CORPORATE KNOWLEDGE FOUNDATION

Presents

Workshop

On

Understanding the Amended Law of Service Tax

Conducted by

Dr. Sanjiv AgarwalFCA, FCS

Wednesday, 3rd September, 2014 @ Mumbai © Dr. Sanjiv

Agarwal

1

Session – I

Overview of Service Taxation

2

OVERVIEW OF SERVICE TAXATION

This presentation covers -

• Origin & concept of Service Tax

• What is Service

• Declared Services

• Negative List

• Exemptions

• Highlights of major changes in Union Budget

2014-15 / Finance Act, 2014

3

4

INDIAN ECONOMY – AN OVERVIEW

• India’s economy is the 11th largest economy in the world and the third fastest

growing even in today’s recession, after China and Indonesia

• Growth rate @ 4.7% in 2013-14 ; 5.7% in Q1 of 2014-15; growth expected > 5%

in 2014-15

• Service sector growth @ 6.8%

• World is presently facing recession-II but Indian economy is still a long term

growth economy

• Inflation – food, lifestyle – growth triggers

• Tax GDP ratio 10.5%; almost flat in last 5 years

• Service tax contributes about 13% of total tax revenue & over one-third of

indirect taxes

• Agriculture, services and industry are 3 major sectors of Indian economy.

• Contribution of different sectors in

March, 2013 March, 2014

Agriculture 19% 20%

Services 59% 57%

Industry 22% 23%

World average @63.6%

5

SHARE OF SERVICES IN GDP

6

SERVICE SECTOR IN INDIA & WORLD WIDE

% of service sector in GDP Country Share of

Services (%)

U.S. 79.2 China 44.6 Japan 72.7 Germany 64.6 U.K. 78.8 Brazil 59.4 India 57.1 South Korea 57.7 World 63.6

7

ORIGIN & CONCEPT OF SERVICE TAX

• Chapter V, VA and VI of the Finance Act, 1994 (section 64 to 114) contains

provision of Service Tax.

• In 1994, Service Tax was introduced by levy on only three services with

selective approach.

• Service Tax is an indirect tax leviable on the provision of service

• Destination based consumption tax recoverable from consumer / recipient.

• Desirable from revenue, equity and economic view point.

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

• Legislative dependence on over 25 other laws.

• Selective approach shifted to comprehensive approach in 2012

• Upto 30.06.2012, > 120 taxable services [section 65(105)]

• W.e.f. 01.07.2012, all services other than services specified in negative list

& exempted services liable to service tax.

• Negative List (17 in number) specified through statutory provisions –

section 66D

8

ORIGIN & CONCEPT OF SERVICE TAX

• Service tax is a tax on activity and is a Value added tax. The value

addition is on account of activity which provides value addition. Service

tax is a value added consumption tax wherein the burden of tax is

ultimately borne by the final consumer and business does not bear the

burden of tax. [All India Federation of Tax Practitioners’ v Union of

India (2007) 10 STT 166; (2007) 7 STR 625 (SC)]

• Sale and service are two different and distinct transactions. The sale

entails transfer of property whereas in service, there is no transfer of

property [Ranchi Club Ltd. v Chief Commissioner of CE&ST, Ranchi

(2012) 26 STR 401 (Jharkhand)]

• Service tax is a value added tax , which in turn is a destination based tax

on consumption in the sense that it is levied on commercial activities

and it is not a charge on business but on the consumer. [ Paul

Merchants Ltd v CCE, Chandigarh (2013) 29 STR 257 (Cestat,

New Delhi)]

GROWTH OF SERVICE TAXYear (March) No of new

servicesTotal No of services

Total collection (Rs. in crore)

1994 3 3 426

2001 - 26 2612

2005 13 72 14200

2008 7 103 51301

2010 3 112 58422

2012 0 120 97509

2013 - All 132600

2014 - All 164927(RE)

2015 - All 215973 (BE)9

Tax-GDP Ratio at a Glance

10

Indirect Tax Revenue – At a Glance

11

SERVICE TAX COLLECTIONS

Some Facts• Highest contribution is indirect tax now Service Tax Rs. 215973 Crore Customs Rs. 206356 Crore Central Excise Rs. 201819 Crore• Surpasses all indirect taxes in 2014-15• Second highest tax revenue generator after Income

