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Service Tax Practice as per New Provisions

Service Tax Practice as per New Provisions. At Baroda Branch CPE Study Circle on Friday, 11.07.2012 by CA. M. J. Parsiya. Changes by Finance Act 2012 and Notifications thereafter. 45 notifications issued in addition to Finance Act, 2012 to sift on negative list based Service Tax

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Service Tax Practice as per New Provisions

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  1. Service Tax Practice as per New Provisions At Baroda Branch CPE Study Circle on Friday, 11.07.2012 by CA. M. J. Parsiya

  2. Changes by Finance Act 2012 and Notifications thereafter • 45 notifications issued in addition to Finance Act, 2012 to sift on negative list based Service Tax • Major features of above changes – • Increase of Service Tax rate from 10% to 12% w.e.f. 01.04.12 • To give effects to new provisions of Finance Act, 2012 w.e.f. 01.07.2012 • To cease the operation of old provisions of Service Tax w.e.f. 01.07.2012 • To provide for exemption from service tax levied u/s. 66B • To provide for abatement from service tax levied u/s. 66B

  3. Changes by Finance Act 2012 and Notifications thereafter • To amend Point of Taxation Rules, 2011 • To amend Service Tax (Determination of Value) Rules, 2006 w.e.f. 01.07.12 • To notify Service tax (settlement of cases) rules, 2012 • Service Tax (Compounding of Offences) Rules, 2012 • To notify new Place of Provision of Services Rules, 2012 to replace Rules related to export and import of service w.e.f. 01.07.12 • To provide for mechanism for service tax on reversed charge u/s. 68(2) w.e.f. 01.07.2012

  4. Changes by Finance Act 2012 and Notifications thereafter • To rescinds 81 exemption/abatement notifications under old Service Tax Law. • To amend Service Tax Rule, 1994 • To amend CENVAT Credit Rules, 2004

  5. Major Changes through Finance Act, 2012

  6. Major Changes through Finance Act, 2012

  7. Charge of Service Tax – Sec.66B There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

  8. Need for Description of Services Description continue to exist in – • The negative list of services • The declared list of services • The exemption notifications • The Place of Provision of Service Rules, 2012 • In few other rules and notification

  9. Accounting Code for payment of service tax under the Negative List approach Circular No.161/12/2012 –ST dated 6.7.2012 All Taxable Services – Accounting codes w.e.f. 1.7.2012 • Major Head “0044-Service Tax”. • Tax collection – 00441089 • Other Receipts – 00441090 • Penalties – 00441093 • Deduct refunds – 00441094 • Old codes will operate for past period payments and ; • Primary(00440298) and Secondary &Higher Secondary (00440426) Education cases will remain unchanged

  10. Definition of Service - Sec. 65B(44) “service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include— (a)  an activity which constitutes merely,—   (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii)  a transaction in money or actionable claim; (b)  a provision of service by an employee to the employer in the course of or in relation to his employment; (c)  fees taken in any Court or tribunal established under any law for the time being in force.

  11. Definition of Service (Sec. 65B(44)) Explanation 1.— Exclusion of MP, MLA etc. Explanation 2.— For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged. Explanation 3.— For the purposes of this Chapter,—  (a)  an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;  (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4.— A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory;

  12. Principles of Interpretation of Specified descriptions of services or bundled services (Sec. 66F) (1)Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service. (2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description. (3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely:—

  13. Principles of Interpretation of Specified descriptions of services or bundled services (a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character; (b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax. ["bundled service" means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.]

