TMI BlogChanges proposed in service tax law and procedure in Union Budget 2010-11 - regardingX X X X Extracts X X X X X X X X Extracts X X X X ..... rom a date to be notified after the enactment of the Finance Bill, 2010, the notifications (except notification nos. 7/2010-ST, 8/2010-ST and 9/2010-ST which would come into effect from 01.04.2010) would become effective from 27th February 2010. We have attempted to bring all the important changes pertaining to service tax relevant at this stage to your notice through this letter and its Annexures. Upon enactment of the Finance Bill, 2010, when the legislative provisions come into effect, another communication would be sent to you explaining the changes in detail and addressing the doubts and queries raised by you and the trade in the intervening period. To avoid repetition, no separate Explanatory Notes are being issued for service tax. 2. NEW SERVICES INCLUDED IN THE LIST OF TAXABLE SERVICES 2.1 Eight services, hitherto not included separately within the list of taxable services, are being included in the said list through appropriate amendments in sub-section 105 of Section 65 of the Finance Act, 1994. One of them, namely promotion, marketing etc. of lottery and similar games of chance presently figures as part of Business Auxiliary Service (BAS). This is now being intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of following existing taxable services, the scope has been altered either to expand their scope or to remove certain difficulties that have been faced during tax implementation. These changes are as follows,- * The scope of the taxable service 'Air Passenger Transport Service' [section 65 (105) (zzzo)] is being expanded to include domestic journeys, and international journeys in any class. * Presently the taxable service, 'Information Technology Software Service' [section 65 (105) (zzzze)] is subjected to tax only in cases where such IT software is used for furtherance of business or commerce. The scope of the taxable service is being expanded to tax such service even if the service provided is used for purposes other than business or commerce. * An Explanation is being added in the definition of the taxable service 'Commercial Training or Coaching Service' [section 65 (105) (zzc)] to clarify that the term 'commercial' appearing in the relevant definitions, only means that such training or coaching is being provided for a consideration, whether or not such training or coaching is conducted with a profit motive. This change is being given retrospective effect from 01.07.2003 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der ULIP or the maximum amount of fund management charges fixed by the Insurance Regulatory Development Authority (IRDA), whichever is higher. 3.2 The scope of modifications in the aforesaid taxable services and other significant details pertaining to amendments being made in the Finance Act, 1994 are enclosed in Annexure 'B'. These modifications would come into effect from a notified date after the enactment of the Finance Bill, 2010. It is requested that during this interim period, the impact of the above changes, issues that require further clarification, anticipated legal or implementation problems may please be assessed and inputs in this regard may be brought to the notice of Tax Research Unit latest by the second week of March, 2010. 4. OTHER AMENDMENTS TO THE FINANCE ACT, 1994 4.1 Finance Act, 1994 is being amended to,- a) insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department. This would be effective from the date of enactment of the Finance bill, 2010; and b) provide definition of the term 'business entity' so as to includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service' provided by Central and State seed testing laboratories, and Central and State seed certification agencies (Notification No.10/2010-ST, dated 27th February, 2010 refers). * Exemption from service tax is being provided to the transmission of electricity (Notification No.11/2010-ST, dated 27th February, 2010 refers). 6. WITHDRAWALS OR AMENDMENTS TO EXISTING EXEMPTIONS 6.1 The following changes have been brought about in the existing exemptions,- a) Exemption from service tax on service provided in relation to 'Transport of Goods by Rail' by notification No.33/2009, dated 1st September, 2009 is being withdrawn (Notification No.7/2010-ST, dated 27th February, 2010 refers). The exemption provided to certain specified goods transported by rail vide Notification No. 28/2009-ST, dated 31st August, 2009, which was subsequently withdrawn vide notification No. 36/2009-ST dated 9th September, 2009, has been restored. (Notification No. 8/2010-ST, dated 27th February, 2010 refers). An abatement of 70% of the gross value of the freight charged on goods (other than exempted goods) is being provided vide notification No. 9/2010-ST dated 27th February, 2010 by adding the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be conducted to ascertain the number of commercial coaching and training centres, which hitherto were availing the exemption and would now fall under the tax net. For finding out the eligible vocational training courses listed under of the Apprentices Act, 1961, please look at the web site of the Directorate General of Employment and Training, Ministry of Labour (dget.nic.in). Immediate steps should be taken to identify and allot registration to such institutes. Broad estimation of the numbers of the new taxpayers, revenue potential must be carried out and the legal/administration issues, if any, should be identified. 7. AMENDMENT TO EXPORT OF SERVICE RULES, 2005 7.1 Export of Service Rules, 2005 have been amended as follows: * The taxable service, namely 'Mandap Keeper Service' has been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely 'Chartered Accountant Services', 'Cost Accountant Services' and 'Company Secretary's Services', have been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an exhaustive fashion. It gives a broad view of the changes made in the service tax law and procedure in Budget 2010. It should not be used for interpreting any provisions in the case of any ambiguity. The wordings used in the statutory provisions and the notifications alone have legal standing. Therefore, they must be read carefully for interpretation, tax compliance and tax administration purposes. 