Service Tax Recent Budget Amendments. By: A.Saiprasad B.Com,LLB,ACA,DISA,AMIMA Advocate

Transcription

1 Service Tax Recent Budget Amendments By: A.Saiprasad B.Com,LLB,ACA,DISA,AMIMA Advocate

2 Presentation Outline - I Meaning, Net Effect & How Amendments made What the FM said & didn t say New Service & Expansion of Scope of Existing Services Adjudication & Prosecution Provisions

3 Presentation Outline - II Point of Taxation Rules, 2011 Cenvat Credit Rules, 2004 Service Tax Rules, 1994 Works Contract (Composition) Rules, 2007 Service Tax Valuation Rules, 2006 Export Rules, 2005 & Import Rules, 2006 SEZ Notification

4 Meaning of Budget Derived from the French word, bougette, Diminutive of bouge, meaning a Leather Bag.

5 Net Effect of Service Tax Amendments NET REVENUE GAIN - Rs.4,000/- Crores.

6 How Amendments are Made? Parent Act Orphan A rich Orphan Budget Amendments: Finance Act, 2011 S.71(A) to 71(P) & S.72 Notification No.1/11-ST to 18/11-ST Post Budget Amendments: Notification No.18/11-ST to 37/11-ST

7 What the Finance Minister Said..I Retained the standard 10% Closer fit between present service tax regime and its successor GST ST on 2 new services Short Term Accommodation Service Restaurant Service Scope Expanded for 7 existing services

8 What the Finance Minister Said.. II Cenvat Credit provisions rationalized Cenvat Credit vis-à-vis exempt goods & services Audit Formalities & Reduced Interest for Turn over < Rs.60 lakhs

9 What the Finance Minister Said..III Demand Provisions revisited Penal Provisions Rationalized

10 What the Finance Minister Didn t Say I A CA s perspective- Representation services taxable

11 What the Finance Minister Didn t Say II Exempted Services Provision related to prosecution reintroduced

12 Budget Amendments Finance Act, 2011 Notification No.1/11-ST & 37/11-ST Circulars & Explanatory Notes

13 New Services I - Restaurant Service Air Conditioning Facility Alcoholic Beverage Notification No.34/11-ST - Abatement 70% Circular No.139/8/2011 dt

14 New Services II - Short Term Accommodation Service < 3 Months, Continuous Period Declared Tariff Meaning Notification No.31/11-ST Declared Tariff < Rs.1,000/- Notification No.34/11-ST Abatement 50% Declared Tariff & Discount Circular No.139/8/2011 dt

15 Expansion of Scope I Commercial Training and Coaching Service Deleted Exclusionary Clause in earlier definition Effect Now taxable service course based Before institution based Exclusion category now exempted vide notification no.33/11- ST

16 Expansion of Scope II Club or Association Service means any person or body of persons providing services, facilities or advantages, primarily to its members, for a subscription or any other amount, but does not include (i) any body established or constituted by or under any law for the time being in force; or (ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or (iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or (iv) any person or body of persons associated with press or media; ;

17 Expansion of Scope III Authorised Service Station Service Provider: Previously Authorised Service Station, Now - Any persons Vehicle: Previously Car, LMV, Motor Cycle. Now Any Motor Vehicle except Three Wheeler & Motor Vehicle for Goods Carriage

18 Expansion of Scope IV Life Insurance Service Previously - Risk Cover, Now All Service including Management of Investment Valuation Mechanism R.7A, STR, 94 Taxable Value = (Gross Premium Amount Allocated for investment), if bifurcation provided in policy 1.5% of Gross Premium, if no bifurcation provided Entire policy towards Risk Above option not available

19 Expansion of Scope V Legal Services Scope Increased Business Entity Any Person Arbitration Services Advice, Consultancy & Assistance Individual to Individual not taxable Scope increased Representation Parity CA, CWA, CS exemption withdrawn

20 Expansion of Scope VI Health Services Clinical Establishment S.25(a): Hospital, clinic, sanatorium, by whatever name called Diagnostic Centres Whether incorporated or not Centralised A/c Whole or part > 25 Beds Excludes establishment by Govt or Local Authority

21 Expansion of Scope VI Health Services Taxable Service S.65(105)(zzzzo) by: Clinical Establishment Doctor who is not an employee of CE, who provides service from CE Exempted Notification No.30/11-ST dt

22 Transport of Passengers by Air Service Revised Rates as follows: (a) Domestic (economy) : From Rs.100 to Rs.150 (b) International (economy) : From Rs.500 to Rs.750 (c) Domestic (other than economy) : Standard rate of 10%

23 Provisions Relating to Demand S. 73(1A) & proviso to 73(2) Deleted Benefit u/s 73(4A) true & Complete details in specified records. Assessee to pay tax, interest and reduced penalty during course of audit, investigation or verification. p.m. max 25%

