FINANCE
ACT 2010 & 8 NEW SERVICES BROUGHT UNDER SERVICE TA X AMBIT
WHICH
new services have been brought under the ambit of Service Tax with effect from
May 8, 2010, i.e. the date of enactment of the Finance Act, 1994 (14 of 2010)?
The
Union finance minister had introduced the Finance Bill, 2010 in the Lok Sabha
on February 26, 2010. Later, during the budget debate in the last week of April
2010 certain exemptions were extended for the purpose of levy of Service Tax.
On May 8, 2010, the
President gave her consent to the Finance Bill and
thus the Finance Act, 1994 (14 of 2010) has come into effect from that date.
Eight
new taxable services have been brought under the ambit of Service Tax through
appropriate amendments in sub-section 105 of Section 65 of the Finance Act, 1994.
The new services range from promotion and marketing of lotteries to special services
provided by the builders. The services provided for promotion or marketing or
organising games of chance are now covered by introducing a separate taxable service
[Section 65 (105) (zzzzn)] to cover the services in connection with games of chance,
organised, conducted or promoted by the client, in whatever form or by whatever
name called (such as lottery, lotto) under the 'Games of chance' service. The
tax would be applicable also to such games conducted online.
With
the enactment of the Finance Act, 1994 (14 of 2010), services in the health sector
are also brought under the ambit of Service Tax. Under the proposed new service,
tax has been imposed on the medical charges paid by insurance companies to hospitals
on behalf of a business entity for its employees. As such, the insurance company
would be the service receiver and the tax paid by the hospital would be available
to the insurance companies as credit.
The
tax on health services would be payable only if and to the extent the payment
for such medical check-up or treatment etc. is made directly by the business entity
or the insurance company to the hospital or medical establishment. This new taxable
service is defined under Section 65 (105) (zzzzo). Any additional amount paid
by the individual (i.e. the employee or the insured, as the case may be) to the
hospital would not be subject to service tax. This is to ensure that an individual
is not required to pay a tax for which he cannot take credit. Apart from this
services provided for maintenance of medical records of employees of a business
entity [Section 65 (105) (zzzzp)] are also brought under the Service Tax net.
The
Service Tax department has faced difficulties in the past in classifying certain
services under the taxable category. If the brand name/house mark etc. is promoted
by a celebrity without reference to any specific product or services etc., it
is difficult to classify it. Such activities, like mere establishing goodwill
or adding value to a brand would fall under this newly-introduced service.
This
new taxable service of promoting of a 'brand' of goods, services, events, business
entity etc [Section 65 (105) (zzzzq)] has now come into effect. A new taxable
service of permitting commercial use or exploitation of any event organised by
a person or organisation [Section 65 (105) (zzzzr)] has now come into effect.
This
service now seeks to tax the amount received by a person or organisation, who
permits the recording and broadcasting of the event, from the broadcaster, or
any other person, who seeks to commercially exploit the event.
In
the recent past, exchanges have been set up for transactions in electricity. The
Central Electricity Regulatory Commission authorises such exchanges. Since electricity
exchanges are not covered by Forward Market Regulations, such transactions are
not covered under the commodity exchange taxation. A new taxable service has been
introduced [Section 65 (105) (zzzzs)] which seeks to tax the charges recovered
for services in relation to assisting, regulating, controlling the business of
trading, processing and settlement pertaining to sale or purchase of electricity
by the associations authorised by Central Electricity Regulatory Commission.
Services
related to two types of copyrights were not covered under the existing taxable
service of 'Intellectual Property Right (IPR)'. These two - on cinematographic
films and sound recording - have now been brought under the Service Tax net [Section
65 (105) (zzzzt)]. However, it may be noted that this taxable service will not
cover individual artists, composers, performers etc. as their copyrights fall
under clause (a) of Sec. 13 of the Copyright Act. The finance ministry is constantly
exploring new tax avenues. The builders of residential or commercial complexes
provide certain facilities and charge separately for them.
These
charges do not form a part of the taxable value for charging tax on construction.
These facilities include: (a) prime/preferential location charges for allotting
a flat/commercial space according to the choice of the buyer (i.e. direction-
sea facing, park facing, corner flat; floor- first floor, top floor; Vastu - having
the bed room in a particular direction; number- lucky numbers); (b) internal or
external development charges which are collected for developing/maintaining parks,
laying of sewerage and water pipelines, providing access roads and common lighting
etc; (c) fire-fighting installation charges; and (d) power back-up charges etc.
Since
these charges are in the nature of service provided by the builder to the buyer
of the property over and above the construction service, such charges are being
brought under the Service tax. These special services provided by a builder to
the prospective buyers, such as providing preferential location or external or
internal development of complexes on extra charges is now taxable [Section 65
(105) (zzzzu)].
Charges
for providing parking space have been specifically excluded from the scope of
this service. Development charges, to the extent they are paid to state government
or local bodies, would be excluded from the taxable value levy. Further, the ministry
has already clarified vide its letter dated 26.02.2010 that any service provided
by Resident Welfare Associations or Cooperative Group Housing Societies, consisting
of residents/owners as their members, would not be taxable under this service.
NEW
DELHI, APRIL 04 : THE Associated Chambers of Commerce and Industry of India
(ASSOCHAM) has urged the Finance Ministry to keep marketing and sales promotion
activities of India Inc. for rural areas outside purview of service tax in a bid
to further widen its rural sales as also articulate government commitment for
deepening inclusive growth in rural areas.
The
service tax exemption can be worked out by making rural sales as benchmark and
amount clearly spent on sales and marketing activities since Indian Inc. always
has its record with it, feels the ASSOCHAM.
Since
the next level of growth is coming from rural as well as tier II and tier III
cities due to availability of income, arising out of social beneficiary schemes
of UPA government like NAREGA, Indira Awaas Yojana and Bharat Nirman which have
lent greater purchasing power in hands of rural folks.
Therefore,
with a view to further enhance their buying capacity, a suggestion to exempt sales
and marketing efforts and expenses from service tax for rural areas should be
worthy of consideration. This is because it will serve twin purpose of increasing
rural sales at reduced rates and also articulate government commitment for deepening
inclusive growth in rural areas.
In
its Post-Budget Memorandum submitted to the Finance Minister, Mr. Pranab Mukherjee
by ASSOCHAM President, Dr. Swati Piramal, it has been highlighted that rural folks
have already started stimulating demand for products and articles of Indian industry
and therefore these can be rewarded in form of tax concessions by serving them
sales at reduced rates.
Not
only rural folks would be its beneficiary but it will equally percolate to manufacturers.
Indian industry keeps a record of its rural sales and amount spent on marketing
and sales promotional activities with documentary evidences for claiming service
tax exemptions, pointed out Dr. Pirmal. The suggested move if accepted will
not only enhance sales of branded and quality products in rural areas but also
prevent widespread use of fake products in rural economy. It will also create
awareness among rural masses for high quality consumer goods and prevent to a
large extent unscrupulous players take advantage of current reality of flooding
rural markets with goods of sub-standard quality, pointed out the ASSOCHAM
representation.
In
addition, the ASSOCHAM has demanded that the service tax on transportation of
agri products such as oil seeds, edible oils and de-oil cakes should also be abolished
since India is deficit of oil seeds and edible oils.
This
would also be in line with philosophy of excluding from the purview of service
tax a lot of farming and agriculture related services like leasing of land and
agricultural equipment including agri extension services, feels the ASSOCHAM.
On
the issue of service tax exemption on agri products, the ASSOCHAM representation
points out that road transportation service has been exempted from service tax
in respect of transportation from food grain, pulses which is a positive step
to bring down end prices of these commodities.
In
this context, the Chamber has highlighted that India currently has a deficit of
oil seeds and edible oil necessitating significant imports of edible oils.
These imports are subject to global market volatilities thereby often causing
spiraling of domestic prices of these essential commodities.
The
fluctuating prices of oil seeds also impact upon the end prices of de-oil cakes
that are used in poultry and animal feed industry which is a major employment
generator in rural areas. Affordability of these items for end-consumers is as
critical as end prices for food grains and pulses. Hence, the ASSOCHAM recommends
that service tax on transportation of oil seeds and edible oil including de-oil
cakes be removed. (editor@thesynergyonline.com)
NEW
DELHI, MARCH 27 : UNION Development Ministry would shortly seek withdrawal
of service tax imposed on real estate sector by Finance Minister in his Budget
Proposals for 2010-2011 as the sector is still in pink, says Union Minister of
Urban Development, Mr. Jaipal Reddy.
Inaugurating
ASSOCHAM organized National Conference on Indian Real Estate here today, Mr. Reddy
said that his Ministry would make a detailed representation to Finance Minister,
Mr. Pranab Mukherjee, in next few days seeking review of the Service Tax on Real
Estate Sector.
Responding
to a query raised by past president, ASSOCHAM, Mr. K.P. Singh, who also heads
DLF group of Industries on issue for review of service tax, the Minister responded
in affirmative and argued that service tax on real estate can wait as it is not
yet come out of recession.
On
the issue of real estate regulator for Delhi, Mr. Reddy said that it would be
in place latest by 2010 as process for its legislation would shortly be completed
since the draft bill is already circulated to concerned stakeholders and it would
become an Act in the current year itself since it has already been delayed inordinately.
On the issue of Regulatory Bill, the Minister was categorical that it would
completely eliminate night operators from the real estate sector as also prevent
the sector from indulging into unnecessary profiteering .
Mr.
Reddy also said that as far as Delhi is concerned, the Ministry of Urban Development
would allow vertical development of real estate dwellings in older areas and remaining
sprawl of Delhi provided the Municipal Corporation and Delhi Government assure
availability of all basic amenities such as water, power for its vertical development.
In
this connection, the Minister announced that Ministry of Urban Development
would shortly come out with new relaxed Floor Area Ratio (FAR) regime without
specifying any time frame for it. Mr. Reddy also disclosed that his Ministry
was in concerted and protracted discussions with body like Delhi Development Authority
to develop zones to effectively execute Delhi master plan so that the national
capital becomes a role model for other states to be emulated.
In
his welcome speech Mr. K.P. Singh, Past President, ASSOCHAM and owner of DLF,
blamed the Governments for neglecting plan urban development of mega cities like
Delhi and accused bureaucracy and policy makers for faulty planning as a result
infrastructure and civic amenities of metros have started crumbling.
He
sought to rectify the mistakes of the past by replacing officers of All India
Services from Urban Development Regulatory agencies with technocrats who can make
better planning based on which urban facilities are put up that can last for centuries.
Among
others, who spoke on the occasion comprised, Past President, Mr. Anil K. Agarwal,
Mr. Navin Raheja of Raheja Developers, Joint Secretary, Ministry of Housing and
Urban Development, Mr. S.K. Singh and Secretary General, ASSOCHAM, Mr. D.S. Rawat.
(editor@thesynergyonline.com)
Is
Service Tax payable on retention money held by clients of EPC Contractors?
RECENTLY we received a mail from a multinational engineering consultant/EPC contractor
on the extent of service tax liability on EPC contracts, the excerpts of which
is as follows:
"In
the contracts with our clients, generally there is a provision of 5% or 10% of
total contract value as retention payable at the end of the project. Invoices
(RB bills) are raised for the net amount (after deducting the proportionate retention)
and service tax is levied on the net amount after deducting retention. Whether
levying of service tax on the net amount (after deduction retention) is correct?"
This
is an oft-repeated question faced by service providers executing EPC contracts/turnkey
projects. For the contractors executing mega turnkey projects / EPC contracts,
the payments from the clients are linked to the phase wise completion of the projects
and the payment terms and conditions usually speaks of a certain percentage of
the value of contract being retained by the clients; which only becomes disbursable
to the contractor after completion of the project subject to fulfilling such other
relevant terms and conditions of the contract. The quantum of percentage of retention
money usually serves as a disincentive to delay the execution of the projects
and often serves as a penalty for not executing the projects on time. The
issue is whether service tax is payable on the entire value of the contract or
the net value of the contract arrived after deducting the amount indicated as
retention money in the contracts. Section 67 of Finance Act, 1994 speaks of
service tax being chargeable on the value of taxable service which is the gross
amount charged by the service provider. However, Rule 6 of the Service Tax Rules,
1994 provides that the service provider shall be liable to pay service tax only
on the amounts received from the clients. Since retention money is not received
till the end of the project, in terms of the existing provisions of Rule 6 of
the Service Tax Rules, 1994, service tax may not be paid on such retention money
till the same is released by the client and received by the contractor. Even at
the end of the project, service tax is payable only on the amount actually received
from the client, because in some cases some potion of the retention money may
still be retained by the clients as a penalty for reasons like delay in execution
of the project, quality etc.
