THE FINANCE (No.2) BILL, 2004
UNION BUDGET 2004-05.
AMENDMENTS TO SERVICE TAX
CHANGES EFFECTIVE FROM 09-07-2004
Exemption
to services in relation to safe deposit lockers provided
by security agencies services is withdrawn. (Notification
No. 7/2004-ST dated 09-07-2004)
Exemption
to broadcasting services provided by cable operators is
withdrawn. (Notification No. 7/2004-ST dated 09-07-2004).
However the exemption to cable operators came to end when
cable services became taxable from 16/8/2002. Therefore
there may not be any impact so far as service tax liability
is concerned from 16/8/2002. But the question may arise
in respect of advertisements, etc flashed by the cable operators
on their private channels.
Exemption
to maintenance and repair services in relation to computers,
computer systems or peripherals is withdrawn. (Notification
No. 7/2004-ST dated 09-07-2004)
Full
exemption to mandap keeper’s services provided by
hotels where catering is provided is now restricted to 60%
of the gross value. (Notification No. 8/2004-ST dated 09-07-2004)
Exemption
to commission agents under business auxiliary service in
relation to sale and purchase of goods for a consideration
based on quantum of such sale or purchase is now restricted
only to sale or purchase of agricultural produce. (Notification
No. 8/2004-ST dated 09-07-2004)
Abatement
of 90% of gross value in case of tour operators other than
package tours is now reduced to 60%. (Notification No. 8/2004-ST
dated 09-07-2004)
Abatement
of 60% of the gross value is now granted to rent-a-cab scheme
operator. (Notification No. 9/2004-ST dated 09-07-2004)
In
case of convention services where service includes catering
services abetment of 40% will be allowed on the gross amount
charged to the client, which is inclusive of such catering
service charges. (Notification No. 10/2004-ST dated 09-07-2004)
Explanation
is inserted in rule 6(1) to clarify that in respect of any
advance received before providing the service, service tax
shall be payable in proportion to the value of service attributable
to service rendered after the relevant date. (Notification
No. 5/2004-ST dated 09-07-2004)
This will clarify the issue that in respect
of advance is received but the service is rendered lateron
or new service coming into effect from a particular date,
service tax will be applied in pro-data in relation to the
period of service rendered.
This amendment is sequel to circular No
65/14/2003–ST dated 5/11/2003, which clarifies advance
received in relation to service becoming taxable subsequently.
With specific provision in the rule, now
onwards service tax liability will arise only on pro-data
basis irrespective of advance payment or date of invoice.
The
provision for recovery of service tax from the person availing
service tax credit is amended to the effect that even if
the input service provider has not paid service tax, the
service tax credit cannot be recovered from the person availing
the credit. Rule 6 of Service Tax Credit Rules is amended.
(Notification No. 6/2004-ST dated 09-07-2004). Needless
to say that such persons should have taken reasonable steps
as provided in Rule 5.
THE FINANCE (No.2) BILL, 2004
UNION BUDGET 2004-05.
AMENDMENTS TO SERVICE TAX
(Procedural Amendments)
Steps
to make the administration tax payer friendly:
•
Principle of “mens ria” is introduced for the
first time in the service tax. That means intention to evade
and act of guilty mind is necessary to be present in all
the penal proceedings of the act.
•
The existing provisions of section 71 to verify service
tax returns and section 72 to do a best judgement assessment
in certain cases are proposed to be abolished.
Section
73 is proposed to be amended to bring the section in line
with section 11A of the Central Excise Act. It is now proposed
to amend section 73 to provide that the concerned officers
can issue a show cause notice within 5 years from the relevant
date only where service tax has not been levied or paid
or short levied or short paid or erroneously refunded by
reason of:
• Fraud;
• Collusion; or
• Wilful mis-statement;
or
• Suppression of
facts; or
• Contravention
of any of the provisions of this Chapter or of the rules
made thereunder with an intent to evade payment of service
tax.
In all other cases of short payment or
non-payment or erroneous refund, the period of issuance
of notice will be of one year.
Consequent
changes are also proposed to be made in section 74 (relating
to rectification of orders), section 78 (which provides
for penalty in case of fraud, mis-statement, etc.) and section
85 [relating to appeals before Commissioner (appeals)].
Rate of interest on delayed payment of service tax proposed
to be changed from 15% per annum to a range from 10% per
annum to 36% per annum. (Section 75) as may be notified
by the Central Government. This is in line with the Central
Excise Act.
