|
| Proposed
Changes in Service Tax Issues by Finance Bill 2007: |
| 1.
Service Tax Rate: There is no change in
the service tax rate. |
| 2.
Secondary and Higher Education cess: The Government has
proposed to levy additional cess @ 1% on the service tax payable on
taxable services. The cess shall come into force from the date of
enactment of the Finance Bill, 2007 i.e. the date of President
assent to the Finance Bill, 2007 [Refer Clause 130 of the Finance
Bill, 2007]. The Secondary and Higher Education cess shall be in
addition to the education cess payable which was levied in the year
2004. |
| 3.
Exemption to Small Service Provider Enhanced: W.e.f. 1-4-2007,
service tax exemption for small service providers is increased from
the present level of Rs.4 lakhs to Rs.8 lakhs. Notification
No.6/2005-Service Tax, dated 01.03.05 amended [Refer notification
No. 4/2007-Service Tax, dated 01.03.07]. |
| 4.
Minimum Turnover Limit For Compulsory Limit Enhanced:
Consequent upon the
increase in the threshold exemption limit from Rs. 4 lakh to Rs. 8
lakh, W.e.f. 1-4-2007, the limit for obtaining service tax
registration has also been increased from Rs. 3 lakh to Rs. 7 lakh.
Notification Nos. 26/2005-Service Tax and No.27/2005-Service Tax
(Registration of Special Category of Persons Rules), both dated
07.06.05 and ST-I Form have been amended [Refer Notification Nos. 5,
6 & 7/2007-Service Tax, dated 01.03.07]. |
5. New
Services: The following services
are proposed to be specifically included and defined in the list of
taxable services, namely: [Service tax on such services shall come
into force from the date to be notified after the enactment of the
Finance Bill, 2007].
a)
Telecommunication service: Presently telecom related
services are separately taxed under different taxable service such
as telephone services, pager, leased circuit, etc. The Government
has proposed to merge all such services into one category of taxable
service i.e. ‘telecommunication service’. Further, telecommunication
services have been comprehensively defined under section 65 (109a)
read with section 65(105) (zzzx) and its scope has been
widened.
b) Mining
service: Services in relation to mining of mineral, oil or
gas is proposed to bring under the service tax net. [Section 65(105)
(zzzy)].
c) Renting of
immovable property service: Renting of immovable property
for use in the course or furtherance of business of business or
commerce is proposed to brought under the service tax net. However,
residential accommodation such as hotels, hostels, boarding houses,
etc. which are solely used for residential purposes or accommodation
purposes have been excluded from the term ‘immovable property’.
Further, renting of immovable property by or to a religious body and
renting of immoveable property to an educational body, other than
commercial training or coaching center have also been excluded from
the scope of this taxable service. Where renting of immovable
property is a single composite contract involving part of property
for use in commerce or business and part of it for residential
/accommodation purposes, for the purpose of levy of service tax
under this sub-clause, entire property under the contract is treated
as property for use in commerce or business and accordingly the
total value of the contract shall be the taxable value. [Section
65(105)(zzzz) read with section 65(90a)]
d) Service
involved in the execution of a works contract: Under this
category of taxable service, the proposal is to levy service tax on
services involved in the execution of a works contract. It may be
noted that under this service only selective works contracts
are covered, namely:-
(i) works contract for carrying
out erection, commissioning or installation
(ii) works contract
for commercial or industrial construction
(iii) works contract
for construction of complex
(iv) works contract for turnkey
projects including Engineering Procurement and Construction or
Commissioning (EPC) projects.
Works contract in respect of
specified infrastructure projects namely roads, airports, railways,
transport terminals, bridges, tunnels and dams are specifically
excluded from the scope of the levy. It is also proposed to give an
option to an assessee to opt for a composition scheme, whereby the
assessee would be required to pay 2% of the total value of the works
contract as service tax. Assessee opting for the composition scheme
would not be entitled to avail CENVAT credit of capital goods,
inputs and input services required for use in the works contract.
