Workshop on Understanding the Amended law of Service Tax dated 03.09.2014 Session 2

Presents
Workshop
On
Understanding the Amended Law of Service Tax
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS
Wednesday, 3rd September, 2014 @ Mumbai © Dr. Sanjiv Agarwal
1

Session – II
Major changes in
Service Tax
– Finance Act, 2014
2

This presentation covers -
• Changes in Negative List
• Exemptions – What’s out / What’s new / Amendments
• Higher Interest on Delayed Payment
• Changes in POT Rules and POP Rules
• Mandatory Pre-deposit / Stay of Demand
• Consequences of Amendments in Reverse Charge and Abatement
• Change in Valuation of Works Contract
• E-payment of Service Tax
• Amendments in CENVAT Credit
• Other Miscellaneous Changes
3
3

Selling of space for advertisements in print media
– Clause (g) ( w.e.f. 1.10.2014)
Prior to amendment
This entry should qualify the following tests –
involves selling of space (in case of print media)
involves selling of time slots ( in case of electronic media)
purpose of selling time slots / space to be for
advertisements (publicity / sales promotion, awareness
etc.)
excludes broadcast by radio or television ( i.e. broadcast
will be taxable)
After amendment
Negative list will only include selling of space in print
media
Other forms of space selling for advertisement to be taxed
4

Meaning of Advertisement [ Section 65B(2) ]
• Advertisement means -
 any form of presentation for promotion of,
 or bringing awareness about,
 any event,
 idea,
 immovable property,
 person, service,
 goods or actionable claim through
 newspaper, television, radio or any other means
 but does not include any presentation made in person;
• Types /mode of advertisement which will be taxable now–
 Internet (i.e. websites )
 Theaters , out of home media
 Film screens
 Bill boards, conveyance
 Building, hoardings,
 Tickets, Automated Teller Machines (ATM), cell phones
 Commercial publications (i.e. yellow pages/ business directories etc.)
 Aerial advertisement etc.
5

Print media [ Section 65B(39a) ]
• Print media means “Book” and “Newspaper” as defined in section 1(1) of the Press and
Registration of Books Act, 1867
• Books includes –
 Every volume / part / division of book
 Pamphlet in any languages
 Every sheet of music
 Chart / plan separately printed
but excludes –
 Business directories,
 Yellow pages
 Trade catalogues meant for commercial purposes
• Newspaper means –
 Printed periodical work (any frequency)
 Containing public news /comments on public news
6

Services of transportation of passengers – Clause (o)
( w.e.f. 1.10.2014)
Services of transportation of passengers, with or without accompanied
belongings, by-
• a stage carriage;
• railways in a class other than
(i) first class; or
(ii) an AC coach; ( exempt upto 30.9.2012)
• 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 ( w.e.f. 1.10.2014) or auto rickshaws.
7

Section 65B already defines the following terms –
• Stage carriage (clause 46)
• Inland waterways (clause 29)
• Metered cab (clause 32)
• Services provided by radio taxi / radio cabs whether or not air-conditioned to
be taxable w.e.f. 1.10.2014
• Radio taxi has been defined under clause 2(za) of N. No. 25/2012-ST, dated
20.06.2012
• Radio taxi / radio cabs includes a cab –
 Covered by two-way radio communication with a central control office
 Enabled for tracking by using GPS / GPRS
• Abatement @ 60% available from 1.10.2014
8

Services by way of technical testing / 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 - Entry ( 7) ( upto 10.07.2014)
• Exemption withdrawn w.e.f. 11.07.2014
• However, small scale exemption available to the assessee
9

Services provided -
 by operators of the Common Bio-medical Waste Treatment Facility
 to a clinical establishment
 by way of-
 treatment or disposal of bio-medical waste or
 the processes incidental thereto,
would be exempt from service tax. - Entry (2B)
• Bio-medical waste includes –
 Putrescible infectious
 Potentially infectious
 Packaging
 Unused bandaged infusion kits
 Laboratory waste containing bio-molecules / organisms etc.
• Services relating to disposal of bio-medical waste treatment are also exempt
(Applicable w.e.f. 11.07.2014)
10