NEW
DELHI, MARCH 16 : THE Associated Chambers of Commerce and Industry of India
(ASSOCHAM) has urged the Finance Minister to withdraw Service tax amendments in
the Finance Bill for 2010-11 as they will not only lead to additional tax burden
on home purchases but also adversely impact recovery of entire real estate sector.
In
its Post Budget Memorandum submitted to the Finance Ministry by the ASSOCHAM,
it has been highlighted that real estate sector has gradually started returning
to normalcy for the last couple of months and imposition of service tax on immovable
property in such circumstances would increase cost of housing by 4%. In addition,
it would also make the entire housing facility costlier to end-consumer and will
be contrary to government's aim of providing affordable housing.
In
a statement, Mr. D S Rawat, Secretary General ASSOCHAM said that the levy of service
tax on preferential locations charges on which appropriate stamp duty is paid
will also increase the cost of housing to the customers. Preferred Location Charges
(PLC), according to ASSOCHAM is not a service. It is just a differential pricing
for a product which is better located. The located difference between a higher
PLC and non-PLC apartment is the location.
Similarly,
external development charges (EDC) and internal development charges (IDC), are
the charges actually spent on the overall development of the colony. Some of them
are spent by state government and some by developer/builder. Since the rules exempt
the EDC paid to the government, their does not seem to be any rational to treat
the balance EDC/IDC as service, since it is actual cost on the overall project,
felt Mr. Rawat.
In
respect of commercial or industrial construction also, the construction itself
has been deemed as service if the builder receives an advance prior to the Competition
Certificate from Competent Authority.
The
ASSOCHAM has pointed out that a brief calculation mentioning the impact of indirect
taxes to whole project sourced that the overall indirect tax impact on any immovable
property is approximately 16 percent + of the total project costs today and this
will jump to almost 20 percent post these amendments.
Therefore,
withdrawal of service tax amendments introduced in Finance Bill for 2010-11 makes
a sense as the total incidents of taxation on real estate sector would exceed
30% if the suggested service tax withdrawal is not done. In addition, stamp duty
and service tax is double taxation and hence increases the cost of housing to
the consumers.
The
Chamber has also pointed out that as per Circular No.108/02/2009-ST of dated January
29 2009 clearly spells out that service is not payable on sale of immovable property,
as any service provided in connection with the construction of residential or
commercial complex till the execution of sale deed would be in the nature of self
service and hence will not attract service tax.
It
is however pointed out the sale of immovable property is subject to applicable
stamp duty by the respected state governments. The levy of service tax on the
sale of immovable property in such circumstances would increase cost of housing
to customers and make the entire housing facilities costlier and therefore it
should be withdrawn. (editor@thesynergyonline.com)
HIGHLIGHTS
OF AMENDMENTS TO SERVICE TAX ACT
Hon'ble
Finance Minister Shri Pranab Mukharjee has introduced the Finance Bill, 2010 in
the Lok Sabha on the 26th of February 2010. Clause 75 and 76 of the said bill
covers the legislative changes relating to Chapter V of Finance Act, 1994 (i.e.
Service Tax). While some fresh exemptions from service tax have been granted,
some existing exemptions have either been withdrawn or modified. All these changes
have been notified under notification nos. 2/201 0-ST to 17/201 0-ST all dated
27th February 2010. While most of the legislative changes in the Finance Act,
1994 would come into force from a date to be notified after the enactment of the
Finance Bill, 2010, the notifications (except notification nos. 7/2010-ST, 8/2010-ST
and 9/2010-ST which would come into effect from 01.04.2010) would become effective
from 27th February 2010. Upon enactment of the Finance Bill, 2010, when the legislative
provisions come into effect, another communication would be sent to you explaining
the changes in detail.
NEW
SERVICES INCLUDED IN THE LIST OF TAXABLE SERVICES
In
addition to existing services, new eight services, hitherto not included separately
within the list of existing taxable services, are being included in the said list
through appropriate amendments in sub-section 105 of Section 65 of the Finance
Act, 1994. The tax on these services would come into effect from a notified date
after the enactment of the Finance Bill, 2010. The new services are,- 1. Services
of promoting, marketing or organizing of games of chance, including lottery [Section
65 (105) (zzzzn)] The State Governments appoint distributors to advertise,
promote and sell lottery tickets. Besides the State Governments organizing lotteries,
some other games of chance are also being organized. The services provided for
promotion or marketing or organizing such games of chance are now being covered
by introducing a separate taxable service to cover the services in connection
with games of chance, organized conducted or promoted by the client, in whatever
form or by whatever name called (such as lottery, lotto) under the 'Games of chance'
service. The tax would be applicable also to such games conducted online. Consequently,
the Explanation appearing under 'Business Auxiliary Service' is being deleted.
2. Health services, namely: (i) health check up undertaken by hospitals or
medical establishments for the employees of business entities and (ii) health
services provided under health insurance schemes offered by insurance companies
[Section 65 (105) (zzzzo)]. Health services undertaken by hospitals or medical
establishments for the employees of business organizations and health services
provided under health insurance schemes offered by insurance companies. With the
change in the style of functioning of the business organizations, health check
up is a routine facility provided by the employers to their employees. The main
purpose is to ensure that the productivity of the organization is not adversely
affected due to ill health of its employees. Such activities, commonly known as
corporate health check up schemes, are undertaken by designated hospitals in order
to detect any medical indicator or to ensure timely diagnosis of any disease so
that prophylactic measures can be taken. In such cases, the hospital providing
these services charge the employer i.e. the business organization and it constitutes
expenditure for the latter. In certain cases (for example, in case of flight crew)
re-flight check ups are conducted not only to test the fitness levels but also
to rule out the possibility of the flying crew being under intoxication. Such
health checks up schemes are being brought within the ambit of service tax under
the new service. A large number of health insurance schemes are being offered
by the insurance companies under which charges for hospitalization, surgery, postsurgical
nursing etc. are generally paid by the insurance company. Such insurance policies,
which fall under the category of general insurance service, are already taxable.
Under general insurance service, an insurance company is a service provider to
its clients. Under the proposed new service, tax is also being imposed on the
medical charges paid by the insurance companies to the hospitals on behalf of
a business entity for its employees. As such, the insurance company would be the
service receiver and the tax paid by the hospital would be available to the insurance
companies as credit. The tax on the above mentioned health services would be payable
only if and to the extent the payment for such medical check up or treatment etc.
is made directly by the business entity or the insurance company to the hospital
or medical establishment. Any additional amount paid by the individual (i.e. the
employee or the insured, as the case may be) to the hospital would not be subjected
to service tax. This is to ensure that an individual is not required to pay a
tax for which he cannot take credit. 3. Services provided for maintenance
of medical records of employees of a business entity [Section 65 (105) (zzzzp)]. World
over, business organizations maintain medical histories of their employees which
are used not only for medical purposes but also for finding the suitability of
a person for a particular job or for promotion etc. Increasingly, this activity
is being outsourced for a consideration. Such records are either maintained by
certain designated hospitals or even by independent record keepers for a charge.
This activity is now being brought under service tax. 4. Services of promoting
of a 'brand' of goods, services, events, business entity etc. [Section 65 (105)
(zzzzq)]. Commercial advertisement has taken different shapes and forms. Apart
from the advertisements in print and visual media and sponsorship, one of the
recent trends is to advertise a brand (i.e. of goods, services, events, business
houses bearing a particular brand name or house name) usually by using a celebrity
(such as sportsperson, film stars, etc.) to associate him/her with the brand.
The intended impression that is created in the minds of customers or users is
that the products and services of that brand have the level of excellence comparable
to that of the celebrity. Unlike in case of advertisements using models, a brand
ambassador works under a contract of a reasonably long period, where under he
is not only required to advertise the goods or service in different media but
also to attend promotional, product launching events, make appearances in public
activities related to the brand or the brand holder or use such goods or services
in public. The contractual amounts are substantial and it may not only involve
an individual celebrity but a group of celebrities such as a cricket team or the
actors of a successful film. It is important to note that promotion or marketing
of sale of goods produced, provided or belonging to a client and promotion or
marketing of services provided by the client are already covered under Business
Auxiliary Services (BAS). Such activities would continue to remain classified
under BAS. The difference between the services classifiable under BAS and the
newly proposed service is that the latter has a wider coverage in the sense that
mere promotion of a brand would attract tax under this service even if such promotions
cannot be directly linked to promotion of a particular product or service. Many
companies/corporate houses (for example Sahara, ITC or Tatas) are associated with
a range of activities including production/marketing/sale of goods, provision
of services, holding of events, undertaking social activities etc. If the brand
name / house mark etc. is promoted by a celebrity without reference to any specific
product or services etc., it is difficult to classify it under BAS. Such activities,
like mere establishing goodwill or adding value to a brand would fall under this
newly introduced service. 5. Services of permitting commercial use or exploitation
of any event organized by a person or organization [Section 65 (105) (zzzzr)]. Like
intellectual property rights there are certain personal rights such as, right
to privacy, easement right, right to secrecy. With expansion in the field of information
technology and broadcasting sector, many individuals or organizations offer to
share / part with these rights for a consideration. A corporate sponsored cricket
match or company sponsored music concert; film award events; celebrities' marriages;
beauty contests are some of such private functions, which a large number of viewers
like to see on TV or media. In such cases, companies, broadcasting agencies and
video producers are given right to capture these events or programmes for their
commercial exploitation in future. Often such commercial exploitation results
in provision of another taxable service such as broadcasting service or programme
production service. The proposed service now seeks to tax the amount received
by the person or organization, who permits the recording and broadcasting of the
event from the broadcaster, or any other person, who seeks to commercially exploit
the event. In many cases, the credit of the tax paid would be available to the
receiver of the service. 6. Services provided by Electricity Exchanges [Section
65 (105) (zzzzs)]. Under 'Forward Contract Service', tax is payable by exchanges
who offer assistance in sale of goods or forward contracts in commodities. However,
only forward contracts covered by the Forward Contract (Regulation) Act, 1952
are covered in the scope of taxation In the recent past, exchanges have been set
up for transactions in electricity. The Central Electricity Regulatory Commission
authorizes such exchanges. Since electricity exchanges are not covered by Forward
Market Regulations, such transactions are not covered under the commodity exchange
taxation. The proposed new service seeks to tax the charges recovered for services
in relation to assisting, regulating, controlling the business of trading, processing
and settlement pertaining to sale or purchase of electricity by the associations
authorized by Central Electricity Regulatory Commission. 7. Services related
to two types of copyrights hitherto not covered under existing taxable service
'Intellectual Property Right (IPR)', namely, those on (a) cinematographic films;
and (b) sound recording [Section 65 (105) (zzzzt)]. The right to temporarily
transfer or permit the use of Intellectual Property Rights (IPR), namely, trademarks,
designs and patents was brought under tax net in 2004. However, one of the
IPRs, i.e. copyright has been specifically kept out of the purview of the tax
with an intent to encourage authors and artists, as it involves creative works,
such as literary work, musical work and artistic work. In Budget 2008, Information
Technology (IT) Software Service was also brought under tax net, which apart from
involving development, up-gradation, assistance etc. also covered the IPR aspect
i.e. right to use the information technology. The provisions of copyright are
incorporated in the Indian Copyright Act, 1957. As per section 13 of the said
Act, the copyright subsists in the following classes of work: (a) Original
literary, dramatic, musical and artistic works; (b) Recording of cinematographic
films; (c) Sound recordings. The first category of copyright has been kept
out of the tax net while the second and third categories of copyrights are being
made taxable under this service. A cinematographic film means any work of visual
recording on any medium (emphasis added) produced through a process from which
a moving image may be produced. The same may be accompanied with sound reproduction
also. Both the recording of the cinematographic film and the accompanying sound
track are the property of the producer, who can temporarily transfer it or permit
its use by another person for a consideration. It is this activity, which is being
taxed under this service. It would have an impact on the royalty payments on both
imported and indigenously produced films when the producer/right holder allows
such use to another person, say the distributor. Similarly, song, its music, lyrics
and composition also enjoy the copyright protection to its owner who can commercially
exploit it in the manner stated above. Normally, the copyright of music vests
in the composer and the copyright of music recorded vests in the producer of the
sound recording. It is possible that a lyricist or a singer may hold copyright
for the words of a song or the song itself. Merely allowing that song to be recorded
is a copyright, which would fall under category (a) of section 13 of the Copyright
Act and thus would not be subject to service tax. However, after the performer
has transferred his rights to a sound recording company, the sound recording company
acquires the copyright mentioned in category (c) of section 13 supra. It is the
transfer or allowing use of this right, which would be subjected to tax under
the new service. As such, depending upon the nature and conditions of the contract,
companies distributing music, owners of copyright of cinematographic films etc.