Valuation of works contract and details of the composition scheme
will be notified separately. [Section 65(105) (zzza)]
e) Development
and supply of content service: It is proposed to separately
specify services provided by content developers in relation to
development and supply of content for use by telecommunication
service providers, advertising agencies and on-line information and
database access or retrieval services such as internet or website
service providers under this service. [Section 65(105) (zzzzb) read
with section 65(36c)]
f) Asset
management including portfolio management and all forms of fund
management service: Asset management including portfolio
management and all forms of fund management provided by individual
service providers are proposed to cover separately, similar services
provided by other than individual are already covered under banking
and other financial services. [Section 65(105) (zzzzc)]
g) Design
services: Design services, other than fashion designing
service and interior decorator’s service, like furniture design,
aesthetic design, consumer or industrial products, logos, packaging,
production of three dimensional models, etc. will be taxable under
this category. [Section 65(105) (zzzzd) read with section 65(36b)]
|
6.
Exiting Services expended: The following existing
services are proposed to be amended, namely: [Service tax on such
changes made in the existing services shall come into force from the
date to be notified after the enactment of the Finance Bill, 2007].
a) Sale of
space or time for advertisement: Sale of space for
advertisement in business directories, yellow pages and trade
catalogues will also be aleviable to service tax under this service
as such publication are primarily meant for commercial purposes and
have been excluded from the definition of the term “Book”. [Section
65(105) (zzzm]
b) Rent-a-cab
service: Definition of “cab” has been amended so as to
include motor vehicles capable of carrying more than twelve
passengers for hire or reward. However, motor vehicle capable of
carrying more than twelve passengers and maxicab, rented to an
educational body, imparting skill or knowledge or lessons on any
subject or field, other than a commercial training or coaching
centre, is specifically excluded from the scope of the term “cab”.
Motorcab, even if it is rented to an educational body is leviable to
service tax. [Section 65(20)]. Ambulances are not meant for carrying
passengers for hire or reward. Hence, the question of levy does not
arise.
c) Mandap
keeper service:Explanation has been added stating that
social function includes marriage functions. [Section 65(66) and
65(67)]
d) Pandal or
shamiana service: Explanation has been added stating that
social function includes marriage functions. [Section 65(77a)]
e) Event
management service: Definition of event management is
amended so as to specifically include marriage event within the
scope of this service. [Section 65(40)]
f) Manpower
recruitment or supply service: Explanation is added to
clarify that manpower recruitment or supply agency service includes
services in relation to pre-recruitment screening, verifying the
credentials of the candidate, authenticity of documents submitted by
the candidates and verification of antecedents. [Section
65(105)(k)]. The amendment is for the purpose of
clarification.
g) Banking and
other financial service: As per the proposed amendment,
cash management services will be leviable to service tax under this
service. Cash management services includes services of collection of
receivables, execution of payment, management of liquidity and
providing customized Management Information System (MIS) reports,
provided by banks to clients such as corporate clients. The term
“financial leasing” is also explained. [Section 65(105) (zm) read
with Section 65(12)]
h) Management
consultant’s service: This service renamed as management or
business consultant’s service and to explicitly include business
consultancy in the definition itself [[Section 65(105)(r)] read with
Section 65(65)].
i) Consulting
engineer’s service: Presently computer hardware engineering
consultancy is specifically excluded from this service. Specific
exclusion of computer hardware engineering consultancy is being
omitted. Consequently, computer hardware engineering consultancy
will be leviable to service tax under this service. [Section
65(105)(g)]
j) Management,
maintenance or repair service: Section 65(64) is amended to
clarify that “goods” for the purposes of this service includes
computer software. Consequently, maintenance or repair of computer
software will be leviable to service tax under this category. It may
be noted that development of computer software is distinct from
maintenance or repair of computer software and development of
computer software continues to be not leviable to service tax.
|
7. Other
Changes in the Finance Act, 1994: [Such changes shall
come into force from the date of the enactment of the Finance Bill,
2007 except point (a) which shall be changed from the date to be
notified].
a) Omission of
some services as grouped into single service: Since the
proposed telecommunication service includes telecommunication
related taxable services separately defined at present, such as
telephone connection services, pager, leased circuit, communication
through telex, facsimile communication are not required to be
defined separately any more.
b) Penalty for
delay in filing return: Section 70(1) is being amended.