Tax• Service Tax revenue double in 3 years• >30% growth projected in 2014-15• Indirect Tax revenue 45.80% of GTR , 4.5% of GDP• Service Tax is 34% of indirect tax revenue • Service Tax revenue 12.80% of GTR; 1.31% of GDP• 45% Service Tax paid through Cenvat credit

12

SERVICE SECTOR IN INDIA

• Major contributors

Telecom

Construction & real estate services

Trade, hotels & restaurants

Business auxiliary services

Banking, financial & insurance services

Transport, storage, communication

Renting of immovable property

Manpower recruitment / supply

Maintenance & repairs

• Only 18.71 lakh registered assessees13

• The term ‘service’ was not defined in erstwhile law

(upto 30.6.2012)

• The term ‘taxable service’ was defined under

section 65(105)

• Each taxable service and definitions related to

meaning of service were defined [clause (a) to

(zzzzw)]

• Around 120 definitions were in place

• W.e.f. 1.7.2012, ‘service’ has been defined in

section 65B(44)14

WHAT IS SERVICE

14

‘Service‘ defined in clause (44) of the

section 65B and means –

• any activity

• For a consideration

• carried out by a person for another

and

• includes a declared service (66E)

15

WHAT IS SERVICE

15

• Activity must be for a consideration (nexus / reciprocity)

• Activity – includes both activity as well as non-activity

• Consideration – includes both monetary and non

monetary consideration

• Two persons are involved –

Service provider

Service receiver

• Only services provided by one person to another are

taxable

• Person – natural as well as artificial

16

WHAT IS SERVICE

16

Activity

• Not defined in the Act

• In common understanding, activity includes –

An act done

A work done

A deed done

An operation carried out

Execution of an act

Provision of a facility etc.

• Activity could be active or passive and forbearance to act

• Agreeing to an obligation to refrain from an act or to tolerate an act or a

situation - listed as a declared service u/s 66E

17

WHAT IS SERVICE

17

Consideration

• Means everything received or recoverable in return for a

provision of service which includes -

Monetary payment

Non-monetary payment

Deferred consideration

• Under Indian Contract Act, 1872, ‘consideration’ means -

“When, at the desire of the promisor, the promisee or any

other person has done or abstained from doing, or does or

abstains from doing, or promises to do or to abstain from

doing, something, such act or abstinence or promise is

called a consideration for the promise”18

WHAT IS SERVICE

18

Activity for a Consideration

• Activity should be carried out by a person for a

consideration

• Activity without consideration like-

Donation

Gifts

Free charities

outside the ambit of service

• Charity for consideration would be service and taxable

unless otherwise exempted

19

WHAT IS SERVICE

19

Money- 65B(33)

“Money" means legal tender, cheques, promissory note, bill of exchange,

letter of credit, draft, pay order, traveller cheques, money order, postal or

electronic remittance or any similar instrument but shall not include any

currency that is held for its numismatic value

No service tax on Tax on Money Remittance (Circular No. 163 dated

10.7.2012)

Actionable Claim –Section 3 of Transfer of Property Act, 1882 Claim to unsecured debts Claim to beneficial interest in movable property not in possession of claimant Right to insurance claim Arrears of rent

Service is an activity carried out by a person for another for consideration and

actionable claim is mere a transaction in money [ Delhi Chit Fund Association v

Union of India (2013) 30 STR 347 ; (2013) 39 STT955 (Delhi)]

20

WHAT IS SERVICE

20

Person-65B(37)"person" includes,–

• an individual,• a Hindu undivided family,• a company,• a society,• a limited liability partnership,• a firm,• an association of persons or body of individuals, whether

incorporated or not,• Government,• a local authority, or• every artificial juridical person, not falling within any of the

above

Government – Not defined• Section 3(22) of General Clause Act, 1897• Includes Central/State Government/ Union Territory• Actions taken in the name of President/ Governor• Most of services provided by Government are in Negative List

21

WHAT IS SERVICE

21

'Service' does not include -

• any activity that constitutes only a transfer in title of goods or

immovable property by way of sale, gift or in any other manner.

