SEMINAR ON “ENABLING SERVICE TAX PRACTICE” ORGANISED BY- BARODA BRANCH OF WIRC OF ICAI.

SEMINAR ON SEMINAR ON “ENABLING SERVICE “ENABLING SERVICE

TAX PRACTICE”TAX PRACTICE”

ORGANISED BY-ORGANISED BY-

BARODA BRANCH OF BARODA BRANCH OF WIRC OF ICAIWIRC OF ICAI

Service( Meaning defined )- Sec 65B

NEGATIVE LIST

• Service by Government or a local authority• Excluding

– speed post, express parcel post, life insurance and

agency services provided to a person other than

Government

– Services in relation to a vessel or an aircraft inside or

outside the precincts of a port or an airport;

– Transport of goods and/or passengers;

– Support services provided to business entities

SUPPORT SERVICES

• Section 65B(49) -Support services means

“infrastructural, operational, administrative, logistic,

marketing or any other support of any kind comprising

functions that entities carry out in ordinary course of

operations themselves but may obtain services by

outsourcing from others for any reason whatsoever and

includes advertisement and promotion, construction

or works contract, renting of immovable

property, security, testing and analysis”

NEGATIVE LIST

• Services by RBI

• Any service that is provided by a diplomatic mission of

any country located in India

• Services relating to agriculture or agricultural produce

NEGATIVE LIST

• Trading of Goods

– includes future contract of commodities

• Process amounting to manufacture or production of goods

– "process amounting to manufacture or production of goods"

means a process on which duties of excise are leviable under

section 3 of the Central Excise Act, 1944 (1 of 1944) or any

process amounting to manufacture of alcoholic liquors for

human consumption, opium, Indian hemp and other narcotic

drugs and narcotics on which duties of excise are leviable

under any State Act for the time being in force;

NEGATIVE LIST• Selling of space or time slots for advertisements other than

advertisements broadcast by radio or television

• Service by way of access to a road or a bridge on payment of toll charges

• Betting, gambling or lottery- “Betting or Gambling” defined in Section 65B(15)

• Admission to entertainment events or access to amusement facilities

NEGATIVE LIST

• Transmission or distribution of electricity by electricity transmission or distribution utility

Transmission or Distribution of Electricity by following entities would cover within Negative List Services –

• Central Electricity Authority;• State Electricity Board;• Central Transmission Utility;• State Transmission Utility;• a distribution or transmission licensee licensed under the

said Act. Builder, Developer or Housing Society charges

separately for distribution of electricity with a residential complex, would not cover under this exclusion

NEGATIVE LIST

• Specified Education Service

– pre-school education and education up to higher

secondary school 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 an approved vocational

education course.

NEGATIVE LIST

• Renting of Residential Dwelling for use as residence

Residential dwelling has not been defined in the Act

and hence it should be interpreted in common

parlance and it means any residential accommodation

but does not include hotel, inn, guest house, camp-

site, lodge etc meant for temporary stay.

NEGATIVE LIST

• Financial Services

– services by way of extending loans, advances to the extent

consideration is represented by interest or discount

– inter-bank sale or purchase of foreign currency amongst

banks or authorized dealers or amongst banks and such

dealers.

NEGATIVE LIST

Transportation of Passengers

• 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 or auto rickshaws.

NEGATIVE LIST

Services of Transportation of Goods

Transportation of goods by road except GTA and Courier

Service;

Transportation of goods by an air craft or vessel from a

place outside India to the customs station of clearance

in India; or

Transportation of goods by inland waterways

NEGATIVE LIST

• Funeral, burial, crematorium or mortuary services including transportation of the deceased

MegaMega ExemptionsExemptions Notification 25/2012 –dated Notification 25/2012 –dated

20.06.2013 (as amended)20.06.2013 (as amended)

LIST OF SERVICES UNDER MEGA EXEMPTION & NEGATIVE LIST

SERVICES TO INTERNATIONAL & DOMESTIC ORGANISATION

ME-1: Services provided to United Nations ora specified international organization(As declared by Central Government inUnited Nations Privileges & ImmunitiesAct 1947).

ME-25 : Services provided to the government or local 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 & upgradation;

ORb) Repair and maintenance of a vessel

LIST OF SERVICES UNDER MEGA EXEMPTION & NEGATIVE LIST

ME-34: Services received from a service provider located in a non-taxable territory by-(a) The government, a local authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;

(b) An entity registered under Section 12AA of Income Tax Act,1961 (c) a person located in a non-taxable territory.

ME-36: Services by Employees state Insurance Corporation to persons governed under the Employees Insurance Act 1948

ME-39: Services by a governmental authority by wayof any activity in relation to any function entrusted toa municipality under article 243W of the constitution.

