UNION BUDGET 2016 SERVICE TAX & CENVAT PROPOSALS

Transcription

1 2016 UNION BUDGET 2016 SERVICE TAX & CENVAT PROPOSALS

2 CONTENTS Preface... 2 Budget Highlights... 3 Effective Date for Various Changes... 4 Service Tax... Legislative Changes 5-7 Changes in Negative List 8-9 Changes in Declared List 9-10 Changes in Exemptions Changes in Abatements Changes in Reverse Charge Amendment to Rules Other amendments 29 Cenvat Credit Rules, Miscellaneous S.K.KANODIA & ASSOCIATES

3 PREFACE Dear Readers, Budget 2016 has been a agriculture as well as farmer oriented budget. The Hon ble Finance Minister has provided many things for the farmers. On the indirect tax front, especially service tax and cenvat credit, a lot of procedural changes have been done. A new levy in the name of Krishi Kalyan Cess has been introduced. A dispute resolution system in indirect tax has been formulated. Many new exemptions has been introduced in the exemption notification. The intent of legislature has been clarified by amending Rule 6 of the Cenvat Credit Rules, All these are welcome step in the reforms of taxation. However, no update as to GST has been provided and it seems that the GST road is still far away. One needs to wait and watch till further updates are provided. As with every Budget, there are numerous questions which can be answered only on the fine reading of the budget papers. Please revert with your comments and questions. We would try our best to help you with any Budget related issues as per our interpretation of the same. Thank you for your support and faith in our firm. Best Regards, Ankit Kanodia Partner- Indirect Tax & Regulatory 2 S.K.KANODIA & ASSOCIATES

4 BUDGET HIGHLIGTS Krishi Kalyan 0.5% on all taxable services to be levied w.e.f. 01/06/2016 to finance and promote initiatives to improve agriculture Various old exemptions removed in last budget for services provided to Government sector re introduced. Interest rates modified to 12%/15% and 24% in certain cases. Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. Prosecution limit enhanced to Rs. 2 crore from Rs. 1 crore The limitation period for issue of SCN is increased from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax Rule 6 of Cenvat Credit Rules rationalized Negative list amended along with Mega Exemption Notification 3 S.K.KANODIA & ASSOCIATES

5 EFFECTIVE DATE FOR VARIOUS CHANGES Particulars Effective date of chnage Legislative changes in Customs and Excise Date of enactment of Finance Bill, 2016, unless otherwise specified Changes to declared list and negative list Date of enactment of Finance Bill, 2016, unless otherwise specified Amendments to CENVAT Credit Rules, March 1, 2016, unless otherwise specified 2004 (Other than those specified in the relevant Notifications) New rates of Customs Duty March 1, 2016 New rates of Excise Duty March 1, 2016 [Retrospective amendments shall have the force of law only upon enactment of the Finance Bill, 2016 but with effect from the specific date indicated] Krishi Kalyan Cess Wef 01/06/ S.K.KANODIA & ASSOCIATES

6 SERVICE TAX A. LEGISLATIVE CHANGES 1. New levy of Krishi Kalyan Cess Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider. SKKA Comments SKKA Comments The new levy has been introduced to finance and promote initiatives to improve agriculture. However, since the credit is being allowed., the impact would be only to the extent of profits made. It is to be noted that the provisions of Chapter V of the Act and Rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable Services. 2. Other Legislative changes Definition of Service The term Service as defined under Section 66B(44) of the Act specifically excludes any activity which constitutes merely a transaction in money or actionable claim. Explanation 2 to the said Section clarifies that transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. 5 S.K.KANODIA & ASSOCIATES

7 Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended to clarify that any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to Service Tax. SKKA Comments As per the provisions of the Lotteries (Regulation) Act, 1998, the transaction between the State Government and the distributors or selling agents is on principal to agent basis. Thus, it has been clarified that such tarnsactions would not be excluded from the definition of service. Section 67A of Finance Act, Section 67A is proposed to be amended to obtain specific rule making powers in respect of Point of Taxation Rules, Point of Taxation Rules, 2011 is being amended accordingly. The amendment in the rules would come into force with effect from the date of enactment of the Finance Bill, SKKA Comments This amendment brings an end to the supremacy of which provision in case of dispute of taxation of new services or that of change in rate of taxes. The Central Government has now been empowered to prescribe the time or the point in time with respect to the rate of service tax. Thus, the conflicts comes to an end and Rule 5 of PoTR, 2011 would be applicable in case of determination of rate of service tax for new services. Changes in Penal Provisions The limitation period for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed 6 S.K.KANODIA & ASSOCIATES

