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Service Tax & CBEC

Is Service Tax applicable to you in the new regime applicable from 1-Jul-2012?

[By Shaleen Shah (Partner), VNCA]

Budget 2012 passed by the Parliament on 8-May-2012 and assented by the President on 28-May-2012 and 43 Notifications issued thereafter till now has completely changed the way services will be taxed w.e.f. 1-Jul-2012. Taxation will be based on what is popularly known as “Negative List of Services”. In simple words, it means that if an activity meets the characteristics of a “service” it is taxable unless specified in the Negative list, or otherwise exempted by a notification.

A number of other changes have been introduced in subordinate legislation including The Place of Provision of Services Rules, 2012 and amendments to The Cenvat Credit Rules, 2004, Service Tax Rules, 1994, Point of Taxation Rules, 2011, Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 and Service Tax (Determination of Value) Rules, 2006. Also expanded is the `reverse charge mechanism’ wherein both the service provider and service receiver will be considered as persons liable to pay the tax on notified taxable services and to the extent specified against each one of them.Service Tax Chart

However, first it is pertinent to determine whether there is any `service’. The following checklist will help you determine that:

1. Is there any `activity’ carried out by one person for and/or on behalf of another which falls within the meaning of ANY ONE of the following –

  • Any active action including an act done, work done, a deed done, an operation carried out, execution of an act, provision of a facility, etc.
  • Any passive action including forbearance to act, agreeing to an obligation to refrain from an act or to tolerate an act, etc.
  • Any `bundle’ of such active and / or passive actions

Note:

  • The term ` person’ includes Individual, HUF, Firm, AOP, BOI, Government, Local Authority and any artificial juridical person.
  • For the purpose of service tax, an unincorporated AOP or BOI & its members, establishment in the taxable territory and establishment in a non-taxable territory, a Branch, agency & Representational office are separate `persons’.

2. For such activity –

  • you receive or gain a right to receive any consideration,
  • before, during or after such activity,
  • directly or indirectly, in money or otherwise or by book entry or deduction from account or by issue of credit notes or debit notes

3. Does the `activity’ you undertake fall within the meaning of ANY ONE of the following

  • Process amounting to manufacture or production of goods (including any activity done by a job worker which falls within the definition of manufacture);
  • Merely transfer of title in `Goods’ either through sale (Trading), gift or any other manner without any additional consideration for any other bundled active or passive `activity’;

[`Goods’ is defined as “every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale”]

  • Merely transfer of title in existing `immovable property’ either through sale, gift or any other manner;
  • Merely Delivery of Goods on Hire Purchase or any other system of payment by instalments;
  • Merely Transfer of a Right to use any goods (Leasing);
  • Merely a transaction in money eg. Interest, Dividend, Profit Distribution amongst Partners, etc. (not being a transaction in money where separate consideration is charged eg. service provided by a money changer);
  • Merely a transaction in actionable claim;
  • Provision of service by an employee to the employer in the course of employment;
  • Fees taken in any Court or Tribunal;
  • Duties performed by any person as functions of the office as a MP, MLA, Member of Panchayat, Municipality, Other Local Authority or any Post under the Constitution, a Chairperson or Member or Director in a body established by the Central or State Government or Local Authority;
  • Any activity which is a `service’ and falls within the Negative List of services enlisted in Section 66D; [Attached Below]
  • Any activity which is a `service’ and falls within the list of services specifically exempted through a Notification. [As on date, Notification No. 25/2012-ST lists the exempted services] [Attached Below]

Note: The term ` Merely’ mentioned above indicates that there is no element of any additional or bundled activity for which separate consideration is charged.

4. Does the activity you undertake fall within ANY ONE of the following:

  • Renting of immovable property;
  • Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority. Construction includes additions, alterations, replacements or remodelling of any existing civil structure;
  • Temporary transfer or permitting the use or enjoyment of any intellectual property right;
  • Development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;
  • Transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;
  • Activities in relation to (i.e. apart from & in addition to) delivery of goods on hire purchase or any system of payment by instalments;
  • Works Contract i.e. a composite contract (divisible or indivisible) wherein an element of provision of service is combined with an element of sale of goods AND such Works Contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property
  • An activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity

CRITERIA TO DECIDE WHETHER THERE IS `SERVICE’:

    1. If you are covered by Para (3) above, service tax is NOT APPLICABLE
    2. If you are covered by Para (1) AND (2) above, service tax will ALMOST BE APPLICABLE
    3. If you are covered by Para (1) AND (2) AND (4) above, service tax IS APPLICABLE

Once it is determined that service tax is applicable, further discussion would be required on:

    1. Valuation of Taxable Services
    2. Abatements & Composition Schemes
    3. CENVAT Credit Rules
    4. Service Tax payment by `Service Receiver’ instead of `Service Provider’ (Reverse Charge Mechanism)
    5. `Zero rating’ of Export of Services & services to SEZ and Exemption & Rebate mechanism therefor
    6. Import of service for liability of service tax on `reverse charge’ basis.
    7. Taxable Territory, Place of Provision of Services Rules & Point of Taxation Rules
    8. Other Compliance Procedures under Service Tax Law

  1. [...] The new Service Tax regime based on the “Negative List” has completely changed the way services will be taxed w.e.f. 1-Jul-2012. If an activity meets the characteristics of a “service” it is taxable unless specified in the Negative list, or otherwise exempted by a notification. We have shared with you earlier how to determine whether there is any `service’ vide our Post Is Service Tax applicable to you in the new regime from 1-Jul-2012? [...]

    Posted by Vinod & Narendra | Service Tax Chart – Reverse Charge Mechanism | December 5, 2012, 2:16 pm