Major Budgetary changes relating to service tax:
- · The rate of service tax is increased to 12% with effect from April 1, 2012.
- · Consequently changes have also been made in composition rates: - For life
insurance, Money changing, Distributor or selling agent of lotteries, for works
contracts 4.8%.
- · The rate for Cenvat reversal for exempt services has been revised likewise from 5% to 6% in Rule 6(3) of Cenvat Credit Rules (CCR), 2004.
- · The dual tax structure for air transportation: partly specific, partly ad valorem - is being replaced with a uniform ad-valorem levy at standard rate with an abatement of 60% on all sectors and all classes.
- · INTRODUCTION OF NEGATIVE LIST APPROACH: A Negative List approach to taxation of services is being introduced vide new sections, namely, 65B, 66B, 66C, 66D, 66E and 66F proposed in Chapter V of the Finance Act, 1994.
- The services specified in the ëNegative Listí (section 66D) shall remain outside the tax net. The number of exemption notification specifically exempted services shall reduce from 88 to 10 mega notifications. All otherservices, except specified in negative list or exemption notification would thus be chargeable to service tax.
- Negative list approach to taxation of services shall come into effect from a date to be notified, after the FinanceBill, 2012 receives the assent of the President. The consequential changes proposed in Chapter V of theFinance Act, 1994 inService Tax Rules, 1994, Service Tax (Determination of Value) Rules, 2006 and CenvatCredit Rules, 2004.
- · The term Serviceî has been defined in clause (44) of the new section 65B and means any activity for consideration carried out by a person for another and includes a declared service. The said definition furtherprovides that ëService does not include ñ any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner; a transaction only in (iii) money or (iv) actionable claim; any service provided by an employee to an employer in the course of the employment; fees payable to a court or a tribunal set up under a law for the time being in force. There are three explanations appended to the definition of ëservice
- · Draft Place of Provision of Services Rules, 2012 is being proposed which contains principles on the basis of which taxing jurisdiction of a service can be determined.
- · The Place of Provision of Services Rules, 2012 will be notified after (section 66C) the Finance Bill, 2012 receives the assent of the President. When the Place of Provision of Services Rules comes into effect, existing ëExport of Services Rules, 2005 and ëTaxation of Services (Provided from outside India and received in India) Rules, 2006 will be rescinded.
- · The following changes will come into effect from the date of enactment of the Finance Bill, 2012:-
- value of taxable service (particularly in the case of import and export of taxable services) and the rate of taxshall be determined in terms of Point of Taxation Rules, 2011 (New Section 67A).
- Under the new section, 72A special audit can be ordered under specified circumstances.
- Time limit for issuance of show cause notice under section 73(1) of the Finance Act, 1994, is being increasedfrom one year to eighteen months. A new sub-section (1A) is being inserted when a follow-up demand is givenfor a period subsequent to the previous notice(s) on same grounds.
- Settlement Commission provisions applicable to service tax (Section 83).
- Time limit for filing of appeal before the Commissioner (Appeals) reduced from 3 months to 2 months andthe power for condonation of delay reduced from 3 months to 1 month. Revision mechanism may also be
made available for service tax, to the extent applicable
Section 94(2) is being amended to obtain powers for compounding of offences.
- · Section 68(2) of the Finance Act, 1994 is being amended to put the onus of payment of service tax on reverse charge basis partly on service provider and partly on service receiver
- · The scheme is being introduced for three services where the service provider iseither an individual or a firm or LLP and the recipient is a body corporate. The three services and the portion of tax payable are as follows:
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Sl. No.
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Description of service
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Service recipient
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Service provider
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1.
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Hiring of a motor vehicle designed to carry passengers:
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(a) with abatement
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100%
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NIL
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(b) without abatement
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40%
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60%
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2.
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Supply of manpower for any purpose
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75%
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25%
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3.
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Works contract service
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50%
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50%
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- Penalty waiver for renting of immovable property service: New Section 80A is proposed that penalty may be waived for those taxpayers who pay the service tax due on the renting of immovable property service (as on the sixth day of March, 2012), in full along with interest within six months. Those who fail to avail the benefit will be treated as if this section did not exist.
- · Retrospective exemption has been given in respect of road repair, repair of noncommercial Govt. buildings, Units situated in SEZ, Services provided by dyeing units in relation to common effluent treatment plants.
- · The time period for issuance of invoice is being increased to 30 days ordinarily and 45 days for banks and financial institutions from 14 days.
- · The benefit available to individuals and firms to determine POT on the basis of date of payment for eight specified services (Professional Services) is being extended to all services in a slightly modified form. The facility will be now available to individuals and partnership firms (including limited liability partnership) up to a turnover of Rs.50 lakhs in a financial year provided the taxable turnover did not exceed this limit in the previous financial year. For computing the above limits, the turnover of the whole entity is required to be summed up and not any single registration.
- · Point of Taxation Rules, 2011 is being amended to Change the definition of continuous supply of service, Define the date of payment, to give an option to determine the point of taxation in respect of advances upto Rupees one thousand received in excess of the amount indicated in the invoice, on the basis of invoice or completion of service rather than payment; and Incorporate a new residual rule to ascertain point of taxation in cases where the same cannot be ascertained by the rules prescribed.
- · Under Service Tax Rules, 1994, Rule 6(4A) is being amended to allow unlimited amount of permissible adjustments.
-A common simplified registration format for Central Excise and Service Tax is being placed for publiccomments.
-A new simplified one page common return with Central Excise to be called Excise & Service Tax Return(EST for short) is being introduced
- Tax payment requirement is proposed to be revised as follows:
A. Assessees who paid tax of Rs 25 lakh or more in previous year and new assessees other than individuals and firms: Monthly
B. Others: Quarterly
- · Cenvat Credit Rules, 2004 is being amended: Existing rule 5 to be replaced with a new rule to simplify the procedure for refund of unutilized credit on the account of exports; Credit on specified motor vehicles will be allowed. The credit of service tax paid on their hiring, insurance and repair will also be allowed. Credit of insurance and service station service is being allowed to-
(i) insurance companies in respect of motor vehicles insured and re-insured by them; and
(ii) manufacturers in respect of motor vehicles manufactured by them. At present, credit on goods can be taken only after they are brought to the premises of the service provider. Rule 4(1) and 4(2) are being amended to allow a service provider to take credit of inputs or capital goods whenever the goods are delivered to him, subject to specified conditions. Rule 9(1)(e) is being amended to allow availment of credit on the basis of tax payment challan in case of payment of service tax by the service receiver on reverse charge basis.
- · Cenvat Credit of inputs service distributed:- Rule 7 for input service distributors is being amended to provide that credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit and that the credit of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates.
