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New Service Tax Regime

New Service Tax Regime. Contents. Salient features of “New Service Tax Regime” Place of Provisions of Service Rules, 2012 Service Tax under reverse charge mechanism Changes in Point of Taxation Rules, 2011 Valuation & Abatement in Service Tax

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New Service Tax Regime

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  1. New Service Tax Regime

  2. Contents • Salient features of “New Service Tax Regime” • Place of Provisions of Service Rules, 2012 • Service Tax under reverse charge mechanism • Changes in Point of Taxation Rules, 2011 • Valuation & Abatement in Service Tax • Changes in Cenvat Credit Rules, 2004 • Changes in Service Tax Rules, 1994 • Other Legislative Amendments • Refund of Service Tax on Export of Services • Penal Provisions & Prosecution

  3. Salient Features of New Service Tax Regime • Sweeping and radical change in the chargeability of service tax on services. • Service tax chargeability on all services, except services mentioned on • Negative List (17 heads) • Exempt List (38 heads) • With an intention to move closer to GST regime. • Effective ST rate increased from 10.3% to 12.36% (1/4/2012)

  4. Salient Feature of New Service Tax Regime –contd. Negative list (1/7/2012)

  5. Salient Feature of New Service Tax Regime –contd. • Exclusions • Services by Department of Posts – Speed post, express parcel • post, Life Insurance & agency services provided to a person • other than Government. • Services to an aircraft or a vessel, inside or outside the precincts • of a port or an airport • Transport of goods or passengers • Support services other than above provided to business entity.

  6. Salient Feature of New Service Tax Regime –contd. Exempt List (1/7/2012)

  7. Salient Feature of New Service Tax Regime –contd. Exempted services …

  8. Salient Feature of New Service Tax Regime –contd. Exempted service …

  9. Salient Feature of New Service Tax Regime –contd. • What is “Service” • “Service” is any activity carried out by a person or entity for another for • consideration, which includes nine “Declared Services” • The above definition means “anything” is a service, except • a transfer of title in goods or immovable properties • a transaction in money or actionable claim • Provision of a service by an employee to the employer in relation to his employment • Fees taken in any Court or Tribunal established under any law • There will be less dispute on classification of services • New rules are complex and will increase indirect tax cost • Pay more service tax due to wide coverage and cenvat credit restriction in • certain cases

  10. Salient Feature of New Service Tax Regime –contd. • “Taxable Territory” means whole of India excluding State of Jammu & Kashmir • There is no change in the valuation of services for levying tax, availment and • utilization of cenvat credit. • Invoices to be issued within 30 days (instead of earlier 14 days) from the date • of completion of service or receipt of any payment towards value of service – • whichever is earlier • Prosecution for non-issue of invoice being replaced with the non – issue of • invoice knowingly to evade payment of service tax • Penalty may be waived for those taxpayers who pay, within 6 months from • 28th May 2012, service tax dues, along with interest, on the renting of • immovable property service

  11. Salient Feature of New Service Tax Regime –contd. Declared services

  12. PLACE OF PROVISION OF SERVICE RULES, 2012 (POPS) (1ST JULY 2012) • This replaced Export Rules and Import Rules • These Rules determine the place where a service shall be deemed to be • Provided. • ST liability will be determined based on the place of its provision (place of • supply of services) • These Rules will be relevant in following scenarios • Cross border services transactions • Determining services that are wholly consumer within SEZ • Service transactions in relation to Jammu & Kashmir

  13. Place of Provisions of Service Tax-Cond. Rules - Place of Provision of Service Where provision of service is prima facie determinable in terms of more than one rule, it shall be determined in terms of the rule which occurs later – Rule 14

  14. Place of Provisions of Service Tax-Cond. General Rule Service Provider Service Receiver Non-taxable territory Service Provider Service Provider Service Receiver Taxable territory Service Receiver • Provision in non-taxable • territory • Tax not payable subject to • satisfaction of any other • condition as prescribed • Provision in taxable territory • Service Receiver to pay tax • (Reverse Mechanism) • Provision in taxable territory • Service Provider to pay Tax

  15. Place of Provisions of Service Tax-Cond. • Rule 3 • Place of provision generally- The place of provision of a service shall be • the location of the service receiver: • Provided that in case the location of the service receiver is not available in the ordinary course of business, the place of provision shall be the location of the service provider.

