Amendments in Service Tax Provisions as per Budget 2015

Amendments in Service Tax Provisions as per Budget 2015

** Service Tax rate shall remain to be at 12.36% as on 1^st April, 2015. The enhanced rate of 14% shall become effective from a date to be notified by Government **

Effective from 01.03.2015

·               Registration Procedure - Rule 4 of Service Tax Rules which deals with registration under service Tax law is being amended to provide that the board, by way of an order specify the conditions, safeguards and procedure for registration in service tax. It has also been prescribed that henceforth registration for single premises shall be granted within 2 days of filing of application, thus simplifying the registration procedure.

·               Electronic Invoices - New Rule 4C has been introduced making provision for issuing digitally signed invoices, bill or Challan has been added along with the option of maintaining of records in electronic form and their authentication by means of digital signatures.

·               Electronic Records - Rule 5 of the Service Tax Rules has been amended stating that the all the records may be preserved in electronic form in such manner that every page of the record so preserved shall be authenticated by means of digital signature.

·               Cenvat Credit Rules -

a.      The time limit to avail the Cenvat Credit of Service Tax paid on Input Services has been increased from 6 months to 1 year. Credit can now be availed on input services invoices within 1 year from the date of invoice.

b.      Rule 4(7) is being amended that in respect of input service where the service tax is liable to be paid under reverse charge by the recipient of service, credit of such service tax can be availed immediately after payment of value of service tax irrespective of the fact whether payment of value of service has been made to the service provider or not.

Effective from 01.04.2015

·               Supply of Manpower Services - Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

Exemptions being withdrawn

·               Construction Services provided to a Governmental authority - Services provided to the Government, a Local authority or a Governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

§   Civil Structure or any other original work meant predominantly for use other than commerce or industry or any other business or profession

§   Structure meant predominantly for use as (i) Educational; (ii) Clinical; or (iii) art or cultural establishment

§   A residential complex predominantly meant for use of employees or other specified persons (MPs, MLAs, etc.)

Exemption provided to these services shall now stand withdrawn

·               Original Construction work pertaining to Airport or port - Exemption on Services provided by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port is withdrawn.

·               Specified telephone Services – Exemption on the following services is withdrawn. Services of making telephone calls from -

§   Departmentally run public telephone;

§   Guaranteed public telephone operating only local calls; and

§   Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

·               Services in relation to mutual fund and lottery -  services provided by

§   A mutual fund agent to a mutual fund or assets management company,

§   Distributor to a mutual fund or Asset Management Company,

§   Selling or marketing agent of lottery ticket to a distributor

Services in relation to mutual fund and lottery as mentioned above are being brought under full reverse charge.

Exemptions newly introduced

The following mentioned services are now exempted -

·               Services in respect of fruits & Vegetables - Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables.

·               Common effluent treatment plant operator - Service provided by a Common Effluent Treatment Plant operator for treatment of effluent.

·               Movie Exhibition Service - Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or association of persons consisting of such exhibitor as one of its members.

·               Admission to Museum, zoo, etc - Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve.

·               Admission to entertainment events - Service by way of right to admission to,-

§    Exhibition of cinematographic film, circus, dance, or theatrical performances including drama or ballet.

§    Recognized sporting events.

§    Concerts, pageants, award functions, musical or sporting event not covered by the above exemption, where the consideration for such admission is upto Rs. 500 per person.

Exemptions curtailed

·               Services of performing Artists - Exemption to Services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theatre, has been restricted only to such cases where amount charged is not exceeding Rs. 1,00,000/- for a performance (except brand ambassador).

·               Transportation of Goods by Rail/Vessel - Exemption on transportation of food stuff by rail or vessels from one place in India to another will be limited to milk, salt and food grains including flours, pulses and rice. Transportation of agricultural produce is separately exempt and this exemption would continue.

Exemptions Expanded

·               Health Care Services - All ambulance services including transportation of patients in an ambulance by any person are exempted.

