TIME FOR NOTING CHANGES IN SERVICE TAX EXEMPTIONS - PART II

[Dr. Sanjiv Agarwal]

B. Service Tax exemption effective April, 2015

Exemptions play an important role, at least for assessees, in service taxation. The Budget proposals have made certain amends in the exemptions under Service Tax by way of announcing new exemptions, withdrawal of some existing exemptions and rationalization of certain other exemptions to bring them in line with change in law or to expand the scope of Service Tax.

This article discusses the changes in exemptions w.e.f. 1^st April, 2015.

1. New exemptions

Following new exemptions shall be available to service providers under Notification No. 25/2012-ST dated 20.06.2012 as amended by Notification No. 6/2015-ST dated 1.3.2015.

1. Service provided by a Common Effluent Treatment Plant operator for treatment of effluent has been exempted. (New entry at S.No. 43)
2. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables has been exempted. (New entry at S.No. 44)
3. Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve has been exempted. These services when provided by the Government or local authority are already covered by the Negative List. (New entry at S.No. 45)
4. Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of it’s members has been exempted. (New entry at S.No. 46)

2. Expansion of existing exemptions under Notification No. 25/2012-ST

1. Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from Service Tax. The scope of this exemption has been widened to include all ambulance services. (Entry No. 2)
2. Life insurance service provided by way of Varishtha Pension Bima Yojna has been exempted.(Entry No. 26A)

3. Expansion of exemption under Notification No. 31/2012-ST for GTA services

Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide Notification No. 31/12-ST dated 20.6.2012. The scope of this exemption has been widened to exempt such services when provided for transport of export goods by road from the place of removal to a Land Customs Station (LCS).(Vide Notification No. 4/2015-ST dated 1.3.2015)

4. Withdrawal of certain exemptions under Notification No. 25/2012-ST

1. Construction services provided to Government etc (Entry No. 12)

Clauses (a), (c) and (f) shall stand omitted

Construction, repair etc of the following services provided to the Government, a local authority, or a governmental authority are now taxable:

• a civil structure or any other original works meant predominantly for other than commercial purposes;
• of a structure for use as an educational, a clinical, or an art or cultural establishment;
• Residential complex for self-use or the use of the employees.

Thus, exemption presently available on specified services of construction, repair, maintenance, renovation or alteration service provided to the Government, a local authority, or a governmental authority (vide S. No. 12 of the Notification No. 25/12-ST) shall be limited only to,-

(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;

(b) canal, dam or other irrigation work; and

(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal.

2. Construction etc of airport or port.

In entry 14(a), the services relating to airport or port will no longer be exempt. Thus original work of construction, erection, commissioning or installation pertaining to an airport or port shall now be taxable. The other exemptions in the entry would continue.

3. Distribution / selling services under Entry No. 29

Exemption under clauses (c), (d) and (e) of Entry No. 29 have been omitted. These pertain to -

(a) services provided by a mutual fund agent to a mutual fund or assets

management company,

(b) distributor to a mutual fund or AMC,

In all aforementioned exemptions, Service Tax shall be payable under 100 percent reverse charge basis by the recipient of service.

4. Telecommunication services (Entry No. 32)

Exemptions have been withdrawn on the following services -

(a) Departmentally run public telephone;

(b) Guaranteed public telephone operating only local calls;

(c) Service by way of making telephone calls from free telephone at airport and

hospital where no bill is issued.

5. Rationalization of exemptions

1. Exemption to artists (Entry No. 16)

Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto ₹ 1,00,000 for a performance.

Only if the amount charged by such artist is more than rupees one lakh, the tax liability would arise. It may be noted that such exemption limit of rupees one lakh is based on per performance. It an artist performs at three places and only at one places he or she charges more than rupees one lakh, only such performance shall be liable to Service Tax. This exemption to artists shall not apply to services provided by artists as a brand ambassador.

2. Exemption to transportation of goods (Entry No. 20 and 21)

Exemption to transportation of certain essential goods and commodities by rail, road and vessel are exempt. This exemption shall be restricted only to items-milk, salt and food grains including flours, pulses and rice.

Exemption to transportation of food stuff by rail, or vessels or road is now limited to the transportation of food grains, rice and pulses, flour, milk and salt. Therefore, transportation by rail or vessels or road of items such as tea, coffee, jaggery, sugar, milk products, edible oil will now taxable.

Transportation of agricultural produce is separately exempt and shall continue to be exempt. With this change, exemption in relation to transportation of goods has been curtailed and limited to aforementioned items only.

6. Rescission of exemption Notification No. 42/2012-ST dated 29.06.2012

Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India shall stand rescinded with effect from March 1, 2015. This exemption had become redundant in view of the amendments made in law in the previous budget, in the definition of “intermediary” in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory. (Vide Notification No. 3/2015-ST dated 1.3.2015).