Presentation - Mr. Sunil Gabhawala - 26th August, 2013.pptx

8/14/2019 Presentation - Mr. Sunil Gabhawala - 26th August, 2013.pptx

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CA Sunil GabhawallaS B Gabhawalla & Co

Chartered Accountants


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Tax on all services provided in the taxableterritory

Attaches itself to the service rather than to aperson

Multiple Point Taxation based on the conceptof value addition

Therefore effectively a consumption tax

2


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Tax attaches to the place of consumption therefore destination based

Export of Services exempted from tax andeligible for rebates/refunds of input taxes

Import of Services liable for payment of taxunder reverse charge mechanism

Is the place of consumption same as the placeof consumer?

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Territorial Frontiers.

INDIA

OUTSIDEINDIA

C -FCo A FCo

B - ICo

Construction ContractUS$ 100 (MaterialUS$ 60 Labour

US$40)

Construction SubContract US$ 75(Material US$ 50

Labour US$ 25)

Delivery of MaterialsActual Performance of Work


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For the material component, Is B importing goods worth $50 from C? Is B exporting goods worth $60 to A?

Is B liable for import duties?

Is B eligible for export incentives?

For the services component, Is B importing services worth $25 from C? Is B exporting services worth $40 to A?

Is B liable for payment of service tax as an importer of services? Is B eligible for export incentives as an exporter of services?

Can there be different set of answers?

5


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Territorial Frontiers.

OUTSIDEINDIA

INDIAC -ICo A ICo

B - FCo

Construction ContractUS$ 100 (MaterialUS$ 60 Labour

US$40)

Construction SubContract US$ 75(Material US$ 50

Labour US$ 25)

Delivery of MaterialsActual Performance of Work


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For the material component, Is A importing goods worth $60 from B? Is C exporting goods worth $50 to B?

Is A liable for import duties? Is C eligible for export incentives?

For the services component, Is A importing services worth $40 from B? Is C exporting services worth $25 to B?

Is A liable for payment of service tax as an importer of services? Is C eligible for export incentives as an exporter of services?

Is there double taxation?

Can there be different set of answers?

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Applies towhole of

India (excl.J&K)

Applies totaxableservicesprovided

Applies totaxable services

provided inwhole of India

(excl. J&K)

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Transaction either covered or not covered

Based on Place of Provision of Services Rules

Concepts of Import / Export of Service deleted Export of Service concept still relevant for CENVAT

Credit/Rebates

Reverse Charge Mechanism applicable, if Service

Provider located outside India

No Major Impact more confusing due to use ofword provisioninstead of receipt


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Old Provisions New Provisions

Basis of Determination Separate Rules for Import

and Export based on

category of service

Common Rules based on

substance of transaction

Services rendered to foreign

clients

Not Liable for Payment of

service tax

Not Liable for Payment of

Service Tax since territory

outside India

Impact of receipt in Indian

Currency

Taxable Still Not Taxable but,

reversal of CENVAT Credit

required

Services from foreign vendors Liable for Payment under

RCM

Liable for Payment under RCM

Transactions with J&K Not Applicable Applicable

Transactions between

Branches

Impacted Imports only Impacts Imports as well as

Exports

Also impacts transfers inter se


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Description Rule

General Rule Location of Service Receiver. In case

the location of the service receiver is

not available, then Location of service

provider

Services provided in respect of goods that are required tobe made physically available by the service receiver to

the service provider, in order to provide the service

Place of Performance

When such services are provided from a remote location

by way of electronic means.

Location of goods at the time of

provision of service

Services provided entirely or predominantly, in theordinary course of business, in the physical presence of

an individual, represented either as the service receiver

or a person acting on behalf of the receiver

Place of Performance


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Description Rule

Services in relation to immovable property Location of Immovable property

Services in relation to Events where the event is actually held

When Service Provider and Service Receiver are located in

taxable territory

Location of service receiver

Specified services:

a) Banking & Financial Services

b) Online Information and Database access or retrieval

services

c) Intermediary services

d) Hiring of means of transport

Location of Service Provider

Service of Transport of Goods Destination of Goods

Goods Transport Agency Location of Service Recipient

Passenger Transportation Place of Origin

On Board a conveyance Place of Origin

Place of Provision of Services Rules


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Old Provisions New Provisions

Generic Issues

Service Provider and ServiceRecipient in same location

Debatable if the serviceis rendered abroad

Taxable even if servicerendered abroad

India Specific Definitions(like telecommunicationservices)

Earlier not taxable Now Taxable in view ofnegative list

Category Specific Issues

Technical Testing andAnalysis

Recipient Based Performance Based

Service Intermediaries Recipient Based Provider Based

Online Information andDatabase Access

Recipient Based Provider Based


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In case of multiple establishments, place ofestablishment more closely connected withthe activity to be considered

How to determine the place of establishmentmore closely connected?

Invoice

Contract Payment

Debit to Accounts (Bearing of Cost)

Actual Performance/Consumption of the Service


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General Principle (Forward ChargeMechanism) Service Provider to collect from Service Recipient

and pay tax to the Government

Service Recipient is not accountable to theGovernment directly

Reverse Charge Mechanism Service Recipient called upon to directly pay tax to

the Government


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Need for Reverse Charge Mechanism Legal Provisions Section 68

Independent Liability of Service Provider andService Recipient

Not Similar to Tax Deduction at Source

Variations

Full / Partial Reverse Charge Mechanism Comprehensive / Selective Reverse Charge

Mechanism

Too Onerous a Responsibility?


