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Proposed changes to service tax on cross border transactions by Finance Bill, 2007

Proposed changes to service tax on cross border transactions by Finance Bill, 2007. - CA Nilesh M Kapadia. Agenda. Few General Changes Change in Exports Rules Imports Rules Works Contract on EPC Content services Reverse Charge. Few General Changes.

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Proposed changes to service tax on cross border transactions by Finance Bill, 2007

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  1. Proposed changes to service tax on cross border transactions by Finance Bill, 2007 - CA Nilesh M Kapadia

  2. Agenda • Few General Changes • Change in Exports Rules • Imports Rules • Works Contract on EPC • Content services • Reverse Charge

  3. Few General Changes • No change in rates – SHE Cess of 1% introduced • Threshold increase from 4 Lakhs to 8 Lakhs • Revised return now possible

  4. Changes in Exports Rules • Rule 3(2) – “Delivered outside India and used outside India” changed to “provided from India and used outside India”. • Seeks to clarify ambiguity about delivery of an intangible like service

  5. Exports Rules • Consider following cases: • Agent getting orders for foreign principal from customers in India – • If agent is in India • If agent is from outside India • Agent getting orders for foreign principal from customers outside India – • If agent is in India • If agent is from outside India

  6. Imports rules • No change made • Hence overseas agent of Indian exporter will continue to be taxable inspite of service having been rendered outside India • Whether Ishikawajima Harima Heavy Industries (288 ITR 408 (SC)) can be relied upon – territorial nexus necessary for taxation of income from services in India

  7. Works Contracts • Constitutional Validity questionable – • Gannon Dunkerly and other cases • Seeks to levy service tax on taxable service involved in execution of works contract. • Term as defined includes EPC contracts, excluding in respect of certain specified types of infrastructure projects like roads, airports, railways, etc.

  8. Works Contracts • Valuation can be based on actual records of assessee, or under composition scheme (to be announced) where service tax is paid @ 2% entire works contract. Details awaited. • No cenvat credit will be available on capital goods, inputs and input services.

  9. Consider elements of EPC – IHI Case

  10. Content Services • Many websites get content from overseas vendors • Content may be write up on events, e.g. cricket matches, or fashion shows; or even mundane items like weather • Content on tangible media would also amount to goods ( TCS case (178 ELT 22(SC)) – Double taxation???

  11. Reverse Charge • Reverse charge on sponsorship services • Service tax was payable by sponsor, if the sponsor was body corporate of firm • Now sponsor liable only if he is located in India; else reverse charge will not apply.

  12. Thank You

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