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Transcript of © COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS SERVICE TAX - NEGATIVE LIST REGIME By Jigar Shah...
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS
SERVICE TAX -NEGATIVE LIST REGIME
By Jigar Shah Advocate
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 3
NEED FOR CHANGE?
Facilitate launch of GST in a more familiar environment
Simplicity and certainty in tax processes
Neutrality of tax to business
Encouraging exports
Optimizing compliances
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 5
NEW LEVY
Section 66B:
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.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 6
SERVICE-DEFINED
Explanation 2:
• Unincorporated association or a body of persons and a
member thereof, to be treated as distinct persons
• Establishment of a person in a taxable territory and a non-
taxable territory to be treated as distinct persons
Explanation 3:
• A person carrying business through a branch or agency in
any territory shall be treated as having an establishment in
that territory.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 7
IMPORTANT ELEMENTS
Tax levied on all services,
Except those specified in negative list,
Provided or agreed to be provided,
In the taxable territory, and
By a person to another
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 8
PHRASE – AGREED TO BE PROVIDED
Not defined in the Act
Guidance Note:
• Services taxable on agreement even before
actual provisioning
• Advances retained on cancellation of
contract taxable
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 9
TAXABLE TERRITORY
Defined as “the territory to which the Act
applies”.
Section 64 : The Act extends to whole of India
except State of Jammu & Kashmir
Jammu & Kashmir considered as non-taxable
territory
‘India’ defined.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 10
SERVICE-DEFINED
Section 65B(44) defines ‘Service’ as:
• any activity carried out by a person for another for
consideration
And includes Declared Services
Not to include:
• Mere Transfer of title in:
o Goods or Immovable property
By way of sale/gift or in any other manner
• "such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of clause (29A) of
article 366 of the Constitution.“
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 11
SERVICE-DEFINED
Not to include Continued…
• Mere transaction in Money or Actionable claim
• Services in the course of employment provided by an
employee to employer
• Fees payable in a court/ tribunal
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 12
ACTIVITY
Not defined in the Act
Guidance Note:
• Meaning as understood in common parlance
should be given
• Activity could be active or passive so to include
act of forbearance etc
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 13
CONSIDERATION
Not defined in the Act
Guidance Note:
• Definition of consideration from Indian Contract Act,
1872 could be borrowed
• Anything which the receiver does or abstain from doing
for receiving the service
• Would include both monetary as well as non-monetary
• Section 67 to determine value of non-monetary
consideration
Whether direct nexus with activity required?
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 14
WHETHER – CONSIDERATION ?
Advance forfeited for cancellation of
agreement to provide service
Excess payment made by mistake
Security deposit forfeited for
damages/faulty action of receiver
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 16
DECLARED SERVICES : IMMOVABLE PROPERTY RELATED
Renting of immovable property,
Construction of complex, building, civil structure or
a part thereof, including a complex or a building
intended for sale to a buyer, wholly or partly, except
where the entire consideration is received after
issuance of completion certificate by the competent
authority.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 17
DECLARED SERVICES : TAXED EARLIER
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.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 18
DECLARED SERVICES : DEEMED SALE Transfer of goods by way of hiring, leasing, licensing or
in 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 installment,
Service portion in execution of a works contract,
Service portion in any activity wherein goods, being
foods or any other article of human consumption or
drink is supplied in any manner as a part of the activity.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 19
DECLARED SERVICES : RENTING
Renting defined in Section 65B(41) to mean:
“allowing, permitting or granting access, entry, occupation, use or any such
facility, wholly or partly, in an immovable property, with or without the
transfer of possession or control of the said immovable property and
includes letting, leasing or other similar arrangements in respect of
immovable property.”
Types of renting in exemption list:
• Renting of vacant land, with or without a structure incidental to its use,
relating to agriculture,
• Renting of residential dwellings for use as a residence
• Renting of a hotel, inn, guest house, campsite or other similar places meant
for residential or lodging purposes, having declared tariff of < Rs. 1,000/-
per day
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 20
COMPARISON
Status of :
• Renting of property to educational institutions,
• Renting of property to hospitals,
• Renting of land or building for sports and
entertainment purposes
Earlier Position Current Position w.e.f 01.07.2012
When such premise is for use in the course of furtherance of business or commerce.