8 to be enhanced by one year, that is, from eighteen months to thirty months by making suitable changes to section 73 of the Finance Act, 1994 Section 75 for interest on short payment of service tax is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government. The monetary limit for filing complaints for punishable offences is proposed to be enhanced to Rs. 2 crore. The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it with the exchequer, and amount of such tax collected but not paid is above the threshold of Rs 2 crore. Sections 90 and 91 of the Finance Act, 1994 are being amended accordingly. The monetary limit for launching prosecution is being increased from Rs. 1 crore to Rs. 2 crore of Service Tax evasion. Section 93A of the Finance Act, 1994 is being amended so as to enable allowing of rebate by way of notification as well as rules. SKKA Comments The penal provisions have only be changed wrt to offences punishable by arrest. The increase in moneraty limits is a welcome change. The increase in normal period of limitation will have good impact as the department would have the powers to reopen the case without proving fraud or misstatement. On the hand of assessee, chance of lower penalty being levied in case of guilt will be helpful. 7 S.K.KANODIA & ASSOCIATES

9 3. Changes in Negative List The changes proposed in the Negative list in Section 66D are as follows: Clause Number Law prior to enactment of Finance Bill, 2016 Law on and after the enactment of Finance Bill, 2016, unless otherwise specified Remarks 66D(l) services by way of- (i)pre-school education and education up to higher secondary school or equivalent; (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 approved vocational education course The said exemption has been removed from negative list but the service tax exemption on them is being continued by incorporating them in the general exemption notification (Notification No. 25/2012-ST) There is no major impact as the services are still being exempted vide Mega Exemption Notification. 66D(o) service of transportation of passengers, with or without accompanied belongings, by (i)a stage carriage; The said entry is being omitted w.e.f. 01/06/2016 The services of stage carriage become taxable with effect from However, abatement benefit is being extended to the same. 66D(p) services by way of transportation of goods (ii)by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; The said entry is being omitted w.e.f. 01/06/2016. The services of a vessel (not aircraft) would be taxed w.e.f. 01/06/2016. The domestic shipping lines registered in 8 S.K.KANODIA & ASSOCIATES

10 India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes. 4. Changes in Declared Services The following are the changes made in Declared list section 66E: Clause Number Law prior to enactment of Finance Bill, 2016 Law on and after the enactment of Finance Bill, 2016, unless otherwise specified 66E(j) NA Assignment by the Government of the right to use the radio frequency spectrum and subsequent Remarks This new introduction in declared services makes it clear that assignment of right to 9 S.K.KANODIA & ASSOCIATES

11 transfers thereof use the spectrum is a service leviable to Service Tax and not sale of intangible goods. Thus, the services would be taxed under reverse charge. 5. New Exemptions/ Concessions Sl. No. Description of service With Effect From SKKA Comments (9)(b) of Services provided by the Indian 01/03/2016 This amendment is in 25/2012-ST Institutes of Management, as per the guidelines of the Central Government, to their students, by way of the line with the object of promoting higher education provided following educational programmes, through IIM s. except Executive Development Programme, - (a) two year full time residential Post Graduate Programmes in Management for the Post Graduate Diploma in Management, to which admissions are made on the basis of Common Admission Test (CAT), conducted by Indian Institute of Management; (b) fellow programme in Management; (c) five year integrated programme in Management. (9)(C) of 25/2012-ST services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepre-neurship by way of assessments under Skill Development Initiative (SDI) Scheme; 01/04/2016 General exemption (9)(D) of services provided by training providers 01/04/ S.K.KANODIA & ASSOCIATES

