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 ..... at Rules); These and other changes are being given effect to by inserting new entries, 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary, 2016 refers] (C) The entry in the Negative List that covers services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the 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 allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to be enhanced by one year, that is, from eighteen months to thirty months by making suitable changes to section 73 of the Finance Act, 1994. ( Clauses 149 of the Finance Bill, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chment. Application for refund may be allowed to be filed within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President. [New section 101 is being inserted in the Finance Act, 1994 ] ( Clauses 156 of the Finance Bill, 2016 refers) L. Restoration of certain exemptions withdrawn last year for projects, contracts in respect of which were entered into before withdrawal of the exemption. (a) Exemption from Service Tax 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on such transactions. ( Notification No. 11/2016-CE dated 1st March 2016 refers) 5.2 In certain situations like delivering customised software on media, such media with recorded Information Technology Software, is not required to bear the RSP when supplied domestically or imported. Difficulties are being experienced in the assessment of such media to Central Excise duty/CVD besides giving rise to the issue of double taxation levy of Central Excise duty/CVD as well as service tax. In order to resolve the issue, media with recorded Information Technology 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 mut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (EPFO) to employees are being exempted from service tax. (New entry at S. No. 49 of notification No. 25/2012-ST refers) 7.4 Services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to the incubatees are being exempted from service tax. (Amendment in notification No. 32/2012-ST refers) 7.5 Services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer‟s Welfare, Government of India, by way of knowledge dissemination are being exempted from service tax. ( New entry at S. No. 52 of notification No. 25/2012-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. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me), admissions to which are made through Common Admission Test conducted by IIMs, 5 year Integrated Programme in Management and Fellowship Programme in Management are being exempted from service tax. 7.15 It has been informed by Secretary, Ministry of Human Resource Development (MHRD) vide letter D. O. No.2-14/2009-TS.V dated 8th July, 2014 and 5th February, 2014 that MHRD is vested with the power to recognise educational courses [DoPT O.M. dated 08.01.1975], for the purpose of recruitment to posts under Government of India. It has been further stated by MHRD in their above mentioned letters that IIMs have been conducting Post Graduate Programmes in Management and Fellowship Programmes which are equivalent to MBA and Ph.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 clarificator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices by a tour operator in relation to a tour other than in para 9.1 above, is being rationalised from 75% and 60% to 70%. Consequently, the definition of package tour as provided in the relevant notification is being omitted. (Amendment in entry at S. No. 11 of notification No. 26/2012-ST refers) 9.3 Services provided by foreman to a chit fund under the Chit Funds Act, 1982 are proposed to be taxed at an abated value of 70% [i.e., with abatement of 30%], subject to the condition that Cenvat credit of inputs, input services and capital goods has not been availed. (Amendment in entry at S. No. 8 of notification No. 26/2012-ST refers) 9.4 At present, there is abatement of 60% on the gross value of renting of motor-cab services, provided no cenvat credit has been taken. It is being made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is being rationalised at the rate of 60% without availment of cenvat credit on inputs, input services and capital goods by the service provider (as against abatement of 70% allowed on transport of other goods by GTA). (New entry at S. No. 7A in notification No. 26/2012-ST refers) The proposed rationalization in abatements shall come into effect from the 1st day of April, 2016. 10. Reverse Charge Mechanism 10.1 In Union Budget, 2015, as a policy decision to prune exemptions, the exemption to services provided by mutual fund agents/distributors to an asset management company was withdrawn. However these services were put under reverse charge liability, i.e., the Asset Management Company was made liable to pay service tax for the services received from such agents/distributors. Services provided by mutual fund agents/distributor to a mutual fund or asset management 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of policy holder is not intimated to the policy holder at the time of providing of service. Amendments are being made in rule 7A of Service Tax Rules, 1994 accordingly. 11.4 At present, support services provided by Government or local authorities to business entities are taxable under reverse charge mechanism that is the liability to pay service tax on such services is on the service recipient. With effect from 1st April, 2016, any service (and not only support services) provided by Government or local authorities to business entities shall be taxable. Consequently, 1st April, 2016 is being notified as the date from which the word support shall stand deleted from rule 2(1)(d)(i) (E) of Service Tax Rules, 1994 so as to provide that the liability to pay service tax on any service provided by Government or local authorities to business entities shall also be on the service recipient on reverse charge basis. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994 are being issued accordingly. (Notification Nos. 13 and 14/2016-ST dated 1st March, 2016 refer) In case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than ₹ 60 Lakh, the rate of interest on delayed payment of service tax will be 12%. (Notification Nos. 13 and 14/2016-ST dated 1st March, 2016 refer) 15. Certain issues clarified: 15.1 Incentives received by air travel agents from computer reservation system companies (CCRS) 15.1.1 High Level Committee (HLC) in their Second Half Yearly Report in December 2015 have stated that Air Travel Agents (ATA) reportedly have been representing to CBEC since 2012 for a clarification about levy of service tax on the incentives received by them from the Companies providing Computer Reservation System (CCRS) like Galileo, Amadeus, etc. The CCRS do not charge any amount for providing access to their internet system for booking of air tickets by the ATAs. Rather, the CCRS are providing 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that time limit for filing application for refund of Cenvat Credit under Rule 5 of the Cenvat Credit Rules, 2004, in case of export of services, shall be 1 year from the date of (a) receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or (b) the date of issue of invoice, where payment for the service has been received in advance prior to the date of issue of the invoice. [ Notification No. 14/2016-CE(NT) dated 01.03.2016 refers]. 