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New Scheme for Service Definition and Exemptions

This article provides an overview of the new scheme for service definition and exemptions, including the negative list, declared services, and specific exemptions. It also discusses the place of provision of service rules and existing rules on valuation, point of taxation, and Cenvat credit.

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New Scheme for Service Definition and Exemptions

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  1. What is New scheme • Broad definition for ‘service’; • Negative list; • Declared services; • Specific Exemptions; • Place of Provision of Service Rules, 2012; + • Existing Rules on Valuation, Point of Taxation and Cenvat credit.

  2. Service –Definition Means • any activity carried out by a person for another for consideration and includes declared services. • Levy on services provided or agreed to be provided in taxable territory. Excludes • Transfer of title in goods or immovable property in any manner; • Transaction in money or actionable claims; • Service by employee to employer; • Fees taken in court, tribunal etc. • Duties performed by MPs, MLA and other authorities.

  3. Declared Services • Renting of immovable property; • Construction of complex, building, etc. • Temporary transfer of IPR; • IT software services; • Agreeing to refrain from an act or tolerate an act or do an act; • Leasing transactions; • Hire purchase transactions; • Service portion in execution of works contract; • Service portion in supply of food and drinks

  4. Negative List

  5. Major Exemptions Exemption to specific services. Notification 12/2012. Almost all exemptions under Finance Act, 1994 retained.

  6. Construction sector: changes at a glance • Construction services no where figuring in negative list; • Construction specifically covered in declared list; • Specified construction services exempted vide Exemption Notification 12/2012-ST; • Location of immovable property to be place of provision of service.

  7. Construction Sector: relevant definitions Support services means infrastructural, operational, administrative, logistic, marketing or any other support of any kind and includes advertisement and sales promotion, construction or works contract, renting of immovable property, security, testing and analysis.

  8. Construction Sector: relevant definitions ‘Works contract’ means a contract wherein transfer of property in goods involved in execution 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 relating to any building or structure on land;

  9. Declared list & Construction Service Declared service covers:- • Construction of complex , building, or civil structure or part thereof, including a complex or building intended for sale to a buyer, wholly or partly , except where entire consideration is received after issuance of completion certificate by competent authority ; (construction to include additions, alterations, replacements, or remodeling of existing civil structure) • Service portion in execution of works contract;

  10. Exemptions for Construction sector • Sl.Nos.12, 13 & 14 of Notification 12/2012-ST dt.17.03.2012.

  11. 12. Services provided to the Government or local authority by way of erection, construction, maintenance, repair, alteration, renovation or restoration of - • (a) a civil structure or any other original works meant predominantly for a non-industrial or non-commercial use; • (b) a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958); • (c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; • (d) canal, dam or other irrigation works; • (e) pipeline, conduit or plant for (i) drinking water supply (ii) water treatment (iii)sewerage treatment or disposal; or • (f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Finance Act;

  12. 13. Services provided by way of erection, construction, maintenance, repair, alteration, renovation or restoration of,- • (a) road, bridge, tunnel, or terminal for road transportation for use by general public; • (b) building owned by an entity registered under section 12 AA of the Income tax Act, 1961(43 of 1961) and meant predominantly for religious use by general public; • (c) pollution control or effluent treatment plant, except located as a part of a factory; or • (d) electric crematorium;

  13. 14. Services by way of erection or construction of original works pertaining to,- • (a) airport, port or railways; • (b) single residential unit otherwise as a part of a residential complex; • (c) low- cost houses up to a carpet area of 60 square metres per house in a housing project approved by competent authority empowered under the ‘Scheme of Affordable Housing in Partnership’ framed by the Ministry of Housing and Urban Poverty Alleviation, Government of India; • (d) post- harvest storage infrastructure for agricultural produce including a cold storages for such purposes; or • (e) mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages;

  14. Definitions U/Exemption Notification • Original works :- all new constructions, all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable. • Single residential unit :- independent residential unit with specific facilities for living , cooking and sanitary requirements. • Residential Complex : any complex comprising of a building or buildings having more than one single residential unit.

