Analysis of Proposals in relation

Transcription

1 Analysis of Proposals in relation to Service Tax & CENVAT Credit By Mr. Vikram Nankani Senior Partner, Economic Laws Practice Advocates & Solicitors it Mumbai Delhi Ahmedabad Pune

2 Content Service tax Cenvat Credit

3 Service Tax New Entries Existing Entries : Scope Widened Key Legislative Changes

4 New Taxing Entries

5 Service by Air Conditioned Restaurants Taxable service Section 65(105)(zzzzv) Any service provided or to be provided To any person By a restaurant t (by whatever name called) having air conditioning i facility, in any part of the establishment, any time during the FY and having license to serve alcoholic beverages In relation to serving of food or beverage, including alcoholic beverages or both, in its premises Would exclude take away, home deliveries and goods sold at MRP

6 Service by Air Conditioned Restaurants Abatement 70% abatement towards deemed sale of meals & beverages Relevant notification would be issued when levy is effective Likely that credit would be restricted under the Notification for Abatement Constitutional Validity Proposes to tax the service element of a transaction of deemed p sale under the Article 366 (29A)(f)

7 Short-term Accommodation Service Taxable service Section 65(105)(zzzzw) Service provided or to be provided to any person by a hotel, inn, guesthouse, club or campsite (by whatever name called) For providing of accommodation for a continuous period of less than three months Levy restricted to accommodation with declared tariff of Rs 1,000 per day or higher Irrespective of what is actually charged to the customer/client Relevant abatement Notification (50%) will be issued when levy is effective Likely that credit would be restricted under the Notification for Abatement

8 Short-term Accommodation in Service Constitutional Validity Whether levy infringes on the State s power to levy tax on luxuries vide Entry 62 of the State List States already levy a luxury tax on the receipts of a hotelier Likely that constitutionality of the levy would being be challenged on the ground of infringement Similar challenge to taxing entry of Mandap Keeper Services on the ground of infringement over Entry 62 [2004(167) E.L.T. 3] Taxes on luxuries, including Recent judicial precedents holding that entries in schedule VII should receive liberal construction

9 Existing Entries : Scope Widened

10 Legal Consultancy Service Scope of taxable service is proposed to be enlarged, to bring within its ambit: Services provided by a business entity to individuals in relation to advice, consultancy or assistance in any branch of law, in any manner Representational service provided by any person to any business entity Service of arbitration provided by an arbitral tribunal to any business entity

11 Legal Consultancy Service Nature of Service Service Taxability Taxability Service Provider Recipient (Present) (Proposed) Advice, consultancy or assistance in any branch of law Business Entity Business Entity Taxable Taxable Individual Business Entity Not Taxable Not Taxable / Individual Business Entity Individual Not Taxable Taxable Representational Any Person Business Entity Not Taxable Taxable services before any court, tribunal or Any Person Individual Not Taxable Not Taxable authority Services by an Arbitral Tribunal Business Entity Not Taxable Taxable arbitral tribunal, in respect of Arbitral Tribunal Individual Not Taxable Not Taxable arbitration

12 Legal Consultancy Service Representational Services Practicing Chartered Accountants, Cost Accounts and Company Secretaries presently enjoy exemption in respect of the representational services provided before any statutory authority (Notification No. 25/2006- ST dated ) This Exemption may be withdrawn once the aforesaid amendment in legal services is made effective

13 Health Check up and treatment Service Taxable Service [Section 65(105)(zzzzo)] Definition proposed to be substituted to cover : services of a clinical establishment services of visiting doctors/ specialists (other than employees) from the premises of a clinical establishment Clinical establishment defined to mean: [Section 65(25a)] A hospital, maternity home, nursing home, dispensary, clinic, sanatorium or an institution by whatever name called Having facility of central air- conditioning either in whole or in part of its premises, and Having more than twenty-five beds for in-patient treatment at any time during the financial year, and Offering services for diagnosis, treatment or care in any system of medicine OR An entity which carries out diagnosis of diseases with the aid of laboratory or other medical equipment

