Amendments in service tax in Union Budget 2015

1.      Service tax rates:

The service tax rate being increased from 12.36 percent (including education cess @ 3 percent) to 14 percent. The
‘Education Cess’ and ‘Secondary and Higher Secondary Education Cess’ shall be included in the revised service tax rate. Thus, the effective rate of service tax is 14 % including cesses. This new rate of service tax shall come into force from a date to be notified by the Central Government after the enactment of Finance Bill, 2015.

As a result of this, levying Education Cess and Secondary and Higher Education Cess on taxable services shall cease to have effect and new service tax rate shall come into effect from a date to be notified by the Central Government. However, the ‘Education Cess’ and ‘Secondary and Higher Secondary Education Cess’ will continue to be levied in service tax until the revised rates come into effect.

Provision for levy of “Swachh Bharat Cess”:

A new provision has been incorporated in the Finance Bill, 2014, to empower the Central Government to impose “Swachh Bharat Cess” on all or any of the taxable services at a rate of 2% on the value of such taxable services. This cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015. The details of coverage of this cess will be notified in due course.

2.       Changes in the negative list:

The proposed changes in the negative list are mentioned below:

a)  The negative list entry covering “admission to entertainment event or access to amusement facility” is being omitted.

The consequences of these changes are as follows:

Service tax shall be levied on the service provided by way of access to amusement facility. Amusement facility refers to providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

Moreover, the service tax is proposed to be levied on service by way of admission to entertainment event of concerts, musical performance concerts, award functions, sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. However, in the case of service by way of admission to certain entertainment events such as exhibition of cinematograph film, circus, recognized sporting event, dance, theatrical performance including drama and ballet are proposed to continue to exemption through negative list. For this purpose a new entry is being inserted in notification No. 25/12-ST.

b)  Service Tax shall be levied on contract manufacturing/job work for production of potable liquor as the negative list entry covering service by way any process amounting to manufacture or production of goods is to exclude any service by way of carrying out any process to manufacture of alcoholic liquor for human consumption.

c) Presently the services provided by the government or a local authority, excluding certain services specified in clause(a) of section 66D, are covered by the negative list. Clause (a) includes the ‘support service’ provided by the government or local authority to business entity. It means that service tax is levied on services provided by government or local authority to business entity. However, all services provided by the Government or local authority to a business entity are proposed to exclude from negative list. Consequently, (1)all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax and (2) the definition of “support service” is being omitted.

The above changes in the negative list shall come in force after the enactment of Finance Bill 2015, at a notified date.

Further amendments in Chapter V of the Finance Act, 1994:

Agency services provided by the other banks to Reserve Bank of India (RBI) are liable to service tax. Agency services are input services used by RBI for provision of its main service.

Amendment in exemption:

1. Exemption in respect of specified services relating to construction, repair, maintenance, renovation or alteration service provided to the government, local authority,shall be limited only to:

a)      A historical monument, archaeological site or remains of national importance,

b)      Canal, dam or other irrigation work; and

c)       Pipeline or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

Exemption to other services presently covered (such as civil structure or any other original works predominantly for educational, cultural, clinical establishment or residential complex for self residence of government employees are being withdrawn).

2.  Services by way of construction, erection, commissioning or installation of original works pertaining to an airport or port are now taxable. In other words, exemption in respect of these services is being withdrawn.

3.  In the case of services provided by a performing artist in folk or classical art form of music, dance, and theatre is proposed to exempt only when the amount charged is up to Rs. 1, 00,000 for a performance. Presently, there is full exemption in respect of such service regardless of amount charged.

4. Presently, the service by way of transportation of food stuff (including flour, tea, coffee, jaggery, sugar, milk products salt and edible oil) by vessel or rail or road are exempt from service tax. Now, the exemption in respect of transportation by vessel or rail or road of food stuff is limited only to food grains including rice and pulses, flour, milk and salt.

5. The following services are presently exempt from levy of service tax as per S. No. 32 of notification No. 25/12-ST, but now proposed to be taxable. It means exemption is being withdrawn on the following services:

 (a) Departmentally run public telephone;

(b) Guaranteed public telephone operating only local calls;

(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

The above changes in the exemption list shall come in force from 1st day of April, 2015.