10. Although all efforts have been made to draft the statutory provisions in the Finance Bill and the notifications correctly, it is possible that some errors, inconsistencies, omissions may have escaped our notice inadvertently. I shall be extremely thankful if you could point out such errors to me or to my colleagues immediately so that the same can be rectified. Further, please do not hesitate to contact us in case of any doubt, difficulty, and suggestion relating to interpretation or implementation of the provisions mentioned above. For this, you may contact either me or my colleagues,- * Shri Roopam Kapoor (OSD-TRU) Tel; 23095590, e-mail: roopamkapoor@gmail.com * Shri J.M.Kennedy (Director-TRU) Tel: 23092634, e-mail: jm.kennedy@nic.in * Shri Samar Nanda (TO-TRU) Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by hospitals or medical establishments for the employees of business organizations and health services provided under health insurance schemes offered by insurance companies. 2.1 With the change in the style of functioning of the business organizations, health check up is a routine facility provided by the employers to their employees. The main purpose is to ensure that the productivity of the organization is not adversely affected due to ill health of its employees. Such activities, commonly known as corporate health check up schemes, are undertaken by designated hospitals in order to detect any medical indicator or to ensure timely diagnosis of any disease so that prophylactic measures can be taken. In such cases, the hospital providing these services charge the employer i.e. the business organization and it constitutes expenditure for the latter. In certain cases (for example, in case of flight crew) pre-flight check ups are conducted not only to test the fitness levels but also to rule out the possibility of the flying crew being under intoxication. Such health check up schemes are being brought within the ambit of service tax under the new service. 2.2 A large number of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f excellence comparable to that of the celebrity. Unlike in case of advertisements using models, a brand ambassador works under a contract of a reasonably long period, where under he is not only required to advertise the goods or service in different media but also to attend promotional, product launching events, make appearances in public activities related to the brand or the brand holder or use such goods or services in public. The contractual amounts are substantial and it may not only involve an individual celebrity but a group of celebrities such as a cricket team or the actors of a successful film. 4.2 It is important to note that promotion or marketing of sale of goods produced, provided or belonging to a client and promotion or marketing of services provided by the client are already covered under Business Auxiliary Services (BAS). Such activities would continue to remain classified under BAS. The difference between the services classifiable under BAS and the newly proposed service is that the latter has a wider coverage in the sense that mere promotion of a brand would attract tax under this service even if such promotions cannot be directly linked to promotion of a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not covered under the commodity exchange taxation. The proposed new service seeks to tax the charges recovered for services in relation to assisting, regulating, controlling the business of trading, processing and settlement pertaining to sale or purchase of electricity by the associations authorized by Central Electricity Regulatory Commission. 7. Services related to two types of copyrights hitherto not covered under existing taxable service 'Intellectual Property Right (IPR)', namely, that on (a) cinematographic films and (b) sound recording. 7.1 The right to temporarily transfer or permit the use of Intellectual Property Rights (IPR), namely, trademarks, designs and patents was brought under tax net in 2004. However, one of the IPRs, i.e. copyright has been specifically kept out of the purview of the tax with an intent to encourage authors and artists, as it involves creative works, such as literary work, musical work and artistic work. In Budget 2008, Information Technology (IT) Software Service was also brought under tax net, which apart from involving development, up-gradation, assistance etc. also covered the IPR aspect i.e. right to use the information technology. 7.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges. 8.1 Construction of commercial or industrial structures was brought under service tax net in 2004 while construction of residential complexes became a taxable service in 2005. The scope of the existing services includes construction, completion and finishing, repairs, alterations, renovation or restoration of complexes. It has been reported that in addition to these activities, the builders of residential or commercial complexes provide other facilities and charge separately for them and these charges do not form part of the taxable value for charging tax on construction. These facilities include,- (a) prime/preferential location charges for allotting a flat/commercial space according to the choice of the buyer (i.e. Direction- sea facing, park facing, corner flat; Floor- first floor, top floor, Vastu- having the bed room in a particular direction; Number- lucky numbers); (b) internal or external development charges which are collected for developing/maintaining parks, laying of sewerage and water pipelines, providing access r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayers have claimed waiver of tax under these services on the ground that the port/airport authority has not specifically authorised them to provide a particular service. 1.4 In order to remove these difficulties, the definitions of the relevant taxable services are being amended to clarify that all services provided entirely within the port/airport premises would fall under these services. Further, specific authorisation from the port/airport authority would now not be a pre-condition for the levy. 2. Auctioneer's service 2.1 Auctioneer's service was introduced in 2006 and is applicable to any service provided in relation to auction of property whether moveable or immoveable, tangible or intangible. However, the service, by definition excludes 'auction by government'. This phrase has given rise to confusion. In certain cases, the property belonging to or vested in the Central or the State governments (such as goods confiscated by Customs department) are sold in an auction that is conducted by private organizations. Conversely, in certain cases government bodies, such as 'Tobacco Board' conducts auction of properties that belong to private individuals or organizations. 