14 Health Check up and treatment Service Abatement Establishments under the ownership or control of the government or a local authority to be excluded Announcement of 50% abatement from the value of service Notification will be issued post enactment of the new levy Levy is wide in scope Definition of clinical establishment very wide All services provided by a clinical establishment will be taxable Certain Press reports after the budget suggest that government may relook at the scope of the proposed taxing entry ''Whether the service tax will be on 25-bed hospitals or whether it will be on all tests is something that can be discussed''

15 Commercial Training or Coaching Service Present Scope Levy in its present form, keeps outside its purview, unrecognized courses which are conducted by an institute which also conducts courses recognized by law Proposed Amendment Definition of Commercial training or coaching centre proposed to be amended to delete exclusion to (i) ()pre-school coaching and (ii) a training centre or institute or establishment which conducts courses that are recognized under any law for the time being in force. Suitable exemption is proposed to be given to (i) and (ii) post t t f th Fi Bill enactment of the Finance Bill Impact All unrecognized courses will be taxable Irrespective of whether such courses are being conducted by an institute which also conducts recognized courses

16 Other Services Business Support Service Scope of the taxable service is being expanded to include operational or administrative assistance of any kind TRU Letter dated Amendment intends to cover outsourcing of operational or administrative assistance Life Insurance Service Services of managing investment brought within Service Tax net Authorized Service Station s Service Scope enlarged to cover services of decoration and other similar services provided by any person as opposed to only by authorised service station Club or Association Service services provided by clubs or associations to non-members brought within the Service Tax net

17 Key Legislative Changes

18 Key Legislative Changes Two concepts of Taxation Point of Taxation (Point of Taxation Rules as effective from ) Point in time when the tax becomes due Place of Taxation (Place of Supply Rules proposed under GST) Jurisdictional right to levy tax Only presently defined in case of Export and Import of services

19 Key Legislative Changes Point of Taxation Rules, 2011 ( PoT Rules ) Will be effective from April 1, 2011 Draft Rules circulated in August 2010 Rules provides for Point of Taxation for Existing Taxable service (Rule 3) Services where rate of tax is changed (Rule 4) New Taxable service (Rule 5) Continuous supply of services (Rule 6) Services to Associated Enterprise (Rule 7) Services S i involving i supply of intangibles ibl (Rule 8) Rules shall not apply to invoices issued prior to this date (Rule 9)

20 Key Legislative Changes Point of Taxation Rules Continuous supply of services - Services provided or to be provided; - Under a contract; and - For a period exceeding 3 months Existing Taxable service Other than continuous supply Date (milestone or payment) mentioned in the contract OR If invoice is raised or payment received before the above date, then such invoice date or receipt date which ever earlier Date of provision of services provided or to be provided OR If invoice is raised or payment received before the above date, then such invoice date or receipt date which ever earlier

21 Key Legislative Changes Change of rate (CoR) Services provided before CoR Change in Abatement / levy? Services provided after CoR If both raising of invoice and receipt of payment is after CoR - PoT would be which ever earlier Invoice issued before CoR, but payment is received after CoR PoT would be date of invoice Payment received before, but invoice raised after CoR PoT would be date of receipt of payment If both raising of invoice and receipt of payment is before CoR - PoT would be which ever earlier Invoice issued after CoR, but payment is received before CoR PoT would be date of invoice Payment received after CoR, but invoice received before CoR PoT would be date of receipt of payment Rendition + 1 (Invoice /Payment) Old rate COR Rendition +1 (Invoice /Payment) New rate

22 Key Legislative Changes New services No tax payable if to the extent of invoice raised and payment received before introduction of levy No tax payable if payment received before introduction of levy and dinvoice i within 14d days from the date of provision i Services to Associated Enterprise Date of invoice or receipt of payment or debits / credits to account, whichever is earlier Services involving intangibles Receipt of payment or the date of invoice whichever is earlier Payment + Invoice No Tax Payment + Invoice within 14 days New levy Other cases Tax

