)

Exemption of legal services provided by an advocate (other than Sr. Adv) to :1. An advocate of firm of advocates 2. Any person other then a business entity 3. A business entity with TO < 10 Lacs in preceding FY Exemption of legal services provided by an Sr. advocate to Any person other then a business entity Amendment also made in Rule 2 and NT 30/2012.

In other words W.e.f .01-04-2016 Legal services by Sr. advocate to any Business entity became taxable with his liability to collect and pay taxes (No RCM)

Legal Services (Advocates) Amendment by NT 32, 33 & 34/2016 w.e.f. 06-06-2016Exemption of legal services provided by an Sr. advocate to • Any person other then a business entity • A business entity with TO < 10 Lacs in preceding FY

(NT- 32/2016 amending Nt 25/2016 )Consistent amendments have been made in Rule 2 of STR & NT 30/2012In other words W.e.f 06-06-2016 Legal services by Sr. advocate to any Business entity with TO < 10 Lacs in preceding FY, became taxable with 100% RCM.

Legal Services (Advocates) Amendment by NT 32, 33 & 34/2016 w.e.f. 06-06-2016

Legal Services (Advocates) Amendment by NT 32, 33 & 34/2016 w.e.f. 06-06-2016

ChangesSection 73-“Recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded”

Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the 4[Central Excise Officer] may, within ‘eighteen months’ from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice

Changes in Budget:-In the 1994 Act, in section 73,––(i) in sub-sections (1), (1A), (2A) and (3), for the words “eighteen months”,

wherever they occur, the words “thirty months” shall be substituted;

Effect:- The normal period of SCN would be 30 months and the extended period would continue to be 5 years.

Section 75-“Interest on delayed payment of Service

Tax” W.e.f 14-05-16

Note : Rebate of 3% in rate is still available to Service provider if value of taxable services > 60 Lacs

S.no.

Particular Existing Interest Rate (P.A.)

Proposed Interest rate (P.A.)

1. Interest on delayed payments

-upto 6 months 18% 15%

-upto 12 months 24% 15%

-beyond 12 months 30% 15%

2. Interest on Service tax collected but not paid within the due date

24%

ChangesSection 89-“Offences and Penalties”

Changes in Budget:-The monetary limit for launching the prosecution is increased from 1 crore to 2 crore of service tax evasion.

Section 91-“Power to Arrest”

Changes in Budget:-The power to arrest in service tax is being restricted only in the situations where the tax payer has collected service tax but has not deposited it to the exchequer and amount exceeds Rs. 2 crore.

ChangesAnnual Return W.e.f. FY 2016-17 (Rule 7)

• Existing system of half yearly return ?• Periodicity : Annual• Due date : 30th Nov of next FY • Revision : within 1 month • Late fees : Rs. 100 per day of delay maximum Rs. 20K • CG may exempt any person or class

Changes w.e.f. 01-04-2016S. No. Service Existing

AbatementProposed

Amendment

1 Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%.

70%Without credit

70%With input

service credit

2 Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%.

70%Without credit

70%With input

service credit

3 Credit of input services is being allowed on transport of goods in containers by rail

70%Without credit

60%With input service cred

4 Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%.

70%Without credit

70%With input

service credit

5 The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof

70 & 75 % 70%

Changes w.e.f. 01-04-2016

S. No. Service ExistingAbatement

ProposedAmendment

6 Abatement rate in respect of services by a tour operator in relation to packaged tour (defined where tour operator provides to the service recipient transportation, accommodation, food etc) and other than packaged tour rationalized to 70%

75/60%of amount

charged

70%of amount charged

7 Abatement on shifting of used household goods by a Goods Transport Agency (GTA)

70% 60%

8 Abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods

0 30%

In case of renting of motor cab service, cost of fuel should be included in the‘consideration’ charged for availing the abatement.

In case of tour operator providing solely services of booking accommodation should include cost of such accommodation while claiming abatement of 90%.

Suresh Kumar Bansal Vs. Union of India & Ors;

Anuj Goyal & Ors Vs. Union of India & Others [2016-TIOL-1077-HC-DEL-ST]Facts & Ground:-

• Petitioners entered into into a composite contract for purchase of flats with M/s Sethi Buildwell Pvt. Ltd. In housing project

• Builder recovered Service tax apart from consideration on the services ‘in relation to construction of complex’ as defined under Section 65(105)(zzzh) of the Finance Act, 1994 (“the Finance Act”)

• Being aggrieved, the Petitioners filed Petitions before the High Court of Delhi.

Petitioners’ contentions:-• The entries relating to taxation in List I and List II of the Seventh

Schedule to the Constitution of India were mutually exclusive and the Parliament did not have the power to levy tax on immovable property; thus beyond the legislative competence of the Parliament;

• Their Agreement is a composite contract and in absence of specific provisions for ascertaining the service component of the said Agreement, the levy would be beyond the legislative competence of the Parliament;

Suresh Kumar Bansal Vs. Union of India & Ors;

Anuj Goyal & Ors Vs. Union of India & Others [2016-TIOL-1077-HC-DEL-ST]Revenue’s Contention:-

• Development of a project results in the substantial value addition on bare land and includes various services such as consulting services, engineering services, management services, architectural services, These services are subsumed in the taxable service as contemplated under Section 65(105)(zzzh) of the Finance Act.

