Slide 1

A Presentation on Service Tax Overview and Recent Developments CA.SACHIN SINGH, IRS ASST. COMMISSIONER SERVICE TAX,SURAT-I Dr. Sanjiv Agarwal 1

Slide 2

Service Tax Overview & Recent Developments This Presentation Covers What is Service ? Negative List and Exempted Services. Deemed Service. 2

Slide 3

Service Tax in India (The Past) Introduced in India in 1994 as a simple, modest tax with just three services. Approach to Service Tax Selective as against comprehensive one. Desirable from revenue, equity and economic view point. Governed by Finance Act, 1994 and a dozen of rules. Legislative dependence on over 25 other laws. 3

Slide 4

Service Tax The Present Shift to Comprehensive Approach W.e.f. 1 st July, 2012 Finance Act, 2012 A land mark Act to shift from selective positive approach to negative approach. It took 18 years to shift from selective approach (positive) to comprehensive approach (negative ) to tax services All services to be taxed other than services specified in the negative list and exempted services Section 66B. 4

Slide 5

5 All Services (including declared Services (-) Specific Exclusions (-) Negative List Services Exemptions Taxable Services (-) Present Taxation of Services (=)

Slide 6

New Provisions in Service Tax under Negative List Section 66 Bdeals with charge of service tax on or after Finance Act, 2012. Section 66 Dcomprises of negative list of services. Section 66 Ecomprises of the services which constitute declared services. 6

Slide 7

MAJOR CHANGES IN SERVICE TAX IN 2012-13 AT A GLANCE Definition of service finds place in statutory provisions Place of provision of service rules determine the location of service and become be basis of taxation. Concept of taxable territory and non- taxable territory introduced Classification of service criteria replaced by new section 66F on interpretation principles of specified description of services or bundled services. 7

Slide 8

What is Service Service' has been defined in clause (44) of the section 65B and means any activity For a consideration carried out by a person for another and includes a declared service (66E) 8

Slide 9

What is Service Activity In common understanding, activity includes An act done A work done A deed done An operation carried out Execution of an act Provision of a facility etc. Activity could be active or passive and forbearance to act Agreeing to an obligation to refrain from an act or to tolerate an act or a situation - listed as a declared service u/s 66E 9

Slide 10

What is Service Activity must be for a consideration (nexus / reciprocity) Activity includes both activity as well as non-activity Consideration includes both monetary and non monetary consideration. Two persons are involved Service provider Service receiver Only services provided by one person to another are taxable ( Two separate regn doesnt mean two distinct person- Mahindra logistics ltd-SC) Person natural as well as artificial 10

Slide 11

What is Service Consideration Means everything received or recoverable in return for a provision of service which includes - Monetary payment Non-monetary payment Deferred consideration Under Indian Contract Act, 1872, Consideration means - When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise 11

Slide 12

What is Service? Activity for a Consideration Activity should be carried out by a person for a consideration Activity without consideration like- Donation Gifts Free charities outside the ambit of service. Charity for consideration would be service and taxable unless otherwise exempted 12

Slide 13

What is Service : Exclusions 'Service' does not include - any activity that constitutes only a transfer in title of goods or immovable property by way of sale, gift or in any other manner. Sale of developed plots is a service (Narne Constructions Pvt. Ltd. v UOI 2013 (29)STR 3 (SC) 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 a transaction only in money or actionable claim a service provided by an employee to an employer in the course of the employment. fees payable to a court or a tribunal set up under a law for the time being in force 13

Slide 14

What is Service Person-65B(37) " person" includes, an individual, a Hindu undivided family, a company, a society, a limited liability partnership, a firm, an association of persons or body of individuals, whether incorporated or not, Government, a local authority, or every artificial juridical person, not falling within any of the above 14

Slide 15

15 The New Taxability Concept Taxable 3. Exemptions (39) 1. Non - Taxable territory (POPS) 2. Negative list (17) SERVICE FOR A CONSIDERATION E - MAGIC TEST E: Employee M: Money A: Actionable claim G: Goods I: Immovable property C: Court Fee 9 DECLARED SERVICES

Slide 16

16 Clause 44 of section 65B defines service it includes a declared service. There are 9 categories of services or activities as declared services implying that on all such nine declared services, Service Tax shall be payable Does not include any such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of Article 366(29A) of the Constitution of India. What is declared services is defined in section 65B(22) to mean any activity carried out by a person for another person for a consideration and declared as such under section 66E of the Act. They are amply covered by the definition of service but have been declared with a view to remove any ambiguity for the purpose of uniform application of law all over the country

Slide 17

17 Following constitute Declared Services (Section 66E) Renting of immovable property; Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority; Temporary transfer or permitting the use or enjoyment of any intellectual property right; Development, design, programming, customization, adaptation, up gradation, enhancement, implementation of information technology software;

Slide 18

18 Agreeing to an obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; Transfer of goods by way of hiring, leasing, licensing or any such manner without transfer of right to use such goods; Activities in relation to delivery of goods on hire purchase or any system of payment by installments ; Service portion in execution of a works contract; 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 part of the activity.

