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Sunday, May 17, 2015
Service tax rate of 14% shall come into effect only from a date to be notified – Finance Bill, 2015 enacted
The Hon’ble President has
given assent to the Finance Bill, 2015 on Thursday, May 14, 2015. Accordingly,
the Finance Bill, 2015 now becomes Finance Act (No.20), 2015. However, it is to
be noted here thatincrease in the rate of Service tax from 12.36% to flat 14%
(Subsuming Education cess and Secondary & Higher Secondary Education cess)
as was proposed in the Union Budget, 2015 will become effective only after the
date to be notified and not effective from May 14, 2015.
Further pursuing with Mr.
Narendra Modi’s Dream of Swachh Bharat, a new Chapter VI has been inserted in
the Finance Bill, 2015 that contains a new levy of cess called the ‘Swachh
Bharat Cess’ which may be leviedon all or any of the taxable services at
the rate of 2% of the value of such services.Hence, Service tax rate may
increase from present 12.36% to 16% for specified services on which Swachh
Bharat Cess is leviedfrom a date notified later.
Therefore, it is to be noted
that Higher rate of Service tax from 12.36% to 14% and Swachh
Bharat Cess of 2% will become effective onlyfrom the date to be
notifiedand not from May 14, 2015. Further, the changes in Negative List of
services will also come into effect from the date notified later.
We are summarizing hereunder
the changes in Service tax that are effective from May 14, 2015 and the changes
that will become effective only from the date to be notified later for easy
digest:
PART I: CHANGES IN
SERVICE TAX EFFECTIVE FROM MAY 14, 2015:
A: Changes under
various Sections under the Finance Act, 1994 (“the Finance Act”)
·
Section 65B: Definitions of certain terms has been
inserted [Section 65B(23A): ‘foreman of chit fund’, Section 65B(26A):‘Government’
and Section 65B(31A):‘lottery distributor or selling agent’];
·
Section 65B(44):
Change in definition of ‘Service’:
Explanation 2 to Section
65B(44) of the Finance Act, defining the term ‘Service’ is amended to
specifically state the intention of the legislature to levy Service tax on
activities undertaken by Chit fund foremen in relation to Chit, and lottery
distributors and selling agents, in relation to lotteries. [Lottery Distributor
or Selling Agent needs to pay Service tax under Reverse Charge on services
received from selling or marketing agents of lottery tickets]
·
Section 66F: Section 66F (1) prescribes that unless
otherwise specified, reference to a service shall not include reference to any
input service used for providing such services. An illustration has been
incorporated in the stated Section to exemplify the scope of this provision in
the following manner:
“The services by
the Reserve Bank of India, being the main service within the meaning of clause
(b) of section 66D, does not include any agency service provided or agreed to
be provided by any bank to the Reserve Bank of India. Such agency service, being
input service, used by the Reserve Bank of India for providing the main
service, for which the consideration by way of fee or commission or any other
amount is received by the agent bank, does not get excluded from the levy of
service tax by virtue of inclusion of the main service in clause (b) of the
negative list in section 66D and hence, such service is leviable to service
tax.”
·
Section 67: Amendment in definition of the term
‘Consideration’to include:
a.
any reimbursable
expenditure or cost incurred by the service provider and charged, in the course
of providing or agreeing to provide a taxable service, except in such
circumstances, and subject to such conditions, as may be prescribed like Pure
Agent.;
b.
any amount
retained by the lottery distributor or selling agent from gross sale amount of
lottery ticket in addition to the fee or commission, if any, or, as the case
may be, the discount received, that is to say, the difference in the face value
of lottery ticket and the price at which the distributor or selling agent gets
such ticket..
·
Section 73: New sub-section (1B) inserted to provide that
the Service tax amount self-assessed and declared in the return but not paid
(either in part or full) shall be recovered under Section 87 thereof, without
service of any notice under Section 73(1).Consequently, Rule 6(6A) of the
Service Tax Rules, 1994 (“the Service Tax Rules”) has been omitted,
which provided for recovery of Service tax self-assessed and declared in the
return in the manner prescribed under Section 87 of the Finance Act as the same
has been now been incorporated in Section 73 of the Finance Act
Further, Section 73(4A) has
been omitted, which provides for reduced penalty up to 25% of Service tax liability,
where during the course of any audit, investigation or verification, it is
found that any Service tax has not been levied or paid or has been short-levied
or short-paid or erroneously refunded but true and complete details of
transaction are available on specified records.
