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TMI BlogUnion Budget 2016 - Changes relating to Service TaxX X X X Extracts X X X X X X X X Extracts X X X X ..... ntries, and amending/omitting existing entries in notification Nos. 25/2012-ST, 26/2012-ST, 30/2012-ST, 32/2012-ST, all dated 20-6-2012, 23/2004-CE(NT) dated 10.09.2004 and 27/2012-C.E. (N.T.) dated 18.06.2012 and by issuing new notifications. 2.1 It may be noted that changes being made in the Budget are coming into effect on various dates, as indicated below: (i) Changes coming into effect immediately w.e.f. the 1st day of March, 2016; (ii) Changes coming into effect from the 1st day of April, 2016; (iii) The amendments which will get incorporated in the Finance Act, 1994 on enactment of the Finance Bill, 2016; (iv) The amendments made in the Finance Act, 1994, which will come into effect from 1st day of June, 2016 after the enactment of the Finance Bill, 2016; and (v) Chapter VI of the Finance Bill, 2016, regarding levy of Krishi Kalyan Cess on all taxable services will come into effect from 1st June 2016. For ease of reference, the Table at Annexure-I lists the changes being made and indicates the dates on which these changes would come into effect. The salient features of the changes being made are discussed below. 3.0 Enabling provision for levy of "Krishi Kalyan Ces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e customs station of clearance [section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016. Clause 146 of Finance Bill 2016 may please be seen in this regard. However such services by an aircraft will continue to be exempted by way of exemption notification [Not. No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes. In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India. Consequential amendments are being made i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2016 refers) E. Amendment to section 75 of Finance Act Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government. (Clause 150 of Finance Bill 2016 refers) F. Amendment in section 78A of the Finance Act, 1994 It is proposed to provide that penalty proceedings under section 78A shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under section 76 or section 78, by making suitable changes to section 78A by addition of an explanation. (Clause 151 of Finance Bill 2016 refers) G. Section 89 of the Finance Act, 1994 The monetary limit for filing complaints for punishable offences is proposed to be enhanced to ₹ 2 crore. (Clause 152 of Finance Bill 2016 refers) H. Sections 90 and 91 of the Finance Act, 1994 The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it with the exchequer, and amount of such tax collected but not paid is above the threshold of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of - (i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; (iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act; was withdrawn with effect from 1.4.2015. The same is being restored for the services provided under a contract which had been entered into prior to 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid prior to that date. The exemption is being restored till 31.03.2020. [Notification No. 25/2012-ST as amended by notification No. 09/2016-ST dated 1st March, 2016 refers] The services provided during the period from 01.04.2015 to 29.02.2016 under such contracts are also proposed to be exempted from service tax. [New section 102 is being inserted in the Finance Act, 1994] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software which is not required to bear RSP, is being exempted from so much of the Central Excise duty/CVD as is equivalent to the duty payable on the portion of the value of such Information Technology Software recorded on the said media, which is leviable to service tax. In such cases, manufacturer/importer would therefore be required to pay Central Excise duty/CVD only on that portion of value representing the value of the medium on which it is recorded along with freight and insurance. The exemption is subject to the fulfillment of certain conditions. Thus, the levy of Central Excise duty/CVD and service tax will be mutually exclusive. (Notification No. 11/2016-CE and 11/2016-Customs, both dated 1st March 2016 refers) 6.0 Review of Exemptions: 6.1 Exemption in respect of the following services is being withdrawn,- · Services provided by a senior advocate to an advocate or partnership firm of advocates, and · A person represented on an arbitral tribunal to an arbitral tribunal; Service tax in the above instances would be levied under forward charge. However, the existing dispensation regarding legal services provided by a firm of advocates or an advocate other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -ST refers) 7.6 Services provided by Insurance Regulatory and Development Authority (IRDA) of India are being exempted from service tax. (New entry at S. No. 50 of notification No. 25/2012-ST refers) 7.7 Services of general insurance business provided under „Niramaya‟ Health Insurance scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability in collaboration with private/public insurance companies are being exempted from service tax. (New entry at S. No. 26(q) of notification No. 25/2012-ST refers) 7.8 The threshold exemption limit of consideration charged for services provided by a performing artist in folk or classical art forms of music, dance or theatre, is being increased from ₹ 1 lakh to ₹ 1.5 lakh per performance. (Notification No.09/2016-ST, dated 1st March 2016 refers) 7.9 Services provided by way of skill/vocational training by Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners are being exempted from service tax. (New entry at S. No. 9D of notification No. 25/2012-ST refers) 7.10 Services of assessing bodies empanelled centrally by Directorate Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h.D degrees. It has been reiterated by Secretary, MHRD vide letter D.O. 3/5/2013-TS.V dated 15.1.2016 that the IIMs have been conducting Post Graduate Programmes in Management and Fellowship Programmes which are equivalent to MBA and Ph.D degrees, respectively, (as also clarified by associations like Association of Indian Universities, Inter -University Board of India etc.). In view of this, the exemption being given to the above programmes of IIMs is clarificatory in nature and in view of the same, liability to pay service tax in respect of the said programmes for the past period will also become infructuous. (New entry at S. No. 9B of notification No. 25/2012-ST refers) The above changes in notification No. 25/12-ST, except the change mentioned in para 7.11, 7.12, 7.13 and 7.14 (which will come into effect from 1st March, 2016), shall come into effect from the 1St day of April 2016. 8. New entries being incorporated in notification No. 25/2012-ST, to continue exemption to certain activities that are presently covered by the Negative List entries which are being omitted: 8.1 Services by way of transportation of goods by an aircraft from a place outside India up to the customs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clear by way of inserting an explanation in the notification No. 26/2012-ST that cost of fuel should be included in the consideration charged for providing renting of motor-cab services for availing the abatement. (Insertion of Explanation 'BA' in notification No. 26/2012-ST refers) 9.5 At present, two rates of abatement have been prescribed for services of construction of complex, building, civil structure, or a part thereof,- (a) 75% of the amount charged in case of a residential unit having carpet area of less than 2000 square feet and costing less than ₹ 1 crore, and (b) 70% of the amount charged in case of other than (a) above, both subject to fulfilment of certain conditions prescribed therein. A uniform abatement at the rate of 70% is now being prescribed for services of construction of complex, building, civil structure, or a part thereof, subject to fulfilment of the existing conditions. (Amendment in entry at S. No. 12 of notification No. 26/2012-ST refers) 9.6 At present, service tax is leviable on 30% of the amount charged for the service of transport of passengers by rail, without cenvat credit of inputs, input services and capital goods. Thus, abatement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company are being put under forward charge, i.e. the service provider is being made liable to pay service tax. The small sub-agents down the distribution chain will still be eligible for small service provider exemption [threshold turnover of ₹ 10 lakh/year] and a very small number will be liable to pay service tax. Accordingly, Rule 2(1)(d)(EEA) of Service Tax Rules, 1994 making service recipient, that is, mutual fund or Asset Management Company as the person liable for paying service tax is being deleted along with consequential changes in notification No. 30/2012-ST. 10.2 The liability to pay service tax on any service provided by Government or a local authority to business entities shall be on the service recipient. Consequently, notification No. 30/2012-ST is being amended so as to delete the words „by way of support services‟ appearing at Sl. No. 6 of the Table in the said notification with effect from 1st April, 2016. Further, 1st April, 2016 is being notified as the date from which the words „by way of support services‟ shall stand deleted from paragraph 1, clause A (iv), item (C) of notification No. 30/2012-ST. The above changes shall com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.5 Recipient of services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. (No fresh provision is being made in this regard, as it is already covered by Place of Provision of Service Rules.) 11.6 Technical amendment to rule 6 (4) Rule 6(4) is being amended so as to substitute the reference to the Central Excise (No. 2) Rules, 2001, with a reference to the Central Excise Rules, 2002. The above changes, except the changes mentioned in para 11.5 (which will come into effect from 1st June, 2016), shall come into effect from the 1St day of April 2016. 