An in-depth analysis of the service tax provisions as ratified by parliament with Finance Act 2012

2. Analysis of
SERVICE TAX LAWS –
BUDGET 2012 UPDATE
(For internal circulation only)

3. Contents
• Introduction
• Rate changes
• Structural Changes
• Place of Provision Rules
• Point of Taxation Rules
• Valuation Rules
• CENVAT Credit Rules
• General Changes
• Implementation Dates

4. INTRODUCTION

5. Introduction
Wide sweeping changes to service tax legislation have been proposed
All “Activities” are now covered under the gamut of service tax laws.
Only exclusions are a so called “Negative List” and 34 exemptions,
some of them retrospective
Changes have been made in the service tax rate
„Taxable territory‟ has been defined in the Act which excludes J&K.
Clarifications of Point of taxation rules, which were announced last
year, to ease problems faced by service providers
Reverse charge concept has been revised and now included additional
services
Significant changes have been made to CENVAT credit rules
Procedural changes have been made by amending Section V of the
finance Act 1994
Service Tax Rules have been amended

6. Rate Changes

7. Rate Changes
Notification no. 8/2009 ST has been withdrawn effective April 1 2012,
bringing the service tax rate back to 12% from the current 10%
Composition Rates have also been revised as follows :
Earlier Now
First Year 1.5% 3%*
Life Insurance Subsequent
1.5% 1.5%*
Years
Works Contracts 4% 4.8%
Up to Rs 1
.10% .12%
Lakh
Between 1
Lakh and 10 .05%+100 .06%+120
Money
Lakh
Changing
.01%+550, .012%+660,
More than 10 subject to subject to
Lakh maximum of maximum of
Rs 5000 Rs 6000
Air transport - 12%**
* CENVAT credit is now available ** 60% abatement available
Rate for CENVAT credit reversal for exempt services has been hiked by
20% from 5% to 6%

8. Structural Changes

9. Definition of Service
As per the act, all services are now subject to tax
• Service to be defined as “any activity carried out by a person for
another for consideration, and includes a declared services.”
• Activities not considered a service are :
– transfer of title in goods or immovable property
– a transaction in money or actionable claim
– the activities specified in constitution as „deemed sale of goods‟.
– service by an employee to the employer
– fees taken in any Court
• This clause is not applicable to :
– Services rendered by MPs, MLAs, Members of
Panchayats, Municipalities etc in performing functions of their office
– Services rendered by any person occupying any post in pursuance of
the provisions
– of the Constitution
– duties performed by any person as a Chairperson or a Member or a
Director in a
– body established by the Central Government or State Governments or
local authority

10. Negative List
• “Negative List" means the services which are listed in Section 66D as
not liable to Service
• Services covered Under Negative List are
Service Comments
Services provided by Government Authorities,
Excluding :
• Speed/Express Post, Life Insurance and other In case of other support
agency services services, service receiver
•Services in relation to aircraft/vessel in to pay taxes under
airport/port reverse charge system
•Transport of goods, passengers
•Other support services
Services provided by Reserve Bank Of India
(“RBI”)
Services provided by Foreign Diplomatic Mission
Agriculture and related activities ( including sale
purchase of agricultural produce)
Trading of goods
Manufacturing
Sale of space or time for advertising ( other than
radio and television)

11. Negative List
Service Comments
Toll Charges
Games of chance ( betting, gambling and lottery)
These are subject to
Entertainment events and Amusement facilities state administered
“Entertainment Tax”
Electricity Transmission and Distribution
Education ( pre-school, vocational and recognized
qualifications)
Services by way of renting of residential dwelling
for use as residence
Interest does not
Interest on loans and advances and interbank
include any processing
forex trading
fee or other charges.
Public Transport (Stage carriage, railways ( except
first class and AC coaches), Metro/trams, inland
waterways, transport in a vessel of less than 15
tonnes ( other than for tourists), metered cabs,
radio tax, auto-rickshaws.
Goods Transportation ( except goods
transportation agency and courier agency)
Funeral Services