24 Provisions Relating to Interest Increased to 18% p.a S. 73B & S.75 amended Value of taxable service < Rs. 60 Lakhs Reduction of 3% p.a. Notification No.14/11 ST S.75 & Notification No.15/11 ST S.73B

25 Provisions Relating to Penalty U/s 76 Normal Period of Limitation 2% to 1% Rs.200 to Rs % amount to 50% of demand U/s 77 Increased to Rs.10,000/-

26 Provisions Relating to Penalty U/s 78 Extended Period Max Penalty reduced from 200% to 100% of ST True & Complete (T & C) 50% of ST T & C + 30/ 60 days of OIO 25% Transaction not recorded No mitigation of 50% or 25%, though paid within time period

27 Penalty Summary I Situation Position in Records Penalty & Provision Mitigation Complete Waiver No fraud, suppressi on etc. Captured 1% of tax or Rs 100 per day upto 50% of tax amount: Sec 76 Totally mitigated if tax and interest paid before issue of notice: Section 73(3) On showing reasonable cause under section 80

28 Situation Position in Records Penalty & Provision Penalty Summary II Mitigation Complete Waiver Cases of fraud, suppression etc Captured true and correct position in records 50% of tax amount: Proviso to Section 78 (a) 1% per month; max of 25% if all dues paid before notice: Sec 73(4A); (b) 25% of tax if all dues paid within 30 days (90 days for small assesses): Provisos to Section 78 On showing reasonable cause under section 80

29 Penalty Summary III Situation Position in Records Penalty & Provision Mitigation Complete Waiver Cases of fraud, suppressi on etc Not so captured Equal amount :Section 78 No mitigation at all Not possible

30 Offences & Prosecution - I Reintroduced S.89 Previous Sanction Chief Commissioner of Central Excise Offences: (i) Provision of service without issue of invoice; (ii) Availment and utilization of Cenvat credit without actual receipt of inputs or input services;

31 Offences & Prosecution - II Offences Contd.. (iii) Maintaining false books of accounts or failure to supply any information or submitting false information; (iv) Non-payment of amount collected as service tax for a period of more than six months

32 Offences & Prosecution - III Offence amount > Rs 50 Lakhs Imprisonment - Min - 6 months, Max - 3 years Any other case upto 1 year Second & Subsequent Offence Min 6 months, Max 3 years.

33 Offences & Prosecution - III Following not restrictions for prosecution: First Conviction Penalty or other action initiated Not principal offender Acting as an agent Age of Accused Circular F.No.354/45/2011- TRU dt

34 Other Amendments S Furnishing of Returns Late Fee Rs.2,000 to Rs.20,000/- Existing Rate retained in Rule 7C of STR,94 Liability to be First Charge S.529A of Companies Act, 1956 Recovery of Debts Due to Banks & Financial Institutions Act, 1993 SRFASI Act, 2002

35 Point of Taxation Rules: Notification No.18/2011-ST & 25/2011-ST Validity? POT Definition R.2(e) Point in time when service DEEMED to have been provided Transitional Provision Clarification - Circular F.No.341/34/2010 dt

36 POT R.3 General Rule Rule 3 has been amended to provide that the point of taxation shall be as follows: (a) Date of invoice or payment, whichever is earlier, if the invoice is issued within the prescribed period of 14 days from the date of completion of the provision of service. (b) Date of completion of service or payment, if the invoice is not issued within the prescribed period as above.

37 S. No. POT R.3 - Illustration Date of completion of service Date of invoice Date on which payment recd. Point of Taxation 1. April 10, 2011 April 20, 2011 April 30, 2011 April 20, April 10, 2011 April 26, 2011 April 30, 2011 April 10, 2011 Remarks Invoice issued in 14 days and before receipt of payment Invoice not issued within 14 days and payment received after completion of service 3. April 10, 2011 April 20, 2011 April 15, 2011 April 15, 2011 Invoice issued in 14 days but payment received before invoice 4. April 10, 2011 April 26, 2011 April 5, 2011 (part) and April 25, 2011 (remaining) April 5, 2011 and April 10, 2011 for respective amounts Invoice not issued in 14 days. Part payment before completion, remaining later

38 POT R.4 Change in Effective Rate of Tax -I Taxable Service Provided BEFORE change in Effective Rate of Tax When either invoice OR payment received PRIOR to change in rate, POT = Earlier Rate i.e. Before change made. Only When both invoice AND payment received POST change in rate, POT = Subsequent Rate i.e. Changed Rate

39 POT R.4 Change in Effective Rate of Tax -II Taxable Service Provided AFTER change in Effective Rate of Tax When either invoice OR payment received POST to change in rate, POT = Subsequent Rate i.e. Changed Rate Only When both invoice AND payment received PRIOR change in rate, POT = Earlier Rate i.e. Before change made.

