INTRODUCTION
It’s a world where every moment
denotes change, every minute brings up new necessities and every hour demands
new services. With increasing pace of life, personal independence has brought
upon mutual dependence. This has led to increasing dependence upon services of
others. Self done jobs are increasingly outsourced and are shaping as services.
Varieties of services are increasing everyday and now becoming unimaginable. In
this epitome of life it’s practically impossible to draw the degree of
importance of any service. While the service sector is soaring high up in terms
of contribution to GDP, revenue, taxes etc, it’s impossible to judge the fate
of any service regarding its position in the tax gambit.
Need for the new system
There have been disputes about
taxability of services and there classifications. Provisions of Chapter V of
Finance Act, for levying service tax on various activities had been challenged
before the Courts. Major grounds upon which the validity had been challenged include
violation of Article 14 of the Constitution, non competency of Parliament to
levy tax on the activity within domain of State power, discriminatory nature of
provisions etc. Also, definitions of each service as provided under Chapter V
were often vague and broad.
To mitigate administrative difficulties in defining a
service and administering service tax, concept of negative list of service was
first floated last year, with the final set of notifications on 20th June,
2012.
The move
Completing a journey of 19 years,
increasing the number of taxable services from 3 to 119 the Finance Minister
proposed massive changes in service tax law in Union Budget, 2012. From selective approach of levy of service tax on services
specified u/s 65(105) of Finance Act, 1994, we have shifted to the negative
list of services. In the present condition where new types of services are
emerging daily it has become very difficult to say which services will be
taxable. Rather it is easy to say “All
services are taxable barring the selected few”. Now barring 17 categories of services in negative
list, all services are taxable from 1st July 2012.
Services of social and cultural importance and bearing
implications to state list are provided for in negative list or exempt by way
of "Mega Exemption Notification" of CBEC vide Notification No.
25/2012-Service Tax dated 20th June, 2012.
New concepts
With the enforcement of Finance Act
2012, Section 65, the "definitions" of various terms relating to
service tax has been omitted. Two important sections which have been introduced
defining new service tax code are Section 65B, providing for a whole new set of
definitions in context of taxable services under the head
"Interpretations" and Section 66D, stating "Negative list of
services".
For the purpose of payment of service tax under the new
approach, a new Minor Head- "All taxable Services" has been allotted
under the Major Head "0044-Service Tax".
In New Service Tax
Regime, emphasis is laid on:
·
Qualification of service
·
Declared services
·
Negative list of services
·
Service provided or agreed to be provided
in Taxable territory –The whole of India except state of Jammu
and Kashmir.
Meaning of Service
Earlier the word "Service"
was not defined in Chapter V of Finance Act, 1994. To ensure wide coverage of
services under service tax, the term 'Service' has been defined u/s 65B(44) in
Finance Act, 2012, which reads as follows-
"Service" means any
activity carried out by a person for another for consideration, and includes
declared service, but shall not include—
a) Activity which constitutes
merely,––
i) Transfer
of title in goods or immovable property, by sale, gift or in any other manner;
ii) Such transfer, delivery or
supply of goods which is deemed to be sale within clause (29A), article 366 of
Constitution;
iii) Transaction in money or
actionable claim.
b) Provision of service by employee
to employer in course of or in relation to employment;
c) Fees taken in any Court or
tribunal established under any law for time being in force."
Meaning of Declared Services
As per definition of
"Service" as u/s 65B (44), service includes declared services. The
phrase "Declared Service" is also defined u/s 66E as "an
activity carried out by a person for another for consideration". The
'declared services' are:
a) Renting of immovable property
b) Construction of complex, civil
structure or part thereof, including complex or building intended for sale, wholly
or partly, except where entire consideration is received after issuance of
completion-certificate.
c) Temporary transfer or permitting
use or enjoyment of intellectual property right.
d) Development, design, programming,
customisation, up gradation of IT software.
e) Agreeing to the obligation to
refrain from an act, or to tolerate an act or situation.
f) Transfer of goods by hiring,
leasing, licensing or any manner without transfer of right to use such goods.
g) Activities in relation to
delivery of goods on hire purchase or any system of payment by instalments.
h) Service portion in execution of
works contract.
i) Service portion in activity
wherein goods, being food or any other article of human consumption or any
drink is supplied in any manner.