Mandatory
penalty for non-registration (section 75A) and failure to
comply with notice (section 79) is proposed to be omitted.
Section
76 is sought to be amended to provide for penalty for delay
in payment of service tax at Rs. 100/- minimum per day,
up to a maximum of Rs. 200/- per day till default lasts.
[This is in view of several decisions in favour of the assessee
including Smita Shetty vs CCE, Bangalore (2003) 156 ELT
233 (Tri. Bangalore)]
Section
77, is now proposed to be substituted to provide for general
penalty of maximum of Rs. 1000/- for all the contravention
of the Act or Rules including for which no separate penalty
is prescribed. Thus, penalty for failure to register, failure
to file return, etc. are all consolidated in this clause.
Provisions relating to offences by Companies prescribed
under section 81 is sought to be omitted so far as it deals
with penalties, etc. to certain officers of the company.
Appeals
to the Appellate Tribunal (section 86):
Tribunal fees is sought to be increased
from Rs. 200/- as under the existing provisions to the following
schedule.
Amount of Service Tax, Interest
Fees
and penalty payable
Rs.
Rs. 5,00,000/- and below
1000/-
Rs. 5,00,001/- to Rs. 50,00,000
5000/-
Rs. 5,00,001/- and above
10000/-
In addition to the above, it is also proposed
to provide a fee of Rs. 500/- for:
• An application
for grant of stay in an appeal or rectification of mistake
or for any other purpose; or
• For restoration of an appeal or
an application.
•
Power to make rules:
Section 94 is sought to be amended to enable
the Central Govt to make rules for the following:
•
Determining export of taxable services;
• Granting exemption
to, or rebate of tax paid, on services exported; or
• Rebate
of tax paid on input services consumed, or duties paid on
goods used, for providing taxable services which are exported.
AMENDMENTS TO SERVICE TAX
Changes effective from the date of the
enactment of the Finance Bill No.2 2004
Rates
of service tax
•
Rate of service tax to be increased from 8% to 10%
•
Education cess @ 2% of the service tax.
Credit
of input service tax against excise duty
•
Credit of service tax and excise duty is extended
across goods and services. It means that credit of excise
duty (CENVAT) can be availed against the payment of service
tax and vice versa. (Rules to be framed in these regards)
•
It is pertinent to note that Section 37 of Central
Excise Act Sub Section 2 is amended to provide credit
of service tax for taxable services used in or in
relation to the manufactures of excisable goods.
•
Education cess paid on input service shall be
available as credit for payment of education cess on output
service.
• Where
service tax is included in the gross value
•
It has been clarified by inserting explanation
2 in section 67 that in case service tax is included in
the gross amount charged, the value of taxable service shall
be gross amount less service amount included in the said
bill. The following example will clarify the issue:
Value of Taxable Service = 100
x Total amount charged
100
+R
• Scope
of taxable services (existing services) expanded
•
Banking and other financial services
• “Any commercial
concern” is added into the category of service provider.
• Service included:
other financial services namely lending, issue of pay order,
demand draft, letter of credit, bill of exchange, bank guarantee
charges, OD facilities, bill discounting facility, safe
deposit locker and vaults and account operating charges.
• Interest on loans
will not be included for the purpose of value of taxable
service under the category (insertion of clause viii to
section 67). However it is not clear whether exemption will
be applicable on discount in case of bill discounting, etc.
If the intention is to include all fund-based services,
then a suitable clarification is required.
Note: Till now all the body corporates
were covered. Now onwards (from the date of enactment of
Finance Bill) all commercial concerns whether body corporates
or not, will be covered.
Business auxiliary services
• To include:
• Procurement of goods
and services which are inputs for the client
• Production of goods
on behalf of the client
• Provision of service
on behalf of the client
• Further any incidental
or auxiliary service to the services announced earlier (mentioned
as under) such as issue of cheques, payments, maintenance
of accounts, inventory management, development of prospective
customer or vendor and management or supervision.
• Promotion
or marketing or sale of goods produced or provided by or
belonging to the client; or
Promotion or marketing of service provided
by the client; or
Any customer care service provided on behalf
of the client.
• However,
manufacturing activity (within the meaning of clause (f)
of section 2 of Central Excise Act, 1944) is excluded.
