Presentation on Service Tax By CA Prashant Kumar

Presentation on Service Tax By CA Prashant Kumar Barik

HIGHLIGHTS l l l l l Rate of service tax : Rate of Service tax 12% and E. Cess+SHEC=3% on 12% resulting to total of 12. 36% Point of taxation rules Place of provision of service Negative list of services Declared list of services Exempted list of services Changes in Reverse Charge Mechanism Due date for Payment of Service tax and interest thereon for delay in payment Penalties under service tax

Point of Taxation(POT) POT means the point in time when a service shall be deemed to have been provided. l POT to be invoice date(Invoice has to be issued within a period of 30 days, if invoice not issued within 30 days the POT will be deemed to be the date of provision of service) or payment date whichever is earlier, l POT is relevant for payment of service tax. l Date of payment of service tax shall be earlier of the below datesl Ø Date when the payment is entered into books of account OR Ø Date on which the same is credited in the bank account of the person liable to pay service tax.

Relevant date for ROT/VOS/ROE l Ø Ø q q The rate of service tax/Value of Service/Rate of exchange shall be applicable at the time when the service has been. Provided OR Agreed to be provided Note: ROE means the rate of exchange referred in Custom Act 1962 Note: In case of some companies the basic value import of service invoice can be accounted as per the average rate of exchange rate keyed into SAP and service tax portion have to be accounted as per Custom exchange rate

Example on Point of Taxation Invoice issued for service on 01 -06 -2013 l Cheque received/accounted in BOA on 15 -06 -13 l Amount on cheque credited in bank account 06 -0713 On the above case the point of tax will be 15 -0613(earlier of account in books OR credit in Bank account) If on the above case the service was not taxable/taxable at a different rate on the date of provision of service i. e. on 01 -06 -2013 and the same came under service tax ambit on 01 -07 -2013 l

Example on Point of Taxation l The date of the payment of tax shall be the date of credit in the bank account of the person liable to pay tax if the below 2 conditions are satisfied- Ø The credit in the bank account is after 4 working days from the date of change in rate of tax/new levy of the service and Ø The payment is made by way of an instrument (Cheque/DD etc) which is credited to the bank account. Continuing to the example if the service is came into the ambit of service tax on 01 -07 -2013 the point of tax/date for payment of tax shall be 06 -07 -2013(since the bank account is credited after 4 WD from the new levy i. e. 01 -07 -13+4 WD)

A Practical Example SE USA raised a invoice to SE India towards professional fee for commissioning energy operation in India for USD 14560. l The invoice had accounted in Aug 2013 when the average exchange rate for USD keyed into SAP was 59. 74467 and Custom exchange rate was 65. 35. l Since system will not allow 2 exchange rate in one combined entryl The basic value has accounted in one entry(J. E No-1) and service tax liability and Service tax credit accounted in a separate entry(J. E No-2)(Since invoice related to plant activity 100% credit taken) l

A Practical Example J. E No-1 J. E No-2

POT example birds eye view

Taxable Territory for service tax Exclusive Economic Zone(EEZ) means 200 nautical miles from the coastal baseline Note: (1 Nautical mile =1. 852 KM)

Main rule for taxability

Place of provision of service l Place of service is the place where the services are- Provided OR Ø Deemed to have been provided OR Ø Agreed to be provided OR Ø Deemed to have been agreed to be provided Ø Note: Services provided under the territory of non taxable jurisdiction is not affected for the above provision. Point to remember: If Service provider is situated in non taxable territory however the service receiver is in taxable territory then reverse mechanism will apply resulting to liability to pay service tax goes to service receiver

Example of Place of provision of Service Mr. Rakesh(service provider) situated in Bangalore provided some service to Mr. Sunil(Service receiver) situated in Delhi. Ø In the above case place of provision of service will be Delhi. The liability of service tax goes to Mr. Rakesh(Service Provider) Ø Mr. Vijay(service provider) situated in Bangalore provided some service to Mr. Mohan(service receiver situated in J&K(Non taxable territory) Ø In the above case since J&K is coming under non taxable territory reverse mechanism of service tax will not apply resulting to no one is liable to pay service tax Note: Service tax will be exempted if Service is provided in a non taxable territory(for example J&K) whether or not either service provider OR service receiver is situated in taxable/non taxable territory Ø

Negative List. . l Rationale for negative list

Rationale for Negative List… l First Concept Paper for Public Debate (August 2011) l “There advantages in moving towards negative list at an earlier time in order to gain useful experience in its implementation and minimize the impact of the mammoth changes that GST may usher” l Revised Concept Paper on Taxation of Services based on Negative List (November 2011) l “Introduction of Negative List at an earlier stage will pave the way for the smooth transition to the GST, and significantly ease the challenges arising out of implementing the GST. ”

…Rationale for Negative List l FM’s speech (2012): “At the end of June this year, this tax will attain adulthood by completing 18 years. It is therefore time to shift gears and accelerate ahead. However, service tax needs to confront two important challenges to sustain the journey. These are: Ø The share of services in taxes remains far below its potential. There is a need to widen the tax base and strengthen its enforcement; Ø Service Tax law is complex and sometimes avoidably different from Central Excise. We need to bring the two as close as possible in the light of our eventual goal of transition to GST. ”

Enactment of Finance Act, 2012 l Provisions in Finance Bill enacted as Finance Act, 2012 on May 28, 2012 l Negative list provisions to come into force from a date to be notified(i. e 01 July 2012) l The Legislative scheme for the levy of Service Tax stands overhauled

Approach – Selective Vs Negative List Selective Approach – selected services are taxable Negative List – all services are taxable