12. The Pont of Taxation Rules (POTR). The Point of Taxation Rules, 2011 have been framed under provisions of clause (a) and (hhh) of sub-section (1) of section 94, now specific powers is also being obtained under section 67A to make rules regarding point in time of rate of service tax. Thus, any doubt about the applicability of service tax rate or apparent contradiction between section 67A and POTR would be taken care of. Therefore, consequent modifications have been done in POTR. (a) Rule 5 of POTR applies when a new service comes int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain incentives either for achieving the targeted booking of air tickets or for loyalty for booking of air tickets using their software system. 15.1.2 It is clarified that incentives received by the Air Travel Agents (ATAs) from the Companies providing Computer Reservation System (CCRS) are for using the software and platform provided by the CCRS like Galileo, Amadeus, etc. The CCRS are providing these incentives either for achieving the targeted booking of air tickets or for loyalty for booking of air tickets using their software system. Thus, the service provided by CCRS is to the Airlines and Air Travel Agent is promoting the service provided by CCRS to Airlines. Thus, the service provided by the ATAs to CCRS is neither covered in the negative list (Section 66D of the Finance Act, 1994) nor exempt by a notification. Therefore, service tax is leviable on the same. 15.2 Services provided by government or local authorities to business entities; Finance Act, 1994 was amended vide Finance Act, 2015 so as to make any service (and not only support services) provided by Government or local authorities to business entities taxable from a date to be notified later. 1st April, 2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill also be required to file an annual return. This change shall come into effect from 1st April, 2016. 15.7 Services provided by institutes of language management (ILMs) 15.7.1High Level Committee (HLC) on Tax Laws in its IInd Half Yearly Report has observed that Institutes of Language Management (ILMs) are engaged by various schools/institutions to develop knowledge and language skills of students. Since the ILMs are providing coaching/teaching to the students in a school or college, as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force it should be clarified that the services provided by ILMs are not liable to service tax. 15.7.2The matter has been examined. The services provided by the ILMs are not covered by Section 66D (l) of the Finance Act, 1994 or Entry 9 of Notification No. 25/2012 - ST as they are not providing pre-school education or education up to higher secondary school (or equivalent) or education for obtaining a qualification recognized by law. It is the schools/colleges/institutions (in which the students take admissions) which provide such education. The ILMs provides services to such educational instituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity. 4.2L(a) (ii) Restoration of exemption on services to an airport, port. 4.2L(b) (iii) Withdrawal of exemption on services to monorail or metro, in respect of contracts entered into on or before 01.03.2016 6.3 7.11 to 7.13 (iv) Exemption to services by way of construction etc. in respect of- (a) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY); (b) low cost houses up to a carpet area of 60 square metres in a housing project under "Affordable housing in Partnership" component of PMAY, (c) low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government, (v) Exemption to specified services provided by the Indian Institutes of Management (IIM). 7.14 (vi) Notification to ensure that Information Technology Software is subjected to either central excise duty or service tax. To deal with assessment of media with recorded Information Technology Software, where RSP is affixed or assessment when RSP is not required. 5.0 (vii) Insertion of Explanations in Rule 5 of Point of Taxation Rules, 2011 12 (viii) Cenvat credit is being allowed to service providers providing ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for single premium annuity policies Reverse charge mechanism (i) mutual fund agents/distributors to an asset management company under forward charge. (ii) service provided by Government or local authorities to business entities shall be on the service recipient. Cenvat Credit Rules, 2004 (Annexure -II ) (i) Invoice issued by Service provider for removal of inputs and capital goods shall be a valid document (ii) To give option to banking company, a financial institution including non-banking financial company for Cenvat Credit reversal under sub-rule (1), (2) and (3) of the Rule 6 along with rule 6(3B) of the Cenvat Credit Rules, 2004. (iii) Cenvat credit of service tax paid on upfront charges for assignment of spectrum/ mining rights etc. (iv) Reversal of Cenvat Credit of inputs/input services which have been commonly used in a taxable output service as well as an activity which is not a "service". (v) Sub-rule (2) of rule 14 being omitted. 