SERVICE TAX PROVISIONS IN EASE OF DOING BUSINESS IN INDIA

[Mr. M. GOVINDARAJAN]

Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country.   Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights. Empirical research funded by the World Bank to justify their work show that the effect of improving these regulations on economic growth is strong.  It is computed by aggregating the distance to frontier scores of different economies. The distance to frontier score uses the 'regulatory best practices' for doing business as the parameter and benchmark economies according to that parameter.  For each of the indicators that form a part of the statistic 'Ease of doing business,' a distance to frontier score is computed and all the scores are aggregated. The aggregated score becomes the Ease of doing business index. Indicators for which distance to frontier is computed include construction permits, registration, getting credit, tax payment mechanism etc. Countries are ranked as per the index.

India was ranked 142 in the ranking for the year 2015 which is declined from the point 140 for the year 2014.   India now is ranked 130 in the ranking for the year 2016 which depicts that the situation in India in doing business is improving.   In this article how do the provisions of service tax is helpful in ease of doing business in India is analyzed.

In the web site www.cbec.gov.in the Department listed the measures in respect of service tax taken by the Department during the last one year in line with the objectives to facilitate trade and improve ease of doing business.  The measures taken by the Department is furnished as below:

• Reduction in number of levies;
• Registration in two days;
• Time limit for taking CENVAT;
• Simplification in procedure for availment of CENVAT credit in certain cases;
• Rationalization of penal provisions;
• Digital signature and preserving records in electronic form;
• Withdrawal of prosecution in certain circumstances;
• Re-credit of reversed CENVAT credit in case of export proceeds received within one year;
• Certainty in determination of point of taxation for reverse charge mechanism.

The following are the measures taken industry specific:

• Uniform abatement for transport;
• Exemption in respect of services provided to Government;
• Rationalization of works contracts.

Reduction in number of levies

The Board highlighted that education cess and secondary and higher education cess on taxable services have been subsumed in service tax with effect from 01.06.2015.

Comments – Even though the education cess and higher education cess have been subsumed in service tax, the service tax rate is increased from 12% to 14% with effect from 01.06.2015.

Registration in two days

CBEC highlighted that registration in service tax will be granted within two working days which has been ordered vide No. 1/2015-Service tax, dated 28.02.2015. 

Comments - It is a welcome step and if it is actually implemented it will be appreciated.   The registration done in this method is on trust base method.  After this the assessee has to submit relevant documents within 7 days of filing of ST-1 form online for verification.   On verification there is the possibility of revocation of certificate.   No time limit is prescribed for complete verification of the assessee to confirm his registration.

Time limit for taking CENVAT

CBE&C highlighted that time limit for taking CENVAT credit of duty/tax paid on inputs and input services has been extended from six months from one year.

Comments – Before 01.09.2014 there was no time limit prescribed for taking CENVAT credit.  Now this has been tightened.

Simplification in procedure for availment of CENVAT credit in certain cases

CBE&C highlighted that for availment of CENVAT credit of service tax paid under Reverse Charge Mechanism, the condition of having made the payment of consideration to the service provider has been done away with, vide Notification No. 6/2015-Central Excise (N.T) dated 01.03.2015.

Comments – This is the welcome one.  Sometimes the payment of bills may be delayed to various reasons.   Once service tax is paid on reverse charge mechanism, the credit may be taken without waiting for making payment to the service provider for the concerned input service.

Rationalization of penal provisions

CBE&C highlighted that penalty provisions in service tax have been rationalized to encourage compliance and early dispute resolutions.

Comments – Section 113 of the Finance Act, 2015 substituted new section for Section 76 which deals with the penalty for failure to pay service tax.  Section 114 of the Finance Act, 2015 substituted new section for Section 78 which deals with the penalty for failure to pay service tax for the reasons of fraud, collusion etc., 

Section 76 – Before 14.05.2015 the section 76 provides that if any person fails to pay service tax, he is liable to pay a penalty of

• Rs.100 for every day during which the failure continues; or
• 1%  of service tax payable

whichever is higher.

The newly substituted section provides various circumstances for imposing penalty.

1. If a show cause notice is issued for failure to pay service tax – penalty is liable to pay not exceeding 10% of the amount of service tax;
2. If the assessee pays the tax and interest within 30 days from the date of receipt of notice no penalty is liable to pay;
3. If the assessee pays the tax and interest within 30 days from the date of receipt of order of the  Central Excise Officer, determining the amount of service tax payable, penalty may be paid @ 25% of the penalty imposed.  Such concession is not available if the assessee fails to pay penalty within 30 days from the date of receipt of order.
4. The point no.3 is applicable to the cases in which the appellate authorities enhanced the penalty amount.

The new section gives some concession but it cannot be told that the provisions are much beneficial to the assessees.

Section 78 – This section provides for penalty for failure to pay service tax for reasons of fraud etc.,  Before 14.05.2015 this section provides that the penalty equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded will be imposed.  The relaxations in reduction of penalties are as follows:

• where true and complete details of the transactions are available in the specified records, penalty shall be reduced to fifty per cent of the service tax so not levied or paid or short-levied or short-paid or erroneously refunded;
• where such service tax and the interest payable thereon is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be twenty-five per cent of such service tax.  the benefit of reduced penalty under this shall be available only if the amount of penalty so determined has also been paid within the period of thirty days from the date of communication of order;
•  in case of a service provider whose value of taxable services does not exceed sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of thirty days shall be extended to ninety days.