• Taxable value is only 25% due to abatement available (Nt 1/2006)

Court’s Observation:-• No impinges on the legislative field reserved for the States under

Entry-49 of List-II of the Seventh Schedule to the Constitution of India The imposition of Service tax by virtue of the impugned explanation is not a levy on immovable property as contended.

• While the legislative competence of the Parliament to tax the element of service involved cannot be disputed but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component which is the subject of the levy.

Suresh Kumar Bansal Vs. Union of India & Ors;

Anuj Goyal & Ors Vs. Union of India & Others [2016-TIOL-1077-HC-DEL-ST]Court’s Observation continue………

• None of the Rules under the Service Tax (Determination of Value) Rules, 2006 (“the Service Tax Valuation Rules”), cater to determination of value of services in case of a composite contract which involves sale of land.

• The abatement to the extent of 75% by a notification or a circular cannot substitute the lack of statutory machinery provisions to ascertain the value of services involved in a composite contract.

Comment • From July 2012, all services except specified in the Negative List,

were subjected to service tax. • However, the Act and Rules pertaining to service tax do not

contain any provision for exclusion of value of land. • An abatement is provided vide a Notification and, therefore, the

legal situation from July 2012 till date is exactly same as was there in the above judgment.

Legislative ChangesAmendment in Definition of Service Section 65B- (44) Earlier Scenario:-Services by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind were taxable .

Changes in Budget:-Services by a lottery distributor or selling agent on behalf of State Government in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner in accordance with the provision of the lotteries (regulations) act 1998.

Crux:-Now the lottery services which has been provided in accordance with the provisions of the lotteries (regulations) act are taxable as the other services which are contrary to Lottery (regulations) act 1998 are ultra-vires and not legally enforceable.

Changes in Section 66D- Negative List of Services

S. No. Description of Service Before Budget2016

After Budget 2016

Services by way of—

(i) pre-school education and education up to higher secondary school or equivalent Exempt as per

Clause(l)of Negative Listed Services

Exempt as per Sr. No. 9 of Mega-exemption list E/N 25/2012(ii) education as a part of a

curriculum for obtaining a qualification recognised by any law for the time being in force

(iii) education as a part of an approvedvocational education course;

Exempt as per Clause(l)of Negative Listed Services

New Exemption point 9D is inserted in Mega-exemption list E/N 25/2012:- . services provided by training providers under vocational training courses certified by National Council For Vocational Training.”;

Legislative Changes with effect 01-06-16Section 66D- Negative list of services

b) Clause (o), sub-clause (i) shall be omitted:-Clause (o) of Negative list cover services by way of— with or

withoutaccompanied

Transportation ofpassengers, belongings, by—

(i) a stage carriage;In entry 23 of Mega exemption list E/N 25/2012,-(A) after clause (b), the following clause

shall be inserted with effect from 1st June 2016, namely,-

“(bb) stage carriage other than air-conditioned stage carriage;”;

Now only non-air conditioned Stage Carriage is exempt from service tax under entry 23(bb)

So air-conditioned stage carriages are liable to service tax.

Legislative ChangesSection 66D- Negative list of servicesc) Clause (p), sub-clause (ii) shall be omitted:-

Clause (p) of Negative list cover services by way of— Transportation of goods—(ii) by an aircraft or a vessel from a place outside India to

the first customs station of landing in India; orConsequent to this omission, new exemption is granted by

way of entry no 53 in mega-exemption which reads as under:-

“53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India.”;”

Effect:- Now, services by transportation of goods by VESSEL are taxable. Domestic shipping lines shall pay tax themselves whereas in case of services availed from foreign shipping lines, the business entity located in India shall pay tax under reverse

charge.

Section 66E- Declared Services Insertions insection 66E, after clause(i),the following clause shall be inserted, namely:—

“(j) assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof.”Transfer of right to use radio frequency spectrum is not Sale of Intangible goods.Now this service shall be covered in “any service provided by government to business entity” and therefor tax shall be payable by the business entity under reverse charge.

InsertionsSection 67A-67A. The rate of service tax, value of a taxable service and rate of

exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

Changes in Budget:-In the 1994 Act, in section 67A, the [existing section] shall be

renumbered as sub-section (1)and after sub-section (1), the following sub-section shall be inserted,

“(2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed.”.(Point of time with respect to the rate is prescribed in Point of

TaxationRules,2011)

Effect:- To decide about the applicability of service tax rate, POTR has to be referred and apparent contradiction b/w Sec. 67A and POTR has been removed.