23 Key Legislative Changes Amendments to the Service Tax Rules, 1994 Important t rules aligned to Point of Taxation Rules, 2011 Rule Before After Comments 4A(1) Issuance of Issuance of Amendment invoice/bill/challan to be within 14 days of date of completion of service invoice/bill/challan to be within 14 days of date from the POT Consequential to POT Rule 6(1) & Proviso 1 to 6(1) Payment to be made by the 5 th /6th of the month, immediately following the calendar month/quarter in which the payments are received, towards the value of taxable services Payment to be made by the 5 th /6th of the month, immediately following the calendar month/quarter in which the service is deemed to be provided as per the rules framed in this regard Amendment consequential to POT

24 Key Legislative Changes Rule Before After Comments Rule 6(3) Provided for adjustment of excess tax where Instead of adjustment of excess tax, assessee now entitled to Additional condition introduced for raising i of credit note services not provided take the credit of such excess either wholly or partly service tax paid Key concern Adjustment permissible only if Rule 6(4B) Subject to the condition that the assessee has refunded value of taxable service and Service Tax thereon to the person from whom it was received. Rule 6(4A) provides adjustment of excess tax paid- Limit for adjustment of excess Rs 1 lakh Subject to following condition (a) Same as before; or (b) has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued Limit increased to Rs 2 lakh services wholly or partly not provided Situation such as bad debts, variation in consideration, discounts, waiver etc. not covered In case of centralised registration if excess amount paid on account of delayed receipt of details of payments full adjustment permissible. Service tax now applicable on receipt, invoice or provision which ever is earlier

25 Key Legislative Changes Period Taxable Event Point of Payment Comments Rendition Collection Provided / To be provided Collection / Advance Adjustment if services not fully / partially provided 2011 onwards Rendition Rendition / Invoice / Receipt of payment whichever is earlier Adjustment if services not fully / partially provided However, no adjustment for bad debts / non payment etc.

26 Key Legislative Changes Amendment to Service Tax (Determination of Value) Rules, Notification 2/2011-ST New Rule 2B providing formula for arriving at taxable value in relation to purchase or sale of foreign currency including money changing Particulars Situations Taxable value Currency when RBI reference Taxable value= (Buying/Selling rate) exchanged from/to INR rate available (RBI s reference rate) x Total units of currency, or RBI reference Taxable value= 1% of gross amount rate not available of INR provided or received by the Money Changer When neither Taxable Value = 1% of the lesser of the two amounts if currencies converted into INR as per RBI reference rate exchanged to INR

27 Key Legislative Changes Rate of tax reduced from 0.25% to 0.1% if Service tax paid on Gross value With the amendment only following two options available 0.1% of Gross value; or 10% on the value determined in terms of new rule 2B

28 Key Legislative Changes Amendment to Service Tax (Determination of Value) Rules, contd.. In Rule 5-after sub-rule (1), following explanation has been inserted For the removal of doubts, it is hereby clarified that for the services specified in sub-clause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority Explanation introduced to the effect that telecom service provider should discharge Service Tax not on the consideration received from the distributors of the RCV but on price paid by the subscribers No specific exemptions granted to the Distributors

29 Key Legislative Changes View taken by the Tribunals that taxable value is amount received from the distributors, and not the price charged from subscriber Position supported by CESTAT decisions in following cases holding that tax was payable on the amount collected by the telecom service provider (from distributor) Commissioner of Service Tax, Mumbai v/s. Reliance Communications Ltd 2008 (11) S.T.R. 258 (Tri. - Mumbai), BPL Mobile Cellular Ltd. Vs. CCE (ST), Coimbatore 2007 (8) STR 546 (Tri-Chennai), Bharti Infotel Limited Vs. CCE, Bhopal 2006(1) STR 107(Tri-Del), M/s Tempest Advertising Vs. CCE 2007 (5) S.T.R. 312 (Tri. - Bang.) Explanation overcomes above decisions Whether the Explanation is applicable retrospectively? Sedco Forex Vs CIT in (2005 (12) SCC 717)

