Basic Concepts - Service Tax and Open Issues Professional Opportunities

1. Basic Concepts - Service Tax and Open IssuesProfessional Opportunities Bimal Jain FCA, FCS, LLB, B.Com (Hons) Chairman of IDT Committee of PHD Chamber of Commerce Chairman of Corporate Advisory Committee of IPEM Institution Member of IDT Committee of Assocham/ FICCI Member of IDT Committee of ICAI Member of Indirect tax faculties of ICAI/ICSI/ICMA Authored Book- "Goods and Services Tax – Introduction and Way forward" CS Bimal Jain

2. Constitutional Structure of Indirect Tax In India Constitutional Structure of Indirect Tax In India Constitution Union List State List Concurrent List Excise Duty 84 Service Tax 97 Excise Duty on Liquor 51 Stamp Duty 63 EntertainmentTax 62 Octroi Duty 52 Sales/ Purchase of Goods 54 CS Bimal Jain

3. TAXATION OF SERVICES – NEGATIVE LIST Restoration of Service Specific Accounting codes for Registration & Payment of Service Tax CS Bimal Jain

4. Taxable Event - Service Tax • S. 66 of Finance Act  There shall be levied a tax on the Value of taxable services referred to in various sub-clauses of (105) of S.65 and collected in such manner as may be prescribed • S. 65(105) Any Service provided or to be provided (16-6-2005) • S. 65B (51)  Taxable service means any service on which service tax is leviable under section 66B; • S. 66B  There shall be levied a tax at the rate of 14% on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed • Association of Leasing & Financial Service Companies vs. UOI 2010 (20) STR 417 SC  Taxable Event  Rendering of Service CS Bimal Jain

5. Definition of Service • S. 65B (44)  “Service" means Any Activity carried out by a Person for another for Consideration, and includes a Declared service, but shall not include— • (a) an activity which constitutes merely,- • (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or • (ii) such transfer, delivery or supply of any goods which is deemed to be sale within Article 366 (29A) of the Constitution; or • (iii) a transaction in money or actionable claim; • (b) a provision of service by an employee to the employer in the course of or in relation to his employment; - Employer-Employee / Secondment/ Jt Employment/ Director • (c) fees taken in any Court or Tribunal established under any law for the time being in force. CS Bimal Jain

6. Declared Services –S 66E CS Bimal Jain Page 6

7. Definition of Service • Explanation 1.— Nothing contained in this clause shall apply to functions performed by MP, MLA, Other Govt. Officers or Govt. Bodies… • Explanation 2.- For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged…. • Explanation 3.- For the purposes of this Chapter,- • (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; • (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. • Explanation 4.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; CS Bimal Jain

8. TAXATION OF SERVICES – NEGATIVE LIST CS Bimal Jain

9. Obligation & POT CS Bimal Jain

10. POT - General Rule 3 • POT, the earliest of the following: • Date of Receipt of Money (Advance) • When Invoice is issued within 30 days from Date of Completion of Service Date of Invoice • When Invoice is not issued within 30 days from Date of Completion of Service Date of Completion of Service • Rule 4A of STR – Invoice to be issued within 30 or 45 days in case of banks and FIs, (14) days from the Date of completion of service or Date of Receipt of paymentstowards the value of such taxable service, whichever is earlier • Rule 4A of STR - proviso inserted - Invoice not required to be issued if amount received is upto Rs. 1,000 in excess o f the amount indicated in the Invoice. CS Bimal Jain

11. Rule 7 of POT Rules • Rule 7 starts with non-obstante clause: “Notwithstanding anything contained in rules 3, 4, or 8” • POT under Reverse Charge (Except Associated Enterprises located outside India): • Payment made within 3 months from date of invoice – Date of payment; • Payment not made within 3 months from date of invoice - Date immediately following the end of 3 months CS Bimal Jain

12. Rule 7 of POT Rules – Contd…. • In case of Associated enterprises, where the person providing the service is located outside India: • POT shall be earlier of the following: • Date of debit in the books of account of SR; • Date of Payment CS Bimal Jain

13. SR liability Paid by SP -? • Service Tax - Reverse Charge liability paid by Service Provider, should be demanded again from Service Recipient? • Umasons Auto Compo Pvt. Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad [2014 - TIOL – 126 – CESTAT - MUM] • Once the amount of Service Tax is accepted by the Revenue from the provider of GTA service, it cannot be demanded again from the recipient of the GTA service CS Bimal Jain

14. Service – Service Tax • Activity – Economic • Person – 65B (37)  Service Provider – Service Recipient • Consideration – S. 67/ Reimbursement of Expenses • Monetary – Free Gift/ Charities/ Grant • Non-Monetary: Kind • Barter • Advance – Services / Goods • Deposit - Refundable/ Non- refundable • Demurrage/ Accidental Damage – Penalty • Late Payment - Interest • Short received – Deficiency of Services • Bad Debts CS Bimal Jain

