The Finance Minister has, while presenting the Union Budget 2016-17, introduced the Finance Bill, 2016 in the Lok Sabha on the 29th of February, 2016. Clauses 145 to 157 of the Bill cover the amendments made to Chapter V of the Finance Act, 1994. Changes are also proposed in,-
- Service Tax Rules, 1994 (STR)
- The Point of Taxation Rules, 2011;
- CENVAT Credit Rules, 2004(Cenvat Rules);
It may be noted that changes being made in the Budget are coming into effect on various dates, as indicated below:
- Changes coming into effect immediately w.e.f. the 1st day of March, 2016;
- Changes coming into effect from the 1st day of April, 2016;
- Amendments which will get incorporated in the Finance Act, 1994 on enactment of the Finance Bill, 2016;
- 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
- 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.
We present below the brief analysis of various Service Tax Amendments which are made applicable from 1st April,2016.
S1: CHANGES IN MEGA EXEMPTION NOTIFICATION
Notification No. 25/2012-ST as amended by notification No. 09/2016-ST dated 1st March, 2016 refers
I. LEGAL SERVICES BY ADVOCATES
Exemption in respect of the following services is being withdrawn,-
- Services provided by a senior advocate to an advocate or partnership firm of advocates
- A person represented on an arbitral tribunal to an arbitral tribunal;
Thus 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 than senior advocate is being continued.
The Term ‘Senior advocate’ has the meaning assigned to it in section 16 of the Advocates Act, 1961
II.Exemption under Sl. No. 23 (c) of the notification No.25/2012-ST on transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn
III. 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 Rs 1 lakh charged per event to Rs 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.
S2: SERVICES PROVIDED BY GOVERNMENT OR LOCAL AUTHORITIES TO BUSINESS ENTITIES
Notification No. 15/2016-ST dated 1st March, 2016 refers
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 has already been notified as the date from which any service provided by Government or local authorities to business entities shall be taxable. Consequently, 1st April, 2016 is also being notified as the date from which the definition of support services shall stand deleted from the Finance Act, 1994
S3: CHANGES IN ABATEMENT
[Notification No. 26/2012-ST as amended by notification No. 08/2016-ST dated 1st March, 2016 refers]
I.TOUR OPERATOR PROVIDING SERVICES SOLELY OF ARRANGING OR BOOKING ACCOMMODATION
In cases where the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour, abatement of 90% is available with specified conditions. However, this abatement of 90% cannot be claimed in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. There is no change in the rate of abatement or the conditions required to be fulfilled for claiming the said abatement. (Entry at S. No. 11(i) of notification No. 26/2012-ST as amended vide notification No. 8/2016-ST dated 1.03.2016 refers)
II.TOUR OPERATOR PROVIDING SERVICES OTHER THAN AS MENTIONED IN PT NO I ABOVE
Abatement rates in respect of services by a tour operator in relation to a tour other than in para 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)
III. 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)
IV.RENT A MOTOR CAB :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)
V.CONSTRUCTION SERVICE OF COMPLEX, BUILDING, CIVIL STRUCTURE ETC
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 Rs 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)
VI. TRANSPORT OF PASSENGERS BY RAIL: 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 of 70% is presently available in respect of the said services. It is proposed to continue with the same level of abatement with cenvat credit of input services for the said service. (Amendment in entry at S. No. 3 of notification No. 26/2012-ST refers)
VII. TRANSPORT OF GOODS BY RAIL At present, service tax is payable on 30% of the value of service of transport of goods by rail without cenvat credit on inputs, input services and capital goods. Thus, abatement of 70% is presently available in respect of the said service. It is now proposed to continue with the same level of abatement with cenvat credit of input services for transport of goods by rail (other than “transport of goods in containers by rail by any person other than Indian Railway”). A reduced abatement rate of 60% with credit of input services is being prescribed for transport of goods in containers by rail by any person other than Indian Railway. (Existing entry at S.No. 2 and new entry at S. No. 2A of notification No. 26/2012-ST refers)
VIII. TRANSPORT OF GOODS BY VESSEL: At present, service tax is leviable on 30% of the value of service of transport of goods by vessel without Cenvat credit on inputs, input services and capital goods. Thus, abatement of 70% is presently available in respect of the said service. It is now proposed to continue with the same level of abatement with cenvat credit of input services for the said service. (Amendment in entry at S. No. 10 of notification No. 26/2012-ST refers)
IX. Abatement on TRANSPORT OF USED HOUSEHOLD GOODS BY A GOODS TRANSPORT AGENCY (GTA) 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)
S4: AMENDMENT IN SERVICE TAX RULES
NOTIFICATION NO. 08/2016-ST DATED 1ST MARCH, 2016 REFER
I. BENEFITS EXTENDED TO ONE PERSON COMPANY
One person Company has been defined in Section 2(62) of the Companies Act, 2013. The benefits of (a) quarterly payment of service tax and (b) payment of service tax on receipt basis, which are available to individual and partnership firms, are being extended to One Person Company (OPC) whose aggregate value of services provided is up to Rs. 50 lakh in the previous financial year. Further, the benefit of quarterly payment of service tax is also being extended to HUF. Rule 6 of the Service tax Rules, 1994, which deals with the payment of service tax and prescribes relaxation for individual or proprietary firm or partnership firm, is being amended accordingly.