NOT FOR PROFIT ORGANISATIONS

ME-4: Services by an entity registered under section 12AA of Income Tax Act 1961 by way of charitable activities.

Charitable activities are defined in the notification. It means activity relating to –

(i) Public health by way of –

(a) care or counseling of

terminally ill persons; or

persons with severe physical or mental disability;

persons afflicted with HIV or AIDS ; or

persons addicted to dependence

(b) Public awareness of preventive health, family planning or preservation of HIV infection;

(ii) Advancement of religion or spirituality;

(iii) Advancement of educational programs or skills development relating to –

abandoned, orphaned or homeless children;

physically or mentally abused and traumatized persons;

prisoners;

persons over the age of 65 years residing in rural area

or

(iv) Preservation of environmental including watershed, forests and wildlife

NOT FOR PROFIT ORGANISATIONS `

ME-5: Service by a person by way of-(a)Renting of precincts of a religious place meant for general public or(b)Conduct of any religious ceremony

ME-28: Service by an unincorporated body or a non-profit entity registered under any law for the time being in force to its own members by way of reimbursement of charges or share of contribution

(a) As a trade union(b) For the provision of exempt services by the entity to third persons:

or(c) Up to an amount of Rs 5000 per month per member for sourcing of

goods or services from a third person for the common use of its members in a housing society or a residential complex


ME-34: Service received from a service provider located in a non-taxable territory by-

(a) Government, a local authority, a governmental authority or an individual in relation to any purpose other than commerce, industry or any other business or profession;

(b) an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities; or

(c) a person located in a non-taxable territory;


EDUCATION SERVICES

ME-8: Services by way of training or coaching in recreational activities relating to arts, culture or sports;

ME-9: Provided to an educational institution in respect of education exempted by way of

• Auxiliary educational services; or• Renting of immovable property

ME-9A : Any service provided by-(i) the National Skill Development Corporation set

up by the GOI;(ii) a sector Skill Council approved by the Sector Skill

Corporation or National Skill Corporation;(iii) an assessment agency approved by the Sector

Skill Council or the National Skill Development Corporation;

EDUCATION SERVICES

(iv) a training partner approved by the National Skill Development Corporation or the

Sector Skill Council

In relation to-(a) the National Skill Development Programme

implemented by the National Skill Development Corporation; or

(b) a vocational skill development course under the National Skill Certificate and Monetary Reward Scheme; or

(c) Any other scheme implemented by the National Skill Development Corporation.

EDUCATION SERVICES

NL-4: Services by way of- Pre-school education and education up to higher

secondary school or equivalent Education as apart of a curriculum for obtaining a

qualification recognised by law Education as a part of an approved vocational education

course.

Auxiliary Education Services means – in connection with service provided by educational

institution

Imparting any skill, knowledge, education; or

Development of course content; or

Enhancement activity for students or faculty

In connection with service provided to

educational institution

Services relating to admission to such institution;

Conduct of examination;

Catering for the students under any mid-day meals scheme;

Transportation of students, faculty or staff

EDUCATION SERVICES

ME-2: Health care services by a clinical establishment, an authorized medical practitioner or Para-medics;

Health care services is defined and it means services by way of - diagnosis; or treatment; or care for illness, injury, deformity, abnormality or pregnancy; service to be provided in any recognized system of medicine; includes ambulance services.

ME-3: Services by a veterinary clinic in relation to health care of animals or birds;

ME-7: Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India;

Health care services does not include hair transplant or cosmetic or plastic surgery.

HEALTH CARE

CONSTRUCTION, REAL ESTATES & WORKS CONTRACT SERVICES

ME-12: Services provided to the government or local authority or a government authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-

A civil structure or any other original works meant predominantly for other than commerce, industry, or any other business or profession;

A historical monument, archeological site or remains of national importance, archeological excavation, or antiquity specified under ancient monuments and Archaeological Sites and Remains Act 1958;

A structure meant predominantly for use as an educational, a clinical, an art or culture establishment;

Canal, dam or other irrigation works; Pipeline, conduit or plant for drinking water supply, water treatment,

sewerage treatment or disposal; or A residential complex predominantly meant for self use or the use of

their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the Finance Act;

ME-13: Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of-(a) a road, bridge, tunnel, or terminal for road transportation for use by general public; (b) a civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana;(c) a building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public;(d) a pollution control or effluent treatment plant, except located as a part of a factory; or(e) a structure meant for funeral, burial or cremation of deceased;


ME-14: Services by way of construction, erection, commissioning, or installation of original works pertaining to;

Airport or railways, including mono rail or metro;

Single residential unit otherwise than as a part of a residential complex;

Low cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the `Scheme of Affordable housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation Government of India;

Post harvest storage infrastructure for agricultural produce including cold storages for such purposes or

Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;


SPORTS & GAMES

ME-10: Services provided to a recognised sports body by-

An individual as a player, referee, umpire, coach or team manager for participation in a sporting event organised by a recognised sport body;

another recognised sports body;

ME-11: Services by way of sponsorship of tournaments or championship organised-

By a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone;

By Association of Indian Universities, Inter-university sports board, School games federation of India, All India Sports council for the Deaf, Paralympic committee of India, Special Olympics Bharat;

By Central Civil Services cultural and Sports Board;

As part of national games by Indian Olympic Association or

Under Panchayat Yuva Kreeda Aur Khel Abhiyan (PYKKA) Scheme.