Slide 19

Declared Services Agreeing to an obligation to refrain from an Act / to tolerate Act or situation / to do an Act [section 66E(e)] Following activities if carried out by a person for another for consideration would be treated as provision of service - Agreeing to an obligation to refrain from an act. Agreeing to an obligation to tolerate an act or a situation. Agreeing to an obligation to do an act. 19

Slide 20

Declared Services Obligations / Actions Examples of Taxable Obligations / Actions Non-compete fees for agreeing not to compete compensation on termination of business agreements advance forfeited for cancellation of agreement to provide a service. forfeiture of security deposit for damages done by service receiver in course of receiving of services. cancellation charges being charged by airlines, hotels etc. consideration for non-appearance in a court of law or withdrawal of suit. demurrage charges or detention charges 20

Slide 21

21 WWorks 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.

Slide 22

22 Alternative valuation model (Rule 2A of Valuation Rules) Where works contract is for Value of the service portion shall be (A) execution of original works forty percent of the total amount charged for the works contract (B) maintenance or repair or reconditioning or restoration or servicing of any goods seventy per cent of the total amount charged including such gross amount (C) in case of other works contracts, not included in serial nos. (A) and (B) above, including contracts for maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings. sixty percent of the total amount charged for the works contract

Slide 23

Service liable to Service Tax All services are liable to service tax except a) Activities specifically excluded in definition of service. b) Services covered under the negative list c) Services covered under Mega Exemption notification. d) Services provided outside the taxable territory. e) Services received by a unit located in SEZ (subject to conditions). Negative List of Services There are 17 categories of services which are not chargeable to service tax 1. Services provided by Government or local authority. [Except (a) services by Dept of post by way of speed post, express parcel post, life insurance, and agency services, (b) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport, (c) transport of goods or passengers, (d) support services] 2. Services provided by RBI - 23

Slide 24

Service liable to Service Tax Negative List of Services Contd. 3. Services provided by a Foreign diplomatic mission located in India 4. Services relating to agriculture 5. Trading of goods (commission agent or clearing agent) 6. Any process amounting to manufacture or production of goods. 7. Selling of space or time slots for advertisement other than advertisements broadcast by radio or television. 8. On payment of toll charges 9. Betting, gambling or lottery 10. Admission to entertainment events or access to amusement facilities. 11. Transmission or distribution of electricity by an electricity transmission or distribution utility 12. A few of services relating to education. 13. Services by way of renting of residential dwelling for use as residence - 24

Slide 25

Service liable to Service Tax Negative List of Services Contd. 14. A few financial services like deposits, loans advance, foreign currency sale or purchase by banks or authorised dealers etc) 15. Service of transportation of passengers, with or without accompanied belongings. 16. Services by way of transportation of goods 17. Funeral services Exemptions from Service TaxMega Notifications Notification No. 12/2012-S.T. 1. Services provided to UNO 2. Health care services 3. Services by a veterinary clinic 4. Services by charitable trust - 25

Slide 26

Service liable to Service Tax Exemptions from Service TaxMega Notifications Notification No. 12/2012-S.T. Contd 5. Religious services 6. Legal or arbitral service 7. Technical testing of drugs etc. 8. Coaching in recreational activities 9. Educational institution 10. Services provided to a recognized sports body 11. Sponsorship of sporting events 12. Construction service to Government 13. Construction of road, bridge etc. 14. Other construction service airport, single residential units, low-cost houses up to a carpet area of 60 sqmt etc. 15. Copyright service - 26

Slide 27

Service liable to Service Tax Exemptions from Service TaxMega Notifications Notification No. 12/2012-S.T. Contd 17. Services in folk or classical art forms 18. Services of collecting or providing news 19. Services of renting of a hotel etc for residence 20. Services of providing food or beverages 21. Services of transportation by rail or a vessel of specified goods petroleum, relief materials, defence equipment, postal mail, household effects, newspaper/magazines, railway equipment, agricultural produce, chemical fertilizers 22. Goods transport agency for fruits etc. 23. Hiring motor vehicle for transport of more than 12 passengers 24. Transport of passengers 25. Vehicle parking to general public - 27

Slide 28

Service liable to Service Tax Exemptions from Service TaxMega Notifications Notification No. 12/2012-S.T. Contd 26. Specific services to government water supply, public health, sanitation, solid waste management, slum improvement repair & maintenance of vessel/aircraft 27. Specific general insurance service hut insurance scheme, cattle insurance, insurance of tribal, Janata Personal Accident Policy, Group Personal Accident Policy, Agricultural Pumpset & Failed Well Insurance, Export credit insurance, National Agricultural Insurance etc. 28. Services provided by an incubate provided turnover is below 50 lakh & within three years from date of the agreement. 29. Services by an unimcorporated body to its members 30. Financial services sub-broker to broker, mutual fund agent to MF, distributor to a M.F. Selling agent of lottery to a distributor, selling agent or distributor of a sim card etc. 31. Specific job work services agriculture, printing, cutting & polishing of diamond etc. - 28

Slide 29

Service liable to Service Tax Exemptions from Service TaxMega Notifications Notification No. 12/2012-S.T. Contd 32. Business exhibition service outside India 33. Specific telephone service departmentally run public telephones, free calls at airport, hospital where no bills are being issued. 34. Slaughtering service 35. Services provided from non-taxable territory 36. Public library service 37. Services by Employees State Insurance Corporation 38. Transfer of a going concern 39. Public conveniences 40. Municipality services by government 41. Services provided outside taxable territory. - 29