A Presentation on “New Regime of Service Taxation in India”

1. LATUR BRANCH OF WIRC OF ICAI
Residential Refresher Course (RRC)
A Presentation
On
“New Regime of Service Taxation in India”
On by
Saturday, Dr. Sanjiv Agarwal
25st
August,2012 FCA, FCS
@ Goa
© Dr. Sanjiv Agarwal

2. SESSION - I
PARADIGM SHIFT IN TAXATION OF
SERVICES IN INDIA – AN OVERVIEW
&
MAJOR CHANGES IN SERVICE TAX LAW BY
The FINANCE ACT, 2012 - AT A GLANCE
2

3. This presentation covers
• Overview of Taxation of Services in India
• Selective Approach (Positive)
• Shift to Comprehensive approach (Negative)
• The future approach (Proposed GST)
• Abatements
• Reverse Charge
• Other Amendments – Place of Provision, Cenvat
Credit, Appeal, Revision, Settlement etc.
3

4. Indian Economy – An overview
 India’s economy is the 11th largest economy in the world
and the second fastest growing even in today’s
recession
 World is presently facing recession-II but Indian
economy is still better than comparable economies.
 Agriculture, services and industry are the major sector of
India an economy. Contribution of different sectors in
March, 2012 was :
 Agriculture 19%
 Services 59%
 Industry 22%
to be contd……. 4

5. Brief Overview of Services /
Service Tax Share of
Services in GDP
Agricult ure
19%
Service
Sect or
Indust ry 59%
22%
GDP C O MPO S ITIO N IN MARC H, 2012
5

6. Share of services in GDP
tracked
Year % of GDP
 1950 15
 1970 33
 1980 36
 1994 40
 1995 41
 2000 47
 2005 53
 2010 57
 2012 59
In 2011-12, services have grown by 9.6 % which is more
than GDP growth rate 6

7. Growth in Tax GDP Ratio – Slow
but Steady
Years Tax GDP ratio
2003-04 9.2%
2007-08 11.9%
2009-10 9.7%
2010-11 10.3%
2011-12 10.1%
7

8. Power to Tax in India
 India has a two tier federal power to collect tax –
 the Union Government,
 the State Governments including urban/rural local
bodies
 Presently goods are liable to Vat / Excise / Customs duty
while taxable services attract service tax.
 Certain transactions subject to both - Vat and Service tax
 Efforts to revamp the direct tax structure - New direct tax
code (Income Tax Act, 1961 & Wealth Tax Act, 1957
would be scrapped) proposed
 Efforts to bring on a single indirect tax – GST proposed
8

9. Taxonomy of Indian
taxation
TAXATION POWERS OF UNION
 Income Tax – on income, except
agricultural income
 Excise Duty – on goods manufactured
 Custom Duty – on imports
 Service Tax – on specified services
 Central Sales Tax – on inter-state sale of goods
 Stamp Duty – on 10 specified instruments
to be contd…..
9

10. Service Tax in India (The Past)
 Introduced in India in 1994 as a simple, modest tax with
just three services.
 Service tax – an indirect tax.
 Approach to Service Tax – Selective as against
comprehensive one .
 Desirable from revenue, equity and economic view point.
 Governed by Finance Act, 1994 and a dozen of rules.
 Legislative dependence on other laws.
 Scattered and heterogeneous large mass of service
providers as well as wide spectrum of services.
 Jurisdictional application.
10

11. Growth of Service Tax
Year No of new services Total No of Total collection
services (Rs. in crore)
1994 3 3 407
2001 - 26 2612
2005* 13 72 14199
2008 7 103 51301
2010 3 112 58000
2012 0 120 95000
2013 - All 126000 (BE)
11

12. Service Tax in India (The Past)
Selective Approach to Service Tax
 Selective v. Comprehensive approach
 Taxation by choice
 Service not defined but taxable service defined.
 > 120 taxable services [section 65(105)]
 Resulted in distortions / prejudice
 Untapped tax potential
 Economically unjustified
12

13. Service Tax in India (The Past)
Selective Approach : Some Issues
 Classification of service – disputes
 Illogical definitions
 Problem defining each taxable service
 Inefficient tax administration
 Constitutional Challenges
 Services / deemed Services
 Valuation / abatement / reverse charge
13