Sale of developed plots is a service [Narne Constructions Pvt. Ltd. v

Union of India 2013 (29)STR 3 (SC)]

• a transfer, delivery or supply of goods which is deemed to be a sale of

goods within the meaning of clause (29A) of article 366 of the

Constitution

• a transaction only in money or actionable claim

• a service provided by an employee to an employer in the course of the

employment.

• fees payable to a court or a tribunal set up under a law for the time

being in force22

WHAT IS SERVICE : EXCLUSIONS

22

This scope shall not apply to –

• functions performed by M.P., M.L.A., Members of Panchayats /

Municipalities who receive any consideration in performing the

functions of that office as such member; or

• duties performed by any person who holds any post in pursuance of

the provisions of the Constitution in that capacity; or

• duties performed by any person as a Chairperson or a Member or a

Director in a body established by the Central Government or State

Government or local authority and who is not deemed as an

employee before the commencement of this section.

23

WHAT IS SERVICE : EXCLUSIONS

23

24

WHAT IS SERVICE

For the purpose of scope of service -

• an unincorporated association or a AOP and a member

thereof shall be treated as distinct persons;

• an establishment of a person in the taxable territory

and any of his other establishment in a non-taxable

territory shall be treated as establishments of distinct

persons.

• A person carrying on a business through a branch or

agency or representational office in any territory shall

be treated as having an establishment in that territory

Draft Circular (F. No. 354 /127/2012-TRU dated 27.7.2012) issued for clarification on certain activities / facilities / reimbursements to employees by the employers

(a) Treatment of supplies made by the employer to employees Amount deducted from salary / paid for service provided by the

employer to employee is for consideration and hence taxable Employer who provides some services free of cost (e.g. crèche,

gymnasium or a health club) are not liable to tax

(b) Treatment of reimbursements made by the employer to the employee

Reimbursements of expenditure incurred on behalf of the employer in course of employment would not amount to a service, hence non-taxable

(c)Treatment of supplies and reimbursements made by the employer to ex-employees/ pensioners

Same tax treatment for ex- employees of the company –

Reimbursement of expenses on behalf of company – non-taxable ?

Facilities for consideration – taxable

Facilities free of cost - non taxable ?

25

EMPLOYER’S FACILITIES TO EMPLOYEES

25

DIRECTOR’S SERVICES TO COMPANY - TAXABLE

• Director’s services to the company are taxable w.e.f

1.7.2012

• Sitting fees, commission, bonus, etc. are subject to service

tax

• 1.7.2012 upto 6.8.2012 - deposited by the directors

• From 7.8.2012 -deposited by the company under RCM

• W.e.f. 11.07.2014, services provided by the director of body

corporate are also covered under RCM

• WTDs /MDs /EDs who are under contractual employment

with the company and receive salary or remuneration will

not be covered - considered as employees of the company

2626

REMUNERATION TO PARTNER – NOT A SERVICE

• Partnership firm is not a distinct legal entity apart from the

partners under the Partnership Act, 1932

• Partner is not an employee of the firm -contract of employment

requires two distinct firms, viz., employer and employee

• Partners are the real owners of the assets of firm to the extent

of their share

• Salary paid to partner is only profit known by a different name

• It is only a transaction in money

• Incomes received from firm treated as income from Profits and

Gains of Business or Profession under I T Act, 1961

• Partnership Act, 1932 can not be over-looked

2727

28

TAXABILITY OF SERVICES W.E.F. 1.7.2012

All services [section 65B (44)]

Taxable

Declared services (section 66E)

Taxable

Services covered under negative list of services (section 66D)

Not Taxable

Services exempt under Mega Notification No. 25/2012-ST dated 20.6.2012

Exempted

Other specified Exemptions Exempted

28

29

All Services(including declared Services

(-)

Specific Exclusions

(-)

Negative List Services

Exemptions

Taxable Services

(-)

TAXATION OF SERVICES BY FINANCE ACT, 2012

(=)

30

TAXABILITY CONCEPT

Taxable

3. Exemptions (48)

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

CHARGE OF SERVICE TAX

W.e.f. 1.7.2012

There shall be levied a tax at the rate of

twelve per cent on the value of all

services, other than those services

specified in the negative list, provided or

agreed to be provided in the taxable

territory by one person to another and

collected in such manner as may be

prescribed 3131

CHARGE OF SERVICE TAX

Essential ingredients for charge of Service Tax (Section 66B)

• There should be a service involved.

