Budget Indirect tax proposals

Transcription

1 AMBALAL PATEL & CO. CHARTERED ACCOUNTANTS Budget Indirect tax proposals Ambalal Patel & Co 1 St Floor, Sapphire Business Centre Above SBI Vadaj Branch, Usmanpura, Ashram Road, Ahmedabad apcca@apcca.com Website: Blog: apcca.wordpress.com

2 Dear Clients, In continuation of our earlier update of Clause by Clause analysis of Direct tax Proposals of the Union Budget, we hereby forward you the Proposals of Indirect Tax proposals which we hope will be of immense help to understand the changes made by the Union Budget. On 29th February, 2016, Finance Minister has presented its budget. Here are some changes with regards to Service Tax. We have broadly classified Service tax proposals as under: SR. Particulars of Change A Changes in Service tax Rate B Changes in Negative List (Sec. 66D) C Changes in Mega Exemption tification. 25/2012 D Changes in Abatement tification. 26/2012 E Changes in Reverse Charge Mechanism tification. 30/2012 F Changes in Point of Taxation Rules, 2011 G Changes in Service Tax Rules, 1994 H Changes in Finance Act, 1994 I Changes in CENVAT Credit Rules, 2004 J Other Changes K Indirect Tax Dispute Resolution Scheme,2016 Please feel free to contact us to have more clarification of the issues in relation to proposed changes. Thanking you, Team APCCA

3 A. Changes in Service tax Rate: (W.E.F ) a) There is no change in the rate of Service tax and SBC. b) But it is proposed to introduce KRISHI KALYAN CESS 0.5% of value of taxable services from onwards ONLY ON THE SERVICES PROVIDED AFTER THAT DATE( Rule 5- POT). c) Hence the effective rate of Service tax will be 15% (incl. SBC & KKC) w.e.f d) Please note that, CENVAT credit of INPUT KKC can be taken to discharge the liability of OUTPUT KKC as said by Finance Minister in his Speech but corresponding change is not made in CENVAT Credit Rules.

4 B. Changes in Negative List (Sec. 66D) Clause Current Position Proposed Changes Effective date l services by way of (i) pre-school education and education up to higher secondary school or equivalent; Omitted Enactment of Finance bill (ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force; (iii) education as a part of an approved vocational education course; o(i) Services by a stage carriage (like GSRTC) As the same provisions are there in Entry 9 of Exemption tification- 25/2012. This provisions are inserted as part of definitions and Approved vocational Education course is also now defined in the Exemption tification. So Education service is STILL. ( Made part of tification instead of ACT) Omitted. 1) Services by Air Conditioned stage carriage will be taxable p(ii) Services by way of transportation of goods by 1) an aircraft or 2) vessel from a place outside India up to the customs station of clearance in India 2) But services n Air Conditioned stage carriage will be exempt as per New entry in notification.25/2012. Omitted & 1) Services by way of Aircraft will be exempt as per amended notification.25/2012-st. 2) Service by way of Vessel will be taxable. a) If Indian Shipping Linetaxable on Forward Charge b) If foreign Shipping Line- Taxable on RCM

5 C. Changes in Mega Exemption ti.. 25/2012 (ti.. 09/2016-ST dtd ) Sr. Current Position Proposed Changes Effective Date 6(b) Services provided byan individual as an advocate or a partnership firm of advocates by way of legal services to, Services provided bya partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services toi) an advocate or partnership firm of advocates providing legal services ; (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 i) an advocate or partnership firm of advocates providing legal services ; (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 Hence, Service provided by a senior advocate to an advocate or partnership firm of advocates is taxable as forward charge w.e.f. (Senior advocate has the meaning assigned to it in section 16 of the Advocates Act, 1961) TAXABLE 6(c) Services provided bya person represented on an arbitral tribunal to an arbitral tribunal; Due to substitution of this clause there are two changes 1) w, service provided by a person represented on an arbitral tribunal to an arbitral tribunal is taxable. 2) Services provided by 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; TAXABLE