·
Section 76: Rationalization of penal provisions in
cases not involving fraud or collusion or wilful misstatement or
suppression of facts or contravention of any provision of the Finance Act or
Ruleswith the intent to evade payment of Service tax, in the following manner:
a.
Ceiling of 10% of
Service tax amount as penalty has been incorporated;
b.
No penalty
leviable if Service tax and interest is paid within 30 days of issuance of SCN
under Section 73(1) of the Finance Actand proceedings in respect of such
Service tax and interest shall be deemed to have been concluded;
c.
Reduced penalty
equal to 25% of the penalty (i.e. 2.5% of the Service tax liability) if the
Service tax, interest and reduced penalty is paid within 30 days of receipt of
the Adjudication Order; and
d.
If the Service tax
amount gets increased in any Appellate proceedings, then the penalty amount
shall also stand modified accordingly, and benefit of reduced penalty (i.e. 25%
of penalty imposed) shall be admissible if Service tax, interest and reduced
penalty on such increased amount is paid within 30 days of such Appellate
Orders.
·
Section 78: Rationalization of penal provisions relating
to penalties in cases involving fraud or collusion or wilful misstatement
or suppression of facts or contravention of any provision of the Finance Act or
Rules with the intent to evade payment of Service tax, in the following
manner:
a.
Penalty shall be
of 100% of Service tax amount. However, in respect of the cases where the
details relating to such transactions are recorded in the specified record for
the period beginning with the April 8, 2011 upto the date on which the Finance
Bill, 2015 receives the assent of the President i.e. May 14, 2015 (both days
inclusive), the penalty shall be 50% of the Service tax so determined;
b.
Reduced penalty
equal to 15% of the Service tax amount alleged in the SCN shall be levied if
Service tax, interest and reduced penalty is paid within 30 days of issuance of
SCN under Section 73(1) of the Finance Act. Further proceedings in respect of
such Service tax, interest and penalty shall be deemed to be concluded;
c.
Reduced penalty
equal to 25% of the Service tax amount, determined by the Central Excise
officer by an Adjudication Order, shall be levied if the Service tax, interest
and reduced penalty is paid within 30 days of receipt of Order of the Central
Excise Officer; and
d.
If the Service tax
amount gets modified in any Appellate proceedings, then the amount of penalty
and the interest payable thereon shall stand modified accordingly, and after
taking into account the amount of Service tax so modified, the person who is
liable to pay such amount of Service tax, shall also be liable to pay the
amount of penalty and interest so modified;
e.
If the Service tax
amount gets increased in any Appellate proceedings, then the penalty amount
shall also stand modified accordingly, and benefit of reduced penalty (i.e. 25%
of Service Tax) shall be admissible if Service tax, interest and reduced
penalty on such increased amountis paid within 30 days of such Appellate Orders.
·
New Section 78B
inserted after Section 78A: A new
Section 78B has been inserted to prescribe transition provision in the
following manner:
a.
Amended provisions
of Sections 76 and 78 of the Finance Act shall apply to cases where either no
SCN is served, or SCN is served under Section 73(1)or proviso thereto but no
Order has been issued under Section 73(2) thereof, before the date of enactment
of the Finance Bill, 2015 (i.e. May 14, 2015); and
b.
In cases where SCN
has been issued but no Orderhas been issued under Section 73(2), before the
date of enactment of the Finance Bill, 2015 (i.e. May 14, 2015), the period of
30 days for the purpose of closure of proceedings on the payment of Service tax
and interest under clause (i) of the proviso to sub-section (1) of Section 76
or on the payment of Service tax, interest and penalty under clause (i) of the
second proviso to sub-section (1) of Section 78, shall be counted from the date
on which the Finance Bill, 2015 receives the assent of the President (i.e. May
14, 2015).