• Such service should not be one included in the negative

list as defined in section 66D.

• Services should be provided or agreed to be provided.

• Services should be provided in the taxable territory only.

• Services should be provided by one person to another

person.

• Tax shall be levied on value of services so provided or

agreed to be provided.

• Collection shall be in prescribed manner [section 68(1) or

(2)].

3232

CHARGE OF SERVICE TAX

Provided or agreed to be provided

• Before actual provision of service is made, all relevant information on

chargeable event must be known

• On account advance payment without any identification of services or

activities may not be liable to service tax

• Services which have only been agreed to be provided but are yet to

be provided are taxable

• Receipt of advances for services agreed to be provided become

taxable before the actual provision of service

• Advances retained by the service provider in the event of cancellation

of contract of service by the service receiver become taxable as these

represent consideration for a service that was agreed to be provided.

3333

DECLARED SERVICES [SECTION 66E]

34

DECLARED SERVICES

35

• Clause 44 of section 65B defines service–it includes a declared service

• What is declared services is defined in section 65B(22) to mean any

activity carried out by a person for another person for a consideration and

declared as such under section 66E of the Act

• There are 9 categories of services or activities as declared services

implying that on all such nine declared services, Service Tax shall be

payable

• Does not include any such transfer, delivery or supply of any goods which

is deemed to be a sale within the meaning of Article 366(29A) of the

Constitution of India

• They are amply covered by the definition of service but have been

declared with a view to remove any ambiguity for the purpose of uniform

application of law all over the country

36

LIST OF DECLARED SERVICES

Following constitute Declared Services (Section 66E)

• Renting of immovable property;

• Construction of a complex, building, civil structure or a part thereof,

including a complex or building intended for sale to a buyer, wholly

or partly, except where the entire consideration is received after

issuance of certificate of completion by a competent authority;

• Temporary transfer or permitting the use or enjoyment of any

intellectual property right;

• Development, design, programming, customization, adaptation, up

gradation, enhancement, implementation of information technology

software;

37

LIST OF DECLARED SERVICES

• Agreeing to an obligation to refrain from an act, or to tolerate an act

or a situation, or to do an act;

• Transfer of goods by way of hiring, leasing, licensing or any such

manner without transfer of right to use such goods;

• Activities in relation to delivery of goods on hire purchase or any

system of payment by installments;

• Service portion in execution of a works contract;

• Service portion in an activity wherein goods, being food or any

other article of human consumption or any drink (whether or not

intoxicating) is supplied in any manner as part of the activity.

DECLARED SERVICES

Agreeing to an obligation to refrain from an Act / to tolerate Act

or situation / to do an Act [section 66E(e)]

Following activities if carried out by a person for

another for consideration would be treated as

provision of service

Agreeing to an obligation to refrain from an act.

Agreeing to an obligation to tolerate an act or a

situation.

Agreeing to an obligation to do an act.

3838

DECLARED SERVICESObligations / ActionsExamples of Taxable Obligations / Actions Non-compete fees for agreeing not to compete compensation on termination of business

agreements advance forfeited for cancellation of agreement to

provide a service. forfeiture of security deposit for damages done by

service receiver in course of receiving of services. cancellation charges being charged by airlines,

hotels etc. consideration for non-appearance in a court of law

or withdrawal of suit. demurrage charges or detention charges

3939

40

DECLARED SERVICES

Works Contract [65B(54) / 66E(h)]

“Works Contract” means a contract wherein

transfer of property in goods involved in the

execution of such contract is leviable to tax as sale

of goods and such contract is for the purpose of

carrying out construction, erection, commissioning,

installation, completion, fitting out, repair,

maintenance, renovation, alteration of any

movable or immovable property or for carrying out

any other similar activity or a part thereof in

relation to such property.