Renting is taxable in general with some specific exclusion mentioned in negative list.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 21
DECLARED SERVICES : IT SOFTWARE
IT Software defined as ‘any representation of instructions, data, sound
or image, including source code and object code, recorded in a machine
readable form, and capable of being manipulated or providing interactivity
to a user, be means of a computer or an automatic data processing
machine or any other device or equipment’.
Guidance Note :
• On site development covered
• Providing advice and consultancy covered
Guidance Note on pre-packaged software:
• Sale of pre-packaged software not covered
• Taxability of License to use such software – Depends upon
whether TRUG or not
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 22
DECLARED SERVICES : TRANSFER BY WAY OF HIRE, LEASING, LICENSING ETC
Transfer of goods without transfer of right to use goods
is taxable
All kinds of transfer of goods (which are not TRUG)
covered
Guidance note :
• Transaction needs to be analyzed to see if it is
TRUG or not.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 23
DECLARED SERVICES : SUPPLY OF FOOD AND BEVERAGE
Taxable transaction:
Service portion in an activity of supply of food or other
article of human consumption or beverage (whether
alcoholic or not).
Guidance note – Items covered:
• Supply of food in a restaurant
• Supply of food and drinks by an outdoor caterer
Abatement prescribed to compute service portion
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 24
DECLARED SERVICES : TEMPORARY TRANSFER OF IPR
Temporary transfer or permitting the use or enjoyment of any
IPR,
IPR not defined
Guidance Note:
• Phrase ‘IPR’ is to be understood as done in normal trade
parlance
• IPR to include:
• Copyrights,
• Patents,
• Trademarks,
• Design,
• Any other similar right to intangible property
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 25
COMPARISON
Status of :
• Technical know-how.
• Undisclosed information,
• Trade secrets etc.
Earlier Position Current position w.e.f. 01.07.2012
IPR covers only those intellectual property right which are recognized in India for time being in force.
All types of IPR are covered.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 26
DECLARED SERVICES : SERVICE PORTION IN A WORKS CONTRACT
Works contract defined:
“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,
improvement, repair, 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."
Works contract definition amended to include both movable and
immovable property.
Pure labour contracts not covered here
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 27
DECLARED SERVICES : WORKS CONTRACT
Deletion of Notification
No.12/2003-ST
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 28
DECLARED SERVICES : REFRAIN FROM AN ACT ETC.
Entry covers:
• Agreeing to an obligation to refrain from an act,
• Agreeing to an obligation to tolerate an act or a situation,
• Agreeing to the obligation to do an act
Non-compete fees etc taxable
Amount charged for non-lifting desired quantity?
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 30
BASIS FOR FRAMING THE NEGATIVE LIST
Administrative Reasons
Welfare Reasons
Economic Reasons
ExplicitActivities
ContractualObligations
Negative List (Basis)
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 31
NEGATIVE LIST : ADMINSTRATIVE REASONS
Activities in the negative list owing to Administrative Reasons are:
Services by Government or a local authority excluding the
following services to the extent they are not covered elsewhere :
• Service by Department of Post by way of speed post, express
parcel post life insurance and agency services provided to a
person other than Government
• Service 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 covered under clauses (i) and (iii)
above, provided to an business entity.
Services by Reserve Bank of India,
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 32
NEGATIVE LIST : CONTRACTUAL OBLIGATIONS
Activities in the negative list owing to
Contractual obligations are :
Services by a foreign diplomatic mission located
in India
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 33
NEGATIVE LIST : WELFARE REASONS
Activities in the negative list owing to Welfare Reasons
are :
Service by way of:
• Pre-school education and education upto higher
secondary education or equivalent,
• Education as a part of a curriculum for obtaining a
qualification recognized by any law for the time being in
force,
• Education as a part of approved vocational education
course.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 34
NEGATIVE LIST : WELFARE REASONS
Services of transportation of goods :• By road except the service of -
• A goods transportation agency, or
• A courier agency.
