By Mr. J K Mittal, Co-Chairman, National Council on Indirect Taxes, ASSOCHAM

BUDGET HIGHLIGHTS 2016-17

SERVICE TAX

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By Mr. J K Mittal, Co-Chairman, National Council on Indirect Taxes, ASSOCHAM

• Negative List prone: Many services are taken out from the Negative List like education, transportation of passenger by stage carriage and transportation of goods by aircraft or vessel from a place outside India to the customs set up in India. Therefore, the Government has made shift in the policy as earlier these services were kept in the Negative List that these services will not be taxable at all. By taking out from the Negative List, the Government has made a change in their policy by taking them in the ambit of taxable services. Though by way of a separate Notification, some of them are still exempt from the levy of service tax.

• One more service added to declare service:In the list of Declared Services, a new declared service has been added, i.e. the consignment by the Government of the right to use the radio-frequency spectrum or its subsequent transfer. Though the Central Government has declared that it will be a taxable service, however, it cannot be denied that the State may also come forward to assert that these are the transactions of ‘deemed sale’ under Article 366(29A) of the Constitution of India. Therefore, the competent court can only decide that such type of transactions is ‘deemed sale’ or ‘service’.

• More time granted to issue show case notice: Period of limitation has been extended from 18 months to 30 months for issuance of Show Cause Notice. The Government has conceded that this period is applicable when there is no suppression, fraud, etc. Therefore, in such a situation instead of increasing the period of limitation, it should be reduced as it will only longer the litigation period and give a premium to the inefficient tax officials.

• Interest rate reduce to acceptable level:Interest paid has been drastically reduced from 30% to 15% per annum, however, in case of those persons, who have collected service tax but not depositing it in time, have to pay service tax at the rate of 24% per annum and their reduction is from 30% per annum to 24%. The interest rate now on delay in deposit of tax has been made uniform for all the indirect taxes of the Central Government.

• Monetary limit increased for launching prosecution:Launching of prosecution, monetary limit has been enhanced from Rs. 50 lakhs to Rs. 2 crores. Therefore, no arrest would be there unless service tax amount collected and not deposited to the tune of Rs. 2 crores or more.

• Removal of arrest power in non-cognizable offence: Provisions related to categories offences as non-cognizable offences have been omitted, therefore, there shall not be any arrest in case of certain offences, where the prosecution may be launches but earlier those were categorized as non-cognizable offence power to arrest but bailable offence. In other words, now arrest can be made only on those cases where amount collected as service tax has exceeded Rs. 2 crores, which is cognizable offence and there would cannot be any arrest in other cases.

• Retrospective exemption for construction of canal & dam:Retrospective exemption has been for the period from 01.07.2012 to 29.01.2014 for the construction of canal and dam, etc. if the service is provided to an Authority or a Board or any other Body setup by an Act of Parliament or State Legislature or established by the Government with 90% or more equity or control. As from 30.01.2014, the definition of the governmental authority was change that is why retrospective amendment is restricted to 29.01.2014.

• Retrospective exemption for construction of Government buildings:Retrospective exemption for the period from 01.04.2015 to 29.02.2016 has been granted for certain cases in relation to construction of Government buildings or educational or clinical establishment. This exemption has been given only on those cases where the contract was entered into prior to 01.03.2015. This exemption has been granted up to 29.02.2016 because from 01.03.2016, such exemption has been restored up to March 2020.

• Retrospective exemption for construction of port and airport:Retrospective exemption for the period from 01.04.2015 to 29.02.2016 has been granted for certain cases in relation to construction etc. of port or airport. This exemption has been given only on those cases where the contract was entered into prior to 01.03.2015. This exemption has been granted up to 29.02.2016 because from 01.03.2016, such exemption has been restored up to March 2020.

