The Finance Minister, Shri Arun Jaitley while presenting the Union Budget for 2016-17 on 29th February, 2016 has proposed the following changes.
1. Levy of Krishi Kalyan Cess
W.e.f. 1st June, 2016 notified taxable services shall be subjected to the levy of Krishi Kalyan Cess. The rate of Krishi Kalyan Cess will be 0.5% of the value of taxable services. However, credit of Krishi Kalyan Cess paid on input services will be allowed to be used for payment of Krishi Kalyan Cess only by a service provider.
2. Changes in the Negative List
a) Educational Services : Clause (l) of Section 66D (negative list) which covered specified educational services has been omitted from the negative list. However, the immunity from tax granted to such services will be continued as these services have been specifically covered in the Mega Exemption Notification (No. 25 of 2012). This amendment will be effective from the date of enactment of Finance Bill, 2016.
b) Services of Transportation of Passenger: Service of transportation of passenger by stage carriage covered by negative list [Clause(o)(i) of Section 66D] is proposed to be deleted w.e.f. 1-6-2016. As a result, above services become taxable effective from 1-6-2016. However, such services, if provided by a non-air-conditioned contract carriage, will continue to be exempt by virtue of Mega Exemption Notification No. 25/2012-ST. The service of transportation of passenger by air-conditioned stage carriage will be taxed after allowing abatement @ 60%. However, such service provider will not be eligible for Cenvat credit.
c) Transportation of goods by aircraft or vessels: Services by way of transportation of goods by an Aircraft or a vessel from a place outside India up to the Customs Station of clearance [Section 66D(p)(ii)] is proposed to be omitted effective w.e.f. 1-6-2016. However, such transportation by an aircraft will continue to be exempt by way of Mega Exemption Notification No. 25/2012. The Domestic Shipping Lines registered in India will pay service tax as a service provider while the service availed from Foreign Shipping Lines by a business entity in India will be taxed under reverse charge at the hands of the recipient. The service tax paid will be available as credit to the Indian Manufacturer or service provider availing such services. Cenvat credit will be allowed for providing the service by way of transportation of goods by a vessel from the Custom Station of clearance in India to a place outside India.
3. Amendment in Finance Act, 1994 (effective from the date of enactment of the Finance Bill, 2016)
a) Lottery:– Explanation–II in Section 65B(44) (definition of service) is amended to clarify that activity carried out by the lottery distributor or selling agent of the State Government under the provisions of the lotteries (Regulation Act, 1998) will be liable to service tax.
b) Declared Service: Assignment by the Government of the right to use the Radio Frequency Spectrum and subsequent transfers thereof is declared as a service liable to service tax.
c) Amendment in Section 67A: Section 67A is amended to obtain specific rule making powers in respect of Point of Taxation Rule, 2011.
d) Amendment in Section 73 of the Finance Act, 1994: The limitation period for recovery of service tax short levied/not levied/erroneously refunded in cases not involving fraud, suppression etc. is at present of 18 months. With the amendment it will get enhanced to 30 months.
e) Amendment in Section 75:– The rate of interest on service tax collected but not deposited with the Government Treasury in time will attract interest @ 24% per annum. In other cases interest will be charged @15% per annum. In case of small assessees (whose taxable services in the preceding year is less than
Rs. 60 lakh, the rate of interest on delayed payments will be 12%).
f) Amendment in Section 78 A of the Finance Act, 1994: The penalty proceeding U/s. 78A will be deemed to be closed in cases where the main demand and penalty proceeding have been closed U/s. 76 or 78.
g) Section 89 of the Finance Act, 1994: The monetary limit for filing complaints for punishable offence is proposed to be enhanced to Rs. 2 crore from the existing Rs. 50 lakh.
h) Sections 90 and 91 of the Finance Act, 1994 : The power to arrest is proposed to be restricted where the tax collected but not deposited is above Rs. 2 crore.