  16. Place of Provisions of Service Tax-Cond. • Rule 4 • Place of provision of performance based services - The place of provision of following services shall be the location where the services are actually • performed, namely:- • Services provided in respect of goods that are required to be made physically available by the recipient of service to the provider of service, or to a person acting on behalf of the provider of service, in order to provide the service: • When such services are provided from a remote location by way of electronic means the place of provision shall be the location where goods are situated at the time of provision of service: • Not apply in the case of a service provided in respect of goods that are temporarily imported into India for repairs, reconditioning or reengineering for re-export, subject to conditions as may be specified in this regard. • Services provided to an individual, represented either as the recipient of service or a person acting on behalf of the recipient, which require the physical presence of the receiver or the person acting on behalf of the receiver, with the provider for the provision of the service.

  17. Place of Provisions of Service Tax-Cond. Rule 5 Place of provision of services relating to immovable property - The place of provision of services provided directly in relation to an immovable property, including services provided in this regard by experts and estate agents, provision of hotel accommodation by a hotel, inn, guest house, club or campsite, by whatever, name called, grant of rights to use immovable property, services for carrying out or co-ordination of construction work, including architects or interior decorators, shall be the place where the immovable property is located or intended to be located (e.g. Maintenance, Construction, Security Services).

  18. Place of Provisions of Service Tax-Cond. Rule 6 Place of provision of services relating to events - The place of provision of services provided by way of admission to, or organization of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a celebration, conference, fair, exhibition, or similar events, and of services ancillary to such admission, shall be the place where the event is actually held.

  19. Place of Provisions of Service Tax-Cond. Rule 7 Place of provision of services provided at more than one location: Where any service referred to in rules 4, 5, or 6 is provided at more than one location, including a location in the taxable territory, its place of provision shall be the location in the taxable territory where the greatest proportion of the service is provided.

  20. Place of Provisions of Service Tax-Cond. Rule 8 Place of provision of services where provider and recipient are located in taxable territory: Place of provision of a service, where the location of the provider of service as well as that of the recipient of service is in the taxable territory, shall be the location of the recipient of service.

  21. Place of Provisions of Service Tax-Cond. Rule 9 Place of provision of specified services: The place of provision of following services shall be the location of the service provider: (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders; (b) Online information and database access or retrieval services; (c) Intermediary services; (d) Service consisting of hiring of means of transport, upto a period of one month. Definition of Intermediary “intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates a provision of service (hereinafter called the ‘main’ service) between two or more persons, but does not include a person who provides the main service on his account

  22. Place of Provisions of Service Tax-Cond. Rule 10 Place of provision of goods transportation services :The place of provision of services of transportation of goods, other than by way of mail or courier, shall be the place of destination of the goods: Provided that the place of provision of services of goods transportation agency shall be the location of the person liable to pay tax.

  23. Place of Provisions of Service Tax-Cond. Rule 11 Place of provision of passenger transportation service: The place of provision in respect of a passenger transportation service shall be the place where the passenger embarks on the conveyance for a continuous journey.

  24. Place of Provisions of Service Tax-Cond. Rule 12 Place of provision of services provided on board a conveyance: Place of provision of services provided on board a conveyance during the course of a passenger transport operation, including services intended to be wholly or substantially consumed while on board, shall be the first scheduled point of departure of that conveyance for the journey

  25. Place of Provisions of Service Tax-Cond. Rule 14 Order of application of rules : Notwithstanding anything stated in any rule, where the provision of a service is, prima facie, determinable in terms of more than one rule, it shall be determined in accordance with the rule that occurs later among the rules that merit equal consideration.