14. Service Tax - Today
Shift to Comprehensive approach
 W.e.f. 1 July 2012
 Finance Act, 2012 – A land mark Act to shift from
positive to negative approach.
 It took 18 years to shift from selective approach to
positive approach to tax services
 Section 65 (Definition of Taxable Service), 65A (Classification
of Taxable service), 66 (Charge of Section Tax) and 66A
(Charge of Service Tax on Services received from outside
India) have no application w.e.f. 01.07.2012.
14

15. Taxation of Services by Finance Act, 2012
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
(-)
Exemptions
(=)
Taxable Services
15

16. Service Tax - Today
New system of taxation of services
 All services to be taxed other than services
specified in the negative list and exempted
services – Section 66B.
 Negative list (17 in number) specified through
statutory provisions – Section 66D.
 ‘Service’ defined for the first time.
 ‘Negative List’ and ‘declared services’ also
defined.
16

17. Service Tax provisions no longer
applicable (w.e.f. 1.7.2012)
 Section 65 Old definitions of Services / Taxable
Services
 Section 65A Classification of Services
 Section 66 Charge of Service Tax
 Section 66A Charge of Service Tax on Services
received from outside India.
 Import of Service Rules, 2006
 Export of Service Rules, 2005
17

18. New Provisions in Service Tax
 Section 66 B deals with charge of service tax
on the after Finance Act, 2012
 Section 66 C provides for determination of
place of provision of service.
 Section 66 D comprises of negative list of
services
 Section 66 E comprises of the services which
constitute declared services
 Section 66 F provide principles of interpretation
of specified description of services
or bundled services
18

19. The New Taxability Concept
SERVICE FOR A
CONSIDERATION
9 DECLARED SERVICES
E: Employee
M: Money
A: Actionable claim E - MAGIC TEST
G: Goods
I: Immovable property
C: Court Fee
19

20. Taxable of Services w.e.f.
1.7.2012

All services Taxable
[section 65B (44)]
 Declared services Taxable
(section 66E)
 Services covered under Not Taxable
negative list of services
(section 66D)
 Services exempt under Mega Exempted
Notification No. 25/2012-ST
dated 20.6.2012
 Other specified Exemptions Exempted
20

21. Taxation of Services Post Finance
Act, 2012
21

22. What is Service
‘Service' has been defined in clause (44) of the new section
65B and means –
 any activity
 for consideration
 carried out by a person for another
 and includes a declared service (66E)
22

23. What is Service
 Activity must be for a consideration
 Activity – includes both activity as well as non-activity
 Consideration – includes both monetary and non
monetary consideration.
 Two persons are involved –
Service provider
Service receiver
 Only services provided by one person to another are
taxable
 Person – natural as well as artificial
23

24. What is Service
Activity
 Not defined in the Act
 In common understanding, activity includes –
 An act done
 A work done
 A deed done
 An operation carried out
 Execution of an act
 Provision of a facility etc.
 Activity could be active or passive and forbearance to act
 Agreeing to an obligation to refrain from an act or to tolerate an
act or a situation - listed as a declared service u/s 66E
24

25. What is Service
Activity for a Consideration
Activity should be carried out by a person for a
consideration
 Activity without consideration like-
 Donation
 Gifts
 Free charities
outside the ambit of service
 Charity for consideration would be service and
taxable unless otherwise exempted
25

26. What is Service
Consideration (Section 67)
 Means everything received or recoverable in return for a
provision of service provided or to be provided which
includes -
 Monetary payment
 Non-monetary payment
 Deferred consideration
 Under Indian Contract Act, 1872, Consideration means -
“When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does or
abstains from doing, or promises to do or to abstain from
doing, something, such act or abstinence or promise is called a
consideration for the promise”
26

27. What is Service
Consideration
 Monetary consideration means any
consideration in form of Money.
 Includes not only cash but also cheques,
promissory note, bill of exchange, letter of
credit, draft, pay order, traveler’s cheques,
money order, postal or electronic remittance or
any such similar instrument
 Non- monetary consideration- money
equivalent
27

28. What is Service
Money- 65B (33)
"money" means legal tender, cheques, promissory note, bill of
exchange, letter of credit, draft, pay order, traveller cheques, money
order, postal or electronic remittance or any similar instrument but
shall not include any currency that is held for its numismatic value
Actionable Claim –Section 3 of Transfer of Property Act, 1882
• Claim to unsecured debts
• Claim to beneficial interest in movable property not in possession of
claimant
• Right to insurance claim
• Arrears of rent
28