·
Section 80
omitted: Now, no waiver of penalty under Section
76 and 77 of the Finance Act, on Reasonable cause will be allowed.
·
Section 83: Certain changes have been made in the
provisions relating to Settlement Commission under the Excise Act,which are
made applicable to the Finance Act by virtue of Section 83 thereof.
·
Section 86: Amended to prescribe that remedy against the
Order passed by the Ld. Commissioner (Appeals), in a matter involving rebate of
Service tax on Input services, duty paid on Inputs, used in providing service
which is exported, shall lie in terms of Section 35EE of the Central Excise
Act, 1944 (“the Excise Act”) (i.e. Revision by the Central Government).
It is also provided that all
appeals filed before the Hon’ble Tribunal after the date the Finance Act, 2012
came into effect (i.e. May 28, 2012) and pending on the date when the Finance
Bill, 2015 receives assent of the President (i.e. May 14, 2015) shall be
transferred and dealt in accordance with Section 35EE of the Excise Act.
·
Section 94: Clause (aa) of Section 94(2) has been substituted
with “determination of the amount and value of taxable service, the
manner thereof, and the circumstances and conditions under which an amount
shall not be a consideration, under Section 67”.
PART II: CHANGES
IN SERVICE TAX TO BE EFFECTIVE FROM DATE TO BE NOTIFIED:
A: Increase in
rate of Service tax:
·
From 12.36%
(including Education Cess and Secondary and Higher Education Cess) to flat
14%.The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be
subsumed in the new Service tax rate.
Open Issues: Whether balance lying in ‘Education Cess’ and
‘Secondary and Higher Education Cess’ standing as on date of notification of
change in rates will be allowed to be adjusted with Service tax liability as
this is being denied in terms of Rule 3(7)(b) of the Cenvat Credit Rules, 2004(“the
Credit Rules”),which requires clarification by the CBEC at the earliest.
·
Consequent to the
upward revision in Service tax rate, the composition rate is proposed to be
revised proportionately under Rule 6(7), 6(7A), 6(7B) and 6(7C) of the Service
Tax Rules on specified services, namely,
·
Air Travel Agent: From “0.6%” and “1.2 %”, to “0.7 per cent.”
and “1.4 per cent of Basic fares in the case of domestic bookings and
international bookings respectively.
·
Life insurance
service: From “3%” and “1.5%”, to
“3.5%” of the premium charged from policy holder in the first year and “1.75%
in the subsequent year”.
·
Money changing
service provided by banks or authorized dealers:
o From “0.12%” to “0.14%” of gross amount of
currency exchanged for an amount upto Rs.1,00,000/-subject to minimum amount of
“Rs. 35”which was “Rs. 30 earlier or;
o From “Rs. 120 and 0.06%” to “Rs. 140 and 0.07%” of
gross amount of currency exchanged for an amount exceeding Rs.1,00,000/- upto
Rs. 10,00,000/ or;
o From “Rs. 660 and 0.012%” to “Rs. 770 and 0.014%”
of gross amount of currency exchanged for an amount exceeding Rs.10,00,000/-
subject to maximum amount of Rs. 7000/- which was Rs. 6000/- earlier
·
Service provided
by lottery distributor and selling agent:
o Guaranteed price payout is more than 80%: Rs.
8200/- (earlier Rs. 7000/-) on every Rs. 10,00,000/- (or part of Rs.
10,00,000/-) of aggregate face value of lottery tickets printed by organizing
State for a draw or
o Guaranteed price payout is less than 80%: Rs.
12,800/- (earlier Rs.11,000/-) on every Rs. 10,00,000/- (or part of Rs.
10,00,000/-) of aggregate face value of lottery tickets printed by organizing
State for a draw.
B: Swachh Bharat
Cess – Enabling Provision
·
An enabling
provision is being made to empower the Central Government to impose a Swachh
Bharat Cess (“SB Cess”) on all or any taxable services at a rate of 2%
on the value of all or any taxable services. The proceeds from this Cess would
be utilized for Swachh Bharat initiatives.