4.a) Retrospective effect to Notification No. 01/2016: W.e.f. 3rd February, 2016 refund of service tax on services used beyond the factory or other place or premises of production or manufacture of the goods for export is allowed. The said amendment is given a retrospective effect from 1-7-2012. A one month period will be allowed to the exporters to claim refund whose earlier refund claim was rejected in absence of amendment carried out by Notification No. 01/2016 dated 3-2-2016.
b) Exemption to Canal, Dam or other Irrigation Work: Definition of ‘Governmental Authority’ was amended w.e.f. 30-1-2014 so as to exempt services provided by way of construction, erection, maintenance etc. of canal, dam or other irrigation work provided to entities set-up by the Government but not necessarily by an Act of Parliament or State Legislature. However, services provided prior to 30-1-2014 were taxable. The benefit of exemption is now extended to services provided during the period from 1-7-2012 to 29-1-2014. Refund of service tax paid on the said services during the period from 1st July, 2012 to 29-1-2014 will also be allowed subject to unjust enrichment. For refund, application should be filed within 6 months from the date on which the Finance Bill, 2016 receives the assent of the president.
c) Restoration of certain Exemption for Project/Contract entered before the date of withdrawal: Exemption from service tax on services provided to the government, Local Authority or a governmental Authority by way of Construction, erection etc. of a civil structure or other original work meant predominantly for non-commercial uses, meant for use as educational, clinical or art or cultural establishment etc. was withdrawn w.e.f. 1-4-2015. This is being restored till 31-3-2020 provided, contract had been entered prior to 1-3-2015.
d) Restoration of Exemption for construction, erection of port etc.: Exemption from service tax on services by way of construction, erection etc. pertaining to an airport, port was withdrawn w.e.f. 1-4-2015. Exemption is being restored till 31-3-2020 provided, contract had been entered prior to 1-3-2015 and on such contract appropriate stamp duty has been paid. This exemption will be subject to production of certificate from the Ministry of Civil Aviation or Ministry of Shipping to the effect that the contract has been entered into prior to 1-3-2015.
5.a) Changes in Exemption : Exemption in respect of services provided by a Senior Advocate, to an advocate or partnership firm of advocates and a person represented on Arbitral Tribunal to an Arbitral Tribunal is being withdrawn. The service provider will be required to pay service tax on the above services. However, services provided by an advocate or firm of advocate other than Senior advocate will continue to be exempt. This change is effective form 1st April, 2016.
b) Exemption on Transport of Passengers with or without accompanied belonging by Ropeway, Cable Car or Aerial Tram-way is withdrawn. This will be effective 1st April, 2016.
c) Exemption on Construction, Erection, Commissioning or Installation of original works pertaining to Mono-rail or Metro is withdrawn in respect of contract entered on or after 1st March, 2016.
d) Services of LIC business by way of Annuity under National Pension System will be exempt from service tax w.e.f. 1st April, 2016.
e) Services provided by SEBI by way of protecting the interest of investors and to promote the development of the security market will be exempt from service tax w.e.f. 1st April, 2016.
f) Services provided by Employees Provident Fund organisation to employees will be exempt w.e.f. 1st April, 2016.
g) Services provided by Bio-technology Industry Research Assistance Council (BIRAC) approved Bio-technology incubators to incubatees will be exempt from 1st April, 2016.
h) Services by National Centre for Cold Chain Development under Department of Agriculture, Co-operation and Farmers Welfare, Government of India by way of knowledge dissemination will be exempt from 1st April, 2016.
i) Services by Insurance Regulatory and Development Authority of India will be exempt w.e.f. 1st April, 2016.
j) Services of General Insurance provided under ‘Niramaya’ Health Insurance Scheme launched by National Trust in collaboration of Private/Public Insurance Company will be exempt w.e.f. 1st April, 2016.
k) Services provided by a performing artist in folk or classical art forms of music, dance or theatre will be exempt up to
Rs. 1.5 lakh per performance effective from 1st April, 2016. Earlier this exemption was up to
Rs. 1 lakh per performance.
l) Services provided by way of skill/vocational training by Dindayal Upadhyay Gramin Kaushalya Yojna will be exempt w.e.f. 1st April, 2016.
m) Services of Assessing Body Empanelled Centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship will be exempt from tax w.e.f. 1st April, 2016.
n) Services by way of construction, erection etc of civil structure or other original work pertaining to “In-situ rehabilitation of existing slum-dwellers using land as a resource through private participation” component of housing for all (HFA) (Urban) mission/Pradhan Mantri Aawas Yojna (PMAY) will be exempt from service tax w.e.f. 1st March, 2016.
