UNION BUDGET 2005 ANALYSIS OF SERVICE TAX PROPOSALS

Transcription

1 UNION BUDGET 2005 ANALYSIS OF SERVICE TAX PROPOSALS Vikram Nankani, Partner Economic Laws Practice March 7, 2005

2 Service Tax - An Overview Rate Structure No change in Rate Structure continues at 10.2% Threshold limit of Rs. 4 lakhs provided Levy extended to 9 new services with effect from date to be notified after enactment of Finance Bill, 2005 Scope of 12 existing services enlarged with effect from date to be notified after enactment of Finance Bill, 2005 Other Legislative amendments 2

3 Threshold Limit Exemption upto taxable turnover of Rs. 4 Lakhs Applicable w.e.f. April 1, 2005 Benefit not be applicable where Services provided under a brand name or trade name of another person whether registered or not Service tax is payable by a person other than the service provider [Rules 2(1)(d)(iv) to 2(1)(d)(vi)] Other conditions Service provider does not avail Cenvat credit in respect of input / input services / capital goods as specified In case of rendering of taxable services from more than one premises, aggregate value of services from all premises shall be considered for this purpose In case of more than one taxable service being rendered, the aggregate value of all taxable services shall be considered Benefit of this notification can be exercised every year Service tax paid on the value of taxable services by a person under Rule 2(1)(d)(v) to be excluded in calculating the taxable turnover limit of Rs. 4 lakhs for Goods Transport Agency 3

4 Service tax net has been widened Introduction of 9 New Services Transport of goods through pipeline or other conduit other than water Site preparation and clearance, excavation, earth moving and demolition services, other than those provided to agriculture, irrigation and watershed development Dredging services Survey and map making other than by Government Departments Cleaning services Membership of Clubs or Associations Packaging services Mailing list compilation and mailing; and Construction of residential complexes 4

5 Service tax net has been widened... Service Tax Levy '94 '96 '97 '98 '00 '01 '02 '03 '04 '05 Number of Services 5

6 Service Tax Revenue Receipts Service Tax Revenue Receipts Revenue (Rs. Crores) * (Est.) * (Est) Year 6

7 Construction of Complex Services New entry to levy service tax on construction of residential complex Construction of complex defined to mean construction of a new residential complex or a part thereof; or completion & finishing services in relation to residential complex such as glazing, plastering painting floor and wall tiling, wall covering and wall papering wood and metal joinery and carpentry fencing and railing construction of swimming pools, acoustic applications or fittings and other similar services repair, alteration, renovation or restoration of, or similar services in relation to, residential complex 7

8 Residential complex defined to mean any complex comprising of a building or buildings, having more than twelve residential units; a common area; and any one or more of facilities or services such as park, lift, parking space, community hall, common water supply or effluent treatment system, located within a premises and the layout of such premises is approved by an authority under any law for the time being in force, but does not include a complex which is constructed by a person directly engaging any other person for designing or planning of the layout, and the construction of such complex is intended for personal use as residence by such person. Personal use defined to include permitting the complex for use as residence by another person on rent or without consideration Residential unit defined to mean a single house or a single apartment intended for use as a place of residence 8

9 Packaging Services Packaging activity defined to mean packaging of goods including pouch filling bottling labelling or imprinting of the package but does not include any packaging activity that amounts to 'manufacture' within the meaning of section 2(f) of the Central Excise Act, 1944 Cleaning Services Cleaning activity defined to mean cleaning, including specialised cleaning services such as disinfecting, exterminating or sterilising of objects or premises, of - commercial or industrial buildings and premises thereof; or factory, plant or machinery, tank or reservoir of such commercial or industrial buildings and premises thereof, but does not include such services in relation to agriculture, horticulture, animal husbandry or dairying 9

10 "Site formation and clearance, excavation and earthmoving and demolition" includes- drilling, boring and core extraction services for construction, geophysical, geological or similar purposes; or soil stabilization; or horizontal drilling for the passage of cables or drain pipes; or land reclamation work; or contaminated top soil stripping work; or demolition and wrecking of building, structure or road, but does not include such services provided in relation to agriculture, irrigation, watershed development and drilling, digging, repairing, renovating or restoring of water sources or water bodies 10

11 Dredging Services Activity of dredging defined to include removal of material including, silt, sediments, rocks, sand, refuse, debris, plant or animal matter in any excavating, cleaning, deepening, widening or lengthening, either permanently or temporarily of any river, port, harbour, backwater or estuary Mailing List Compilation Service Mailing list compilation and mailing" defined to mean any service in relation to- compiling and providing list of name, address and any other information from any source; or sending document, information, goods or any other material in a packet, by whatever name called, by Addressing, stuffing, sealing, metering or mailing for, or on behalf of, the client 11

12 Membership of Club or Association "club or association" means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include- any body established or constituted by or under any law for the time being in force; or any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or 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 any person or body of persons associated with press or media Survey and Mapmaking other than by Government Department "survey and map-making" defined to mean geological geophysical or any other prospecting, surface, sub-surface or aerial surveying or mapmaking of any kind, but does not include survey and exploration of mineral 12

