CHANGES FOR SERVICE TAX IN FINANCE BILL, 2016

[Mr. M. GOVINDARAJAN]

The Hon’ble Finance Minister submitted the budget for the year 2016 – 17 in the Parliament and also introduced Finance Bill, 2016.  Chapter V of the Finance Bill, 2016 deals with changes to be brought in service tax provisions.  The changes may be by means of omission of certain provisions, substitution of certain provisions and insertions of new provisions.

Insertions

The Finance Bill, 2016 inserts three new sections namely Section 101, 102 and 103.   Section 101 is special provision for exemption in certain cases relating to construction of canal, dam etc., Section 102 is a special provision for exemption in certain cases relating to construction of Government buildings.  Section 103 is a special provision for exemption in certain cases relating to construction of airport or port.

Clause 156 of the bill proposes to inserts new Sections 101 to 103.

Section 101

Section 101 (1) provides that notwithstanding anything contained in Section 66B, no service tax shall be levied or collected during the period from 01.07.2012 and ending with 29.01.2014 (both days inclusive) in respect of taxable services provided to an authority or a board or any other body-

• Set up by an Act of Parliament or a State Legislature; or
• Established by the Government.

With 90% of more participation by way of equity or control to carry out any function entrusted to a municipality under Article 243W of the Constitution, by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of canal, dam or other irrigation works.

Section 101(2) provides that the refund shall be made of all such service tax which has been collected but which would not have been so collected during the material time.

Section 101(3) provides that an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, receives the assent of the President.

Section 102

Section 102(1) provides that no service tax shall be levied or collected during the period commencing from 01.04.2015 and ending with 29.02.2016 (both days inclusive) in respect of taxable services provided to the Government, a local authority, by way of construction, erection, commissioning, installation, completion, filling out, repair, maintenance, renovation or alteration of-

• A civil structure or any other original works meant predominantly for use other than for commerce, industry or any other business or profession;
• A structure meant predominantly for use as-

• An educational establishment;
• A clinical establishment; or
• An art or cultural establishment.

• A residential complex predominantly meant for self use for the use of their employees or other persons in Explanation 1 to clause (44) of Section 65B of the said Act

under a contract entered into before 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid before that date.

Section 102 (2) provides that refund shall be made of all such service tax which has been collected but which would not have been so collected at all material times.   Section 102(3) provides that an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

Section 103

Section 103(1) provides that no service tax shall be levied or collected during the period commencing from 01.04.2015 and ending with 29.02.2016 (both day inclusive), in respect of services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport or port, under a contract which had been entered into before 01.03.2015 and on which appropriate stamp duty, where applicable, had been paid before that date, subject to the condition that the Ministry of Civil Aviation or, as the case may be, the Ministry of Shipping in the Government of India certifies that the contract had been entered into before 01.03.2015.

Section 103(2) provides that the refund shall be made of all such service tax which has been collected but which would not have been so collected at all material times.  Section 103 (3) provides that an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President.

Amendment to Section 65B

Clause 145 (a) of the bill proposes to omit the definition of Section 65B(11) which defines ‘approved vocational education course;.  Clause 145(b) proposes to substitute Section 65B (44), (which defines the term ‘service’) in Explanation 2, in sub clause (ii), for item (a) by a new provision.   By the newly substitution the expression “transaction in money or actionable claim” shall not include any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998.

Amendment to Section 66D

Clause 146(a) of the bill proposes to omit the Section 66D(l) (which deals negative services).  By this omission, the services by way of-

• pre-school education and education up to higher secondary school or equivalent;
•  education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;
• education as a part of an approved vocational education course;

will come into the service tax net.

Clause 146(b) seeks to omit Section 66D(o)(i) and 66D(p)(ii) with effect from 01.06.2015.   By this omission the service of transportation of passengers, with or without accompanied belongings by a stage carriage and the services by way of transportation of goods by an aircraft or vessel from a place outside India upto the customs station of clearance in India will come into the service tax net.

Amendment to Section 66E

Section 66E deals with the declared service which includes in the definition of the term ‘service’.  Clause 147 of the Bill proposes to insert one more service as declared service which is the assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof.

Amendment to Section 67A

Clause 148 of the Bill proposes to renumber the existing provision of Section 67A as 67A (1) and also proposes to insert new clause 67A (2).  After this amendment the Section 67A will read as follows:

“Date of determination of rate of tax, value of taxable service and rate of exchange.

67A(1)  The rate of service tax, value of a taxable service and rate of exchange, if any, shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be, in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

(2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed.

Explanation: - For the purposes of this section, “rate of exchange” means the rate of exchange determined in accordance with such rules as may be prescribed.”

Amendment to Section 73

Section 73 of the Act  deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded.  Section 73(1) provides the limitation period up to which the Central Excise Officer may issue show cause notice where service tax is not levied or paid or short levied or short paid or erroneously refunded.  The limitation is eighteen months.   This limitation of 18 months has been enhanced to 30 months i.e., two and half years.  If the said default is due to suppression of fact etc., the limitation is extended from 30 months to 5 years.

The said limitation period is also applicable to Section 73(2) which provides that where the adjudicating authority/appellate authority do not allow the invoking of extended period, the Central Excise Officer may determine the tax due for 30 months as if the notice was issued for the offences for which limitation of eighteen months applies under sub-section (1).

The said limitation period is also applicable to Section 73(3).  The proviso to Section 73(3) provides that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of thirty months referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Amendment to Section 75

Section 75 of the Act deals with the levy of interest in case of the assessee fails to credit the tax or any part thereof to the account of the Government within the specified period he is to pay interest at such rate not below 10%  and not exceeding 36% per annum as is for the time being fixed by the Central Government, by notification in the Official Gazette] for the period] by which such crediting of the tax or any part thereof is delayed.

Clause 150 of the bill proposes to insert the proviso therein by which in case of a person who collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government, on or before the date on which such payments is due, the Central Government may, by notification in the Official Gazette, specify such other rate of interest, as it may deem necessary.

Amendment to Section 78A

Clause 151 proposes to insert Explanation in Section 78A.  The explanation to Section78A clarifies that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded and the proceedings with respect toa notice issued under Section 73(1) or the proviso to Section 73(1) is concluded in accordance with the provisions of clause (i) of the first proviso to Section 76 or clause o(i) of the second proviso to Section 78, as the case may be, the proceedings pending against any person under this section shall be deemed to have been concluded

Amendment to Section 89

Section 89 deals with offences and penalties.  Clause 152 of the bill enhances the limit for imprisonment from ₹ 50 lakhs to ₹ 2 crores for the person who commits the following offences under Section 89 (1)-

1. knowingly evades the payment of service tax under this Chapter; or
2. avails and utilizes credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or
3. maintains false books of account or fails to supply any information which he is required to supply under this Chapter or the rules made there under or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or
4. collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, shall be punishable,-

in the case of an offence specified in clauses (a), (b) or (c) where the amount exceeds two hundred lakh rupees, with imprisonment for a term which may extend to three years.  in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months.

in the case of the offence specified in clause (d), where the amount exceeds two hundred lakh  rupees, with imprisonment for a term which may extend to seven years.   in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for a term of less than six months;

Amendment to Section 90

Clause 153 of the bill seeks to omit Section 90(2) as the power of arrest in respect of the offences under clauses (a), (b) and (c) of Section 89(1) is proposed to be withdrawn.

Amendment to Section 91

Clause 154 of the bill seeks to amend Section 91(1) and omit Section 91(3) as the power of the arrest in respect of offences under clauses (a), (b) and (c) of sub section (1) of section 89 is proposed to be withdrawn.