RECENT CHANGES IN CHAPTER V OF FINANCE ACT, 1994 .

[Mr. M. GOVINDARAJAN]

                        The Finance Act, 2012 which came into effect from 28.05.2012 and the some of the Notifications issued by the Board recently have brought a sea change in the service tax matter.   119 services were covered under the service tax net.   The Finance Act, 1994 gave definition to all 119 services vide Sec. 65.  Sec.65, Sec. 65A dealing with classification of services, Section 66 dealing with charge of service tax, Section 66A dealing with the charge of service tax on services received from outside India came, Sec. 67 dealing with the valuation of taxable services for charging service tax to be ceased with effect from 01.07.2012 by means of Sec. 143 of Finance Act, 2012 and recent Notifications issued by the Board.

                        Instead Sec. 143© inserted a new Section 65B which gives definitions for nearly 55 terms.    We may see some important definitions which are to be taken care of.  Sec. 65B (22) defines ‘declared service’ as any activity carried out by a person for another person for consideration and declared as such under Section 66E.

SERVICE:

                        Sec. 65B (44) defines the term ‘service’ as 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 namely:-

(i)                 a transfer of title in goods or immoveable 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.

Explanation 1. – For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to:

(A) the functions performed by the Members of Parliament, Members of State legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or

(B)  the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or

(C)  the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.

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 associations 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;

SUPPORT SERVICES:             

                        Section 65B(49) defines the term ‘support services’ as infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract , renting of immovable property, security, testing and analysis.

CHARGE OF SERVICE TAX:

                        Section 143(F) of the Finance Act, 2012 inserts new Sections 66B dealing with the charge of service tax on or after Finance Act, 2012, 66C dealing with determination of place of provision of service, 66D dealing with negative list of services, 66E dealing with declared services, 66Fdealing with the principles of interpretation of specified description of services or bundled services.

           Section 66B provides that there shall be levied a tax at the rate of 12% 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 person and collected in such manner as may be prescribed.

DETERMINATION OF PLACE OF PROVISION OF SERVICE:

            Section 66C provides that the Central Government, having regard to the nature and description of various services, by rules made in this regard, determine the place where such services are provided or deemed to have been provided or agreed to be provided or deemed to have been agreed to be provided.  Any rule made in this regard shall not invalid merely on the ground that either the service provider or the service receiver or both are located at a place being outside the taxable territory.

NEGATIVE LIST:

            Sec. 66 D gives the negative lists.   Many readers may know the negative list.   However for the benefit of the readers this list is again presented here.  The negative list shall comprise of the following services, namely:-

(a)    services by Government or a local authority excluding the following services to the extent they are not covered elsewhere-

(i)                 services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;

(ii)               services in relation to an aircraft or a vessel, inside or outside the precincts of a port  or an airport;

(iii)             transport of goods or passengers; or

(iv)             support services, other than services covered under clauses (i) to (iii) above, provided to business entities;

(b)   services by the Reserve Bank of India;

(c)    services by a foreign diplomatic mission located in India;

(d)   services relating to agriculture or agricultural produce by way of-

(i)                 agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or seed testing;

(ii)               supply of farm labour;

(iii)             process carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural product but make it only marketable for the primary market;

(iv)             renting or leasing of agro machinery or vacant land with or without a structure incidental to its use;

(v)               loading, unloading, packing, storage or warehousing of agricultural produce;

(vi)             agricultural extension services;

(vii)           services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for the sale or purchase of agricultural produce;

(e)    trading of goods;

(f)    any process amounting to manufacture or production of goods;

(g)   selling of space or time slots for advertisements other than advertisements broadcast   or television;

(h)   service by way of access to a road or a bridge on payment of toll charges;

(i)     betting, gambling or lottery;

(j)     admission to entertainment events or access to amusement facilities;

(k)   transmission or distribution of electricity by an electricity transmission or distribution utility;

(l)     services by way of-

(i)                 pre school education and education up to a higher secondary school or equivalent;

(ii)               education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;

(iii)             education as a part of an approved vocational education course;

(m) services by way of renting of residential dwelling for use as residence;

(n)   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 authorized dealers of foreign exchange or amongst banks and such dealers;

(o)   service of transportation of passengers, with or without accompanied belongings by-

(i)                 a stage carriage;

(ii)               railways in a class other than-

(A) First class; or

(B)  An air conditioned coach;

(iii)             Metro, monorail or tramway;

(iv)             Inland waterways;

(v)               Public transport, other than predominantly for tourism purpose,  in a vessel, between places located in India; and

(vi)             Metered cabs, radio taxis or auto rickshaws;

(p)   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; or

(iii)             By inland waterways;

(q)   Funeral, burial, crematorium or mortuary services including transportation of the deceased.

DECLARED SERVICES:

                        Section 66E provides that the following shall constitute declared services, namely:-

(a)    Renting of immovable property;

(b)   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;

Explanation.- For the purpose of this clause, -

(I)                the expression ‘competent authority’ means the Government or any authority authorized to issue completion certificate under any law for the time being in force and in case of non requirement of such certificate from such authority, from any of the following, namely:-

(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; (20 of 1972); or

(B)  chartered engineer registered with the Institution of Engineers (India); or

(C)  licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(II)             the expression ‘construction’ includes additions, alterations, replacements or remodeling of any existing civil structure;

(c)    temporary transfer of permitting the use or enjoyment of any intellectual property right;

(d)   development, design, programming, customization, adaptation, upgradation, enhancement, implementation of information technology software;

(e)    agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

(f)    transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;

(g)   activities in relation to delivery of goods on hire purchase of system of payment by installments;

(h)   service portion in the execution of a works contract;

(i)     service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

PRINCIPLES OF INTERPRETATION OF SPECIFIED DESCRPTIONS OF SERVICES OR BUNDLED SERVICES:

                        Section 66F(1)  provides that unless otherwise specified, reference to a service shall not include reference to a service which is used for providing main service.   Section 66F(2) provides that 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.   Section 66F(3) provides that subject   to the provisions of sub section (2) the taxability of a bundled service shall be determined in the following manner, namely:-

(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.