40 POT R.5 New Services Payment AND Invoice issued PRIOR to Service Becoming Taxable NO Tax Payment PRIOR AND Invoice POST Service Becoming Taxable No Tax Inv to be issued within 14 days of receipt of payment. R.5(b) - POTR,11, r/w R.4A(1) - STR - 94

41 POT R.6 Continuous Supply of Services (CSS) Continuous Supply of Service R.2(c) Under a Contract Period > 3 Months Notification No.28/2011-ST (1)Commercial or Industrial Construction Service, (2)Telecommunication Service, (3)Internet Telephony Service, (4)Works Contract Service

42 POT R.6 Continuous Supply of Services (CSS) Overrides R.3,4 & 8 POT = Time of issue of invoice for such CSS (A) When invoice not issued within 14 days of completion, POT = Date of completion of service Payment Received before (A) above, POT = Time of receipt of payment

43 POT R.6 Continuous Supply of Services (CSS) Where provision of service determined periodically i.e. On Completion of event, specified in contract Requiring payment to Service Provider POT = Dt of Completion of each such event

44 POT R.7 Specified Services POT = Date of Payment for the following specified services Services specified in R.3(1) of Export of Service Rules, 2005 services exported Persons Liable to pay service tax S.68(2) r/w Notification No.36/04-ST services imported, GTA, sponsorship service etc.

45 POT R.7 Specified Services Individuals, proprietary firm & partnership firms providing: CA, CWA & CS Service Architect Service Interior Decorator Service Scientific or Technical Consultancy Service Legal Service

46 POT R.8 Copyrights etc., Whole amount not ascertainable when service performed AND Subsequent use by person other than PROVIDER gives raise to payment Service shall be treated as having been provided each time Payment received or Invoice issued which ever is earlier

47 POT Transitional Provision Service completed or Invoice issued prior to POT Not Applicable Service completed on or before OR Invoice issued upto POT = Date on which Payment is received or made Option of taxpayer

48 Cenvat Credit Rules, 2004 Exempted Service Definition Amended Input Services Definition Substituted Availment of Input Service Credit On Receipt of Invoice Supplementary Invoices Common Input Services Provider of taxable & exempted services

49 Exempted Service R.2(e) (e) exempted services means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act [and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken. Explanation.- For the removal of doubts, it is hereby clarified that exempted services includes trading;]

50 Input Service R.2(l) A Real Setup?? (l) input service means any service, - (i) used by a provider of taxable service for providing an output service; or (ii) 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, and includes services used in relation to modernisation, 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 Input Service Set Up The Sequel but excludes services,- (A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for- (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or

52 Input Service Gone in Sixty Seconds (B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or

53 Input Service Employee Related (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee; ;

54 Input Service Credit R.4(7) - Receipt of invoice Before Payment. Reversals Payment beyond 3 months Partial Payment/ Credit Note Reverse charge On Payment R.9(bb) - On Supplementary Invoice Except due S.71(1) proviso cases

55 Rule 6 Common Input & Input Services - I Four Options Option I Maintain Separate A/cs for receipt, consumption and inventory of INPUT & INPUT SERVICES Take credit only for providing dutiable products and taxable service R.6(2)

56 Rule 6 Common Input & Input Services - II Option II Not Maintaining separate Books of Accounts Three sub options Sub Option I Pay 5% of value of exempted goods and exempted services R.6(3)(i) Reversal = (Exempted value X 5%) for Partially Taxable Services - Sub Option II Pay amount as per formula R.6(3)(ii) r/w 6(3A).

57 Rule 6 Common Input & Input Services - III Sub Option III Maintain separate Books of Accounts for receipt, consumption and inventory of INPUTS ONLY Avail credit on Inputs only for dutiable goods and taxable output services. Apply R.6(3A) formula for INPUT SERVICE only. Provision w.e.f

58 Rule 6 Common Input & Input Services - IV Banking & Other Financial Services Reversal of 50% of Cenvat credit R.6(3B) Life Insurance, Investment Management Service under ULIP - Reversal of 25% of Cenvat credit R.6(3C) Payment U/r 3 Deemed as Credit not taken for Exemption Notification R.6(3D) Rule 6(5) deleted - Contained 16 services

59 Rule 6 Common Input & Input Services - V Explanation below R.6(3D) - Value for R.6(3) & 6.(3A) Service S.67 of FA, 94 Excisable Goods S.3,4 & 4A of CEA,44 Trading (S.P. - COGS) OR 10% of COGS, which ever is HIGHER

