Budget 2011 (Finance Act, 2011) – Complete roundup of service tax provisions with effective date

April 27, 2011
4 mins read

[By Shaleen Shah (Partner), VNCA]


a) Exemption is provided to the following services:

i) Exemption is being provided to services provided by an organizer of business exhibitions in relation to business exhibitions held outside India.

ii) 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’.

iii) 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’.

iv) Exemption is being provided to services provided within a port or other port or an airport under the ‘Works contract’ service for specified purposes.

v) Exemption is being provided to ‘Rashtriya Swasthya Bima Yojana’ under the ‘General insurance’ service.

vi) 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scheme is being introduced to refund service tax to SEZ units and developers and notification No. 9/2009-ST is being superceded.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.

b) Amendments to Rules & Notifications:

i) 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.

ii) 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.

c) CENVAT Credit Rules, 2004: Amendments are made –

i) To disallow utilization of credit for paying duty on Goods manufactured at the site of construction for use in construction work at such site if benefit of Exemption Notification No.1/2011-CE is taken.

ii) To restrict CENVAT Credit on additional customs duty paid by ship breaking units.

iii) To introduce a new rule 6(6A) to provide that the conditions & restriction to avail CENVAT Credit shall not be applicable where taxable services are provided without payment of service tax to a Unit in a SEZ or to a Developer of a SEZ or for their authorized operations.

iv) To reverse CENVAT Credit under rule 3(5B) on inputs and capital goods even in case of partial write off.


a) Exemption is provided to the following services:

i) 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.

ii) 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.

b) Withdrawal or amendments to existing Exemptions:

i) The rates of service tax on travel by air are being revised as follows:

(1) Domestic travel (economy class): from Rs.100 to Rs.150

(2) International travel (economy class): from Rs.500 to Rs.750

(3) Domestic travel (other than economy class) 10% (Standard rate)

ii) Exemption to inter-bank transactions of purchase and sale of foreign currency is being extended to any bank, including a bank located outside India, or money changer, by any other bank or money changer.

iii) Exemption to transport of goods by rail service is extended upto 30-Jun-2011.

c) Amendments to Rules & Notifications:

i) Rule 6(4B)(iii) of the Service Tax Rules, 1994 is amended to raise the monetary limit for adjustment of excess tax paid from Rs.1,00,000/- to Rs.2,00,000/-.

ii) Rule 6(7B) of the Service Tax Rules, 1994 pertaining to sale and purchase of foreign exchange is being amended to,—

(1) omit the proviso as well as the illustration; and

(2) reduce the composition rate from 0.25% to 0.1% of the gross amount of currency exchanged towards discharge of service tax liability. Transaction slabs and different rates of composition are introduced.

iii) It is being defined in Service Tax (Determination of Value) Rules, 2006 that the value of the money changing service:

(1) 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 at that time;

(2) 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;

(3) 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.

iv) Rule 6(6A) is being inserted in Service Tax Rules, 1994, to provide power to the Officer that if any amount of service tax has been self-assessed and not paid, the same shall be recoverable with interest by way of attachment under section 87 of the Act. Thus, there shall be no need to resort to provisions of section 73 where issuance of notice was mandatory.

v) 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.

d) The Point of Taxation Rules, 2011 have been framed and made effective from 01.04.2011 with relevant amendments to the Service Tax Rules. Transitional provision is introduced to provide an option to the service provider to adopt the rules from 1-7-2011. These rules determine the point in time when the services shall be deemed to be provided and consequently the point of time for payment of tax thereof. Our detailed office update on `The Point of Taxation Rules, 2011’ shall follow shortly.

e) CENVAT Credit Rules, 2004: Rules 2, 3, 4, 6 & 9 are being amended –

i) To substitute the definitions of “inputs

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