12 25/2012-ST (Project implementation agencies) under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council For Vocational Training. (12)(A) of 25/2012-ST 13(ba)/(bb) of 25/2012- ST 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 structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or (c) 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 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that nothing contained in this entry shall apply on or after the 1st April, 2020; Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or 01/03/2016 Old exemption restored. 01/03/ S.K.KANODIA & ASSOCIATES

13 14(ca) of 25/2012-ST 14A of 25/2012-ST alteration of, (ba) a civil structure or any other original works pertaining to the In-situ rehabilitation of existing slum dwellers using land as a resource through private participation under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellers. (bb) a civil structure or any other original works pertaining to the Beneficiary-led individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; Services by way of construction, erection, commissioning, or installation of original works pertaining to,- (ca) low cost houses up to a carpet area of 60 square metres per house in a housing project approved by the competent authority under: (i) the Affordable Housing in Partnership component of the Hous-ing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (ii) any housing scheme of a State Government.. Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date: provided that Ministry of Civil Aviation 01/03/2016 Exemption in regards to social security measures of the government. 01/03/2016 Old exemption restored 12 S.K.KANODIA & ASSOCIATES

14 23(bb) of 25/2012-ST 26(q) of 25/2012-ST 26( C) of 25/2012-ST 49/50/51/52 of 25/2012- ST or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March, 2015: provided further that nothing contained in this entry shall apply on or after the 1st April, 2020 Transport of passengers, with or without accompanied belongings, by (bb) stage carriage other than air-conditioned stage carriage; ; Services provided to Government, a local authority or a governmental authority by way of Niramaya Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999). ; Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013); ; 49- Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); 50. Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development 01/06/ /04/ /04/ /04/2016 New exemptions to provide for exemptiosn to services of EPFO, SEBI and other financial institutions. 13 S.K.KANODIA & ASSOCIATES

15 53 of 25/2012-ST Authority of India Act, 1999 (41 of 1999); 51. Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market; 52. Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer s Welfare by way of cold chain knowledge dissemination Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance in India. 01/06/ Existing Exemptions amended or withdrawn: Sl. No. Relevant Entry Amendments With Effct from & SKKA Comments 1. 6(b) of 25/2012-ST Services provided by- (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 Entry b and c are being substituted as (b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to- (i) an advocate or partnership firm of advocates providing legal services; 01/04/2016 Services of senior advocate has been brought in. senior advocate defined as per Advocates Act. 14 S.K.KANODIA & ASSOCIATES

16 business entity; or (iii)a business entity with a turnover up to rupees ten lakh in the preceding financial year; (c) a person represented on an arbitral tribunal to an arbitral tribunal; (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 senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession 2 14(a) of 25/2012-ST Services by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) railways, including monorail or metro; 3 16 of 25/2012-ST Services by an artist by way of a performance in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre if the consideration charged for The word including would be replaced by excluding. railways, excluding monorail and metro; Explanation.-The services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro, where contracts were entered into before 1st March, 2016, on which appropriate stamp duty, was paid, shall remain exempt. For the words one lakh rupees, the words one lakh and fifty thousand rupees shall be substituted 01/03/ /04/2016 Monetary limit increased. 15 S.K.KANODIA & ASSOCIATES

17 such performance is not more than one lakh rupees Provided that the exemption shall not apply to service provided by such artist as a brand ambassador (C) of 25/2012-ST Transport of passengers, with or without accompanied belongings, by Ropeway, cable car or aerial tramway; The entry is being deleted 01/04/2016 Service tax would not be leviable on cable car or ropeway services of transport. Sl. No 7. Changes in Abatement of service tax: Amendment in Notification No. 26/2012-ST dated 20/06/2012 Service 2 Transport of goods by rail Old Provision New Provision Remarks Ta xa ble % Condition Service Ta xa ble % 30 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, Transport of goods by rail (other than service specified at Sl. No. 2A below) Condition 30 CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 w.e.f Cenvat credit of input services for the said service is being allowed 16 S.K.KANODIA & ASSOCIATES

