Service Tax – Recent Changes
CA Amit Lath
Budget of successive years introduces amendment in various tax laws with the aim of rationalization in the tax regime of the country. Budget 2012 in the same row came out with various amendments in direct and indirect laws.
Government has celebrated the attainment of majority (18 years) of Service tax laws introduced in the year 1994 by bringing drastic changes. The changes have tried to justify the “Major” status of service tax laws. GST is supposed to be roll out next year. Smooth introduction of GST requires changes in the current tax regime and these changes are much in that direction.
What is service?
Clause (44) of newly introduced Sec 65(B) defines service as:-
- Any activity
- carried out by a person to another
- for consideration
- and includes declared services.
The said definition also provides that ‘service’ doesn’t include –
- any activity that constitutes merely a transfer in title of i) goods or ii) immovable property, by way of sale, gift or in any other manner
- a transaction only in (iii) money or (iv) actionable claim
- service by an employee to the employer in the course of or in relation to his employment.
- fees payable to a court or a tribunal set up under a law for the time being in force
- a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
Explanation 2 further adds that following shall be considered as distinct person:-
a) an unincorporated association or a body of persons and a member thereof.
b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory.
2. Charging section (Sec 66B)
Service tax to be levied at 12% on the value of all services, other than those specified in the negative list, provided or agreed to be provided in a taxable territory by one person to another.
3. Declared services
With the aim of bringing clarity a list of declared services has been introduced. Definition of “Service” includes these declared services within its ambit. These services have been deemed as service.
4. Negative List
Approach for taxation has shifted from positive list to negative list. Earlier services specified in section 65(105) were subject to taxation. Many of the services had specific exemptions, abatement’s etc. Classification played a crucial role in taxability of services. Many times these classification led to litigation. Now this entire approach has changed and every services not specified in the negative list is subject to service tax.
A mega exemption notification (Notification No. 25/2012) dated 20.06.2012 superseding notification number 12/2012 dated the 17th March, 2012 has been issued by the department. This list primarily covers services provided to govt. or for public welfare. For e.g. – Health care services by a clinical establishment, an authorized medical practitioner or Para-medics, Services by way of collecting or providing news by an independent journalist, Press Trust of India or United News of India, Services by way of renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below rupees one thousand per day or equivalent.
Abatement have been provided at specified rates on various services. These services are primarily related to transportation of goods, passenger & construction services. (Notification 26/2012)
7. Reverse charge mechanism (Notification 30/2012,36/2012)
Usually service provider is liable to pay service tax for the services provided except for the few services covered under reverse charge, under which service receiver is liable to pay service tax.
This mechanism has not been altogether a new mechanism. This mechanism was prevalent in the earlier service tax law as well. However scope of this mechanism has been enlarged in a greater way. Furthermore a new concept of “partial reverse charge” has been introduced where service provider as well as service receiver is made liable to pay service tax in specified percentage for a particular service. Introduction of this mechanism brings many questions in the mind of assesse. Following could be few of the questions:-
1) When a service receiver is not providing any service whether he is required to get himself registered?
Sec 69 provides that every person liable to pay service tax is required to get himself registered. Accordingly service receiver is also required to get himself registered. Furthermore service receiver will have to file periodical returns as well.
2) Whether there is any liability on service receiver if service provider is small service provider and not liable for taxation?
Yes, service receiver has to pay service tax liability on his account.
3) Whether service receiver can pay service tax by availing cenvat credit?
No, service receiver cannot utilize cenvat credit for payment of service tax.
4) Whether a service receiver is liable to determine his liability and pay accordingly or he is liable to pay according to service tax shown in the invoice of service provider?
CBEC has clarified that the liability of Service receiver and service provider are different and independent of each other.
5) What will be point of taxation for service receiver and service provider?
Point of taxation for service provider is date of payment or invoice issued whichever is earlier(provided invoice issued within 30 days) whereas point of taxation for service receiver is date of payment However if the payment is not made within 6 month from the date of invoice, POT shall be deemed to have occurred on the date of invoice.
6) Whether Invoice issued by service provider will show the entire amount of service tax payable or only the tax payable on his account?
Rule4 A of service tax rules provides for issuance of invoice by service provider. Further as per clause (IV) of Sub rule (1) “service tax payable thereon” shall be indicated on the invoice. Accordingly entire amount of service tax shall be shown on the invoice.
7) If a person has been registered as service provider and now he is also liable to pay service tax as service receiver, whether any amendment in service tax registration is required?
With the introduction of “Negative list” concept, registration for specific services has been withdrawn; ST-1 has accordingly been modified. However a person liable to pay service tax as service receiver has to get certificate amended and include service receiver in the registration certificate.
8) Is the reverse charge applicable on services provided and complete before 1.7.2012 though payments were made after 1.7.2012?