SERVICES IN NEGATIVE LIST

[SECTION 66D]

41

42

42

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

43

43

NEGATIVE LIST OF SERVICES

(a)Services by Government or local authority excluding services by way of speed post,

express parcel post, life insurance and agency services provided to a person other

than Government; services in relation to an aircraft or a vessel, inside or outside the

precincts of a port or an airport; transport of goods or passengers; or support

services, other than specified services provided to business entities;

(b) Service by Reserve Bank of India

(c) Services by a foreign diplomatic mission located in India

(d)Service relating to agriculture or agricultural produce by way of agricultural

operations like cultivation, harvesting, etc; supply of farm labour; processes like

tending, pruning, cutting, etc. which do not alter essential characteristics of

agricultural produce but make it only marketable for primary market; renting or

leasing of agro machinery or vacant land; loading, unloading, packing, storage or

warehousing of agricultural produce; agricultural extension services; Agricultural

Produce Marketing Committee or Board services

44

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 in print media

other than advertisements broadcast by radio or television

(w.e.f. 1.10.2014)

(h)Service way of access to a road or a bridge on payment of toll

charges

(i) Betting, Gambling or Lottery

(j)Admission to entertainment events and access to amusement

facilities

(k)Transmission or distribution of Electricity by an electricity

transmission or distribution utility

45

NEGATIVE LIST OF SERVICES

(l) Service by way of pre-school education and education up

to higher secondary school or equivalent; prescribed

curriculum for obtaining a qualification recognized by

law; approved vocational education course

(m) Services by way of renting of residential dwelling for

use as residence

(n) Services by way of extending deposits, loans or

advances in so far as the consideration is represented by

way of interest or discount; inter se sale / purchase of

foreign currency between specified persons

46

NEGATIVE LIST OF SERVICES

O)services of transportation of passengers with or without

accompanied belongings, by a stage carriage; railways in a

class other than first class or an air-conditioned coach; metro,

monorail or tramway; inland waterways; public transport, other

than predominantly for tourism purpose, in a vessel, between

places located in India; and metered cabs, radio taxis (w.e.f.

1.10. 2014 ) or auto rickshaws

(p) Services by way of transportation of goods by road except GTA,

courier services; by aircraft /vessel from outside India upto the customs

station in India ; by inland waterways

(Q)funeral, burial, crematorium or mortuary services including

transportation of the deceased.

EXEMPTIONS [ N. NO. 25/2012-ST DATED 20.6.2012 AS AMENDED TO DATE]

47

GENERAL EXEMPTIONS

• Small Scale Exemption (Notification No. 33/2012-ST dated 20.6.2012)

• Exemption for Exporters/SEZ (Notification Nos. 31 /2012- ST dated

20.6.2012; 39/2012-ST dated 20.6.2012; 41/2012-ST dated 29.6.2012;

42/2012-ST dated 29.6.2012 ; 12/2013-ST dated 01.07.2013 ; 15/2013 –

ST dated 21.11.2013 and 7/2014-ST dated 11.07.2014)

• Exemption to Import of Technology (Notification No. 14/2012-ST dated

17.3.2012)

• Exemption for Services to Foreign Diplomatic Mission (Notification No.

27/2012-ST dated 20.6.2012)

• Exemption to Services by TBI or STEP (Notification No. 32/2012-ST dated

20.6.2012)

• Exemption to Renting of an Immovable Property (Notification No.

29/2012-ST dated 20.6.2012)

4848

SPECIFIC EXEMPTED SERVICES

(Vide mega Exemption Notification No. 25/2012-ST dated

20.6.2012)

• W.e.f. 1.7.2012

• Covers 48 specific exemptions

• Negative List services – not taxable at all ; can be

amended only by Parliament

• Exempted services – taxable but exempt under

notification; can be modified by notification.