18 2A NA N A NA Transport of goods in containers by rail by any person other than Indian Railways 40 CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, w.e.f Transport of passengers, with or without accompanied belongings by rail 7 Services of goods transport agency in relation to transportation of goods. 7A NA N A 30 Same as above Same as before 30 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken [by the service provider]under the provisions of the CENVAT Credit Rules, NA Services of goods transport agency in relation to transportati on of goods other than used household goods Services of goods transport agency in relation to transportati on of used household goods. Sa me as bef ore CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, ; 30 CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken [by the service provider]under the provisions of the CENVAT Credit Rules, CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, w.e.f w.e.f w.e.f S.K.KANODIA & ASSOCIATES

19 8 NA N A 9A Transport of passengers, with or without accompanied belongings by A. A Contract carriage other than motor cabs, B.A radio taxi 10 Transport of goods in a vessel 11 Services by a tour operator in relation to,- (i) a package tour 25 NA 40 CENVAT credit on inputs, capital goods and input services used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 Services provided by a foreman of chit fund in relation to chit Transport of passengers, with or without accompanie d belongings by A.A Contract carriage other than motor cabs, B.A radio taxi C.A stage carriage 30 Same as above Same as before (i) CENVAT credit on inputs, capital goods and [input services other than the CENVAT credit on inputs, capital goods and input services, used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, Sa Same as before me as bef ore Sa me as bef ore Services by a tour operator in relation to,- 10 CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for w.e.f w.e.f w.e.f w.e.f The package tour 18 S.K.KANODIA & ASSOCIATES

20 input service of tour operator], used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour. (i) a tour, only for the purpose of arranging or booking accommoda tion for any person providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation. abatement has been done away with. It would not be classified as any services other than only for accommodati on. The condition for inclusion of the cost of such accommodati on in bills has been done away with. Thus, making the abatement more rational. 11 (ii) a tour, if the tour operator is providing services solely of arranging or booking accommodatio n for any person in relation to a tour 10 (i) CENVAT credit on inputs, capital goods and input services, other than the input service of tour operator, used for providing the taxable service, has not been taken under the provisions of the (ii) tours other than (i) above 30 (i) CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, (ii) The bill issued for this purpose indicates that it is inclusive of charges for w.e.f S.K.KANODIA & ASSOCIATES

21 CENVAT Credit Rules, (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. such a tour and the amount charged in the bill is the gross amount charged for such a tour. ; 11 (iii) any services other than specified at (i) and (ii) above. 40 (i) CENVAT credit on inputs, capital goods and input services, other than the input services of tour operator, used for providing the NA N A NA w.e.f S.K.KANODIA & ASSOCIATES

22 taxable service, has not been taken under the provisions of the CENVAT Credit Rules, (ii) The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour. 12 Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by a competent authority: a.for residential unit satisfying both the conditions (i)having carpet area less than 2000sq.ft. CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; The value of land is included in the amount charged from the service receiver. Constructio n of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideratio n is received after issuance of completion certificate by the competent 30 (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, (ii) The value of land is included in the amount charged from the service receiver. ; w.e.f S.K.KANODIA & ASSOCIATES

23 and (ii)where the amount charged is less than rupees one crore (b)for other than the (a)above authority 1B 8. Changes in Reverse charge mechanism of service tax: Changes in Reverse Charge Notification No. 30/2012-ST Sl no. Old Provision New Provision Remarks In respect of services provided or agreed to be provided by a This provision is omitted. mutual fund agent or distributor, to a mutual fund or asset management company 1C In respect of service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent 5 In respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal The provision is substituted as follows: Provided or agreed to be provided by a selling or marketing agent of lottery tickets in relation to a lottery in any manner to a lottery distributor or selling agent of the State Government under the provisions of the Lottery (Regulations) Act, 1998 (17 of 1998) The provision is substituted as follows: In respect of services provided or agreed to be provided by a With effect from 1 st day of April, 2016 With effect from 1 st day of April, 2016 Service tax liability does not arise in case of service received from senior advocate. With 22 S.K.KANODIA & ASSOCIATES