6 Sr. Current Position Proposed Changes Effective Date 9C New Entry Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative (SDI) Scheme; 9D New Entry 12A New Entry Background : Services provided by training providers (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 The services specified in this entry service were removed from the Entry 12 of Exemption tification and they were taxable after Hence the services under ONGOING CONTRACTS which were exempt prior to became taxable. To overcome this Issue this New Entry 12A is entered so to give relief to contracts entered prior to for contract entered before 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;

7 Sr. Current Position Proposed Changes Effective Date Entry 12A Cont (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; The above exemption is available upto 01/04/2020. If service tax is paid for the period from to refund can be claimed within 6 months from the enactment of Finance Bill. 13 New Clauses Inserted Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or 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

8 Sr. 14 (a) Current Position Proposed Changes Effective Date Clause (a) Amended Taxability of Services by way of construction, erection, commissioning, or installation of original works pertaining monorail or metro will be depend upon the contracts entered as under: Services by way of construction, erection, commissioning, or installation of original works pertaining to, railways, including monorail or metro; 1) For Existing contracts/ contracts entered before Exempt 2) Contracts entered after Taxable 14 (ca) New Clauses Inserted Services by way of construction, erection, commissioning, or installation of original works pertaining to, low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under: A New Entry (i) the Affordable Housing in Partnership component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana; (ii) any housing scheme of a State Government. Background : The services specified in this entry service were removed from the Entry 14(a) of Exemption tification and they were taxable after Hence the services under ONGOING CONTRACTS which were exempt prior to became taxable To overcome this Issue this New Entry 14A is entered so to give relief to contracts entered prior to

9 Sr. Current Position Proposed Changes Effective Date Entry 14A Cont. 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 16 Amendment in Entry 23 (bb) Services provided by a performing artist in folk or classical art in form of (i)music, or (ii) dance, or (iii) theatre if the consideration charged for such performance is not more than one lakh rupees New Clauses Inserted But the exemption will be available up to 01/04/2020. If service tax is paid for the period from to refund can be claimed within 6 months from the enactment of Finance Bill. w Limit of One lakh is increased to one lakh and fifty thousand rupees. Transport of passengers, with or without accompanied belongings, by stage carriage NON AIR CONDITIONED stage carriage (like GSRTC). But, if it is AIR CONDITIONED stage carriage, Service Tax would be 5.6 % (40% value taxable per ti. 26/2012 entry no 9A(c)) (Moved in Exemption list from Negative List) TAXABLE

10 Sr. 23 (c) 26 (q) Current Position Proposed Changes Effective Date Clause Omitted Transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway; TAXABLE New Clauses Inserted 26C New entry Hence, this service is will be taxable. Services of General Insurance business provided under 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 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, New entry Services provided by EPFO to persons governed under the Employees Provident Funds and Miscellaneous Provisions Act, New entry Services provided by IRDA to insurers under the IRDA Act, New entry Services provided by SEBI set up under the SEBI Act, 1992 by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market; 52 New entry 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; 53 New entry Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India. (Moved in Exemption list from Negative List)

11 D. Changes in Abatement tification.26/2012 (Amended by ti. 08/2016 dtd ) (W.E.F ) En try Current Position Proposed Changes Conditions for availing benefit of abatement Service Name Taxa ble Service Name Taxa ble 2 Transport of goods by rail 30% Transport of goods by Indian Railways (other than SI 2A) 30% CENVAT Current Proposed Credit of Input X X Input X Services Capital Goods X X 2A New entry - Transportation of goods in containers by rail by any person other than Indian Railways (like Containers Train Operators ) 3 Transport of Passengers by Rail 30% Transport of Passengers by Rail 40% CENVAT Credit of Input Input Services Capital Goods Current N.A Proposed X 30% CENVAT Current Proposed Credit of Input X X Input X Services Capital Goods X X X 7 Services of goods transport agency in relation to Transportation of goods. 30% Services of goods transport agency in relation to transportation of goods other than used household goods 30% CENVAT Current Proposed Credit of Input X X Input X X Services Capital Goods X X

