service tax: key development 1 january 2013 ca abhishek a. rastogi
TRANSCRIPT
Service tax: Key Development
1
January 2013CA ABHISHEK A. RASTOGI
Agenda
1Snapshot – Service tax amendments
2 Scheme of Taxation
3Liability under reverse charge mechanism
4 Valuation of Services
5 Principles of Interpretation
6 Place of Provision of Services
7 Point of Taxation
8 Other relevant changes
9 Impact on specific transactions
2
3January 2013
Snapshot – Service tax amendments...
• Finance Act, 2012 introduced a comprehensive approach to tax services:
- All services other than Negative List and exempted services but includes declared services.
- ‘Service’ has been defined for the first time.
• Specified services liable to tax under the reverse charge mechanism:
- Joint liability to pay service tax in few cases.
• Export of services now governed Place of Provision of Services Rules, 2012 (‘POPS Rules’) and Service Tax Rules, 1994 (‘ST Rules’).
• Amended conditions of export as specified under ST Rules:
- the provider of service is located in the taxable territory,
- the recipient of service is located outside India,
- the service is not a service covered under the Negative List of services.
4January 2013
- the place of provision of the service is outside India (i.e. as per POPS Rules),
- the payment for such service has is received in convertible foreign exchange; and
- the provider of service and recipient of service are not merely establishments of the same entity (i.e. services are not provided by a branch to a head office).
• Benefits of export of services
- Refund of CENVAT Credit under CENVAT Rules (Under Notification No 27/2012 N.T. Central Excise).
- Rebate of excise duty/ service tax paid on inputs and inputs services (Notification No 39/2012 ST).
• Notification No. 17/ 2011 S.T. for exemption to services provided to SEZ units or Developer of SEZ replaced by Notification No. 40/2012 S.T.
Snapshot – Service tax amendments
Scheme of Taxation
5January2013
• Includes declared servicesIdentifying an activity as a
service (S. 65B)
• Not a negative list service• Not exempted
Determining taxability of the service (S. 66B)
• As per Place of Provision of Service Rules
Determining whether place of provision of service is in taxable
territory (S. 66B)
• Service provider or• Service recipient under reverse
charge
Identifying person liable to pay tax
(S. 68)
Service - Section 65B(44)...
Service
Means
any activity carried out by a
person
for another
for consideration
Includes declared services
6January 2013
Service - Section 65B(44)...
Service Excludes
mere transfer of title in
goods/immovable property
mere transaction in money or
actionable claim
service by employee to an
employer
fees taken in Court or Tribunal
7January 2013
Negative List of Services - Section 66D
Sector Specific
Negative List
Miscellaneous
Advertisement space /time
slots
Trading
Manufacturing Sector
Financial Sector
Government / Local
Authority
Agriculture and Animal Husbandry
Entertainment and
AmusementTransportPower
8January 2013
Declared Service - Section 66E
Declared Service
Renting of immovable property
Construction
Temporary transfer of
IPR
Development, etc of software
Refrain from, tolerate or do
an actHire, lease, license of
goods
Finance lease
Works contract service
Supply of food/drinks
9January 2013
Liability under Reverse Charge Mechanism...
10January 2013
• Specified services liable to tax under the reverse charge mechanism:
Specified Services
Services provided by an Arbitral Tribunal
Services by individual advocate or a firm of advocates
Services by Goods Transport Agency
Services provided by persons in a non-taxable territory to persons in the taxable territory
Sponsorship Services to any body corporate or partnership firm
Support services provided by Government / local authority
Services by insurance agent to insurance business
Services provided by a director of a company
Security services
Liability under Reverse Charge Mechanism
11January 2013
• For following services, liability to pay tax on both as under:
Service description Service Recipient (Body corporate)
Service Provider (Individual, firm or LLP)
Hiring of motor vehicle designed to carry passengers:
(a) With abatement (60%)
(b) Without abatement
100%
40%
Nil
60%
Supply of manpower for any purpose
75% 25%
Works contract service 50% 50%
A few Exemptions...
