Regional Conference for CA Students

(Waves of Change : Ocean of Opportunities )

Session

On

“Indirect Taxes”

30th November, 2012 By CIRC-ICAI, Jodhpur Branch Sanjiv Agarwal Jodhpur FCA, FCS

© Dr. Sanjiv Agarwal

This presentation covers –

Negative List Approach – Overview

Goods & Service Tax- Overview

Professional Opportunities

3

Indian Economy – An overview

India’s economy is the 11th largest economy in the world and the second fastest growing even in today’s recession

World is presently facing recession-II but Indian economy is still better than comparable economies.

Agriculture, services and industry are the major sector of India an economy. Contribution of different sectors in March, 2012 was :

Agriculture 19% Services 59% Industry 22%

to be contd…….

4

GDP CO MPO SITIO N IN MARCH, 2012

Agriculture19%

Industry22%

Service Sector59%

Brief Overview of Services / Service Tax Share of

Services in GDP

5

Service Tax in India (The Past)

Introduced in India in 1994 as a simple, modest tax with

just three services.

Service tax – an indirect tax.

Approach to Service Tax – Selective as against

comprehensive one .

Desirable from revenue, equity and economic view point.

Governed by Finance Act, 1994 and a dozen of rules.

Legislative dependence on other laws.

6

Service Tax in India (The Past)

Selective Approach to Service Tax

Selective v. Comprehensive approach Taxation by choice Service not defined but taxable service defined. > 120 taxable services [section 65(105)]Untapped tax potential Economically justified

7

Service Tax - Today

Shift to Comprehensive approach

W.e.f. 1st July 2012

Finance Act, 2012 – A land mark Act to shift from positive

to negative approach.

It took 18 years to shift from selective approach to

positive approach to tax services

Service’ defined for the first time.

‘Negative List’ and ‘declared services’ also defined.

8

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

Taxation of Services by Finance Act, 2012

(=)

9

Service Tax provisions no longer applicable (w.e.f. 1.7.2012)

Section 65 Old definitions of Services / Taxable Services

Section 65A Classification of Services Section 66 Charge of Service Tax Section 66A Charge of Service Tax on

Services received from outside India.

Import of Service Rules, 2006Export of Service Rules, 2005

10

New Provisions in Service Tax

Section 66 B deals with charge of service tax on the after Finance Act, 2012

Section 66 C provides for determination of place of provision of service.

Section 66 D comprises of negative list of services

Section 66 E comprises of the services which constitute declared services

Section 66 F provide principles of interpretation of specified description of services or bundled services

11

The New Taxability Concept

Taxable

3. Exemptions (39)

1. Non-

taxable

territory

(POPS)

2. Negative list (17)

SERVICE FOR A CONSIDERATION

E - MAGIC TEST

E: EmployeeM: MoneyA: Actionable claimG: GoodsI: Immovable propertyC: Court Fee

9 DE

CL

AR

ED

SE

RV

ICE

S

12

Taxable of Services w.e.f. 1.7.2012

All services Taxable [section 65B (44)] Declared services Taxable (section 66E) Services covered under Not

Taxable negative list of services (section 66D) Services exempt under Mega

Exempted Notification No. 25/2012-ST dated 20.6.2012 Other specified Exemptions

Exempted

13

Scope of services under Service Tax

Services on which Service Tax shall be attracted comprise of :

Those services which satisfy the definition of service u/s 65B (44) Nine specified declared services u/s 66E Those services which do not find place in negative list of services

u/s 66D Those services which are not exempt from levy of Service Tax

under Notification No. 25/2012-ST dated 20.06.2012

to be contd….

Services on which no Service Tax shall be payable comprise of :• Service which are specifically excluded from the scope of

definition of service itself u/s 65B(44).• 17 broad services specified in the negative list of services u/s

66D.• Services which are exempt from levy of Service Tax under N.

No. 25/2012-ST dated 20.06.2012.• Specified services otherwise exempt under specific

notifications. • Activities where service provider and service receiver are in

non –taxable territory

14

Scope of services under Service Tax

15

Negative list of Services

What is negative list

• Defined in new section 66D

• Section 66D specifies seventeen 17 broad categories of services.

