Service tax rate of 14% shall come into effect only from a date to be notified - Finance Bill, 2015 enacted
The
Hon’ble President has given assent to the Finance Bill, 2015 on
Thursday, May 14, 2015. Accordingly, the Finance Bill, 2015 now becomes
Finance Act (No.20), 2015. However, it is to be noted here that increase
in the rate of Service tax from 12.36% to flat 14% (Subsuming Education
Cess and Secondary and Higher Secondary Education Cess) as was proposed
in the Union Budget, 2015 will become effective only after the date to
be notified and not effective from May 14, 2015.
Further
pursuing with Mr. Narendra Modi’s Dream of Swachh Bharat, a new Chapter
VI has been inserted in the Finance Bill, 2015 that contains a new levy
of cess called the ‘Swachh Bharat Cess’ which may be levied on all or
any of the taxable services at the rate of 2% of the value of such
services.Hence, Service tax rate may increase from present 12.36% to 16%
for specified services on which Swachh Bharat Cess is levied from a
date notified later.
Therefore, it is to be noted that
Higher rate of Service tax from 12.36% to 14% and Swachh Bharat Cess of
2% will become effective only from the date to be notified and not from
May 14, 2015. Further, the changes in Negative List of services will
also come into effect from the date notified later.
We
are summarizing hereunder the changes in Service tax that are effective
from May 14, 2015 and the changes that will become effective only from
the date to be notified later for easy digest:
PART I: CHANGES IN SERVICE TAX EFFECTIVE FROM MAY 14, 2015:
A: Changes under various Sections under the Finance Act, 1994 (“the Finance Act”)
Section
65B: Definitions of certain terms has been inserted [Section 65B(23A):
‘foreman of chit fund’, Section 65B(26A):‘Government’ and Section
65B(31A):‘lottery distributor or selling agent’];
Section 65B(44): Change in definition of ‘Service’:
Explanation
2 to Section 65B(44) of the Finance Act, defining the term ‘Service’ is
amended to specifically state the intention of the legislature to levy
Service tax on activities undertaken by Chit fund foremen in relation to
Chit, and lottery distributors and selling agents, in relation to
lotteries. [Lottery Distributor or Selling Agent needs to pay Service
tax under Reverse Charge on services received from selling or marketing
agents of lottery tickets]
Section 66F: Section 66F (1)
prescribes that unless otherwise specified, reference to a service
shall not include reference to any input service used for providing such
services. An illustration has been incorporated in the stated Section
to exemplify the scope of this provision in the following manner:
“The
services by the Reserve Bank of India, being the main service within
the meaning of clause (b) of section 66D, does not include any agency
service provided or agreed to be provided by any bank to the Reserve
Bank of India. Such agency service, being input service, used by the
Reserve Bank of India for providing the main service, for which the
consideration by way of fee or commission or any other amount is
received by the agent bank, does not get excluded from the levy of
service tax by virtue of inclusion of the main service in clause (b) of
the negative list in section 66D and hence, such service is leviable to
service tax.”
Section 67: Amendment in definition of the term ‘Consideration’to include:
any
reimbursable expenditure or cost incurred by the service provider and
charged, in the course of providing or agreeing to provide a taxable
service, except in such circumstances, and subject to such conditions,
as may be prescribed like Pure Agent.;
b) any amount retained by
the lottery distributor or selling agent from gross sale amount of
lottery ticket in addition to the fee or commission, if any, or, as the
case may be, the discount received, that is to say, the difference in
the face value of lottery ticket and the price at which the distributor
or selling agent gets such ticket..
Section 73: New sub-section
(1B) inserted to provide that the Service tax amount self-assessed and
declared in the return but not paid (either in part or full) shall be
recovered under Section 87 thereof, without service of any notice under
Section 73(1).Consequently, Rule 6(6A) of the Service Tax Rules, 1994
(“the Service Tax Rules”) has been omitted, which provided for recovery
of Service tax self-assessed and declared in the return in the manner
prescribed under Section 87 of the Finance Act as the same has been now
been incorporated in Section 73 of the Finance Act
Further,
Section 73(4A) has been omitted, which provides for reduced penalty up
to 25% of Service tax liability, where during the course of any audit,
investigation or verification, it is found that any Service tax has not
been levied or paid or has been short-levied or short-paid or
erroneously refunded but true and complete details of transaction are
available on specified records.