• Retrospective exemption to grant rebate of service tax to exporters: Retrospective exemption has also been made, which shall be applicable for the period from 01.07.2012 to 02.02.2016 to facilitate the refund/rebate of service tax paid by the exporter of services in respect of taxable services used beyond the factory or the places where the goods manufactured, which is exported. This exemption has been granted up to 02.02.2016 because from 03.02.2016, the relevant Notification has been amended, which enable rebate of such service tac. Because of this amendment, now such exporters of goods would get rebate of such service tax, which was earlier denied. However, such exporters are required to make an application for the claim of rebate within one month from the enactment of the Finance Bill, 2016 i.e. from the date when the President will give assent to the Finance Bill, 2016.

• Refund of service tax where retrospective exemption granted: In those cases, where retrospective exemption has been granted but the tax was already paid for the said period, the refund can be lodged for such service tax, which has already been paid, within 6 months from the date when the President will give assent to the Finance Bill, 2016.

• Restoration of exemption for limited period: Exemption has been restored to certain infrastructural projects where exemption was withdrawn from 01.03.2015, however, such restoration of exemption is for limited period from 01.03.2016 to 01.04.2020 and only on those cases where the contract was entered into prior to 01.03.2015. Such exemption appears to have been granted because of the abrupt withdrawal of exemption form 01.03.2015adversely affected parties.

• New cess:New cess at the rate of 0.5% in the name of Krishi Kalyan Cess has been introduced w.e.f. 01.06.2016.

• Changes in Abatement notification:Abatement/exemption Notification No. 26/2012-ST, dated 20.06.2012 has been considerably amended to rationalize the exemption as well as to make some consequential changes because of the services, which is withdrawn from the Negative List but now has been made taxable.

• Amendment is Mega exemption notification:Mega exemption Notification No. 25/2012-ST, dated 20.06.2012 has been considerably amended not only to extend the exemption to various activities but also to facilitate the exemption to those activities which has been omitted from the Negative List and to continue to exempt them from the levy of service tax, such as education services.

• Exemption to avoid double taxation on software:A new exemption has been granted to IT software, which is recordedon media on which retail sale price is mentioned and which is subject to the central excise duty, so that there should not be any double taxation both in the central excise and service tax. However, the Government has not given any answer as to how the activity, which is specifically covered under the central excise could be covered under the service tax.

• Government services to business entity become taxable on reverse charge basis: The Government has notified the date as 01.04.2016 from which any service provided by the Government to the business entity shall be leviable to service tax though necessary amendment in this regard was made last year by the Finance Act, 2015. However, the Government has already exempted the business entity whose turnover is up to Rs. 10 lakhs. However, service tax on the services rendered by the Government to the business entity shall be paid on reverse charge basis. Some specified services by Government already taxable on forward charge basis remain same.

• Senior Advocate out of reverse charge basis:Legal service rendered by the senior advocate has been taken out from reverse charge provisions and service tax on them has been made taxable on the forward charge basis. However, this will lead to double taxation when the senior advocate renders the service to the other senior advocates. However, this issue has been brought to the notice of the Finance Minister who has assured to take the corrective measures.

• Liberal provisions for payment of service tax extended to One man company: One-man company, which has been allowed to be formed as per the Companies Act, 2013 has been extended the benefit like individual or partnership firm to pay service tax on quarterly basis as well as to pay tax on receipt basis, if there turnover does not exceed in the previous financial yearmore than Rs. 50 lakhs, subject to certain conditions.

• Annual return provisions:The provisions have also been made for filing of annual return by the service providers in addition to half yearly return, which they are already filing. Annual return provisions have also been made for the person availing the Cenvat Credit.

• Cenvat Credit Rules changed in big way: Cenvat Credit Rules have been significantly amended with respect to the distribution of credit by input service distributor as well as proportionate reversal of credit. Entire scheme has been revamped as it appears that there is a serious attempt to rationalize the Cenvat Credit Rules, which has created some unnecessary litigation and confusions.

• Changes are applicable from different dates:The changes made by the Finance Bill, 2016 as well as the various Notifications issued by the Government are applicable from different dates for which the readers may refer the detailed commentary given in ourService Tax Book.

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