SERVICE TAX – LEGISLATIVE CHANGES EFFECTIVE FROM JULY 2010

[Dr. Sanjiv Agarwal]

Finance Act, 2010 (enacted on 8th May, 2010) had made certain legislative changes in statutory provisions, introduction of new taxable services and expansion of scope of certain existing services. These amendments except revalidation of service tax on renting of property have been made effective from July 1, 2010. Notification No 24/2010-ST dated 22.6.2010 to this effect has been issued. Not only this, certain other exemptions have been rolled out for various services such as construction related services, port services, airport services, air transport of passengers, sponsorship services etc.

In all, twelve Notifications in service tax have been issued (Notification Nos 24 to 35 all dated 22.6.2010), Notification 25-CE (NT) amends Cenvat Credit Rules and Order No 1 under section 95 prescribes the 'Competent Authority'. However, amendments in export and import rules for classification of new services have not been notified so far. The major impact is as follows-

(a) New taxable services will be subjected to service tax w.e.f. 1.7.2010

(b) The expanded scope of certain existing services will be taxable w.e.f. 1.7.2010

(c) New exemptions are effective from 1.7.2010.

(d) Levy of service tax on transportation of goods by rail has been further postponed by six months from 1 July, 2010 to 1 January, 2011.

(e) Definition of capital goods under Cenvat Credit Rules gets expanded by inclusion of dumpers and tippers used in construction, site formation, mining services etc.

Gist of New Notifications

Following notifications have been issued on 22.6.2010, all of which are effective from 1, July 2010 -

* Taxable Services and Amendments made by Finance Act, 2010 in existing services under Service Tax shall be effective from 1-7-2010 - [Notification No.24/2010 dated 22-06-2010]

* Services provided to persons in transit from abroad destined to outside India or to an employee by an aircraft operator are exempted from service tax [Notification No.25/2010 dated 22-06-2010]

* Maximum service tax shall be Rs. 100 in case of domestic air journey (all classes) and Rs. 500 in case of international air journey (economy class) (cap of 10% of gross value of tickets prescribed) [Notification No.26/2010 dated 22-06-2010]

* Air travel of passenger services shall be exempt for passengers embarking form on a journey originating or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or at Baghdogra in West Bengal [Notification No.27/2010 dated 22-06-2010]

* Construction of complex services in relation to Jawaharlal Nehru National Urban Renewal Mission and Rajiv Awaas Yojana have been exempted [Notification No.28/2010 dated 22-06-2010]

* 75% Exemption (abatement) to Commercial or Industrial Construction service and Construction of Complex service will be allowed , if the value of land is included in the gross value , ie, only 25 percent of gross value will be taxed [Notification No.29/2010 dated 22-06-2010]

* Sponsorship services shall be exempted if provided in relation to tournaments or championships organized by specified bodies or federations [Notification No.30/2010 dated 22-06-2010]

* Specified list of services provided within a port or an airport will be exempt i.e., no service tax will be levied on certain services if provided within port or an airport [Notification No.31/2010 dated 22-06-2010]

* All services provided to a person, authorized to distribute power under the Electricity Act, 2003, for distribution of electricity, will be exempted from service tax [Notification No.32/2010 dated 22-06-2010]

* Exemption to transport of goods by rail service has been extended by six months until January 1, 2011 from July 1, 2010 - [Notification No.33/2010 dated 22-06- 2010, Notification No.34/2010 dated 22-06-2010 and Notification No.35/2010 dated 22- 06-2010]

Capital Goods in Cenvat Rules

Dumpers or tippers registered in the name of service provider for providing taxable services of site formation and clearance, excavation, earth moving and demolition and mining of mineral, oil or gas have been including definition of capital goods (Vide Notification 25/2010-CE (NT) dated 22.6.2010).

Exemptions to Air Transport of Passengers

Following specific exemptions are available -

(i) Whole of service tax is exempt for persons who arrive at customs airport from outside India and are in transit through India (without passing immigration and without leaving custom area) and continue journey out of India and for persons employed or engaged by aircraft operators in any capacity on board. (vide Notification 25/2010 -ST dated 22.6.2010 w.e.f. 1.7.2010)

(ii) Service tax payable in excess of (a) ten percent of the gross value of the ticket or rupees one hundred per journey, whichever is less, for passengers travelling in any class, within India, and (b) ten percent of the gross value of the ticket or rupees five hundred per journey, whichever is less, for passengers embarking in India for an international journey in economy class. (Vide Notification 26/2010-ST dated 22.6.2010 w.e.f. 1.7.2010)

(iii) Taxable services in relation to passengers embarking on a journey from or to airports located in north eastern states / areas are exempt from service tax (Vide Notification No 27/2010-ST dated 22.6.2010 w.e.f. 1.7.2010)

Exemption to Port and Airport Services

Following services have been exempted from levy of service tax, if provided within an airport or port vide Notification No 31/2010-ST dated 22.6.2010 w.e.f.1.7.2010-

(i) repair of ships or boats or vessels belonging to the Government of India including Navy or Coast Guard or Customs but does not include Government owned Public Sector Undertakings;

(ii) repair of ships or boats or vessels where such process of repair amounts to 'manufacture' and has the meaning assigned to it in clause (f) of Section 2 of the Central Excise Act, 1944;

(iii) supply of water;

(iv) supply of electricity;

(v) treatment of persons by a dispensary, hospital, nursing home or multi-specialty clinic (except cosmetic or plastic surgery service);

(vi) services provided by a school or centre to provide formal education other than those services provided by commercial coaching or training centre;

(vii) services provided by fire service agencies.

(viii) pollution control services

Distributions of Electricity

Distribution of electricity shall not attract service tax. According to Notification No 32/ 2010-ST dated 22.6.2010, Central Government has exempted the taxable services provided by a distribution licencee or franchisee or by any other person, authorised to distribute power under the Electricity Act, 2003 for distribution of electricity w.e.f. 1.7.2010.

Construction Services

Competent Authority for Completion Certificate

Vide MF (DR) Order No 1/2010 dated 22.6.2010 issued by Ministry of finance, Government of India, the 'Authority Competent' to issue the completion certificate shall include -

(a) Any Government authority

(b) Architects registered under the Architects Act, 1972

(c) Chartered engineers registered with Institution of Engineers

(d) Licensed surveyors of local body / development or planning authority

Such person should be authorised under any law in force to issue a completion certificate, as a pre condition for building's occupation.

Abatement

An abatement of 75 percent has been provided from the gross value including value of goods and material supplied or provided or used by the service provider where the value includes consideration for land vide Notification No 29/2010 -ST dated 22.6.2010 w.e.f. 1.7.2010. The exemption would not be available where only completion or finishing services are rendered and / or where the cost of land has been separately recovered from the buyer by the builder.

Exemption to Sport's Sponsorship

W.e.f. 1.7.2010, sponsorship services in respect of games/ sports have been wholly exempt if the same are provided for-

(i) tournaments or championships organized by any of the National Sports Federations or Federations affiliated to such National Sports Federations, where the participating teams or individuals represent any District, State or Zone;

(ii) tournaments or championships organized by Association of Indian Universities - Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India (for the physically challenged), Special Olympics Bharat (for the mentally challenged);

(iii) tournaments or championships organized by the Central Civil Services Cultural and Sports Board;

(iv) tournaments or championships organized as part of National Games, by the Indian Olympic Association;

(v) tournaments or championships organized under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme from the whole of the service tax leviable thereon under section 66 of the Finance Act.