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Service Tax to be paid as a service recipient Service Recipient may account for the service either as

Expenses

Capital Asset/ CWIP

Asset/Liability (specially reimbursement of expenses) Invoicing Issues:

What should the service providers invoice contain?

How to account in books?

What are the Income Tax TDS obligations CENVAT Credit Related Issues

Whether CENVAT can be utilised for paying this tax?

Having paid this tax, whether CENVAT can be claimed?


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Description of Service Liability ofService Provider Liability of ServiceRecipient

Compone

nt

Effective

Rate

Componen

t

Effective

Rate

Only Non Corporate Service Providers and Corporate

Service RecipientsRent-a-Cab on abated value NIL NIL 100% 4.944%

Rent a-Cab on non abated

value

60% 7.416% 40% 4.944%


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Net Impact on Service Recipient is the same4.944%

What is covered?

Taxis Radio Cabs Employee Leased Cars Long Term Car Leases

General Tourist Cars taken on lease Buses for Staff Transportation Reimbursement claimed by employees

No CENVAT Credit is available


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Description of Service Liability ofService Provider Liability of ServiceRecipient

Compone

nt

Effective

Rate

Componen

t

Effective

Rate

Only Non Corporate Service Providers and Corporate

Service RecipientsSupply of Manpower 25% 3.09% 75% 9.27%

Security Services (only w.e.f.

07.08.2012)

25% 3.09% 75% 9.27%


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Definition

supply of manpower means supply of manpower, temporarily or otherwise, toanother person to work under his superintendence or control

Effective from 07.08.2012 also includes security services

Security Services means services relating to the security of any property,whether movable or immovable, or of any person, in any manner and includes the

services of investigation, detection or verification, of any fact or activity Controversy between a manpower supply service and the basic service

(matter in Supreme Court) Labour Contractor

Labour Supplier

Housekeeping Agency

Data Entry Operators

Accounts Outsourcing

Industrial Labourers Impact of Valuation where salaries/ESIC/PF paid by the company


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Description of Service Liability of ServiceProvider Liability of ServiceRecipient

Works Contract Services Component

Effective Rate Component Effective Rate

Only Non Corporate Service Providers and Corporate Service RecipientsNature of Works

Contract

Presumptive

Value ofService

Effective

Tax Rate

Original Works

(Construction of

new immoveable

property)

40% 4.944% 50% 2.472% 50% 2.472%

Works Contracts

relating to

moveable assets

70% 8.652% 50% 4.326% 50% 4.326%

Other Works

Contracts

60% 7.416% 50% 3.708% 50% 3.708%


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Issues Concept Works Contract is complex concept

Interpretation of works contract vs. labour contracts

Whether all works contracts are liable for RCM?

Issues Valuation Valuation of Works Contracts can result in difficulties

Choice of Valuation Option independent of each other

Debates will increase on account of free issuematerials and services


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Definition: 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 thepurpose of carrying out construction, erection,commissioning, installation, completion, fitting out,repair, maintenance, renovation, alteration of anymoveable or immoveable property or for carrying outany other similar activity or a part thereof in relationto such property

Vivisection Value of goods liable for VAT Service Component can be taxed under Service Tax


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Contract for Sale Contract for Work

Labour ContractsIndirect Transfer ofProperty in Goods

Accretion

Also WC underService Tax Law

Original Works

40%

Others

60%

Accession

Also WC underService Tax Law

70%

Blending

Not Works Contractunder Service Tax

Law

Contract for OtherServices


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Example IncomeTax 94C

VAT 29A

Service Tax65B(44)

Treated as Works Contracts under all laws

Erection of Power Plant (on turnkey basis) Yes Yes Yes

Annual Maintenance Contracts(Comprehensive)

Yes Yes Yes

Repairs of Motor Cars (with materials) Yes Yes Yes

Treated as Works Contracts under IT & VAT Law but not under Service Tax Law

Printing Contracts Yes Yes No

Photography Contracts Yes Yes No


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Example IncomeTax 94C

VAT 29A

Service Tax65B(44)

Treated as Works Contracts under IT Law but not under Service Tax or VAT Law

Construction Work undertaken on labour job

basis without any transfer of material

Yes No No

Annual Maintenance Contracts (NonComprehensive)

Yes No No

Not treated as Works Contracts under any of the laws

Sale of Computer with free installation No No No

Catering Contracts No No No

Software Licenses No No No


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Valuation Options

Value adopted forState VAT purposes

to be reduced

Actual Value ofmaterials to be

reduced

If not possible,adopt presumptive

Value


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Issues Concept Works Contract is complex concept

Interpretation of works contract vs. labour contracts

Whether all works contracts are liable for RCM?

Issues Valuation Valuation of Works Contracts can result in difficulties

Choice of Valuation Option independent of each other

Debates will increase on account of free issuematerials and services


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General (Liability of the Service Recipient Only)Description of Service Liability of

Service

Provider

Liability of Service

Recipient

Component Effective Rate

Sponsorships NIL 100% 12.36%

Arbitral Tribunal NIL 100% 12.36%Individual or Firm of Advocates NIL 100% 12.36%

Support Service (Other than renting)

by Government or Local Authority

NIL 100% 12.36%

Foreign Service Providers NIL 100% 12.36%

Goods Transport Agency Services NIL 100% 3.09%

Directors (w.e.f. 07.08.2012) NIL 100% 12.36%


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Onerous Obligation

How to handle implementation Manual ERP/System Driven

Possibility of Mistakes very common

Will the Department provide an HUG in case ofsuch mistakes?


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Presentation - Mr. Sunil Gabhawala - 26th August, 2013.pptx

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