would be prospective taxpayers. It may be noted that this taxable service will
not cover individual artists, composers, performers etc. as their copyrights fall
under clause (a) of Sec. 13 of the Copyright Act. 8. Special services provided
by a builder etc. to the prospective buyers such as providing preferential location
or external or internal development of complexes on extra charges [Section 65
(105) (zzzzu)]. Construction of commercial or industrial structures was brought
under service tax net in 2004 while construction of residential complexes became
a taxable service in 2005. The scope of the existing services includes construction,
completion and finishing, repairs, alterations, renovation or restoration of complexes. In
addition to these activities, the builders of residential or commercial complexes
provide other facilities and charge separately for them and these charges do not
form part of the taxable value for charging tax on construction. These facilities
include,- (a) prime / preferential location charges for allotting a flat/commercial
space according to the choice of the buyer (i.e. Direction- sea facing, park facing,
corner flat; Floor- first floor, top floor, Vastu- having the bed room in a particular
direction; Number- lucky numbers); (b) internal or external development charges
which are collected for developing/maintaining parks, laying of sewerage and water
pipelines, providing access roads and common lighting etc; (c) fire-fighting installation
charges; and (d) power back up charges etc. Since these charges are in the
nature of service provided by the builder to the buyer of the property over and
above the construction service, such charges are being brought under the new service.
Charges for providing parking space have been specifically excluded from the scope
of this service. Development charges, to the extent they are paid to State Government
or local bodies, will be would be excluded from the taxable value levy. Further,
any service provided by Resident Welfare Associations or Cooperative Group Housing
Societies consisting of residents / owners as their members would not be taxable
under this service.
ALTERATION
OR EXPANSION IN THE SCOPE OF EXISTING SERVICES
In
the case of following existing taxable services, the scope has been altered either
to expand their scope or to remove certain difficulties that have been faced during
tax implementation. These modifications would come into effect from a notified
date after the enactment of the Finance Bill, 2010. These changes are as follows,- (1)
The scope of the taxable service 'Air Passenger Transport Service' [section 65
(105) (zzzo)] is being expanded to include domestic journeys, and international
journeys in any class. Two services, namely 'port services' and the 'airport services'
were introduced in Budgets 2001 and 2004 respectively. The services provided by
minor ports covered under 'other ports' became taxable from 2003. The purpose
behind creating these services was that since a number of activities are undertaken
within the premises of ports and airports, it would be easier to consolidate all
such services under one head. It was reported that divergent practices are being
followed regarding classification of services being performed within port/airport
area. In some places, all services performed in these areas [even those falling
within the definition of other taxable services] are being classified under the
port/airport services. Elsewhere, individual services are classified according
to their individual description on the grounds that the provisions section 65
A of Finance Act, 1994 prescribes adoption of a specific description over a general
one. Further, both the definitions use the phrase 'any person authorised by port
/ airport'. In many ports/airports there is no procedure of specifically authorizing
a service provider to undertake a particular activity. While there may be restriction
on entry into such areas and the authorities often issue entry-passes or identity
cards, airport/port authorities seldom issue authority/permission letters to a
service provider authorising him to undertake a particular task. Many taxpayers
have claimed waiver of tax under these services on the ground that the port /
airport authority has not specifically authorised them to provide a particular
service. In order to remove these difficulties, the definitions of the relevant
taxable services are being amended to clarify that all services provided entirely
within the port / airport premises would fall under these services. Further, specific
authorisation from the port/airport authority would now not be a pre-condition
for the levy. (2) Presently the taxable service, 'Information Technology Software
Service' [section 65 (105) (zzzze)] is subjected to tax only in cases where such
IT software is used for furtherance of business or commerce. The scope of the
taxable service is being expanded to tax such service even if the service provided
is used for purposes other than business or commerce. In Budget 2008, services
provided in relation to Information Technology (IT) Software, such as development,
designing, programming, up-gradation of IT software, providing advice, consultancy
and assistance on the matters of IT software and providing right to use IT software,
whether supplied on a media or electronically, were brought in the ambit of service
tax. However, the tax was limited to cases where such IT software was to be used
in the course or furtherance of business or commerce. In other words, these activities
are taxable only when the receiver of service exploits them for commercial or
business purposes. The definition of this taxable service is being suitably amended
to extend this levy to cover the aforesaid IT software services provided in all
cases i.e. whether or not used in the course or furtherance of business or commerce. (3)
An Explanation is being added in the definition of the taxable service 'Commercial
Training or Coaching Service' [section 65 (105) (zzc)] to clarify that the term
'commercial' appearing in the relevant definitions, only means that such training
or coaching is being provided for a consideration, whether or not such training
or coaching is conducted with a profit motive. This change is being given retrospective
effect from 01.07.2003. Commercial training and coaching service was introduced
in Budget 2003 with a view to tax the mushrooming coaching institutes and training
centres which either provide coaching classes for examinations or unrecognized
courses in various areas such as, management, marketing, engineering etc. The
schools, institutes, colleges and universities providing courses that lead to
award of recognized diplomas/degrees and sports education were kept out of tax
net. These include universities created under a Central or State Act, institutes
recognized by UGC as universities or deemed universities, institutes granted recognition
professional councils like AICTE, Medical Council of India, Bar Council of India
etc. To distinguish the former types of institutes/centres from the latter, the
word 'commercial' was used in the definitions of 'Commercial training and coaching',
'Commercial training and coaching centres' and 'taxable service'. The use of
the word 'commercial' in these definitions has led to certain unintended consequences.
A view has been taken that the term 'commercial' appearing in various definitions
implies that the institute must be run with a profit motive to fall under the
taxable service. A number of taxpayers resisted paying tax on this ground. In
order to clarify the legislative intent, the definition of the taxable service
is being suitable amended, through insertion of an Explanation, to clarify that
the word 'commercial' means any training or coaching that is provided for a consideration
irrespective of the presence or absence any profit motive. This amendment is being
carried out retrospectively (from July 2003) so as resolve the disputes pending
at different levels of the dispute settlement system. (4) In the definition
of the taxable service 'Sponsorship Service' [section 65 (105) (zzzn)], the exclusion
relating to sponsorship pertaining to sports is being removed. Business entities
often associate their brand names, products or services by sponsoring popular
or successful events with intent to obtain commercial benefits of spreading their
name, goodwill or reputation to public. It is a form of advertisement. Sponsorship
service was brought under tax net in Budget 2006. However, sponsorship of sports
events was kept out of the purview of the taxation with a view to encourage sports
activity and to provide an avenue for funding sports events. Corporate involvement
in certain sports such as cricket, golf and tennis has grown rapidly in the recent
years and there is a substantial increase in sports events organized by private
organizations or business entities. Further, the concept of owning and forming
sports clubs that hire the services of sports persons has made many such events
highly commercial and profitable activities. The advertisements through sponsorship
of such events have created a disparity, as unlike advertisements displayed otherwise,
advertisement (through sponsorship) when associated with sports, does not attract
service tax. Therefore, the exclusion available for sponsorship pertaining to
sports is being removed by suitable amendment. Suitable exemption to certain categories
of sports events would be considered at the appropriate time. (5) In the definition
of the taxable services 'Construction of Complex service' [section 65 (105) (zzzh)],
and 'Commercial or industrial construction service' [section 65 (105) (zzq)],
it is being provided that unless the entire consideration for the property is
paid after the completion of construction (i.e. after issuance of completion certificate
by the competent authority), the activity of construction would be deemed to be
a taxable service provided by the builder / promoter / developer to the prospective
buyer and the service tax would be charged accordingly. The service tax on
construction of commercial or industrial construction services was introduced
in 2004 and that on construction of complex was introduced in 2005. As regards
payment made by the prospective buyers/flat owners, in few cases the entire consideration
is paid after the residential complex has been fully developed. This is in the
nature of outright sale of the immovable property and admittedly no service tax
is chargeable on such transfer. However, in most cases, the prospective buyer
books a flat before its construction commencement/completion, pays the consideration
in instalments and takes possession of the property when the entire consideration
is paid and the construction is over. In some cases the initial transaction between
the buyer and the builder is done through an instrument called 'Agreement to Sell'.
At that stage neither the full consideration is paid nor is there any transfer
in ownership of the property although an agreement to ultimately sell the property
under settled terms is signed. In other words, the builder continues to remain
the legal owner of the property. At the conclusion of the contract and completion
of the payments relating thereto, another instrument called 'Sale Deed' is executed
on payment of appropriate stamp duty. This instrument represents the legal transfer
of property from the promoter to the buyer. In other places a different pattern
is followed. At the initial stage, instruments are created between the promoter
and all the prospective buyers (which may include a person who has provided the
vacant land for the construction), known as 'Sale Of Undivided Portion Of The
Land'. This instrument transfers the property right to the buyers though it does
not demarcate a part of land, which can be associated with a particular buyer.
Since the vacant land has lower value, this system of legal instrumentation has
been devised to pay lesser stamp duty. In many cases, an instrument called 'Construction
Agreement' is parrallely executed under which the obligations of the promoter
to get property constructed and that of the buyer to pay the required consideration
are incorporated. These different patterns of execution, terms of payment and
legal formalities have given rise to confusion, disputes and discrimination in
terms of service tax payment. In order to achieve the legislative intent and bring
in parity in tax treatment, an Explanation is being inserted to provide that unless
the entire payment for the property is paid by the prospective buyer or on his
behalf after the completion of construction (including its certification by the
local authorities), the activity of construction would be deemed to be a taxable
service provided by the builder/promoter/developer to the prospective buyer and
the service tax would be charged accordingly. This would only expand the scope
of the existing service, which otherwise remain unchanged. (6) Amendments are
being made in the definition of the taxable service 'Renting of immovable property'
[section 65 (105) (zzzz)] to,- (i) provide explicitly that the activity of
'renting' itself is a taxable service. This change is being given retrospective
effect from 01.06.2007; and (ii) provide that renting of vacant land, where the
agreement or contract between the lessor and lessee provides for undertaking construction
of buildings or structures on such land for furtherance of business or commerce
during the tenure of the lease, shall be subjected to service tax. This service
was introduced in 2007 with a view to tax the commercial use of immovable property
hired on rent. The tax on rent paid is available as input credit if the commercial
activity involves provision of taxable service or manufacture of dutiable goods.
However, the Hon'ble High court of Delhi in its order dated 18.04.2009 in the
case of Home Solutions Retail India Ltd. & Others vs. UOI has struck down
this levy by observing that the renting of immovable property for use in the course
of furtherance of business or commerce does not involve any value addition and
therefore, cannot be regarded as service. Apart from the revenue loss caused to
the exchequer, the judgment has placed the landlords in a very precarious situation.
In view of this judgment, the commercial tenants have stopped them reimbursing
the tax element. However, the landlords are receiving regular demand notices from
the department issued to protect government's revenue for the interim period.