15.5 Indirect tax Dispute Resolution Scheme, 2016 Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases. 15.6 Returns. Service tax assessees above a certain threshold will also be required to file an annual return. This change shall come into effect from 1st Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible. You may also inform about any operational, administrative or any other difficulty faced or anticipated in the implementation of the new proposals either by the trade or by the field formations. 16.4 I would like to express my gratitude for the pre-budget suggestions and inputs which have been received from field formations. I would like to say a special thank you to the Director and Officer on Special Duty who have very diligently carried through the budgetary process. I would be found wanting if I do not thank the three Technical Officers, Dr Abhishek Chandra Gupta, Dr. Ravinder Kumar and Shri Abhishek Verma, who put in their best. With regards, Yours sincerely, (Amitabh Kumar) To: All Chief Commissioners / Director Generals All Principal Commissioners/Commissioners of Service Tax All Principal Commissioners/Commissioners of Central Excise ANNEXURE-I LIST OF CHANGES BEING MADE AND THE DATES ON WHICH THEY WOULD COME INTO EFFECT. SUBJECT Para Para A. With immediate effect (from 01.03.2016) (i) Restoration of exemption on services provided to the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.2 New exemptions for services by,- Annuity under the National Pension System Securities and Exchange Board of India (SEBI) Employees‟ Provident Fund Organisation (EPFO) Biotechnology incubators approved by Biotechnology Industry Research Assistance Council (BIRAC). National Centre for Cold Chain Development Insurance Regulatory and Development Authority (IRDA) of India. Niramaya‟ Health Insurance scheme implemented by National Trust Threshold exemption to services provided by a performing artist in folk or classical art form is being increased from ₹ 1 lakh charged per event to ₹ 1.5 lakh charged per event. Deen Dayal Upadhyay Grameen Kaushalya Yojana training partners Assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development Entrepreneurship. 7.1 to 7.10 Rationalisation of abatement rates and conditions thereof in respect of services by,- (i) Tour operator services (ii) transport of passengers by rail. (iii) transport of goods by rail. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfers in section 66E as a Declared Service. (4) Section 67A is being amended to obtain rule making powers (5) Section 73 proposed to be amended to increase time limit from 18 months to thirty months. (6) Insertion of proviso to section 75 . (7) Insertion of Explanation in section 78A (8) Amendments in sections 89 , 90 and 91 . (9) In section 93A of the 1994 Act , the words prescribed or by notification in the Official Gazette shall be substituted. (10) Retrospective effect to notification No. 41/2012- ST, dated the 29th June, 2012 as amended by notification No. 01/2016- ST . (11) Retrospective exemption is to be extended to the construction, repair, maintenance etc of canal, dam or other irrigation works provided to entities set up by Govt. provided during the period from the 1st July, 2012 to 29.01.2014. (12) Approved vocational education course is to be incorporated in the general exemption notification and exemption to specified educational services ( Notification No. 25/2012-ST ). (13) Exemption from Service Tax on services provided to the Government, a local authority or a governmental authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition (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 inputs. This would allow an assessee to take whole credit on such capital goods in the same year in which they are received. [Amendment in rule 2 clause (k) refers] (d) Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of exempted service‟. This would allow shipping lines to take credit on inputs and input services used in providing the said service. [Amendment in rule 2, clause (e) refers] (e) Manufacturer of final products is being allowed to take CENVAT credit on tools of Chapter 82 of the Central Excise Tariff in addition to credit on jigs, fixtures, moulds dies, when intended to be used in the premises of job-worker or another manufacturer who manufactures the goods as per specification of manufacturer of final products. It is also being provided that a manufacturer can send these goods directly to such other manufacturer or job-worker without bringing the same to his premises. [A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 place of removal, namely, exempted goods and final products excluding exempted goods or when a provider of output services provides two classes of services, namely exempted services and output services excluding exempted services, then the manufacturer or the provider of the output service shall exercise one of the two options, namely, (a) pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, subject to a maximum of the total credit taken or (b) pay an amount as determined under sub-rule (3A). (iv) The maximum limit prescribed in the first option would ensure that the amount to be paid does not exceed the total credit taken. The purpose of the rule is to deny credit of such part of the total credit taken, as is attributable to the exempted goods or exempted services and under no circumstances this part can be greater than the whole credit. (v) Sub-rule (3A) is being amended to provide the procedure and conditions for calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 capital goods. Similar provision is being made for capital goods installed after the date of commencement of commercial production or provision of service. (iii) Sub-rule (7) is being amended so as to provide that credit taken on inputs and input services used in providing a service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India shall not be required to be reversed by the shipping lines. It may be mentioned here that this service presently qualifies as an exempted service on account of Rule 10 of Place of Provision of Supply Rules. Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India is being excluded from the definition of exempted service‟ by amending rule 2(e) of the rules as discussed above. Amendment in sub-rule (7) coupled with the corresponding amendment in the definition of Exempted Service is aimed at allowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput 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 Distributor as on 31st of March, 2016 shall not be distributed to an outsourced manufacturing unit. Further, provisions of rule 6 of Cenvat Credit Rules, 2004 relating to reversal of credit in respect of inputs and input services used in manufacture of exempted goods or for provision of exempted services, shall apply to the units availing the CENVAT credit distributed by Input Service Distributor and not to the Input Service Distributor. (m) Rule 7B is being inserted in Cenvat Credit Rules, 2004 so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. It is also being provided that a manufacturer having one or more factories shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of such inputs. Procedure ap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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