The Government will specify
the categories of taxable services on which SB Cess would be leviable.
Open issues:
a.
What all services
are going to be covered under the levy of SB Cess?
In the absence of clearly
defined provisions, it is likely that the SB Cess may re-ignite the tussle on
‘classification’ of services.
a.
Whether Cenvat
credit of SB Cess would be available or not because there are no amendments
proposed in the Credit Rules?
C: Changes in
relation to the Negative List – Section 66D of the Finance Act
·
Section 66D(a): Under clause (iv), the words ‘support services’
has been substituted by the words ‘any service’.
Accordingly, after such
amendment, all services provided by the Government or local authority to a
Business Entity would be exigible to Service tax, except for the services that
are specifically exempted, or covered by any another entry in the Negative
List.
Consequently, the term
‘support’ has been omitted from the Rule 2(1)(d)(i)(E) of the Service Tax
Rules, which provides for liability of service receiver to pay Service tax
under Reverse Charge in relation to support services provided or
agreed to be provided by Government or Local authority with certain exceptions.
Further, in paragraph I,
clause (A) sub clause (iv) Item Cunder Notification No. 30/2012-ST dated
June 20, 2012 (Reverse Charge Mechanism), the term ‘support’ has been omitted
for services provided or agreed to be provided by Government or Local authorityvide
Notification No. 7/2015-ST dated March 1, 2015. Thus, now any services provided
by the Government or Local authority to a Business Entity would be
exigible to Service tax under Reverse Charge, except for the services that are
specifically exempted, or covered by any another entry in the Negative List.
·
Section 66D(f): Services by way of carrying out any processes
for production or manufacture of alcoholic liquor for human consumption brought
under the Service tax net.
·
Section 66D(i): Explanation inserted whereby the expression
“betting, gambling or lottery” shall not include the activity as specified in
substituted explanation 2 to Clause (44) of Section 65B of the Finance Act.
·
Section 66D(j): Omitted, which covers‘admission to entertainment
event or access to amusement facilities’.
Consequently, Service tax to
be levied on the services provided by way of access to amusement facility such
as rides, bowling alleys, amusement arcades, water parks, theme parks, etc;
Service tax also to be levied
on services by way of admission to entertainment event of concerts,
non-recognized sporting events, pageants, music concerts and award functions,
if the amount charged for admission is more than Rs. 500.
Whereas services by way of
admission to exhibition of the cinematographic film, circus, dance, or
theatrical performances including drama, ballets or recognized sporting events
shall continue to be exempt; [Read with the Notification No. 6/2015-ST dated
March 1, 2015 vide which changes has been made in the Mega Exemption List of
Services]
Consequent to the changes in
the Negative List of services, definition of following terms has been omitted/
amended in Section 65B of the Finance Act:
·
Definitions of
certain terms omitted [Section 65B(9): ‘amusement facility’, Section
65B(24): ‘entertainment event’ and Section 65B(49): ‘support services’ has been
omitted;]
·
Definitions of
certain terms amended [Section 65B(40): ‘process amounting to
manufacture or production of goods’ excluding alcoholic liquors for human
consumption]
D: Changes in Mega
Exemption Notification No. No. 25/2012-ST dated June 20, 2012 vide Notification
No. 6/2015-ST dated March 1, 2015 (effective from the date to be notified)
·
Entry 30: Service tax would be levied on services by
way of carrying out of intermediate production process of alcoholic liquor for
human consumption on job work, consequent to imposition of Service tax on
services by way of manufacture of alcoholic liquor for human consumption.
New Exemption:
·
Entry 47: Services by way of right to admission to:
o exhibition of cinematographic film, circus, dance,
or theatrical performances including drama or ballet;
o recognized sporting events;
o award functions, concerts, pageants, musical
performances or any sporting events other than recognized sporting event, where
the consideration for such admission is upto Rs. 500 per person
[This exemption will be
effective from the date to be notified for amendments being made in the
Negative List, concerning the service by way of admission to entertainment
events.]
·
Definition of
‘recognized sporting events’ provided.
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