In order to clarify the legislative intent and also bring in certainty in tax
liability the relevant definition of taxable service is being amended to clarify
that the activity of renting of immovable property per se would also constitute
a taxable service under the relevant clause. This amendment is being given retrospective
effect from 01.06.2007. (ii) Renting of vacant land: Under the definition of
taxable service pertaining to renting of immovable property, the renting of vacant
land used for agriculture, farming, forestry, animal husbandry, mining, education,
sports, circus, entertainment and parking purposes, is excluded from the purview
of service tax. Further, 'vacant landç whether or not having facilities
clearly incidental to the use of such vacant land has also been excluded from
the tax net. It has been reported that in many states, the local industrial corporations
or PSUs or even private organizations rent vacant land on a long term leases with
an explicit understanding that lessee would construct factory or commercial building
on that land. In such cases the ownership of the land is not transferred to the
lessee and thus it is a service provided by the lessor to the lessee. The situation
is similar to renting out a constructed structure for commercial purposes except
that at the time of executing the lease agreement the land is in a vacant state
and that later the lessee constructs commercial structure thereon after executing
the lease deed. Such lease agreements escape service tax because of the exclusion
mentioned above. Suitable amendment in the definition of taxable service relating
to renting to immovable property is being made so as to provide that tax would
be charged on rent of a vacant land if there is an agreement or contract between
the lessor and lessee that a construction on such land is to be undertaken for
furtherance of business or commerce during the tenure of the lease. (7) The
definitions of the taxable services, namely the 'Airport Services' [section 65
(105) (zzm)], the 'Port Services' [section 65 (105) (zn)] and the 'Other Port
Services' [section 65 (105) (zzl)] are being amended to provide that,- (a)
all services provided entirely within the airport / port premises would fall under
these services; and (b) an authorization from the airport/port authority would
not be a precondition for taxing these services. The taxes on transport of
passengers traveling by air were in operation in the past. These were not in the
nature of service tax but operated through separate legislations. Inland Air Travel
Tax [@ 15%] was levied on domestic travel in 1989. Foreign Travel Tax [@ Rs. 500
per trip, except to neighboring countries for which the rate was Rs. 150 per trip]
was levied on international travel in 1979. These taxes were withdrawn in the
interim Budget 2004. In 2006, tax was imposed on international air travel by a
passenger embarking in India and traveling in higher [other than economy] classes.
This tax continues. The taxable service is being suitably amended to extend this
levy to cover all domestic and international air passengers embarking in India.
The, modalities of working out the tax amount including exemptions, abatement
etc. would be prescribed at the appropriate time. (8) An explanation is being
added in the definition of the taxable service 'Auctioneer's Service' [section
65 (105) (zzzr)] to clarify that the phrase 'auction by government' means an auction
involving sale of government property by any auctioneer and not when the government
acts as an auctioneer for sale of the private property. Auctioneer's service
was introduced in 2006 and is applicable to any service provided in relation to
auction of property whether moveable or immoveable, tangible or intangible. However,
the service, by definition excludes 'auction by government'. This phrase has given
rise to confusion. In certain cases, the property belonging to or vested in the
Central or the State governments (such as goods confiscated by Customs department)
are sold in an auction that is conducted by private organizations. Conversely,
in certain cases government bodies, such as 'Tobacco Board' conducts auction of
properties that belong to private individuals or organizations. In order to avoid
the confusion, it is being clarified through an explanation that the phrase 'auction
by government' appearing in the taxable service, namely 'Auctioneer's service'
means an auction where government property is being auctioned and not when the
government acts as an auctioneer for the private goods. (9) The definition
of the taxable service 'Management of Investment under ULIP Service' [section
65 (105) (zzzzt)] is being amended to provide that the value of the taxable service
for any year of the operation of policy shall be the actual amount charged by
the insurer for management of funds under ULIP or the maximum amount of fund management
charges fixed by the Insurance Regulatory & Development Authority (IRDA),
whichever is higher. Tax on insurers issuing Unit Linked Insurance Plans (ULIP)
was imposed w.e.f. 1-06-2008. The taxable service is the "Management of investment,
under unit linked insurance business, commonly known as Unit linked Insurance
Plans (ULIP) scheme" by an insurer carrying life insurance business. ULIPs
are broadly similar to the mutual funds, except that they are required to segregate
a certain part of the premium towards the life insurance of the plan holder. Further,
unlike in the mutual fund industry, where the funds are managed by an independent
Asset Management Company (which is a separate legal entity), in case of ULIP the
funds are managed by the insurance company itself. Thus, it is difficult to ascertain
the component of the total charges that is attributable to the management of investment.
Accordingly, for the purpose of valuation for charging of service tax, an Explanation
was prescribed which in brief, explained that the taxable value for the purpose
of this service is the difference between the (a) premium paid by the policy holder
for the Unit Linked Insurance Plan policy; and (b) the sum of premium paid for
or attributable to risk cover, whether for life, health or other specified purposes,
and the amount segregated for actual investment. In other words the differential
amount was considered as the charges for asset management. It is however a fact
that the amount appropriated by the insurance company is not only asset management
but for various activities, such as,- (a) Premium Allocation Charge: is an
upfront deduction from the policy premium, which is generally more than 10% in
the first year of ULIP, and continues to be very high for the initial three years.
This amount is used for following purposes: (i) Initial expenses in marketing
the issue, including commission paid to distributors. (ii) Cost of conducting
medical check up of the ULIP holder and other miscellaneous charges. (b) Policy
administration charges; monthly charges for managing the paperwork and other formalities
for the insurance, and are not related to asset management. It is chargeable to
service tax under insurance services. (c) A number of other charges are also
charged by the insurance companies, which, inter alia, include, policy surrender
charges, switching charges, partial withdrawal charges, miscellaneous charges
etc. (d) Fund management charges: This is the amount charged by the insurance
company for managing the investible funds, which is intended to be taxed under
this service. This amount has been capped for ULIPs by Insurance Regulatory and
Development Authority (IRDA) at 1.5% of the gross yield for schemes below 10 years,
and 1.25% for schemes above 10 years. Since the charge pertaining to asset
management alone should form the value for taxable purpose, the explanation provided
under the definition of the taxable service is being suitably amended to provide
that that the value of the taxable service for any year of the operation of policy
shall be the actual amount charged by the insurer for management of funds under
ULIP or the maximum amount of fund management charges fixed by IRDA, whichever
is higher. The method of computation for monthly payment of tax by such service
providers, would be prescribed at the appropriate time.
OTHER
AMENDMENTS TO THE FINANCE ACT, 1994
Finance
Act, 1994 is being amended to,- (a) insert an explanation in sub-section (3)
of Section 73 to clarify that no penalty shall be imposed where service tax along
with interest has been paid before issuance of notice by the department. This
would be effective from the date of enactment of the Finance bill, 2010; and (b)
provide definition of the term 'business entity' so as to include an association
of persons, body of individuals, company or firm but to exclude an individual.
This would be effective from a notified date after the enactment of the Finance
bill, 2010
EXEMPTIONS
The
following exemptions from service tax are being provided with effect from 27th
February, 2010, namely,- (i) Statutory taxes charged by any government (including
foreign governments, where a passenger disembarks) on air passenger would be excluded
from taxable value for the purpose of levy of service tax under the Air Passenger
Transport Service. (Notification No.15/2010-ST, dated 27th February, 2010 refers). (ii)
Exemption from service tax is being provided to services relating to 'Erection,
Commissioning or Installation' of,- (a) Mechanized Food Grain Handling Systems
etc.; (b) Equipment for setting up or substantial expansion of cold storage;
and (c) Machinery/equipment for initial setting up or substantial expansion
of units for processing of agricultural, apiary, horticultural, dairy, poultry,
aquatic, marine or meat products. (Notification No.12/2010-ST, dated 27th February,
2010 refers). (iii) Packaged I.T. software, pre-packed in retail packages for
single use, is being exempted from service tax leviable under IT Software Service,
subject to specified conditions. These conditions include that either the customs
duty (in case of import) or excise duty (in case of domestic production) has been
paid on the entire amount received from the buyer (Notification No.17/2010-ST
and No.2/2010-ST, both dated 27th February, 2010 refer). (iv) At present, exemption
from service tax is available to transport of fruits, vegetables, eggs or milk
by road by a goods transport agency. The scope of exemption is being expanded
by including food grains and pulses in the list of exempted goods (Notification
No.4/201 0-ST, dated 27th February, 2010 refers). (v) Exemption from service
tax is being provided to Indian news agencies under 'Online Information and Database
Retrieval Service' and 'Business Auxiliary Service' subject to specified conditions
(Notification No.13/2010-ST, dated 27th February, 2010 refers). (vi) Exemption
from service tax is being provided to the 'Technical Testing and Analysis Service'
and 'Technical Inspection and certification service' provided by Central and State
seed testing laboratories, and Central and State seed certification agencies (Notification
No.10/2010-ST, dated 27th February, 2010 refers). (vii) Exemption from service
tax is being provided to the transmission of electricity (Notification No.1
1/2010-ST, dated 27th February, 2010 refers).
WITHDRAWALS
OR AMENDMENTS TO EXISTING EXEMPTIONS
The
following changes have been brought about in the existing exemptions,- (a)
Exemption from service tax on service provided in relation to 'Transport of Goods
by Rail' by notification No.33/2009, dated 1st September, 2009 is being withdrawn
(Notification No.7/2010-ST, dated 27th February, 2010 refers). The exemption provided
to certain specified goods transported by rail vide Notification No. 28/2009-ST,
dated 31st August, 2009, which was subsequently withdrawn vide notification No.
36/2009-ST dated 9th September, 2009, has been restored. (Notification No. 8/201
0-ST, dated 27th February, 2010 refers). An abatement of 70% of the gross value
of the freight charged on goods (other than exempted goods) is being provided
vide notification No. 9/2010-ST dated 27th February, 2010 by adding the service
of 'Transport of goods by rail' in notification No. 1/2006-ST dated 01.03.2006.
All these changes will also come into effect from 01.04.2010. (b) The exemption
from service tax on 'Commercial training or coaching service' extended to vocational
training institutes vide notification No. 24/2004-ST dated 10.09.2004 is being
limited by introducing a new definition of vocational training institutes. Service
tax exemption will be available only to industrial training institutes or industrial
training centres affiliated to National Council of Vocational Training (NCVT)
and offering courses in the designated trades covered under Schedule I of the
Apprentices Act, 1961. The List figuring under Schedule I of the Act covers engineering
as well as non-engineering skills/trades (Notification No.3/2010-ST, dated 27th
February, 2010 refers). (c) Exemption from service tax, presently available
to Group Personal Accident Scheme provided by Govt. of Rajasthan to its employees,
under General Insurance Service is being withdrawn (Notification No.5/201 0-ST,
dated 27th February, 2010 refers). (d) Notification No.1/2002-ST dated 01.03.2002
is being superceded by Notification No.14/2010-ST, dated 27th February 2010 to
provide that the construction and operation of installations, structures and vessels
for the purposes of prospecting or extraction or production of mineral oils and
natural gas in the Exclusive Economic Zone and the Continental Shelf of India
and supply of any goods connected with these activities would be within the purview
of the provisions of Chapter V of the Finance Act, 1994. Similar changes have
been made in the definition of the term 'India' appearing in the Export of Services
Rules, 2005 and Taxation of Services (Provided from Outside India & Received
in India) Rules, 2006. (Notification No.6/2010-ST and Notification No.16/2010-ST,
both dated 27th February 2010 refers). The revenue impact of these withdrawals
and amendments [especially those mentioned under S. Nos. (1) and (2)] is significant.
In the case of service tax on railway freight, a period of one month (i.e. upto
31.03.2010) has been provided for the railways to adjust freight rates, accounting
system etc. During this period the jurisdictional officers should contact the
local railways officials to finalize the modalities to operationalize this levy.
Similarly, a quick survey should be conducted to ascertain the number of commercial
coaching and training centres, which hitherto were availing the exemption and
would now fall under the tax net. For finding out the eligible vocational training
courses listed under of the Apprentices Act, 1961, please look at the web site
of the Directorate General of Employment and Training, Ministry of Labour (dget.nic.in).
