Friends,
I. SERVICE TAX IS BEING IMPOSED ON THE FOLLOWING SPECIFIED SERVICES:
1) Services provided by air-conditioned restaurants having a license to serve alcoholic beverages in relation to serving of food and/or beverages.
2) Short-term accommodation provided by a hotel, inn, guesthouse, club or campsite, or any other similar establishment for a continuous period of less than three months.
The above services will come into effect from a date to be notified, after the enactment of Finance Bill, 2011.
II. SCOPE OF CERTAIN EXISTING SERVICES IS BEING EXPANDED OR ALTERED AS FOLLOWS:
1) The scope of the ‘Life insurance service’ is being widened to cover all services provided to a policyholder or any person, by an insurer, including re-insurer carrying on life insurance business. It is also being provided that tax shall be charged on the portion of the premium other than what is allocated for investment, when the break-up of premium is shown separately in any document given to the policy holder. The composition rate is also being increased from 1% to 1.5%.
2) The scope of the ‘Club or association service’ is being expanded to include service provided to non-members within its ambit.
3) The scope of ‘Authorized service station service’ is being expanded to:
(a) include services provided by any person;
(b) cover all motor vehicles other than those meant for goods carriage and three-wheeler scooter auto-rickshaws; and (c) also cover the services of decoration and similar services in respect of vehicles along with the services already covered.
4) The definition of ‘Business support services’ is being amended to include the services provided by way of operational or administrative assistance in any manner.
5) The scope of Legal consultancy services is being expanded by bringing within its ambit the:
(a) service provided by a business entity to individuals in relation to advice, consultancy or assistance in any branch of law, in any manner;
(b) representational service provided by any person to any business entity (representational services, provided to individuals will continue to be exempt); and
(c) service of ‘arbitration’ provided by an arbitral tribunal to any business entity.
6) In the Commercial Training or Coaching service, the definition of “Commercial training or coaching centre” is being amended to bring all unrecognized courses within the tax net, irrespective of the fact that such courses are conducted by an institute which also conducts courses which may lead to grant of a recognised degree or diploma.
7) The scope of Health services is being expanded by including:
a)All services, including diagnostic services, provided, by a centrally air-conditioned (wholly or partially) clinical establishment having more than 25 beds for in-patient treatment during any part of the year;
b)Diagnostic services being provided by a clinical establishment with the aid of laboratory or other medical equipment; and
c) Services provided by a doctor, not being an employee of a clinical establishment, from the premises of such establishment.
In view of the comprehensive coverage of health services under (a), (b) and (c) above, the existing health services where payments are required to be made directly by the insurance company or business entities would no longer be operational.
The above changes will come into effect from a date to be notified, after the enactment of Finance Bill, 2011.
III. EXEMPTIONS
1) Exemption is being provided to services provided by an organizer of business exhibitions in relation to business exhibitions held outside India.
2) An abatement of 25% from the taxable value is being provided for the purpose of levy of service tax under Transport of goods through coastal and inland shipping’.
3) Exemption is being provided to ‘Works contract’ service provided for construction or finishing of new residential complex under ‘Jawaharlal Nehru National Urban Renewal Mission’ and ‘Rajiv Awaas Yojana’.
4) Exemption is being provided to services provided within a port or other port or an airport under the ‘Works contract’ service for specified purposes.
5) Exemption is being provided to ‘Rashtriya Swasthya Bima Yojana’ under the ‘General insurance’ service.
6) Value of air freight included in the assessable value of goods for charging customs duties is being excluded from taxable value for the purpose of levy of service tax under the Transport of goods by air’ service.
7) Services related to transportation of goods by road, rail or air when both the origin and the destination are located outside India is being exempted from service tax.
A modified scheme is being introduced to refund service tax to SEZ units and developers and notification No. 9/2009-ST is being superceded. In the modified scheme, ‘wholly consumed’ services are being defined in the notification in order to extend ‘outright exemption’ and to permit refund of all other services on a proportionate basis.
The changes at S. No. (1) to (5) and (8) will come into effect immediately. Changes at S. No. (6) and (7) will be effective from 01.04.2011.
IV. WITHDRAWAL OR AMENDMENTS OF EXEMPTIONS:
1) The rates of service tax on travel by air are being revised as follows:
| (a) Domestic travel | (economy class): | from Rs.100 to Rs.150 |
| (b) International travel | (economy class) | from Rs.500 to Rs.750 |
| (c) Domestic travel | (other than economy class) | 10% (Standard rate) |
The above changes will come into effect from 01.04.2011.
2) Exemption from service tax on the membership fees under ‘Club or association service’ is being given to the associations or chambers representing industry or commerce for the period from 16.06.2005 to 31.03.2008.
3) Retrospective effect is being given to notification No.20/2009-ST dated 07.07.2009 exempting service tax on inter-State or intra-State transportation of passengers in a vehicle bearing Contract carriage permit or a tourist vehicle permit for the period from 01.04.2000 to 06.07.2009.
The changes at S. No. (2) & (3) are being given effect through the Finance Bill, 2011 and will come into effect from the date of enactment of the Bill.
V. AMENDMENTS IN RULES AND NOTIFICATIONS:
1) The monetary limit of Rs.1,00,000/- for adjustment under Rule 6(4B)(iii) of the Service Tax Rules, 1994 is being raised to Rs.2,00,000/-.