24 services firm of advocates or an individual advocate other than a senior advocate by way of legal services. 6 In respect of services provided or agreed to be provided by Government or local authority by way of support services The provision is substituted as follows: In respect of services provided or agreed to be provided by Government or local authority. effect from 1 st day of April, 2016 With effect from 1 st day of April, Changes in Point of Taxation Rules, 2011 w.e.f. 01/03/2016 Rule 5 of POTR applies when a new service comes into the service tax net. Although in the case of new levy, provisions of Chapter V of the Finance Act, 1994, and rules made thereunder, are invariably made applicable in relation to the levy and collection of the new levy. However, doubts have been raised regarding its applicability in case of new levy. Therefore, an Explanation is being inserted in Rule 5 stating that the same is applicable in case of new levy on services. Further, in rule 5 of POTR, it is provided that in two specified situations the new levy would not apply. Another Explanation is being inserted therein stating that in situations other than those specified where new levy or tax is not payable, the new levy or tax shall be payable. SKKA Comments This amendment brings an end to the supremacy of which provision in case of dispute of taxation of new services or that of change in rate of taxes. The Central Government has now been empowered to prescribe the time or the point in time with respect to the rate of service tax. Thus, the conflicts comes to an end and Rule 5 of PoTR, 2011 would be applicable in case of determination of rate of service tax for new services. 23 S.K.KANODIA & ASSOCIATES

25 11. Changes in Service Tax Rules, 1994 The following procedural changes have been made vide Notification 19/2016-ST dated 01/03/2016 in Service Tax Rules, 1994 RULES OLD PROVISIONS NEW PROVISIONS REMARKS 2(1)(d)(i) (D)(II) 2(1)(d)(i) (EEA) 6(1) First Proviso an individual advocate or a firm of advocates by way of legal services in relation to service provided or agreed to be provided by a mutual fund agent or distributor to a mutual fund or asset management company, the recipient of the service Provided that where the [assessee is an individual or proprietary firm or partnership firm], the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the [service is deemed to be provided as per the rules framed in this regard a firm of advocates or an individual advocate other than a senior advocate by way of legal services w.e.f Services of senior advocate would be out of reverse charge and payable by the senior advocate only. Omitted w.e.f Provided that where the [assessee is a one person company whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, or is an individual or proprietary firm or partnership firm or Hindu Undivided Family], the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in w.e.f One person company concept has been introduced. They have been kept at par with individuals for payment of service tax purposes. 24 S.K.KANODIA & ASSOCIATES

26 6(1) Third Proviso Provided also that in case of [individuals and partnership firms whose] aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services [provided or agreed to be provided] by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received 6(4) Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on which the [service is deemed to be provided as per the rules framed in this regard Provided also that in case of [in case of such individuals, partnership firms and one person companies whose] aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services [provided or agreed to be provided] by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on w.e.f One person company concept has been introduced. They have been kept at par with individuals for payment of service tax purposes. w.e.f No change only reference rules changed 25 S.K.KANODIA & ASSOCIATES

27 provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him and the provisions of the [Central Excise (No. 2) Rules, 2001], relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him and the provisions of the [Central Excise Rules, 2002], relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment 6(7A)(ia) New insertion In case of single premium annuity policies other than (i) above, 1.4 per cent. of the single premium charged from the policy holder 7(3A) New insertion Notwithstanding anything contained in sub-rule (1), every assessee shall submit an annual return for the financial year to which the return relates, in such form and manner as may be specified in the notification in the Official Gazette by the Central Board of Excise and Customs, by the 30th day of November of the succeeding financial year; w.e.f w.e.f Concept of annual return as in Excise brought in. 26 S.K.KANODIA & ASSOCIATES

28 7(3B) New insertion The Central Government may, subject to such conditions or limitations, specify by notification an assessee or class of assesses who may not be required to submit the annual return referred to in sub-rule(3a) 7(4) The Central Board of Excise and Customs may, by an order extend the period referred to in [subrule (2)] by such period as deemed necessary under circumstances of special nature to be specified in such order 7B 7C An assessee may submit a revised return, in Form ST- 3, in triplicate, to correct a mistake or omission, within a period of [ninety days] from the date of submission of the return under rule 7. Where the return prescribed under rule 7 is furnished after the date prescribed. The Central Board of Excise and Customs may, by an order extend the period referred to in [subrule (2) and (3A)] by such period as deemed necessary under circumstances of special nature to be specified in such order (1)An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of [ninety days] from the date of submission of the return under rule 7. (2) An assessee who has filed the annual return referred to in sub-rule (3A) of rule 7 by the due date may submit a revised return within a period of one month from the date of submission of the said annual return. (1) Where the return prescribed under rule 7 is furnished after the date prescribed.. (2) Where the annual return w.e.f w.e.f Power of CBEC to extend time of annual returns also. w.e.f w.e.f Late fee for filing annual returns also specified. 27 S.K.KANODIA & ASSOCIATES