29. What is Service
Tax on Money Remittance
 No service tax on foreign currency remitted to India from
overseas (Circular No.163 dated 10.7.2012)
 Amount of remittance comprises money
 Service excludes money transactions
 Even fee for remittance is not taxable (POPS)
 Sender of money outside India bank / company remitting
located outside India
 Fee charged by Indian bank - remitter located outside
India (not taxable as per POPS)
29

30. What is Service
Person-65B(37)
"person" includes,––
• an individual,
• a Hindu undivided family,
• a company,
• a society,
• a limited liability partnership,
• a firm,
• an association of persons or body of individuals, whether
incorporated or not,
• Government,
• a local authority, or
• every artificial juridical person, not falling within any of the above
30

31. What is Service
Government – Not defined
 Section 3 (22) of General Clause Act,
1897
 Includes Central/State Government/ Union
Territory
 Actions taken in the name of President/
Governor
 Most of services provided by government
are in Negative List
31

32. What is Service
Local Authority - Section 65B(31)
 A Panchayat as referred to in clause (d) of article 243 of
the Constitution
 A Municipality as referred to in clause (e) of article 243P
of the Constitution
 A Municipal Committee and a District Board, legally
entitled to, or entrusted by the Government with, the
control or management of a municipal or local fund
 A Cantonment Board as defined in section 3 of the
Cantonments Act, 2006
 A regional council or a district council constituted under
the Sixth Schedule to the Constitution
 A development board constituted under article 371 of the
Constitution, or
 A regional council constituted under article 371A of the
Constitution. 32

33. What is Service
Governmental Authority (N. No. 25/2012-
ST)
 board/ Authority / other body
 established with > 90% participation
 of government control/ equity
 set up by Act of Parliament or State
Legislature
 to carry out any functions entrusted to
municipality u/s 243W of constitution
33

34. What is Service :
Exclusions
'Service' does not include -
 any activity that constitutes only a transfer in title of
goods or
immovable property by way of sale, gift or in any other manner
a transfer, delivery or supply of goods which is deemed to be a sale of
goods within the meaning of clause (29A) of article 366 of the
Constitution
 a transaction only in money or actionable claim
 a service provided by an employee to an employer in the course of the
employment.
 fees payable to a court or a tribunal set up under a law for the time being
in force 34

35. What is Service
This scope shall not apply to –
a) functions performed by M.P., M.L.A., Members of
Panchayats / Municipalities who receive any consideration
in performing the functions of that office as such member;
or
b) duties performed by any person who holds any post in
pursuance of the provisions of the Constitution in that
capacity; or
c) duties performed by any person as a Chairperson or a
Member or a Director in a body established by the Central
Government or State Government or local authority and
who is not deemed as an employee before the
commencement of this section.
35

36. What is Service
It may be noted that -
(a) an unincorporated association or a AOP and a member
thereof shall be treated as distinct persons;
(b) an establishment of a person in the taxable territory and any
of his other establishment in a non-taxable territory shall be
treated as establishments of distinct persons.
(c) A person carrying on a business through a branch or agency or
representational office in any territory shall be treated as having
an establishment in that territory
36

37. Taxability of Services – Then & Now
Period Taxable Non Taxable
Prior to Finance Act, 2012
(upto 30.6.2012) • Taxable services • Exempt services
specified in section 65 • Service not covered
(105) under section 65 (105)
• Import of services under • Export of services
reverse charge
Post Finance Act, 2012
(w.e.f. 1.7.2012) • All services provided in • Services in Negative List
taxable territory • Exempt services
• Declared services • Services provided in non-
taxable territory (as per
POPS Rules)
37

38. MAJOR CHANGES IN SERVICE TAX
LAW BY The FINANCE ACT, 2012 - AT
A GLANCE
 Objective to widen tax base
 Service Tax law to be shorter by about 40 percent
 Effective rate of Service Tax shall be 12.36 percent w.e.f.
01.04.2012 including education cesses.
 Definition of ‘service’ finds place in statutory provisions
 All services to be taxed including a set of services called
‘declared services’
 Negative list of services containing 17 broad service
categories to be out of Service Tax ambit.
 Withdrawing of many existing exemptions / abetments or
their rationalization 38