[The change will come into effect from 01.04.2011]
2) Rule 6(7A) of the Service Tax Rules, 1994 is being amended to provide that that an insurer carrying on life insurance business shall have the option to pay tax,
(a) on the amount of gross premium charged from a policy holder reduced by the amount allocated for investment, where the breakup of the amount allocated for investment is shown separately to the policy holder;
(b) on an amount calculated @ 1.5% of the gross amount of premium charged from a policy holder in cases other than (i) above;
towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Finance Act, 1994.
Such option shall not be available in cases where the entire premium paid by the policy holder is only towards risk cover in life insurance.
[The above change will come into effect from a date to be notified, after the enactment of Finance Bill, 2011]
3) Clause (B) of Rule 6(7) of the Service Tax Rules, 1994 pertaining to sale and purchase of foreign exchange is being amended to,
(a) omit the proviso as well as the illustration; and
(b) reduce the composition rate from 0.25% to 0.1% of the gross amount of currency exchanged towards discharge of service tax liability.
4) Rule 6(6A) is being inserted in Service Tax Rules, 1994, to provide that if any amount of service tax has been self-assessed and not paid, the same shall be recoverable with interest under section 87 of the Act. Thus, there shall be no need to resort to provisions of section 73.
5) It is being defined in Service Tax (Determination of Value) Rules, 2006 that the value of the money changing service:
(i) for a currency exchanged either from or to Indian Rupees, shall be equal to the units of currency exchanged multiplied by the difference in the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency for that day;
(ii) for a currency where the RBI reference rate is not available, shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money;
(iii) where neither of the currencies exchanged is Indian Rupee, shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day.
6) An explanation is being added to rule 5(1) of Service Tax (Determination of Value) Rules, 2006 to clarify that for the purpose of Telecommunication services, the value of the taxable service shall be gross amount charged by the telegraph authority from the service receiver.
7) Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are being amended so as to move some of the specified services from one category to another.
[The changes at S. No. (3) to (7) will come into effect from 01.04.2011]
A sub-rule (2A) is being inserted in rule 3 of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 to provide that the credit of tax on input services of ‘Erection, commissioning or installation’, ‘Commercial or industrial construction’ and ‘Construction of complex’ services as available to a person providing ‘Works contract service’ shall be restricted to 40% of tax paid, when such tax has been paid on full value of the service after availment of Cenvat credit on inputs.
[The change at S. No. (8) will come into effect from 01.03.2011]
VI. AMENDMENTS IN ACT:
Chapter V of Finance Act, 1994 is being amended to,
1) Omit sub-section (1A) of section 73 together with both the provisos to sub-section (2) of section. As a result, the benefit of reduction of penalty available in cases of fraud, collusion, etc. under proviso to section 73 (1A) shall not be available. Further, a new sub-section 4A is being inserted in section 73 to provide for reduced penalty in cases where during the course of audit, verification or investigation it is found that the transactions not reported to the department are available in the records or invoices. Moreover, penalty is being reduced to 1% per month of the tax amount upto a maximum of 25%.
2) Reduce the penalty for delayed payment under section 76 from 2% to 1% per month or Rs.100 per day, whichever is higher. Maximum penalty reduced to 50% of the tax amount.
3) Increase the maximum penalty under section 77 from Rs.5,000 to Rs.10,000.
4) Amend section 78 to revise the maximum penalty. Penalty will be hereafter mandatory and equal to tax evaded. Moreover, in situations covered under section 4A, the penalty shall be 50% of the tax amount. Further, the penalty is being reduced to 25% if the tax dues are paid within one month together with interest and reduced penalty. For assessees having a turnover of upto Rs.60 lakh in any of the years covered in the show cause notice or in the preceding year, the period of one month shall be revised to 90 days.
5) Reduce interest rate by 3% for assessees with a turnover of upto Rs.60 lakh, both under section 73B and section 75.
6) Increase the maximum penalty for delay in filing of return under section 70 from Rs.2000 to Rs.20000. However, the existing rate of penalty for the first 15 days and for the subsequent 15 days as well as the daily penalty of Rs.100 per day thereafter under rule 7C of the Service Tax Rules, 1994 are being retained without any change.
7) Amend the power to waive penalty under section 80. While penalties under section 76 and 77 are being retained, penalty under section 78 is being waived only in cases where the transactions are captured in the specified records.
8) Give power to issue search warrant under section 82 at the level of Joint Commissioner and the execution of such warrant at the level of Superintendent.
9) Make section 9A, 9AA, 9B, 9E, 34A and new section 35R of the Central Excise Act, 1944 applicable to service tax under Section 83.
10) A new section 88 is being inserted so as to create first charge on the property of the defaulter for recovery of service tax dues from such defaulter subject to provisions of section 529A of the Companies Act, the Recovery of Debt due to Bank and Financial Institution Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security InterestAct, 2002.
11) Reintroduce the provisions relating to prosecution under section 89 as follows:
(i) The prosecution shall apply in the following situations:
(a) Provision of service without invoice;
(b) Availment and utilization of Cenvat credit without receipt of inputs or input services;
(c) Submitting false information; and
(d) Non-payment of collected amount of service tax for a period of more than six months.
(ii) The sanction for the prosecution will be granted at the level of Chief Commissioner.
The above changes will come into effect from a date to be notified after the enactment of the Finance Bill, 2011.
VII. POINT OF TAXATION RULES, 2011
The Point of Taxation Rules, 2011 have been framed and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided.
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