29 referred to in sub-rule (3A) of rule 7 is filed by the assessee after the due date, the assessee shall pay to the credit of the Central Government, an amount calculated at the rate of one hundred rupees per day for the period of delay in filing of such return, subject to a maximum of twenty thousand rupees. 12. Changes in Interest rates for service tax w.e.f. enactment of Finance Bill, 2016 Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited to the exchequer, in which case the rate of interest will be 24% from the date on which the Service Tax payment became due. In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs. 60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%. Existing rates Customs- 18% Excise- 18% Service Tax 18% 24% 30% Proposed Rates Customs, Excise & 15% Service Tax 24% in case of Service Tax collected but not deposited to the exchequer 28 S.K.KANODIA & ASSOCIATES

30 13. Other important Amendments 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 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, SKKA Comments This amendment is aimed at promoting the export measures as said by the Hon ble FM in his budget speech. The refund of credit of 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 would be allowed w.e.f. 01/07/2012 itself and one month time period to apply for refund has been allowed. Exemption has been granted to services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature w.e.f. 30/01/2014. However these were taxed prior to 30/01/2014. The services are being exempted retrospectively w.e.f. 01/07/2012. The refund has to be filed within 6 months of enactment of the Finance Bill, 2016 subject to conditions of unjust enrichment. SKKA Comments The refund of tax paid earlier is a welcome step as these were necessary projects of public welfare. 29 S.K.KANODIA & ASSOCIATES

31 CENVAT CREDIT RULES, 2004 The following changes have been introduced in the CCR, 2004: SECTIO N/RULE Rule 2, in sub clause (a) DETAIL BEFORE AMENDMENT capital goods means :- (A) the following goods, namely :- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule to the Excise Tariff Act;.. used (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or [(1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or] AFTER AMENDMENT W.E.F REMARKS capital goods means :- (A) the following goods, namely :- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804 and wagons of sub-heading ] of the First Schedule to the Excise Tariff Act;.. ]used - (1) in the factory of the manufacturer of the final products; or [(1A) outside the factory of the manufacturer of the final products for generation of electricity or for pumping of water for captive use within the factory; or] w.e.f. 1 st April, 2016 Welcome change as appliance used in an office located within a factory has been included in definition of capital goods Rule 2, in sub clause (e) exempted service means a -.but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.] exempted service means a -. but shall not include a service (a) which is exported in terms of rule 6A of the Service Tax Rules, 1994; or (b) by way of transportation of w.e.f. 1 st April, 2016 Definition amended to bring in transport by vessel services. This would 30 S.K.KANODIA & ASSOCIATES

32 Rule 2, in sub clause (k) input means..- (iii) all goods used for generation of electricity or steam for captive use; or (iii) all goods used for providing any output service; but excludes. (C) capital goods except when used as parts or components in the manufacture of a final product; goods by a vessel from customs station of clearance in India to a place outside India; input means.. - (iii) all goods used for generation of electricity or steam or pumping of water for captive use; or (iv) all goods used for providing any output service, or; (v) all capital goods which have a value upto ten thousand rupees per piece but excludes - (C) capital goods, except when,- (i) used as parts or components in the manufacture of a final product; or (ii) the value of such capital goods is upto ten thousand rupees per piece; w.e.f. 1 st April, 2016 allow shipping lines to take credit on inputs and Page 31 of 38 input services used in providing the said service Rule 2, in sub clause (m) input service distributor means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 input service distributor means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, w.e.f. 1 st April, S.K.KANODIA & ASSOCIATES