11.1 11.2 11.4 10.1 11.3 10.1 10.2 13 Changes in the Finance Act, 1994 that get incorporated on enactment of the Finance Bill, 2016 (1) Explanation 2 in section 65B(44) is to be modified. (2) Clause (l) of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) Services by an aircraft will continue to be outside service tax net by way of exemption through notification 3.0 & 3.1 4.1(B) 4.1(C) 8.2 8.1 Annexure-II Important changes in Cenvat Credit Rules, 2004 effective from 01.04.2016 [ Para 13 of the JS(DO) letter dated 1.03.2016] With a view to simplify and rationalize the Cenvat Credit Rules, 2004, a number of amendments are being carried out in them. Following are the important changes: (a) Wagons of sub heading 8606 92 of the Central excise Tariff and equipment and appliance used in an office located within a factory are being included in the definition of capital goods so as to allow cenvat credit on the same. [Amendment in rule 2, clause (a) sub-clause (A) item (i) and condition No. (1) of the Rules refers]. (b) CENVAT credit on inputs and capital goods used for pumping of water, for captive use in the factory, is being allowed even where such capital goods are installed outside the factory. [Amendment in rule 2 clause (a), sub-clause (A) condition (1A) and clause (k) sub-clause (ii) of the Rules refers]. (c) All capital goods having value up to Rs. ten thousand per piece are being included in the definition of inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides for reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, is being redrafted with the objective of simplifying and rationalizing the same without altering the established principles of reversal of such credit. (i) sub rule (1) of rule 6 is being amended to first state the existing principle that CENVAT credit shall not be allowed on such quantity of input and input services as is used in or in relation to manufacture of exempted goods and exempted service. The rule then directs that the procedure for calculation of credit not allowed is provided in sub-rules (2) and (3), for two different situations. (ii) sub-rule (2) of rule 6 is being amended to provide that a manufacturer who exclusively manufactures exempted goods for their clearance up to the place of removal or a service provider who exclusively provides exempted services shall pay (i.e. reverse) the entire credit and effectively not be eligible for credit of any inputs and input services used. (iii) sub-rule (3) of rule 6 is being amended to provide that when a manufacturer manufactures two classes of goods for clearance upto the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est calculated at the rate of fifteen per cent. per annum (vii) A new sub-rule (3AB) is being inserted as transitional provision to provide that the existing rule 6 of CCR would continue to be in operation upto 30.06.2016, for the units who are required to discharge the obligation in respect of financial year 2015-16. (viii) Sub-rule (3B) of rule 6 is being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. (i) Following are the other changes being made in rule 6 of the Cenvat Credit Rules: (i) Explanations 3 and 4 are being inserted in rule 6, sub-rule (1) so as provide for reversal of CENVAT Credit on inputs/input services which have been commonly used in providing taxable output service and an activity which is not a „service‟ under the Finance Act, 1994. (ii) Sub-rule (4) is being amended to provide that where the capital goods are used for the manufacture of exempted goods or provision of exempted service for two years from the date of commencement of commercial production or provision of service, no CENVAT credit shall be allowed on such ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides that credit of service tax attributable to service used by more than one unit shall be distributed pro rata, based on turnover, to all the units. It is now being provided that an Input Service Distributor shall distribute CENVAT credit in respect of service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to, inter alia, the following conditions, ,: · credit attributable to a particular unit shall be attributed to that unit only. · credit attributable to more than one unit but not all shall be to attributed to those units only and not to all units. · credit attributable to all units shall be attributed to all the units. Credit shall be distributed pro rata on the basis of turnover as is done in the present rules. (l) It is also being provided that an outsourced manufacturing unit shall maintain separate account of credit received from each of the input service distributors and shall use it for payment of duty on goods manufactured for Input Service Distributor concerned. The credit of service tax paid on input services, available with the Input Service Distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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