• Effective from 1-7-2012

• If an activity meets the characteristics of ‘ service ‘, it is taxable unless specified in Negative List.

• Based on socio-economic–tax criterion

16

Sectors in Negative List

Negative list of services is drawn from seven sectors, viz.• services provided by specified person ie,

Government• social welfare & public utilities• financial sector• transportation • construction & real estate• education• health care• others & miscellaneous

Negative list of Services

(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere—

(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;(ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport;(iii) transport of goods or passengers; or(iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities;

Negative list of Services(b) services by the Reserve Bank of India;(c) services by a foreign diplomatic mission located in India;(d) services relating to agriculture by way of—

(i) agricultural operations directly related to production of any agricultural produceincluding cultivation, harvesting, threshing, plant protection or seed testing;(ii) supply of farm labour;(iii) processes carried out at an agricultural farm including tending, pruning,cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing,sorting, grading, cooling or bulk packaging and such like operations which donot alter the essential characteristics of agricultural produce but make it onlymarketable for the primary market;(iv) renting or leasing of agro machinery or vacant land with or without a structureincidental to its use;(v) loading, unloading, packing, storage or warehousing of agricultural produce;(vi) agricultural extension services;(vii) services by any Agricultural Produce Marketing Committee or Board or servicesprovided by a commission agent for sale or purchase of agricultural produce;

Negative list of Services(e) trading of goods;(f) any process amounting to manufacture or production of goods;(g) selling of space or time slots for advertisements other than advertisements broadcast by radio or television;(h) service by way of access to a road or a bridge on payment of toll charges;(i) betting, gambling or lottery;(j) admission to entertainment events or access to amusement facilities;(k) transmission or distribution of electricity by an electricity transmission or distribution utility;

Negative list of Services(l) services by way of—

(i) pre-school education and education up to higher secondary school orequivalent;(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force;(iii) education as a part of an approved vocational education course;

(m) services by way of renting of residential dwelling for use as residence;(n) services by way of—

(i) extending deposits, loans or advances in so far as the consideration isrepresented by way of interest or discount;(ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers;

Negative list of Services(o) service of transportation of passengers, with or

without accompanied belongings, by—(i) a stage carriage;(ii) railways in a class other than—

(A) first class; or(B) an airconditioned coach;

(iii) metro, monorail or tramway;(iv) inland waterways;(v) public transport, other than predominantly for

tourism purpose, in a vessel of less than fifteen tonne net; and

(vi) metered cabs, radio taxis or auto rickshaws;

Negative list of Services(p) services by way of transportation of goods—

(i) by road except the services of—(A) a goods transportation agency; or(B) a courier agency;

(ii) by an aircraft or a vessel from a place outside India to the first customs station of landing in India; or

(iii) by inland waterways;

(q) funeral, burial, crematorium or mortuary services including transportation of the deceased.

23

Goods & Service Tax (The Future)

GST: A Common Tax

on

Goods Services

24

Pre-requisites for migrating to a GST regime

• Setting up of empowered committee for GST (like VAT) which can steer the road map into action - done

• Broaden the tax base for excise duty (presently 40% comes from petroleum products) – being done

• Finishing area based and product based exemptions – being done• Rationalization of concessions and exemptions including that on exports –

being done• Expanding service tax to almost all services – now proposed• Common/unified tax rate for goods and services which may be ideally, revenue

neutral (a suitable GST rate) – dual tax proposed• Avoiding or minimizing differential tax rates – under discussions• Abolition of other small taxes - under discussions• Abolition of CST in a phased manner - being done• Power to levy service tax on select/agreed services to States - under

discussions• Issue of inter-State services and goods movement vis-à-vis levy of duty or tax to

be sorted out - under discussions• Revenue sharing mechanism to be rationalized - under discussions

25

GST - Journey so far Feb. 2006 : First time introduced concept of GST and announced the date of its implementation in