Negative List
Negative list of services means all
services, excluding those specified in negative list will be subject to service
tax. In addition to items included in negative list, there will be exemptions,
abatements and composition schemes as issued by CBEC from time to time.
Mega Exemption Notification issued
by CBEC and issuance of guidance paper on new approach to service tax has
mentioned 38 services under 17 broad heads on which service tax shall be exempted.
SERVICE EXEMPT BY WAY OF NEGATIVE
LIST – SECTION 66 D
1. Services by Government or a local authority.
2. Services by RBI
3. Services by a foreign diplomatic mission
located in India
4. Services relating to agriculture
5. Trading of goods
6. Any process of manufacture or production
7. Selling space or time slots for advertisements
except advertisements broadcast by radio or television;
8. Service of access to road or bridge on
payment of toll charges;
9. Betting, gambling, lottery.
10. Admission to entertainment events, access to
amusement facilities
11. Transmission of electricity by electricity
transmission utility
12. Education services by pre-schools, schools,
colleges
13. Renting residential premises
14. Service of providing loans and inter-bank sale
purchase of foreign exchange
15. Service of transporting passengers by railways
except a/c class, metered taxis, waterways and stage carriage
16. Services of transportation of goods by certain
persons except by GTA and courier agencies.
17. Funeral, burial, crematorium or mortuary services
including transportation of deceased.
OTHER EXEMPTIONS
A. Small scale
exemption
Service providers providing taxable
services below Rs.10,00,000 p.a shall be exempted.
B. Exporters/SEZ
·
Transporting export goods by GTA in
goods carriage received by exporter for transport of goods directly from -
i. any container
freight station or inland container depot to port/airport, from where goods are
exported;
ii. His place of
removal, to inland container depot, container freight station, port/airport.
·
Refund of service tax paid on certain
specified taxable services received by exporter of goods and used for export of
goods.
·
Taxable services, received by unit located
in SEZ or Developer of SEZ for authorised operations.
C. Import of
technology
Taxable service involving import of
technology, exempt upto, as equivalent to amount of cess payable on transfer of
technology under, Research and Development Cess Act, 1986.
D. Services to foreign
diplomatic mission
Taxable services provided for official
use of foreign diplomatic mission or consular post in India, or for personal
use or for use of the family members of diplomatic agents or career consular
officers posted therein.
E. Services by TBI or
STEP
Taxable services provided by Technology
Business Incubator or Science and Technology Entrepreneurship Park recognized
by National Science and Technology Entrepreneurship Development Board of
Department of Science and Technology, Government of India.
F. Renting of an
immovable property
Taxable service of renting of immovable
property, upto, as is excess of service
tax calculated on a value which is equivalent to gross amount charged for
renting of immovable property less property tax levied and collected by local
bodies.
Changes in Service Tax via
notification no. 2/2013
Service
tax changes in Budget 2013 are largely guided by objectives to provide a stable
tax regime and improve voluntary
compliance. The important changes are:
1. Changes
in relation to negative list:
(i) Definition of approved vocational course in
sec. 65B(11) is being proposed to be changed to:
a) Include
courses run by an ITI or industrial training centre affiliated to State Council
for Vocational Training;
b) Delete
clause (iii) regarding courses by an institute affiliated to National Skill
Development Corporation.
(ii) Definition of “process amounting to
manufacture or production” in section 65B(40) is expanded to include processes
under Medicinal and Toilet Preparations (Excise Duties) Act, 1955
(iii)
Negative list entry in sub-clause (i) of clause (d) of section 66D is modified
by deleting the word “seed”. This will allow the benefit to all other testing
regarding “agriculture” or “agricultural produce”.