  15. Amendment to Valuation Rules • Rule 2 (A) substituted Implications : • U/ non composition scheme value shall be gross amount minus VAT and value of goods sold; value of goods adopted for VAT basis can be adopted for exclusion : • Alternatively value of material can be 40 % of total amount for original work; 60 % of total amount for works other than original works. If the value of land is also included, then the value shall be 25 % of the total amount; Value of free supply to be included. • Cenvat on input services and capital goods allowed.

  16. Reverse charge – Ntf. 15/12-ST • Applicable for Works contract provided by an individual, partnership, HUF, proprietary firm including AOP to a company or business entity in taxable territory; • Service provider and recipient to pay 50% each of total tax liability; • Service provider and recipient can opt for either composition scheme or valuation rules.

  17. Place of Provision of Service Rules, 2012. • Purpose is to identify taxing jurisdiction for a service; • Present rules to replace existing Export and Import Rules; • Meant for cross border services, services to J & K, service providers operating from multiple locations, determining services wholly consumed in SEZ and A PRECURSOR TO GST. • Rules to be applied sequentially; • To tax only such services provided from taxable territory. • Service provider is usually liable unless otherwise specified (example –import of services);

  18. PPS Rules, 2012 Location of Service Provider or Recipient means:- A. Premises for which registration is obtained in case of single registration whether centralised or otherwise; • If ‘A’ is not applicable • Location of business establishment; • If services are provided/received from a place other than business establishment, location of such fixed establishment; • When services are provided/received from more than one establishment – establishment directly concerned with use or provision of service; • In absence of all above, usual place of residence of provider/recipient;

  19. Rule 3- Default Rule • Place of provision - service is deemed to be provided where receiver is located; • Default rule applies when none of later rules apply.

  20. Rule 4- Performance based services Place of provision is location where services are actually performed; Applies to:- • services in respect of goods to be physically made available by receiver (repair, cargo handling etc) • Services provided in conjunction with supply of goods under another contract (erection, commissioning, AMC bundled with sale of goods) • Services provided predominantly in physical presence of receiver (photography, plastic surgery)

  21. Rule 5-Services relating to immovable property • Place of provision - where immovable property is located. • Applicable for services directly connected with immovable property. Examples of services covered • Services in course of construction, alteration, repair ,maintenance etc; • Renting of immovable property; • Services of real estate agents, architects, engineers etc relating to land, building or civil engineering works; • Services connected with oil/gas/mineral exploration; • surveying; property management services, hotel accommodation

  22. Rule 5-Services relating to immovable property Criteria to determine ‘Direct Connection’ • Services performed or agreed to be performed on immovable property (maintenance) or property to come in to existence (Construction) • Direct object of service is immovable property (which enhances value of property, affects nature of property, relates to development of property ) • Purpose of service is transfer or conveyance (as real estate agent service, lease, legal service to owner or beneficiary as a result of will or testament) , determination of title to property. • Examples of services not related – advice or information as to land prices in general, generalfeasibility studies

  23. Rule 6- Service relating to Events • Place of provision -Place where event is actually held. • Covers admission to events , organizing events and ancillary services Examples • Conventions • Conferences • Exhibitions • Fairs • Seminar • Workshops , wedding , sports etc.

  24. Rules 7 & 8 Rule 7- Part performance of service at different locations • Applies when actual performance of any service is at more than one location where one location is outside taxable territory • Location in taxable territory where greatest proportion of service is provided Rule 8 – where provider and recipient is in taxable territory - Location of Receiver’. • Provision of service and consumption in taxable territory.

  25. Rules 9 & 10 Rule 9- specified services –location of service provider; Example • Banking service • Telecommunication service • Online information and database access or retrieval; Rule 10- Transportation of goods –place of destination of goods -except in GTA by road where place of provision is location of person liable to pay tax.

  26. Rules 11 & 12 & 14 • Rule 11 – Passenger transportation services – place where passenger embarks on conveyance for continuous journey. • Rule 12- services provided onboard conveyances –First scheduled point of departure of conveyance for journey Eg – on board service of provision of movies, music, games, beauty treatment etc. Rule 14- Order of application of Rules- where more than one rule applies, rule that occurs later is relevant rule.

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