12 En try Current Position Proposed Changes Conditions for availing benefit of abatement Service Name Taxa ble Service Name Taxa ble 8 New entry - Services provided 70% CENVAT Current Proposed by a foreman of Credit of Input X chit fund in Input X relation to chit Services N.A Capital X Goods 9A (c) New entry (W.E.F ) - Transport of passengers by a Air Conditioned stage carriage (like GSRTC) 40% CENVAT Credit of Input Input Services Capital Goods Current N.A Proposed X X X 10 Transport of goods in a vessel 11 Services by a tour operator in relation to,- 30% Transport of goods in a vessel Services by a tour operator in relation to,- 30% CENVAT Current Proposed Credit of Input X X Input X Services Capital Goods X X i) a package tour 25% (i) a tour, only for the purpose of arranging or booking accommodation for any person 10% (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 (ii)the invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii)this exemption shall not apply where the invoice, bill or challan issued

13 En try Current Position Proposed Changes Conditions for availing benefit of abatement Service Name Taxa ble Service Name Taxa ble 12 Construction of a complex, building, civil structure or a part thereof, i) For all commercial construction & High end Residential Units 30% Construction of a complex, building, civil structure or a part thereof. (Old 2 categories are merged into one category in the proposed change) 30% (i) CENVAT Current Proposed Credit of Input X X Input Services Capital Goods (ii) The value of land is included in the amount charged from the service receiver. ii) For other than (i) above 25% Explanation BA is inserted in this tification for Sr.. 9 ( for Rent a Cab Service): For the purposes of abatement, the amount charged shall be the total of the amount charged for the service including the fair market value of all goods (including fuel) and services supplied by the recipient in or in relation to the service, whether or not supplied under the same contract or any other contract. Para 2 Point b : Pursuant to Sr.. 11 (for Service by Tour Operator) The definition of Package Tour is omitted from this notification

14 E. Changes in Reverse Charge Mechanism ti. 30/2012 (Amended by ti.. 18/2016-ST dtd ) SR Description of Service Current Position Proposed % Service tax to be paid by % Service tax to be paid by Provider Receiver Provider Receiver 1B Services provided by a mutual fund 0% 100% Will be taxable as agent or distributor, to a mutual forward charge fund or asset management company (Omitted from this ti.) 5 Services provided by a firm of advocates or an individual advocate other than a senior advocate by way of legal services. Hence, Service by Senior Advocate will be taxable as forward charge. 6 Services by Government or Local Authority to business entities (the word by way of support services is deleted w.e.f ) 0% 100% 0% 100% 0% 100% 0% 100%

15 F. Changes in Point of Taxation Rules,2011 : 1 Explanation is inserted in Rule 5 of POT Rules (Rule for Payment of tax in case of new services ) which states that this rule shall also apply in case of new levy of tax. Hence, Rule 5 will also apply for Krishi Kalyan Cess and hence KKC will be applicable only on the services rendered after Another explanation is inserted stating that in case of new levy other than two situation specified in Rule 5, the new levy or tax shall be payable. G. Changes in Service Tax Rules,1994 : Sr. Changes made in Service Tax Rules Effective Date 1 Benefit of quarterly payment of Service tax is extended to HUF. 2 For One Person Company (OPC) : Sr.. Taxable T/O of Previous Fin.Year Basis for Payment of S.T 1 Upto Rs. 50 lacs Option to Pay on Receipt Basis Upto T/O of Rs 50 lac in Current Fin. Year Time limit for Payment of S.T Option to pay on Quarterly Basis 2 More than Rs 50 lac Accrual Basis Monthly Basis 3 For Single Premium Annuity Policies, an insurer carrying on life insurance business shall be liable to pay Service 1.40% 3.5%) of the single premium charged from the policy holder. 4 Service tax Assesse above a certain threshold limit as may be notified will be required to file an Annual Return on or before 30/11/2016. This Annual return can be revised within a period of one month from the date of filling of said return. 5 Late fees of Rs. 100 per day subject to maximum limit of Rs. 20,000 will be required to be paid for delay in filling of Annual Service Tax Return.

