CA Amit Lath
1. Introduction
Budget of successive years introduces amendment
in various tax laws with the aim of rationalization in the tax regime of the
country. Budget 2012 in the same row came out with various amendments in direct
and indirect laws.
Government has celebrated the attainment of
majority (18 years) of Service tax laws introduced in the year 1994 by bringing
drastic changes. The changes have tried to justify the “Major” status of service
tax laws. GST is supposed to be roll out next year. Smooth introduction of GST
requires changes in the current tax regime and these changes are much in that
direction.
What is service?
Clause (44) of newly introduced Sec 65(B) defines
service as:-
- Any activity
- carried out by a person to another
- for consideration
- and includes declared services.
The said definition also provides that ‘service’
doesn’t include –
- any activity that constitutes merely a transfer in title of i) goods or ii) immovable property, by way of sale, gift or in any other manner
- a transaction only in (iii) money or (iv) actionable claim
- service by an employee to the employer in the course of or in relation to his employment.
- fees payable to a court or a tribunal set up under a law for the time being in force
- 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
Explanation 2 further adds that following shall
be considered as distinct person:-
a) an unincorporated association or a body
of persons and a member thereof.
b) an establishment of a person in the
taxable territory and any of his other establishment in a non-taxable
territory.
2. Charging section (Sec
66B)
Service tax to be levied at 12% on the value of
all services, other than those specified in the negative list, provided or agreed to be provided in a
taxable territory by one person to another.
3. Declared
services
With the aim of bringing clarity a list of
declared services has been introduced. Definition of
“Service” includes these declared services within its
ambit. These services have been deemed as service.
4. Negative List
Approach for taxation has shifted from positive
list to negative list. Earlier services specified in section 65(105) were
subject to taxation. Many of the services had specific exemptions, abatement’s
etc. Classification played a crucial role in taxability of services. Many times
these classification led to litigation. Now this entire approach has changed and
every services not specified in the negative list is
subject to service tax.
5. Exemptions
A mega exemption notification (Notification No.
25/2012) dated 20.06.2012 superseding
notification number 12/2012 dated the
17th March, 2012 has been issued by the department. This list primarily covers
services provided to govt. or for public welfare. For e.g. – Health care
services by a clinical establishment, an authorized medical practitioner
or Para-medics, Services by way of collecting or providing news by an
independent journalist, Press Trust of India or United News of India, Services
by way of renting of a hotel, inn, guest house, club, campsite 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.
6. Abatement
Abatement have been provided at specified rates
on various services. These services are primarily related to transportation of
goods, passenger & construction
services. (Notification 26/2012)
7. Reverse charge mechanism
(Notification 30/2012,36/2012)
Usually service provider is liable to pay service tax for the
services provided except for the few services covered under reverse charge,
under which service receiver is liable to pay service tax.
This mechanism has not been altogether a new
mechanism. This mechanism was prevalent in the earlier service tax law as well.
However scope of this mechanism has been enlarged in a greater way. Furthermore
a new concept of “partial reverse charge” has been introduced where
service provider as well as service receiver is made
liable to pay service tax in specified percentage for a particular service.
Introduction of this mechanism brings many questions in the mind of assesse.
Following could be few of the questions:-
1) When a service receiver is not providing
any service whether he is required to get himself registered?
Sec 69 provides that every person liable to pay
service tax is required to get himself registered.
Accordingly service receiver is also required to get himself
registered. Furthermore service receiver will have to
file periodical returns as well.
2) Whether there is any liability on service
receiver if service provider is small
service provider and not liable for taxation?
Yes, service receiver has to pay service tax
liability on his account.
3) Whether service receiver can pay service
tax by availing cenvat credit?
No, service receiver cannot utilize
cenvat credit for payment of service tax.
4) Whether a service receiver is liable to
determine his liability and pay accordingly or he is liable to pay according to
service tax shown in the invoice of service
provider?
CBEC has clarified that the liability of Service
receiver and service provider are different and
independent of each other.
5) What will be point of taxation for
service receiver and service provider?
Point of taxation for service
provider is date of payment or invoice issued whichever is
earlier(provided invoice issued within 30 days) whereas point of taxation for
service receiver is date of payment However if the payment is not made within 6
month from the date of invoice, POT shall be deemed to have occurred on the date
of invoice.
6) Whether Invoice issued by
service provider will show the entire amount of
service tax payable or only the tax payable on his account?
Rule4 A of service tax rules provides for
issuance of invoice by service provider. Further as
per clause (IV) of Sub rule (1) “service tax payable thereon” shall be indicated
on the invoice. Accordingly entire amount of service tax shall be shown on the
invoice.