Services by a specified organization in respect of a religious pilgrimage
facilitated by the Ministry of External Affairs of the Government of
India, under bilateral arrangement – Entry (5A)
Two conditions should be fulfilled –
•Organization must be a specified one
•Services should be religious pilgrimage facilitated by MEA - GOI
Specified organization as per Clause 2(zfa) means
(a) Kumaon Mandal Vikas Nigam Limited, a Government of Uttarakhand Undertaking;
or
(b) ‘Committee’ or ‘State Committee’ as defined in section 2 of the Haj Committee
Act, 2002
(Vide N. No. 17 /2014 –ST dated 20.08.2014 w.e.f. 20.08.2014)
11

The services of –
loading
unloading
packing
storage and
warehousing
of
rice, and
cotton, whether ginned or baled
shall be exempt from service tax. – Entry (40)
• 'cotton, ginned or baled' is not an agricultural produce in term of definition in
section 65B(5) of the Finance Act, 1994
• Prior to 11.07.2014, services of loading, unloading, packing, storage etc.
relating to only rice were exempt w.e.f. 17.02.2014
12

Exemption from Service Tax to Forex services -
received by RBI
from outside India
in relation to management of foreign exchange reserves –Entry (41)
• This exemption would cover –
external asset management
securities handing services
custodial services etc.
• Prior to this exemption, RBI was liable to pay Service Tax under
reverse charge mechanism.
13

Services provided by an Indian tour operator to foreign tourist
in relation to foreign tours wholly conducted outside India
shall be exempt from Service Tax - Entry (42)
• Conditions to be satisfied for availing this exemption –
 Services must be for tour wholly outside India (foreign tours)
 Tourist must be foreign tourist
 Services must be provided from India
Indian tour operator
• Services in relation to an inbound or an outbound tour are liable
for Service Tax
14

Taxability of foreign tours by Indian tour operator
Tour Indian Tourist Foreign Tourist
Wholly outside India Taxable Exempt
Partly in India and
Partly outside India
Taxable Taxable
Wholly in India Taxable Taxable
15

Education related services
Services provided - Entry (9) ( w.e.f. 11.07.2014)
(a) by an educational institution to its students, faculty and
staff;
(b) to an educational institution, by way of,-
 transportation of students, faculty and staff;
 catering, including any mid-day meals scheme sponsored by
the Government;
 security or cleaning or house-keeping services performed in
such educational institution;
 services relating to admission to, or conduct of examination
by, such institution
16

• Services (not all) provided to eligible educational institutions are
exempted
• All services provided only to its students, faculty and staff by an
eligible educational institution would be exempt
• Exemption to services received by educational institution
restricted only to specified services
• Services provided by way of renting of immovable property to
educational institutions – exemption stands withdrawn
• Concept of 'auxiliary educational services' under para 2(f) of N.
No. 25/2012-ST dated 20.06.2012 stands deleted.
17

• Services exempted prior to 11.07.2014 but now taxable -
Any outsourced services relating to any skill, knowledge, education or
development of course content or any other knowledge – enhancement
activity, whether for the students or the faculty, or any other knowledge –
enhancement activity, whether for the students or the faculty and
 any other services which educational institutions ordinarily carry out
themselves but may obtain as outsourced services from any other person.
Services provided to other institutes
• ‘Educational institution' means an institution providing services specified in
clause (l) of section 66D of the Finance Act, 1994. i.e., pre-school, education
upto higher secondary, education as a part of curriculum etc. - Para 2(oa) of N.
No. 25/2012-ST, dated 20.06.2012.
(Applicable w.e18.f. 11.07.2014)

Accommodation services
Services by way of renting of a hotel, inn, guest house, club, campsite, by
whatever name called or other commercial places meant for residential or
lodging purposes, having declared tariff of a unit of accommodation below
rupees one thousand per day or equivalent – Entry (18)
• Prior to 11.07.2014, services by way of renting of a hotel, inn, guest house,
club, campsite or other commercial places mean for residential or lodging
purposes, having declared tariff of a unit of accommodation below Rs. 1,000
per day or equivalent, were exempt.
• Words 'way of renting of' have been deleted; and words 'or other commercial
places' have been substituted by "by whatever name called".
19