·               Specified Life Insurance Services – Alongwith currently specified schemes of life insurance Life insurance; service provided by way of “Varishtha Pension Bima Yojna” is being exempted.

·               Goods transport agency - Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

Changes in Abatement

·               Services of transport by Rail, Road and vessel - A uniform abatement of 70% has been prescribed for transport by rail, road and vessel to bring parity in these sectors. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on Inputs, Capital goods and Input services.

·               Chit fund - Abatement for the services provided in relation to Chit fund stands withdrawn. Consequently, Service tax shall be paid on full consideration received by the Chit fund foremen.

Effective from the date to be notified by Government after enactment of Act

·               Change in Service tax Rate

a.            The Service tax Rate is being increased from 12% plus Education cess to 14%. Effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.

b.            Till the time the revised rate comes into effect, the levy of ‘Education cess’ and ‘Secondary and Higher Education cess’ shall continued to be levied in Service Tax.

c.             New Cess ‘Swachh Bharat Cess’ introduced - An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives.

·               Production or manufacture of alcoholic liquor  - Section 66D(f) has been proposed to  be substituted to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption under the Service tax net. In other words, service tax shall be levied on contract manufacturing/Job work for production of Alcoholic Liquor.

·               Amusement Parks - Earlier the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places was covered in the Negative list. Budget 2015-16 has proposed to omit the clause (j) of Section 66D. Hence, the same will be taxable from the date to be notified by the Central Government.

·               In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. Amendments to this effect have been proposed in the Service Tax Rules. This amendment will come into effect as and when the new service tax rate comes into effect.

All about start ups formation and your first venture

The First question that every start up faces is "what should be the organisational format to proceed with?"

Many startups end up going for a costly business format even though not necessary. One should always consider below mentioned things for choosing the correct business format so that the funds don't get diverted to unnecessary activities and also avoiding there by complicated legal compliances. 

There are five business formats currently which are commonly adopted by startups. i.e. Individual or proprietorship, Partnership firm, Limited Liability Partnership (AKA LLP), Limited Company and Association of person (AKA AOP, BOI).

Following points one must take in to account before starting a venture. 

1. Business as a Freelancer (Individual / Proprietorship) 

If you are selling services as a freelancer or individual, there is no need to register a company. Freelancers such as consultants, authors, designers or any one providing services just need a bank account in their name or a facility like 'PayPal' to receive overseas payments. 

It doesn't matter how the payment is received. The question here is: for what the payment is received. Self-employed professionals have to pay taxes on their income just like any individual would on their income. The normal tax slabs and respective rates that apply for employees also apply for freelancers. Apart from this you also need to consider in to account the Service tax which is an Indirect Tax levied on Gross amount of Fees you charge to your clients. In case you are charging a lump sum fees the Service tax will be calculated on inclusive basis. 

Although a proprietorship concern does not require any registration, all specific business licenses are required to be obtained depending on their applicability. e.g. if you are providing a service and has a turnover more than 10 Lacs in a particular financial year, you need to obtain service tax registration. Click here for a list of common licenses required to run a business. Click here to know more

2. Partnership Company: 

A General Partnership Firm (many times referred as Partnership Firm) is a business entity formed by 2 or more people. This business form has not been very popular in India in recent few decades. A GP is not a separate legal entity in the eyes of law. Although it is treated as a separate entity for all taxation purposes (direct taxes or indirect taxes). The law also allows the partners of a GP firm to sue or to be sued in the name of firm (only applicable for registered firms). As per Indian Partnership Act, 1932, 'partnership' is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. Read more....

3. Limited Liability Partnership: 

LLP is a separate legal entity from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP has a perpetual succession. The liability of the partners are limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature.

The minimum number of Partners or Designated Partners is 2. The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners is governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008. To form LLP Click here 

A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be. Read more.....