ENTERTAINMENT & MEDIA

ME-15: Temporary transfer or permitting the use or enjoyment of a copyright-

a) covered under clause (a) or (b) of sub section (1) of section 13 of the

Indian Copyright act, 1957 relating to original literary, dramatic

musical, artistic works or

b) cinematograph films for exhibition in a cinema hall or cinema theatre;

ME-16: Services by a performing artist in folk or classical art forms of music,

dance, theatre, excluding services provided by such artist as a brand

ambassador;

ME-17: Services by way of collecting or providing news by an independent

journalist, press Trust of India or united News of India;

.

TRAVELLING AND TOURISM

ME-22: Services by way of giving on hire-

(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

(b) to a goods transport agency, a means of transportation of goods;

ME-23: Transport of passengers, with or without accompanied belongings by-

Air embarking or terminating in an airport located in the state of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, or at Baghdogra located in West Bengal; or

A contract carriage for the transportation of passengers,

excluding tourism, conducted tour, charter or hire;

Ropeway, cable car or aerial tramway;

HOTEL RESTURANT AND FOOD SERVICES

ME-18: Services by way of renting of a hotel, inn,guest house, club, campsite or othercommercial places meant for residentialor lodging purposes, having declared tariffof a unit of accommodation below Rs 1000 per day or equivalent;

declared tariff” includes charges for all amenities provided in the unit of accommodation (given on rent for stay) like furniture, air-conditioner, refrigerators or any other amenities, but without excluding any discount offered on the published charges for such unit.

Tax will be liable to be paid on the amount actually charged i.e. declared tariff minus any discount offered. [Circular No. 139/8/11 dated 10-05-2011]

HOTEL RESTURANT AND FOOD SERVICES

• ME-19: Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year.

• ME-19A : 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 in any part of the establishment, at any time during the year.

TRANSPORT AND LOGISTICS

ME-20:Services by way of transportation by rail or a vessel from one port in India to another of the following goods-

Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishaps

Defense or military equipments; Newspaper or magazines registered with registrar of

Newspapers; Railway Equipments or materials; Agricultural produce; Foodstuffs including flours, tea, coffee, jaggery, sugar, milk

products, salt & edible oil, excluding alcoholics beverages; or Chemical fertilizers & oilcakes

ME-21: Services provided by a goods transport agency by way of transportation in a goods carriage of-

agricultural produce; Goods where gross amount charged for the transportation of

goods on a consignment transported in a single goods carriage does not exceed Rs1500 or

Goods where gross amount charged for transportation of all such goods for a single consignee in the goods carriage doesn’t exceed Rs 750;

foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

chemical fertilizer and oilcakes; newspaper or magazines registered with the Registrar of

Newspapers; relief materials meant for victims of natural or man-made

disasters, calamities, accidents or mishap; or defence or military equipments;”

TRANSPORT AND LOGISTICS

BUSINESS & MARKETING:

ME-6: Services Provided by-

An arbitral tribunal to-(a) Any person other than a business entity; or(b) A business entity with a turnover up to Rs 10 lacs in the

preceding financial year;

An individual as an advocate or a partnership firm of advocates by way of legal services to-

(a) An advocate or partnership firm of advocates providing legal services any person other than a business entity; or

(b) A business entity with a turnover up to Rs10 lacs in the preceding financial year; or

(c) A person represented on an arbitral tribunal to an arbitral tribunal;1

ME 29: Services by the following persons in respective capacities- A sub broker or an authorised person to a stock broker An authorised person to a member of a commodity exchange A mutual fund agent to a mutual fund or asset management company; Distributor to a mutual fund or asset management Company; A selling or marketing agent of lottery tickets to a distribution or a

selling agent; A selling agent or a distributor of SIM cards or recharge coupon

vouchers; or Business facilitator or a business correspondent to a banking

company or an insurance company in a rural area; Sub contractor providing services by way of works contract to

another contractor providing works contract services which are exempt;

ME-31: Services by an organiser to any person in respect of a business exhibition held outside India;

ME-37: Services by way of transfer of a going concern, as a whole or an independent art thereof;

BUSINESS & MARKETING:

JOB WORKNL-15: Any process amounting to manufacture or production of goods.

