Changes in Service Tax Overview Reverse Charge and VCES Bimal Jain FCA, ACS, LLB, B.Com (Hons)

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1 Changes in Service Tax Overview Reverse Charge and VCES Bimal Jain FCA, ACS, LLB, B.Com (Hons) Co-Chairman of IDT of PHD Chamber of Commerce Member of IDT of FICCI/ Assocham Special Invitee of IDT of ICAI/ ICSI Member of Indirect Tax faculties of ICAI/ICSI/ICWAI

2 TAXATION OF SERVICES NEGATIVE LIST Restoration of Service Specific Accounting codes for Registration & Payment of Service Tax 2

3 Taxable Event - Service Tax S. 66 of Finance Act There shall be levied a tax on the Value of taxable services referred to in various sub clauses of (105) of S.65 and collected in such manner as may be prescribed S. 65(105) Any Service provided or to be provided ( ) Association of Leasing & Financial Service Companies vs. UOI 2010 (20) STR 417 SC Taxable Event Rendering of Service S. 65B (51) Taxable service means any service on which service tax is leviable under section 66B; S. 66B There shall be levied a tax at the rate of 12% on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed 3

4 Definition of Service S. 65B (44) Service" means Any Activity carried out by a Person for another for Consideration, and includes a Declared service, but shall not include (a) an activity which constitutes merely, (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be sale within Article 366 (29A) of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; Employer Employee / Secondment/ Jt Employment/ Director (c) fees taken in any Court or tribunal established under any law for the time being in force. 4

5 Definition of Service Explanation 1. Nothing contained in this clause shall apply to functions performed by MP, MLA, Other Govt. Officers or Govt. Bodies. Explanation 2. For the purposes of this clause, 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. Explanation 3. For the purposes of this Chapter, (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non taxable territory shall be treated as establishments of distinct persons. Explanation 4. A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; 5

6 Declared Services S S 66E 9 Activities declared to be Service: Renting of Immovable Property (Entry 49 List II) b. Construction of a complex, building, civil structure for which consideration received before issuance of completion certificate (Entry 49) Temporary Transfer/Permitting Use or Enjoyment of Intellectual Property Rights {IPR -10/9/2004} Development, Design, Implementation etc. of Information Technology Software {IT Software Services 16/5/2008} Agreeing to the obligation or to refrain from an act, or to tolerate an act or a situation, or to do an act; Transfer of goods by way of hiring/ leasing/ licensing without transfer of right to use such goods {16/5/2008} Activity in relation to delivery of goods on hire purchase/ any system of payment by instalments h. Service portion in the execution of a works contract {A -366 (29A)} Service portion in an activity involving supply of food/drinks/article of human 6 consumption Page 6 {A -366 (29A)}

7 TAXATION OF SERVICES NEGATIVE LIST 7

8 Obligation & POT 8

9 Budget Notifications issued under Service Tax laws Notification No. Description 2/2013 Service Tax Seeks to amend Abatement Notification No. 26/2012 Service Tax, dated the20th June, 2012, Effective from: /2013 Service Tax Seeks to amend Mega Exemption Notification No. 25/2012 Service Tax, dated the 20th June, 2012, Effective from /2013 Service Tax Seeks to notify the resident public limited company as a class of persons under sub clause (iii) of clause (b) of section 96A of the Finance Act, Effective from

10 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Launched Registered Assessee: 17 Lakhs ST Return Filed: 7 Lakhs SSI (Rs.9 10 Lakhs) / Surrender STC Eligible Person: Non Filers/ Stop Filers No Notice or an Order U/S 72 (Best Judgment) or U/S 73 (Taxes not levied/ not paid or short levied/ short paid or erroneously refunded) or U/S 73A (ST collected to be deposited with CG) has been issued or made before the

11 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Ineligible Person: Filed Truthful Return but not deposited ST Inquiry or investigation initiated by way of (i) Search of premises U/S 82 of Finance Act, 1994 (ii) Issuance of summons U/S 14 of CE Act, 1944 (iii)requiring production of accounts, documents or other evidence or Audit has been initiated, Such inquiry, investigation or audit is pending as on

12 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Period for Declaration: From October 1, 2007 to December 31, 2012 on or before Pay at least half of that dues before December 31, 2013; remaining half to be paid by: (a)june 30, 2014 without interest; or (b)by December 31, 2014 with interest from July 1, 2014 onwards; Pay Normal liability from January, 2013 as normally being paid under the present law No Refund of payment made under VCES 12

13 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Immunity from Interest/ Penalty/ Other Proceedings Consequences of not paying declared Amount: To be recovered as Arrear of land revenue by attaching movable and immovable properties Consequences of not making True declaration: Where Commissioner of Central Excise has reasons to believe that the declaration was substantially false, serve notice to show cause why he should not pay the tax dues not paid or short paid. No action shall be taken after the expiry of one year from the date of declaration. 13