4949

EXEMPTED SERVICES

• Services provided to the United Nations or a Specified

international organization

• Health care services provided by a clinical establishment,

an authorised medical practitioner or para-medics

• Services provided by cord blood banks by way of

preservation of stem cells or any other service in relation to

such preservation ( w.e.f. 17.2.2014)

• Services provided by operators of Common Bio-medical

Waste Treatment Facility to a clinical establishment by

way of treatment or disposal of bio-medical waste or the

processes incidental thereto (w.e.f. 11.07.2014)

• Services by a veterinary clinic in relation to health care of

animals or birds50

50

EXEMPTED SERVICES

• Services by an entity registered under section 12AA of the

Income tax Act, 1961 by way of charitable activities

• Services of renting of precincts of a religious place meant for

general public or conduct of any religious ceremony

• Services provided by a specified organization

(Kumaon Mandal Vikas Nigam Ltd and Haj Committee) in

respect of a religious pilgrimage facilitated by the Ministry of

External Affairs, Government of India, under bilateral

arrangement (w.e.f. 20.08.2014)

• Services of technical testing or analysis of newly developed

drugs, by an approved clinical research organization ( w.e.f.

11.07.2014)51

51

EXEMPTED SERVICES• Services provided by –

individual advocate / arbitrator to any person other than business

entity

services provided by advocate to advocate;

services provided by advocates and arbitral tribunals to business

entities with a turnover up to rupees ten lakh in the preceding

financial year;

services provided by person represented on an arbitral tribunal to

an arbitral tribunal

• Services by way of training or coaching in recreational activities

relating to arts, culture or sports

• Services provided to a recognised sports body by—

(a) an individual as a player, referee, umpire, coach or team

manager for participation in a sporting event organized by a

recognized sports body;

(b) another recognised sports body

5252

EXEMPTED SERVICES

• Services provided (w.e.f. 11.07.2014)

(a) by an educational institution to its students, faculty and staff;

(b) to an educational institution, by way of,—

(i) transportation of students, faculty and staff;

(ii)catering, including any mid-day meals scheme sponsored by the Government;

(iii)security or cleaning or house-keeping services performed in such educational institution;

(iv)services relating to admission to, or conduct of examination by, such institution;

• Any services provided by specified institutions in relation to National Skill

Development programme, a Vocational Skill Development course, any other

scheme implemented by National Skill Development Corporation ( W.e.f.

10.09.2013)

• Sponsorship services for tournaments and championships organized by

specified bodies 53

53

EXEMPTED SERVICES

• Services provided to Government, a local authority or a governmental

authority by way of construction, erection, commissioning, installation,

completion, fitting out, repair, maintenance, renovation, or alteration of –

civil structure or any other original works meant predominantly for

use other than for commerce, industry, or any other business or

profession;

historical monument

a structure meant predominantly for use as (i) an educational, (ii) a

clinical, or (iii) an art or cultural establishment;

canal, dam or other irrigation works;

Specified use pipeline, conduit or plant

a residential complex predominantly meant for self-use or the use of

their employees of specified persons

5454

EXEMPTED SERVICES

• Services provided by way of construction, erection, commissioning,

installation, completion, fitting out, repair, maintenance, renovation,

or alteration of,-

road, bridge, tunnel etc for use by general public ;

civil structure under Jawaharlal Nehru National Urban Renewal

Mission or Rajiv Awaas Yojana;

building owned by an entity registered under section 12 AA of IT

Act, 1961 and meant predominantly for religious use by general

public;

a pollution control or effluent treatment plant, except located as a

part of a factory; or

a structure meant for funeral, burial or cremation of deceased

5555

EXEMPTED SERVICES

• Construction, erection, commissioning, or installation of original

works pertaining to airport, port or railways, including monorail or

metro; a single residential unit; specified low- cost houses; post-

harvest storage infrastructure for agricultural produce, cold

storages; mechanized food grain handling system etc.

