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New Service Tax Rules under Union Budget 2012

Posted @ July 8, 2012, 9:15 pm under (Service Tax Updates)

 

Service Tax Amendments Through Union Budget 2012

 

SNO

SECTION

RULE NO/DESCRIPTION

DESCRIPTION

1.        

SNO

Definition of Taxable service

 

A. Taxable service

Service

  • any activity carried out by a person for another for consideration; and
  • includes a declared service.
  • Excludes:
    • Specific services excluded from the definition (Refer Annexure 1);
    • Negative list (Refer Annexure 1);
    • Exempted by virtue of notification (Refer Annexure 1).

 

2.        

 

 

Declared Service

The following services shall be construed to be declared services:

  • Renting of immovable property;
  • Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority;
  • Temporary transfer or permitting the use or enjoyment of any intellectual property right;
  • Development, design, programming, customisation, adaptation, up-gradation, enhancement, implementation of information technology software;
  • Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
  • Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;
  • Activities in relation to delivery of goods on hire purchase or any system of payment by instalments;
  • Service portion in the execution of a works contract;
  • Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

 

3.        

 

 

B. Rates of Tax / Abatement

All Services

12%

Works contract – composition scheme

4.8% (Effective from 01.04.2012)

Foreign Currency exchange

The person liable to pay service tax in relation to purchase or sale of foreign currency, including money changing is now required to pay tax at the enhanced rate i.e., 0.12% (instead of 0.1%), if the currency is exchanged for an amount upto Rs. 1 lakh. If the amount exceed from 1 lakh to 10 lakh then Rs. 120 and 0.06% (instead of Rs. 100 and 0.05%) and Rs. 660 and 0.12% in case the exchange is above 10 lakhs.

Abatement

Notification no. 13/2012-ST, dated 17.03.2012 provides abatement under new taxation system.

 

4.        

 

 

F. General Amendment – Earlier Provisions Not Applicable after 2012 Amendment

Existing provision

  1. All the definition including the taxable service as defined under section 65 will not be applicable with effect from such date as may be notified by the Central Government.
     
  2. Classification of services as covered under section 65A, charging section and import of taxable services as covered under section 66 and section 66A will not be applicable with effect from such date as may be notified by the Central Government.

Special Audit

Special Audit has been envisaged under section 72A wherein the Commissioner of Central Excise has been empowered to direct the service provider to get his accounts audited by a Chartered Accountant or Cost Accountant nominated by him. This provision will be effective from the date the Finance Bill receives its assent from President.

Show Cause Notice

The service tax department can issue show cause notice within 18 months instead of 1 year. Further, any statement issued by the department subsequent to any notice containing the details of service tax not levied or paid or short levied or short paid etc., then such statement issued for the subsequent period shall be deemed to be construed as a show cause notice.

Appeal

The time limit to present the appeal before the Commissioner of Central Excise is reduced from 3 months to 2 months.

G. CENVAT Credit – Effective 01.04.2012

 

1.        

 

Notification 15/2012- a proviso has been added to the subsection (2) of the section 68

REVERSE CHANGE MECHANISM

In the following services, the government has provided for payment of service tax on reverse charge mechanism.

1.      Transport of goods by road.

2.      Sponsorship services to company / partnership

3.      Service provided by an individual advocate

4.      Support service provided by government to business entity in taxable territory

5.      Renting / hiring of motor vehicle by ind./ partnership to company.

6.      Supply of man power by ind./ partnership to company.

7.      Works contract by ind./ partnership to company.

8.      Service provided by any person located in non taxable territory to person in taxable territory

2.        

 

( Rule 7 )

 

In Case of Reverse Charge Mechanism

- POT shall be Always date of Payment
- This Rule is redundant and other Rules apply if Payment not within 6 Months of Date of Invoice.

 

1.        

 

 

Nnotification 15/2012 dt. 17-03-2012 has been issued whereby in the following services, tax will be paid by service receiver to the extent specified in the table:

Description of a service

Percentage of service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

Insurance services by insurance agent to Insurance company

NIL

100%

Transport of goods by road to specified persons

NIL

100%

Sponsorship services to company / partnership

NIL

100%

Service provided by arbitral tribunal to any business entity

NIL

100%

Service provided by an individual advocate to any business entity

NIL

100%

Support service provided by government to business entity in taxable territory

NIL

100%

Renting / hiring of motor vehicle by ind./ partnership to company. – IF ABATEMENT AVAILED (60%)

NIL

100%

Renting / hiring of motor vehicle by ind./ partnership to company. – IF ABATEMENT NOT AVAILED

60%

40%

Supply of man power by ind./ partnership to company.

25%

75%

Works contract by ind./ partnership to company.

50%

50%

Service provided by any person located in non taxable territory to person in taxable territory

NIL

100%

Note: Please note that the above notification specifies the extent to which the service tax is to be paid by the service recipient. In this regard, please note that the basic exemption limit of Rs. 10 lakhs shall be available to the service provider but it shall not be available to the service recipient. Hence, in all the cases, where the service tax is to be paid by the service recipient, there is no basic exemption and the service tax shall have to be paid irrespective of the turnover. A very harsh provision indeed.