Accommodation services
• Services by way of renting of any place meant for residential / lodging purposes
having declared tariff of Rs.1000 or above are covered under Service Tax.
• Dharmashalas, ashram or any such entity offers accommodation - taxable
• Renting of vacant land or buildings for hotels would continue to be taxable
irrespective of the hotel's declared tariff
20

Scope of Exemption Expanded
• Services by way of transportation by rail / vessel of -
 organic manure,
 cotton, ginned or baled
shall be exempt from Service Tax – Entry (20)
• Services provided by GTA by goods carriage of
 organic manure,
 cotton, ginned or baled
shall be exempt from Service Tax – Entry (21)
21

Exemption Curtailed
Transport of passengers, with or without accompanied
belongings, by -
 Non-air conditioned contract carriage other than radio
taxi, for transportation of passengers, excluding
tourism, conducted tour, charter or hire
• Exemption withdrawn for services of transportation of passengers by an
air-conditioned contract carriage
• Prior to such amendment all contract carriages whether air-conditioned or
non air-conditioned were covered.
22

Exemption Curtailed
• The following functions of municipality are exempted from service
tax-
 water supply,
 public health,
 sanitation conservancy,
 solid waste management or
 slum improvement and up-gradation - Entry (25)
• Prior to such amendment, any activity in relation to any function ordinarily
entrusted to municipality under article 243W of the Constitution (urban
planning, planning for economic and social development, fire services,
etc.) were covered under exemption
23

Scope of exemption expanded
Services of life insurance business under scheme of life micro-insurance
product as approved by the Insurance Regulatory and
Development Authority, having maximum amount of cover of fifty
thousand rupees is exempt from Service Tax – Entry (26A)
• Life micro-insurance product is defined under para 2(xa) of N. No.
25/2012-ST dated 20.06.2012
• Life micro-insurance product means –
 any term insurance contract with or without return of premium,
 any endowment insurance contract / health insurance contract, with or
without an accident benefit rider,
 either on individual or group basis,
 as per terms stated in Schedule-II appended to these regulations
24

S. No. Period of Delay Rate of simple interest (p.a.)
1 Upto 6 months 18%
2 Between 6 to 12 months 18% for the first 6 months +
24% for the remaining period
3 More than 12 months 18% for the first 6 months +
24% for the next 6 months + 30
% for the remaining period
25

Example of new Interest provision (as per TRU)
Delay - 15 months; Amount – Rs.1 lakh
If paid prior to 1.10.2014 –
Interest @ 18% p.a. for 15 months
• 3 % interest rate concession u/s 75 still continue to specified persons
• This rate structure will not be applicable on VCES cases as interest @ 18%
p.a. is payable under the scheme which ends on 31 December, 2014
• Upto 30.09.2014, the rate of interest is 18% p.a.
• The rate of interest is simple interest per annum
Rs. 22,500/-
If paid after 1.10.2014 (1.08.2013 to
1.11.2014 ) –
Period upto 30.09.2014 ( 14 months @ 18% p.a.)
1 month @ 30% p.a. (as delay is > 1 year)
Rs. 21,000/-
Rs. 2,500/-
Rs. 23,500/-
26

Due Date Date of
Payment
Delay
Period
@ 18% @24% @30%
1.6.2014 31.10.2014 5 5 months - -
1.6.2014 30.05.2015 12 6 months 6 months -
1.6.2014 31.07.2015 14 6 months 6 months 2 months
1.1.2014 30.09.2014 9 9 months - -
1.10.2013 31.10.2014 13 12 months - 1 month
27

