1. CHANGE IN SERVICE TAX RATE
The Service Tax rate is being increased from 12% plus Education Cesses to 14%. The ‘Education Cess’ and ‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax. The new Service Tax rate shall come into effect from a date to be notified by the Central Government after the enactment of the Finance Bill, 2015.
2. SWACHH BHARAT CESS
An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives. This Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.
3. BROADNING OF TAX BASE
(A) Review of the Negative List
I) Amusement Activities - Service Tax to be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places. Negative list entry relating to amusement facility has been omitted.
II) Entertainment Events - Service Tax to be levied on service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions, if the amount charged is more than ` 500 for right to admission to such an event.
However, the existing exemption to service by way of admission to entertainment events, namely, “exhibition of cinematographic film, circus, recognized sporting events, dance, theatrical performances including drama and ballets, by way of the Negative List entry shall be continued, irrespective of the amount charged for such service, through the route of exemption. For this purpose a new entry is being inserted in Notification No. 25/2012-ST, dated 20.6.2012.
III) Manufacturing or Job work of potable liquor - The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods is amended to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration. Consequently, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration.
IV) Services provided by Government or Local Authority - Presently, services provided by the Government or a local authority, excluding certain services specified under clause (a) of section 66D, are in the Negative List. Service tax applies on the “support service” provided by the Government or local authority to a business entity. An enabling provision is being made, by amending [section 66D (a)(iv)], to exclude all services provided by the Government or local authority to a business entity from the Negative List. Consequently, the definition of “support service” [section 65B(49)] is being omitted.
Now, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any other entry in the Negative List, shall be liable to Service Tax .
B. Review of general exemptions extended under Notification No. 25/2012-ST, dated 20.6.2012
I. Services of Construction, erection and commissioning - Exemption presently available on specified services of construction, erection, commissioning, etc. provided to the Government, a local authority or a governmental authority ( vide S. No. 12 of the said notification ) shall be limited only to,-
(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;
(b) canal, dam or other irrigation work; and
(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.
Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn.
II. Construction of Airport or Port - Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn. The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.
III. Services provided by Artist - Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.
IV. Transportation of Food - Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue.
V. Exemptions are being withdrawn on the following services:
(a) services provided by a mutual fund agent to a mutual fund or assets management company,
(b) distributor to a mutual fund or AMC,
(c) selling or marketing agent of lottery ticket to a distributor.
Service tax on these services shall be levied on reverse charge basis.
VI. Exemption is being withdrawn on the following service -
(a) Departmentally run public telephone;
(b) Guaranteed public telephone operating only local calls; and
(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.
All the above changes in notification No. 25/12-ST, dated 20.6.2012 shall come into effect from the 1st day of April, 2015.
Following Exemptions shall come into effect from the 1st day of April, 2015:
i) Fruits & vegetables – Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.
ii) CETP Operator – Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.
iii) Varishtha Pension Bima Yojna – Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.
iv) Exhibition of Movie – Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or association of persons consisting of such exhibitor as one of it’s members is being exempted.
v. Transportation of patient – Any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from service tax. The scope of this exemption is being widened to include all ambulance services.
vi. ZOO, Museum, national Park – Service provided by way of admission to a museum, zoo, national park, wild life sanctuary,and a tiger reserve is being exempted.
vii. Transport of export goods – Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax vide notification No. 31/12-ST dated 20.6.2012.
Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).
5. NEW ENTRIES IN NOTIFICATION NO. 25/2012 – ST
Following new entries being incorporated in notification No. 25/12-ST, to continue exemption to some of the services that are presently covered by the Negative List entries which are being omitted :
Service by way of right to admission to,-
(i) exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet.
(ii) recognized sporting events.
(iii) concerts, pageants, award functions, musical or sporting event not covered by the above exemption, where the consideration for such admission is upto ` 500 per person.
These changes shall be brought into effect from the date the amendments being made in the Negative List, concerning the service by way of admission to entertainment events, come into effect.
6. CHANGES IN FINANCE ACT, 1994
i) A definition of the term “government” is being incorporated in the Act.
ii) Chit Fund – The intention in law has been to levy Service Tax on the services provided by:
(a) chit fund foremen by way of conducting a chit.
(b) distributors or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.
However, Courts have taken a contrary view in some cases, while in some cases the levy has been upheld.
An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and distributors or selling agents of lottery in relation to lotteries.
iii). Section 67 – Valuation of Taxable Services
It is being prescribed specifically in this section that consideration for service shall include:
(a) all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically by this provision.
(b) amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets;
iv) Section 73, 76 , 78 and 78B relating to penalties have been amended. Section 80 providing for waiver of penalty in specified situations is omitted.
7. RATIONALISATION OF ABATEMENTS
i) A uniform abatement is being prescribed for transport by rail, road and vessel to bring parity in these sectors. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on inputs, capital goods and input services. Presently, tax is payable on 30% of the value in case of rail transport, 25% in case of road transport and 40% in case of transport by vessels.
ii) The abatement for executive (business/ first class) air travel, wherein the service element is higher, is being reduced from 60% to 40%. Consequently, Service tax would be payable on 60% of the value of fare for business class;
iii) Abatement is being withdrawn on chit fund service.
The proposed rationalization in abatements shall come into effect from the 1st day of April, 2015
8. AMENDMENT IN SERVICE TAX RULES
i) In respect of any service provided under aggregator model, the aggregator is being made liable to pay Service tax if the service is provided using the brand name of aggregator in any manner
ii) Consequent to the upward revision in Service tax rate, the composition rate on specified services, namely, life insurance service, services of air travel agent, money changing service provided by banks or authorized dealers, and service provided by lottery distributor and selling agent, is proposed to be revised proportionately.
iii) Provision for issuing digitally signed invoices are being added along with the option of presentation of records in electronic form. The conditions and procedure in this regard shall be specified by the CBEC.
iv) Rule 4 is being amended to provide that the CBEC, by way of an order, specify the conditions, safeguards and procedure for registration in service tax.
9. REVERSE CHARGE MECHANISM
(i) Manpower supply and security services when provided by individual, HUF, partnership firm to a body corporate are being brought to full reverse charge as a simplification measure. Presently, these are taxed under partial reverse charge mechanism;
(ii) Services provided by mutual fund agents, mutual fund distributors and lottery agents are being brought under reverse charge consequent to withdrawal of exemption on such services.
These changes will come into effect from 1.4.2015.
10. CENVAT CREDIT RULES, 2004
Rule 4(7) is being amended to allow credit of service tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider.
Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.