2010

Jan. 2007: First GST study by ASSOCHAM released by Dr. Shome

Feb. 2007: F.M. Announced introduction of GST from 1 April 2010 in Budget

April 2007 : CST phase out started - CST reduced to 3%, currently 1%

May 2007: Joint Working Group formed by EC

Nov. 2007: Joint Working Group submits report

April 2008 : Empowered Committee (EC) finalizes views on GST Structure

July 2009: FM announces commitment to bring GST from April 2010

Consultation on inter-state services in progress

to be contd……

26

GST - Journey so far

Budget 2010To achieve the roll out of GST by April 2011 Revamping of indirect tax administration at centre/

states internal work processes based on use of information technology - massive information technology (IT) platform

Project ACES- ‘Automation of Central Excise and Service Tax’ rolled out

Rate of service tax retained at ten per cent States to revamp their internal work processes

to be contd……

27

GST - Journey so far

Budget 2011 non-committal on timing and roll out but the

Government introduced Constitutional Amendment Bill, 2011

overall amendments targeted towards moving close to harmonize with GST regime in future

major highlights of budget discussions/proposals on GST –

DTC and GST to mark a water shed Decisions on GST to be taken in concert with the

states Areas of divergence between centre and states

narrowed Drafting of model legislation for central and state

GST underway

to be contd……

`

28

GST - Journey so far

Establishment of IT infrastructure in process (GST network)

NSDL selected as technology partner for GST Tax rates maintained at same level of 10% to stay

on course towards ST Certain central excise rates changed to prepare

the ground for transition to GST by reducing number of exemptions

Nominal central excise duty of 1% imposed on 130 items, no Cenvat credit allowed on such items.

In service tax, proposals aimed to achieve a close fit between the present service tax regime and GST.

29

GST - Journey so far

Budget 2012 No announcement on GST rollout date GST to be implemented in consultation with the States at the

earliest GST network (GSTN) likely to be in place from August, 2012 GSTN to implement common PAN based registration, return filing

and processing of payments for centre and all states on a shared platform.

Bringing closer of Service Tax and Central Excise for transition to GST

Drafting of model legislation for CGST and SGST under progress. Common forms for Service Tax and Central Excise registration

and return proposed. Place of Supply Rules, 2012 to trigger debate to assess issues that

may arise in taxation of inter state services for eventual launch of GST.

30

The GST Journey – beginning of end…….

Past Recent Past Now & Future

National GST Dual GST ???????

…or end of beginning !!

31

Service Tax: Gateway to new Professional Opportunities

Employment with Corporates- dealing with

Indirect taxes

Representation in Tribunals /

Courts

Advisory Services

Professional Opportunities in

Service Tax

Client Retainerships for Compliances

Knowledge Management & Training

Professional Practice Areas

(planning, compliances)

Advance Ruling Representation

GST awareness

32

Service Tax: Gateway to new Professional Opportunities

Timely and correct feedback on provisions of law

Compliance of Law& Procedures

Dissemination of information to assessees

Knowledge sharing with revenue officials

Help in tax collection

Proper classification of taxable services (Section 65A)

Help in understanding law and its correct interpretation

Knowledge management & training

Tax Planning ,Due Diligence

Representation before Appellate Authorities

ROLE OF PROFESSIONALS UNDER SERVICE TAX

Services to the Government Services to Service Providers

Service tax audit GST preparedness

33

Service Tax: Gateway to new Professional Opportunities

New tax, new assessees, new opportunities

Opportunities arising out of ignorance of law, lack of knowledge, poor compliance (leading to penalties etc.) frequent amendments in law and rules, large assessee base and heterogeneous group of assessees.

Opportunities to grow because of – Large number of services covered Enough scope for expansion of tax net Rate of tax is higher, yet an upward revision is likely- higher the

rate, larger the evasion.

Service tax and GST are the tax of future and lot of opportunities can be explored in service tax, especially by young professionals

34

Service Tax: Gateway to new Professional Opportunities

Role in classification of services

Opportunities in interpretation of provisions

Emerging opportunities- Advisory and consulting services Tax planning issues Interpretation of law Contesting cases on behalf of client Knowledge dissemination- corporate presentations / training

of client’s personnel.

Every crossroad is a choice to play safe or be brave- take a road that your conscience tells

THANK YOU

FOR

YOUR

PRECIOUS TIME

AND

ATTENTION

Dr. Sanjiv Agarwal

FCA, FCS, Jaipur

asandco@gmail.com

sanjivservicetax@gmail.com