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Service Tax

Service Tax. Negative List & Reverse Charge Concepts. Jurisdiction Negative list Declared service Mega Exemption Reverse Charge. TOPICS COVERED. Services constitute more than 50% of GDP The growth in service sector is an indicator of economic development

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Service Tax

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  1. Service Tax Negative List & Reverse Charge Concepts

  2. Jurisdiction • Negative list • Declared service • Mega Exemption • Reverse Charge TOPICS COVERED

  3. Services constitute more than 50% of GDP • The growth in service sector is an indicator of economic development • However, till 1994 the burden of taxation was on goods only • Further there was no sound reasoning for not taxing the service sector Introduction

  4. The Concept of Taxable Territory • The levy extends to whole of India except the state of Jammu and Kashmir • It extended to designated area in the continental shelf and Exclusive Economic Zone of India • Under Negative list regime the jurisdiction is well defined – Section 65B (27) Jurisdiction

  5. The New Taxability Concept SERVICE FOR A CONSIDERATION 9 DECLARED SERVICES E: Employee M: Money A: Actionable claim G: Goods I: Immovable property C: Court Fee E - MAGIC TEST Executive Summary

  6. Taxation of Services Post Finance Act, 2012

  7. All services Taxable [section 65B (44)] • Declared services Taxable (section 66E) • Services covered under Not Taxable negative list of services (section 66D) • Services exempt under Mega Exempted Notification No. 25/2012-ST dated 20.6.2012 • Other specified Exemptions Exempted Taxability of Services (1-7-2015)

  8. Various committees constituted by Government suggested for comprehensive coverage • Govinda Rao committee • Kelkar Committee • The suggestion were not implemented immediately for various reasons • Finally in the year 2012 comprehensive approach was opted for levy of service tax Negative list

  9. Finally in the year 2012 comprehensive approach was opted for levy of service tax • All Services other than the services specified in the negative list are taxable. • 3 Steps to ascertain the taxability • Activity covered within the ambit of “Service” • It is not specified in the negative list –Section 66D • It is not exempted under Notfn.No.25/2012-ST Negative list ( contd )

  10. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen 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. Charging section – 66B

  11. Any activity (Sec 65B(44) ) • By a person for another person • For consideration • Includes declared service • Excludes certain activity Definition of Service

  12. Self service not taxable- Service by one branch office to another branch office or Head office • Exception • A branch office located in taxable territory and another office located in non taxable territory - treated as distinct person. • Association and members thereof are also treated as distinct person. By a person for another person

  13. Not defined in the Act • Activity includes – - An act done, A work done, A deed done - An operation carried out - Execution of an act - Provision of a facility • Activity could be active or passive • It includes refraining from an act (Non compete fee) • Situation as described under declared service What is an activity

  14. Self service not taxable- Service by one branch office to another branch office or Head office • Exception • A branch office located in taxable territory and another office located in non taxable territory - treated as distinct person. • Association and members thereof are also treated as distinct person. By a person for another person

  15. ‘Person’ defined under Section 65 B of the Act. • An individual • A Hindu undivided family • A company • A society • A limited liability partnership firm • A firm • An association or body of individuals • Government – Central, State, Local authority • Every artificial juridical person Meaning of person

  16. No definition in the Finance Act, 1994 • Definition as per Indian Contract Act, 1872 • Anything received in return for provision of service is consideration • Monetary Consideration • Illustrations- 2.3.2 (p.no.9) Guidance Paper • Consideration given by third parties Consideration

  17. Supply of Goods and Services in return for the Service • Refraining or forbearing an Act • Doing or agreeing to an Act • Illustrations-2.2.4 (p.no 7) Guidance Paper • If money value not ascertainable • Comparable value of similar Service • If not available, cost of provision of service Non Monetary Considerations

  18. Grants, Donations, gift, free charities – outside ambit of Service • Grants given for research work without any obligations • Donations to charitable organizations without any obligations Activity without consideration

  19. Services by Govt. or local authority subject to certain exclusions. (*) • Services by RBI • Services by Foreign Diplomatic Mission located in India • Services relating to Agriculture • Trading of Goods • Any process amounting to manufacture (*) • Sale of Space for advertisement other than by radio or T.V. • Toll charges • Betting, Gambling, lottery (*) THE NEGATIVE LIST -- 17 Services

  20. THE NEGATIVE LIST -- 17 Services • Admission to entertainment event or amusement facilities (*) • Transmission or distribution of electricity • Education • Renting of residential dwelling for use as a residence • Interest or discount • Transportation of passengers with certain exceptions • Transportation of goods with certain exceptions • Funeral, burial, crematorium or mortuary services

  21. Renting of Immovable Property • Construction of Complex, Building, Civil Structure • Temporary transfer of IPR • Information Technology Software • Refraining from an act • Hiring, leasing of goods without transfer of right to use such goods • Activities in relation to hire purchase • Service portion in Works Contract • Service portion in supply of food or drinks. Declared Services

  22. Section 66F- • Need for classification even under negative list • Applicable in the following areas • Negative list • Exemption • Place of provision of service Rules 2012 • Cenvat Credit Rules, 2004 Classification

  23. Reverse charge

  24. Reverse Charge Generally service provider is liable to pay service tax – Section 68(1) For specified Services, Service Receiver is liable to pay service tax – Section 68(2) Reasons for reverse charge method – Administrative convenience, service provider in non taxable territory, Service provider in unorganized sector

  25. Major changes introduced in 2012 at the time of introduction of negative list based levy • Both the service provider and service receiver liable to pay service tax • More number of services added to reverse charge method of levy Partial Reverse Charge

  26. No cenvat credit can be utilized • No SSI benefit available for reverse charge • For WCS , the service recipient has the option to valuation method as per his choice Reverse charge (conditions)

  27. “Business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession [Sec 65B(17)] • “Body Corporate” – Company incorporated in India, Company incorporated outside India, LLP, Trust. Cooperative Society, Firm, HUF, Certain Notified Companies are NOT ‘Body Corporate’. • ST Rule 2 (bc) “body corporate” has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956 (1 of 1956); • CA 1956 Section 2 (7) "body corporate" or "corporation" includes a company incorporated outside India but does not include - (a) a corporation sole ; (b) a co-operative society registered under any law relating to co-operative societies ; and (c) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf ; Reverse charge (concepts)

  28. In some services (e.g. GTA, renting of motor vehicle designed to carry passengers), the abatement is subject to condition of non-availment of Cenvat credit by service provider (not by service receiver) • A certificate should be obtained from the service provider about non-availment of Cenvat credit Reverse charge (concepts)

  29. Important case law on Constitutional aspects

  30. Important case law on Constitutional aspects

  31. Important case law on Constitutional aspects

  32. Nothing is impossible, the word itself says, “I’m possible!” Contact: facooper@gmail.com

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