12. Exemption list
• Many other changes are also being timed with the introduction of
negative list, including many new exemptions consolidated with the
existing exemptions in a single mega exemption for ease of reference.
• New exemption list is as follows :
Service Comments
Services provided to United Nations or specified
International Organizations
Health care services by a clinical establishment,
medical practitioner or Para- medics
Services provided by veterinary clinic
Services by a section 12AA entity for charitable
purposes
Services by a person by way of
• Renting of a religious place for general public
• Conduct of religious ceremony
Not covered under
Fee charged by Advocates from non corporate previous rules and
including representation hence no change is
taxability
Includes testing of
Services of technical testing of drugs by approved
herbal remedies and
organization
vaccines

13. Exemption list
Service Comments
Training or coaching relating to arts, culture or
sports
Services provided Clause covers mid-
•To educational inst. by way of catering day meals and
•To educational inst. for transportation or admission transportation
of students services
Exemption only to
services provided by
coaches,
Services provided to recognized sports body
sportspersons ,
umpires etc and
other sports bodies.
Only where the
tournament has been
Services by way of sponsorship of tournament or
organized by
championships
specified sports
bodies
Services provided to govt. or local auth. by way of
erection , construction, repair, alteration , renovation
of civil structure, historical monument etc.
Services provided by way of erection , construction,
repair, alteration , renovation of roads, bridge,
tunnel , building owned by charitable organization,
pollution control factory etc.
Temporary transfer of a copyright relating to
original literary, dramatic, musical, artistic works or
cinematograph films

14. Exemption list
Service
Services provided in relation to serving of food or
beverages by units not having air-
conditioning/heating or a license to serve alcoholic
beverages
As per Notification
Services provided by way of transportation of 9
No. 8/2010-ST, dated
specified goods by railways or by a vessel.
27.2.2010
Services provided by GTA by way of transportation
of fruits, eggs, milk etc. where gross amount
charged for single carriage does not exceed Rs 1500
and for a single consignee does not exceed Rs 750
Renting of motor vehicle meant to carry more than
twelve passengers to state transport undertaking
and, a means of transportation of goods to a goods
transport agency
Transport of passengers by air terminating in an
airport located in AP, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, or Tripura or WB or
contract carriage for transportation of passengers
Services by way of motor vehicle parking to general
public excluding leasing

15. Exemption list
Services
Services by performing artist in folk or classical art
forms
Services of collecting and providing news rendered
by independent journalists, Press Trust of India or
United News of India
Exemption available
Services by way of renting hotels, inns or places only to units with
meant for residential or lodging purposes. declared tariff below
Rs 1000/day
Services provided by Sub broker , Member of
commodity exchange , Mutual fund agent,
Marketing agent of lottery tickets or A business
facilitator
Process as job worker in relation to specified goods
Services by way of making telephone calls from
PCO, Airport phones etc.
Services of slaughtering of bovine animals
Services received by govt. or charitable organization
from service provider located in non-taxable
territory.

16. Exemption list
Service
Exemption available
Service provided by incubatee with a total business
in the first three years
turnover not exceeding 50 lakhs
of incubation
For services rendered
Services by unincorporated body or society to own
as trade union,
members by way of reimbursements of charges or
provision of exempt
contribution
services etc
Services to govt. by way of repair of ship, boat ; Transport of drinking
waste collection; storage , transport or testing of water via pipe and
water; sewerage treatment conduits exempt
Services of general insurance business

17. Declared Services
• „Declared Services‟ are the services carried out by a person for another
for consideration and are hence taxable , as per section 66E.
• These have been introduced with a view to remove ambiguity and for
the purpose of uniform application of law.
• Following are the 9 activities specified:-
Services
Renting of immovable property
Construction of complex, building or structure or a part thereof except
where entire consideration is received after issuance of certificate of
completion.
Temporary transfer or permitting the use of enjoyment of any intellectual
property right.
Development, design, programming, adaptation etc. of information
technology software
Agreeing to the obligation to refrain from ,to tolerate, to do an act.
Transfer of goods by way of hiring, leasing, licensing without transfer of
right to use.
Activity in relation to delivery of goods on hire purchase.
Service portion in execution of works contract.
Service portion in activity wherein food, other article of human
consumption is supplied.