Immediate steps should be taken to identify and allot registration to such institutes.
Broad estimation of the numbers of the new taxpayers, revenue potential must be
carried out and the legal/administration issues, if any, should be identified.
AMENDMENT
TO EXPORT OF SERVICE RULES, 2005
Export
of Service Rules, 2005 have been amended as follows: (1) The taxable service,
namely 'Mandap Keeper Service' has been shifted from the list under rule 3(1)
(ii) [i.e. performance related services] to the list under rule 3(1 )(i) [immovable
property related services] and three taxable services, namely 'Chartered Accountant
Services', 'Cost Accountant Services' and 'Company Secretary's Services', have
been shifted from the list under rule 3(1) (ii) [i.e. performance related services]
to the list under rule 3(1)(iii) [residual category of services]. Notification
No.6/2010-ST, dated 27th February 2010 refers. Identical changes have been made
under the Taxation of services (Provided from Outside India and Received in India)
Rules, 2006 as well (Notification No.16/2010-ST, dated 27th February 2010 refers); (2)
The condition prescribed under rule (2) (a) i.e. 'such service is provided from
India and used outside India' has been deleted (Notification No.6/2010-ST, dated
27th February 2010 refers). These changes have been carried out keeping in
view certain difficulties that were faced by the trade while following the aforesaid
rules.
AMENDMENT
TO NOTIFICATION NO. 5/2006-CE(NT) ISSUED UNDER RULE 5 OF THE CENVAT CREDIT RULES,
2004
It
may be recalled that a number of representations were received from exporters,
especially the exporters of services regarding difficulties being faced in availing
the benefit of refund of accumulated credit under the scheme prescribed under
Notification No. 5/2006-CE (NT) dated 14.03.2006, issued under rule 5 of the CENVAT
Credit Rules, 2004. While certain issues germinated from the wordings used in
the provisions of the notification or interpretation of such provisions, other
issues were more in the nature of administrative difficulties in operating the
scheme. As an immediate measure, CBEC issued a clarificatory circular No. 120/01/2010-ST,
dated 19.01.2010. It was however felt that a permanent solution would require
supplementing the clarification with certain amendments to the notification, part
of which had to be 'retrospective' in nature. Accordingly, Notification No. 5/2006(CE)
(NT) has been amended vide Notification No. 7/2010-CE (NT), dated 27th February
2010. This mainly deals with the procedure that needs to be adopted in case of
the new refund claims. However, to resolve the disputes arising on account of
the wordings/ illustration provided in the notification, the same is being amended
retrospectively (w.e.f. 14.03.2006) (Clause 73 of the Finance Bill, 2010 refers)
so as to resolve the disputes in respect of pending cases as well. Therefore to
visualize the entire revamped and simplified refund scheme, both the amending
notification and the Finance Bill provision must be read in conjunction. Refund
of accumulated CENVAT credit to Exporters: Amendments in Notification No. 5/2006-CE
(NT) Representations had been received by the Board that refund of accumulated
CENVAT credit to the exporters of services and other service providers like call
centers and BPO's were getting delayed and most of them are ultimately getting
rejected,- (i) On account of difference in perception/interpretation between
the department and the export of services as to whether their actives fall under
the purview of 'export of service at all'; (ii) Difference in wordings used
in Notification No. 5/2006-CE (NT) dated 14.03.2006, issued under Rule 5 of CENVAT
Credit Rules, 2004 as regards the definitions of terms such as 'inputs'/ 'input
services' (iii) The procedural requirements prescribed under the notification
and illustrations given therein were causing difficulties both in terms of delays
and filing of incorrect/incomplete refund forms. The issue was discussed both
with the departmental officers as well as the trade and as an immediate solution,
Circular No. 120/01/2010-ST dated 19th January 2010 was issued. To give legal
backing to the above said circular, leading to faster and fair settlement of the
refunds claims, changes have been effected in Notification No. 5/2006-CE (NT).
Some of the changes have been made retrospective so that the pending cases are
also covered. Other changes are being brought in prospectively, and are aimed
at assisting the Departmental officers in faster processing of refund claims.
The retrospective amendments are contained in clause 73 of the Finance Bill, 2010
while the prospective changes are contained in Notification no.7/2010-Central
Excise (Non Tariff) dated the 27th February 2010. Both these documents may be
carefully read together for appreciating the full impact of the changes. The salient
features of these changes are as follows:- Retrospective changes effected from
14.03.2006 (i.e. from the date of issue of notification) (1) The words "in
relation to" have been added in main condition (a) of the Notification. (2)
The word "in' contained in main condition (b) of the said Notification has
been replaced with "for". The above two changes ensure that the provisions
of the refund notification and the CENVAT Credit Rules are aligned and that refund
is granted on all goods or services on which CENVAT can be claimed by the exporter
of goods or services. (3) The illustration given in condition 5 of the Appendix
to the Notification has been deleted. This ensures that refund of CENVAT credit
which has been availed in the period prior to the quarter/ period for which the
refund has been claimed is also eligible for refund. The refund claims should
be calculated only on the basis of the ratio of the export turnover to the total
turnover of the claimant. Thus, if the CENVAT credit available to the exporter
at the end of the quarter, or month, as the case may be, is Rs. 1 crore, and the
ratio of export to total turnover during the quarter is 50%, then Rs. 50 lakh
should be refunded to the exporter. The essence of the changes is that refund
shall be available for all goods, or input services, on which CENVAT is permissible
and should be processed accordingly. Further, refund of CENVAT should not be linked
to CENVAT taken in a particular period only. Prospective changes (1) The
conditions A and B given in the Annexure to the Notification are being deleted,
and the details required to be given under these conditions, along with certain
additional details, are to be furnished by the claimant in a table, which has
been prescribed in condition A. The table should be certified by a person authorized
by the Board of Directors (in the case of a limited company) or the proprietor/partner
(in case of firms/partnerships) if the amount of refund claimed is less than Rs.5
lakh in a quarter. In case the refund claim is in excess of Rs.5 lakh, the declaration
should also be certified by the Chartered Accountant who audits the annual accounts
of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income
Tax Act, 1961 (43 of 1961), as the case may be. This verification is aimed at
reducing the checking of voluminous records which is required to be done by the
officers processing the refund claims and ensure faster processing of refund claims. (2)
Consequential changes by introducing the words "in relation to" and
"for" in the Annexure to the Notification have been brought to bring
them in line with the amendments made in the main conditions of the Notification
The
recent circular no. 120/01/2010-ST dated January 19, 2010 has been issued by the
Board for claiming the refund of unutilized Cenvat credit under Rule 5 of Cenvat
credit Rules by the service exporters. The above circular has tried to address
all the problems faced by the service tax exporters in claiming such exemption.
They have tried to give clarification on all the issues. But the famous Hindi
proverb "lohe ke chane chabana" (Hard nut to crack) is apt for refund
claim for the exporters under Notification 41/2007 or refund under Rule 5. This
is also applicable even after this circular. Even we have written a Series of
articles on such refund scheme titled as "Johnny and Service Tax refund"
for the refund of service tax under notification 41/2007. This can be viewed on
our website. We are discussing the aforesaid circular in this article in length.
Rule
5 of Cenvat Credit Rules, 2004 provides that accumulated credit of inputs and
input services which are used for providing output services or output goods, can
be refunded to the exporter subject to stipulated conditions. Notification No.
5/2006-CE (NT) dated 14.03.2006 provides the conditions, safeguards and limitations
for obtaining refund of such credit. The Rule 5 of CENVAT Credit Rules, 2004 is
produced as under for your ready reference:
"
Rule 5: Refund of CENVAT credit
"Where
any input or input service is used in the manufacture of final product which is
cleared for export under bond or letter of undertaking, as the case may be, or
used in the intermediate product cleared for export, or used in providing output
service which is exported, the CENVAT credit in respect of the input or input
service so used shall be allowed to be utilized by the manufacturer or provider
of output service towards payment of, i) duty of excise on any final product
cleared for home consumption or for export on payment of duty; or ii) service
tax on output service, and where for any reason such adjustment is not possible,
the manufacturer or the provider of output service shall be allowed refund of
such amount subject to such safeguards, conditions and limitations, as may be
specified, by the Central Government, by notification:
Provided
that no refund of credit shall be allowed if the manufacturer or provider of output
service avails of drawback allowed under the Customs and Central Excise Duties
Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules,
2002, in respect of such duty; or claims rebate of service tax under the Export
of Service Rules, 2005 in respect of such tax.
Provided
further that no credit of the additional duty leviable under subsection (5) of
section 3 of the Customs Tariff Act shall be utilized for payment of service tax
on any output service. Explanation: For the purposes of this rule, the words
'output service which is exported' means the output service exported in accordance
with the Export of Services Rules, 2005." Notification No. 5/2006 is produced
as under for your ready reference: " Notification No. 5/2006-CE (NT)
G.S.R.
(E) In exercise of the powers conferred by rule 5 of the CENVAT Credit Rules,
2004 (hereinafter referred to as the "said rules?), and in supercession of
the notification of the Government of India in the Ministry of Finance (Department
of Revenue), No.11/2002 - Central Excise (NT), dated 1st March, 2002, published
in the Gazette of India Extraordinary, vide number G.S.R. 150(E), dated 1st March,
2002, the Central Government hereby directs that refund of CENVAT credit shall
be allowed in respect of : (a) input or input service used in the manufacture
of final product which is cleared for export under bond or letter of undertaking; (b)
input or input service used in providing output service which has been exported
without payment of service tax, subject to safeguards, conditions and limitations,
set out in the Appendix to this notification.
Appendix 1.
The final product or the output service is exported in accordance with the procedure
laid down in the Central Excise Rules, 2002, or the Export of Services Rules,
2005, as the case may be.
2.
The claims for such refund are submitted not more than once for any quarter in
a calendar year Provided that where,- (a) the average export clearances
of final products or the output services in value terms is fifty percent or more
of the total clearances of final products or output services, as the case may
be, in the preceding quarter; or (b) the claim is filed by Export Oriented
Unit, the claim for such refund may be submitted for each calendar month.
3.
The manufacturer or provider of output service, as the case may be, submits an
application in Form A annexed to this notification to the Deputy Commissioner
of Central Excise or the Assistant Commissioner of Central Excise, as the case
may be, in whose jurisdiction,- (a) the factory from which the final products
are exported is situated, along with the Shipping Bill or Bill of Export, duly
certified by the officer of customs to the effect that goods have in fact been
exported; or (b) the registered premises of the service provider from which
output services are exported is situated, along with a copy of the invoice and
a certificate from the bank certifying realization of export proceeds.
4.
The refund is allowed only in those circumstances where a manufacturer or provider
of output service is not in a position to utilize the input credit or input service
credit allowed under rule 3 of the said rules against goods exported during the
quarter or month to which the claim relates (hereinafter referred to as "the
given period?).
5.
The refund of unutilized input service credit will be restricted to the extent
of the ratio of export turnover to the total turnover for the given period to
which the claim relates i.e. Maximum refund = Total CENVAT taken on input services
during the given period × export turnover ÷ Total turnover
Illustration: If
total credit taken on input services for a quarter = Rs. 100 Export turnover
during the quarter = Rs 250 Total Turnover during the quarter = Rs 500 Refund
of input service credit under Rule 5 of the CENVAT Credit Rule, during the quarter
= 100*250/500 i.e. Rs 50
Explanation:
For the purposes of condition no.5,- 1.
1.
"Export turnover" shall mean the sum total of the value of final products
and output services exported during the given period in respect of which the exporter
claims the facility of refund under this rule.
2.
"Total turnover" means the sum total of the value of, - (a) all
output services and exempted services provided, including value of services exported; (b)
all excisable and non excisable goods cleared, including the value of goods exported; (c)
The value of bought out goods sold, during the given period.
6.