• By an aircraft or a vessel from a place outside India up to the
custom station of clearance in India, or
• By an inland waterways
funeral, burial, crematorium or mortuary services including
transportation of deceased
Services by way of renting of residential dwellings for use
as residence
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 35
NEGATIVE LIST : ECONOMIC REASONS
Economic Reasons are :
Transmission or distribution of electricity by an electricity
transmission or distribution utility,
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 36
NEGATIVE LIST : EXPLICT ACTIVITIES
Explicit activities are :
Trading of goods
Service by way of access to a road or a bridge on
payment of toll charges,
Betting, gambling or lottery,
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 37
NEGATIVE LIST : EXPLICT ACTIVITIES
Admission to entertainment event or access to
amusement facilities
Selling or space or time slots for advertisements
other than advertisements broadcast by radio or
television Online advertisement ?
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 38
NEGATIVE LIST : EXPLICT ACTIVITIES
Any process amounting to manufacture or
production of goods Process on which duties of excise leviable under Section 3 ; or
Duties of excise leviable under any State Act;
Any process amounting to manufacture of alcoholic liquor of human
consumption, opium, Indian hemp and other narcotics drugs and narcotics
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 39
NEGATIVE LIST : OTHER ITEMS
Other activities mentioned in the negative list are :
Service by way of:
• Extending deposit, loans or advances in so far as the
consideration is represented by way of interest or
discount,’
• Inter-se sale or purchase of foreign currency amongst
banks or authorized dealer of foreign exchange or
amongst banks and such dealers
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 41
CLASSIFICATION OF SERVICES
Section 66F replaces Section 65A
1 - Reference to main service not to include reference to
service used for providing main service
• Sub-contractor to main Contractor?
2 - Specific description to prevail over general
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 42
CLASSIFICATION continued….
Bundled service means a bundle of provision of various
services wherein an element of provision of one service is
combined with an element or elements of provision of any other
service or services.
Rule 3 - Bundled services
Nature Classification
(a) Naturally bundled in the ordinary course of business
Single Service giving its essential character
(b) Otherwise than (a) Single Service resulting in highest liability of Service Tax
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 43
Classification of Services
• Draft Circular dated 27.09.2012
• Issued in the context of air lines services
• Charges which are directly relatable to journey will get abatement.
Therefore, charges like reconfirmatin fees, upgrade charges, date
change fees, preferred seat charges are differential ticket fare and
will get abatement
• Sky Meal On Order and escort charges are not directly related to
journey and therefore, will not get any abatement
• Excess baggage charges and pet charges will not get any
abatement
• Cancellation charges are also taxable without abatement
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 44
Classification of Services
• Some Important ECJ Rulings
• Card Protection Plan (Case No. C-349/1996)
• Societe Thermale d’Eugenie-les-Bains Vs. Ministere de
l’Economie, des Finances et del’Industrie (Case C-277/05)
• B.A.Z. Bausystem AG Vs. Finanzamt Munchen Fur
Korperschaften (1982) 3 CMLR 688
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 46
REVERSE CHARGE
• Notification No.30/2012-ST replaces Notification No.36/2004-ST for
specifying person liable for payment of service tax in respect of
services provided or agreed to be provided by:
• Insurance agent to person carrying on the insurance business,
• Goods transportation agency in respect of transportation of goods by road,
where the person liable to pay freight is one of the specified persons,
• Sponsorship service to body corporate or partnership firm in taxable territory,
• Credit of inputs opened except goods specified in Chapter 1 to 22.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 47
REVERSE CHARGE
• By arbitral tribunal or an individual advocate or a firm of advocates to a
business entity
• Support service provided by Government or local authority, to any
business entity located in taxable territory, excluding:
• Renting of immovable property,
• Speed post, transport services and services in relation to aircraft or vessel
in certain cases
• Service provided by way of :
• Renting of motor vehicle designed for carrying passengers to any person
not in similar line of business,
• Supply of manpower,
• Service portion of Works contract (Notified services)
By an individual, HUF, Partnership Firm or Association of persons to a business entity
registered as body corporate in a taxable territory
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 48
REVERSE CHARGE
Service provided or agreed to be provided by a person located
in non-taxable territory and received by a person in a taxable
territory
Notified services are as follows:
SL. No. Description of service Service Recipient
Service Provider
1. Renting of a motor vehicle designed to carry passengers:•With abatement•Without abatement
100%40%
Nil60%
2. Supply of manpower for any purpose
75% 25%
3. Service portion in Works contract service
50% 50%
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 49
REVERSE CHARGE
Whether service provider to
charge full rate of tax?