Section 78A-“Where a company has committed any of the [given]

contraventionsthen any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees:—”

Changes in Budget:-In the 1994 Act, in section 78A, the following Explanation shall

be inserted, namely:––

“Explanation.–– It is proposed that penalty proceedings under section 78A shall be deemed to be closed in case where the main demand and the penalty proceedings have been closed u/s 76 or 78.

New Section Introduced

incertain

cases

relatingto

Section 101-“Special provision forexemptionconstruction of canal, dam, etc..”For services provided by way of construction, erection &commissioning

of canal dam or other irrigation work provided

togovernmental authority for the period 01 July 2012 to 29 Jan 2014.

From 30 Jan 2014, after amendment in definition of ‘Governmental Authority’, it is already covered by exemption.

Application for refund of service tax paid on said services during the period 01/07/12 to 29/01/14 can be filed within a period of 6 months from the date of enactment of finance Act 2016.

New Section IntroducedRetrospective Exemption given under Section 102 & 103 for the period01/04/2015 to 29/02/2016 for following services:-1. Services provided to government, local authority or

governmental authority by way of construction erection ofa) 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 structure meant predominantly for use as––(i) an educational establishment;(ii) a clinical establishment; or(iii) an art or cultural establishment;

(c) a residential complex predominantly meant for self-use or for the use of their employees

2. Construction of original works pertaining to an airport or port (Section 103)

Condition: Where a contract entered into before the 1st day of March, 2015 and on which appropriate stamp duty, where applicable, had been paid before that said date. The exemption is restored till 31/03/2020.

Changes in Mega exemptions Broadening of Tax Base

Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016, is being withdrawn with effect from 1st March, 2016

Exemption on the services of transport of passengers, with or without accompaniedbelongings, by ropeway, cable car or aerial tramway is being withdrawn with effect from

1st April, 2016.

Changes in Mega exemptions – New

Exemptions

• 1. Services by way of construction of low cost houses (upto carpet area of60 sq mtr.) in any approved housing project scheme

• 2. Services of Life insurance business provided by way of annuity under NPS

Health• 3. Services by EPFO, IRDA and SEBI ( effective from 01 April 2016• 4.Services of General insurance provided under

‘Nirmaya’Insurance scheme

• 5. Services provided by National Centre for Cold Chain development by way of knowledge dissemination

• 6. Services provided by vocational training under Deen Dayal UpadhyayGramin Kaushal Yojna

Changes in Mega exemptions: Exemption

• 7. Services provided by bio-technology industry research assistance council(BIRAC) approved biotechnology incubators to incubatees

• 8. Services of bodies empanelled by Directorate General of Training, Ministryof Skill Development & Entrepreneurship

• 9. Services provided by IIM by way of 2 years Post graduate program in management & Five year integrated program in management and fellowship programme in management.

• 10. The threshold exemption for services provided by a performing artist infolk or classical art form of music, dance or theatre is enhanced from 1 lacs to1.50 lacs per event (wef 1-4-2016)

Reverse Charge E. No. 30/2012 (Effective from 01 April 2016)

Reverse Charge withdrawn in following case:-

Description of serviceThe services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from

Reverse Charge introduced in following case:-

Description of serviceAny Service provided by government or a local authority to a business entity having turnover of more than 10 lakhs.

Notification No. 41/2012- ST, dated the 29th June, 2012 was amended vide

notification No.1/2016-ST dated 3rd February, 2016 so as to, inter alia, allow

refund of service tax on services used beyond the factory or any other place or

premises of production or manufacture of the said goods, for export of the said

goods. The said amendment is being given retrospective effect from the date of

application of the parent notification, i.e., from 01.07.2012.

Time period of one month is proposed to be allowed to the exporters whose

claims of refund were earlier rejected in absence of amendment carried out

vide notification No.1/2016-ST dated 3rd February, 2016.

Other Changes1. Service tax on the services of Information Technology Software on media

bearing Retail Sell Price is being exempted from Service Tax with effect from 1st March, 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act. (Effective from 01/03/2016)

2. Mutual exclusiveness of levy of excise duty and Service Tax on Information Technology Software in respect of software recorded on media “NOT FOR RETAIL SALE” is being ensured by exempting from excise duty only that portion of the transaction value on which Service Tax is paid. (Effective from 01/03/2016)

3. Benefit of quarterly payment of service tax extended to OPC and HUF.

4. Facility of payment of service tax on receipt basis extended to OPC.

• As per this scheme, in respect of cases pending before Commissioner (Appeals), the assessee can file a declaration after paying the duty, interest and penalty equivalent to 25% of duty. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution.

• Applicable for appeals pending as on 1-3-2016.• Declaration for settlement can be made b/w 1-6-2016 to 31-

12- 2016.• Scheme not apply to cases of search & seizure, prosecution

launched before 1-6-2016 and orders relating to narcotic drugs/prohibited goods.

Thank YouCA. VIJAY MAHESHWARI

12/B, 1st Floor, Vaishali ComplexDeendayal Square, Shrikant Verma Marg

BILASPUR(C.G.)-495001Phone No. : (07752)407555

Cell : 98271 13251Email- vaainho@gmail.com