7) If a person has been
registered as service
provider and now he is also liable to pay service tax as service
receiver, whether any amendment in service tax registration is required?
With the introduction of “Negative list” concept,
registration for specific services has been withdrawn; ST-1 has accordingly been
modified. However a person liable to pay service tax as service receiver has to
get certificate amended and include service receiver in the registration certificate.
8) Is the reverse charge applicable on
services provided and complete before 1.7.2012 though payments were made after
1.7.2012?
For any service whose point of taxation has been
determined and whole liability affixed before 1.7.2012 the new provisions will
not apply. Merely because payments are being made after 1.7.2012 will not add
any additional liability on the service receiver in respect of such services
Few services on which service tax is payable
under reverse charge. (Work contract has been covered under the respective
section).
| Description of services | Provided by | Provided to | Liability to pay |
| Manpower supply | Any individualHUFProprietary firmPartnership
FirmAssociation of person
located in the taxable territory |
Any Company registered under companies ACT.Business entity registered as body corporatelocated in taxable territory. | SR-75%SP-25% |
| Renting or hiring of motor vehicle to carry passenger on aabated value i.e. 40%Non abated value | Same as above | Same as above | SR-100%
SR-40% SP-60% |
| Support services | Government or local authority | SP – NIL SR -100% | |
| Legal service | An advocate or A firm of advocate | Business entity whose turnover exceeds Rs. 10lakhs | SR-100% |
| Arbitral services | SR 100% | ||
| Import of taxable services | Any person | Any person | SR 100% |
| Goods transport agency*** |
*** Earlier if the consignor or consignee was a
specified person then the person liable to pay freight was liable to pay service
tax. For e.g. in earlier regime say a consignment was sent to ABC ltd. by Mr. A
and as per agreement freight was to be paid by A. The consignee ABC Ltd. was a
specified person then MR. A, being liable to pay freight was also liable to pay
service tax.
Recent changes provides that if the person liable
for making payment of freight is a specified person then he is liable to pay
taxes otherwise GTA is liable to pay taxes. Under current regime MR. A, liable
to pay freight is not a specified person so GTA has to pay service
tax.
8. Construction Activities
Service tax laws with respect to construction
have been amended in a greater way. All new concepts, mechanism introduced in
the new regime can be understood by understanding this particular service. None
of the construction related activities has found space in Negative list.
a) List of declared services contain
following activities related to construction.
i) Construction (including
additions, alterations, replacements or remodeling of existing civil structure)
of a complex, building, civil structure or a part thereof, intended for
sale wholly or partly to a buyer However it will exclude in case where the entire
consideration is received after issuance of a Completion
Certificate..
ii) Service portion in the
execution of work Contract.
b) Construction (including maintenance,
repair, alteration, renovation or restoration) of road, bridges, tunnel,
pipeline, electric crematorium etc. for the public use has been exempted from
the service tax. specified Services provided to govt. or local authority for
non- commercial use, sub-contractor providing works contract service to another
contractor who is providing exempted works contract services, Service by way of
erection or construction pertaining to airport, port or railways has also been
exempted. (Entry 12/13/14/29 of notification no. 25/2012)
Service related to construction of single
residential unit otherwise as a part of a residential complex has been exempted.
Residential complex has been defined as “residential complex means any complex
comprising of a building or buildings having more than one single residential
unit. Hitherto, residential complex means only a complex comprising of more than
12 residential units. Hereafter, any complex having more than one residential
unit would attract the levy of service tax.
c) Work Contract
i) Introduction
Scope of work contract has been extended under
the new definition. The definition has covered movable property as well in its
scope; earlier only immovable properties were covered. This new definition will
cover many services such as authorized service stations, repairs &
maintenance etc. provided the goods supplied in execution of such activities are
subject to VAT/Sales tax
New Definition:-
“Works Contract means a contract wherein transfer of property in
goods involved in the execution of such contract is leviable to tax as
sale of goods and such contract is for the purpose of carrying out
construction, erection, commissioning, installation, completion, fitting out,
repair, maintenance, renovation, alteration of any movable or immovable
property or for carrying out any other similar activity or a part
thereof in relation to such property.”
ii) Valuation under work contract(Rule 2A of the
Service Tax (Determination of Value Rules, 2006)
a) Where service portion is determinable,
Value of work contract shall be gross amount charged for the work contract less
the value of transfer of property involved. Sales tax or vat is not included in
gross value. Furthermore where value added Tax has been paid on the actual value
of transfer of property in goods involved in the execution of the works
contract, then such value adopted for the purposes of payment of Value Added
Tax, shall be taken as the value of transfer of property in goods.