ME-30: Carrying out an intermediate production process as job work in relation to-

Agriculture, printing or textile processing;

Cut & polished diamonds & gemstones; or plain & studded jewellery of gold & other precious metals, falling under chapter 71 of Central Excise Tariff Act 1985

Any goods on which appropriate duty is payable by the principal manufacturer; or

Process of electroplating, Zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines up to an aggregate value of taxable service of the specified processes of Rs.1,50,00,000 in a financial year subject to the condition that such aggregate value had not exceeded Rs.1,50,00,000 during the preceding financial year;

BANKING, FINANCIAL & INSURANCE

ME-26: Services of general insurance business provided under Specified Schemes.

ME- 26A :Services of Life Insurance business provided under following schemes:

(a) Janashree Bima Yojana (JBY); or(b) Aam Aadmi Bima Yojana (AABY)

This exemption has been inserted vide N. No. 49/2012 – dated 24-12-2012 w.e.f. 24-12-2012

MISCELLANEOUS

ME-27: Services provided by an incubatee up to a total business turnover of Rs 50,00,000 in a financial year subject to the following conditions, namely

The total business turnover had not exceeded Rs 50,00,000 rupees during the preceding financial year; and

A period of 3 years has not lapsed from the date of entering into an agreement as an incubatee;

ME-32: Service by way of making telephone calls from- Department run public telephones Guaranteed public telephones operating only for local calls; or Free telephones at airport and hospitals where no bills are being

issued;

ME-33: Services by way of slaughtering of animals;

ME-35: Services of public libraries by way of books, publicationsor any other knowledge-enhancing content or material;

ME-38: Services of way of public conveniences such as provision of facilities of bathroom, washrooms, lavatories, urinal or toilets;

LIST OF GENERAL EXEMPTIONS

OFFICIAL USE OF FOREIGN DIPLOMATIC MISSION Taxable services provided for the official use of a foreign diplomatic

mission or consular post in India, or for personal use or for the use of the family members of diplomatic agents or career consular officers therein

PROPERTY PAID ON IMMOVABLE PROPERTY Taxable service of renting of an immovable property, from so much of

the service tax leviable thereon under section 66B of the said Finance act , as is in excess of the service tax calculated on a value which is equivalent to the gross amount charged for renting of such immovable property less taxes on such property, namely property tax levied & collected by local bodies.

IMPORT OF TECHNOLOGY Service involving import of technology, from so much of service tax

leviable as is equivalent to the amount of cess payable on the said import of technology under the provisions of section 3 of the Research & development Cess Act 1986, subject to certain conditions.

10th December, 2013

SEMINAR ON SEMINAR ON “ENABLING SERVICE “ENABLING SERVICE

TAX PRACTICE”TAX PRACTICE”

ORGANISED BY-ORGANISED BY-

BARODA BRANCH OF BARODA BRANCH OF WIRC OF ICAIWIRC OF ICAI

CONTENTS

INTRODUCTION

REVERSE CHARGE MECHANISM

LEGAL BACKGROUND

SERVICES COVERED UNDER REVERSE CHARGE

(NOT. 30/2012 – ST)

PROPORTIONS OF SERVICE TAX PAYABLE BY SERVICE

PROVIDER & SERVICE RECIPIENT

CERTAIN ISSUES IN RELATION TO REVERSE CHARGE

MECHANISM

CONCLUSION

Change from Positive to Negative!!

Hitherto, India was following “selective approach” (positive list) for levy of service tax thereby only selected services were made liable to Service Tax.

W.e.f. 1st July, 2012, Comprehensive approach of levy of service tax is introduced, whereby all services are made taxable except those mentioned in the negative list and specifically exempted (negative list approach).

Before the introduction of comprehensive approach of taxation w.e.f 1st July,2012,service tax was payable by the recipient of service only in respect of certain notified services which were specified by the Central Government in Rule 2(1)(d) of the Service Tax Rules, 1994 , in view of powers given u/s 68(2) of the Finance Act,1994.

Forward to Reverse Charge Mechanism!!

• General Principle – Service Provider to collect from Service Recipient

and pay tax to the Government– Service Recipient is not accountable to the

Government directly

• Reverse Charge Mechanism– Service Recipient called upon to directly pay tax to

the Government (either on part of value of service or full value of service)

ONUS TO DISCHARGE

Prima facie, liability to discharge is that of the service provider

In specified cases, the liability to discharge

service is tax is vested with the recipient of

services

Division of the responsibility between the provider and recipient of services

In terms of section 68(1) of the Act, liability to pay service tax falls on

the service provider.