Payment of entire tax by service
provider:
- Service recipient absolved?
Different options be exercised by
provider and receiver?
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 51
VALUATION : RULE 2A
W.e.f. July 1, 2012
Works Contract Service
• Rule 2A substituted
o Value of service = Gross amount charged less
actual value of goods transferred in execution
• Actual value of goods for VAT purposes to be
considered for determining material value
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 52
VALUATION: RULE 2A
Where value is not determined then:
• Service value shall be computed as :
o Original work – 40% of total amount charged
o Contract for maintenance or repair, renovation or restoration of
any goods – 70%
o Other works – 60%
Original works means:
• All new constructions
• All types of additions and alterations to abandoned or damaged
structures on land that are required to make them workable
• Erection, commissioning or installation of plant, machinery or
equipment or structures
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 53
VALUATION: RULE 2A
‘Total amount’ means: Gross amount charged
Plus
FMV of all goods and services supplied in or in relation to the contract
whether or not supplied under the same contract
Less
The amount charged for such goods and services, and
Less
VAT or sales tax levied thereon
Specific bar inserted for availing excise duty
credit in respect of inputs used in works contract
services
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 54
VALUATION : RULE 2C
• W.e.f. July 1, 2012
• Value to be determined in the manner as discussed in Rule 2A
• Credit of inputs allowed except those specified in Chapter 1 to
22.
DESCRIPTION EARLIER TAXABLE
VALUE
CURRENT TAXABLE
VALUE W.E.F. 01.07.2012
Supply of food and beverages at restaurant
30% 40%
Outdoor Catering
50% 60%
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 55
VALUATION : RULE 6
• Value to include:• Amount realized as demurrage or by any other name for
provision of service beyond originally contracted period in any
manner relatable to service
• Value to exclude:• Interest on deposits and delayed payment of any
consideration for the provision of service or sale of goods
• Accidental damages due to unforeseen actions not relatable to
provision of service
• Subsidies/grant by Govt. not effecting the value of service
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 56
NOTABLE ABATEMENTS
DESCRIPTION TAXABLE %
CONDITIONS
Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for function together with renting of such premises
70 Cenvat credit on any goods under Chapters 1 to 22 used for providing output service has not been taken in terms of Cenvat Credit Rules, 2004.
Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority.
25 (i) Cenvat credit on inputs used for providing the taxable services has not been taken
(ii) The value of land is included in the amount charged from the service receiver.
© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS
Contact Details Our Knowledge Partner
NEW DELHI
5, Jangpura Extension
Link Road, New Delhi - 110 018
Phone: +91 (11) 4129 9810/800
MUMBAI
401 - 404, Kakad Chambers
132, Dr. Annie Besant Road, Worli
Mumbai - 400 018
Phone: +91 (22) 2491 4382/84/86
HYDERABAD
‘Hastigiri’
5-9-163, Chapel Road, Opp. Methodist Church,
Nampally, Hyderabad - 500001
Phone: +91 (40) 2323 4924/25
BENGALURU
4th Floor World Trade Center,
Malleswaram,
Bangalore - 560 055
Phone: +91 (080) 41717777
CHENNAI
2, Wallace Garden 2nd Street
Chennai - 600 006
Phone: +91 (44) 43961600, 28334700-2
AHMEDABAD
B-334 (3rd floor), SAKAR-VII, Nehru Bridge Corner,
Ashram Road, Ahmedabad-380 009
Phone: +91 (79) 4001 4500
PUNE
EBONY Meeting Room,
Ist floor Apartment Section of Hyatt Regency
Weikfield IT Park, Nagar Road
Pune 411014, Maharashtra
Thank you