o) Services by way of construction, erection, office civil structure or any other original work pertaining to the “beneficiary-led individual house construction/enhancement” component of housing for all (HFA)(Urban) mission/Pradhan Mantri Aawas Yojna (PMAY) is exempt w.e.f. 1st March, 2016.
p) Services by way of construction/erection etc. of original work pertaining to low cost house up to a carpet area of 60 sq. mtr. per house in a housing project approved under “affordable housing in partnership” component of PMAY or any housing scheme of State Government will be exempt from tax w.e.f. 1st March, 2016.
q) Services provided by Indian Institute of Management by way of two year full time post graduate programme of management, 5 years integrated programme in management and fellowship programme in management will be exempt from tax w.e.f. 1st March, 2016. This exemption is effective for past period as well.
6. Changes in Abatement (effective from 1-4-2016)
a) Where tour operator provides services only of arranging or booking accommodation in relation to a tour abatement of 90% cannot be claimed where such invoice, bill or challan only includes the service charges for arranging or booking accommodation (and does not include the cost of such accommodation).
b) Abatement in respect of services by a tour operator in relation to a tour operation other than where the services are of solely of booking of accommodation, the percentage of abatement will be restricted to 70%. Earlier it used to range between 60% and 75%.
c) Services provided by a foreman to chit fund will be subject to an abatement of 30%, on the condition that Cenvat Credit of input, input services and capital goods has not been availed.
d) In case of renting of motor cabs abatement of 60% on the gross value will be available only if the cost of fuel is included in the consideration charges for providing such services.
e) The services of construction of complex, building, civil structure or a part thereof will be taxed after a uniform abatement of 70%.
f) Earlier service of transport of passengers by rail was subject to an abatement of 70% without Cenvat Credit of input, input services and capital goods. Now, Cenvat Credit of input services will be allowed.
g) Service of transport of goods by rail is continued to get abatement of 70%. However cenvat credit of input services will be available.
h) Transport of goods in containers by rail by any person other than Indian Railway will be subject to an abatement of 60% with credit of input services only.
i) Service of transport goods by vessel with abatement of 70% is taxable without Cenvat Credit of input, input services and capital goods. Now, Cenvat Credit of input services will be available.
j) The GTA services will continue to be taxed after abatement of 70% without availment of Cenvat Credit of input, input services and capital goods. However transport of used household goods by GTA will be subjected to an abatement of 60% without availment of Cenvat Credit of input, input services and capital goods.
7. Reverse Charge Mechanism (effective from 1-4-2016)
a) Earlier the mutual fund agents/distributors on their services provided to an asset management company were not paying any tax. However, tax was paid under reverse charge by asset management company. Now, the services provided by mutual fund agents/distributors to mutual fund or asset management company will be subjected to tax in the hands of service provider i.e. mutual fund agent.
b) Sub-clause (iv) of clause (a) of Section 66D (negative list) relating to specified support services provided by Government or Local Authorities to business entities is omitted. As a result all services provided by the Government or Local Authorities to business entities, except the services that are specifically exempted, or covered by any other entry in the negative list, shall be liable to service tax.
8. Cenvat Credit Rules (effective from 1-4-2016)
a) Wagons (sub-heading 8606 92 of the Central Excise Tariff) and equipment and appliance used in an office located within a factory are included into definition of capital goods. Now Cenvat Credit can be taken on these purchases.
b) Cenvat Credit of Rs. 10,000/- per piece of items falling under the definition of ‘Capital Goods’ are being included in the definition of inputs. Now assessee can take whole credit on such capital goods in the same year in which they are received, instead of 50%.
c) Service of transportation of goods by a vessel from customs station of clearance in India to a place outside India is excluded from the definition of “exempted service”. This would allow shipping lines to take credit on inputs and input services used in providing the said service.
d) CENVAT credit on amount charged for assignment by Government or any other person of a natural resource such as radio-frequency spectrum, mines etc., shall be spread over the period of time for which the rights have been assigned. If manufacturer of goods or provider of output service further assigns such right to use assigned to him by the Government or any other person, in any financial year, to another person against a consideration, balance CENVAT credit not exceeding the service tax payable on the consideration charged by him for such further assignment, shall be allowed in the same financial year i.e., year of assignment. However CENVAT credit of annual or monthly user charges payable in respect of such assignment shall be allowed in the same financial year.
