Friends,
Here are some major amendments to Service Tax Law which is effective from May 01, 2011 (AFTER ENACTMENT OF FINANCE BILL 2011).
a) Service tax is being imposed on the following specified services:
i) Services provided by air-conditioned restaurants having a license to serve alcoholic beverages in relation to serving of food and/or beverages. Abatement of 70% is being provided.
ii) 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. Exemption is provided where the declared tariff is less than Rs.1,000/- per day. In other cases, abatement of 50% is being provided.
b) Scope of certain existing services is being expanded or altered as follows:
i) 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%.
ii) The scope of the ‘Club or association service’ is being expanded to include service provided to non-members within its ambit.
iii) The scope of ‘Authorized service station service’ is being expanded to:
(1) include services provided by any person;
(2) cover all motor vehicles other than those meant for goods carriage and three-wheeler scooter auto-rickshaws; and
(3) Also cover the services of decoration and similar services in respect of vehicles along with the services already covered.
iv) The definition of ‘Business support services’ is being amended to include the services provided by way of operational or administrative assistance in any manner.
v) The scope of Legal consultancy services is being expanded by bringing within its ambit the:
(1) service provided by a business entity to any person in relation to advice, consultancy or assistance in any branch of law, in any manner;
(2) representational service provided by any person to any business entity (representational services, provided by an individual to individuals will continue to be exempt); and
(3) service of ‘arbitration’ provided by an arbitral tribunal to any business entity.
vi) 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. However, vide Notification w.e.f. 1-May-2011, exemption is provided to preschool coaching and training and any coaching or training leading to grant of a certificate or diploma or degree or any educational qualification which is recognised by any law for the time being in force.
vii) The scope of Health services is being expanded by including:
(1) 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;
(2) Diagnostic services being provided by a clinical establishment with the aid of laboratory or other medical equipment; and
(3) Services provided by a doctor, not being an employee of a clinical establishment, from the premises of such establishment.
However, exemption is granted to the aforesaid health services w.e.f. 1-May-2011.
c) Withdrawal or amendments to existing Exemptions:
i) 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 with retrospective effect for the period from 16.06.2005 to 31.03.2008. Tax paid on such services will be refunded and the refund application has to be made by 7-Oct-2011.
ii) 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. Tax paid on such services will be refunded and the refund application has to be made by 7-Oct-2011.
iii) Exemption to practicing CA/CS/ICWA on representation services before statutory authority is being withdrawn.
d) CENVAT Credit Rules, 2004:
i) Rule 3 is being amended retrospectively with effect from 18.04.2006 to provide that the credit of service tax paid under section 66A i.e. service tax paid on reverse charge basis on services received from outside India, shall also be permissible.
e) Amendments in the Act: Chapter V of Finance Act, 1994 is being amended to,—
i) 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%.
ii) 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.
iii) Increase the maximum penalty under section 77 (for contravention of rules and provisions of Act for which no penalty is specified elsewhere) from Rs.5,000 to Rs.10,000.
iv) 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.
v) Reduce interest rate on late payment / excess collection of service tax by 3% for assessees with a turnover of upto Rs.60 lakh, both under section 73B and section 75.
vi) 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.
vii) 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 capped at 50% of tax payable in cases where the transactions are available in the specified records and at 25% in cases where tax payable & interest thereon is paid within 30 days of date of Order.
viii) 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.
ix) Make section 9A, 9AA, 9B, 9E, 34A and new section 35R of the Central Excise Act, 1944 applicable to service tax under Section 83.
x) 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 Interest Act, 2002.
xi) Reintroduce the provisions relating to prosecution under section 89 as follows:
(1) 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.
(2) The sanction for the prosecution will be granted at the level of Chief Commissioner.