Rule 7 - Determination of Point of Taxation in case of specified services or
persons (Reverse charge mechanism)
• POT in respect of services covered under RCM shall be earlier of :
 the date of payment, or
 the first day after three months from the date of invoice (i.e., where payment has
not been made)
• Prior to this amendment, time period for payment was six months.
• Prior to this amendment, in case when payment was not made within prescribed
period ( 6 months) , rule 3 (general rule) was applicable.
• W.e.f. 1.10.2014, Rule 3 will not be applicable in case of delayed payment, as earlier
• This change will be applicable only to the invoices issued on or after 01.10.2014
(Transitional Rule No. 10)
28

Particulars Period Rule POT
Prior to 1.10.2014
Payment made
Payment made
Within 6
months
After 6
months
7
Proviso to Rule 7 –
Rule 3
Date of Payment
• Date of invoice
raised (if invoice
raised within
specified period)
• otherwise date
of completion of
service
W.e.f. 1.10.2014
Payment made
Payment made
Within 3
months
After 3
months
7
Proviso to Rule 7
Date of Payment
The next date
immediately
following the said
period of 3 months
29

Rule 4 - Place of Provision of Performance Based Services
• Services relating to re-engineering and re-conditioning of imported goods will
no longer be excluded under Rule 4(a).
• Prior to this amendment, re-engineering and re-conditioning were covered
under Rule 3 and POP was the location of the service receiver
• W.e.f. 1.10.2014, re- engineering and reconditioning of imported goods will
covered under rule 4 and POP shall be the location where the services are
actually performed
• Only repairs of goods are now covered
• Goods repaired should not be put to use in India
• Use of such goods for the purpose of repair itself is allowed
• This exclusion is not applicable to the goods that arrive in the taxable territory in
the usual course of business
(applicable w.e.f. 1.10.2014)
30

Rule 9 – Place of Provision of Specified Services
Intermediary redefined-
Intermediary means a broker, an agent or any other person, by
whatever name called, who arranges or facilitates a provision of
a service or a supply of goods, between two or more persons,
but does not include a person who provides the main service or
supplies the goods on his account
• The term “intermediary” has been expanded to cover the services in
relation to supply of goods
• In case of intermediary of goods, POP shall be the location of service
provider and their services shall now be taxable (earlier out in Rule 3)
31

• Intermediaries for goods includes commission agent / broker/ agents
working as middlemen between vendors and prospective buyers
• Prior to 1.7.2012, intermediaries covered under business auxiliary services
• W.e.f. 1.7.2012 to 30.09.2014 covered under rule 3 of POP rules and out of
service tax net – location of service receiver
• W.e.f. 1.10.2014 covered under rule 9 of POP rules and liable to pay
service tax even in case of export of service
• In case of foreign commission agents providing services to Indian principal,
payment has to be made in foreign exchange but no service tax liability –
location of service provider being outside India
32

Clause (d) substituted as under -
Service consisting of hiring of all means of transport other than,-
(i) aircrafts, and
(ii) vessels except yachts,
upto a period of one month.
• Services of hiring of aircraft, vessels ( except yachts) upto a period of one month are
excluded from Rule 9(d) of POPS Rules
• POP will be the place of service recipient in case of services of hiring of vessels (excluding
yachts) / aircraft ( whether short term or long term)
• Transportation by yachts are still covered under rule 9 (service provider will be liable )
33

Order passed by Appellate Authority % of duty and / or penalty
required as pre-deposit
Any officer of a rank lower than
Commissioner of Central Excise
Commissioner
(Appeals)
7.5 (maximum of Rs. 10
crores)
Commissioner of Central Excise CESTAT 7.5 (maximum of Rs. 10
crores)
Commissioner (Appeals) CESTAT 10 (additional over and
above 7.5% paid earlier)
(maximum of Rs. 10 crores)
• The amount of Pre-deposit payable would be subject to a ceiling of Rs. 10
Crore
• Amendment is prospective and not applicable to appeals and stay
application filed and pending for decision prior 06.08.2014
34

• “Duty demanded” shall include—
 amount determined under section 11D;
 amount of erroneous Cenvat credit taken;
 amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the
Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.”
• In case of appeal against demand and penalty, pre-deposit is of 7.5% or
10% of the demand
• In case of appeal against penalty, pre-deposit is of 7.5% or 10% of the
penalty
• Stay application may not be required to be filed before any appellate
authority henceforth
35