16 H. Changes in Finance Act, 1994: Sr. Changes made in Finance Act, 1994 (w.e.f. date of enactment of Finance Bill, 2016) 1 Section 65B(44)- Definition of Service Explanation 2 is proposed to be amended to clarify that activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to service tax. 2 Section- 66E- Declared Services: Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service, so as to make it clear that assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a service leviable to service tax and not a sale of intangible goods. 3 The normal time limit for issue of Show Cause tice for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded is to be enhanced from 18 months to 30 months. 4 Changes made in Rate of Interest for Delay in Payment of Service tax,excise & Customs : Sr Situation T/O More than 60 lacs T/O Less than 60 lacs 1 S.T separately collected & not paid 24% 24% 2 S.T not collected separately 15% 12% 5 The monetary limit for filing complaints for punishable offences under section 89 is proposed to be enhanced from Rs. 50 Lakhs to Rs. 2 Crores. 6 Power to arrest 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 Rs 2 Crores. 7 Penalty for offences by director, etc. of company shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under section 76 or section 78 of the Act.

17 Sr. Changes made in Finance Act, 1994 (w.e.f. date of enactment of Finance Bill, 2016) 8 Section 93A of the Finance Act,1994 has been amended so as to enable allowing of rebate of Service Tax by way of notification as well as rules. 9 Services provided to the Governmental Authority (i.e. not set up by the Act of Parliament or State Legislature like SSNNL) by way of construction, repair, maintenance of canal, dam or other irrigation works will also be exempted for the period from to Refund of service tax paid will be allowed and application for such refund shall be made within a period of six month from the date on which Finance Bill, 2016 receives the assent of the President.

18 I. Changes in CENVAT Credit Rules, 2004 : Sr. Amendmen t in Rule 1 Rule 2 Clause (a) Sub-clause(A) Changes made in Finance Act, 1994 (w.e.f. date of enactment of Finance Bill, 2016) Definition of Capital Goods: Wagons of sub heading of the Central excise Tariff and equipment and appliance used in an office located within a factory are being included in the definition of capital goods so as to allow CENVAT credit on the same. 2 Rule 2 Clause (a) Sub-clause(A) & Clause (k) Sub-clause(ii) 3 Rule 2 Clause (k) CENVAT credit on inputs and capital goods used for pumping of water, for captive use in the factory, is being allowed even where such capital goods are installed outside the factory. Change in Definition of Input: All capital goods having value up to Rs. 10,000/- per piece are included in the definition of inputs. Hence 100% credit on such capital goods can be taken in the year of Purchase. 4 Rule 2 Clause (e) Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of exempted service. This would allow shipping lines to take credit on inputs and input services used in providing the said service. 5 Rule 4(5) (b) Manufacturer of final products is being allowed to take CENVAT credit on tools of Chapter 82 of the Central Excise Tariff in addition to credit on jigs, fixtures, moulds & dies, when intended to be used in the premises of jobworker or another manufacturer who manufactures the goods as per specification of manufacturer of final products. It is also being provided that a manufacturer can send these goods directly to such other manufacturer or job-worker without bringing the same to his premises.

19 6 Rule 4(6) A manufacturer of the final products are allowed to send inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty. The time limit for the same is increased from 1 year to 3 year. 7 Rule 4(7) It is being provided that CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc. shall be spread over the period of time for which the rights have been assigned. 8 Rule 6 a) Rule 6(1) : CENVAT credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The rule then directs that the procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations. b) Rule 6(2) : Option to Maintain separate books of accounts for inputs and input services and taking credit as per this rule is NOT AVAILABLE NOW. This rule is redrafted as under: A person who EXCLUSIVELY manufactures exempted goods or provides exempted services shall not be eligible for credit of any inputs and input services used. c) Rule 6(3) : If a person Manufacturers both Taxable and n Taxable goods or a Service Provider provides both Taxable and ntaxable Services, then he has two options : 1) Reversal of credit to the extent of 6% of the value of exempted goods or 7% of the value of exempted service. The amount of reversal cannot exceed the total credit taken.