30 Key Legislative Changes Amendment to Works Contract (Composition Scheme for Payment of Service Tax) Rules, Notification 1/2011-ST New Rule 3(2A) provides that any person providing Works Contract Service opting for Composition scheme can avail CENVAT credit only to the extent of 40% of Service Tax paid on the following input services: Erection, Commissioning and Installation Service Commercial C i l or Industrial Construction ti Service Construction Service Applicable where vendor has paid Service Tax on full value of service after availing CENVAT credit on inputs Restriction ti on indirect availement of credit of Excise duty on Inputs Does this imply that contracts involving goods & services not necessarily under Works Contract services?

31 Key Legislative Changes Section Particulars Pre- amendment Post amendment 70 Penalty for delayed furnishing of returns 73B Interest on amount of tax collected in excess of the tax assessed /determined/paid Capped at Rs. 2,000 Capped at Rs. 20,000 13% 18% 15% if turnover < 60 Lakhs 75 Interest on delayed payment 13% Same as above of tax 76 Penalty for failure to pay tax Payable at Rs. 200/ day during which such failure continues 2% p.m., whichever is higher 80 Penalty not to be applicable to certain cases Applicable in case of reasonable cause Payable at Rs. 100/ day during which such failure continues 1% p.m., whichever is higher Maximum penalty not to exceed 50% of the tax payable Waiver applicable if reasonable cause & information is captured in specified records 88 Any amount payable under the Act shall be the first charge on the property of a defaulter, subject to Section 529A of the Companies Act, 1956, DRT, SARFAESI Act and notwithstanding any contrary provision in any Central or State Act 89 Prosecution for provision of service without issue of invoice; availment and utilization of CENVAT credit without actual receipt of inputs or input services; maintaining false books of accounts or failure to supply any information or submitting false information; and non-payment of amount collected as Service Tax for a period of more than six months.

32 Key Legislative Changes Taxable Service Transportation of goods by Air Service Works Contract Service Works Contract Service Conditions/ Terms To the extent of amount of air freight included in the value determined under section 14 of the Customs Act. Exemption available with effect from [Notification No. 09/2010-ST dt ] When provided wholly within an airport; and Classified as Airport Services [Notification No.10/2011 dt ] 03 When provided wholly within the port or other port; and for construction, repair, alteration and renovation of wharfs, quays, docks, stages, jetties, piers and railways [Notification No.11/2011 dt ] Comments Welcome amendment as it eliminates duality of taxes. However, it may be difficult for the Indian transporter carrying import cargo to ascertain whether freight included for valuation of custom duty Similar exemption earlier provided to Commerce or Industrial Construction Service and Erection & Commissioning Services, now extended to Works Contract Service

33 Key Legislative Changes Taxable Service Conditions/ Terms Transportation of Abatement of 25% provided through amendment to Notification Coastal Goods and No. 01/2006-ST, which is subject to the following conditions: Goods transported o Credit of duty on inputs, capital goods or of service tax on through National input services, used for providing such taxable service, has Waterways and Inland not been taken Water Service o Benefits under Notification No. 12/2003-ST has not been availed. [Notification No.16/2011 dt ] Transportation of Exemption has been revised as under: Passenger by Air o 10% of gross value or Rs. 150/- (earlier 100/-), whichever is Service [26/2010- ST less for passengers travelling in economy class (earlier any dt ] 2010] class) o 10% of gross value or Rs. 750/- (earlier 500/-), whichever is (Effective from less, for passengers embarking in India for an international ) journey in economy class [Notification. No.04/2011, dt ]

34 Key Legislative Changes Services provided to SEZ Notification Notification No. 4/2004- ST dated Provision Exemption for services provided to an SEZ unit / developer for consumption within the SEZ Notification No. 9/2009- Upfront exemption if services consumed wholly within the SEZ ST dated (as amended by Notification -- Consumed wholly? No. 15/2009-ST dated ) Otherwise, exemption by way of refund Notification No. 17/2011- ST dated Benefits for services received for authorised operations including those received under reverse charge - Upfront exemption if services consumed wholly within the SEZ o Definition of consumed wholly provided - Otherwise, exemption by way of refund o Restricted cedo to the eextent e of ratio aoof the eepo export turnover oeto the total turnover for the given period to which the claim relates