Overriding the aforesaid position, section 68(2) of the Act empowers

the Central Government to notify such services on which such person,

as may be prescribed, shall be liable to pay service tax .

By virtue of this section, a person other than the service provider can

be made liable to pay service tax and he shall be deemed as if he is the

person liable for paying the service tax on such service and all other

provisions of this Act shall apply accordingly.

Finance Act, 2012 inserts a proviso to section 68(2) of the Act, wherein

it is provided that the service provider and the service receiver can

jointly be made liable to pay service tax on the same transaction.

Legal Background

Reverse Charge : Under the new “Negative List” w.e.f.1st

July, 2012 Reverse charge as it existed under the erstwhile selective

levy of services till 30.06.2012 continues under the new system of taxation also both in case of specified services provided in India and in case of services provided from outside India.

Section 68(2) of the Act is the applicable provision whereby reverse charge i.e. liability to pay full service tax[Full Reverse Charge] is fastened on the recipient of a service in certain situations and service provider is not liable to pay service tax .

Moreover, Concept of Partial Reverse Charge is introduced wherein liability to pay service tax is divided between Service Provider and Service Recipient instead of casting liability on one of them.


For the period post 1st July, 2012; Central Government vide notification No 30/2012-ST dated 20th June, 2012 as amended by Notification No 45/2012- ST dated 7th August, 2012 has prescribed following services under Section 68 (2) for the purposes of reverse charge mechanism:

provided or agreed to be provided by an insurance agent to any person carrying on the insurance business;

•provided or agreed to be provided by way of sponsorship, to any body corporate or partnership firm located in the taxable territory


provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is

a)any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

b)any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

c)any co-operative society established by or under any law; d)any dealer of excisable goods, who is registered under the

Central Excise Act, 1944 (1 of 1944) or the rules made there under;

e)any body corporate established, by or under any law; or f) any partnership firm whether registered or not under any law

including association of persons;


Services provided or agreed to be provided by-A) An arbitral tribunal; orB) An individual advocate or firm of advocates by way of legal services,

to any Business Entity located in The Taxable Territory

Services provided by an arbitral tribunal, an individual advocate or firm of advocates by way of legal services

To any person other than a Business Entity or A Business Entity with a Turnover Upto Rs.10 Lacs in the

preceding Financial Year is exempt vide Entry No 6 of the Exemption Notification No 25/2012-St

dated 20th June, 2012

Business entity is interpreted in Section 65B (17) to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business or

profession

Government or local authority by way of support services excluding,-i. Renting of immovable property, andii. Speed post, transport services and services in relation to aircraft or

vessel in certain cases

to any Business Entity located in The Taxable Territory

• “support service” means infrastructural, operational, administrative, logistic, marketing or any other support of any kind, comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing & analysis.


Business entity is interpreted in Section 65B (17) to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business or

profession

Services covered under reverse charge (Not. 30/2012

– ST)• 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, • Security Services (inserted w.e.f. 07.08.2012)

• 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

Provided or agreed to be provided by a director of a company

to the company (inserted w.e.f. 7th August, 2012)Provided or agreed to be provided by any person which is

located in a non-taxable territory and received by any person located in the taxable territory (Import of Services).

Proportions of service tax Attributable to SP & SR

Extent of service tax payable by Service Provider and Service Receiver

SR. No

Services Provided By Description of Service

Service Provided To

Liability on Service

Provider (%)


Receiver (%)

1 Insurance Agent Insurance Auxiliary ServicePerson carrying

Insurance Business Nil 100%

2Any person Sponsorship Service

Body Corporate or Partnership Firm Nil 100%

3 Any person Any Taxable Service Any person Nil 100%

4 Goods Transport Agency

Transport of Goods by Road Service

Consignor or Consignee Nil 100%

5 Arbitral Tribunal Legal Consultancy Service

Business Entity

Nil 100%

6 Individual Advocate Legal Consultancy Service Nil 100%

7Government or Local Authority

Support service by Government or local authority Nil 100%

Proportions of service tax Attributable to SP & SR

Extent of service tax payable by Service Provider and Service Receiver

S. No

Services Provided By Description of Service

Service Provided To


Provider (%)


Receiver (%)

8

Individual, HUF, Firm, AOP

Renting or hiring of motor vehicle to carry passenger on

abated value i.e. 40%

Body Corporate or Company

Nil 100%

9Renting or hiring of motor vehicle to carry passenger

on non abated value 60% 40%

10

Supply of Manpower Service 25% 75%

11

Works Contract Service 50% 50%

12

Security services 25% 75%

POINTS TO PONDER

Issues –Invoice

• Is Service Provider required to state Service Tax

payable by Service recipient under RCM in his

Invoice ?