After the proposed amendment in section 70(1) comes into force,
appropriate rules will be notified indicating he conditions and the
amount to be paid for delayed filing of return.
c) Extended the
applicability of Section Section 14AA and 38A of Central Excise Act,
1944: Section 14AA related to empowers the Commissioner of
Central Excise to order for cost audit by a Cost Accountant to study
the abnormal utilisation of CENVAT credit and Section 38A provides
protection by way of savings for all pending actions under rules and
notifications that are repealed, rescinded or amended by amending
the Section 83.
d) Section 86
is being amended to empower the Central Board of Excise
& Customs to constitute a committee of (i) two Chief
Commissioners to review the adjudication order passed by a
Commissioner of Central Excise (ii) two Commissioners to review the
order passed by a Commissioner of Central Excise (Appeals)
e) Section 96A
is being amended to insert an Explanation in clause (b) of
section 96A relating to definition of ‘applicant’ so as to clarify
that in the ‘joint venture in India’ at least one of the
participants or partners or equity holders shall be a non-resident.
|
8.
Amendment in Service Tax Rules, 1994 [Refer Notification No.
1/2007-ST, dated 1-3- 2007]:
a) Dispensing of
submitting original registration certificate: W.e.f. 1-3-2007, as
per the amended provisions, (Rule 4), it is provided to dispense
with the requirement of submission of original registration
certificate to the department at the time of intimation of any
changes. Now, the assessee is required to submit only a
self-certified copy of the registration certificate. Rule 4, Form
ST-1 and ST-2 are suitably amended or this purpose. The Department
will issue the amended registration certificate after canceling the
original registration certificate issued earlier.
b)
Self adjustment of excess tax further extended: W.e.f. 1-3-2007,
self-adjustment of excess service tax paid has been extended to all
assessees subject to the following conditions: • Self-adjustment of
excess credit is allowed on account of reasons other than
interpretation of law, taxability, classification, valuation or
applicability of any exemption notification. • Excess amount paid
and proposed to be adjusted should not exceed Rs.50,000 for the
relevant month or quarter. • Adjustment can be made only in the
succeeding month or quarter. • The details of self-adjustment should
be intimated to the Superintendent of Central Excise within a period
of 15 days from the date of adjustment. However, assessees who have
centralised registration can adjust the excess service tax paid on
their own without any monetary limit provided the excess amount paid
is on account of delayed receipt of details of payments from branch
offices. It may be noted that Rule 6(3), which also contain
provisions, related to self-adjustment of excess tax paid has not
been omitted, which has not become irrelevant.
d) Rule 2(1)(d)(vii) is
amended so that service tax is required to be paid under reverse
charge method in relation to sponsorship service only if the
recipient of service is located in India. In other words, if the
recipient of sponsorship service is located outside India, in such
cases, service tax is required to be paid by the service provider
and not by the recipient. This change will come into effect from 1st
April, 2007. |
9.
Amendments in the Export of Services Rules,
2005:
With effect from 1st
March, 2007, Rule 3 (2) is amended and the words ‘delivered outside
India and used outside India’ has been substituted with the words
‘provided from India and used outside India’ and also clarify that
that both rule 3(1) and 3(2) are to be satisfied for provision of
service to be treated as export of services. [Refer Notification No.