II. Rule 2(1)(d)(i) (D)(II) is being modified so that legal services provided by a senior advocate shall be on forward charge. (Notification No. 19/2016-ST dated 1.03.2016 refers)
III. The SERVICE TAX LIABILITY ON SINGLE PREMIUM ANNUITY (INSURANCE) POLICIES is being rationalised and the effective alternate service tax rate (composition rate) is being prescribed at 1.4% of the total premium charged, in cases where the amount allocated for investment or savings on 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.
S5: AMENDMENTS IN REVERSE CHARGE MECHANISM
[NOTIFICATION NO. 30/2012-ST AS AMENDED BY NOTIFICATION NO. 18/2016-ST DATED 1ST MARCH, 2016 REFERS]
I. SERVICES PROVIDED BY MUTUAL FUND AGENT / DISTRIBUTOR OUT ON FORWARD CHARGE
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 Rs 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.
II. TAXABLE SERVICES PROVIDED BY GOVT /LOCAL AUTHORITY TO BUISNESS ENTITY ON NEGATIVE CHARGE
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, 1 st 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.
S6: AMENDMENTS IN CENVAT CREDIT RULES, 2004
NOTIFICATION NO 13/2016-CE DATED 1ST MARCH 2016
I.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].
II. 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]
III. 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]
IV. 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. [Amendment in Rule 4(5) (b) refers]
V. Presently, the permission given by an Assistant Commissioner or Deputy Commissioner to a manufacturer of the final products for sending inputs or partially processed inputs outside his factory to a job-worker and clearance there from on payment of duty is valid for a financial year. It is being provided that the same would be valid for three financial years. [Amendment in rule 4(6) refers]
DISTRIBUTION OF CENVAT CREDIT BY INPUT SERVICE DISTRIBUTOR
VI. Rule 7 of the Rules dealing with distribution of credit on input services by an Input Service Distributor is being completely rewritten to allow an Input Service Distributer to distribute the input service credit to an outsourced manufacturing unit also in addition to its own manufacturing units. Outsourced manufacturing unit is being defined to mean either a job-worker who is required to pay duty on the value determined under the provisions of rule 10A of the Central Excise Valuation (Determination of Price Of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of section 4A of the Central Excise Act, 1944. (Amendment in rule 2 (m) and rule 7 refers)
VII. Presently, rule 7 provides 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.
- 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 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.
VIII. 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 applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such a warehouse of the manufacturer.
IX. INVOICE ISSUED BY MANUFACTURER- VALID DOCUMENT FOR CENVAT CREDIT
Presently, an invoice issued by a manufacturer for clearance of inputs or capitals goods is a valid document for availing CENVAT credit. It is being provided that an invoice issued by a service provider for clearance of inputs or capital goods shall also be a valid document for availing CENVAT credit. [Amendment in Rule 9 (a) (i) refers.
FILING OF ANNUAL RETURN IN SERVICE TAX
X. Rule 9A of the Rules is being amended to provide for filing of an annual return by a manufacturer of final products or provider of output services for each financial year, by the 30th day of November of the succeeding year in the form as specified by a notification by the Board.
XI. The existing sub- rule (2) of rule 14 prescribes a procedure based on FIFO method for determining whether a particular credit has been utilized. The said subrule is being omitted. Now, whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.