e) i. A manufacturer who exclusively manufactures exempted goods or a service provider who exclusively provides exempted services shall pay (i.e., reverse) the entire credit and effectively will not be eligible for credit of any inputs and input services used.
ii. When a manufacturer manufactures both exempted goods and taxable goods or when a service provider provides exempted services and taxable services, then the manufacturer or the provider of the output service shall have two options as below:
a. Pay an amount equal to six per cent of value of the exempted goods and seven per cent of value of the exempted services, subject to a maximum of the total credit taken or
b. Pay an amount as determined in below (iii).
iii. Where a manufacturer/service provider opts for second option in (b) above, following steps are to be followed:
a. No credit of inputs or input services used exclusively in manufacture of exempted goods or for provision of exempted services shall be available;
b. Full credit of input or input services used exclusively in final products excluding exempted goods or output services excluding exempted services shall be available;
c. Whatever balance remains after above is common credit and shall be attributed towards exempted goods and exempted services in the following ratio:
Total exempted goods manufactured or exempted services provided
Total turnover of exempted + non exempted goods and exempted + non exempted services
(above figures should be of previous financial year)
Final reconciliation and adjustments are provided for after close of financial year by 30th June of the succeeding financial year, as provided in the existing rule.
iv. No CENVAT credit shall be allowed on capital goods in case it is used for the manufacture of exempted goods or provision of exempted service only for two years from the date of commencement of commercial production or provision of service.
f) Now Input Service Distributer can distribute the input service credit in addition to its own manufacturing units to an outsourced manufacturing unit also i.e. either a job-worker who is required to pay duty on the value determined under the provisions of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, on the goods manufactured for the Input Service Distributor or a manufacturer who manufactures goods, for the Input Service Distributor under a contract, bearing the brand name of the Input Service Distributor and is required to pay duty on value determined under the provisions of Section 4A of the Central Excise Act, 1944.
g) It is now being provided that an Input Service Distributor shall distribute CENVAT credit in respect of service tax paid on the input services to its manufacturing units or units providing output service or to outsourced manufacturing units subject to following conditions :
i. Credit attributable to a particular unit shall be attributed to that unit only.
ii. Credit attributable to more than one unit but not all shall be to attributed to those units only and not to all units.
iii. Credit attributable to all units shall be attributed to all the units.
iv. Balance credit shall be distributed pro rata on the basis of turnover as is done in the present rules.
h) Rule 7B is being inserted in Cenvat Credit Rules, 2004 so as to enable manufacturers with multiple manufacturing units to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units. Such factories shall be allowed to take credit on inputs received under the cover of an invoice issued by a warehouse of the said manufacturer, which receives inputs under cover of an invoice towards the purchase of such inputs.
Procedure applicable to a first stage dealer or a second stage dealer would apply, mutatis mutandis, to such a warehouse of the manufacturer.
i) Now invoice issued by a service provider for clearance of inputs or capitals goods shall also be a valid document for availing CENVAT credit.
j) As per Rule 14(2) whether a particular credit has been utilised or not shall be ascertained by examining whether during the period under consideration, the minimum balance of credit in the account of the assessee was equal to or more than the disputed amount of credit.
9. Changes in Service Tax Rules (effective from 1-4-2016)
a) In addition to individual and partnership firms, one Person Company and HUF will also be eligible to make quarterly payment of service tax. One Person Company shall also be permitted payment of service tax on receipt basis.
b) Services provided by senior advocate will be taxed in the hands of service provider i.e. senior advocates will be liable to pay service tax.
c) In case of single premium insurance policies service tax will be payable @ 1.4% of total premium charged under composition scheme.
d) The receiver of service from foreign shipping line by a business entity located in India will be taxed under reverse charge i.e., business entity receiving such services will be liable to pay tax under reverse charge w.e.f. 1st June, 2016.
10. Annual Return
Service tax assessees above a certain threshold limit will be required to file an annual return for the period 1st April, 2016 onwards by the 30th day of November of the succeeding year in the Form as specified by the Board.
11. Indirect Tax Dispute Resolution Scheme, 2016
For cases pending before the Commissioner (Appeals), the assessee, after paying duty interest and penalty equal to 25% of duty can file a declaration. In such cases, the proceedings against the assessee will be closed andno prosecution will be launched against them. This scheme will not apply in certain specified cases.