Mega Exemption Notification covering 39 items proposed such as:
Description of Service
Construction, erection, commissioning or installation of original works pertaining to an airport, port or railways, including monorail or metro
Sub contractor providing services by way of works contract to another contractor providing works contract which are exempt
Services by way of transfer of a going concern, as a whole or an independent part thereof
Job work on specified goods
Services with respect to business exhibition held outside India
Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India.
Services by way of vehicle parking to general parking excluding leasing of space to an entity for providing such parking facility
Services by specified persons
Slide 12January 2013
Valuation of Services
13
January 2013
Valuation of Services...• Service is defined as any activity … for a consideration.
• ‘Consideration’ not defined – may be derived from Indian Contract Act, 1872 as anything done or abstain from doing.
• Consideration can therefore, be in monetary / non-monetary terms.
• Value of taxable service having non-monetary consideration:
Slide 14
Particulars Value of Taxable Service
Consideration not wholly or partly consisting of money
Value of taxable service shall be the monetary value plus the value derived as per Rule 3 (for unascertainable part of consideration)
Consideration is not ascertainable
Rule 3(i) Gross amount charged by the service
provider for similar service; or
(ii) Equivalent money value of such consideration, not less than the cost of provision of such service
January 2013
Valuation of Services...• Amendments to the taxable value of service:
Slide 15
Value of Taxable Service
Includes
Amount realised for provision of service
beyond period originally
contracted
Excludes
Interest on deposits and delayed
payment(Interest on loans
included in Negative list)
Accidental damages due to unforeseen
actions
January 2013
Works Contract
• Works contract services are declared services under section 66E(h) of the Act.
• Definition covers such contracts which involve transfer of property in goods and are for carrying out the activities in respect of both movable and immovable properties
• Property in goods should pass on the principle of accretion, accession or blending when the works contract is executed
• Dominant intention need not be transfer of property
• Main object should not be to transfer chattel as chattel
Slide 16
January 2013
Valuation of Services...• Value of service involved in the execution of works contract:
- total value of works contract minus actual value of goods, or
- percentage of total amount as under,
◦ Total amount includes value of all goods / services supplied free of cost (excluding VAT).
Slide 17
Type of works contract Taxable turnover as percentage of
total amount
For execution of original works 40%
For execution of original works where the contract value includes the value of land
25%
Other works contracts including completion and finishing services
60%
January 2013
Valuation of Services...• Abatement for select services:
Slide 18
Description of Service Taxable Portion
Condition of non-availment of Cenvat credit
Financial leasing services 10% NA
Transport of goods by rail 30% NA
Transport of passengers by rail 30% NA
Transport of passengers by air 40% On inputs and capital goods
Transport of goods by road by Goods Transport Agency
25% On inputs, capital goods and input services
Bundled service by way of supply of food or any other article of human consumption
70% On any goods classifiable under Chapter 1 to 22 of the Central Excise Tariff Act,1985
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes
60% On inputs and capital goods
Services provided in relation to chit
70 On inputs, capital goods and input services
Valuation of Services
Slide 19
Description of Service Taxable Portion
Condition of non-availment of Cenvat credit
Renting of any motor vehicle to carry passengers
40% On inputs, capital goods and input services
Transport of goods in a vessel in India
50% On inputs, capital goods and input services
Construction of a complex, building, civil structure or a part thereof
25% On inputs
January 2013
Principles of Interpretation
20
January 2013
Principles of Interpretation• Reference to a service does not include reference to input service.
• Service capable of differential treatment on the basis of its description - specific description will prevail over general description.
• Bundled services are those services which contain elements of one or more services :
- If bundled in the ordinary course of business - the description which gives its essential character will prevail.
- If bundled not in the ordinary course of business - the service which gives the highest service tax liability will be considered.