The application in Form A, along with the prescribed enclosures and the relevant
extracts of the records maintained under the Central Excise Rules, 2002, CENVAT
Credit Rules, 2004, or the Service Tax Rules, 1 994,in original, are filed with
the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central
Excise, as the case may be, before the expiry of the period specified in section
11B of the Central Excise Act, 1944(1 of 1944).
7.
the refund of excise duty or service tax is allowed by the Deputy Commissioner
of Central Excise or the Assistant Commissioner of Central Excise, as the case
may be." Difficulties pointed out in the circular: -
The
service tax exporters are facing difficulties in getting refund from the department.
Similar difficulties are also faced by the goods exporters are and many matters
are pending in the tribunal.
The
circular says that the call centers or the BPOs are sailing in the same boat.
The main problems faced by service tax exporters and as clarified in this circular
are summarized as under:- a. Language of the notification vis-à-vis
input service definition. b. Nexus between input or input services and final
services exported c. Verification of the documents. d. Refund of Cenvat
credit accumulated during the quarter or earlier quarter. e. Incomplete invoices.
Underneath
we have discussed these problems and solutions offered by the circular in a detailed
view as follows: -
1)
Language of the notification: The Board circular no. 120/01/2010 ST, Dt 19
January, 2010 says that the language of the notification 5/2006 provides that:-
"Refund
is permitted of duties and taxes paid on inputs or input services USED in the
manufacture of export goods or USED in providing the output services exported".
However,
"Input services" definition under Rule 2(l) of Cenvat credit Rules reads
as follows:- "(i) used by a provider of taxable service for providing
an output service;or (ii) used by the manufacturer, whether directly or indirectly,
in or in relation to the manufacture of final products and clearance of final
products upto the place of removal, (This clause has been amended vide Notification
10/2008 C.E. (N.T.) - dated 01-03-2008) and includes services used in relation
to setting up, modernization, renovation or repairs of a factory, premises of
provider of output service or an office relating to such factory or premises,
advertisement or sales promotion, market research, storage upto the place of removal,
procurement of inputs, activities relating to business, such as accounting, auditing,
financing, recruitment and quality control, coaching and training, computer networking,
credit rating, share registry, and security, inward transportation of inputs or
capital goods and outward transportation upto the place of removal;"
The
field formalities says that the CENVAT Credit Rules allowed the credit on input
services used "whether directly or indirectly, in or in relation to the manufacture
of final product or for providing the output service". But the Rule 5 says
that it should be directly used in the manufacture of export goods.
On
the basis of wordings, departmental authorities are focusing on nexus theory.
For refund, the inputs/ input services should be directly related to the goods
/ services exported. The department states that the goods or services covered
under a particular invoice which are not able to establish a connection with a
specific consignment of export goods or specific instance of export of service,
are not eligible for refund.
The
board has maintained that the Harmonious reading of both the rules should take
place. The real intention of the rule is to provide the refund claim to exporters.
Even if different words have been used in both the rules then also they should
be read in Harmonious manner. It is very welcome step on the part of the Board.
Thus, by reading these lines, one can say that refund of all Cenvat credit taken
will be allowed to the exporters.
But
the Board goes further and says that to prove the nexus it is to be seen that
whether the quality and efficiency of services exported is increased. This was
not there in Rules also but the Board has inserted the new provision and field
formalities will use this weapon to say that the all input services credit taken
by the exporters does not increase the efficiency and quality and as such refund
is to be denied. Else the exporter has to prove that the quality and efficiency
has increased. The circular has given examples also in respect of the call centres
or the BPOs. The services which are directly correlate with the export of services
are renting of premises, right to use software, rent a cab, maintenance &
repair of equipment, telecommunication facilities, etc. are eligible for granting
of refund.
The
activities which are recreational in nature or used in beautification of premises
are apparently not able to correlate with the export of services, hence not eligible
for refund. The activities which are recreational in nature like event management,
company-sponsored dinners/picnics/ tours, flower arrangements, mandap keepers,
hydrant sprinkler systems, rest houses, etc. can establish nexus with the export
of services indirectly. The call centres or BPO will get atleast get refund on
such services. But the poor other service providers has to face the music from
the department.
However,
recreational activities also increase the efficiency of the employees. The expansion
of office building etc. also increases the export of services. As such the refund
should be allowed on such services also.
The
nexus will be said to exist if it is essential for the quality and efficiency
of provision of service exported. The departmental authorities considered that
the recreational activities are not related to export of services or does not
impact the efficiency, but they are meant for the improvement of efficiency only.
The recreational activities provided to employees are to ensure that output service
is provided efficiently.
2)
Voluminous record to grant refund as well as one to one co-relation: The board
circular has mixed up both these problems and given solution in single para. The
exporters has to submit many documents like input service invoices, export invoices,
bank certificates etc, in order to get refund. This was also the situation for
the goods exporters who have to get the refund under notification 41/2007. But
afterwards self certification model was introduced in budget 2009 by notification
17/2009. A declaration certified by the CA was to be submitted to help in faster
disposal of the refund claims. The circular says that the same procedure should
be followed in such type of refunds.
A
CA certificate should be provided along with the refund claim about the co-relation
and nexus. But there is legal provision for the same under notification 17/2009
but no such legal backing for the same for the refund claim under Rule 5. The
circular can prescribe the conditions which are not there in Rule and notification. As
a member of ICAI, we welcome these provisions but the language of circular says
that after the certificate, it will be verified by the AC/DC. If this is situation,
then why this circular is increasing the problems of the poor exporters who is
already not getting the refund claim. One more step of certificate of CA is added.
It has prescribed one more declaration along with the refund claim.
3)
Quarterly filing of refund claims: There was a dispute between the serviced
tax exporter and the department that the service tax refund is to be granted for
the quarter where the export has taken place. If the Cenvat is accumulated in
the earlier quarter and there was no export but the export has taken place in
next quarter then the refund will not be granted of cenvat credit accumulated
for the earlier quarter.
This
is a good clarification from the Board. The refund will be granted even for the
earlier quarter also. But the notification does not suggest the same. It allows
the refund on proportionate basis. If the real intention of the Board was to give
the refund then they have to amend the notification. It is settled position that
the board circular which are against the law are not binding on the departmental
officers. As such they can very well challenge the same.
Hence,
the overall position is not alerted and the exporter will not get relief on this
count also. 4) Non compliance of Rule 4A
The
department rejects refund claim because invoices submitted are not complete in
all respects as per Rule 4A of Service tax Rules. In invoices, either description
of the service or the classification is not mentioned. The exporters submits that
refund should be allowed if it appears on invoice the nature of service received,
tax paid, details required under Rule 4A, & the input service has link with
the service/goods exported. The board has accepted this position and granted the
refund claim even if there is minor variation. It has instructed the field formalities
to take broader view based on judicial pronouncements.
A
Quick Wrap before we wind up:-
We
have seen that the board has tried to resolve the problems of the exporters but
it has not finished yet. The rule should be amended in such a manner that it provides
that complete unutilized credit lying with the exporter should be refunded irrespective
of the nexus theory. Ultimately, the aim is to provide the refund of unutilized
credit to the exporter. Till then it does not seem that the problems will be resolved
for the exporters. And the most important thing is that a positive attitude is
required for grass root level to says, it will be hard nut to crack.
Goods
Exporter can also claim the rebate claim on finished goods under Rule 18 rather
than to claim the refund of unutilized credit under Rule 5. This is very easy
and total unutilized credit can be claimed as rebate. We have always suggested
to exporters that they should claim the same. The refund of unutilized credit
should be opted when no other option is available with the exporter, like in case,
when the exporter is supplying goods to 100%EOU or else the 100% EOU is having
unutilized Cenvat credit. In such cases rebate route is not available.
We
suggest that the same route is available for the service tax exporters. They can
also pay the service tax on their output services under Rule 5 of Export of services
rules and get the refund from the department. This is a simple solution. As per
our opinion, the same should be preferred.
REVENUE
COMMENTS ON GST
THE
Central Revenue Department has sent its comments to the Empowered Committee on
the First Discussion Paper on GST. Some of the comments are:
"
Dual GST model with appropriate binding mechanism to harmonise the various important
aspects of the GST like rate structure, taxation base, exemption etc. between
Centre and States is agreed. " IGST on inter-State transactions should
be levied by the Centre. SGST on imports should also be levied and collected by
the Centre. Centre should pass on SGST collection on imports to concerned States
on the destination principle. " There should be a common base for taxation
between Centre and States. " The threshold for goods and services should
be common between Centre and State on one hand and between goods and services
on the other. " There should be a uniform threshold for goods and services
for both SGST and CGST. " There should be a uniform registration system
through-out the country and this registration system should enable easy linkage
with Income Tax database through use of PAN number. " Since the tax base
is to be identical for the two components, viz., CGST and SGST, it is desirable
that any dispute between a taxpayer and either of the tax administrations is settled
in a uniform manner. The possibility of setting up a harmonised system for scrutiny,
audit and dispute settlement may be developed. " Alcoholic beverages
should be brought under the purview of GST in order to remove the cascading effect
on GST paid on inputs such as raw material and packaging material. Sales tax /
VAT and State excise duty can be charged over and above GST. Similar dispensation
should apply to opium, Indian hemp and other narcotic drugs and narcotics but
medicines or toilet preparations containing these substances should attract only
GST. " There should be a single rate of SGST both for goods and services.
" SGST and CGST rates are required to be put in public domain much before
initiation of legislative action. " Taxation of import of services may
be on the basis of reverse charge model, as is being done at present. "
The Joint Working Group (JWG) has held several meetings by now. Department of
Revenue is closely working with Ministry of Law, Government of India, for finalisation
of draft Constitutional amendment. The issue of empowering States to levy GST
on imports has been deliberated by the JWG and the view which has emerged out
of discussion is that the Centre shall collect GST on imports and pass on the
SGST component of it to concerned State on destination principle. " The
provisions related to dispute resolution, advance rulings and other business processes
need to be harmonised between Centre and States. " Empowered Committee
may prepare a plan with clear timelines for orientation of stakeholders so that
required steps may be taken by all the States in time
Comments of the
Department of Revenue (DoR) on the First Discussion Paper on GST Sr. No. Para
No. of the Discussion Paper Issues Comments of the DoR
1
3.1 It is important to take note of the significant administrative issues involved
in designing an effective GST model in a federal system with the objective of
having an overall harmonious structure of rates. Together with this, there is
a need for upholding the powers of Central and State Governments in their taxation
matters. Further, there is also the need to propose a model that would be easily
implementable, while being generally acceptable to stakeholders. Agreed.
2
3.2 Keeping in view the report of the Joint Working Group on Goods and Services
Tax, the views received from the States and Government of India, a dual GST with
defined functions and responsibilities of the Centre and the States is recommended
. An appropriate mechanism that will be binding on both the Centre and the States
should be worked out whereby the harmonious rate structure along with the need
for further modification could be upheld, if necessary with a collectively agreed
Constitutional Amendment. Dual GST model with appropriate binding mechanism to
harmonise the various important aspects of the GST like rate structure, taxation
base, exemption etc. between Centre and States is agreed.
3
3.2 (i) The GST shall have two components: one levied by the Centre (hereinafter
referred to as Central GST), and the other levied by the States [hereinafter referred
to as State GST]. Rates for Central GST and State GST should be prescribed appropriately,
reflecting revenue considerations and acceptability. This dual GST model would
be implemented through multiple statutes (one for CGST and a SGST statute for
every state). However, the basic features of law such as chargeability, definition
of taxable event and taxable person, measure of levy including valuation provisions,
basis of classification etc. should be uniform across these statutes as far as
practicable. Agreed. In addition, IGST on inter-State transactions should be levied
by the Centre. SGST on imports should also be levied and collected by the Centre.
Centre should pass on SGST collection on imports to concerned States on the destination
principle
4
3.2 (ii) The Central GST and the State GST should be applicable to all transactions
of goods and services made for a consideration except the exempted goods and services,
goods are outside the purview of GST and the transactions which are below the
prescribed threshold limits. Agreed. There should be a common base for taxation
between Centre and States.
5
3.2 (iii) The Central GST and State GST are to be paid to the accounts of the
Centre and the States separately . It would have to be ensured that account-heads
for all services and goods would have indication whether it relates to Central
GST or State GST (with identification of the State to whom the tax is to be credited).