Note:
• The scope under
BAS is widened tremendously as all services in relation
to procurement of goods and services, production on jobwork
basis, etc.
• In case of activity
outsourced on jobwork basis, the same may be covered if
it does not amount to manufacture under the Central Excise
Act. For example, in case of textile goods or labelling,
packing, etc. not covered under the Excise Act or
exempt, any jobwork in relation to such goods or items will
be covered under service tax
• In respect of
inclusion of maintenance of accounts, inventory management,
payment cheques, management on supervision which need not
necessarily concerned with debtors management, does it mean
that “account writing” in general, “inventory
management” are covered? If we go by the words “further
any incidental or auxiliary service to the service announced
earlier” the scope is restricted to debtor management
only. However, it is not yet clear what kind of services
is intended to be covered under “management or supervision”
particularly in view of the fact that there already exists
a separate category of “management consultants services”.
Commissioning and installation
• The word
erection has been added to the definition of commissioning
and installation.
Note: So far erection was not included
in the definition of commissioning and installation agency
and consulting engineer’s services. (Circular no 79/9/2004
dated 13/5/2004)
• It has
been provided in section 67 by substituting clause (vii)
that the cost of parts or other material sold to customer
during the course of providing service is eligible for deduction.
Stock broker
• Registered
Sub-brokers with SEBI or those who have made application
for registration have now been included under the category
of stockbroker.
• Transactions
between main broker & sub-brokers are now covered.
• A person need
not be classified as an investor as service rendered to
“any person” is now classified in place of “an
investor”.
Cable services
• Multi system
operators are now covered under this category. Services
provided by MSO to a cable operator will therefore become
taxable
A multi-system operator retransmits the
signals beamed by the satellite to the cable operators.
•
Life insurance services
• The government
has sought to levy service tax on the risk cover component
in life insurance premium. (Definition contained in sub
clause (zx) of clause 105 of section 65 is sought to be
amended)
Commercial training or coaching
• Exemption
related to commercial coaching provided by a vocational
training institute, a computer-training institute or a recreational
training institute, which was valid up to 30th June 2004,
has not been further extended.
Tour operator services
• At present
“tour operator” means any person in the business
of operating tours in a tourist vehicle covered by permit
granted under Motor Vehicles Act, 1958. At present if the
tour operator provides a package tour i.e. which necessarily
includes transportation and accommodation for stay, service
tax is leviable on 40% of gross amount charged where the
bill is issued inclusive of all charges (Notification No
39/97-ST).
In case of tours other than package tours, service tax is
charged on 10% of gross amount (Notification No 2/2004-ST).
• Notification
No 8/2004-ST dated 9/7/2004 now provides for tax on 40%
of the gross value in case of tours other than package tours,
w.e.f 9/7/2004.
• The scope
of tour operators is being expanded by substituting definition
of tour operators in clause (115) to section 65 in order
to include persons engaged in the business of planning,
scheduling, organising or arranging tours (which may include
arrangements for accommodation, sight seeing or other similar
services) by any mode of transport and includes any person
engaged in the business of operating tours in a tourist
vehicle covered by a permit granted under the Motor Vehicles
Act, 1988 or the rules made there under. It may be noted
that where earlier tour operators in relation to road transport
were only covered, now the definition seeks to bring tours
conducted by rails, air, ship, etc will also be covered
and all the persons engaged in the business of planning,
organising, arranging, etc will also be covered.
Scope of taxable
services (existing services) restricted
Consulting engineer
• Consulting
engineer’s services in respect of computer hardware
engineering and computer software engineering has now been
exempted in view of change of definition contained in sub
clause g of clause 105 of section 65
Note: notification No
4/99-ST dated 28/2/99 provided exemption in relation to
computer software. However exemption is now sought to be
given to computer hardware also along with the software
engineering by providing the same in the definition itself.
New services
to be added as taxable service
• Business exhibition services
• Airport services
• Transport of goods by road (by a goods transport
agency which issues consignment note, by whatever name called)
• Transport of goods by air
• Survey and exploration of mineral
• Opinion poll services
• Intellectual property services other than copyright
• Forward contract services
• Pandal or shamiana services
• Outdoor catering
• TV or radio programme production
• Construction services in respect of commercial or
industrial buildings and civil structures
• Travel agents (other than air/rail travel agents)
Note: detailed explanation on the coverage
of each above services is expected to be given by way of
notification before effective date. However an attempt is
made to explain the same for preliminary understanding
Definition of new services brought into the tax net
Business exhibition services
All business exhibitions, trade fairs,
etc. to promote any product or services or for growth of
the business in general now are sought to be covered. Section
65 is being amended by insertion of clause 19(a) and sub
clause (zzo) to clause 105 as follows:
Clause 19(a) “Business exhibition”
means an exhibition to market, or to promote, or to advertise,
or to showcase any product or service, intended for growth
in business of the producer or provider of such product
or service as the case maybe.