39. MAJOR CHANGES IN SERVICE TAX
LAW BY The FINANCE ACT, 2012 - AT
A GLANCE
 Place of provision of supply rules will determine the location of service
and become be basis of taxation.
 Withdrawal of export of service rules and import of service rules in view
of place of supply of service rules coming into operation.
 Concept of taxable territory and non- taxable territory brought in
 Basis of charge of Service Tax shifted under new section 66B.
 Taxation of Service to be determined by provision of service in taxable
territory and non taxable territory.
 Classification of service criteria replaced by new section 66F on
interpretation principles of specified description of service or bundled
services.
39

40. MAJOR CHANGES IN SERVICE TAX LAW
BY The FINANCE ACT, 2012 - AT A
GLANCE
• Consequent upon change in service tax rates, there is change of service
tax rate in composition scheme and specified rates w.e.f. 1.4.2012
(Composition scheme withdrawn w.e.f 1.7.2012.
 Penalty wavier for arrears paid within specified time in respect of renting
of immovable property service.
 Retrospective exemption to road repairs and repairs etc of non
commercial government buildings.
 Under new reverse charge mechanism, onus of paying Service Tax will be
shared by service provider and service receiver in case of specified
services.
 Service Tax on taxable services provided by service provider located in
Jammu & Kashmir state liable under reverse charge.
to be contd….
40

41. MAJOR CHANGES IN SERVICE TAX LAW
BY The FINANCE ACT, 2012 - AT A
GLANCE
 Change in valuation rules in relation to works contracts and outdoor
catering / supply of food.
 Provision introduced for date of determination of value of service, tax rate
and rate of exchange.
 Payment of Service Tax on receipt basis for all service providers being
individuals / firms / LLPs, if aggregate value of taxable services in previous
year does not exceed Rs. 50 lakh.
 Criteria for Rs 10 lakh threshold exemption changed.
 Time limit for appeal by assessees to Commissioner (Appeals) reduced
from 3 months to 2 months
• Revision Application Authority and Settlement Commission provisions
made applicable to service tax.
• Special Audit of Service tax assesses by CAs /CWAs .
• New Accounting Code – 00441089 (tax), 00441090 (other receipts),
00441093 (penalties)
41

42. Goods & Service Tax
(The Future)
GST: A Common Tax
on
Goods Services
42

43. GST - Journey so far
Budget 2012
 No announcement on GST rollout date
 GST to be implemented in consultation with the States at the earliest
 GST network (GSTN) likely to be in place from August, 2012
 GSTN to implement common PAN based registration, return filing and
processing of payments for centre and all states on a shared platform.
 Bringing closer of Service Tax and Central Excise for transition to GST
 Drafting of model legislation for CGST and SGST under progress.
 Common forms for Service Tax and Central Excise registration and return
proposed.
 Place of Supply Rules, 2012 to trigger debate to assess issues that may
arise in taxation of inter state services for eventual launch of GST.
43

44. The Journey – beginning of
end…….
Past Present
Future
National GST Dual GST ???????
…or end of beginning !!
44

45. Abatements
• Besides full exemption to 39 categories of services vide
Notification No. 25/2012-ST dated 20.06.2012
• Earlier there were a number of exemption notifications that
prescribed the abatements for various categories of services
(including 1/2006)
• Abatements merged into a single Notification No 26/2102 - ST
dated 20/6/12
• Valuation rules contain abatement for Works Contract and
Supply of Food Services
45

46. Specific Abatements
Sl. No. Description of taxable service Tax Percent- Conditions
age
1 Financial leasing services including 10 Nil
equipment leasing and hire purchase
2 Transport of goods by rail ( now exempt 30 Nil
till 30.9.2012)
3 Transport of passengers, with or without 30 Nil
accompanied belongings by rail ( now
exempt till 30.9.2012)
4 Supply of food or any other article of 70 CENVAT credit on any
human consumption or any drink, in a goods classifiable under
premises, including hotel, convention chapter 1 to 22 of the
center, club, pandal, shamiana or any Central Excise Tariff Act,
place specially arranged for organizing a 1985 has not been taken
function under the
provisions of
46
the CENVAT Credit Rules,

47. Specific Abatements
5 Transport of passengers by air, 40 CENVAT credit on inputs or capital
with or without accompanied goods, used for providing the taxable
belongings service, has not been taken under the
provisions of the CENVAT Credit
Rules, 2004.
6 Renting of hotels, inns, guest 60 Same as above.
houses, clubs, campsites or other
commercial places meant for
residential or lodging purposes
7 Transport of goods by road by 25 CENVAT credit on inputs, capital
Goods Transport Agency goods and input services , used for
providing the taxable service, has not
been taken under the provisions of the
CENVAT Credit Rules, 2004.
8 Services provided in relation to 70 Same as above.
chit 47