2.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lities for the insurance, and are not related to asset management. It is chargeable to service tax under insurance services. c) A number of other charges are also charged by the insurance companies, which, inter alia, include, policy surrender charges, switching charges, partial withdrawal charges, miscellaneous charges etc. d) Fund management charges: This is the amount charged by the insurance company for managing the investible funds, which is intended to be taxed under this service. This amount has been capped for ULIPs by Insurance Regulatory and Development Authority (IRDA) at 1.5% of the gross yield for schemes below 10 years, and 1.25% for schemes above 10 years. 3.5 Since the charge pertaining to asset management alone should form the value for taxable purpose, the explanation provided under the definition of the taxable service is being suitably amended to provide that that the value of the taxable service for any year of the operation of policy shall be the actual amount charged by the insurer for management of funds under ULIP or the maximum amount of fund management charges fixed by IRDA, whichever is higher. 3.6 The method of computation for monthly payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognized diplomas/degrees and sports education were kept out of tax net. These include universities created under a Central or State Act, institutes recognized by UGC as universities or deemed universities, institutes granted recognition professional councils like AICTE, Medical Council of India, Bar Council of India etc. To distinguish the former types of institutes/centres from the latter, the word 'commercial' was used in the definitions of 'Commercial training and coaching', 'Commercial training and coaching centres' and 'taxable service'. 6.2 The use of the word 'commercial' in these definitions has led to certain unintended consequences. A view has been taken that the term 'commercial' appearing in various definitions implies that the institute must be run with a profit motive to fall under the taxable service. A number of taxpayers resisted paying tax on this ground. In order to clarify the legislative intent, the definition of the taxable service is being suitable amended, through insertion of an Explanation, to clarify that the word 'commercial' means any training or coaching that is provided for a consideration irrespective of the presence or absence any profit motiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... instrument called 'Agreement to Sell'. At that stage neither the full consideration is paid nor is there any transfer in ownership of the property although an agreement to ultimately sell the property under settled terms is signed. In other words, the builder continues to remain the legal owner of the property. At the conclusion of the contract and completion of the payments relating thereto, another instrument called 'Sale Deed' is executed on payment of appropriate stamp duty. This instrument represents the legal transfer of property from the promoter to the buyer. 8.4 In other places a different pattern is followed. At the initial stage, instruments are created between the promoter and all the prospective buyers (which may include a person who has provided the vacant land for the construction), known as 'Sale Of Undivided Portion of The Land'. This instrument transfers the property right to the buyers though it does not demarcate a part of land, which can be associated with a particular buyer. Since the vacant land has lower value, this system of legal instrumentation has been devised to pay lesser stamp duty. In many cases, an instrument called 'Construction Agreement' is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service pertaining to renting of immovable property, the renting of vacant land used for agriculture, farming, forestry, animal husbandry, mining, education, sports, circus, entertainment and parking purposes, is excluded from the purview of service tax. Further, 'vacant land', whether or not having facilities clearly incidental to the use of such vacant land has also been excluded from the tax net. 10.2 It has been reported that in many states, the local industrial corporations or PSUs or even private organizations rent vacant land on a long term leases with an explicit understanding that lessee would construct factory or commercial building on that land. In such cases the ownership of the land is not transferred to the lessee and thus it is a service provided by the lessor to the lessee. The situation is similar to renting out a constructed structure for commercial purposes except that at the time of executing the lease agreement the land is in a vacant state and that later the lessee constructs commercial structure thereon after executing the lease deed. Such lease agreements escape service tax because of the exclusion mentioned above. 10.3 Suitable amendment in the definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds "in relation to" have been added in main condition (a) of the Notification. 2) The word "in' contained in main condition (b) of the said Notification has been replaced with "for". The above two changes ensure that the provisions of the refund notification and the CENVAT Credit Rules are aligned and that refund is granted on all goods or services on which CENVAT can be claimed by the exporter of goods or services. 3) The illustration given in condition 5 of the Appendix to the Notification has been deleted. This ensures that refund of CENVAT credit which has been availed in the period prior to the quarter/ period for which the refund has been claimed is also eligible for refund. The refund claims should be calculated only on the basis of the ratio of the export turnover to the total turnover of the claimant. Thus, if the CENVAT credit available to the exporter at the end of the quarter, or month, as the case may be, is Rs. 1 crore, and the ratio of export to total turnover during the quarter is 50%, then Rs. 50 lakh should be refunded to the exporter. The essence of the changes is that refund shall be available for all goods, or input services, on which CENVAT is permissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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