Impact of new section 35F / 35FF (Central Excise)
• Stay application no longer required at both stages
• Will reduce appellate work significantly as more than 50% pendency is
on account of stay applications
• Will discourage discretion and arbitrariness in decisions in granting pre-deposit
• Ever alternative remedy in writ not possible now.
• Will address issue of alleged corruption
• Will avoid conceive recoveries
• Saving of avoidable litigation from assessees view point
• Win- win situation for both the parties
36

Impact of new section 35F / 35FF
• But what happens to genuine hardship cases?
• No stay even in procedural contraventions!
• Departmental appeals against refunds –stay?
• Hardship on sick units / BIFR cases?
• Injustice to assessee in blatantly bad orders
• Rate of interest may be @ 6% to 36% as notified by the Central Government
from the date of payment of the amount till the date of refund of such amount
on the success of appeal
• Vide N. No. 24/2014-CE(NT) dated 12.08.2014, rate of interest is 6% p.a. for
the purpose of section 35FF.
• Earlier , interest was payable after 3 months of appellate order
37

Obligation to furnish Information (Section 15A of Central Excise)
• ‘Third eye’ to check tax evasion trail u/s 15A and 15B to call for third party
data, mandatory information filing and penalties (first time in indirect taxes)
• Specified persons to furnish information return containing details of tax,
transactions, bank account, consumption, investment etc.
• Period, time, form (including e-form), manner and to whom - to be
prescribed
• Persons include assessee, local authority, State Government, banks, Income
Tax authority, Electricity Companies/ Boards, Registrar (Property, Companies,
and Motor vehicles), stock exchanges, depository etc.
• Defective information to be rectified in 30 days
• Notice to be served for non-supply of information; to be submitted within 90
days thereafter
38

Penalty for failure to furnish information
(section 15B of Central Excise)
• Penalty applicable to any or all specified assessees-no
exemption to any authority / persons
• Penalty on failure to furnish required information
after notice
• Monetary penalty of Rs. 100 per day of such failure
till such failure continue
• Information authority to be notified
39

Director ‘s services
• Director of body corporate covered under RCM
• 100% Liability has to be discharged by the body corporate not by director of body
corporate
Recovery agents
• Services of recovery agent to a banking company, financial institution / non-banking
financial company now under RCM
• 100% liability has to be discharged by service provider being banking company,
financial institution, non-banking financial company
Renting of motor vehicles
• Renting of motor vehicles service (without abatement) – ratio changed to 50:50 to
be shared between service provider / recipient
40

• In case of GTA service, the condition is that Cenvat credit on inputs, capital
goods and input services used for providing the taxable service should not be
taken by the service provider
• Prior to this, there was a confusion that whether service receiver or service
provider should not take Cenvat credit
• Services provided by air-conditioned contract carriage has been made taxable
and an abatement of 60% shall be available subject to fulfillment of conditions
• The abatement on transport of goods by vessel has been increased by 10 % and
effective tax rate is now 4.94% w.e.f. 1.10.2014 ( prior to 1.10.2014 – 6.18%)
• Radio taxi is allowed abatement of 60% and effective rate is 4.94% w.e.f. notified
date. (1.10.2014)
41

Upto 30.09.2014, Valuation under Rule 2A is as follows-
Where works contract is for… Value of the service portion shall
be…
Execution of original works forty percent of the total amount
charged for the works contract
Maintenance or repair or
reconditioning or restoration or
servicing of any goods
seventy per cent of the total
amount charged including such
gross amount
In case of other works contracts,
not included in serial nos. (A) and
(B) above, including contracts for
maintenance, repair, completion
and finishing services such as
glazing, plastering, floor and wall
tiling, installation of electrical
fittings.
sixty percent of the total amount
charged for the works contract
42