35 Key Legislative Changes Wholly consumed defined per the Export of Service Rules, 2005 Category 1 services If the immovable property is located within the SEZ Category 2 services If the services are wholly performed within the SEZ Category 3 services If the SEZ does not own or carry on any business other than the SEZ operations Time limit increased from 6 months to 1 year Condition prescribed that no CENVAT credit must have been taken of the Service Tax paid on services used for authorised operations Key Concern For services only provided to SEZ unit / developer but not wholly consumed within the SEZ, may be possible to get 100% refund However, this does not appear to be envisaged in the appended Forms The restriction on credit should be only to the extent that refund is allowed Contrary to provisions from Service Tax under the SEZ Act with overriding Contrary to provisions from Service Tax under the SEZ Act with overriding effect [Sections 26 & 51]

36 Key Legislative Changes Changes to Import Rules and Export Rules Taxable Service Existing Category Proposed Category Impact Provision of preferential location Category III Category I or external or internal development of complexes Service Credit Rating Agency s Services Market Research Agency s Services Category II Category II Category III Category III Likely to hit recipients located in India under reverse charge. Benefit certain services Technical Testing and Analysis Category II Category III like Technical testing & Service Analysis services wholly performed in India and Opinion Poll Service Category II Category III provided to a foreign recipient

37 Key Legislative Changes Taxable Service Existing Category Proposed Category Transport of Goods by Rail Category II Category III Service Transport of Goods by Air Category II Category III Service Transport of Goods by Road Category II Category III Service Rail Travel Agent s Service Category III Category II Health Check-Up and Treatment Service Category III Category II

38 Key Legislative Changes Transport of Goods by Air- various scenarios: Movement of Goods Service Provider Service Recipient Liable Comments Within India / in India India Yes Section 66 case of import India Outside India No Export under Category III # cargo Outside India India Yes Import under Category III Export Cargo (India to outside Exemption under Notification. No India) No.29/2005-ST dt From outside India Outside India No Export under Category III # India to outside India Outside India India India India # Provided payment is received in convertible foreign exchange No Exemption under Notification. No.08/2011-ST dt

39 Cenvat Credit Rules, 2004

40 Cenvat Credit Rules, 2004 Introduction of CENVAT Credit (Amendment), Rules, 2011 Notification No. 03/2011 C.E. (N.T.) dt Highlights Key definitions amended Credit availability curtailed Banks, FIs, traders, insurance, etc. Beneficiation under Rule 6(5) deleted

41 List of amendments in Cenvat Credit Rules, 2004 Rule Nature of amendment Effective Date 2(a) Capital Goods credit allowed on capital goods used outside the factory premises for generation of electricity 2(d) 2(e) Scope of exempted goods enlarged, to deny credit in respect of goods liable to excise under notification No.1/2011-CE Scope of exempted services enlarged to deny credit on trading activity services under abatement (k) Meaning and scope of inputs substantially amended (l) Meaning and scope of input service overhauled (naa) Meaning of manufacture or producer substituted and extended (1)(i) 3(1)(vii) Proviso inserted credit of duty paid on under notification No.1/2011- CE cannot be availed Proviso inserted - in case of ships, boats and other floating structures (falling under CTH ) imported for breaking up, Cenvat Credit of CVD is restricted to 85% (4) Restriction on utilization of credit for payment of duty on goods liable to in terms of Notification No.1/