Quantum of service tax to be exhibited in the relevant

Invoice/Bill/Challan Service provider is required to comply with Rule 4A of Service Tax

Rules, 1994.

According to Rule 4A(1) (iv) of Service Tax Rules, 1994 Service tax payable on the Description and value of Taxable Service provided or agreed to be provided is required to be exhibited in the invoice/bill/challan.

In the present context, Service tax payable means Service tax payable by the service provider.

• In fact, at Para 10.1.2 in the Guidance Note. It has been clarified that:

“The service provider shall issue an invoice complying with Rule 4A of the ST rules. ……………….The ST payable would include service tax payable by the service provider”.

However, as a precautionary measure, the relevant Service provider [either at the request of service recipient or at his own discretion] may specify in invoice that service recipient is also under statutory obligation to deposit applicable percentage of Service tax payable by him directly to the credit of Central Government.

Proforma of Service Tax Invoice/Bill/Challan in case of works contract services

M/s. ABC (Name, address & registration no. of Service Provider)

Serial No………

Date : __/___/___

To XYZ Ltd(name & address of service Receiver)

Sr. No.

Description of Taxable Services Value of Taxable Services

Total Amount

Construction of new Residential Complex Service

Rs. 10,00,000 Rs. 10,00,000

(I) Service Tax @12% on 40% of value of Taxable service Rs. 48,000[service Tax

payable by service Provider @50% of Rs. 48000]

Rs. 24,000

(II) Primary education Cess @2% on Rs. 24000 Rs. 480

(III) Secondary & Higher Education Cess @ 1% on Rs. 24000

Rs. 240

TOTAL Rs. 10,24,720

Please Note that Service Recipient is statutory required to deposit 50% of service tax accordance with provisions of Section 68(2) of Finance Act, 1994 read with Rule 2(1)(d) of service Tax Rules, 1994 i.e. Partial Reverse Charge Mechanism.

Signature of Service Provider/ Authorized Signatory

Issue –Impact of threshold exemption

• XYZ Ltd has received a Bill in respect of works contract for

Construction of Factory shed carried out by Mr. A for

Rs.5,00,000 on 5th August,2012.

• In said Bill service tax was not charged by Mr. A as he was

claiming basic exemption limit under Notification 33/2012 –

dated 20.06.2012

• Bill was paid by XYZ Ltd on 15th October,2012

• XYZ Ltd claimed that there is no service tax liability as Mr.A

was claiming basic exemption limit

• Whether XYZ Ltd is required to pay Service Tax under RCM ?

Impact of threshold exemption availed by the

service provider• A particular service provider may avail the benefit of threshold [small

service provider] exemption limit of Rs. 10 Lakhs by virtue of Notification No. 33/2012-S.T., dated 20-6-2012 with effect from 1-7-2012.

• Question is whether same will absolve recipient also from its liability under Reverse Charge.

• Threshold exemption limit of Rs.10 lakhs is available under Notification No. 33/2012-ST. It contains a non-obstante clause which reads as:

“Nothing contained in this Notification shall apply to:

(i) ……………….

(ii) Such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with the service tax Rules, 1994.”

Impact of threshold exemption availed by the service

provider• Section 68(2) referred to in the above clause including

makes service recipient liable to pay the tax in certain situations.

• Thus, the clarification answers that in both the situations, whether having full or partial liability, service tax is payable by the recipient irrespective of the threshold exemption availment by the provider. To say it differently, service recipient has to discharge its Service tax liability irrespective of the value of services as there is no monetary limit of exemption when Service tax liability is discharged under reverse charge mechanism.

IllustrationService Tax payable by service Provider

(Mr.A)

Service tax payable by service recipient(XYZ Ltd)

Contract Value 5,00,000

Value of Sharing of Taxable Service

2,50,000 2,50,000

Taxable value

The liability of the service provider is

below the basic exemption limit of Rs.

10lakhs.

40%

Service Tax Rate 12.36%

Respective Service Tax Payable

12,360

Point of Taxation for the Service Provider and Service

recipientTiming aspect for the payment of Service Tax will have to be examined in both

the cases from different perspective as per Point of Taxation Rules, 2011a) Payment of Tax by Service Provider:

CASES POINT OF TAXATION

Invoice is issued within 30 days from date

of completion of service

-Date of Invoice

- Date of Receipt of payment

Whichever is earlier

Invoice is not issued within stipulated 30

days from the date of Receipt of Payment

or Date of Completion of Service

Date of completion of service

Point of Taxation for the Service Provider and Service

recipient

CASES POINT OF TAXATION

Payment of invoice is made by the service recipient within six months of the date of invoice.