Slide 21
January 2013
Place of Provision of Services
22
January 2013
Place of Provision of Services
23
• The Government notified rules for determining the place of provision of a service effective from 1 July 2012.
• POPS Rules replace the current Export Rules / Import Rules.
• Place of provision of service to be determined on the basis of the following :
Rule No Rules Place of Provision of Service
Rule 3 Default Rule Location of service receiver
If location of service receiver is not determinable location of the service provider
Rule 4 Performance based service Location where the services are actually performed
Rule 5 Immovable property based service
Location of immovable property
January 2013
Place of Provision of Services
24
Rule No Rules Place of Provision of Service
Rule 6 Services related to events Place where event is actually held
Rule 7 Services provided in more than one location
Location in taxable territory where greatest proportion is provided
Rule 8 Services where the provider as well as the receiver is located in the taxable territory
Location of service receiver
Rule 9 Specified services Location of service provider
Rule 10 Service of transportation of goods
Place of destination of goodsFor GTA – Location of person liable to pay tax
Rule 11 Passenger transportation services
Place where passenger embarks
Rule 12 Services provided on board conveyance
First scheduled point of departure
January 2013
Amendment to the Point of Taxation Rules, 2011
25
January 2013
Amendment to the Point of Taxation Rules, 2011
Slide 26
• Recurring service also treated as ‘Continuous supply of services’
• ‘Date of payment’ is the earlier of the dates on which the payment is -
- Entered in the books of accounts; or
- Credited in the bank account of the person liable to pay tax
• Point of taxation to be ascertained by way of best judgment, where the assessee is unable to submit the details regarding the date of payment or date of invoice or both
• Relevance of section 67A
January 2013
Amendment to the Point of Taxation Rules, 2011
Slide 27
• Applicable service tax rates under different circumstances:
Date of Provision of Service
Date of Invoice
Date of Payment
Point of Taxation Applicable Rate
Before 31 March 2012
After 31 March 2012
After 31 March 2012
Date of issue of invoice or date of payment, whichever is earlier
12%
Before 31 March 2012
Before 31 March 2012
After 31 March 2012
Date of issue of invoice 10%
Before 31 March 2012
After 31 March 2012
Before 31 March 2012
Date of payment 10%
After 31 March 2012
Before 31 March 2012
After 31 March 2012
Date of payment 12%
After 31 March 2012
Before 31 March 2012
Before 31 March 2012
Date of issue of invoice or date of payment, whichever is earlier
10%
After 31 March 2012
After 31 March 2012
Before 31 March 2012
Date of issue of invoice 12%January 2013
Other relevant changes
28
January 2013
Other relevant changes
29
• Limitation period for issuing a Show Cause Notice extended from 12 months to 18 months.
• New combined return EST 1 for excise duty and service tax proposed.
• Time period for issue of invoice:
- 30 days from the date of provision of service.
- 45 days from date of provision of service, for services provided by banking and financial institutions.
January 2013
Some Key Aspects
30
January 2013
Some Key Aspects
Slide 31
• Employer – employee relationship
• Valuation of taxable services where consideration is received partly in non-monetary terms
• Valuation of barter services
• Taxability of liquidated damages
• Service provider and service recipient for place of provision of services
• Place of provision of services which are ancillary to the provision of another service in the ordinary course of business
• Pure reimbursements of expenses by Indian subsidiary in respect of expenses incurred by overseas group company
• Out of pocket expenses
• Impact of non- fulfillment of any of the export conditions under Rule 6A of the Service Tax Rules e.g. payment is not received in convertible foreign exchange
January 2013
Some Key Aspects
Slide 32
• Bundling of services in case of hotels/ telecom
• Whether PLC is bundled service along with construction service
• Taxability of development rights
• Should Completion Certificate (‘CC’) be considered at par with Occupancy Certificate (‘OC’)
• Surrender or transfer of flats before the CC
• Taxability of medicinal products containing alcohol
• Remittance of foreign currency in India
January 2013
Thank You