  14. Valuation of Taxable Services (Sec 67) 1. Value of Taxable Services: • Where consideration is money – Gross amount charged by the service Provider • Where consideration is not wholly or partly consisting money – amount equivalent to the consideration • Where consideration is not ascertainable – amount may be determined in the prescribed manner • Where gross amount charged shall be amount of taxable service + tax payable • Amount of taxable service include amount received before, during and after provision of such service • Subject to 1,2 and 3 above value shall be determined in such a manner as may be prescribed

  15. Date of determination of rate of tax, value of taxable service and rate of exchange(Sec.67A) • The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided. Importance of the Section: Rules 7 of Point of Taxation Rule, 2011 provides for the point of taxation shall be the date of payment. Circular No. 154/5/2012-ST dated 28-3-2012 & Circular No. 158/9/2012-ST dated 8-5-2012 . Rate would depend solely on the date of providing service – CCE v. Reliance Industries Ltd. [2011] 30 STT 283/9 (Guj.)

  16. Service Tax (Determination of Value) Rules, 2006 • Rule 2A provides for subject to Sec 67 value shall be determined …. • the value of service portion shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. • gross amount charged shall not include VAT • Value of works contract shall include, …. • Where VAT paid on actual basis… • When value has not determined under clause (i) (A) Original Contract - value 40% of total amount charged (B) Maintenance, repair, reconditioning, restoration or servicing of any goods – value 70% of total amount charged.

  17. Service Tax (Determination of Value) Rules, 2006 • In other cases – value 60% of total amount charged Explanation 1: • "original works" means— (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

  18. Service Tax (Determination of Value) Rules, 2006 (b) "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting— (i) the amount charged for such goods or services, if any; and (ii) the value added tax or sales tax, if any, levied thereon: Explanation 2: CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, shall not be available

  19. Service Tax (Determination of Value) Rules, 2006 Rule 2C provides for Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering • At restaurant Value of Service 40% • Outdoor Catering Value of Service 60% CENVAT will not be available on goods classifiable under Chapter 1 to 22 of Central Excise tariff (live animals, animal products, vegetable products, prepared food stuffs, beverages, spirits and vinegar or animal or vegetable fats and oils and their cleavage products, prepared edible fats, animal or vegetable waxes)

  20. Service Tax (Determination of Value) Rules, 2006 Rule 3 – where such value is not ascertainable shall be determine by service provider – • Value of similar service • if it cannot be determined as (a) the equivalent money, which shall in no case be less than cost of provision of service Rule 5 (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. (2) Except the expenditure or cost s incurred as pure agent

  21. Service Tax (Determination of Value) Rules, 2006 Rule 6 • Inclusions – The amount realized as demurrage for the provision of service beyond the period originally contracted • Exclusions – • Initial deposit made by the subscriber of telephone/mobile etc. • Air fair collected by air travel agent • Rail fair collected by rail travel agent • Interest on delayed payment of any consideration for the provision of services etc. • Taxes levied by any Govt. on air travelling and shown separately. • Accidental damages due to unforeseen actions not relatable to provision of services • Subsidy and grants disbursed by Govt.

  22. Collected in Such a Manner as may be prescribed • Manner may be prescribed by : • Finance Act, 1994 • Service Tax Rules, 1994 • Point of Taxation Rules, 2011 • Place of Provision of Services Rule, 2012 • Notifications, etc.

  23. Payment of Service Tax (Sec 68) • Sub-section (1) provides - Any person providing taxable service shall pay service tax • Sub-section (2) provides – Notwithstanding with any thing contained in sub-sec (1), such taxable service as may be notified, the service tax thereon shall be payable by such persons and in manner as may be prescribed and all the provisions of this chapter shall apply to such person Provided that the Central Govt. may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent specified and the remaining part of the service tax shall be paid by the service provider.