Section 76:
Rationalization of penal provisions in cases not involving fraud or
collusion or wilful misstatement or suppression of facts or
contravention of any provision of the Finance Act or Rules with the
intent to evade payment of Service tax, in the following manner:
Ceiling of 10% of Service tax amount as penalty has been incorporated;
No
penalty leviable if Service tax and interest is paid within 30 days of
issuance of SCN under Section 73(1) of the Finance Act and proceedings
in respect of such Service tax and interest shall be deemed to have been
concluded;
Reduced penalty equal to 25% of the penalty (i.e. 2.5%
of the Service tax liability) if the Service tax, interest and reduced
penalty is paid within 30 days of receipt of the Adjudication Order; and
If
the Service tax amount gets increased in any Appellate proceedings,
then the penalty amount shall also stand modified accordingly, and
benefit of reduced penalty (i.e. 25% of penalty imposed) shall be
admissible if Service tax, interest and reduced penalty on such
increased amount is paid within 30 days of such Appellate Orders.
Section
78: Rationalization of penal provisions relating to penalties in cases
involving fraud or collusion or wilful misstatement or suppression of
facts or contravention of any provision of the Finance Act or Rules with
the intent to evade payment of Service tax, in the following manner:
Penalty
shall be of 100% of Service tax amount. However, in respect of the
cases where the details relating to such transactions are recorded in
the specified record for the period beginning with the April 8, 2011
upto the date on which the Finance Bill, 2015 receives the assent of the
President i.e. May 14, 2015 (both days inclusive), the penalty shall be
50% of the Service tax so determined;
Reduced penalty equal to
15% of the Service tax amount alleged in the SCN shall be levied if
Service tax, interest and reduced penalty is paid within 30 days of
issuance of SCN under Section 73(1) of the Finance Act. Further
proceedings in respect of such Service tax, interest and penalty shall
be deemed to be concluded;
Reduced penalty equal to 25% of the
Service tax amount, determined by the Central Excise officer by an
Adjudication Order, shall be levied if the Service tax, interest and
reduced penalty is paid within 30 days of receipt of Order of the
Central Excise Officer; and
If the Service tax amount gets
modified in any Appellate proceedings, then the amount of penalty and
the interest payable thereon shall stand modified accordingly, and after
taking into account the amount of Service tax so modified, the person
who is liable to pay such amount of Service tax, shall also be liable to
pay the amount of penalty and interest so modified;
If the
Service tax amount gets increased in any Appellate proceedings, then the
penalty amount shall also stand modified accordingly, and benefit of
reduced penalty (i.e. 25% of Service Tax) shall be admissible if Service
tax, interest and reduced penalty on such increased amountis paid
within 30 days of such Appellate Orders.
New Section 78B inserted
after Section 78A: A new Section 78B has been inserted to prescribe
transition provision in the following manner:
Amended provisions
of Sections 76 and 78 of the Finance Act shall apply to cases where
either no SCN is served, or SCN is served under Section 73(1)or proviso
thereto but no Order has been issued under Section 73(2) thereof, before
the date of enactment of the Finance Bill, 2015 (i.e. May 14, 2015);
and
In cases where SCN has been issued but no Orderhas been issued
under Section 73(2), before the date of enactment of the Finance Bill,
2015 (i.e. May 14, 2015), the period of 30 days for the purpose of
closure of proceedings on the payment of Service tax and interest under
clause (i) of the proviso to sub-section (1) of Section 76 or on the
payment of Service tax, interest and penalty under clause (i) of the
second proviso to sub-section (1) of Section 78, shall be counted from
the date on which the Finance Bill, 2015 receives the assent of the
President (i.e. May 14, 2015).
