Changes in service Tax- Budget 2014-15

Aug 3, 2014

Negative List of Services

• It is proposed to tax online and mobile advertising Services. The negative list is proposed to be amended to exclude advertisements on internet websites, out-of-home media, on film screens in theaters, bill boards, conveyances, buildings, cell phones, ATMs etc. But advertisement in print media continues to be in negative list. This change is proposed and will come into force when the Finance Bill receives consent from the President.

• Radio taxi is proposed to be excluded from the negative list. The date is yet to be notified.

Reverse Charge

• The new entry has been introduced for reverse charge. The services provided by Recovery Agents to banks, Financial Institutions and NBFC is being brought under the reverse charge mechanism.

• In addition to services provided by the director of the company to the company, services provided by the director to the body corporate have also been introduced in reverse charge mechanism. Such amendment seems to be clarificatory in nature.

• In renting of motor vehicle, where service provider does not take abatement the portion of service tax payable by the service provider and the service receiver has been changed from 60% : 40% to 50% each.

CENVAT Credit

• Cenvat credit on inputs and input services shall be taken within a period of six months from the date of issue of bills, invoice or challan. Earlier there was no such condition.

• In case of full reverse charge mechanism. The condition of availing credit on input services on payment on invoice value has been withdrawn. However, credit is available only when payment of service tax is made to the service provider.

• Re-credit on Cenvat credit reversed on account of non-receipt of export proceeds within specified period or extended period, to be allowed if export proceeds are received within one year from the period so specified or extended period. This can be done on the basis of documents evidencing receipt of export goods.

Point of Taxation Rules

• The point of taxation in case of reverse charge mechanism is determined on the basis of payment made to the service provider. The payment has to be made within 6 months else the point of taxation is preponed. Now the amendment has been introduced to make payment within three months. But if payment is not made within three months the point of taxation is the date immediately after the date of end of three months. Thus some relaxation is provided along with with stringencies for payment. However this will come into force from 1^st October 2014.

Place of Provision Rules (changes with effect from 1st Oct 2014)

• The definition of intermediary amended to introduce commission agents or consignment agents in its scope.

• Rule 4 and Rule 9 are further amended.

Valuation Rules Taxable portion of works contract related to maintenance or repair or reconditioning or restoration or servicing of any goods or maintenance or repair or reconditioning and completion and finishing such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property has been increased to seventy percent. Thus the earlier taxable portion of 60% and 70% has been rationalized to uniform rate of 70%. Mandatory E-payment E-payment of service tax has been made mandatory with effect from 1st October 2014. However, Deputy Commissioner can give some relaxation. Mega Exemption Now 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 process incidental thereto are exempted. The earlier exemption given to services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India” has been omitted with immediate effect. Services provided,- (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;”; Earlier :- Services provided to educational institution in respect of education exempted from service tax by way of auxiliary educational services and renting of immovable property were exempted With the substitution of this exemption the definition of “auxiliary educational services” has been omitted. Thus it can also be inferred that the relevance of the Circular 172/7/2003 – ST dated 19th September 2013 is also lost. Further a new definition of “educational institution” is introduced. Educational institution means an institution providing services of pre-school education and education up to higher secondary school or equivalent; education as a part of curriculum for obtaining a qualification recognised by any law for the time being in force; education as a part of an approved vocational education course. The exemption hitherto available to services provided by way of renting of immovable property to educational institutions stand withdrawn with immediate effect. The change in relation to hotel industry exemption is marked as under :- a) Services by way of renting of a hotel, inn, guest house, club or campsite or other commercial places, by whatever name called, for residential or lodging purposes, having declared tariff of a unit of accommodation below one thousand rupees per day or equivalent;” b) The word commercial is omitted to just remove the ambiguity. Services by transportation by rail or vessel from one place in India to another and services by a goods transport agency by way of transport in a goods carriage of “organic manure, cotton, ginned or baled” has been exempted. Transport of passengers by non air-conditioned contract carriage for purposes other than tourism, conducted tour, charter or hire continue to be exempted. Air conditioned contract carriage even for purpose other than tourism are now taxable. Further services provided by radio-taxis are now made taxable. The taxability on radio taxi is yet to be notified. “Radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS); Service to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation has been exempted. Earlier these services were exempted only if activity is carried out 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 up-gradation. One new scheme of Life Insurance business is also covered in the exemption list viz “life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees.”; Exemption of services by way of loading, unloading, packing, storage or warehousing of rice has been extended to cotton, ginned or baled” Exemption has been provided to “services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves” Exemption has also been provided to “services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India”. Abatement The condition regarding non utilisation of CENVAT credit on inputs, capital goods and input services, used for providing the taxable services of goods transport agency in relation to transport of goods has been clarified by introducing “CENVAT credit on inputs, capital goods and input services used for providing the taxable services, has not been taken by the service provider. Thus Service recipient is not required to establish satisfaction of this condition by service provider. From 1st October 2014 the abatement of 60% will be available on “renting of motor cab”instead of “any motor vehicle designed to carry passengers”. Further some relaxation has been provided in Cenvat Credit also as under :- Cenvat credit on Inputs : Not available Cenvat credit on Capital Goods : Not available Cenvat credit on Input Services of renting of motorcab : Available as under :- (a) Full Cenvat credit provided that service tax is paid only on 40% value of input service. (b) 40% Cenvat credit if service tax is paid on full value of input service. Cenvat credit on other input services : Not Available Abatement of 60% has been provided for “Transport of passengers by a contract carriage other than motorcab. The abatement is with the condition that Cenvat credit of Inputs or Capital goods or Input services has not been taken. Further it is also proposed to enhance the scope of such service by adding radio taxi alongwith other contract carriages. However, such amendment is to be brought by the Central Government by notification on some date. The abatement for services provided by transport of goods in a vessel has been increased from 50% to 60% resulting in change in effective rate of service tax from the present 6.18% to 4.944% with effect from 1st October 2014. The tour operators are provided some relief in Cenvat credit. Now they can avail the Cenvat credit of service tax paid on input services of a tour operator. But the benefit of such credit is made effective from 1st October 2014.