Service tax: Key Development

1. Service tax: Key Development CA ABHISHEK A. RASTOGI January 2013

2. Agenda 2

3. Snapshot – Service tax amendments... • Finance Act, 2012 introduced a comprehensive approach to tax services: • All services other than Negative List and exempted services but includes declared services. • ‘Service’ has been defined for the first time. • Specified services liable to tax under the reverse charge mechanism: • Joint liability to pay service tax in few cases. • Export of services now governed Place of Provision of Services Rules, 2012 (‘POPS Rules’) and Service Tax Rules, 1994 (‘ST Rules’). • Amended conditions of export as specified under ST Rules: • the provider of service is located in the taxable territory, • the recipient of service is located outside India, • the service is not a service covered under the Negative List of services.

4. Snapshot – Service tax amendments • the place of provision of the service is outside India (i.e. as per POPS Rules), • the payment for such service has is received in convertible foreign exchange; and • the provider of service and recipient of service are not merely establishments of the same entity (i.e. services are not provided by a branch to a head office). • Benefits of export of services • Refund of CENVAT Credit under CENVAT Rules (Under Notification No 27/2012 N.T. Central Excise). • Rebate of excise duty/ service tax paid on inputs and inputs services (Notification No 39/2012 ST). • Notification No. 17/ 2011 S.T. for exemption to services provided to SEZ units or Developer of SEZ replaced by Notification No. 40/2012 S.T.

5. Scheme of Taxation

6. Service - Section 65B(44)... January 2013

7. Service - Section 65B(44)... January 2013

8. Negative List of Services - Section 66D • Financial Sector • Manufacturing Sector • Trading • Government / Local Authority • Sector Specific • Negative List • Advertisement space /time slots • Agriculture and Animal Husbandry • Miscellaneous • Entertainment and Amusement • Transport • Power January 2013

9. Declared Service - Section 66E January 2013

10. Liability under Reverse Charge Mechanism... • Specified services liable to tax under the reverse charge mechanism:

11. Liability under Reverse Charge Mechanism • For following services, liability to pay tax on both as under:

12. A few Exemptions... Mega Exemption Notification covering 39 items proposed such as: January 2013

13. Valuation of Services January 2013

14. Valuation of Services... • Service is defined as any activity … for a consideration. • ‘Consideration’ not defined – may be derived from Indian Contract Act, 1872 as anything done or abstain from doing. • Consideration can therefore, be in monetary / non-monetary terms. • Value of taxable service having non-monetary consideration: January 2013

15. Valuation of Services... • Amendments to the taxable value of service: January 2013

16. Works Contract • Works contract services are declared services under section 66E(h) of the Act. • Definition covers such contracts which involve transfer of property in goods and are for carrying out the activities in respect of both movable and immovable properties • Property in goods should pass on the principle of accretion, accession or blending when the works contract is executed • Dominant intention need not be transfer of property • Main object should not be to transfer chattel as chattel January 2013

17. Valuation of Services... • Value of service involved in the execution of works contract: • total value of works contract minus actual value of goods, or • percentage of total amount as under, ◦ Total amount includes value of all goods / services supplied free of cost (excluding VAT). January 2013

18. Valuation of Services... • Abatement for select services:

19. Valuation of Services January 2013

20. Principles of Interpretation January 2013

21. Principles of Interpretation • Reference to a service does not include reference to input service. • Service capable of differential treatment on the basis of its description - specific description will prevail over general description. • Bundled services are those services which contain elements of one or more services : • If bundled in the ordinary course of business - the description which gives its essential character will prevail. • If bundled not in the ordinary course of business - the service which gives the highest service tax liability will be considered. January 2013

22. Place of Provision of Services January 2013

23. Place of Provision of Services • The Government notified rules for determining the place of provision of a service effective from 1 July 2012. • POPS Rules replace the current Export Rules / Import Rules. • Place of provision of service to be determined on the basis of the following : January 2013

24. Place of Provision of Services January 2013

25. Amendment to the Point of Taxation Rules, 2011 January 2013

26. Amendment to the Point of Taxation Rules, 2011 • Recurring service also treated as ‘Continuous supply of services’ • ‘Date of payment’ is the earlier of the dates on which the payment is - • Entered in the books of accounts; or • Credited in the bank account of the person liable to pay tax • Point of taxation to be ascertained by way of best judgment, where the assessee is unable to submit the details regarding the date of payment or date of invoice or both • Relevance of section 67A January 2013

27. Amendment to the Point of Taxation Rules, 2011 • Applicable service tax rates under different circumstances: January 2013

28. Other relevant changes January 2013

29. Other relevant changes • Limitation period for issuing a Show Cause Notice extended from 12 months to 18 months. • New combined return EST 1 for excise duty and service tax proposed. • Time period for issue of invoice: • 30 days from the date of provision of service. • 45 days from date of provision of service, for services provided by banking and financial institutions. January 2013

30. Some Key Aspects January 2013

31. Some Key Aspects • Employer – employee relationship • Valuation of taxable services where consideration is received partly in non-monetary terms • Valuation of barter services • Taxability of liquidated damages • Service provider and service recipient for place of provision of services • Place of provision of services which are ancillary to the provision of another service in the ordinary course of business • Pure reimbursements of expenses by Indian subsidiary in respect of expenses incurred by overseas group company • Out of pocket expenses • Impact of non- fulfillment of any of the export conditions under Rule 6A of the Service Tax Rules e.g. payment is not received in convertible foreign exchange January 2013

32. Some Key Aspects • Bundling of services in case of hotels/ telecom • Whether PLC is bundled service along with construction service • Taxability of development rights • Should Completion Certificate (‘CC’) be considered at par with Occupancy Certificate (‘OC’) • Surrender or transfer of flats before the CC • Taxability of medicinal products containing alcohol • Remittance of foreign currency in India January 2013

33. Thank You