Section 80 omitted: Now, no waiver of penalty under Section 76 and 77 of the Finance Act, on Reasonable cause will be allowed.
Section
83: Certain changes have been made in the provisions relating to
Settlement Commission under the Excise Act,which are made applicable to
the Finance Act by virtue of Section 83 thereof.
Section 86:
Amended to prescribe that remedy against the Order passed by the Ld.
Commissioner (Appeals), in a matter involving rebate of Service tax on
Input services, duty paid on Inputs, used in providing service which is
exported, shall lie in terms of Section 35EE of the Central Excise Act,
1944 (“the Excise Act”) (i.e. Revision by the Central Government).
It
is also provided that all appeals filed before the Hon’ble Tribunal
after the date the Finance Act, 2012 came into effect (i.e. May 28,
2012) and pending on the date when the Finance Bill, 2015 receives
assent of the President (i.e. May 14, 2015) shall be transferred and
dealt in accordance with Section 35EE of the Excise Act.
Section
94: Clause (aa) of Section 94(2) has been substituted with
“determination of the amount and value of taxable service, the manner
thereof, and the circumstances and conditions under which an amount
shall not be a consideration, under Section 67”.
PART II: CHANGES IN SERVICE TAX TO BE EFFECTIVE FROM DATE TO BE NOTIFIED:
A: Increase in rate of Service tax:
From
12.36% (including Education Cess and Secondary and Higher Education
Cess) to flat 14%.The ‘Education Cess’ and ‘Secondary and Higher
Education Cess’ shall be subsumed in the new Service tax rate.
Open
Issues: Whether balance lying in ‘Education Cess’ and ‘Secondary and
Higher Education Cess’ standing as on date of notification of change in
rates will be allowed to be adjusted with Service tax liability as this
is being denied in terms of Rule 3(7)(b) of the Cenvat Credit Rules,
2004(“the Credit Rules”),which requires clarification by the CBEC at the
earliest.
Consequent to the upward revision in Service
tax rate, the composition rate is proposed to be revised
proportionately under Rule 6(7), 6(7A), 6(7B) and 6(7C) of the Service
Tax Rules on specified services, namely,
Air Travel Agent: From
“0.6%” and “1.2 %”, to “0.7 per cent.” and “1.4 per cent of Basic fares
in the case of domestic bookings and international bookings
respectively.
Life insurance service: From “3%” and “1.5%”, to
“3.5%” of the premium charged from policy holder in the first year and
“1.75% in the subsequent year”.
Money changing service provided by banks or authorized dealers:
From
“0.12%” to “0.14%” of gross amount of currency exchanged for an amount
upto ₹ 1,00,000/-subject to minimum amount of “Rs. 35”which was “Rs. 30
earlier or;
From “Rs. 120 and 0.06%” to “Rs. 140 and 0.07%” of
gross amount of currency exchanged for an amount exceeding ₹ 1,00,000/-
upto ₹ 10,00,000/ or;
From “Rs. 660 and 0.012%” to “Rs. 770 and
0.014%” of gross amount of currency exchanged for an amount exceeding ₹
10,00,000/- subject to maximum amount of ₹ 7000/- which was ₹ 6000/-
earlier
Service provided by lottery distributor and selling agent:
Guaranteed
price payout is more than 80%: ₹ 8200/- (earlier ₹ 7000/-) on every ₹
10,00,000/- (or part of ₹ 10,00,000/-) of aggregate face value of
lottery tickets printed by organizing State for a draw or
Guaranteed
price payout is less than 80%: ₹ 12,800/- (earlier ₹ 11,000/-) on every
₹ 10,00,000/- (or part of ₹ 10,00,000/-) of aggregate face value of
lottery tickets printed by organizing State for a draw.
B: Swachh Bharat Cess - Enabling Provision
An
enabling provision is being made to empower the Central Government to
impose a Swachh Bharat Cess (“SB Cess”) on all or any taxable services
at a rate of 2% on the value of all or any taxable services. The
proceeds from this Cess would be utilized for Swachh Bharat initiatives.