42 List of amendments in Cenvat Credit Rules, 2004 Rule Nature of amendment Effective Date 3(5) Removal of goods as such from factory for providing free warranty for final products, is allowed without reversal of Cenvat Credit 3(5B) Cenvat Credit is required to be reversed even in cases where input or capital goods (before being put to use) are partially written off (2) Cenvat Credit now available on capital goods received outside the factory and used for generation of electricity for captive use within the factory 4(7) Requirement to reverse Cenvat Credit when payment for input services is returned. Administrative provisions also specified Heading of the rule 6 changed to obligation of a manufacturer or producer of final products and a provider of taxable service 6(1) Rephrasing (2) Manner of maintaining separate records for exempted and taxable goods / services specified

43 List of amendments in Cenvat Credit Rules, 2004 Rule Nature of amendment Effective Date 6(3) Manufacturer or service provider opting not to maintain separate accounts shall follow any one of the following options: (1) Pay tax / duty on exempted goods / services at the rate of 5% of the specified value (2) Pay an amount as determined under Sub-Rule 3A, or (3) Maintain separate accounts for receipt, consumption and inventory of inputs and avail credit only on inputs used in or in relation to manufacture of dutiable final products (excluding exempted goods) and for provision of output services (excluding exempted services) and pay an amount as determined under revised sub Rule (3A) only in respect of input services 6(3A) Addition of words up to the place of removal in computing amount attributable to input services used in or in relation to manufacture of exempted goods or provision of exempted services Explanations omitted (3B) New sub Rule inserted In case of banking and financial i institution including NBFC Cenvat Credit restricted to 50% of credit availed 6(3C) 6(3D) New sub Rule inserted - Cenvat credit restricted to 80% in case of life insurance services and ULIP services Reversal of credit under rule 6(3) shall be treated as non availment of credit in certain instances

44 List of amendments in Cenvat Credit Rules, 2004 Rule Nature of amendment Effective Date 6(3) Explanations as regards value, manner of payment, recovery in case of failure to payment, periodicity of payment inserted (5) Sub Rule deleted (6A) Services to SEZ units / Developers not a exempt service (7) Reduction in time limit for filing of Cenvat Credit return in case of SSI units

45 Definitions Capital goods In respect of manufacturers, capital goods ought to have been used in the factory of manufacture of final products Definition extended to include goods used outside the factory of manufacturer, for generation of electricity, for captive use within the factory Rule 3(1) not amended Sub-Rule (1) deals with taking Credit, and still enables credit only on capital goods received in the factory Consequential amendment in Rule 4(2) Which deals with 50% credit in case of Capital goods

46 Definitions Exempted goods Definition expanded to include goods chargeable to Central Excise 1% [Notification No. 1/2011-C.E.] Duty 1% is not available as Credit [Rule 3(1)(i)] to the buyer Credit (otherwise) availed cannot be utilised for payment of Duty is mandatorily to be paid in cash Exempted Services expanded to include taxable services whose partial value is exempted subject to condition of non-availment of credit of Inputs and Input services Services in respect of which abatement is claimed, for e.g. in terms of Notification No. 1/2006-ST (as amended) shall be treated as exempted services Availability of credit in terms of Rule 6 Explanation inserted - for removal of doubts it is hereby clarified that exempted services includes trading Proportionate credit mechanism for trading activity provided Position in Orion Appliances Ltd codified Retrospective applicability?

47 Definitions Inputs includes all goods used in the factory by the manufacturer of the final product any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products all goods used for generation of electricity or steam for captive use all goods used for providing any output service Excludes light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol any goods used for- construction of a building or a civil structure or a part thereof; or laying of foundation or making of structures for support of capital goods Except when used for providing Port, Airport, Construction, and Site Formation services

48 Definitions Excludes capital goods except when used as parts or components in the manufacture of a final product motor vehicles any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily il for personal use or consumption of any employee any goods which have no relationship whatsoever with the manufacture of a final product

49 Definitions Key Points Requirement of use in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not - amended All goods used in the factory by the manufacturer of the final product eligible, except those specified in the negative list and goods having no relationship whatsoever with the manufacture of final product Goods used primarily for personal use or consumption of any employee Goods used for generation of electricity or steam for captive use constitute inputs Ambiguity whether inputs may be used outside factory, as has been stipulated in case of capital goods