18. Abatements
• With the introduction of the Negative list, changes has been made to
abatements considering the principle of neutrality and to avoid double
taxation.
• The existing and new abatements are:
Services Existing Proposed CENVAT
taxable taxable credit
portion portion allowed
Convention center or Mandap All credits
60% 70%
with catering except inputs
All credits
Pandal or shamiana with
60% 70% except on
catering
inputs
Coastal shipping 75% 50% No credit
Credits on
Accommodation in hotel 50% 60%
inputs
All credits
Railways: goods 30% 30%
allowed
Railways : passengers New levy 30%
All credits
Outdoor catering 60% 50%
except inputs
All credits
Service portion of supply of
40% 30% except inputs
food or any other article

19. Reverse charge - Amendments
• „Reverse charge‟ means when liability to pay service tax has been
shifted to service recipient covered.
• Existing cases under reverse charge are (100% liability of recipient):
• Service by insurance agent to person carrying on insurance business
• Transportation of goods by road by GTA
• Sponsorship services
• Service provided by a person from outside India
• Service by arbitral tribunal
• Service by govt. located in taxable territory
• Additional services covered under Reverse charge mechanism are:
Services Liability of Liability of
service service
provider receiver
Rent a Cab services From
•With abatement 100% 16.07.2005 to
•Without abatement 40% 27.07.2009
Supply of manpower 75% 25%
Works contract services 50% 50%

20. Place of Provision of Service
Rules 2012

21. Place of provision of service
Rules 2012
• Given the impending introduction of GST and the new negative list
provisions it became necessary to identify the taxing jurisdiction for the
service. Accordingly, place of provision rules have been introduced.
• These new rules will determine the place where service shall be
deemed to be provided.
• These are formulated by replacing the export rules and import rules.
• The „place of provision‟ in different situation is proposed to be as
follows:
Situation Place of provision of
service
Location of service
Generally
receiver
Location where
Performance based services service is actually
performed
Where immovable
Service relating to immovable property
property is located
Location in taxable
Where above service are provided at more
territory where
than one location including a location in
greatest prop. of
taxable territory
service is provided.

22. Place of provision of service
Rules 2012
• Central govt. is empowered to notify any description of service
• Where provision of service is determined in more than one rule, the
provision is determined acc. to the rule that occurs later.
Situation Place of provision of
service
Provider and receiver are located in taxable Location of service
territory receiver
Location of service
Specific services
provider
Place of destination of
Service of transportation of goods
goods
Location of person liable to
Goods transport agency services
pay tax.
Place where person
Passenger transportation services
embarks for conveyance
First scheduled point of
Service provided on board a conveyance departure of that
conveyance.

23. Point of Taxation

24. Point of Taxation Rules -
Amendments
Scenarios:
Situation Point of Taxation
Invoice is issued before completion of Time of issue of invoice
service and receipt of payment
Service is completed and invoice is Time of issue of invoice
issued within 30 days/45 days
Service is completed and invoice is not Date of completion of service
issued within 30/45 days
Payment is received in advance before Date of receipt of payment, to the
issue of invoice or completion of service extent of such payment
For the purposes of this rule, wherever any advance, by whatever name
known, is received by the service provider towards the provision of taxable
service, the point of taxation shall be the date of receipt of each such advance
Invoice to be issued:
Within 30 days of “completion of service”
For banking /financial institution or any other providing service in relation
to banking – within 45 days of completion of service.