33 Rule 3, in sub-rule (4), in the fifth proviso Rule 3, in sub-rule (4), in the ninth proviso Rule 4, sub-rule (2), in clause (a), for the Explanati on towards pur-chases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be Provided also that the CENVAT credit of any duty specified in subrule (1), except the National Calamity Contingent duty in item (v) thereof, shall not be utilized for payment of the said National Calamity Contingent duty on goods falling under tariff items and respectively of the First Schedule of the Central Excise Tariff INSERTED For the removal of doubts, it is hereby clarified that an assessee shall be eligible if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year computed in the manner specified in the said notification did not exceed rupees four hundred lakhs.] 1994 towards pur-chases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider or an oursourced manufacturing unit, as the case may be Provided also that the CENVAT credit of any duty specified in sub-rule (1), except the National Calamity Contingent duty in item (v) thereof, shall not be utilized for payment of the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001) Provided also that CENVAT credit shall not be utilised for payment of Infrastructure Cess leviable under sub-clause (1) of clause 159 of the Finance Bill, 2016 For the removal of doubts, it is hereby clarified that- (i) an assessee engaged in the manufacture of articles of jewellery, other than articles of silver jewellery but inclusive of articles of silver jewellery studded with diamond, ruby, emerald or sapphire, falling under chapter heading 7113 of the First Schedule of the Excise Tariff Act, shall be eligible, if 1 st March st March st March S.K.KANODIA & ASSOCIATES

34 Rule 4, sub-rule (5), in clause (b) The CENVAT credit shall also be allowed in respect of jigs, fixtures, moulds and dies sent by a manufacturer of final products to, - (i) another manufacturer for the production of goods; or (ii) a job worker for the production of goods on his behalf, according to his specifications. his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the manner specified in the said notification, did not exceed rupees twelve crore; (ii) an assessee, other than (a) above, shall be eligible, if his aggregate value of clearances of all excisable goods for home consumption in the preceding financial year, computed in the manner specified in the said notification, did not exceed rupees four hundred lakhs (substituted) The CENVAT credit shall also be allowed to a manufacturer of final products in respect of jigs, fixtures, moulds and dies or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act, sent by such manufacturer to, - (i) another manufacturer for the production of goods; or (ii) a job worker for the production of goods on his behalf, according to his specifications: Provided that such credit shall also be allowed where jigs, fixtures, moulds and dies or tools falling under Chapter 82 of the First Schedule to the Excise Tariff Act, are sent by the manufacturer of final products to w.e.f. 1 st April, 2016 It is also being provided that a manufacture r can send these goods directly to such other manufacture r or jobworker without bringing the same to his premises 33 S.K.KANODIA & ASSOCIATES

35 Rule 4, sub-rule (6) The [Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be,] having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a job-worker may, by an order, which shall be valid for a financial year, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker. the premises of another manufacturer or job worker without bringing these to his own premises. (substituted) The [Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be,] having jurisdiction over the factory of the manufacturer of the final products who has sent the input or partially processed inputs outside his factory to a jobworker may, by an order, which shall be valid for three financial years, in respect of removal of such input or partially processed input, and subject to such conditions as he may impose in the interest of revenue including the manner in which duty, if leviable, is to be paid, allow final products to be cleared from the premises of the job-worker. w.e.f. 1 st April, 2016 Presently, the permission given by an Assistant Commission er or Deputy Commission er to a manufacture r of the final products for sending inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty is valid for a financial year. It is being provided that the same would be valid for three financial 34 S.K.KANODIA & ASSOCIATES

36 Rule 4, sub-rule (7), sixth proviso Rule 9, in sub rule (1), clause (a) INSERTED an invoice issued by - (i) a manufacturer for clearance of - Provided also that CENVAT Credit of Service Tax paid on the charges paid or payable for the service provided by way of assignment, by the Government or any other person, of the right to use any natural resource, shall be spread over such period of time as the period for which the right to use has been assigned. an invoice issued by - (i) a manufacturer or a service provider for clearance of w.e.f. 1 st April, 2016 w.e.f. 1 st April, 2016 years Rule 14, Sub rule (2) For the purposes of sub-rule (1), all credits taken during a month shall be deemed to have been taken on the last day of the month and the utilisation thereof shall be deemed to have occurred in the following manner, namely: - (i) the opening balance of the month has been utilised first; (ii) credit admissible in terms of these rules taken during the month has been utilised next; (iii) credit inadmissible in terms of these rules taken during the month has been utilised thereafter.] OMITTED w.e.f. 1 st April, 2016 The existing sub- rule (2) of rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said sub-rule is being omitted. 35 S.K.KANODIA & ASSOCIATES