50 Definitions Input service means Any service used by a provider of taxable service for providing an output service Used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal Includes Services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises Advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal

51 Definitions Excludes Architect Services Port Services, Other Port Services, Airport Services, Commercial or Industrial Construction Services, Construction of Complex Services and Site Formation Services for Construction of a building or civil structure of part thereof or for the laying of foundation or structure for support of capital goods Except when used for the provision of one or more of the above specified services General Insurance Services, Rent-A-Cab Services, Authorized Service Station Services and Supply of Tangible Goods services insofar as they relate to a motor vehicle except when used to provide taxable services for which credit on the motor vehicle is allowed as capital goods Services used primarily for personal use or consumption of any employee such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, club, health and fitness centre, life insurance, health insurance and travel benefits

52 Definitions Key points Additions in definition Business exhibition Legal services Negative list of services, on which Credit will not be permissible is added Tribunal has allowed credit in respect of some of these services, for e.g. outdoor catering, garden maintenance Deletions from existing definition Credit on services in relation to setting up of a factory /premises of output service provider The expression activities relating to business, such as has been p g, dropped, effectively narrowing the scope of the definition

53 Other Amendments Rule 4 Proviso to Rule 4(7) stipulates reversal of proportionate Cenvat Credit (on input service) in case any payment or part thereof is returned Consequential amendment for enabling refund / adjustment to the service provider not provided if services fully rendered Rule 6 (2) Maintenance of separate books of accounts with respect to actual use of inputs and input services in relation to manufacture of exempted goods and provision of exempted services Credit not allowed to the extent of inputs and input services used for exempted goods and exempted services Rule 6(3) Separate Accounts not maintained Alternate options provided

54 Other Amendments Option I - Pay an amount equal to 5% (previously 6% for services) of the value of exempted goods and exempted services In case of services on which abatement has been claimed, 5% payable on the value on which no tax is paid Option II - Proportionate credit Credit on inputs and input services available proportionately in the ratio of dutiable goods or taxable services to total turnover Monthly provisional payment and Annually final payment Option III Separate books (Inputs) + Proportionate (Input services) No CENVAT Credit available under any of the options for Inputs and Input o C C ed t a a ab e u de a y o t e opt o s o puts a d put services exclusively used for manufacture of exempted goods or provision of exempted services

55 Other Amendments Value for the purpose of Rule 6 Excisable Goods - Value determined in terms of Sections 3, 4 and 4A of the Central Excise Act Services Value under Section 67 of the Finance Act, 1994 Travel Agent s Services, Money Changers Services, and Works Contract Services (composition) - the value arrived at by a process of back-working, such that the Service Tax rate under Section 66 read with any applicable exemption notification applied on such value shall result in the tax calculated per the presumptive p rates (at the current service tax rate of 10%, the computed value would be ten times the service tax amount) Trading Difference between the sale price and purchase price of goods traded

56 Other Amendments Restriction of credits Credit of input and input services availed every month, will be required to be reversed - In case of banking companies, financial institutions including NBFCs - 50% Rationale set forth by CBEC A substantial part of the income of a bank or a life insurance company is from investments or by way of interest in which a number of inputs and input services are used. There have been difficulties in ascertaining the amount of credit flowing into earning these amounts In case of life insurance services and management of investment in ULIPs 20%

57 Other Amendments Rule 6(3D) specific provision introduced to enable availment of credit of common inputs and input services in case where the benefit of Notification is subject to condition of non-availment of credit of inputs and input services Rule 6(5) - omitted Circular at the time of introduction The basic purpose of identifying 17 specified services for special dispensation is that these services are used in relation to the entire activities of the service provider and cannot be co-related or apportioned with any individual service (whether taxable or exempted) provided by such service provider Rationale in CBEC Circular Consequent to the introduction of the proportionate allocation and its rationalization now, Rule 6(5) that allows full credit of 17 specified services has been deleted. Rule 6(6A) Services provided to a unit in an SEZ, or a developer in an SEZ, for their authorized operations will not be treated as exempted services

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