13 Scope of existing 12 services enlarged Business Auxiliary Services Explanation inserted after sub-clause (iv) to clarify that input means all goods and services intended for use by the client Sub-clause (v) substituted by the following Production or processing of goods for, or on behalf of, the client Notification 8/2005 dt wholly exempts production of goods on behalf of client in cases where Goods are produced using raw material or semi finished goods supplied by the client Such goods are returned to the client for use in manufacture on which appropriate duty of excise is payable Appropriate duty of excise shall not include NIL or exempt rate Exemption not available to activity of processing of goods for client Not available to proprietary concern since Notification 14/2004 dt is not amended 13

14 Commission agent defined to mean any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services for a consideration and includes any person who, while acting on behalf of another person- deals with goods or services or documents of title to such goods or services; or collects payment of sale price of such goods or services; or guarantees for collection or payment for such goods or services; or undertakes any activities relating to such sale or purchase of such goods or services 14

15 Construction Services Renamed as Commercial or Industrial Construction Service Scope widened to include Construction of pipeline or conduit Completion and finishing services such as glazing, plastering, painting floor and wall tiling, wall covering and wall papering wood and metal joinery and carpentry fencing and railing construction of swimming, pools, acoustic applications or fittings and other similar services Repair, alteration, renovation or restoration of, or similar services in relation to, pipeline or conduit, Explanation inserted in Notification 15/2004 Gross amount charged shall include value of goods and materials supplied or provided or used by the provider of construction service for providing such service 15

16 Erection, Commissioning or Installation Service Inclusion of services of installation of electrical and electronic devices, including wirings or fittings therefor plumbing, drain laying or other installations for transport of fluids heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work thermal insulation, sound insulation, fire proofing or water proofing lift and escalator, fire escape staircases or travelators such other similar services Maintenance or Repair Services Maintenance or repair to include reconditioning or restoration of any goods or equipments Scope extended to include maintenance or management of immovable property 16

17 Franchise Services Scope has been widened by deletion of following sub-clauses the franchiser provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee; the franchisee is required to pay to the franchiser, directly or indirectly, a fee; and the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person. Definition now reads as "franchise" means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved 17

18 Manpower Recruitment Agency Services Renamed as Manpower Recruitment or Supply Agency Service Definition now reads as "manpower recruitment or supply agency" means any commercial concern engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to a client; Outdoor Catering Services Definition now reads as outdoor caterer means a caterer engaged in providing services in connection with catering at a place other than his own, but including a place provided by way of tenancy or otherwise by the person receiving such services Beauty Parlour Services Scope extended to include hair cutting, hair dyeing and hair dressing services 18

19 Authorized Service Station Scope extended to include reconditioning or restoration services of any motor car, light vehicles or two wheeled motor vehicle Broadcasting Services Scope extended to include charges recovered from cable operators including multi system operators (MSO s) and provision of direct to home (DTH) signals to customers Sound Recording Services Scope extended to include recording of sound on any media and includes post production services such as sound mixing or remixing Videotape Production Agency s Services Scope extended to include recording of any programme, event or function on any media and includes post production services 19

20 Legislative Amendments Section 65(105) amended To extend the scope to include services to be provided Explanation inserted to clarify that Services provided or to be provided from outside India to a recipient in India Shall be treated as taxable services provided in India Effective from date to be notified after enactment of Finance Bill, 2005 Section 67 amended to clarify that payment received before, during or after the provision of taxable service would form part of the gross amount for charging service tax. Sections 69 and 70 amended to enable person other than the service tax payer for registration and filing of returns e.g. certain category of small service providers, and input service distributors within the exemption limit. 20

21 Legislative Amendments Section 96A amended to allow any existing JV in India to avail benefit of advance ruling and to empower the Central Government to notify any class or category of persons to avail benefit of advance ruling. Amendments to Service Tax Rules, 1994 (W.e.f. April 1, 2005) Rule 2(1)(d)(vi) introduced to shift the liability to pay service tax from mutual fund distributor or agent to the mutual fund or asset management company Rule 4 amended to facilitate more than one registration by a person having centralized account and billing system Rule 4A(1) prescribes the requirement of issue of invoice within 14 days from date of completion of provision of service or receipt of payment whichever is earlier Rule 6 amended to change the due date for payment of service tax from 25th to 5th of the following month or quarter. 21

22 Export of Services Export of Services Rules, 2005 notified (Notification 9/2005) Come into force w.e.f. March 15, 2005 Payments received in convertible foreign exchange for services rendered in India now liable to service tax (w.e.f. March 15, 2005) Notification 21/2003 dt rescinded No service tax required to be paid on export of services (Rule 4) Rebate may be granted by way of Notification 3 categories of services specified Services in relation to immovable property situated outside India 5 specific services Insurer (General Insurance Business) Architect Interior Decorator Real Estate Agent Construction Service Services performed partly in India and partly outside India deemed to be provided outside India 47 specific services 22

23 Export of Services Services other than those mentioned above Services are used in or in relation to commerce or industry and service recipient located outside India treated as export of services However, if the recipient has any office in India then services provided shall be treated as export of services only if - o Order for provision of services is received from the recipient s office located outside India o Services are delivered outside India and used in business outside India and o Payment for such services provided is received in convertible foreign exchange Services are used other than in or in relation to commerce or industry treated as export of services if the recipient is located outside India at the time of receipt of such services Services used in relation to export of goods not treated as export of services 23

24 THANK YOU 24