Note 2: In case service recipient has been made taxable, the point of taxation is the date of payment.

5.        

 

Rule 5

According to the said rule following are the records required to be maintained for the purpose of service tax:

6.        

 

 

1.      Records including the computerised data as maintained by an assessee as per the various laws in force from time to time.

2.      Every assessee has to furnish the list of records maintained by him at the time of filing of first service tax returns to the Jurisdictional Superintendent concerned, as under:

3.      All the records prepared or maintained to record accounting transactions.

4.      All other financial records maintained in the normal course of business.

5.      The above said all such records shall be preserved at least for a period of five years.

6.      The above said records should be maintained at the registered premises.

 

 

 

 

BELOW ARE THE SUGGESTED RECORDS

 

 

 

.I.  Bill register

II. Receipt register

III. Service Tax Master File

IV. Debit / credit Notes Register

V. Reimbursement of expenses Record

VI. CENVAT Credit Register or Statement – For recording

a. Availment

b. Utilization

c. Opening and Closing Balances of the Cenvat Credit.

VII. Service tax related documents for the following:

a. Agreements entered with the clients

b. Copies of bills raised on clients

c. Receipts issued to the clients

d. GAR-7 Challans relating to service tax

e. Other documents relevant for service tax.

i. Register or document for the visits by the Department

ii. Correspondences with the Department and

iii. Acknowledgment of documents submitted to the Department

iv. Other documents as organization requires from time to time

 

 

 

 

Further, service tax assessee should also maintain the correspondences file for the communication made with the clients, department as well as their visits. For such visits by them there should be the proper register either at security place and/or Register maintained by the department concerned – stating or containing the below:

a. Date of the visit  b. Name c. Designation  d. Purpose  e. Signature  f. Other details as per the organization’s requirement

 

7.        

 

 

Filing of Return of Service Tax

 

 

 

It is provided that an assessee whose service tax liability was Rs. 25 lakhs or more in the previous year and in case of a newly registered service provider other than individual or firms, will have to file return “Monthly”.

 

 

 

 

And in other cases i.e. Individuals and partnership firm or proprietary firms having paid service tax of less than Rs. 25 lakhs in previous year, will have to file return ‘Quarterly’.

8.        

 

Rule 4

Impact of change in rate of Service Tax on Existing Taxable Services

The effective rate of Service Tax has been increased from 10.30% to 12.36% with effect from 01st day of April 2012.

Rule 4 Propositions are as below (Except in cases of Reverse Charge Mechanism under section 68(2))

- If Service Provided before 31.3.2012 but Invoice & Payment after 31.3.2012 – Rate is 12.36%
- If Service Provided before 31.3.2012 , Invoice is also Prior to 31.3.2012 but Payment after 31.3.2012 – Rate is 10.3%
- If Service Provided before 31.3.2012 , Payment is Prior to 31.3.2012 but Invoice is raised after 31.3.2012 – Rate is 10.3%
- If Service Provided after 31.3.2012, Payment also after 31.3.2012 but invoice Prior to 31.3.2012 – Rate is 12.36%
- If Service Provided after 31.3.2012, Payment and Invoice both before 31.3.2012 – Rate is 10.3%
- If Service Provided after 31.3.2012, Payment is Prior to 31.3.2012 but Invoice is after 31.3.2012 – Rate is 12.36%

However, if the same cheque is not credited in the Bank Account by within four working days from date of change i.e. 1st April 2012; then the new tax rate i.e. 12.36% will be applicable. (the same is explained vide Notification No 4/2012 applicable from 1st April 2012 in Rule 2A i.e. Date of Payment )

 

 

 

 

Conclusion - Rate of Service Tax will be 10% even in case payment is received before 31/03/2012 but no invoice is issued before 31/03/2012. Service Tax at 12% rate will be applicable only if both the events i.e. receipt of payment and issue of invoice falls subsequently i.e after 31/03/2012.

2.        

70

Rule 7

Late Filing of Service Tax Return - penal provisions

3.        

 

 

Day wise default criteria

Penalty Amount (Rs.)

< 15 days

500 Rs. per day

> 15 days but < 30 days

1000 Rs. per day

> 30 days

1000 Rs. fix plus Rs. 100 per day or Rs. 20,000/- maximum

 

The same provisions apply for NIL returns

 

4.        

 

Notification No. 3/2012

II.          Changes in the Rules and procedures: 

1.       The 14 Days time limit for issuing invoice increased to 30 days from the date of provision of service.

2.       In case of continuous supply of services, 14 days time limit increased to 30 days of the completion of each taxable event.

3.       No invoice  is required to be issued in case of the amount received by service provider from service receiver is in excess of amount mentioned in the invoice by Rs. 1000/-.

4.       Now adjustment of excess amount paid can be made without any threshold limit provided the excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification.

Condition:- Proper Debit or Credit note issued within specified time limits.