60 Rule 6 Common Input & Input Services - VI R.6(6A) R.6(1) to R.6(4) not applicable for: Provision of taxable service Without payment of tax Unit, Developer of SEZ For Authorised Operations For goods R.6(6)(i) already existed

61 Service Tax Rules, I Rule 5B Rate when services deemed to be provided as per POT Rules, 11 R.6(1) Payment of ST by Service Provider Before When payment are received towards value of taxable services Now When services are deemed to be provided as per POTR, 11

62 Service Tax Rules, II R.6(3) Adjustment of Excess Service Tax Received payment, Issued invoice for a service, which is later not provided Such services may not have been provided either wholly or partially Amount of invoice re-negotiated for deficient provision of service

63 Service Tax Rules, III Re credit of such excess tax paid Refunded payment Issued credit note Max Excess Adjustment Rs Two Lakhs from Rs. One Lakh Tax Self Assessed but not paid Recovery u/s 87 No need to resort to demand provisions

64 Works Contract Composition Rules, 2007 Rule 2A Works Contractor can avail Credit of only 40% of tax paid on: Erection Commissioning & Installation Service Commercial or Industrial Construction Service Construction of Residential Complex Service When such service providers paid ST on gross value without abatement

65 Service Tax Valuation Rules, I Foreign Exchange Broking Service & Banking & Other Financial Service R.2B -Valuation of Sale of Foreign Currency $1,000 Rs.45/$ RBI Reference Rate Rs Taxable Value = (Selling Rate - RBI reference Rate) X Total Units of Currency (Rs Rs.45) X 1,000 = Rs.500

66 Service Tax Valuation Rules, II R.2B Valuation of Purchase of Foreign Currency INR 70,000 changed for Rs.70/GBP Hence 1,000 GBP exchanged RBI Reference Rate Rs.69 Taxable Value = (Rs.70 Rs.69) X 1,000 = Rs.1,000

67 Service Tax Valuation Rules, III RBI Reference Rate not available Taxable Value = 1% of the Gross Amount of INR PROVIDED OR RECEIVED Neither Currency exchanged in INR Taxable Value = 1% of the LESSER of the two amounts the person charging the money would have RECEIVED by converting any of the two currencies into INR at the reference rate provided by RBI

68 Export & Import Rules - I Changed From Recipient based to Location Based Preferential Location service R.3(1)(iii) to R.(1)(i) Changed from Recipient based to Performance based Rail Travel Agent & Health Check up services R.3(1)(iii) to R.3(1)(ii)

69 Export & Import Rules - II Changed from Performance based to Recipient based Credit Rating Agency, Market Research Agency, Technical Testing & Analysis, Transport of Goods by Air & Rail, GTA, Opinion Poll R.3(1)(ii) to R.3(1)(iii) Corresponding Changes in Import of Service Rules

70 SEZ Refunds-I Notification No.17/11-ST dt , rescinds Notification No.9/09-ST dt Exempts services from S.66 & 66A Exemption provided to: Receiver i.e. Unit or a Developer of SEZ Exemption provided for: For Specified Services

71 SEZ Refunds-II Method of providing exemption: Exemption by way of REFUND Of ST paid by Unit/ Developer On specified services For Authorised Operations in SEZ Later refund application to be filed

72 SEZ Refunds-III Abinitio Exemption Instead of Claiming Refund ST need not be paid initially by Unit/ Developer either as service provider (S.66) or service receiver (S.66A Reverse Charge Mechanism) Conditions: Specified Services for Authorised Operations Wholly consumed within SEZ

73 SEZ Refunds-IV Services Wholly Consumed means: Taxable Services, received for Authorised Operations as listed in: R.3(1)(i), Export of Service Rules, when used in relation to IMP situated in SEZ R.3(1)(ii), Export of Service Rules, when wholly performed within the SEZ

74 SEZ Refunds-V Services Wholly Consumed means: Services other than (i) & (ii) above when provided to a Developer/ Unit, who does not carry on any business other than operations in SEZ Circular No.142/11/2011-ST dt Clarification An entity carrying out business operations in SEZ & DTA

75 SEZ Refunds-VI Unit/ Developer Obtain Approval for List of services required for Authorised Operations from Approval Committee Unit/ Developer Not owning or carrying on business other than SEZ Operations Declaration in Form A-1.

76 SEZ Refunds-VII Services not wholly consumed in SEZ Refund restricted to the ratio of export turn over to total turnover of Unit/ Developer Max Refund = (Export Turnover / Total Turnover) X (ST paid for specified services, used for Authorised Operations & DTA operations)

77 SEZ Refunds-VII Total Turnover includes Output Service + exempted service, including services exported Excisable + Non Excisable Goods + Export Goods Bought Out Goods ST must be paid before claiming refund Input Service credit for specified services cannot be availed under CCR, 04

78 Thank You. Open House