Agreed. In addition, IGST should be paid to the accounts of the Centre.
6
3.2 (iv) Since the Central GST and State GST are to be treated separately, taxes
paid against the Central GST shall be allowed to be taken as input tax credit
(ITC) for the Central GST and could be utilized only against the payment of Central
GST. The same principle will be applicable for the State GST . A taxpayer or exporter
would have to maintain separate details in books of account for utilization or
refund of credit. Further, the rules for taking and utilization of Credit for
the Central GST and the State GST would be aligned. Agreed.
7
3.2 (v) Cross utilization of ITC between the Central GST and the State GST should
not be allowed except in the case of inter-State supply of goods and services
under the IGST model which is explained later. Agreed. 8 3.2 (vi) Ideally,
the problem related to credit accumulation on account of refund of GST should
be avoided both by the Centre and the States except in the cases such as of exports,
purchase of capital goods, input tax at higher rate than output tax etc. where,
again refund/adjustment should be completed in a time bound manner. Agreed.
9
3.2 (vii) To the extent feasible, uniform procedure for collection of both Central
GST and State GST may be prescribed in the respective legislation for Central
GST and State GST. Agreed.
10
3.2 (viii) The administration of the Central GST to the Centre and for State GST
to the States would be given. This would imply that the Centre and the States
would have concurrent jurisdiction for the entire value chain and for all taxpayers
on the basis of thresholds for goods and services prescribed for the States and
the Centre. Agreed. The threshold for goods and services should be common between
Centre and State on one hand and between goods and services on the other.
11
3.2 (ix) The present thresholds prescribed in different State VAT Acts below which
VAT is not applicable varies from State to State. A uniform State GST threshold
across States is desirable and, therefore, it is recommended that a threshold
of gross annual turnover of Rs.10 lakh both for goods and services for all the
States and Union Territories may be adopted with adequate compensation for the
States (particularly, the States in North-Eastern Region and Special Category
States) where lower threshold had prevailed in the VAT regime. Keeping in view
the interest of small traders and small scale industries and to avoid dual control,
the States also considered that the threshold for Central GST for goods may be
kept Rs.1.5 Crore and the threshold for Central GST for services may also be appropriately
high. It may be mentioned that even now there is a separate threshold of services
(Rs. 10 lakh) and goods (Rs. 1.5 crore) in the Service Tax and CENVAT. There should
be a uniform threshold for goods and services for both SGST and CGST. This annual
turnover threshold could be Rs.10 lakh or even more than that. The threshold exemption
should not apply to dealers and service providers who undertake inter-State supplies.
The problem of dual control is better addressed through a compounding scheme as
well as administrative simplification for small dealers through measures such
as:
Registration
by single agency for both SGST and CGST without manual interface No physical
verification of premises and no pre-deposit of security Simplified return
format Longer frequency for return filing Electronic Return filing through
certified service centres / CAs etc. Audit in 1-2% cases based on risk parameters
Lenient penal provisions There may not be any need to have direct link
between compensation package, if decided for, and the threshold for registration
for North-Eastern and special category States.
12
3.2 (x) The States are also of the view that Composition / Compounding Scheme
for the purpose of GST should have an upper ceiling on gross annual turnover and
a floor tax rate with respect to gross annual turnover . In particular there will
be a compounding cut-off at Rs.50 lakh of gross annual turnover and a floor rate
of 0.5% across the States. The scheme should also allow option for GST registration
for dealers with turnover below the compounding cut-off. Agreed. Centre may also
have a Composition Scheme up to gross turnover limit of Rs. 50 lakh, if threshold
for registration is kept as Rs.10 lakh. The floor rate of 0.5% will be for SGST
alone, in case Centre also brings a Composition Scheme for small assesses. The
Centre may consider leaving the administration of Compounding Scheme, both for
CGST and SGST to the States.
13
3.2 (xi) The taxpayer would need to submit periodical returns, in common format
as far as possible, to both the Central GST authority and to the concerned State
GST authorities. In addition, taxpayers having inter-State transactions will require
submission of returns to related Central IGST authority.
14
3.2 (xii) Each taxpayer would be allotted a PAN-linked taxpayer identification
number with a total of 13/15 digits. This would bring the GST PAN-linked system
in line with the prevailing PAN-based system for Income tax facilitating data
exchange and taxpayer compliance. There should be a uniform registration system
through-out the country and this registration system should enable easy linkage
with Income Tax database through use of PAN number.
15
3.2 (xiii) Keeping in mind the need of taxpayers convenience, functions such as
assessment, enforcement, scrutiny and audit would be undertaken by the authority
which is collecting the tax, with information sharing between the Centre and the
States. Since the tax base is to be identical for the two components, viz., CGST
and SGST, it is desirable that any dispute between a taxpayer and either of the
tax administrations is settled in a uniform manner. The possibility of setting
up a harmonised system for scrutiny, audit and dispute settlement may be developed.
16
3.4 O n application of the principle, it is recommended that the following Central
Taxes should be, to begin with, subsumed under the Goods and Services Tax: (i)
Central Excise Duty (ii) Additional Excise Duties (iii) The Excise Duty
levied under the Medicinal and Toiletries Preparation Act (iv) Service Tax
(v) Additional customs duty, commonly known as countervailing duty (CVD) (vi)
Special Additional Duty of Customs - 4% (SAD) (vii) Surcharges, and (viii)
Cesses. Agreed. Following State taxes and levies should be, to begin with,
subsumed under GST: (i) VAT / Sales tax (ii) Entertainment tax (unless
it is levied by the local bodies). (iii) Luxury tax (iv) Taxes on lottery,
betting and gambling. (v) State Cesses and Surcharges in so far as they relate
to supply of goods and services. (vi) Entry tax not in lieu of octroi. Electricity
duty, Octroi, purchase tax and taxes levied by local bodies should also be subsumed
under GST.
Purchase
tax: Some of the States felt that they are getting substantial revenue from Purchase
Tax and, therefore, it should not be subsumed under GST while majority of the
States were of the view that no such exemptions should be given. The difficulties
of the food grain producing States and certain other states were appreciated as
substantial revenue is being earned by them from Purchase Tax and it was, therefore,
felt that in case Purchase Tax has to be subsumed then adequate and continuing
compensation has to be provided to such States. This issue is being discussed
in consultation with the Government of India. Purchase tax is nothing but sales
tax where the responsibility for collection of tax is with the purchaser (and
not with the seller as in the case of sales tax). Keeping 'purchase tax' outside
will give the loophole to the States to impose 'purchase tax' on any commodity
(food-grains, agricultural / forest produce, minerals, industrial inputs etc.)
over and above GST. Hence, purchase tax must be subsumed. The compensation package,
if agreed, need not have any link to any particular tax being subsumed. Tax
on items containing Alcohol: Alcoholic beverages may be kept out of the purview
of GST. Sales Tax/VAT can be continued to be levied on alcoholic beverages as
per the existing practice. In case it has been made Vatable by some States, there
is no objection to that. Excise Duty, which is presently being levied by the States
may not be also affected. Alcoholic beverages should be brought under the purview
of GST in order to remove the cascading effect on GST paid on inputs such as raw
material and packaging material. Sales tax / VAT and State excise duty can be
charged over and above GST. Similar dispensation should apply to opium, Indian
hemp and other narcotic drugs and narcotics but medicines or toilet preparations
containing these substances should attract only GST. Tax on Tobacco products:
Tobacco products should be subjected to GST with ITC. Centre may be allowed to
levy excise duty on tobacco products over and above GST without ITC. Agreed.
Tax
on Petroleum Products: As far as petroleum products are concerned, it was decided
that the basket of petroleum products, i.e. crude, motor spirit (including ATF)
and HSD should be kept outside GST as is the prevailing practice in India. Sales
Tax could continue to be levied by the States on these products with prevailing
floor rate. Similarly, Centre could also continue its levies. A final view whether
Natural Gas should be kept outside the GST will be taken after further deliberations.
Keeping crude petroleum and natural gas out of the GST net would imply that the
credit on capital goods and input services going into exploration and extraction
would not be available resulting in cascading. Diesel, ATF and motor spirit are
derived from a common input, viz., crude petroleum along with other refined products
such as naphtha, lubricating oil base stock, etc. Leaving diesel, ATF and motor
spirit out of the purview of GST would make it extremely difficult for refineries
to apportion the credit on capital goods, input services and inputs. These products
are principal inputs for many services such as aviation, road transport, railways,
cab operators etc. As such, these may be levied to GST and in select cases credit
of GST paid on these items may be disallowed in order to minimize the possibility
of misuse.
Taxation
of Services: As indicated earlier, both the Centre and the States will have concurrent
power to levy tax on all goods and services . In the case of States, the principle
for taxation of intra-State and inter-State has already been formulated by the
Working Group of Principal Secretaries/Secretaries of Finance / Taxation and Commissioners
of Trade Taxes with senior representatives of Department of Revenue, Government
of India. For inter-State transactions an innovative model of Integrated GST will
be adopted by appropriately aligning and integrating CGST and SGST. The sub-working
group of the Empowered Committee in its report has suggested two options each
for B to B and B to C transactions. A decision is required to be taken by the
Empowered Committee with respect to the option to be adopted. Such a decision
may be taken and communicated to DoR. 17 3.5 Inter-State Transactions of goods
& services: The Empowered Committee has accepted the recommendations of the
Working Group of concerned officials of Central and State Governments for adoption
of IGST model for taxation of inter-State transaction of Goods and Services The
scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST
on all inter-State transactions of taxable goods and services with appropriate
provision for consignment or stock transfer of goods and services.
The
inter-State seller will pay IGST on value addition after adjusting available credit
of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to
the Centre the credit of SGST used in payment of IGST. The Importing dealer will
claim credit of IGST while discharging his output tax liability in his own State.
The Centre will transfer to the importing State the credit of IGST used in payment
of SGST. The relevant information is also submitted to the Central Agency which
will act as a clearing house mechanism, verify the claims and inform the respective
governments to transfer the funds.
The
major advantages of IGST Model are: a) Maintenance of uninterrupted ITC chain
on inter-state transactions. b) No upfront payment of tax or substantial blockage
of funds for the inter-state seller or buyer. c) No refund claim in exporting
State, as ITC is used up while paying the tax. d) Self monitoring model. e)
Level of computerization is limited to inter-state dealers and Central and State
Governments should be able to computerize their processes expeditiously. f)
As all inter-state dealers will be e-registered and correspondence with them will
be by e-mail, the compliance level will improve substantially. g) Model can
take 'Business to Business' as well as 'Business to Consumer' transactions into
account. Agreed. It may however be noted that IGST model will work smoothly only
when there is a common threshold for goods and services and for Centre and States.
Having more than one rate either for CGST or SGST will complicate the working
of IGST model.
NEW
DELHI, JAN 04 : KEEPING in view the top priority of government to employment
generation, The Associated Chambers of Commerce and Industry of India (ASSOCHAM)
has proposed complete waiver of Service Tax as also Minimum Alternate Tax (MAT)
for industries set up solely with a view to creating employment opportunities
both in public and private sectors having minimum marginal profits.
In
addition, the Chamber has demanded that imports of capital goods, required to
set up such industries be exempt from import tariffs, initially for a period of
10 years.
The
Chamber is of the firm view that despite employment generation has been among
lead priorities of successive government s, experience shows that industries set
up to create employment are hardly centivised.
It
is in view of this background, the ASSOCHAM has proposed to the government not
to subject such industries and ventures either to service tax or MAT which are
established solely for employment oriented and are labor intensive.
In
an SoS, sent to Finance Ministry, president ASSOCHAM Dr. Swati Piramal also demanded
that employment generation could pick up, provided capital goods required to be
imported for such industries are exempt from imposition of import tariffs and
exempted from MAT and service tax.
These
suggested measures will motivate qualified people with entrepreneur skills to
plunge into establishing such units which enjoys high return of people to boost
the employment generation which has been one of the priorities of the government.