After 14.05.2015 Section 78 provides that the penalty equal to 100% of service tax.  The relaxations in reduction of penalties are as follows:

• where the details relating to such transactions are recorded in the specified record for the period beginning with the 8th April, 2011 up to the date on which the Finance Bill, 2015 receives the assent of the President (both Days inclusive), the penalty shall be fifty per cent of the service tax so determined;
• where service tax and interest is paid within a period of thirty days of –

• the date of service of notice under the proviso to sub-section (1) of section 73, the penalty payable shall be fifteen per cent. of such service tax and proceedings in respect of such service tax, interest and penalty shall be deemed to be concluded;
• the date of receipt of the order of the Central Excise Officer determining the amount of service tax under sub-section (2) of section 73, the penalty payable shall be twenty-five per cent. of the service tax so determined

The benefit of reduced penalty under the second proviso shall be available. only if the amount of such reduced penalty is also paid within a period of 30 days.

Some relaxations have been given under Section 78.

Digital signature and preserving records in electronic form

CBE&C highlighted that service tax assessees have been allowed to issue digitally signed invoices and maintain other records electronically.

Comments -  In the digital era the business is getting  the maximum benefit of digital invoices and records.  

Withdrawal of prosecution in certain circumstances

CBE&C highlighted that instructions have been issued providing for withdrawal of prosecution where a noticee has been exonerated in the quasi judicial proceedings and such order has attained finality.

Comments – This decision has been taken on the basis of Supreme Court judgment in ‘Radheshyam Kejriwal – 2011 (2) TMI 154 - Supreme Court of India.    However it is a welcome step.

Re-credit of reversed CENVAT credit in case of export proceeds received within one year

CBE&C highlighted that if the export proceeds are not received within the prescriber period, the exporter has to reverse the CENVAT credit.  Re-credit of such reversed CENVAT credit has been allowed, if such export proceeds are received within one year from the specified period.

Comments – It is a welcome step.  The exporters will be benefited by this.

Certainty in determination of point of taxation for reverse charge mechanism.

CBE&C highlighted that to bring certainty in the determination of point of taxation in case of reverse charge mechanism, it has been provided that the point of taxation will be the payment of date or three months from the date of invoice whichever is earlier.

Comments -  Rule 7 of Point of Taxation Rules, 2011 provides for the determination of point of taxation for reverse charge mechanism is the date on which the payment is made.  The proviso to this Rule provides that where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist.

Vide Notification No. 13/2014-ST, dated 11.07.2014 substituted a new proviso, for the earlier proviso,  which determines the point of taxation as highlighted by the Department.

This brings certainty in deciding the point of taxation in respect of reverse charge mechanism.

Uniform abatement for transport

CBE&C highlighted that uniform abatement of 70% from gross value prescribed for transport by rail, road and vessel.  Service tax in all these cases will now be charged on 30% of the gross value of such service subject to non availment of CENVAT credit on inputs, capital goods and input services.

Comments - Before the Notification NO. 8/2015-ST, dated 01.03.2015 the abatement for services of goods transport agency in relation to transportation of goods is 75% and the abatement of services of transport of goods in a vessel is 60%.           

By means of Notification No.8/2015-ST, dated 01.03.2015 uniform rate of abatement of 70% is given to both the cases.

Exemption in respect of services provided to Government;

CBE&C highlighted that to avoid disputes, exemption in respect of services provided to Government or local authority or Governmental authority, by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation has been made more specific.

Comments – Item No. 12 of Mega exemption list as notified vide Notification No. 25/2012-ST, dated 20.06.2012 as amended read as follows:

 “Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

• a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
• canal, dam or other irrigation works;
• pipeline, conduit or plant for-

• water supply;
• water treatment, or
• sewerage treatment or disposal.

Rationalization of works contracts

CBE&C highlighted that categories of works contracts have been rationalized to reduce litigation and improve compliance with a uniform service tax of 14% on 70% of the gross value of service.

Comments – Before the Notification No. 11/2014-ST, dated 11.07.2014, Rule 2A(B) of Service Tax (Determination of Value) Rules, 2006 provides that in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract.  Rule 2A(C) provides that  in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract.

The said Notification substituted the said Rules for the newly one which reads as-

“Rule 2A(B) -   in case of works contract, not covered under sub-clause (A)*, including works contract entered into for,-

• maintenance or repair or reconditioning or restoration or servicing of any goods; or
• maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property,

service tax shall be payable on seventy per cent. of the total amount charged for the works contract.

*Rule 2A (A) provides that in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract.

The new Rule 2A (B) came into effect from 01.10.2014.  By this notification the works contracts including maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tilling or installation of electrical fittings of immovable property is liable to levy service tax from 60% to 70% with effect from 01.10.2014.

Discussions to this article

[Mandar Sathe]

Time limit for taking CENVAT

CBE&C highlighted that time limit for taking CENVAT credit of duty/tax paid on inputs and input services has been extended from six months from one year.

I consider this to be against the interest of the assesses in general. Most of the time the assesses are not aware that they is hit by the provisions of Service Tax and that he is liable to charge and pay the same. The department on one hand recovers the tax for a period of more than 1 year and on the other denies the benefit of CENVAT on the other. Thus the Department is benefited twice.

Mandar Sathe

[KASTURI SETHI]

Sir,

This is a very useful article, especially the analysis on each amendment.It is ready reckoner in compact form and will help the professionals. It is worth saving in the system for ready reference. It has saved time of all for future guidance on the spot.

[MARIAPPAN GOVINDARAJAN]

Now the Government has introduced Swachh Bharat Cess @ 0.5% on all services liable for service tax which is an additional burden on business and also to comply with the provisions.