Date of payment to Service provider

Payment is not paid within 6 months of date of invoice and date of invoice is issued within time limit

Date of Invoice of Service provider

Payment is not paid within 6 months of date of invoice and date of invoice is not issued within time limit

Date of Completion of service

b) Payment of Tax by Service Recipient:

Point of Taxation for the Service recipient

DATE OF INVOICE

DATE OF PAYMENT

POINT OF TAXATION (POT)

REASON

12/3/2012 14/04/2012 14/04/2012 Payment by Service Recipient is done within 6months and so POT is the date of payment

12/12/2012 15/06/2013 12/12/2012 Payment is not made within 6months hence Date of Invoice is the POT.

Also interest will be charged on the bill amount at the rate specified u/s 75 from POT to the date of payment i.e. from 05th/6th January,2013 to 15th June,2013

Issues- Liability of SP & SR

• Service Provide has not availed exemption or abatement which is

legally available and prepared the invoice without considering

exemption or abatement. Can service recipient claim such

exemption or abatement for payment of service tax under RCM?

• Proprietor ‘A’ is engaged in providing security service to M/s Z

Ltd. A has charged service tax on entire amount of consideration

charged for such service to Z Ltd. M/s Z Ltd. has paid the entire

payment including service tax to A. The entire amount of service

tax collected by A is deposited with Government. The

department alleges that M/s Z Ltd. is liable to deposit service tax

under reverse charge and accordingly issues a show cause

notice to M/s Z Ltd. who has approached you for advice.

Liability of service provider and service recipient is independent of

each other• Service tax liability of service provider and service recipient is for

respective specified amounts and is independent of each other.

• Accordingly, both are free to choose their own method for

discharging their own specified share of service tax liability.

• Say, in case of Works Contract Services, in accordance with rule

2A (i) [i.e. Gross Amount Charged for the works contract less the

value of property in goods transferred in the execution of the said

works contract] of service tax (Determination of Value) Rules,

2006 and accordingly discharge his service Tax liability .

• On the other hand, the service Recipient may determine value of

Works Contract Services in accordance with Rule 2A (ii) [ as per

Standard deduction method] of Service Tax (Determination of

Value) Rules, 2006.

Issues –CENVAT Credit

• Safe Ltd has recruited a Security Agency for security of its

office premises and factories .It has received a Bill of

Rs.1,00,000 /- from Security agency for services provided for

the Month of June ,2013.

• Safe Ltd has also availed services on which they have claimed

CENVAT Credit and balance in CENVAT Credit as on

30.06.2013 is Rs.50000/-

• Can Safe Ltd. use CENVAT Credit balance of Rs.50000/- to

pay service tax (Rs.9270/-) on security services ?

Mode of discharging liability by service recipient

(Whether SR can pay from CENVAT Credit?)

• It may so happen that SR may be having unutilized CENVAT Credit. Whether the balance lying therein can be utilized for the payment to be made under Reverse Charge ?

• CENVAT Credit can be taken by provider of output service

• As per Explanation to Rule 3(4) of CCR provides that “CENVAT Credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.”

• Therefore, Service Recipient has no option but to make payment of ST in cash in GAR-7 Challan and claim the same as CENVAT Credit thereafter (If otherwise eligible).

Issues –Transitionary Provisions

• Manpower supply service by an individual to a business entity

registered as a body corporate is provided in the month of

June, 2012

• Bill dated 30-06-2012 was raised by service provider.

• The service receiver makes payment for the service on 15-07-

2012 for this bill.

• Is the reverse charge mechanism applicable?

Applicability of partial reverse charge for services provided

before 1-7-2012• Provisions of partial reverse charge have come into effect in

respect of specified services with effect from 1-7-2012 by virtue of Notification No. 30/2012-S.T., dated 20-6-2012.

• However ,for specified services if Point of Taxation is before 1-7-2012, then provisions of reverse charge will not apply.

• Circular No. 162/12/2012-S.T., dated 6-7-2012 also clarified that the provisions of partial reverse charge would be applicable in respect of such services where point of taxation is on or after 1-7-2012 under applicable rules in respect of the service provider.

• In short, for any service, where point of taxation is determined and liability is fastened prior to 01/07/2012 in terms of Point of Taxation Rules, 2011 , the new provisions of reverse charge do not apply.

Transition…..Date of

Completion of Service

Date of Raising of

Invoice

Date of Payment

Point of Taxation

(POT)

Reason

Prior to 30th June,2012



Date of Invoice/ Payment

Reverse charge would not apply to the receiver for POT prior 30th June, 2012

Date of Completion of Service

Date of Raising of Invoice

Date of Payment

Point of Taxation (POT)

Reason


On or after 01st July,2012(within 30 days)

On or after 01st July,2012

Date of Invoice/ Payment

Reverse charge would apply to the receiver as POT is date of Invoice, which is on or after 01.07.2012

Availability of CENVAT credit for the service recipient

• Service Recipient can avail Cenvat credit ,subject to

satisfaction of relevant condition of CENVAT Credit Rules,

2004 as regards to Input Service under Partial Reverse

Charge .