New Exemptions:

1. Health care services by a clinical establishment, an authorized medical practitioner are presently exempt as per
S. No. 2 of Notification No. 25/12-ST. The scope of this exemption is being widened to include all ambulance services including any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment.

2. Services by way of pre-conditioning, pre-cooling, ripening, retail packing, labeling of fruits and vegetables is now proposed to be exempt from levy of service tax. This is the new entry at S. No. 44 of notification No. 25/12-ST.

3. Services provided by government or local authority by way of admission to a museum, zoo, national park, wild life
sanctuary and a tiger reserve are already covered in the negative list. Now, the new entry (at S. No. 45 of notification No. 25/12-ST) is being introduced to exempt these services even those are provided by any other person.

4. Service provided by Goods Transport Agency for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax. The exemption is also available to such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

All the above New Exemptions shall come in force from the 1st day of April, 2015.

Abatement Provisions:

1. Presently, service tax is payable on 30% of the value of rail transport of goods and passengers, 25% of the value of goods transport by road by a goods transport agency and 40% for goods transport by vessels. Now, the service tax shall be payable on uniform rate of 30 percent of the value of such services of transport by rail, road, vessel. Cenvat Credit on inputs, capital goods and input services is not available.

2. Presently, service tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. However, now in the case of classes other than economy, the service tax is payable on 60 percent of the value of air transport of passenger for higher classes.

3. Service Tax shall be paid by the chit fund foremen on the full consideration received by way of fee, commission or any such amount. In other words, Abatement is being withdrawn from services provided in relation to chit. However, they would be entitled to take Cenvat Credit.

The proposed amendments in abatements shall come into effect from the 1st day of April, 2015.

Changes in Reverse Charge Mechanism:

 What is ‘reverse charge mechanism’?

Generally, the person providing taxable service has to pay tax to the government, but in respect of certain services the Central Government may specify any person other than service provider to pay service tax. It means that any person other than service provider i.e. service recipient shall be liable to pay service tax, in respect of specified services.

1. At present, in the case of services by way of manpower supply and security service provided by an Individual, HUF or Partnership Firm to a Body Corporate, the joint charge is applicable. It means that, both the service provider and service recipient are liable to pay service tax. 75% liability of service tax lies with service recipient while 25% lies with service provider. However, now these services are being brought to full reverse charge. In other words, 100 percent service tax liability will be of service recipient, i.e. of Body Corporate.

2. Presently the following services which are exempt as per S. No 29 of notification No. 25/12-ST are proposed to be taxable. In other words, exemption in respect of following services is being withdrawn:

(a) Services provided by a mutual fund agent to a mutual fund or Asset Management Company,

(b) Services provided by a mutual fund distributor to a mutual fund or AMC,

(c) Services provided by a selling or marketing agent of lottery ticket to a distributor of lottery.

Kindly note that service tax on these services shall be levied on ‘reverse charge basis’. In other words, service tax liability will be of service recipient, i.e. Asset Management Company or Mutual Fund receiving such services. And In respect of agents of lottery, Service Tax shall be paid by the distributor of lottery.

The above changes in the Reverse Charge Mechanism will come in force from 1st day of April, 2015.

Changes in Service Tax Rules:

1.       Every person providing taxable service is required to issue an invoice, bill or challan signed by such person, or a person authorized by him in respect of such taxable service provided or to be provided, within fourteen days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service, whichever is earlier.

2.       Now, the provision for issuing digitally signed invoices is being inserted also with the option of maintaining of records in electronic form and their authentication by means of digital signatures.

Cenvat Credit Rules:

1. Rule 4(7) is being amended to allow Cenvat Credit of Service Tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider. This change will come into effect from 1.4.2015.

2. At present, the period for taking Cenvat Credit is six months from the date of issue of invoice, now it is proposed to extend to one year from the date of issue of invoice.

3. Earlier CENVAT can be availed in case of receipt of Inputs in the factory of Manufacturer or the premises of Output Service Provider. The Rule is being modified that CENVAT can now also be availed on receipt of goods in the premises of Job worker in case goods are sent directly to the job worker on the direction of manufacturer or provider of output service. The said provision clarify that cenvat credit will be eligible even if first job worker sends the processed material to second job-worker and likewise for further processing.

Time limit for reversal of cenvat credit in case of non-receipt of capital goods from job worker has been increased from 180 days to TWO years.

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