• Temporary transfer or permitting the use or enjoyment of a

copyright covered under clause (a) or (b) of sub-section 91 of

section 13 of the Indian Copyright Act, 1957, relating to original

literary, dramatic, musical, artistic works or cinematograph films

for exhibition in a cinema hall or cinema theatre(w.e.f. 1.04.2013)

• Services by a performing artist in folk or classical art forms of (i)

music, or (ii) dance, or (iii) theatre, excluding services provided by

such artist as a brand ambassador

5656

• Services of collecting or providing news by an independent

journalist/ specified bodies

• Services by way of renting of a hotel, inn, guest house, club,

campsite, by whatever name called or other commercial places

meant for residential or lodging purposes, having declared tariff

of a unit of accommodation below rupees one thousand per day

or equivalent (w.e.f.11.07.2013)

• Services provided in relation to serving of food or

beverages by a restaurant, eating joint or a mess, other

than those having (i) the facility of air-conditioning or

central air-heating in any part of the establishment, at any

time during the year, and (ii) a licence to serve alcoholic

beverages (w.e.f.1.04.2013)57

EXEMPTED SERVICES

57

EXEMPTED SERVICES

• Services provided in relation to serving of food or beverages by a

Canteen maintained in a factory covered under the Factories Act,

1948, having the facility of air-conditioning or central air-heating

at any time during the year.(w.e.f. 22.10.2013)

• Services of transportation of specified goods by rail or a vessel

from one place in India to another place / port

Transportation of chemical fertilizer, organic manure and oil

cakes, cotton, ginned or baled by rail and vessel exempted

from service tax (w.e.f. 11.07.2014)

• Services provided by GTA for transportation of specified goods

Transportation of chemical fertilizer, organic manure and oil

cakes, cotton, ginned or baled by GTA exempted from service

tax (w.e.f. 11.07.2014)

5858

EXEMPTED SERVICES • Services of giving on hire a means of transportation to State transport

undertaking or GTA

• Transport of passengers, with or without accompanied belongings, by —

• air, embarking from or terminating in an airport located in specified area ;

• non-air conditioned contract carriage other than radio taxi, (w.e.f. 11.07.2014)

for the transportation of passengers, excluding tourism, conducted tour, charter

or hire; or

• ropeway, cable car or aerial tramway;

• Services by way of vehicle parking to general public

excluding leasing of space to an entity for providing such

parking facility ( w.e.f. 1.04.2013)

• Specified schemes of general insurance business are exempt

• Services of life insurance business provided under specified

schemes including life micro-insurance product as approved

(w.e.f.11.07.2014)59

59

EXEMPTED SERVICES• Services provided to Government, a local authority or a governmental

authority by way of -

a) carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; (w.e.f. 11.07.2014) or

b) repair or maintenance of a vessel or an aircraft (w.e.f. 1.04.2013)

• Services provided by an incubatee subject to certain conditions

• Service by an unincorporated body or a non- profit entity registered

under any law to its own members by way of reimbursement of

charges or share of contribution subject to conditions

• Services provided by specified capacities such as sub-broker; mutual

fund agent; selling or marketing agent of lottery tickets / SIM cards or

recharge coupon vouchers; business facilitator/ business

correspondent; sub-contractor providing services by way of works

contract to another contractor providing works contract services

which are exempt 6060

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EXEMPTED SERVICES• Carrying out an intermediate production process as job work in

relation to agriculture, printing or textile processing, cut and polished

diamonds and gemstones; any goods on which appropriate duty is payable

by the principal manufacturer;

• Services by an organizer to any person in respect of a business

exhibition held outside India

• Services by way of slaughtering of [bovine omitted] animals;

• Services by way of making telephone calls from specified places

like departmentally run public telephone; guaranteed public

telephone operating only for local calls; or free telephone at airport

and hospital where no bills are being issued;

• Services received from service provider located in a non- taxable

territory by specified persons for non-commercial purpose / by

charitable institution / to person located in non-taxable territory

• Services of public libraries by way of lending of books, publications

or any other knowledge- enhancing content or material

EXEMPTED SERVICES• Services by Employees’ State Insurance Corporation to persons

governed under the Employees’ Insurance Act, 1948;

• Services by way of transfer of a going concern, as a whole or an

independent part thereof

• Services by way of public conveniences such as provision of facilities

of bathroom, washrooms, lavatories, urinal or toilets;