15. Interest on delayed payment of ST, Excise & Customs CS Bimal Jain

16. Open Queries….. • Rate of Interest on delayed payment of ST for the period prior to enactment of Finance Bill, 2016 – JS TRU Letter. D.O.F. No. 334/15/2014-TRU, dated July 10, 2014 E.G. Assessee pays the dues of 6th July, 2015 on 6th December, 2016. • When 15%/ 24% would be applicable • What is meaning of amount collected as ST but not deposited – Cum Tax Value S. 67(2) of Finance Act, 1994 • What rate of Interest applicable for part collection of consideration along with ST but not received full payment and liability to be paid on accrual basis CS Bimal Jain

17. Penalty • Penalty for Delayed Payment of Service Tax [Non-Fraud Cases] – S. 76 : a Penalty not exceeding 10% of Service Tax provided • - No Penalty if ST + Interest paid within 30days from SCN • - 2.5% of ST Amount if ST+ Interest paid within 30 days from OIO • Penalty for Contravention of Provisions & Rules there of – S. 77 - Maximum Rs. 10K CA Bimal Jain

18. Penalty • Penalty for Fraud cases: Equal to ST amount Subject to: • - Where True & Complete details recorded in books from 8/4/2011 to 14/5/2015 – Penalty of 50% of ST Amount • - 15% Penalty if ST + Interest paid within 30 Days of SCN • - 25% Penalty if ST + Interest paid within 30 days of OIO • Penalty U/S 76 & 78 are mutually exclusive CA Bimal Jain

19. Proviso inserted in Rule 7 • Notification No. 21/2016-ST dated 30.03.2016 • Where there is change in the liability or extent of liability of ST to be paid under Reverse Charge – • Service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the POT shall be  the date of issuance of invoice. CS Bimal Jain

20. Practical Illustrations • New levy ‘Krishi Kalyan Cess’ (“KKC”) applicable from 01.06.2016 @ 0.5% on value of all taxable service (i.e. from 14.5% to 15%). • Let us understand applicability of KKC in the light of amendment made in Rule 7 of the POT Rules CS Bimal Jain

21. Erstwhile Rule 7 Vs. Amended Rule 7  CS Bimal Jain

22. Service Provider Vs. Service Receiver  CS Bimal Jain

23. Imprisonment & Power to Arrest • Imprisonment Provisions [S.89] - Threshold Monetary Limit increased from Rs. 50 Lakh to Rs. 2 Crore • Power to Arrest – Non Bailable Offence – Service Tax collected but not deposited - Threshold Monetary Limit increased from Rs. 50 Lakh to Rs. 2 Crore CS Bimal Jain

24. Period of Limitation for Non-Fraud CasesST, Excise & Customs CS Bimal Jain

25. Whether it is justified….. • Automation and compulsory e-filing of returns – CE/ ST • Revamp in the Service Tax Commissionerates and also more positions have been created • Detrimental to Ease of doing business initiative • Giving unwanted contradictory message of lethargic system to the start up entrepreneurs and outside World • Citizen Charter - Transparent – Accountability & Responsibility of Govt. Dept. • Period before/ after enactment of FB, 2016 • Period of Refund – S. 11B – 1 Yr • Restriction on Availment of Cenvat credit on Inputs/ Input Services – Now, on CG used exclusively for 2 Yrs for exempted goods and exempted Services CS Bimal Jain

26. Changes with respect to ‘EducationSector’ • Omission from Negative List of Services (Section66D) • (l) services by wayof- • (i) pre-school education and education up to higher secondary school orequivalent; • (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being inforce; • (iii) education as a part of an approved vocational educationcourse; Bimal Jain

27. Entry 9 of Mega Exemption... Bimal Jain 9. Services provided,- (a) by an educational institution to its students, faculty and staff; (b)to an educational institution, by way of,- • transportation of students, faculty and staff; • catering, including any mid-day meals scheme sponsored by the Government; • security or cleaning or house-keeping services performed in such educational institution; • services relating to admission to, or conduct of examination by, such institution;

28. Services relating to StageCarriage – S. 66D(O)(i) Bimal Jain (o) service of transportation of passengers, with or without accompanied belongings, by- (i) a stagecarriage; (ii) to(vi)…… • Services by a non air-conditioned stage carriages would still not entail the levy of Service Tax, as the same has been exempted by amending Entry 23(bb) of Mega Exemption Notification No. 25/2012-ST.