Clause 105(zzo) taxable services means
any service provided to an exhibitor, by the organiser of
the business exhibition in relation to business exhibition.
Airport services
Though the definition of “airport
services” is not given, however on the basis of definitions
of other similar services we understand to cover the same
as follows:
Any service provided by airport authority
or any person authorised by it, in an airport or civil enclave.
Clause (3c) “Airport” has the
meaning assigned to it in clause (b) of section 2 of the
Airport Authority of India Act, 1994.
“Airport” means landing and
taking off area for aircrafts, usually with runways and
aircraft maintenance and passenger facilities and includes
aerodrome as defined in clause (2) of section 2 of the Aircraft
Act, 1934.
Clause (3d) “airport authority”
means the airport authority of India constituted under section
3 of the Airport Authority of India Act, 1994 and also includes
any person having the charge of management of an airport
or a civil enclave.
Clause (24a) “civil enclave”
has the meaning assigned to it in clause (i) of section
2 of the Airport Authority of India Act, 1994.
“Civil enclave” means the area,
if any, allotted at an airport belonging to any armed force
of the union, for use by persons availing of any air transport
services from such airport or for the handling of baggage
or cargo by such service, and includes land comprising of
any building and structure on such area.
Clause 105(zzm) to section 65 is inserted
to the effect that any taxable services means any service
provided to any person, by Airport Authority or any person
authorised by it, in an airport or a civil enclave.
It appears that service provided by Airport
Authority in respect of passenger or baggage handling services
in respect of food and beverages, etc to any person is sought
to be covered in this category.
Transport of goods by road
Transportation of goods 1. by road by an
agency issuing consignment note & 2. by an aircraft
by an aircraft operator is sought to be covered.
Clause (50a) “goods carriage”
has the meaning assigned to it in clause (14) of section
2 of Motor Vehicles Act, 1988.
Clause (50b) “goods transport agency”
means any commercial concern, which provides service in
relation to transport of goods by road and issues consignment
note, by whatever name called.
Clause 105(zzp) taxable services means
any service provided to a customer by a good transport agency
in relation to transport of goods by road in a goods carriage.
Note: It appears that individual transporters
and truck operators who do not issue consignment notes will
not be covered. Some truck operators who rent out their
vehicles to companies for transport of their goods will
also not be covered.
Transport of goods by air
Clause (3a) “aircraft” has
the meaning assigned to it in clause (1) of section (2)
of the Aircraft Act, 1934.
Clause (3b) “aircraft operator”
means any commercial concern, which provides the service
of transport of goods by aircraft.
Clause 105(zzn) taxable services means
any service provided to any person, by an aircraft operator
in relation to transport of goods by aircraft.
Survey and exploration of mineral
Services rendered in respect of geological
survey and exploration of minerals, oil & gas is sought
to be covered.
Clause (104a) “survey and exploration
of minerals” means geological, geophysical or other
prospecting surface, or sub-surface surveying or map making
survey in relation to location or exploration of deposits
of minerals, oil or gas
Clause 105(zzv) taxable services means
any service provided to a customer by any person in relation
to survey and exploration of mineral.
Opinion poll services
Service in respect of conducting opinion
polls are sought to be covered.
Clause (75a) “opinion poll”
means any service designed to secure information on public
opinion regarding social, economic, political or other issues.
Clause (75b) “ opinion poll agency”
means any person engaged in providing any service in relation
to opinion poll.
Clause 105(zzs) taxable services means
any service provided to any person, by an opinion poll agency
in relation to opinion poll.
Intellectual property services
Service in respect of transfer or use of
intellectual property right (IPR) except copy right by way
of outright sale or grant of licence in consideration of
any lump sum payment or royalty.
Clause (55a) “intellectual property
right” means any right to intangible property namely
trademarks, designs, patents, or any other similar intangible
property under any law for the time being enforced but does
not include copyright.