4. Private Limited Company: 

A Private Limited Company is a Company limited by shares in which there can be maximum 200 shareholders. It cannot offer its shares or debentures to Public, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the amount of shares subscribed. However, the liability of a Director / Manager of such a Company can at times be unlimited. Read more ....

5. Association of person or Body of Individual:

This is not a common formate for business. Moreover it is also not tax friendly. The taxation is always on higher side. Generally these are formed for a non profit organisations. Read more...

I hope this post helped you get an overview of the different types of business formations available in India. The format would also depend on future predictions, Business Plan, Proposed Angel investments and so on. 

CA Anand Mutha 

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Simplification of Service tax Registration procedure Budget 2015

ORDER No. 1/2015-SERVICE TAX has been issued in order to simplify the Registration of single premises under Service tax W.e.f. 01/03/2015

 The legal provisions for registration in service tax are contained in section 69 of the Finance Act, 1994, rule 4 of the Service Tax Rules, 1994 and the Service Tax (Registration of Special Category of Persons) Rules, 2005. Paragraph 2 of Circular 97/8/2007-Service Tax dated 23-8-2007 and Order No. 2/2011-Service Tax dated 13-12-2011 also explain some of the procedural aspects of registration in service tax.

In supercession of Order No. 2/2011-Service Tax dated 13-12-2011, the Central Board of Excise and Customs specifies the following documentation, time limits and procedure with respect to filing of registration applications for single premises, which shall come into effect from 1-3-2015.

General procedure 
 (i) Applicants seeking registration for a single premises in service tax shall file the application online in the Automation of Central Excise and Service Tax (ACES) website www.aces.gov.in in Form ST-1. (ii) Registration shall mandatorily require that the Permanent Account Number (PAN) of the proprietor or the legal entity being registered be quoted in the application with the exception of Government Departments for whom this requirement shall be non-mandatory. Applicants, who are not Government Departments shall not be granted registration in the absence of PAN. Existing registrants, except Government departments not having PAN shall obtain PAN and apply online for conversion of temporary registration to PAN based registration within three months of this order coming into effect, failing which the temporary registration shall be cancelled after giving the assessee an opportunity to represent against the proposed cancellation and taking into consideration the reply received, if any.  

E-mail and mobile number mandatory: 
The applicant shall quote the email address and mobile number in the requisite column of the application form for communication with the department. Existing registrants who have not submitted this information are required to file an amendment application by 30-4-2015. 

Registration Number in 2 days:
Once the completed application form is filed in ACES, registration would be granted online within 2 days, thus initiating trust-based registration. On grant of registration, the applicant would also be enabled to electronically pay service tax. 

Singed Registration Certificate Dispensed with:
Further, the applicant would not need a signed copy of the Registration Certificate as proof of registration. Registration Certificate downloaded from the ACES web site would be accepted as proof of registration dispensing with the need for a signed copy.  

Documentation required to be submitted within Seven days

 The applicant is required to submit a self attested copy of the following documents by registered post/ Speed Post to the concerned Division, within 7 days of filing the Form ST-1 online, for the purposes of verification:- 

 (i) Copy of the PAN Card of the proprietor or the legal entity registered. 
(ii) Photograph and proof of identity of the person filing the application namely PAN card, Passport, Voter Identity card, Aadhar Card, Driving license, or any other Photo-identity card issued by the Central Government, State Government or Public Sector Undertaking. 
(iii) Document to establish possession of the premises to be registered such as proof of ownership, lease or rent agreement, allotment letter from Government, No Objection Certificate from the legal owner. 
(iv) Details of the main Bank Account. 
(v) Memorandum/Articles of Association/List of Directors.
(vi) Authorisation by the Board of Directors/Partners/Proprietor for the person filing the application. (vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application.  
(vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application.

 Premises Verification only by Authority of Additional /Joint Commissioner.: 
Where the need for the verification of premises arises, the same will have to be authorised by an officer not below the rank of Additional /Joint Commissioner.