Explanation.- For the purposes of sub section (3) the expression ‘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.

DATE OF DETERMINATION OF RATE OF TAX, VALUE OF TAXABLE SERVICE AND RATE OF EXCHANGE:

                       Section 143(H) of Finance Act, 2012 inserts a new Section 67A which provides that the rate of 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.  For the purpose of this section ‘rate of exchange’ means the rate of exchange referred to in Explanation to Section 14 of the Customs Act, 1962.

SPECIAL AUDIT:

                       Section 143(J) of Finance Act, 2012 inserts a new section 72A dealing with special audit.   According to this section, if the Commissioner of Central Excise, has reasons to believe that any person liable to pay service tax has failed to declare or determine the value of a taxable service correctly; or has availed and utilized credit of duty or tax paid which is not within the normal limits having regard to the nature of taxable service provided, the extent of capital goods used or the type of inputs or input services used, or any other relevant factors as he may deem appropriate or by means of fraud, collusion, or any willful misstatement or suppression of facts; or a true and complete picture of his accounts from the registered premises falling under the jurisdiction of the said Commissioner, he may direct such person to get his accounts audited by a Chartered Accountant or Cost Accountant nominated by him, to the extent and for the period as may specified by the Commissioner.  The Chartered Accountant or Cost Accountant shall within the period specified by the Commissioner, shall submit a report duly signed and certified by him to the said Commissioner mentioning therein such other particulars as may be specified by him.  This audit shall have effect notwithstanding that the accounts of such person have been audited under any other law for time being in force.  The person liable to pay tax shall be given an opportunity of being heard in respect of any material gathered on the basis of the audit and proposed to be utilized in any proceedings under the provisions of this Chapter or rules made there under.

LIMITATION OF DEMAND:

                       Section 143(K) of Finance Act, 2012 increase  the time limit to demand service under Section 73(1) of Finance Act, 1994 from one year to 18 months.  Further the Central Excise Officer is authorized to send statement subsequent to any notice served under Section 73(1) containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be the service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same are mentioned in earlier notices.

PENALTY UNDER SECTION 80:

                       Section 143(L) renumbered Section 80 to Section 80(1) and sub clause (2) is inserted which provides that notwithstanding anything contained in the provisions of Section 76 or Section 77 or Section 78, no penalty shall be imposable for failure to pay service tax payable, as on the 6^th day of March, 2012, on the taxable service referred to in subclause (zzzz) of clause of (105) of Section 65 subject to the condition that the amount of service tax, along with interest is paid in full within a period of 6 months from the date on which the Finance Bill, 2012 receives the assent of the President (28.5.2012)

APPLICABILITY OF CENTRAL EXCISE ACT PROVISIONS:

                       Section 143(M) of the Finance Act, 2012 provides the deletion of Sec. 14AA of Central Excise Act and added the following sections of Central Excise:

Section 31 – Settlement of cases;

Section 32 – Settlement of cases;

Section 31A to 32P –Settlement of cases;

Section 35EE – Revision by Central Government.

 

APPEAL BEFORE COMMISSIONER (APPEALS)

                       Section 143(N) of the Finance Act reduces the appeal time of 3 months in filing appeal against the order of adjudicating authority to Commissioner of Central Excise (Appeals)  to 2 months.   This reduction will cause problems to the assessees in filing appeal.

APPEAL BEFORE TRIBUNAL:

                       Section 143(O) of the Finance Act retains the time limit of 3 months for filing appeal by the assessee against the order of Commissioner (Appeals) before the Tribunal but it increased the time limit to 4 months for the Department to file appeal before the Tribunal.  

SPECIAL PROVISIONS FOR EXEMPTIONS:

                       Section 143(W) inserts Section 97 dealing with the special provision for exemption in certain cases relating to management etc., or roads and 98 dealing with the special provision for exemption in certain cases relating to management etc., of non commercial Government Buildings.

                       Sec. 97(1) provides that notwithstanding anything contained in Section 66, no service tax shall be levied or collected in respect of management, maintenance or repair of roads, during the period on and from the 16^th day of June, 2005 to 26^th day of July, 2009 (both inclusive).  Section 97(2) provides that refund shall be made of all such service tax which has been collected but which would not have been so collected had sub section (1) been in force in all material times.  Section 97(3) provides that notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from 28.5.2012, the date on which the Finance Bill, 2012 receives the assent of the President.

                       Section 98(1) provides that notwithstanding anything contained in Section 66, no service tax shall be levied or collected in respect of management, maintenance or repair of non commercial Government buildings, during the period on and from the 16^th day of June, 2005 till the date on which Section 66B comes into force.  Section 98(2) provides that refund shall be made of all such service tax which has been collected but which would not have been so collected had sub section (1) been in force in all material times.  Section 98(3) provides that notwithstanding anything contained in this Chapter, an application for the claim of refund of service tax shall be made within a period of six months from 28.5.2012, the date on which the Finance Bill, 2012 receives the assent of the President.