2/2007- ST, dated 1-3-2007] |
10.Amendments in the Cenvat Credit Rules, 2004:
dana"> [Refer
Notification No. 10/2007-CE, dated 1-3- 2007] [Such changes shall
come into force w.e.f. 1-3-2007 except point (a) which shall be
hanged w.e.f. 1-4-2007]:
a) Optional
Scheme to General Insurance Service Provider: W.e.f.
1-4-2007, Rule 6(3) is amended provide an option to general
insurance service providers providing taxable as well as exempted
insurance schemes and do not maintain separate input / input
services credit accounts to utilise CENVAT credit proportionate to
the inputs and input services used in providing taxable services.
The scheme is optional. It may be noted that the scheme is
applicable only to general insurance services referred to in section
65(105) (d).
b)
Rectification of Mistakes: The Rule 9 is amended to insert
sub-rule (11) to allow an assessee to rectify mistakes and file
revised return within 60 days from the date of filing of original
return.
c) Necessary
amendments have been made in the Cenvat Credit Rules, 2004
to allow credit of Secondary and Higher Education Cess paid on
inputs and capital goods, which can be utilized for payment of
Education cesses only.
d) Sub-rule (2)
of rule 9 has been amended to provide that the CENVAT
credit can be taken if all the particulars as prescribed under the
rules are available on the invoice or other duty-paying document.
Further, in case any of the required particulars (other than
specified particulars) are not available on the document, the
Assistant/Deputy Commissioner may allow the credit subject to his
satisfaction that (i) goods/services covered by said document has
been received by the asseessee, and (ii) the receipt of said
goods/services has been accounted for in the books of accounts of
the receiver. Consequential amendments have also been made in rule
15(1) and 15(3), which provides for penal action.
e) Sub-rule(3)
of rule 9 has been deleted, which had the provisions
related to ensuring of payments of duty. It may be noted that in
this regard, earlier Board issued Draft Circular dated 23-5-2006,
which has now been converted into law. It is a welcome step to avoid
litigation.
f) New
sub-rules (3) & (4) have been inserted in rule 11 to
provide that when a person opts for exemption from whole of duty (in
case of conditional notification) or where a product becomes
exempted absolutely, in such cases, the CENVAT credit taken on
inputs lying in stock, or in process or contained in the final
product lying in stock should be reversed. Similar provision has
been made in respect of cases wherein taxable service becomes
exempted. However, no reversal of credit of input services is
required to be made in such cases. |
11.
Exemption from levy of service tax:
a) Services
provided by Resident Welfare Associations (RWA): W.e.f.
1-3-2007, exemption from service tax is provided to services
provided by RWAs to their members, where the monthly contribution of
a member does not exceed Rs. 3000/- per month. [Refer Notification
No. 8/2007-Service Tax dated 01.03.2007].
b Exemption to
incubators and incubatee: W.e.f. 1-4-2007, exempts all
taxable services provided by from levy of service tax. Refer
Notification No. Tax dated 01.03.2007]. The incubator who intends
avail service tax exemption is required furnish information in the
format specified. also incubatees subject following conditions.
available an incubate only for a period three years.[Refer
Notification No. 10/2007-Service Tax dated 01.03.2007].
c) Testing and
analysis of newly developed drugs: W.e.f. 1-3-2007,
exemption from service tax is provided to technical testing and
analysis service provided in relation to testing and analysis of
newly developed drugs on human participants by a CRO. New drugs
include vaccines and herbal remedies. [Refer Notification No.
11/2007-Service Tax dated 01.03.2007].
d) Exemption to
services provided by the digital cinema service provider:
W.e.f. 1-3-2007, exemption from service tax is provided to services
provided by the digital cinema service provider to the producer or
distributor in relation to the delivery of content of cinema in
digital form after encryption electronically. Exemption is not
available if the content is delivered to the theatre for exhibition
by any physical means. Transmission will be electronic either by
wire or wireless means. [Refer Notification No. 12/2007-Service Tax
dated 01.03.2007].
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