The Government will specify the categories of taxable services on which SB Cess would be leviable.
Open issues:
What all services are going to be covered under the levy of SB Cess?
In
the absence of clearly defined provisions, it is likely that the SB
Cess may re-ignite the tussle on ‘classification’ of services.
Whether Cenvat credit of SB Cess would be available or not because there are no amendments proposed in the Credit Rules?
C: Changes in relation to the Negative List - Section 66D of the Finance Act
Section 66D(a): Under clause (iv), the words ‘support services’ has been substituted by the words ‘any service’.
Accordingly,
after such amendment, all services provided by the Government or local
authority to a Business Entity would be exigible to Service tax, except
for the services that are specifically exempted, or covered by any
another entry in the Negative List.
Consequently, the
term ‘support’ has been omitted from the Rule 2(1)(d)(i)(E) of the
Service Tax Rules, which provides for liability of service receiver to
pay Service tax under Reverse Charge in relation to support services
provided or agreed to be provided by Government or Local authority with
certain exceptions.
Further, in paragraph I, clause (A)
sub clause (iv) Item under Notification No. 30/2012-ST dated June 20,
2012 (Reverse Charge Mechanism), the term ‘support’ has been omitted for
services provided or agreed to be provided by Government or Local
authority vide Notification No. 7/2015-ST dated March 1, 2015. Thus, now
any services provided by the Government or Local authority to a
Business Entity would be exigible to Service tax under Reverse Charge,
except for the services that are specifically exempted, or covered by
any another entry in the Negative List.
Section 66D(f):
Services by way of carrying out any processes for production or
manufacture of alcoholic liquor for human consumption brought under the
Service tax net.
Section 66D(i): Explanation inserted whereby the
expression “betting, gambling or lottery” shall not include the activity
as specified in substituted explanation 2 to Clause (44) of Section 65B
of the Finance Act:.
Section 66D(j): Omitted, which covers‘admission to entertainment event or access to amusement facilities’.
Consequently,
Service tax to be levied on the services provided by way of access to
amusement facility such as rides, bowling alleys, amusement arcades,
water parks, theme parks, etc;
Service tax also to be
levied on services by way of admission to entertainment event of
concerts, non-recognized sporting events, pageants, music concerts and
award functions, if the amount charged for admission is more than ₹ 500.
Whereas
services by way of admission to exhibition of the cinematographic film,
circus, dance, or theatrical performances including drama, ballets or
recognized sporting events shall continue to be exempt; [Read with the
Notification No. 6/2015-ST dated March 1, 2015 vide which changes has
been made in the Mega Exemption List of Services]
Consequent
to the changes in the Negative List of services, definition of
following terms has been omitted/ amended in Section 65B of the Finance
Act:
Definitions of certain terms omitted [Section
65B(9): ‘amusement facility’, Section 65B(24): ‘entertainment event’ and
Section 65B(49): ‘support services’ has been omitted;]
Definitions
of certain terms amended [Section 65B(40): ‘process amounting to
manufacture or production of goods’ excluding alcoholic liquors for
human consumption]
D: Changes in Mega Exemption Notification No.
No. 25/2012-ST dated June 20, 2012 vide Notification No. 6/2015-ST dated
March 1, 2015 (effective from the date to be notified)
Entry
30: Service tax would be levied on services by way of carrying out of
intermediate production process of alcoholic liquor for human
consumption on job work, consequent to imposition of Service tax on
services by way of manufacture of alcoholic liquor for human
consumption.
New Exemption:
Entry 47: Services by way of right to admission to:
exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet;
recognized sporting events;
award
functions, concerts, pageants, musical performances or any sporting
events other than recognized sporting event, where the consideration for
such admission is upto ₹ 500 per person
[This
exemption will be effective from the date to be notified for amendments
being made in the Negative List, concerning the service by way of
admission to entertainment events.]