25. Point of Taxation Rules -
Amendments
In case of individuals and firms, in case of aggregate value of taxable
services provided in a year being Rs 50 lakhs or less, option to pay
service tax on payment basis up to taxable services up to such limits is
available
In case service provider receives up to Rs. 1000 in excess of the invoice
amount; there is no need to raise fresh invoice for such excess amount if
POT rules are followed.
Exporter of service is not required to pay tax if payment is received
within period specified or extended period as allowed by RBI.
„Date of Payment‟ has been specifically defined under Rule 2A:
Situation Service provided after change in effective
rate of tax
In normal case Earlier of dates of entry into books of
account or actual credit .
In case of change of Date when amount is actually credited in
rate or new levy the bank; if it is credited more than four
between said two days after date of such change.
dates [Rule 5]

26. Introduction of New Service -
Procedures
In the case of introduction of new services under tax ambit the following
situations with follow :
Scenario
Point of
Taxation
Event 1 Event 2
Invoice issued &
Payment received No Service Tax
NA
before Service Payable
became Taxable
New Service Invoice issued
Payment received No Service Tax
brought within 14 days of
before Service Payable
under gamut Completion of
became Taxable
of Service Tax Service
Invoice issued
within 14 days of
Service provided Completion of No Service Tax
before tax became Service and Payable
applicable payment received
after Service
became taxable

27. Continuous Supply of Services
Continuous
Services
• Telecommunication Services • Any other service if provided
• Commercial or Industrial continuously or on recurrent
Construction basis under a contract for a
• Construction of Residential period exceeding three
Complex months.
• Internet Telecommunication
• Works Contract
The point of taxation in the case of continuous supply of services
shall be as follows:
 Date of issue of invoice or receipt of payment, whichever is
earlier, if the invoice is issued within the prescribed period of 30
days from the datea of completion of the provision of service.
 Date of completion of the provision of service or receipt of
payment, if the invoice not issued within the prescribed period as
above.
Separate rules for continuous services have been omitted.
Provisions of rules for new levy and changes of rates will also
applicable to continuous supply.

28. Specified Services
When CENVAT
Point of Taxation
Nature of Service Credit available to Conditions
(POT)
Service Recipient
If payment is not
received within time,
Date of Receipt prescribed (6
Export of service NA
of Payment Months) by RBI, POT
as per normal
provisions
If payment is not
made within 6
months from the
date of invoice, POT
would be as per
Persons required
normal provisions.
to pay service tax Date of payment of
Therefore, if after six
as recipient of Value & Service
Date of Payment months payment for
service (Reverse tax mentioned on
invoice has not been
Charge Invoice
made, then there
Mechanism)
would be liability to
pay service tax but
no corresponding
credit would be
allowed

29. Specified Services
When CENVAT
Point of Taxation
Nature of Service Credit available to Conditions
(POT)
Service Recipient
A) Specified
Services: - Architect,
Interior Decorator,
CA/ CS/ Cost
Individuals/ Accountants/Scientif
Proprietorship/ ic & Technical
Date of Receipt Date of Receipt of
Partnership firms consulting/ Legal
of Payment Invoice
providing B) Credit is available
specified Services to the Service
Recipient on receipt
of invoice though no
amount has been
paid
They must have
turnover of 50 lakhs
Other Date of Receipt or less during
Individual/partner of Payment preceding F/Y.
ships firms(LLP) Payment basis shall
applicable up to Rs.
50 lakhs.

30. Valuation Rules

31. Changes in Valuation rules
• A new clause has been inserted in Rule 6 to include any amount
realized as demurrage within the value of services.
• Accidental damages due to unforeseen action would no longer form
part of value of service.
• Interest on loans will now be an exempt income rather an exclusion
from value; so credit reversal will take place in case of interest on loans.
• „Prescribed manner‟ in Rule 3 will be applicable only in case where
valuation is not ascertainable.
• In the case of works contracts If value of goods cannot be determined,
gross value for service tax purposes will be:
Nature of contract Taxable value
In case of original work (includes additions and
40%
alterations)
where gross amount include value of land 25%
Otherwise including completion and finishing 60%