14 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Form of Declaration of Tax dues in Form VCES 1 Form of Acknowledgment of Declaration by the designated authority in Form VCES 2, within a period of seven working days from the date of receipt of the declaration Form of Discharge Certificate by the designated authority in Form VCES 3 upon payment of Tax dues declared Any person, if not already registered, take registration Rule 4 of STR CENVAT Credit cannot be utilized for payment of service tax under this scheme; 14

15 SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 (VCES) CHAPTER VI Comments: Biased to Honest Assessee All India Federation of Tax Practitioner & Anothers Vs. UOI [1998 (2) SCC 161] No Secrecy clause as to confidentiality of information Declared tax dues subject to approval by designated authority Neutral & fair Portion of Cut off period for which declaration can be made before December 31, 2013 for the period from October 1, 2007 to December 31, 2012 is beyond period of limitation i.e. 5 Years from the relevant date of declaration. 15

16 Changes in Finance Bill, 2013 Changes in Negative List 16

17 Changes in Negative List 17

18 Changes in Negative List Process amounting to manufacture or production in S. 65B(40) expanded Process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 and any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force Comment: No benefit for past period 18

19 Changes in Negative List S. 66D(l) Pre School & Higher Secondary/ Certified courses recognized by Law/ Approved Vocational course S. 65B (11) (i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961; or Comment: No benefits for past period 19

20 Advance Rulings Notification No. 4/2013 ST dated The benefit of Advance Ruling extended to Resident public limited companies U/S 96A (b)(iii) Public company as defined in S. 3(1)(iv) of Companies Act and Resident in S. 2(42) of IT Act Advance ruling means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided, by the applicant; 20

21 Changes in Mega Exemption Lists Effective from vide Notification No.3/2013 ST dated

22 Mega Exemption Education Institutions 22

23 Mega Exemption Cinematographic films 23

24 Mega Exemption AC Restaurants Under S. No 19 Exemption will now be available only to non air conditioned/ non centrally air heated restaurants; Earlier air conditioned and license to serve alcohol Rule 2C 24/2012 ST 40% (No Cenvat on Input) Comments: Definition of Service S.65B(44) Inclusion/ exclusion of Deemed Sale A. 366 (29A) K Damodaraswami Naidu Sales tax on 100% value Open Joint in malls e.g. Corn shop/ Ice cream Parlous/ Home delivery/ Take Away/ Self Service/ Sale of MRP based products 24

25 Mega Exemption Railways 25

26 Mega Exemption GTA Under S. No. 21 Services provided by GTA (a) agricultural produce; (b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed Rs. 1500/ (c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed Rs. 750/ (d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; (e) chemical fertilizer and oilcakes; (f) newspaper or magazines registered with the Registrar of Newspapers; (g) relief materials meant for victims of natural or man made disasters, calamities, accidents or mishap; or (h) defence or military equipments; Earlier: (a) fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; Clause (b) and (c) above 26

27 Mega Exemption Others Under S. No. 24 The exemptions for vehicle parking to general public is withdrawn. Under S. No 25 Exemption for repair or maintenance service of Govt s aircrafts are being withdrawn but for vessel, exemption will continue. Charitable activities: Benefit to charities providing services for advancement of any other object of general public utility up to Rs. 25 Lakh will not be available. However the threshold exemption will continue to be available up to Rs 10 lakh. 27

28 Changes in Abatement Services Effective from vide Notification No.2/2013 ST dated

29 Abatement Constructions 29

30 Reverse Charge Service Tax Notification No. 30/2012 ST, dated (Further, amended by Notification No. 45/2012 ST dated ) Services notified U/S 68(2) for reverse charge purposes STR, 1994 amended by Notification No. 36/2012 ST, dated to specify the person liable for paying service tax in respect of such Notified services under Rule 2(1)(d) of the said Rules. 30

31 Partial Reverse Charge Sl. No Description of Service Service Recipient (Business Entity as Body Corporate) Service Provider (Individual, Firm, HUF, AOP) Renting or Hiring of Motor vehicles designed to carry passenger to any person who is not in the similar line of business 7. (a)with abatement CC not availed by SP 100% NIL (b)without abatement CC availed by SP 40% 60% 8. Supply of Manpower for any purpose or Security Services ( ) 75% 25% 9. 31Works Contract Service CS 50% Bimal Jain 50%

32 Reverse Charge -Partial Body Corporate U/S 2(7) of Companies Act, 1956 Includes a Company incorporated outside India but does not include (a) Corporation sole; (b) Registered Co operative Society; (c) Any other body corporate which CG notify in OG (Except a Company as defined in the Act) 32

33 Reverse Charge -Partial Rule 2(1)(g) of STR Supply of manpower means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control Manpower Recruitment/ Piece Rate/ Hourly Rate basis/ Cleaning Services Rule 2(1)(fa) of STR Security services means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity 33

34 Reverse Charge Service Tax Notification No. 30/2012-ST Dated 20/06/

35 Reverse Charge 35

36 Reverse Charge 36

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