Revocation of Registration: 
The registration certificate may be revoked by the Deputy/Assistant Commissioner in any of the following situations, after giving the assessee an opportunity to represent against the proposed revocation and taking into consideration the reply received, if any: 
(i) the premises are found to be non existent or not in possession of the assessee. 
(ii) no documents are received within 15 days of the date of filing the registration application. 
(iii) the documents are found to be incomplete or incorrect in any respect.

Other Points:
The provisions of sub-rules (5A) and (6) of rule 4 of the Service Tax Rules, 1994 may be referred to regarding change in any information or details furnished by an assessee and transfer of business to another person, respectively. Similarly, sub rule (7) of the Service Tax Rules, 1994 may be referred to in case a registered person ceases to provide the service for which he has been granted registration.  

Paragraph 2.0 of Circular 97/8/2007-Service Tax dated 23-8-2007 consisting of subparagraphs 2.1 to 2.7 may be treated as withdrawn since there have been changes in the relevant legal provisions since the issuance of that Circular. The current legal provisions in the Service Tax Rules, 1994 and the Service Tax (Registration of Special Category of Persons) Rules, 2005 may also be referred to.  

Changes in Service tax in Budget 2015 (proposed)

Rate of Service Tax

The rate of Service Tax will be increased from 12% to 14% from a date to be notified by the Government after the enactment of the Finance Bill, 2015. It is noticed that the Education Cess and Secondary and Higher Education Cess has been subsumed in the revised rate of Service Tax.

Thus, from the date when the new provision comes into effect, the service provider will not be liable to pay Education Cess or Secondary and Higher Education Cess which will be subsumed in the enhanced rate of 14%.

However, there is no transition provision for utilization of these accumulated cesses as proviso to Rule 3(7) (b) of the Cenvat Credit Rules, 2004 provides that the credit of Education Cess or Secondary and Higher Education Cess can be utilized only for payment of Education Cess or Secondary and Higher Education Cess respectively.

Inclusion of reimbursable expenses in the value of taxable services

Whether out of pocket expenses or reimbursable expenses incurred by the service provider in the course of providing the taxable services has to be included in the value of taxable services was examined by the Hon'ble Delhi High Court Intercontinental Consultants &Technorats (P.) Ltd. v. Union of India [2012] 28 taxmann.com 213 (Delhi) where the petitioner filed a writ petition before the High Court for quashing the show cause notice issued by the Service Tax Department for recovery of Service Tax on amount received as reimbursement of expenses such as hotel accommodation, travelling etc. under Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006.

The Hon'ble Delhi High Court while deciding the petition held as follows:

- Rule 5 (1) of the Rules is ultra vires section 66 and section 67 of the Finance Act, 1994 since it travels beyond the scope of the aforesaid sections.

- The expenditure or costs incurred by the service provider in the course of providing the taxable service can never be considered as part of the gross amount charged by the service provider for the services provided.

- The reimbursement of expenses for air travel tickets, hotel accommodation, etc. may also lead to double taxation.

Though the Delhi High Court decision is in favour of the Assesse, the department has filed an appeal to the Supreme Court against the decision of the High Court which is pending for disposal.

Amendment to Section 67 of the Finance Act

To overcome the decision of the Hon'ble Delhi High Court in Intercontinental Consultants, the definition of consideration in Explanation to Section 67 has been amended to include:

- Any amount that is payable for the taxable services provided or to be provided

- Any reimbursable cost incurred by the service provider and charged in the course of providing or agreeing to provide a taxable service (except such conditions to be prescribed)

Thus, after the amendment there is no doubt that any expenditure incurred by the service provider for providing any taxable services has to be included in the value of taxable services unless specifically excluded and Service Tax would be chargeable on the total value including the reimbursable expenses incurred by the service providers.

However, the inclusion of reimbursable expenses for the period prior to the amendment is yet to be decided by the Hon'ble Supreme Court.