Clause (55a) “intellectual property
service” means (a) transferring, whether permanently
or otherwise or be permitting the use or enjoyment of, any
intellectual property right.
Clause 105(zzr) “taxable services”
means any service provided to any person by the holder of
intellectual property right in relation to intellectual
property service.
Forward contract services
Services in relation to forward contract
of any commodities by member of recognised or registered
associations of such commodities sought to be covered.
Clause (46a) “forward contract”
has the meaning assigned to it in clause (c) of section
2 of the forward contract (regulation) Act, 1952.
Clause (89a) “recognised association”
has the meaning assigned to it in clause (i) of section
2 of the forward contract (regulation) Act, 1952.
Clause (89b) “registered association”
has the meaning assigned to it in clause (ii) of section
2 of the forward contract (regulation) Act, 1952.
Clause 105(zzy) “taxable service”
means any services provided to any person by a member of
a recognised association or a registered association in
relation to a forward contract.
Pandal or shamiana services
This service was introduced earlier with
effect from 25/7/97 by Finance Act, 97-98 and was withdrawn
by notification No 49/98 dated 2/6/98.
It appears that now the service is introduced
in the same form as introduced earlier.
Clause (77a) “pandal or shamiana”
means a place specially prepared or arranged for organising
an official, social or business function.
Clause (77b) “pandal or shamiana”
contractor means a person engaged in providing any service
either directly or indirectly in connection with the preparation,
arrangement, erection or decoration of a pandal or shamiana
and includes the supplier of furniture, fixtures, lights
and lighting fittings, floor coverings and other articles
for use therein.
Clause 105(zzw) “taxable service”
means any services provided to a client, by pandal or shamiana
contractor in relation to a pandal or shamiana in any manner
and also includes the services if any rendered as a caterer.
Outdoor catering
This service was introduced earlier with
effect from 25/7/97 by Finance Act, 97-98 and was withdrawn
by notification No 49/98 dated 2/6/98.
It appears that now the service is introduced
in the same form as introduced earlier.
Clause (76a)”outdoor caterer”
means a caterer engaged in providing services in connection
with catering at a place other than his own
Clause 105(zzt) “taxable service”
means any services provided to a client by an outdoor caterer.
TV or radio programme production
All sorts of radio programs and TV serials
are now sought to be covered.
Clause (86a) “programme” means
any audio or visual matter, live or recorded, which is intended
to be disseminated by transmission of electro-magnetic waves
through space or through cables intended to be received
by the general public either directly or indirectly through
the medium of relay stations.
Clause (86b) “programme producer”
means a commercial concern, which produces a programme on
behalf of another person.
Clause 105(zzu) “taxable service”
means any services provided to any person by a programme
producer in relation to a programme.
Construction services
Construction service in relation to construction,
repairs, renovation, etc. of commercial or industrial premises
are sought to be covered.
It is not clear that what will amount to
taxable service in respect of a construction contract. The
construction contract comprises of labour and the material
used in constructing the building. Under section 67 abatement
for material used during the course of providing the service
is not allowed. However, specific exemption may be given
for goods and materials used in the construction contract
for which a notification giving suitable abatement is awaited.
However construction in respect of residential
buildings and infrastructure projects like road, airport,
etc are not included.
Clause (30a) “construction service”
means (a) construction of new building or civil structure
or a part thereof or (b) repair, alteration or restoration
of, or similar services in relation to building or civil
structure, which is (1) used or to be used primarily for;
or (2) occupied or to be occupied primarily with or (3)
engaged or to be engaged primarily in a commerce, or industry
or work intended for commerce or industry but does not include
road, airport, railway, transport terminal, bridge, tunnel,
long distance pipeline and dam.
Clause 105(zzq) “taxable service”
means any services provided to any person by a commercial
concern in relation to construction service.
Travel agents
Travel agent in relation to providing any
service connected with making travel arrangements, booking
of accommodations, sight seeing and other services are sought
to be covered.
It is to be noted that air travel agents
and rail travel agents are not included, as they are separately
included in their respective categories.
Clause (115a) “travel agent”
means any person engaged in providing any service connected
with booking of passage for travel but does not include
air travel agent and rail travel agent.
Clause 105(zzx) “taxable service”
means any services provided to a customer by a travel agent
in relation to the booking of passage for travel. |