48. Specific Abatements
9 Renting of any motor vehicle 40 Same as above.
designed to carry passengers
10 Transport of goods in a vessel from 50 Same as above.
one port to another
11 Tour operator services 25 (i) CENVAT credit on inputs,
(i) provided by a tour operator in capital goods and input
relation to a package tour services, used for providing
the taxable service, has not
been taken under the
provisions of the CENVAT
Credit Rules, 2004.
(ii) The bill issued for this
purpose indicates that it is
48
inclusive of charges for such a

49. Specific Abatements
(ii) provided by a tour 10 (i) CENVAT credit on inputs, capital
operator in relation to a tour, goods and input services, used for
solely arranging or booking providing the taxable service, has not
accommodation been taken under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The invoice, bill or challan issued
indicates that it is towards the charges
for such accommodation.
(iii) This exemption shall not apply in
such cases where the invoice, bill or
challan issued by the tour operator, in
relation to a tour, only includes the
service charges for arranging or
booking accommodation for any person
and does not include the cost of such
accommodation.
49

50. Specific Abatements
(iii) Services, other than 40 (i) CENVAT credit on inputs,
services specified above capital goods and input services,
in (i) or (ii) used for providing the taxable
service, has not been taken
under the provisions of the
CENVAT Credit Rules, 2004.
(ii) The bill issued indicates that
the amount charged in the bill is
the gross amount charged for
such a tour.
50

51. Specific Abatements
12. Construction of a complex, 25 (i) CENVAT credit on inputs
building, civil structure or a used for providing the taxable
part thereof, intended for a service has not been taken
sale to a buyer, wholly or under the provisions of the
partly except where entire CENVAT Credit Rules,
consideration is received 2004.
after issuance of completion
certificate by the competent (ii) The value of land is
authority included in the amount
charged from the
service recipient.
51

52. Changes in Reverse
Charge Mechanism
 W.e.f. 1.7.2012 a new scheme of taxation is being brought into
effect whereby the liability of payment of service tax shall be both on
the service provider and the service recipient (Notification No. 30/
2012 dated 20.6.2012 )
 The extent to which tax liability has to be discharged by the service
receiver specified in the notification.
 Credit of tax paid by service recipient
The credit of tax paid by the service recipient under partial reverse
charge would be available on the basis on the tax payment challan
52

53. Reverse Charge Mechanism
under various services
Sr.No Description of Service Service provider Service receiver
1. Services provided by an insurance Nil 100%
agent to any person carrying on
insurance business
2. Services provided by a goods Nil 100%
transport agency in respect
of transportation of goods by road
3. Services provided by way of Nil 100%
sponsorship
53

54. Reverse Charge Mechanism
under various services
4. Services provided by an arbitral tribunal Nil 100%
5. Services provided by individual advocate Nil 100%
or a firm of advocates by way of legal
services
5A Services provided by director to the Nil 100%
company (w.e.f. 7.08.2012)
6. Services provided by Government or Nil 100%
local authority by way of support services
excluding,-
(1) renting of immovable property,
(2) postal services
(3) transport of goods / passengers
(4) air craft or vessel
54

55. Reverse Charge Mechanism
under various services
7. Hiring of Motor Vehicle Nil 100 %
(a) renting of a motor vehicle
designed to carry passengers on
abated value to any person not
engaged in the similar line of
business 60% 40%
(b) renting of a motor vehicle
designed to carry passengers on non
abated value to any person who is not
engaged in the similar line of
business
8. Services provided by way of supply of 25% 75 %
manpower or security services for
any purpose (w.e.f. 7.08.2012)
55

56. Reverse Charge Mechanism under
various services
9. Services provided in service portion in
execution of works contract 50% 50%
10. Services provided by any person who
is located in a non-taxable territory Nil 100%
and received by any person located in
the taxable territory
56

57. Appeal before Commissioner
(Appeals)
Time Period for Appeal
Prior to 28.5.2012 (sub-section 3)
 To appeal within three months from date of communication of
order appealed against
 Period of 3 months can be extended by further 3 months (total 6
months) by Commissioner (Appeals)
 Condonation of delay/ extension beyond 3 months is beyond the
power of Commissioner (Appeal)
to be contd……….
57