For any service whose point of taxation has been determined and whole liability affixed before 1.7.2012 the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in respect of such services
Few services on which service tax is payable under reverse charge. (Work contract has been covered under the respective section).
|Description of services||Provided by||Provided to||Liability to pay|
|Manpower supply||Any individualHUFProprietary firmPartnership FirmAssociation of person located in the taxable territory||Any Company registered under companies ACT.Business entity registered as body corporatelocated in taxable territory.||SR-75%SP-25%|
|Renting or hiring of motor vehicle to carry passenger on aabated value i.e. 40%Non abated value||Same as above||Same as above|| SR-100%
|Support services||Government or local authority||SP – NIL SR -100%|
|Legal service||An advocate or A firm of advocate||Business entity whose turnover exceeds Rs. 10lakhs||SR-100%|
|Arbitral services||SR 100%|
|Import of taxable services||Any person||Any person||SR 100%|
|Goods transport agency***|
*** Earlier if the consignor or consignee was a specified person then the person liable to pay freight was liable to pay service tax. For e.g. in earlier regime say a consignment was sent to ABC ltd. by Mr. A and as per agreement freight was to be paid by A. The consignee ABC Ltd. was a specified person then MR. A, being liable to pay freight was also liable to pay service tax.
Recent changes provides that if the person liable for making payment of freight is a specified person then he is liable to pay taxes otherwise GTA is liable to pay taxes. Under current regime MR. A, liable to pay freight is not a specified person so GTA has to pay service tax.
8. Construction Activities
Service tax laws with respect to construction have been amended in a greater way. All new concepts, mechanism introduced in the new regime can be understood by understanding this particular service. None of the construction related activities has found space in Negative list.
a) List of declared services contain following activities related to construction.
i) Construction (including additions, alterations, replacements or remodeling of existing civil structure) of a complex, building, civil structure or a part thereof, intended for sale wholly or partly to a buyer However it will exclude in case where the entire consideration is received after issuance of a Completion Certificate..
ii) Service portion in the execution of work Contract.
b) Construction (including maintenance, repair, alteration, renovation or restoration) of road, bridges, tunnel, pipeline, electric crematorium etc. for the public use has been exempted from the service tax. specified Services provided to govt. or local authority for non- commercial use, sub-contractor providing works contract service to another contractor who is providing exempted works contract services, Service by way of erection or construction pertaining to airport, port or railways has also been exempted. (Entry 12/13/14/29 of notification no. 25/2012)
Service related to construction of single residential unit otherwise as a part of a residential complex has been exempted. Residential complex has been defined as “residential complex means any complex comprising of a building or buildings having more than one single residential unit. Hitherto, residential complex means only a complex comprising of more than 12 residential units. Hereafter, any complex having more than one residential unit would attract the levy of service tax.
c) Work Contract
Scope of work contract has been extended under the new definition. The definition has covered movable property as well in its scope; earlier only immovable properties were covered. This new definition will cover many services such as authorized service stations, repairs & maintenance etc. provided the goods supplied in execution of such activities are subject to VAT/Sales tax
New Definition:-“Works Contract means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.”
ii) Valuation under work contract(Rule 2A of the Service Tax (Determination of Value Rules, 2006)
a) Where service portion is determinable, Value of work contract shall be gross amount charged for the work contract less the value of transfer of property involved. Sales tax or vat is not included in gross value. Furthermore where value added Tax has been paid on the actual value of transfer of property in goods involved in the execution of the works contract, then such value adopted for the purposes of payment of Value Added Tax, shall be taken as the value of transfer of property in goods.b) Where service portion is not determinable:-
|Work pertaining to||Value of services|
40% of the total amount charged
|Maintenance, repair,reconditioning orrestoration, or servicing of any goods.||
70% of the total amount charged
|In case of other contractsnot included above||
60% of the total amount charged
Original works includes additions and alterations to abandoned or damaged structures on land that are required to make them workable
“total amount” means the sum total of gross amount and the value of all goods, excluding the value added tax, if any, levied on goods and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract:
where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance
|(+) Goods and services supplied free of cost||-|
|(-) Value added Tax||-|
Duty of excise paid on any goods, property which is transferred (whether as goods or in some other form) in the execution of works contract, shall not be availed as CENVAT credit.
iii) work contract under Reverse charge
Applicability of reverse charge mechanism is not dependent only on the nature of services but to ”Who” and by “whom” also .In case of work contract services provided by any individual,HUF,Proprietary Firm, Association of person located in the taxable territory.
|Description of services||
|Provided to||Liability to pay|
||Any individual HUF Proprietary firm Partnership Firm Association of person located in the taxable territory||Any Company registered under companies ACT.Business entity registered as body corporate located in taxable territory.||SR-50%SP-50%|
Abatement of 75% onConstruction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority has provided on satisfaction of two conditions:-
a) Value of Land is Included.
b) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004
Finance minister while introducing the changes said :-
“More than as a revenue garnering measure, negative list is expected to make the administration of the tax simple, both for the department as well as the taxpayers, reduce litigation and usher a regime much closer to our eventual goal of Goods and Services Tax”
These changes in the long run may prove the confidence of finance minister true but currently lack of clarity in many of the provisions, lack of understanding of the taxpayers is going to lead towards more litigation, making the administration of tax complex.