  26. SERVICE TAX UNDER REVERSE MECHANISM (1st July 2012)

  27. Changes in Point of Taxation Rules, 2011 (1st April 2012) Determination of POT • General Rules – POT shall be earlier of the following • Issuance of invoice or • Receipt of payment, including advance or • The date of completion of provision of service where the invoice is not • issued within 30 days (earlier 14 days) from the date of completion of • service in case of other than banking and other financial services and in case • of banking and other financial services within 45 days (earlier 14 days) • from the date of completion of service • In case of Export of Service at eight specified services provided by individual • or firm (upto a turnover of Rs 50 lacs in an financial year provided the taxable • turnover did not exceed this limit in the previous financial year) – POT is date • of payment. The turnover of the whole entity is to be considered not any • single registration

  28. POTR – Contd. In case of continuous supply of service What does continuous supply of service mean Service provided or agreed to be provided continuously or on recurrent basis, under a contract, for period exceeding three months, with the obligation for payment periodically or from time to time or Specified services by Central government under notification • Determination of point of taxation on completion of an event • Where provision of whole or part of service is determined periodically on completion of an event in terms of the contract which require service receiver to make payment to the service provider, the date of completion of such event would deemed to be the date of completion of service Specified services by Central Government Telecommunication Services, Commercial or industrial construction, Construction of residential complex, Internet Telecommunication Service, Service portion in execution of works contract.

  29. POT in case of change in the effective rate of tax • Service has been provided before the change in rate • where invoice issued and payment received after the change in rate, • POT is date of payment or issuing invoice whichever is earlier. • where invoice issued prior to change in rate, but the payment received after the • change in rate, POT is date of issuing of invoice. • where payment is received before the change in rate, but invoice for the same • issued after the change in rate, POT is the date of payment. • Service has been provided after the change in rate • where payment for the invoice is made after change in rate, but invoice issued • prior to change in rate, POT is date of payment. • where invoice issued and payment for the invoice received before change in • rate, POT is date of receipt of payment or date of issuance of invoice, whichever • is earlier. • where invoice raised after the change in rate, but payment received before the • change in rate, POT is date of issuing invoice.

  30. POTR – Contd.

  31. POTR – Contd.

  32. Valuation & Abatements • Valuation(amended w e f 1st July 2012) • Rate of ST, value of a taxable service and rate of exchange, if any, shall • be the rate of ST or value of taxable service or rate of exchange in force • or as applicable at the time when the taxable service has been provided • or agreed to be provided • Valuation Rules (amended w e f 1st July 2012) • Determination of value of service involve in execution of work contract • (complex one – a separate note will be circulated • Sale & purchase of foreign exchange service • value of service = difference in selling or buying rate and RBI • reference rate for a particular currency / total unit of currency • (RBI reference means selling & buying rate) • Details note on this will be circulate to concerned person

  33. Manner of determination of value • Value = gross amount charged by the SP to provide similar service to • any other person in the ordinary course of trade and gross amount • charged is sole consideration • If value cannot be determined as above, SP will be determined the • equivalent money value of such consideration which shall not be less • than the cost of provision of such taxable service. There are no • specific guidelines for determining this cost, hence generally • accepted principle of costing should be adopted.

  34. Inclusion or exclusion from value of certain expenditure or cost • Where any expenditure or costs is incurred by SP in the course of • providing the taxable service, all such expenditure or costs shall • be treated as consideration. • Expenditure or costs incurred by SP as “pure agent” of the SR, can • be excluded from the value subject to certain conditions – some of • them are • - SP makes payment to third party for the goods or services procured • - SR liable to make payment to third party • - SR authorizes SP to make payment on his behalf • - Payment made on behalf shown separately in the SP’s invoice for • rendering services • - Contract should mention such payment on behalf

  35. Abatement from value of taxable service

  36. CHANGES IN CENVAT CREDIT RULES, 2004 (1st April 2012) Input • means - • (i) all goods used in factory by manufacturer of final product • (ii) any goods, including accessories, cleared along with 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 • (iv) all goods used for providing any output service.

  37. Changes in Cenvat Credit Rules – Condt. • Excludes • Light diesel oil, high speed diesel oil or motor spirit, commonly know as • petrol; • Any goods used for; • construction or execution of works contract of a building or a civil • structure (by a manufacturer or service provider) • laying of foundation or making of structures for support of capital • goods, except for the provision of service portion in the execution of a works contract or construction service used for construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer except where the entire consideration is received after issuance of completion certificate by the competent authority.