  24. Service Tax on Reverse Charge basis u/s. 68(2) – Notification 30/2012-ST In case of taxable services provided or agreed to be provided by : • Insurance Agent – 100% • GTA Service freight is payable by specified person – 100% • Sponsorship to body corporate or partnership firm – 100% • Arbitral Tribunal to business entity (BE) – 100% • An individual advocate or firm of advocate to BE – 100% • Support services by Government or Local Authority except renting of immovable property and services specified in sub-clause (a) of section 66D • any person which is located in a non-taxable territory and received by any person located in the taxable territory

  25. Service Tax on Reverse Charge basis u/s. 68(2) – Notification 30/2012-ST In case of taxable service provided or agreed to be provided by way of • renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or • supply of manpower for any purpose or • service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory;

  26. Service Tax on Reverse Charge basis u/s. 68(2) – Notification 30/2012-ST • by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business – 100 % • by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business – 60% by provider & 40% by recipient of service • by way of supply of manpower for any purpose – 25% by provider & 75% by recipient of service • service portion in execution of works contract – 50% by provider & 50% by recipient of service

  27. Service Tax on Reverse Charge basis u/s. 68(2) – Notification 30/2012-ST • Explanation-I. - The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. • Explanation-II. - In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service. • 2. This notification shall come into force on the 1st day of July, 2012.

  28. Recent Important Changes in Service Tax Rules, 1994 Rule 2 – Definition (Some important new definitions) • “Partnership firm” includes a limited liability partnership. • Person liable to pay service tax including in case of service tax on reverse charge u/s. 68(2). • Renting of immoveable property shall include any other service in relation to such rending. • “supply of manpower “ means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

  29. Recent Important Changes in Service Tax Rules, 1994 • "RULE 6A. Export of services.- (1) The provision of any service provided or agreed to be provided shall be treated as export of service when,- (a) the provider of service is located in the taxable territory , (b) the recipient of service is located outside India, (c) the service is not a service specified in the section 66D of the Act, (d) the place of provision of the service is outside India,

  30. Recent Important Changes in Service Tax Rules, 1994 (e) the payment for such service has been received by the provider of service in convertible foreign exchange, and (f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act (2) Where any service is exported, the Central Government may, by notification, grant rebate of service tax or duty paid on input services or inputs, as the case may be, used in providing such service and the rebate shall be allowed subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification.“(43/2012 dt.6.7.12)

  31. Recent Important Changes in Service Tax Rules, 1994 • in case of individuals and partnership firms having turnover less than 50 lac shall have the option to pay tax in month or quarter, as the case may be, in which payment is received. • Rule 4A extend period from 14 days to 30 days to issue invoice /bill on completion of such taxable service or receipt of any payment the value of such taxable service and 45 days in case of banking company

  32. Recent Important Changes in Point of Taxation Rules, 2011 • "change in effective rate of tax" shall include a change in the portion of value on which tax is payable in terms of a notification issued in the Official Gazette under the provisions of the Act, or rules made there under; • Amends definition of "continuous supply of service" by adding the word on recurrent basis. • Defines date of payment earlier of the dates on which the payment is entered in the books of accounts or is credited to the bank account of the person liable to pay tax and in case of change in effective rate of tax date of credit in bank account if the credit is after 4 days of the change.,

  33. Recent Important Changes in Point of Taxation Rules, 2011 • Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service"; • Substitute Rule 5 "Payment of tax in case of new services.-Where a service is taxed for the first time, then,- (a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable; (b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.".

  34. Recent Important Changes in Point of Taxation Rules, 2011 • Rule 6 in relation to point of taxation in case of continuous supply of service is omitted. • Now only the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made. • Rule 8A is inserted to give power to Central Excise Officer to ascertain the point of taxation to the best of his judgement.

  35. Taxable Territory • Sec. 65B(52) defines "taxable territory" means the territory to which the provisions of this Chapter apply. • Sec. 64 provides that this Chapter extends to the whole of India except the State of Jammu and Kashmir.

  36. Place of Provision of Services Rules, 2012 Rule 3 - Place of provision of service - generally is place of recipient of service. Rule 4 - Place of provision of performance based services – where the service is actually performed Rule 5 - Place of provision of services relating to immovable property - where the immovable property is located or intended to be located. Rule 6 - Place of provision of services relating to events – The place of Provision of service where the event is actually held. Rule 7 - Place of provision of services provided at more than one location including in the location in taxable territory – the location in the taxable territory where the greatest proportion of the service is provided.