37 Other Changes in Cenvat Credit rules, 2004 o Rule 6 of Cenvat Credit Rules, which provides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit w.e.f. 01/04/2016 SKKA Comments A very welcome amendment to limit the reversal to the extent of cenvat credit availed. Recently, the MUMBAI CESTAT in case of Mercedes Benz had given a ruling on the same ground. A very important change in cenvat credit rules. o Rule 7 relating to input service distributor has been amended to provide facility to transfer input services credit to outsourced manufacturers, under certain circumstances w.e.f. 01/04/2016 o Notification No. 27/2012 C.E. (N.T.) is being amended so as to provide that time limit for filing application for refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules, 2004, in case of export of services, shall be 1 year from the date of (a) receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or (b) the date of issue of invoice, where payment for the service has been received in advance prior to the date of issue of the invoice 36 S.K.KANODIA & ASSOCIATES

38 OTHER AMENDMENTS 1. Incentives received by Air Travel Agents from Computer Reservation System Companies (CCRS) Incentives received by Air Travel Agents from CCRS are for using software and platform provided by the CCRS. The incentives are either for achieving targets or for loyalty for booking air tickets Thus, the services provided by ATAs to CCRS is neither covered in the negative list nor exempt in any notification. Therefore, service tax is leviable on the same 2. Services provided by government or local authorities to business entities 1st April, 2016 has already been notified as the date from which any service provided by Government or local authorities to business entities shall be taxable. 1st April, 2016 is also being notified as the date from which the definition of support services shall stand deleted from the Finance Act, Services provided by Container Train Operators (CTOs) Service provided by the Indian Railways to Container Train Operators (CTOs) of haulage of their container train (rake of wagons with containers) is a service of Transport of Goods by Rail and is, therefore, eligible for abatement and tax treatment accordingly, that is, for abatement at the rate of 70% with credit of input services. 4. Indirect tax Dispute Resolution Scheme, S.K.KANODIA & ASSOCIATES

39 Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases. 5. Services provided by institutes of language management (ILMs) Since the ILMs are providing coaching/teaching to the students in a school or college, as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force it should be clarified that the services provided by ILMs are not liable to service tax. 6. INORMATION TECHNOLOGY SOFTWARE Central Excise Duty/CVD is to be paid on the value of media containing recorded Information Technology Software. The assessable value of such media is determined as per the retail sale price (RSP) affixed on the package of such media under the Legal Metrology Act, 2009 or the rules thereunder. Service Tax is exempt on transaction involving supply of such media, not amounting to sale/deemed sale. When delivering customised software on media, such media is not required to bear the RSP when supplied domestically or imported, the manufacturer/importer would therefore be required to pay Central Excise Duty/CVD only on that portion of the value representing the value of the medium on which it is recorded along with freight and insurance. DISCLAMER: UNION BUDGET HIGHLIGHTS IS MEANT FOR INFORMATIONAL PURPOSE ONLY AND DOES NOT PURPORT TO BE ADVCIE OR OPINION, LEGAL OR OTHERWISE WHATSOEVER. THE INFORMATION PROVIDED IS NOT INTENDED TO CREATE A CONSULTANT- CLIENT RELATIONSHIP AND NOT FOR ADVERTISING OR SOLICITING. SKKA DOES NOT INTEND TO ADVERTISE ITS SERVICES OR SOLICIT WORK THROUGH THIS NEWSLETTER. SKKA IS NOT RESPONSIBLE FOR ANY ERROR OR OMMISSIONIN THIS NEWSLETTER. THE VIEWS EXPRESSED IN THE ARTICLES IN THIS NEWSLETTER ARE PERSONAL VEIWS OF THE AUTHORS. 38 S.K.KANODIA & ASSOCIATES

40 39 S.K.KANODIA & ASSOCIATES