29. Contd… • Further, changes are also made in Sl. No. 9A of the abatement notification no. 26/2012-ST to provide abatement on services provided by stage carriage (w.e.f.01.06.2016) Bimal Jain

30. Service of transportation of goods by Aircraft /Vessel Bimal Jain Omission from Negative List of Services (Section66D) (p) services by way of transportation of goods (i)…. (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance; or (iii)…. However, the services by an air-craft would still not entail the levy of Service Tax, as the same has been exempted by inserting a new entry 53 under the Mega Exemption Notification which reads asunder: New Entry 53 inserted in Mega Exemption Notification No. 25/2012-ST (w.e.f. 1st June2016) 53. Services by way of transportation of goods by an aircraft from a place outside India upto the customs station of clearance inIndia.

31. Retrospective Amendment • S. 101 of FB, 2016  Entry 12(d) of ME NN. 25/2012-ST: Exemption allowed for Services provided by way of Construction, etc. of canal, dam or other irrigation works to Governmental Authority for the period 1-7-2012 to 29-01-2014 • Change in definition of Governmental Authority • Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 CS Bimal Jain

32. Retrospective Amendment • S. 102 of FB, 2016  Entry 12 of ME NN. 25/2012-ST: Exemption withdrawn is restored w.e.f 1-4-2015 for Services (Construction, Erection, etc.) provided to Govt./ Local Authority/ Governmental Authority • Civil Structure/ Original Works for use other than Business • Structure meant for Education, clinical, Art or Cultural • Residential complex for self use or use of employees • Contract entered prior to 01-03-2015 and Stamp Duty, as applicable, paid prior to 01-03-2015 • Continue to be exempted till 31-03-2020 and Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 CS Bimal Jain

33. Retrospective Amendment • S. 103 of FB, 2016  Entry 14 of ME NN. 25/2012-ST: Exemption withdrawn is restored w.e.f 1-4-2015 for Services provided by way of construction, erection, commissioning, installation of • Original Works for Airport/ Port • Contract entered prior to 01-03-2015 and Stamp Duty, as applicable, paid prior to 01-03-2015, subject to production of Certificate by Ministry of Civil Aviation or Shipping • Continue to be exempted till 31-03-2020 and Refund of ST, if paid during the period, to be filed within 6 months from enactment of FB, 2016 CS Bimal Jain

34. Section 66D - Any services provided by Government or Local Authority to a Business Entity “66D. The negative list shall comprise of following services,:– (a) Services by Government or a Local authority excluding the following services to the extent they are not covered elsewhere- (i) Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (ii) Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) Transport of goods or passengers; or (iv) Any Service other than services covered under clauses (i) to (iii) above, provided to business entities;” CS Bimal Jain

35. Amendment in the Mega Exemption Notification to exempt certain Governmental services CS Bimal Jain

36. Amendment in the Mega Exemption Notification Cont…. CS Bimal Jain

37. Amendment in the Mega Exemption Notification Cont…. CS Bimal Jain

38. Issues in CCR, 2004 • Rule 2(k) • All goods used for generation of electricity or steam or pumping of water for captive use; • All capital goods having value up to Rs. 10,000 per piece • Full CC in Yr of Purchase and Depreciation • Rule 3(4) - Proviso amended/ inserted: • Cenvat credit not to be used for payment of Infrastructure Cess [Motor Vehicles – 8703] • What happen for motor vehicles returned to factory for remade, refined and reconditioning U/R 16 of CER, 2002? CS Bimal Jain

39. Rule 6 of CCR, 2004 • Rule 6: Rationalized and Simplified • Explanation 3 & 4  Exempted Service includes an activity which is not Service U/S 65B(44) of Finance Act – Alarming • Rule 6(4): No CC on CG used exclusively for EG/ES for 2 Yrs from date of production or provision of service CS Bimal Jain

40. Rule 7 of CCR, 2004 • Distribution of Cenvat Credit by Input Service Distributor (“ISD”) • ISD can distribute Credit to it’s manufacturing units, Units providing taxable output Services or Outsourced manufacturing unit – means • Job-worker paying duty under 10A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000; or • Contract manufacturer, paying under Section 4A of the Central Excise Act, 1944; CS Bimal Jain

41. Professional Opportunities for CS • Advise and Consulting • Registration • Interactions with the Dept. • Hand Holding: Payment of Taxes/ Preparation of Return • Return filing • Pre- Audit/ Diagnostic Review/ Health Check • Effect of Budgetary Changes – Business Model • Litigation • Audit Assistance – Internal/ External • Investigation & Enquiry CS Bimal Jain

42. A2Z Taxcorp LLP Flat No. 34B, Ground Floor, Pocket -1, MayurVihar, Phase–I, Delhi – 110091 India Desktel:+91-11-22757595/ 42427056  Mobile:+91 9810604563bimaljain@a2ztaxcorp.comwww.a2ztaxcorp.com Thank You! CS Bimal Jain