58. Appeal before Commissioner
(Appeals)
w.e.f. 28.5.2012 (sub-section 3A)
 To appeal within two months from date of
communication of order passed after 28.05.2012
 Period of 2 months can be extended by further 1
month (total 3 months) by Commissioner (Appeals)
 Condonation of delay/ extension beyond 1 month is
beyond the power of Commissioner (Appeal)
58

59. Revision Mechanism
 Introduced by Finance Act, 2012
 Section 35EE of Central Excise Act, 1944 made applicable to
Service Tax w.e.f. 28.05.2012
 All appeals against Commissioner (Appeals) orders lied before
Tribunal prior to 28.05.2012.
 Like Excise, in Service Tax also, revision authority shall hear
matters relating to –
 Cenvat Credit
 Rebate of Exports
to be contd……..
59

60. Revision Mechanism
 Revision by Central Government (Joint Secretary in MOF)
 Revision application to be heard and order passed
 Order may be annulled or modified
 Minimum amount of dispute Rs. 5000
 To be filed within 3 months of communication of order
 Revision can be sought by CCE/ assessee
 Central Government can also suo moto revise
 No provisions for appeal against revisionary order
 Only remeady is writ Jurisdiction
 Quasi judicial proceedings
60

61. Settlement Provisions in
Service Tax
 Introduced by Finance Act, 2012 w.e.f. 28.5.2012
 Sections 31, 32 and 32A to 32P of Central Excise Act, 1944 made
applicable to Service Tax (section 83 of Finance Act, 1994)
 Service Tax (Settlement of Cases) Rules, 2012 notified (N.No.
16/2012-ST dated 28.05.2012)
 Objective to encourage quick settlement of disputes and save
business from prosecution / penalties
 Principal bench at Delhi (benches at Mumbai, Calcutta, Chennai)
61

62. Benefits of Settlement
 Quick settlement of disputes to avoid prolonged litigation
 A one time tax evader or an un-intending defaulter can
make clean his affairs through Settlement
 Any defaulting person can admit his guilt, pay taxes with
applicable interest and avoid further liabilities
 Settlement Commission can grant waiver/ reduction of
penalty, fine or interest
 Settlement Commission can grant immunity from
prosecution to assessee, its directors and partners
62

63. Settlement of Cases
 Any assessee can approach the Settlement Commission
 The proceedings / cases should be pending with aggregate amount
of more than Rs 3 lakh involved
 Application to Settlement Commission should be made with
prescribed fee and in prescribed form
 Application once made, can not be withdrawn
 Application can be made by any assessee including directors or
partners of firms
 Application can also be filed by two or more
assessees and joint / co - noticees
 proceedings or case must be pending before the adjudicating
authority on the date of application.
 A show cause notice should have been issued
63

64. Settlement of Cases
 Application must make full and true disclosures before the
Settlement Commission which is the very basis of settlement.
 Issues relating to recovery of Cenvat credit can also be taken up
before the Settlement Commission
 Cases involving only penalty or cases which are pending before
court or Appellate Tribunal shall not be entertained by the
Settlement Commission.
 Cases involving interpretation of classification and valuation can not
be taken up by Settlement Commission .
64

65. Retrospective Amendments
• Special provision for exemption in certain cases relating
to management etc of roads (Section 97)
• Special provision for exemption in certain cases relating
to management etc of non-commercial Government
buildings (Section 98)
• Exemption to club & association including cooperative
societies for projects meant for treatment of effluents /
solid waste w.e.f. 16.6.2005 (Section 145)
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66. Place of Provision of Services Rules,
2012 (Section 66C)
These rules are primarily meant for persons who deal in
cross-border services and state of Jammu and Kashmir.
The service providers operating within India from
multiple locations, without having centralized
registration and services that are wholly consumed
within a SEZ, to avail the outright exemption will find
them useful in determining the precise taxable
jurisdiction.
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67. Basis of classification
 Location of service receiver [R. 3]
 Performance of service/ Location of immovable
property (also include multiple locations of
performance) [R.4,5,6,7]
 Both provider and receiver in India [R. 8]
 Location of service provider [R.9]
 Service of transportation of goods and services [R.
10,11]
 Services provided on board conveyance [R.12]
 Order of application [R.14]
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68. Place of Provision of Services
Rules, 2012 (Section 66C)
What is the place of provision of services
 Performance based services – Location of performance
 Immovable property related services – Location of
immovable property.
 Services relating to events – Location of event held.
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69. Place of Provision of Services
Rules, 2012 (Section 66C)
 Services provided at more than one location – Location in the taxable
territory where the greatest proportion of service is provided.
 Services where both service provider and receiver are located in the
taxable territory – Location of service receiver
 Specified services ( banking, online , Intermediary, transport hiring) –
Location of service provider.
 Goods transportation services – Place of destination of goods. (In GTA
Service – Location of the person liable to pay tax
 Passenger Transportation service – Place were the passenger embarks.
 Services provided on board a conveyance – Location of first scheduled
point of departure.
 Where more than one rule is applicable(which merit equal consideration),
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the later rule will apply