2. Following changes are made w.e.f April 1, 2013 in
exemption notification number 25/2012-ST dated June 20, 2012:
(i) Exemption by
way of auxiliary educational services and renting of immovable property by (and
not to) specified educational institutes under S. No 9 will not be available;
(ii) Benefit
of exemption under S. No 15 of the notification about copyrights for
cinematograph films will be available only to
films exhibited in cinema hall or theatre. This will allow service providers to
pass input tax credits to taxable end-users;
(iii) Exemption
under S. No 19 will be available only to non a/c restaurants; the dual requirement to have license to serve alcohol is
deleted;
(iv) Exemptions
available to transportation of goods by railway and vessel under S. No
20 and services provided by GTA under S. No.21 are being harmonized. Exemption
to transportation of petroleum and petroleum products, postal mails or mail
bags and household effects by railways and vessels will not be available while
benefit of transportation of agricultural produce, foodstuffs, relief materials
for specified purposes, chemical fertilizers, registered newspapers or
magazines and defense equipments will be available to GTAs;
(v) Exemptions
under S. No 24 for vehicle parking to general public and S. No 25
for repair or maintenance of government
aircrafts are withdrawn;
(vi) Definition of
“charitable activities” is changed by
deleting the portion listed in sub-clause (v) of clause (k). Benefit to
charities providing services for advancement of “any other object of general
public utility” up to Rs 25 Lakh will not be available.
3. Abatement available under S. No 12 of notification
26/2012-ST dated June 20, 2012 for construction of a complex, building, civil
structures etc. is being reduced from the existing 75% to 70% for construction
other than residential properties having a carpet area up to 2000 sq ft or where the amount charged is less than Rs 1
crore w.e.f from March 1, 2013.
Voluntary Compliance Encouragement Scheme, 2013
(VCES)
A new scheme is proposed to be introduced
to encourage voluntary compliance with following main features:
(i) The scheme can be availed of by non-filers or
stop-filers or persons who have not made a truthful declaration in their
return. It will not be applicable to persons against whom any inquiry or
investigation is pending by issue of search warrant or summon or by way of
audit;
(ii) defaulter will be required to make truthful declaration of his
pending tax dues (from October1, 2007 to December 31, 2012) and pay at least
half of that before December 31, 2013; rest to be paid by:
(a) June 30, 2014 without interest;
(b) By December 31, 2014 with interest from July 1,
2014 onwards;
(iii) On compliance with all requirements the person will have immunity
from interest, penalties and other proceedings;
It is clarified that tax-payers
will need to settle their dues for the period after December 31, 2012 under the
present law.
Advance Ruling Authority
Benefit of
Advance Ruling Authority is being extended to resident public limited
companies.
Abatement
Abatement is provided to harmonise with
VAT and avoid double taxation.
Exemptions are provided, upto the
percentage specified, of gross amount charged by service provider. But
subjected to relevant conditions specified by the provisions.
Chargeability under the new approach
Taxability of services is specified
in section 66B of Finance Act which reads as follows:
"There shall be levied a tax at the rate of 12% on
value of all services, other than those services specified in negative list,
provided or agreed to be provided in taxable territory by one person to another
and collected in such manner as may be prescribed."
Conclusion
New
approach to taxation of services will benefit service provider in order to
understand the law and applicability of the tax on services to be provided. The
"negative approach" is a lot simpler as compared to "Selective
approach" system of taxation. Expansion of service tax base by covering
most of the sectors will help in moving towards the adoption of GST Code. In
this way, the new system shows a remarkable shift from the old system.
It has been rightly said:
“If you keep anything static for a
long period, it starts to decay”.
Similarly “any tax law or rules if not updated or modified with changing
scenario it starts to lose its ground of implementation” Therefore, “changes in
tax laws are always welcome in the right perception of growth of economy.
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