Negative list of Services-17 Nos Ø Ø Ø Ø Services provided by Government or local authority Services provided by Reserve Bank of India Services by a foreign diplomatic mission located in India Services relating to agriculture Trading of goods Processes amounting to manufacture or production of goods Selling of space or time slots for advertisements other than advertisements broadcast by radio or television

Negative list of Services-17 Nos Ø Ø Ø Ø Access to a road or a bridge on payment of toll charges Betting, gambling or lottery Entry to Entertainment Events and Access to Amusement Facilities Transmission or distribution of electricity Specified services relating to education Services by way of renting of residential dwelling for use as residence Financial sector

Negative list of Services-17 Nos Service relating to transportation of passengers Ø Service relating to transportation of goods Ø Funeral, burial, crematorium or mortuary services including transportation of the deceased Ø

Declared list of services-9 Nos Ø Ø Ø Renting of immovable property Construction of a complex, building, civil structure or a part thereof Temporary transfer or permitting the use or enjoyment of any intellectual property right Services in relation to information technology software Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act

Declared list of services-9 Nos Transfer of goods without transfer of right to use such goods Ø Activities in relation to delivery of goods on hire purchase or any system of payment by instalments Ø Service portion in the execution of a works contract Ø Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity. Ø

Exempted list of Services-31 Nos l l l Services provided to the United Nations or a specified international organization Health care services by a clinical establishment Services by a veterinary clinic Services by charitable institutions. Religious services-General public and religious place Services provided to any person other than a business entity by an individual as an advocate Ø a person represented on and as arbitral tribunals Ø

Exempted list of Services-31 Nos Services by way of technical testing or analysis l Services by way of training or coaching in recreational activities relating to arts, culture or sports. l Services in relation to l mid day meals scheme Ø transportation of students or staff of an educational institution. Ø Admission to the education institutions Ø Services received by a recognized sports body l Services by way of sponsorship of tournaments or championships organised by l national sports federation Ø association of Indian Universities Ø central Civil Services Cultural and Sports Board Ø

Exempted list of Services-31 Nos l l l Services provided to the Government/local authority/ charitable institution by way of erection, construction, maintenance, repair, alteration, renovation or restoration Services by way of erection or construction of original works pertaining to airport and other select infrastructure facility Temporary transfer/permitting the use or enjoyment of a copyright Services by a performing artist in classical art News agency services by independent journalist, Press Trust of India or United News of India

Exempted list of Services-31 Nos Services by way of renting of a commercial accommodation having declared tariff of a room below Rs 1000 per day or equivalent l Services provided in relation to serving of food or beverages by a restaurant other than: l Ø those having the facility of AC OR Central air heating conditioner l Services provided by a goods transport agency by way of transportation of perishable fruits and vegetables where gross amount for single goods carriage does not exceed Rs 1500 and where gross amount for a single consignee does not exceed Rs 750

Exempted list of Services-31 Nos Services by way of giving on hire to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers l Transport of passengers whose journey by air embarking or terminating in NESA states l Services by way of motor vehicle parking to general public excluding leasing of space to an entity for providing such parking facility l Services provided to Government/a local authority by way of repair of a ship, boat or vessel, effluents and sewerage treatment and waste disposal plant or any services relating to water for drinking purpose l

Exempted list of Services-31 Nos l l l Services of general insurance business provided for development of general public Services provided by an incubatee up to a total business turnover of 50 Lakh rupees in a financial year Service by an unincorporated body(trade union) or an entity registered as a society to own members by way of reimbursement of charges or share of contribution Services by way of slaughtering of bovine(an animal of the cattle group, which also includes buffaloes and bison) animals Services by way of transportation by rail or a vessel from one port in India to another port of essential commodities

Export of Services. . Transaction to comprise export of service if …

If payment not received in 6 months… l Service will remain non-taxable, being provided in a non-taxable territory …but input tax credits will need to be reversed ……extended period permissible l But if payment received before the period allowed it will comprise exports and it will be exempted from service tax

Reverse Charge (Tax Shift) Normally, service tax is payable by person providing the service l Section 68(2) makes provision for reverse charge i. e. making person receiving the service liable to pay tax l Provision can be made that part of tax will be paid by service receiver and part by service provider(partial reverse charge mechanism) l Case Study: Service receiver and provider can enter into an agreement in regards to who will pay the service tax when reverse mechanism is applicable(RINL Vs Dewan chand Ramsaran)(SC judgment) l

Issues relating to reverse charge The small service provider exemption of Rs 10 Lakhs not available when tax is payable under reverse charge l Case Study: ABC firm is a small service provider(Taxable service does not exceed 10 lakh) receives some taxable service from Mr. A(Situated in J&K) cannot deny to pay service tax on reverse mechanism. l Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only. l Once paid, Cenvat credit can be taken if it is his eligible ‘input service’ l

Billing by service provider Service provider should charge only his part of service tax l Service receiver to pay service tax of his part by GAR-7 challan l Service receiver liable for only his part and not entire amount, even if service provider does not charge his portion of service tax l

Reverse charge with condition of nonavailability of Cenvat In some services (e. g. GTA, renting of motor vehicle designed to carry passengers), the abatement is subject to condition of non-availment of Cenvat credit by service provider (not by service receiver) l A certificate should be obtained from the service provider about non-availment of Cenvat credit l

Reverse charge mechanism in a nutshell

Reverse charge mechanism in a nutshell

Reverse charge mechanism in a nutshell

Due date for payment of service tax and interest for delay thereon

Penalty for delay in filing of return