Contained the details of service tax payable, description of the taxable service, value of the taxable service, registration no. of the service provider, name and address of the service provider, beside invoice, challans, supplementary invoice

5.        

 

Rule 7 - Notification. 04/2012

III.         - Point of taxation Rules amended

1.In case of new levy, no tax is chargeable on services for which invoice issued  and payment received within 14 days of date of new levy.

 2.Normally, date of payment shall be earlier of the date when the payment is entered in the books or credited to bank account. However, in case of new levy or change of rate of service tax, the date of payment shall be taken to be the date when the payment is actually credited in the bank statement of the aseessee if it is later than four days from the date of new levy. By this budget, the rate of service tax shall change to 12.36% w.e.f 1st April 2012. Hence, any advances received upto 04th April 2012 shall be taxed at 10.3% whereas amounts credited beyond that date shall be taxed at the rate of 12.36%.

 3.Please also note that now the change in the rate of tax shall also mean change in the abatement value. Hence, even in such cases, four days time limit has to be kept in mind.

 4.In case of new levy, if the invoice issued and payment received before the date of levy- no tax. Also, in case payment received before the date of levy but invoice issued within 14 days of the date of levy- no tax.

 5.In case service recipient has been made taxable, the point of taxation is the date of payment.

 

6.        

 

 

 

7.        

 

 

3:- CHANGES IN VALUATION RULES

a. Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:-

At present value of goods is allowed to be reduced from Gross Amount Charged If the value of goods is intimated for State VAT purpose. Now it is proposed to allow the benefit even if value is not intimated for VAT purpose, it can be done on the basis of documentary evidence showing value of goods sold under Work Contract.

In case value of goods cannot be determined, gross value for service tax purpose would be:-

a) In case of original work (all new constructions and all types of additions and alterations to abandoned or damaged structures to make them workable):- 40% of total amount,

b) Otherwise:-60% of total amount,

c) For contracts involving construction of complex or building for sale where any part of the consideration is received before the completion of the building: 25% of the total amount

Note-For this purpose the total amount will be gross amount plus the value of any material supplied under the same contract or any other contract.

CENVAT Credit on input services and capital goods will be allowed in all three cases.

In works contract service 50% service tax will be paid by the contractor and 50% by the contractee. In works contract service there are two schemes one is composite scheme and other is paying on actual labour and services.

The question is in a single works contract if the contractee and contractor choose different schemes for payment of service tax then how the ratio of 50% will be determined, will the contract be divided in two parts or any other criteria will be adopted? Some more clarifications are required in this regard from CBEC.

 

 

 

Works contract

  • Works contract composition scheme – The rate of tax has been enhanced from 4% to 4.8% (excluding cess) effective 01.04.2012 vide notification No. 10/2012 – ST 17.03.2012.
  • Service portion in the execution of a works contract is deemed to be a declared service;
    • Section 65B(54) defines “works contract” to mean a 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 the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, improvement, repair, renovation, alteration of any building or structure on land or for carrying out any other similar activity or a part thereof in relation to any building or structure on land;
  • Note: In case the service is rendered by an individual, HUF, proprietary firm, partnership firm, LLP or AOP, to the Company or a business entity registered as a body corporate, then the service provider is required to pay service tax on 50% of the service value and the service recipient is required to pay service tax on the balance 50% of the service value.

It implies that if the builder (registered as a Company) appoints any sub-contractor who is an individual, firm etc., then builder is liable to pay service tax on 50% of the value of service rendered by the sub-contractor.

  • Determination of Valuation of service – The value of works contract service shall be determined in the following manner, namely:-

ü Value of works contract service shall be equivalent to the gross amount charged for the works contract less the value of transfer of property in goods involved in the execution of the said works contract.

ü gross amount charged for the works contract shall not include value added tax or sales tax;

OR

ü Value of works contract service shall include, -

(i) labour charges for execution of the works;

(ii) amount paid to a sub-contractor for labour and services;

(iii) charges for planning, designing and architect’s fees;

(iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v) cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi) cost of establishment of the contractor relatable to supply of labour and services;

(vii) other similar expenses relatable to supply of labour and services; and

(viii) profit earned by the service provider relatable to supply of labour and services;

Note 1: Where the assessee is not able to ascertain the actual value from the books of accounts then the service tax shall be payable in the following manner, namely:-

(A) 40% of the total amount charged for the works contract;

(B) If the gross amount charged includes land value, then service tax shall be payable on 25% of the total amount including such gross amount.

(C) In case of other works contracts including completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings not covered under sub-clause (A), service tax shall be payable on 60% of the total amount charged for the works contract;

Note 2: “Total amount” means the sum total of gross amount and the value of all goods, (excluding the value added tax, if any, levied on goods) and services supplied free of cost for use in or in relation to the execution of works contract, under the same contract or any other contract:

Provided that where the value of goods or services supplied free of cost is not ascertainable, the same shall be determined on the basis of the fair market value of the goods or services that have closely available resemblance;

Note 3: Duty of excise paid on any goods, property which is transferred (whether as goods or in some other form) in the execution of works contract, shall not be availed as CENVAT credit”.

 


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