b) Where service portion is not determinable:- | Work pertaining to | Value of services |
| Original works |
40% of the total amount charged
|
| Maintenance, repair,reconditioning orrestoration, or servicing of any goods. |
70% of the total amount charged
|
| In case of other contractsnot included above |
60% of the total amount charged
|
Original works includes additions and
alterations to abandoned or damaged structures on land that are required to make
them workable
“total amount” means the sum
total of gross amount and the value of all
goods, excluding the value added tax, if any, levied
on goods and services supplied free of cost for
use in or in relation to the execution of works contract, under the
same contract or any other contract:
where the value of goods or services supplied
free of cost is not ascertainable, the same shall be determined on the basis of
the fair market value of the goods or services that have closely available
resemblance
| Gross Amount | - |
| (+) Goods and services supplied free of cost | - |
| (-) Value added Tax | - |
| TOTAL AMOUNT | - |
Duty of excise paid on any goods, property which
is transferred (whether as goods or in some other form) in the execution of
works contract, shall not be availed as CENVAT credit.
iii) work contract under Reverse charge
Applicability of reverse charge mechanism is not
dependent only on the nature of services but to ”Who” and by “whom” also .In
case of work contract services provided by any individual,HUF,Proprietary Firm,
Association of person located in the taxable territory.
| Description of services |
Provided
by
|
Provided to | Liability to pay |
| Work contract | Any individual HUF Proprietary firm Partnership Firm Association of person located in the taxable territory | Any Company registered under companies ACT.Business entity registered as body corporate located in taxable territory. | SR-50%SP-50% |
iv) Abatement
Abatement of 75% onConstruction of a complex,
building, civil structure or a part thereof, intended for a sale to a buyer,
wholly or partly except where entire consideration is received after issuance of
completion certificate by the competent authority has provided on satisfaction
of two conditions:-
a) Value of Land is Included.
b) CENVAT credit on inputs used for
providing the taxable service has not been taken under the provisions of the
CENVAT Credit Rules, 2004
Conclusion
Finance minister while introducing the changes
said :-
“More than as a revenue
garnering measure, negative list is expected to make the administration of the
tax simple, both for the department as well as the taxpayers, reduce litigation
and usher a regime much closer to our eventual goal of Goods and Services
Tax”
These changes in the long run may prove the
confidence of finance minister true but currently lack of clarity in many of the
provisions, lack of understanding of the taxpayers is going to lead towards more
litigation, making the administration of tax complex.
Author can be reached at amitkumar20@ntpc.co.in
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Thanks,
Akash Agrawal.
Exemption provided under exemption list is applicable when parking is used for general public . I am reproducing the text as in exemption list :-
“Services by way of vehicle parking to general public excluding leasing of space to
an entity for providing such parking facility”
so in your case the particular paragraph referred by you is not applicable.
Furthermore please let me know whether there is seperate agreement for parking space or part of the same contract for flat.
We have recently purchased a flat in Noida, for which the builder has demanded 2 Lacs as parking charges. He now says that the tax payable is Rs. 24,000.
Referring to clause 7.11.7 on page 104 of the Service tax guide from the Indian Govt : www. servicetax.gov.in/st-edu-guide.pdf , it says we are not liable to pay any tax. Will you please care to elaborate on this, if we need to pay the tax on this or not?
Thanks in advance, Pragati
all the payment included in appointment letter is salary
Yes its cover wide Notif. no. 45 resently issued by department.
Please advice Service Provided by Director to Company is new service Introduce.
In our co. Directors are geting salary, How to calculate Service Tax
Security Service is not cover in “Manpower supply” because there is no control of Service Reveiver on Security Guard.
Please details your query for appropriate reply. in case you mean providing security guard then same is manpower supply.
Your query can be replied only based on actual numbers.
1 in case all material is supplied by SR, then ST is payable on 100% of SP invoice amount
2 other situation -abated value
You can take credit of 75% (paid by you) as well as remaining portion of service tax in invoice (if charged by RP)
thanking you
raghu
i am providing comprehensive maintenance of computers to privite limitec comapany.
till now i was chaging 12.36% service tax on base amount.so please tell me is my service covered in work contract and how service tax is applied.
I m hereby sharing the relevant portion of notification 26/2012.
‘as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (3) of the said Table,’
renting of motor vehicles, rent-a-cab service, etc. whether Cenvat Credit on Service tax payment made by service provider and recipint available as we are presently taking 75% S.Tax paid on inward freight amount on the basis of GAR-7 challan. I request you to please clerify this thing.