  37. Place of Provision of Services Rules, 2012 Rule 8 - Place of provision of services where provider and recipient are located in taxable territory – location of recipient of service Rule 9 - Place of provision of specified services i.e. (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, up to a period of one month. - location of the service provider Rule 10 - Place of provision of goods transportation services - 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.

  38. Place of Provision of Services Rules, 2012 Rule 11 - Place of provision of passenger transportation service - the place where the passenger embarks on the conveyance for a continuous journey Rule 12 - Place of provision of services provided on board a conveyance - the first scheduled point of departure of that conveyance for the journey Rule 13 - the Central Government shall have the power to notify any description of service or circumstances in which the place of provision shall be the place of effective use and enjoyment of a service Rule 14 - 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.

  39. Exemption to specified services by way of abatement w.e.f. 1.7.2012(26/2012-ST)

  40. Exemption to specified services by way of abatement w.e.f. 1.7.2012(26/2012-ST)

  41. Exemption to specified services by way of abatement w.e.f. 1.7.2012(26/2012-ST)

  42. Negative List – Sec. 66D The negative list shall comprise of the following services, namely:— • services by Government or a local authority excluding—speed post, express parcel post, life insurance and agency services, aircraft or a vessel, transport of goods or passengers; orsupport services provided to business entities; • services by the Reserve Bank of India; • services by a foreign diplomatic mission located in India;

  43. Negative List – Sec. 66D • services relating to agriculture or agricultural produce • trading of goods; • any process amounting to manufacture or production of goods; • selling of space or time slots for advertisements other than advertisements broadcast by radio or television; • service by way of access to a road or a bridge on payment of toll charges;

  44. Negative List – Sec. 66D • betting, gambling or lottery; • admission to entertainment events or access to amusement facilities; • transmission or distribution of electricity by an electricity transmission or distribution utility; • services by way of—pre-school education and education up to higher secondary school or equivalent; education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force; education as a part of an approved vocational education course;

  45. Negative List – Sec. 66D • services by way of renting of residential dwelling for use as residence; • services by way of— (i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount;(ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers;

  46. Negative List – Sec. 66D • service of transportation of passengers, by — a stage carriage;railways in a class other than—first class; oran air-conditioned coach;metro, monorail or tramway;inland waterways;public transport, other than predominantly for tourism purpose, in a vessel between places located in India; andmetered cabs, radio taxis or auto rickshaws;

  47. Negative List – Sec. 66D • services by way of transportation of goods— (i) by road except the services of— (A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance in India; o (iii) by inland waterways; • funeral, burial, crematorium or mortuary services including transportation of the deceased.

  48. Mega Exemption Notification – Sec. 93(1), Notification No. 12/2012 & 25/2012 In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994, Central Government exempts 39 items specified in notification. Few Important exemptions are as under: • Health Care Services provided by doctors and hospitals • Services provided by charitable trust • Legal services provided by arbitral tribunal and advocate or firm of advocate other than to business entity and business entity having turnover less than 10 lakh. • Legal service provided by an advocate or firm of advocates to an advocate of firm of advocates.

  49. Mega Exemption Notification – Sec. 93(1), Notification No. 12/2012 & 25/2012 • Construction service provided to Government in relation to building, canal, dam, pipeline, plant etc. for water & sewerage • Certain construction services in relation to basic infrastructure. • Services by way of vehicle parking to general public • Service by an unincorporated body or a non- profit entity • sub-broker or an authorised person to a stock broker; • selling agent or a distributer of SIM cards or recharge coupon vouchers

  50. Mega Exemption Notification – Sec. 93(1), Notification No. 12/2012 & 25/2012 • sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt • Carrying out an intermediate production process as job work in relation to agriculture, printing or textile processing, cut and polished diamonds and gemstones, goods on which appropriate duty is payable by the principal manufacturer, processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting etc.

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