70. Input services
Input Services amended to include
 ‘General Insurance’, ‘servicing, repair and maintenance’, of
motor vehicles covered as input service in case of vehicle
manufacturers and insurance companies
 Renting of motor vehicle availed by a person for whom
motor vehicle is capital goods, shall be considered as input
services
 For others these services are excluded
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71. Input services and inputs –
works contracts and builder’s
services
Input definition
….. but excludes-
(B) any goods used for -
(a) construction or execution of works contract of a building or a civil structure or
a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of service portion in the execution of a works
contract or construction service as listed under clause (b) of section 66E
of the Act;
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72. Input services and inputs –
works contracts and builder’s
services
but excludes-
(1) service portion in the execution of a works contract and
(2) construction services including
(3) service listed under clause (b) of section 66E of the Finance Act
(hereinafter referred as specified services)
in so far as they are used for -
(a) construction or execution of works contract of a building or a civil
structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital
goods,
- except for the provision of one or more of the specified services; or ]
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73. Service tax paid on reverse
charge
Output service
2(p) “output service” means any service provided by a
provider of service located in the taxable territory but shall
not include a service,-
• specified in section 66D of the Finance Act; or
• where the whole of service tax is liable to be paid by the
recipient of service
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74. Service tax paid on reverse
charge
5B. Refund of CENVAT credit to service providers
providing services taxed on reverse charge basis.-
 A provider of service providing services notified under sub-
section (2) of section 68 of the Finance Act and
 being unable to utilise the CENVAT credit
 availed on inputs and input services for payment of service
tax on such output services,
 shall be allowed refund of such unutilised CENVAT credit
subject to procedure, safeguards, conditions and limitations,
as may be specified by the Board by notification in the
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75. Amendment in Cenvat Credit
Rules
Rule 7. Manner of distribution of credit by input service
distributor
Input service distributor to distribute the credit on service tax
paid on input service to its manufacturing units or units
providing output service, subject to the following conditions -
(a) the credit distributed against a document does not exceed
the amount of service tax paid thereon
(b) credit of service tax attributable to service used in a unit
exclusively engaged in manufacture of exempted goods or
providing of exempted services shall not be distributed
(c)credit of service tax attributable to service used wholly in a
unit shall be distributed only to that unit
(d)credit of service tax attributable to service used in more than
one unit shall be distributed prorata on the basis of the turnover
of the concerned unit to the sum total of the turnover of all the
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units to which the service relates

76. Amendment in Cenvat Credit Rules
“ No interest ” on Cenvat credit wrongly availed but not
utilised
 Rule 14 amended to provide that interest is chargeable if
Cenvat credit is “wrongly availed and utilized”. Thus, no interest
is chargeable if Cenvat credit is wrongly availed but remains
unutilized.
 However, rule 15 relating to penalty has not been amended and
therefore in deserving cases, penalty may be charged even if
wrongly availed Cenvat credit is not utilized.
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77. Service Tax Rules - changes effective
from 01.04.2012
 Self adjustment of excess tax paid
Excess amount can be adjusted without any monetary limits provided
excess payment is not on account of interpretation of law, taxability,
classification, valuation or applicability of any exemption Notification.
(Rule 6 (4A))
 Small service providers to pay tax on receipt basis
In respect of individual / firms whose value of taxable services from
multiple locations is Rs.50 lakhs or less in the previous financial year
option available to pay tax upto Rs.50 lakhs in the current financial year
based on receipt of payment.
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78. Amendments in Finance Act, 1994-
changes effective from 28.05.2012
Special audit in service tax (Section 72A)
If Commissioner has reasons to believe that tax payer
has failed to declare the correct value of service,
taken CENVAT by fraud, services in multiple locations
etc, he can order special audit by CA/CWA even if it
is already audited under any other law.
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