AMENDMENTS TO SERVICE TAX RULES, 1994

[Mr. M. GOVINDARAJAN]

Vide Notification No. 19/2016-Service Tax, dated 01.03.2016 the Central Government makes some amendments to Service Tax rules, which will come into effect from 01.04.2016.

Payment under Reverse Charge mechanism

Rule 2(1) (d) defines the term ‘person liable for paying service tax’.  Rule 2(1) (d) (i) provide the list of the persons liable for paying service tax under reverse charge mechanism under Section 68 (2) of Finance Act, 1994.

Rule 2(1)(d) (D) provides that the service recipient is liable to pay service in relation to the services provided or agreed to be  provided by-

1. An Arbitral Tribunal; or
2. An individual advocate or a firm of advocates by way of legal services, to any business entity located in the taxable territory, the recipient of such service.

The Notification proposes to substitute the clause II above for the new one.  According to the new amendment the service recipient is liable to pay service tax in relation to the services provided or agreed to be provided by-

1. an Arbitral Tribunal; or
2. a firm of Advocates or an individual advocate other than a senior Advocate by way of legal services.

Before Notification only business entity which receives legal services is liable to pay service tax under reverse charge mechanism.  Now all the persons who receives legal services is liable to pay service tax under reverse charge mechanism.

The Notification seeks to omit Rule 2(1)(d)(i) (EEA) which provides that the recipient of service is to pay service tax in respect of service provided or agreed to be provided by a mutual fund agent or distributor to a mutual fund or asset management company.

Payment of service tax by One Person Company

Rule 6 (1) provides for the procedure of payment of service tax periodically.  The first proviso to Rule 6(1) provides that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the service is deemed to be provided as per the rules framed in this regard.

Clause (2)(i) (a)  of the Notification proposes for the substitution  for the words ‘assessee is an individual or proprietary firm or partnership firm’ in  the first proviso to Rule 6(1) by the following:

“assessee is a one person company whose aggregate value of taxable services provided from one or more premises if ₹ 50 lakhs or less in the previous financial year, or is an individual or proprietary firm or partnership firm or Hindu Undivided Family’.

Thus the amendment to the first proviso incorporates the periodicity of payment by One Person Company whose aggregate value of taxable service provided form one or more premises if ₹ 50 lakhs or less in the previous financial year.

The third proviso to Rule 6(1) provides for the option for the individuals and partnerships whose aggregate value is less than ₹ 50 lakhs or less to pay the service tax monthly or quarterly.   The amendment adds the One Person Company along with individuals and partners to excise this option of paying service tax either monthly or half yearly.

Provisional assessment

Rule 6(4) provides for the provisional assessment of service tax.  This Rule provides that for the purpose of provisional assessment the provisions of the Central Excise (No.2) Rules, 2001, relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment.

The Notification replaces the Central Excise Rules, 2001 for Central Excise Rules, 2002.   In respect of provisional assessment for service tax the provisions of Central Excise Rules, 2002, relating to provisional assessment will apply, except executing of bond.

Payment of service tax on insurance premium

Rule 7A provides to an insurer carrying life insurance business to pay the service tax on option.  The Notification inserts Rule 7A(ia) after Rule 7A(i) which provides that an insurer carrying life insurance business shall have the option to pay in case of single premium annuity policies other than in Rule 7A(i) 1.4% of the single premium charged from the policy holder.                      

Annual Return

Rule 7 (1) provides that every assessee shall submit a half yearly return in Form – ST -3 which is to be filed electronically as per Rule 7(3).  The return should be filed by 25^th of the  following particular half year as per Rule 7(2).

The Notification proposes to insert Rule 7(3A) and Rule 7(3B) after Rule 7(3).  In addition to the half yearly return every assessee is to file annual return.   The new Rule 7(3A) provides that notwithstanding any     notwithstanding anything contained in Rule 7(1) every assessee shall submit an Annual return for the financial year to which the return relates.  The form for such Annual Return will be specified by the Central Board of Excise and Customs in the Notification.   The Annual return shall be submitted by the 30^th day of November of the succeeding financial year.

Rule 7(3B) provides that the Central Government may, subject to such conditions or limitations specify by notification an assessee or class of assessees who may not be required to submit the annual return referred to Rule 7(3A).

Rule 7(4) is also amended by the Notification.   As per amended Rule 7(4) the Central Board of Excise and Customs may, by an order extend the period for filing half yearly return and annual return by such period as deemed necessary under circumstances of special nature to be specified in such order.

Rule 7B provides for filing of revised return within 90 days from the date of filing of return.  The existing provision is numbered as 7B(1) by the Notification and inserted Rule 7B(2).  The newly inserted Rule 7B(2) provides that an assessee who has filed the Annual Return may submit a revised return within a period of one month from the date of submission of the said Annual Return.

Rule 7C provides for the amount to be paid for delay in furnishing the prescribed return.   The existing provision is numbered as 7C(1) by the Notification and  proposes to insert new Rule 7C(2).  The newly inserted Rule 7C(2)  provides where the annual return is filed by the assessee after the due date, the assessee shall pay to the credit of the Central Government, an amount calculated at the rate of ₹ 100/- per day for the period of delay in filing of such return, subject to a maximum of ₹ 20,000/-.