32. CENVAT CREDIT RULES

33. CENVAT Credit Rule Changes
Rule 5 has been amended to provide taxes paid on any inputs or input
services will be entitled to be refunded in the ratio of export turnover to
total turnover.
Credit on goods can be allowed without bringing them to the premises
provided documents regarding delivery and location have been
maintained.
In case of ISD, credit of inputs services is allocated to only such units
where they have been put to use or proportionate to turnover if utilized
for more than one unit.
Credit of service tax paid on hiring, insurance, repairs of all Motor cars
except those specified will be allowed.
Rule 9(1)(e) has been amended to allow availment of credit on tax
payment challans in case service tax paid on reverse charge basis.
The rate for payment under rule 6(3) has been increased from 5% to 6%
of value of exempted goods and services.
Documents for availing credit have been amended to include challans
evidencing payments by all categories of service receiptant.

34. GENERAL CHANGES

35. General Changes
Changes in frequency of filing returns :-
Organization
Type
Individual /firm
Others
/LLP
Tax Liability
Tax liability Tax liability
<25lacs in >25lacs in
preceding year preceding year
Return Filing
Frequency
Monthly
Quarterly

36. General changes
• Ambit of „Money‟ defined in sec 67 has been amended to expand the
meaning.
• A new section 67A has been introduced to prescribe the applicable rate
of exchange, value of taxable service & rate of service tax.
• Definition of „works contract‟ has been extended to include movable
properties.
• Provisions of section 73 has been amended regarding recovery of tax as
follows:
Amendment comments
to take care of the shorter period
Period of issuance of demand notice
available due to reduction of period
extended from 12 to 18 months
of new return EST-1
A new sub section (1A) have been
introduced to follow up the
demand.
To avoid overruling reference to
subsection 3 is being deleted from
sub section 4(A)
• Provision relating to settlement commission are being bought in service
tax.
• A common simple return for Excise and Service tax has been
prescribed.

37. General changes
• Provisions of appeals have been amended to align with Excise Law
which will come into force from the date president will give consent to
Finance bill 2012.
– Appeals to CCE(appeals) reduced to 2 months
– Appeals to Appellate tribunal increased to 4 months
• Revision mechanism under CE Act has been made applicable to Service
Tax.
• Section 89 related to offences has been amended to provide that any
person who knowingly evades payment of services tax shall be
punishable.
• Special audit provisions u/s 14AA ahs been made available to Service
Tax.
• In respect of renting of immovable property penalty shall not be
imposable for default in the payment of service tax provided service tax
along with interest is paid within period of 6 months from date Finance
Bill 2012 receives consent of president.
• Taxable service of import of technology has been exempted from
service tax to the extent R&D cess has been payable subject to certain
conditions.
• Scheme for electronic refund of tax paid on taxable services used for
exports of goods at post removal stage had been made operational
since 3.01.2012.
• It has been clarified that rate applicable for 8 specified services will be
12% if payment is made on or after 1.04.2012 and in case of need
supplementary invoices may be issued to reflect the same.

38. Implementation Dates
• The Effective dates for the various changes proposed by the bill are as
below :
Provision Effective Date
Date to be notified after the
Negative list for services
enactment of the Finance Bill, 2012
Amendments to Point of Taxation
Rules under the March 17, 2012
Finance Act, 1994
Amendments to CENVAT Credit
Effective from April 1, 2012
Rules, 2004
Legislative changes in Customs and Date of enactment of the Finance Bill,
Excise 2012
New rate of Service Tax April 1, 2012

39. THANK YOU

40. Disclaimer
This presentation provides general information existing at the time of preparation.
The presentation is intended as a news update and Arkay & Arkay, Chartered
Accountants neither assumes nor accepts any responsibility for any loss arising to any
person acting or refraining from acting as a result of any material contained in
this presentation. It is recommended that professional advice be taken based on the
specific facts and circumstances. This presentation does not substitute the need to refer
to the original pronouncements.

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