  38. Changes in Cenvat Credit Rules – Condt. • Input – excludes … • Capital goods except when used as parts or components in the manufacture of 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 for personal use or consumption of any employee; • Any goods which have no relationship whatsoever with the manufacture of a final product.

  39. Changes in Cenvat Credit Rules – Condt. Input Service • means - any service • (i) used by a provider of output servicefor providing an output service • service • (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 place • of removal. • and 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.

  40. Changes in Cenvat Credit Rules – Condt. • Excludes • “Specified Services” (SS) • Service portion in the execution of a works contract and construction services, (including construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority) used for • construction or execution of work contract of a building or a civil • structure • b) laying of foundation or making of structure for support of capital goods • - except when used for the provision of one or more of the above SSs. • Note: Exclusion is only for construction or execution of contract of a building or • civil structure ….. it does not apply to other services like completion, • finishing, repairs, renovation, maintenance etc. taxable under • Commercial or Industrial Construction Services

  41. Changes in Cenvat Credit Rules – Condt. Input services – Excludes …. • Services provided by way of renting of a motor vehicle in so far as they related to a motor vehicle, which is not a capital goods [From 1.4.2012, credit of ST paid on the hiring, insurance and repair of motor vehicles available]. • Services 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 a Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.

  42. Changes in Cenvat Credit Rules – Condt. Input services – Excludes … • Goods used for construction services, …… excluded from “inputs” • Construction services, work contract service and other specified services excluded from “input services” • If the works contract service or construction service is provided by sub-contractor to the main contractor of the same line, then they constitute input service (credit is available). • If a manufacturer or a service provider pays ST on the construction or a works contract service, no credit is available.

  43. Changes in Cenvat Credit Rules – Condt. CAPITAL GOODS • means • Following goods : • All goods under chapters 82, 84, 85, 90, 6805 & grinding wheels and the like, and part thereof under 6804 • Pollution control equipments • Components, spares and accessories of goods specified above • Moulds & dies, jigs and fixtures • Refectories and refectory materials • Tubes & pipes and fitting thereof • Storage tanks • Motor vehicles, other than those falling under 8702, 8703, 8704 & 8711 and there chassis (including dumpers and tippers)

  44. Changes in Cenvat Credit Rules – Condt. Capital goods … • Used • Factory of manufacturer of final products (excludes any equipment or appliance used in an office) • Outside factory of manufacture of final products for generation of electricity for captive use within the factory • For providing output service

  45. Changes in Cenvat Credit Rules – Condt. • Exempted goods: • Excisable goods exempt from the whole of the duty of excise includes “Nil” rate of duty and goods in respect of benefit of exemption under notification 1/2011-CE dated 1st March 2011 or under entries at sr nos 67 & 128 of notification 12/2012-CE dated 17th March 2012 is availed. • Exempted service: • Taxable service which is exempt from whole of service tax • Negative list of services • Taxable service 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; but shall not include a service which is exported in terms of Rule 6A of the Service Tax Rules, 1994.

  46. Changes in Cenvat Credit Rules – Condt. OUTPUT SERVICE • Service provided by SP in TT – excludes • negative list • exempted list • GENERAL • SP allow to take credit of input or capital goods delivered to SP, irrespective • of whether they are brought to his premises of not • Credit allowed on tax payment challan in case of payment of ST by all SR under reverse charge mechanism • Interest payable only on wrong utilization of CC (controversy after SC’s decision on Swift Laboratories settled) (17/3/2012) • Cenvat credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.

  47. Changes in Cenvat Credit Rules – Condt. • Payment under Rule 6 (3) on account of provision of exempt services and • manufacture of exempted goods, where separate books of accounts are • maintained, increased from 5% to 6%. • Transfer of credit of unutilized SAD to other premises of same manufacturer • on quarterly basis. (1/4/2012) • Capital goods, on which CC taken, if cleared as such, whether as capital • goods or as waste and scrap, then the • manufacturer or SP to pay an amount equal to CC taken at the time of • receipt reduced by a prescribed percentage or the duty on TV whichever • is higher.

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