• Category B & C of works contract service under Rule 2A(1)(ii) has
been merged and service tax has to be paid @ 70% of the value
• For valuation of work contract, now only two categories will exist –
Original work 40% of the total
amount charged
Other than original work ( i.e., maintenance or
repair or reconditioning or restoration or
servicing of any goods or maintenance or repair
or completion and finishing services such as
glazing / plastering / floor and wall tiling etc.
70% of the total
amount charged
43

• Mandatory e-payment for all assessees w.e.f. 1.10.2014
• Amendment in Rule 6(2) of Service Tax Rules, 1994
• Payment to be made electronically through internet banking
• Relaxation from e-payment may be allowed by jurisdictional
AC / DC on a case to case basis
• Permission to allow payment other than by internet banking
only after reasons to be recorded in writing.
44

Rule 4 – Conditions for allowing Cenvat Credit
• Credit on input and input services can be availed within a period of 6 months from the date of
invoice / challan / other specified documents (applicable w.e.f. 1.09.2014)
• In case of 100% RCM, credit can be taken immediately on the payment of tax
irrespective of payment or non-payment of value to the service provider ( applicable
w.e.f. 11.07.2014)
• In case of 100 % RCM, no reversal of Cenvat credit required if payment is not made to
the service provider within 3 months from the date of invoice ( applicable w.e.f.
11.07.2014)
• Change in partial RCM only in relation to time (payment has to be made to service
provider within 3 months)
45

Particulars Payment to
Service
provider
Service tax
payment
Credit taken Reversal
When service
tax is paid by
service
provider
Within 3
months
After 3
months
Alongwith invoice
payment
Alongwith invoice
payment
Immediately on
receipt of services
Immediately on
receipt of services
No
Yes
When service
tax is paid by
service
receiver
Within 3
months
After 3
months
made within 3
months
After 3 months
Date of payment
Date of payment
No
No
When service
tax is paid
partly by
service
provider and
service
receiver
Within 3
months
After 3
months
Alongwith invoice
payment
Alongwith invoice
payment
Immediately on
receipt of services
Immediately on
receipt of services
No
Yes
46

Rule 6 – Obligation of a manufacturer or producer of final products
and a provider of output service
• Re-credit of exports related credit reversals permitted only if
proceeds are collected within the time period allowed by RBI plus an
additional one year
• If service provider avails abatement of renting of motor vehicle ,
receiver can take 40% Cenvat credit of input service without being
required to establish satisfaction of the condition by the service
provider
• Tour Operator service providers allowed to avail Cenvat credit on
input service of another tour operator used for providing taxable
service
47

Other changes
• LTUs are no longer eligible to transfer credit availed on or after 11.07.2014 to its units
• Manner for distribution of credit by input service distributor has been clarified
• Availment of Cenvat credit in relation to GTA service clarified and restriction (on not taking
credit on inputs, capital goods and input services) is applicable only to service provider
( applicable w.e.f 11.07.2014)
• Cenvat credit shall be available for rent-a-cab services received by the main contractor from a
sub-contractor. (applicable w.e.f. 1.10.2014)
• Power to impose restrictions in certain cases will now cover any service provider [ Rule 12AAA
w.e.f. 25.08.2014 ]
• A Service Tax Certificate for Transportation of goods by Rail (STTG certificate) issued by the
Indian Railway, alongwith photocopies of Railway Receipt (RR) mentioned in STTG certificate
is a document on which Cenvat credit shall be taken by the manufacturer or the provider of
output service [ vide N. No. 26/2014 –CE (NT) dated 27.08.2014]
48

• Rate of exchange u/s 67A is to be determined as per rules to be
prescribed
• Presently, the rate of exchange is the rate notified u/s 14 of the Customs
Act, 1962
• Time limit has been recommended for adjudication of SCN within–
 Six months (of SCN) extended period not invoked (18 months)
 One year (of SCN) extended period invoked
• Section 80 benefit of penalty waiver not available in case of serious
offences of suppression / misstatement
• JC/AC/ any other officer notified by CBEC empowered to authorize any
person to undertake search and seizure
• Power to recover dues of a predecessor from the assets of a successor
which are purchased from the predecessor (section 87)
49

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