• Services by a governmental authority by way of any activity in relation

to any function entrusted to a municipality under article 243 W of the

Constitution

•Services received by RBI from outside India in relation to FOREX

management (w.e.f. 11.07.2014)

•Tour operator service to foreign tourist for tour wholly outside India

(w.e.f. 11.07.2014)62

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HIGHLIGHTS OF MAJOR BUDGET CHANGES AND BY FINANCE ACT, 2014

• No changes in Service Tax rate

• Hints at time line for GST and legislative changes in December 2014

and GST expected in 2015-16; no date announced

• Reverse charge provisions amended / expanded

• Definition of intermediary to include intermediary of goods in its scope.

• Place of Provision of Service Rules amended so as to reduce tax

incidence on transport of goods through coastal vessels to promote

Indian shipping industry.

• POT for reverse charge will be the payment date or the first day that

occurs immediately after a period of 3 months from the date of invoice,

whichever is earlier.

• Rate of interest increased upto 30 percent w.e.f 01.10.2014 based on

period of delay.

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HIGHLIGHTS OF MAJOR CHANGES IN FINANCE ACT, 2014

• Renting of motor vehicle – service recipient and service provider, both

to pay 50% each under reverse charge instead of 60 : 40 (change w.e.f

01.10.2014)

• Under works contract services, value of service portion in repair,

maintenance or reconditioning or restoration or servicing activities

increased from 60% to 70% by merging two categories

• E-payment of service tax made mandatory for all assessees from

1.10.2014. Relaxation permitted by discretion of the DC /AC on case

to case basis.

• Resident Private Limited Company eligible to make an application for

Advance Ruling.

• Retrospective exemption to ESIC on the services provided prior to

1.07.2012

• Certain provisions of CEA made applicable to ST (15A, 15B) –

obligation to furnish information and consequences for not doing so

• Procedural simplification in exemption to SEZ developer / unit

• SCN’s to be adjudicated within stipulated time

65

• No more stay application as mandatory fixed pre-deposit of 7.5% and

10% of the duty, in case where duty or duty and penalty are in

dispute, or penalty, where such penalty is in dispute imposed or both,

for filing of appeal at first / second stage appeal has been prescribed

• Ceiling for mandatory pre-deposit fixed at 10 Crore rupees.

• Section 80 benefit not to be applicable for serious offences

• Cenvat Credit shall be taken within six months from the date of the

invoice or challans or other documents specified (change w.e.f

01.09.2014)

• Cenvat credit allowable when Service tax paid under full reverse

charge without waiting for the payment of invoice value to the service

provider.

• Service tax paid by sub-contractor in the same line of business would

be allowed as eligible credit to the main service provider to avoid

double taxation, subject to certain conditions (change w.e.f

01.10.2014)

HIGHLIGHTS OF MAJOR CHANGES IN FINANCE ACT, 2014

66

GOODS & SERVICE TAX (THE FUTURE)GST: A Common Tax

on

Goods Services

67

•Need to find a solution to issue of surrendering tax jurisdiction

by States

•Consensus on CST compensation to be emphasized (States

want a 5 year relief for loss due to reduction in CST rate)

•Constitutional Amendment Bill, 2011- Report of Standing

Committee received; legislative scheme to be introduced

•Tussle between legal powers / administrative powers.

•No clear road map and commitment on time lines on GST

implementation

•Hope for consensus in next few months and GST being

introduced in 2015-16

•Phased roll out of GST likely

GST – WHAT NEXT

68

•Time to wrap up loose ends

•Consensus required at Empowered Committee on GST to abolish small

taxes

•States want octroi / entry tax not to be subsumed in GST

•Agreement on dropping Dispute Settlement Body

•States may be empowered to raise GST rates in case of distress

(flexibility in tax rate)

•Too many items can not be kept out of GST as larger object would get

defected

•Inclusion / exclusion of alcohol / petroleum products to be decided

•Revenue sharing mechanism to be rationalized

•Composition scheme likely, besides threshold exemption ( may be Rs.

10 Lakh)

•What could be a suitable GST rate?

•Need for drafting a GST Law by States and Centre

GST –AN UPDATE

69