• CENVAT Credit can be availed for service tax charged by

service provider in his Invoice (on Service provider`s share of

taxable value) and also Service tax paid by him under reverse

charge (on his share of taxable value).However point of

eligibility of CENVAT is different.

Availability of CENVAT credit for the service

recipientIn respect of Service Tax Charged by service provider(SP) in Invoice :•Credit of service tax paid to the service provider would be available on the basis of the invoice .

• However, subject to the condition that, SP makes payment of the value of input service and the service tax thereon within 3 months from date of invoice.

•In case, SP fails to pay service recipient within three months from date of invoice,

- Pay/reverse equal to the CENVAT credit availed on such input service on the basis of Invoice

- Reavail CENVAT credit whenever subsequently payment is made of value of input service and the service tax

In respect of Service Tax paid by service recipient (SR) by

Challan:

•The credit of service tax paid by SR under reverse charge would be available on the basis of tax payment GAR- 7 challan [ Rule 9(1)(e) of Cenvat Credit Rules, 2004] and

•after payment is made of the value of input service and the service tax.

Case Study :

• TMS Ltd. received a total Invoice of Rs. 26,23,600 from Mr.

A on 10th August,2012 in respect of Works Contract for

Construction of Factory Shed.

• In the said bill, Rs. 25,00,000 was charged for services

provided and Rs. 1,23,600 was charged as Service Tax by the

contractor.

• The bill was paid on 15th October,2012 by TMS Ltd.

• As an advisor to TMS Ltd ,you are required to

advice TMS Ltd about its service tax liability,

if any.

Service Tax payable by service Provider

Service tax payable by service recipient

Contract Value 25,00,000

Value of Sharing of Taxable Service

12,50,000 12,50,000

Taxable value 40% 40%

Service Tax Rate 12.36% 12.36%

Respective Service Tax Payable

61,800 61,800

Date of completion of service 15th July,2012

Date of Invoice of Mr.A 10th August,2012

Date of Payment to Mr.A 15th October,2012

Respective Service Tax to be paid on

5th September,2012 5th November,2012

CENVAT Credit to be taken by TMS Ltd (if otherwise eligible)

For Rs.61,800/- Charged by Mr.A to be taken in the month of

August,2012 on the basis of Invoice

For Rs.61,800/- paid by TMS Ltd under reverse charge would be

availed in the month of November,2012 on challan

Issues –Refund of CENVAT

• Pure Ltd is Trading concern ,dealing in Chemicals an d

Solvents .

• It has been receiving services such Security Service , Works

Contract Service etc for the purpose of its business

operations.

• Due to partial reverse charge, it has paid service tax as

service receiver on such services and since CENVAT cannot

be utilised ,it wants to claim refund of CENVAT Credit .

• Whether refund can be claimed by Pure Limited ?

Refund of CENVAT credit to service provider providing

services• According to Rule 5B of cenvat credit Rules, 2004. If a provider of

service providing services notified under section 68(2) is unable to utilizes the Cenvat credit availed on inputs and input services for payment of Services tax on such output services, he shall be allowed refund of such unutilized Cenvat credit subject to procedure, safeguards, conditions and limitations as may be specified.

• It is important that only that service provider is entitled to get refund of cenvat credit under above mentioned Rule 5B who is discharging service tax liability under Partial Reverse charge.

• Hence service provider who is discharging its Service Tax liability under Reverse charge cannot get refund to CENVAT credit under Rule 5B because statutory definition of term “output service” under Rule 2(p) of CENVAT Credit Rules, 2004 specifically excludes a service where the whole of service tax is liable to be paid by the recipient of service. Resultantly, his services cannot qualify as “output service” and he is debarred from taking the refund of CENVAT credit.

Refund of CENVAT credit to service provider providing

services

• Rule 5B of CCR indicates that the refund would be available to

service providers of services notified in section notified in

section 68(2) and not to recipient liable under reverse

charge.

• Hence ,say the recipient corporate body of, say, works

contracts services and manpower supply services is engaged

in pure “trading activity” which is not liable for service tax,

such trader cannot claim refund.

All birds find shelter during a rain. But Eagle avoids rain by flying above the Clouds.Problems are common, but Attitude makes the difference..!!

SEMINAR ON “ENABLING SERVICE TAX PRACTICE” ORGANISED BY- BARODA BRANCH OF WIRC OF ICAI.

Documents

Transcript of SEMINAR ON “ENABLING SERVICE TAX PRACTICE” ORGANISED BY- BARODA BRANCH OF WIRC OF ICAI.