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 Notification no. 8/2009 ST has been withdrawn effective April 1 2012, bringing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 Years 1.5% 1.5%*
Works Contracts 4% 4.8%
Up to Rs 1 Lakh .10% .12%
Money Changing Between 1 Lakh and
.05%+100 .06%+120
10 Lakh
.01%+550, subject to .012%+660, subject to
More than 10 Lakh
maximum of Rs 5000 maximum of 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 service”
• Activities not considered a service are :
– transfer of title in goods or immovable property
– a transaction in money or actionable claim
– 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 agency services In case of other support services,
•Services in relation to aircraft/vessel in airport/port service receiver to pay taxes under
•Transport of goods, passengers reverse charge system
•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 state
Entertainment events and Amusement facilites
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 on loans and advances and interbank forex trading
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 previous
Fee charged by Advocates from non corporate including representation rules and hence no change is
taxability
Includes testing of herbal
Services of technical testing of drugs by approved organization
remedies and vaccines

13. Exemption list
Service Comments
Training or coaching relating to arts, culture or sports
Services provided
Clause covers mid-day meals
•To educational inst. by way of catering
and transportation services
•To educational inst. for transportation or admission of students
Exemption only to services
provided by coaches,
Services provided to recognized sports body
sportspersons , umpires etc
and other sports bodies.
Only where the tournament
Services by way of sponsorship of tournament or championships has been organized by
specified sports bodies
Services provided to govt. or local authority 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
Services provided by way of transportation of 9 specified goods by As per Notification No. 8/2010-
railways or by a vessel. ST, dated 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
Services to govt. by way of repair of ship, boat ; waste collection; storage , Transport of drinking water
transport or testing of water; sewerage treatment via pipe and conduits exempt
Services of general insurance business

15. Exemption list
Service
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 only to
Services by way of renting hotels, inns or places meant for residential or
units with declared tariff below
lodging purposes.
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.
Service provided by incubatee with a total business turnover not Exemption available in the first
exceeding 50 lakhs three years of incubation
For services rendered as trade
Services by unincorporated body or society to own members by way of
union, provision of exempt
reimbursements of charges or contribution
services etc

16. 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:-
Service
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.

17. 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 taxable Proposed taxable CENVAT credit
portion portion allowed
Convention center or Mandap with All credits except
60% 70%
catering inputs
All credits except
Pandal or shamiana with catering 60% 70%
on inputs
Coastal shipping 75% 50% No credit
Accommodation in hotel 50% 60% Credits on inputs
Railways: goods 30% 30% All credits allowed
Railways : passengers New levy 30%
All credits except
Outdoor catering 60% 50%
inputs
All credits except
Service portion of supply of food or any
40% 30% inputs
other article

18. 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 service Liability of service
provider receiver
Rent a Cab services
From 16.07.2005 to
•With abatement 100%
27.07.2009
•Without abatement 40%
Supply of manpower 75% 25%
Works contract services 50% 50%

19. Place of Provision of Service Rules 2012

20. 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
Generally Location of service receiver
Location where service is
Performance based services
actually performed
Where immovable property is
Service relating to immovable property
located
Location in taxable territory
Where above service are provided at more than one location
where greatest prop. of service
including a location in taxable territory
is provided.

21. Place of provision of service Rules 2012
Situation Place of provision of service
Provider and receiver are located in taxable territory Location of service receiver
Specific services Location of service provider
Service of transportation of goods Place of destination of goods
Goods transport agency services Location of person liable to pay tax.
Place where person embarks for
Passenger transportation services
conveyance
First scheduled point of departure of
Service provided on board a conveyance
that conveyance.
• 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.

22. Point of Taxation

23. Point of Taxation Rules - Amendments
Scenarios:
Situation Point of Taxation
Invoice is issued before completion of service Time of issue of invoice
and receipt of payment
Service is completed and invoice is issued Time of issue of invoice
within 30 days/45 days
Service is completed and invoice is not issued Date of completion of service
within 30/45 days
Payment is received in advance before issue of Date of receipt of payment, to the
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.

24. 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 rate or new Date when amount is actually credited in the bank; if it is
levy between said two dates credited more than four days after date of such change.
[Rule 5]
-

25. 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 &
No Service Tax
Payment received before NA
Payable
Service became Taxable
New Service Invoice issued within No Service Tax
brought under Payment received before 14 days of Payable
gamut of Service Service became Taxable Completion of Service
Tax
Invoice issued within
14 days of
No Service Tax
Service provided before Completion of Service
Payable
tax became applicable and payment
received after Service
became taxable

26. Continuous Supply of Services
Continuous Services
• Telecommunication Services • Any other service if provided
• Commercial or Industrial Construction continuously or on recurrent basis under
• Construction of Residential Complex a contract for a period exceeding three
• Internet Telecommunication months.
• 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 date 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.

27. Specified Services
When CENVAT Credit available
Nature of Service Point of Taxation (POT) Conditions
to Service Recipient
If payment is not received within
time, prescribed (6 Months) by
Export of service Date of Receipt of Payment NA
RBI, POT as per normal
provisions
If payment is not made within 6
months from the date of invoice,
POT would be as per normal
Persons required to pay
Date of payment of Value & provisions. Therefore, if after six
service tax as recipient of
Date of Payment Service tax mentioned on months payment for invoice has
service (Reverse Charge
Invoice not been made, then there would
Mechanism)
be liability to pay service tax but
no corresponding credit would
be allowed
A) Specified Services: - Architect,
Interior Decorator, CA/ CS/
Cost Accountants/Scientific &
Individuals/ Proprietorship/
Technical consulting/ Legal
Partnership firms providing Date of Receipt of Payment Date of Receipt of Invoice
B) Credit is available to the
specified Services
Service Recipient on receipt of
invoice though no amount has
been paid
They must have turnover of 50
Other
Date of Receipt of Payment lakhs or less during preceding
Individual/partnerships
F/Y. Payment basis shall
firms(LLP)
applicable up to Rs. 50 lakhs.

28. Valuation Rules

29. 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 alterations) 40%
where gross amount include value of land 25%
Otherwise including completion and finishing 60%

30. CENVAT CREDIT RULES

31. 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.

32. GENERAL CHANGES

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

34. 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.
• Provisions of section 73 has been amended regarding recovery of tax as follows:
Amendment comments
Period of issuance of demand notice extended from to take care of the shorter period available due to
12 to 18 months reduction of period 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.

35. 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.

36. 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 Rules, 2004 Effective from April 1, 2012
Legislative changes in Customs and Excise Date of enactment of the Finance Bill, 2012
New rate of Service Tax April 1, 2012

37. THANK YOU

38. Disclaimer
The finance Bill 2012 is pending before the parliament and the final bill passed may substantially differ
from the one presented by the finance minster on the 16th of March 2012, on which this analysis is
based. The analysis/views in this booklet do not purport to be and should not be treated as legal
opinion. Nothing contained herein can substitute appropriate legal opinion in the fact specific
situations that affect you or your enterprise.

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