According
to the Chamber, direct linkages with employment generation can be established
to set up chains of labour intensive industries provided with suggested tax exemption.
The
criteria for extending the proposed benefits could be linked to Head Counts and
as these increase, the incentives should be commensurate accordingly and in case
Head Counts decrease, the suggested incentives can be reduced accordingly.
The
suggestion as regards to extension of benefits about service tax as well as MAT
to industries set up with altruistic purpose is based on the internal assessment
of the ASSOCHAM which found that in order to establish direct linkages with employment
generation, the government has to forgo some of its taxation measures. As far
as labour intensive industries are concerned, no worth recalling incentive schemes
were ever announced and therefore, now the time has come when the government needs
to look at the suggestion mooted by the Chamber.(editor
@thesynergyonline.com)
NEW
DELHI, MARCH 11 : THE Associated Chambers of Commerce and Industry of India
(ASSOCHAM) has sought scrapping of service tax on security providers as also demanded
conferment of industry status on them under Section 801A, 801AB, 801IB and 80IC
of Income-Tax Act.
The
ASSOCHAM has argued that security agencies be exempted from paying 13 per cent
services tax as these are also subjected to various other taxes which include
higher import tariffs on security gadgets, still higher excise on security equipment
manufactured domestically and number of local levies on movements of such equipment
within the State and inter-state.
This
amount to double and triple taxation and it is because of this reason the cost
of security to end users is proving to be too expensive to afford, feels the ASSOCHAM.
The
13 per cent security service charge is the highest since security forces are employed
in projects of national importance like guarding various infrastructural development
project sites and Special Economic Zones which consist not only of expensive machinery
and materials but also the personnel who are employed there.
In
a representation forwarded to Ministry of Finance after conclusion of ASSOCHAM’s
recent National Security Conference held here, the Chamber has demanded that security
agencies should no longer be enlisted under category of service provider and be
brought under category of Auxillary Service Provider to avail tax benefits.
Since,
the security agency ensure safety of material as well as of personnel in unsafe
times while risking their own life in the process, the industry need to be given
infrastructure status on lines provided to industries relating to infrastructure,
civil aviation, ports etc.
The
ASSOCHAM president, Mr. Sajjan Jindal said that Finance Ministry’s notification
grants tax incentives through income tax exemption on various industries located
in backward areas such as Himachal Pradesh, Uttarakhand, Sikkim and North-Eastern
States by providing their people with much needed employment opportunities, security
agencies do not get any tax exemption in these states also.
Therefore,
the scope of this notification needs to be broadbased and widened so that security
providers avail such benefits especially at times when lot of developmental work
is going on in the backward regions of India.
Section
80-IA provides deductions in respect of profits and gains from industrial undertakings
or enterprises engaged in infrastructure development, etc., while Section 80-IB
gives incentives in respect of profits and gains by an undertaking or enterprise
engaged in development of Special Economic Zone and Section 80-IB accords exemptions
in respect of Profits and Gains from certain industrial undertakings other than
Infrastructure Development Undertakings.
As
far as 80-IC is concerned, special provisions are given in respect of certain
undertakings/enterprises in certain special category state. Security agencies
should also be brought within jurisdiction of these sections so that they also
enjoy tax exemptions.
The
Chamber has strongly argued that service tax should be rationalized for security
agencies since in the current current economic scenario of growing recession,
where there are less of employment opportunities available country wide, the security
agencies prove to be an important source of employment. The security industry
being a labour intensive industry, is responsible for supporting and providing
a livelihood to a large workforce.
Security
agencies provide employment to that part of the Indian workforce which are not
highly educated and also to the retired army personnels. This industry provide
an opportunity to live their lives with honesty, discipline and respect. The burden
of this additional tax leads to reduced growth incentives for security industry.
Thus imposing an undue hardship on all the people associated with the industry.
(editor @thesynergyonline.com)
NEW
DELHI, JULY 12 : THE CENTRAL Government has issued Notification No. 29/2008-Service
Tax, dated 26-6-2008 to exempt fully from levy of service tax on supply of transport
vehicles (goods carriage) to a goods transport agency (GTA) to be used for transport
of goods by road [section 65(105)(zzzz)) of the Finance Act, 1994].
Representations
have been received from the All India Confederation of Goods Vehicle Owners. Associations
and also from the All India Motor Transport Congress requesting to provide relief
on account of levy of service tax on supply of goods carriage to GTA for use in
transport of goods. It has been stated that GTAs often provide services in relation
to transportation of goods by road using the goods carriage obtained on rent or
hire basis.
The
relief has been sought on various grounds inter alia that the service tax paid
on renting/hiring of goods carriage, without right of possession and effective
control, could not be taken as input credit for payment of service tax towards
GTA service.
Services
provided by a GTA in relation to transportation of goods is leviable to service
tax under GTA service [section 65(105)(zzp)]. Service tax for the GTA service
provided is payable only on 25 per cent of the amount charged for providing the
GTA service and the balance amount is exempt from levy of service tax.
In
view of this provision, GTAs are not entitled to take input credit under Cenvat
Credit Scheme on goods and services used for GTA service. Moreover service tax
for GTA services provided in seven specified cases is not required to be paid
by the GTA service provider but by the person making payment towards the freight.
In
this year's budget, services provided in relation to supply of tangible goods
for use, without transfer of possession and effective control, has been made as
separate taxable service and this service has come into force with effect from
16-5-2008.
Consequently,
supply of goods carriage to the GTA, without transfer of possession and effective
control, for using the said goods carriage for transport of goods by road becomes
leviable to service tax.
Notification
No. 29/2008-Service Tax, dated 26-6-2008 exempts fully the levy of service tax
on supply of goods carriage to GTA for use in transportation of goods by road.(npsinha@thesynergyonline.com)
NEW
DELHI, JULY 28 : THE Government was very keen in resolving the areas of ambiguities
to increase the share of services from 1.1% of GDP said, Mr. P C Jha, Member,
CBEC, and also strongly cautioned the willful service tax evaders for serious
consequences.
Inaugurating
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) Conference
on Service Tax and CENVAT here today, Mr. Jha said that the government was finalising
the two Masters circulars on technical and procedural issues and shall be issued
on 3rd week of August.
Mr.
Jha further said that though the service tax collection during 2007-08 was expected
to be Rs.50,200 crore as against Rs.37,500 crore in last year, the potential were
very high and therefore the revenue department will take serious action against
those also are deliberating violating the law.
He
informed that the government has already set up large taxpayer units covering
central excise, service tax and income-tax in Bangalore and Chennai and will be
following soon in Delhi and Mumbai would be set up by December 2007.
The
government is receiving feedback from industry and chambers circles and after
studying the same will finaliase the master circulars. This he assured will remove
many of the existing irritants and uncertainties and make procedures easy to understand
and follow.
He
agreed that there is a need for better understanding and implementation of the
service tax provisions by the field administration, while urging the service tax
paying community to pay the tax due in accordance with law.
Mr.
Jha took note of trade and industry’s grievance that there is inordinate
delay in disposal of adjudication processing particularly of Show cause notice
leading to uncertainty and assured that the government will take steps to ensure
faster adjudication of service tax cases and also for providing a judicious discipline
at the field levels.
Reacting
to the complaints that summons are being issued calling for records by some field
formation despite the board’s directions against such practices, he assured
that the government will take serious note and rectify the situation.
Mr.
R Sekar, Joint Secretary (TRU), CBEC cleared doubts in many areas likes works
contract, rental in immovable properties, mining, sub-contractor & main contractor,
telecom, SEZs where hardships are being faced.
Mr.
T R Rustagi, Chairman, Committee on Service Tax Circulars said that service tax
being a new area and very complex tax system dealing with whole range of services
and thus created some problems and hardships. There has to be a meeting point
and agreements between tax policy makers, implementers and the taxpaying community.
While the service tax design structure and law has been reasonably evolved, their
still a lot to be done to make the tax administration especially at the field
levels so as to make it effective and efficient tax administering system.
Mr.
Anil K Agarwal, ASSOCHAM Immediate Past President in his address said that the
CENVAT Credit could not be availed on the service tax paid on the outward transport
because the credit covers duty paid on input materials as well as tax paid on
services, used in or in relation to the manufacture of the final product.
Mr.
J K Mittal, Co Chairman, ASSOCHAM Committee on Indirect Taxes said that the time
limit for adjudication of cases should be prescribed which should be one from
the date of issue of Show Cause Notice and those could not be disposed of within
such time. The reason should be informed to the assessee, said Mr. Mittal.
NEW
DELHI, JUNE 18 : TOTAL tax revenue from corporate, income-tax, custom &
excise duties and service taxes is poised to rise to Rs. 5,80,816 crore by 2009-10
and subsequently touch whooping volumes of Rs.10,69,486 crore by 2014-15 from
Rs. 46,7848 crore in fiscal 2006-07, according to The Associated Chambers of Commerce
& Industry of India (ASSOCHAM).
The
growth in total tax collections would increase mainly on account of higher collections
of corporate and service taxes as also partly in income tax, customs and excise
duty, says ASSOCHAM Eco Pulse on Tax Revenue : The Future Growth Path.
Releasing
the Eco Pulse, ASSOCHAM President, Mr. Venugopal N. Dhoot said that service tax
which was imposed since 1994 with three services in its net, registered a growth
of 9200% between 1994 to 2006-07. However, in 2006-07, the service tax was imposed
on 106 services. In 2006–07, the total revenue earned through service tax
was Rs.38169 Crores which will go up to Rs. 1,36,392 Crores and register a growth
of 257% in 2009-10. In 2014-15, the service tax revenue is likely to touch Rs.7,35,075
Crores with percentage growth of 1825.
In
the meanwhile, ASSOCHAM Eco Pulse points out that growth in corporate, income-tax,
excise & custom duties volumes have respectively risen from a whooping level
of 1549%, 946%, 280% and 244% immediately after liberalisation in 1992-93 to 2006-07,
showing that tax compliance increased in the period as a result of partial simplification
in tax administration and increased economic activities that motivated taxpayers
to avoid tax evasion which was so rampant during days of isolated economy.
The
ABB points out that while the central government collected corporate tax to the
tune of Rs.8899 crore in 1992-93, the same rose to Rs.14649 crore in 2006-07 an
increase of a little over 1549%. In fiscal 2006-07, share of corporate tax in
total tax revenue went up to 31.3% which was 11.9%, way back in 1992-93. The corporate
tax collection would further go up to Rs.204784 Crores in 2009-10 before settling
to Rs.521630 Crores by 2014-15.
As
regards to income-tax, in 1992-93 the revenue collected by government was Rs.7888
crore which went up to Rs.82510 crore in 2006-07, showing a growth volume of 946%.
This has happened largely due to better tax compliance and increased number of
taxpayers and much lessor harassment from authorities concerned. The share of
income tax in total tax revenue while was 10.6% in 1992-93, it went up to 17.6%
in fiscal 2006-07. Projections for Income Tax collections for 2009-10 are made
for Rs.119443 Crores and Rs.259522 Crores for 2014-15.
Excise
and custom duty, the volumes for tax collections have risen respectively by 280%
and 244% despite rationalisation and reduction in their duty structure which motivated
large number of taxpayers to voluntarily show transparency in their accounts books.
As a result of which, the tax collection has gone up. The revenue from customs
to the government in 1992-93 was Rs.23776 crore and in case of excise, it was
Rs.30382 crore, the collections from these two sources respectively went up to
Rs.81800 crore and Rs.117266 crore showing an increase of 280% and 244%, reveal
the ASSOCHAM Eco Pulse. Excise and Customs collections respectively projected
for 2009-10 comprise Rs.152874 Crores and Rs.87899 Crores against Rs.735075 Crores
and Rs.126810 Crores for year 2014-15.
The
excise duty share in total tax revenue while was 41.3% in 1992-93, it declined
to 25.1% in 2006-07 and as regards to customs duty share in total tax revenue
which was 31.9% in 1992-93 fell down to 17.5% in 2006-07, as a result of massive
structuring on excise and customs. The volume revenue increased exponentially
because of increased economic activities and substantial growth in the number
of industrial units.