20 2) Proportionate Credit reversal Under Rule 6(3A) Under this second options CENVAT Credit of only common inputs / input services will have to be reversed. d) Rule 6(3A) - Calculation of Proportionate Reversal of Credit : Step Action Amount 1 Total Credit Less: Credit of Inputs or Input Services used (10) for Exempted Goods or Exempted Services 3 Less: Credit of Inputs or Input Services used (30) for Taxable Goods or Taxable Services 4 Common Credit (1-2-3) 60 Reversal of credit will be 60 x ( T/o of Exempted Goods+ Services) Total Turnover Figures of turnover are of Previous FY Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year. e) Rule 6(3AA) (New sub rule inserted) : Manufacturer or provider of output service who has failed to give prior intimation, may be allowed by a Central Excise officer to follow Proportionate reversal option and pay the amount along with 15% per annum from the due date of each month till payment date. f) Rule 6(3AB) (New sub rule inserted) : Transitional Provision Existing rule 6 of CCR would continue to be in operation upto , for the units who are required to discharge the obligation in respect of financial year

21 g) Rule 6(3B) : Banks and other financial institutions are allowed to reverse credit of exempted services either as per rule 6(3) or as per current option of 50% reversal of credit. h) Explanations 3 & 4 for Rule 6(1) : Explanation is inserted so as provide for reversal of CENVAT Credit on Inputs / input services which have been commonly used in providing taxable output service and an activity which is not a service under the Finance Act, i) Rule 6(4) : Time limit for utilization of CENVAT Credit of Capital Goods used for manufacture of exempted goods or provision of exempted service is restricted to 2 Years from the date of commencement of commercial production or provision of service. This time limit will also be applicable for Capital goods installed after the date of commencement of commercial production or provision of service. j) Rule 6 (7) : Shipping lines are allowed to take credit of inputs and input services used in providing a service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India Above credit will be used to pay service tax on the services of transportation of goods by a vessel from outside India to the customs station of clearance in India, which would become taxable w.e.f 1st June 2016 after enactment of Finance Bill Rule 7 Input Service Distributor : Changes are also being made in the provisions relating to input service distributor, including extension of this facility to transfer input services credit to outsourced manufacturers, under certain circumstances.

22 The amendments in these rules will also enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. 10 Rule 9 (a) (i) Presently, an invoice issued by a manufacturer for clearance of inputs or capital goods is a valid document for availing CENVAT credit. It is being provided that an invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing CENVAT credit.

23 J. Other changes : Sr. Changes / Amendment related to : 1 Amendment in notification. 32/2012-ST : Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubates are being exempted from service tax. 2 Amendment in notification. 41/2012-ST : Above tification is amended by tification.1/2016-st so as to, allow refund of service tax on services used beyond the factory etc. for the export. This amendment is being made effective from 1st July This will come into effect from the date of enforcement of Finance Bill Exemptions in relation to Information Technology Software : Service tax on the services of Information Technology Software on media bearing Retail Sale Price (RSP) is being exempted from Service Tax with effect from 1st March, 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act. For Information Technology Software Service, in respect of software recorded on media NOT FOR RETAIL SALE, the value on which Service tax is paid, will be exempt from Excise Duty.

24 K. Indirect Tax Dispute Resolution Scheme,2016 Sr. Scheme at a Glance: (Applicable w.e.f. date of enactment of Finance Bill, 2016) 1 With the intention to reduce the litigation, this scheme has been introduced w.e.f to to the declarations made till Any person would be eligible to opt for this scheme if the appeal is pending with Commissioner (Appeals) i.e where the demand of tax or duty is less than Rs. 50 Lakhs. 3 He shall pay tax due along with the interest and penalty equal to 25% of Tax & proceedings against the assessee will be closed and he will also get immunity from prosecution. 4 But this scheme will not be applicable in following cases : a) where prosecution has already been launched b) involving narcotics & psychotropic substances c) involving detention under COFEPOSA