ABATEMENT UNDER SERVICE TAX PROVISIONS – AN UPDATE

[Mr. M. GOVINDARAJAN]

Section 93 of Finance Act, 1994 (‘Act’ for short) gives powers to the Central Government to grant exemptions from the levy of service tax.  Section 93(1) provides that if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally or subject to such conditions as may be specified in the notification, taxable service of any specified description from the whole or any part of the service tax leviable thereon.  Section 91(2) provides that If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by special order in each case, exempt any taxable service of any specified description from the payment of whole or any part of the service tax leviable thereon, under circumstances of exceptional nature to be stated in such order.

By virtue of the above said power the Central Government issued various notifications in granting abatement to the service providers in levying the service tax.   As on date, the Notification No.26/2012-ST, dated 20.06.2012 which gives the list of services and the abatement available to such services, has been amended in the present budget.   The abatement granted may be with or without conditions.  In this article the abatement granted to the services and the conditions imposed on them for availing such abatement is discussed.

1. Services in  relation to financial leasing including hire purchase – abatement 90% - Service provider is liable to levy service tax @ 10% of the value – No condition is prescribed for this abatement; - with effect from 01.07.2012;

2. Transport of goods in containersbyrail by any person other than Indian Railways – abatement – 60%; - conditions -

3. Transport of goods in rail other than in (2) – Abatement – 70% - conditions - CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 – with effect from 01.04.2016;

4. Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises – Abatement – 30% - conditions - CENVAT credit on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.; - with effect from 01.07.2012;

5. Transport of passengers by air, with or without accompanied belongings in economy class – Abatement – 60% - conditions - CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of theCENVAT Credit Rules, 2004. With effect from 01.04.2015;

6. Transport of passengers by air, with or without accompanied belongings in other than economy class – 40% - conditions - CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of theCENVAT Credit Rules, 2004. – with effect from 01.04.2015;

7. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes – Abatement – 40% - conditions - CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of theCENVAT Credit Rules, 2004. With effect from 11.07.2014;

8. Services of goods transport agency in relation to transportation of goods other than used household goods – Abatement – 70% - conditions - CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been takenby the service provider under the provisions of theCENVAT Credit Rules, 2004.; - with effect from 01.07.2012;

9. Services of goods transport agency in relation to transportation of used household goods – Abatement – 60% - conditions - ENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of theCENVAT Credit Rules, 2004 – with effect from 01.04.2016;

10. Services provided by a foreman of chit fund in relation to chit – Abatement – 30% - conditions - CENVAT credit on inputs, capital goods and input services, used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004;- with effect from 01.06.2016;

11. Renting ofmotor cab – Abatement – 60% - conditions-

• CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004;
• CENVAT credit on input service of renting of motor cab has been taken under the provisions of the CENVAT Credit Rules, 2004, in the following manner:

• Full CENVAT credit of such input service received from a person who is paying service tax on forty percent of the value; or
• Up to forty percent CENVAT credit of such input service received from a person who is paying service tax on full value;

• CENVAT credit on input services other than those specified in (ii) above, has not been taken under the provisions of the CENVAT Credit Rules, 2004- with effect from 01.07.2012;

12. Transport of passengers, with or without accompanied belongings, by a contract carriage other than motor cab, a radio taxi, a stage carriage – Abatement – 60% - conditions - CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 -  with effect from 11.07.2014;

13. Transport of goods in a vessel – Abatement – 70%- conditions - CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004 with effect from 01.07.2012;

14. Services by a tour operator in relation to a tour, only for the purpose of arranging or booking accommodation for any person – Abatement – 90% - conditions –

• CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.;
• The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challan issued by the tour operator, in relation to a tour, includes only the service charges for arranging or booking accommodation for any person but does not include the cost of such accommodation. – with effect from 01.04.2016;

15. Services by a tour operator in relation to tours other than (14) above – Abatement – 70% - conditions-

• CENVAT credit on inputs, capital goods and input services other than input services of a tour operator, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.;
• The bill issued for this purpose indicates that it is inclusive of charges for such a tour and the amount charged in the bill is the gross amount charged for such a tour; - with effect from 01.04.2016;

16. Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority – Abatement – 70% - conditions –

• CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004;
• The value of land is included in the amount charged from the service receiver. – with effect from 01.04.2016.

Explanation

   The notification provides explanation to some services. 

1. For the purposes of exemption at Sl. No.1-

(i) The  amount charged shall be an amount, forming or representing as interest, i.e. the difference between the installments paid towards repayment of the lease amount and the principal amount contained in such installments;

 (ii) the exemption shall not apply to an amount, other than an amount forming or representing as interest, charged by the service provider such as lease management fee, processing fee, documentation charges and administrative fee, which shall be added to the amount calculated in terms of (i) above.

2. For the purposes of exemption at Sl. No. 4- The amount charged shall be the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink (whether or not intoxicating) and whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider,  if any; and

(ii) the value added tax or sales tax, if any, levied thereon:         

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.     

3. For the purposes of exemption at Sl. No.11 -  the amount charged shall be the sum total of the amount charged for the service including the fair market value of all goods (including fuel) and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract.

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

4. For the purposes of exemption at Sl. No. 16 -  The amount charged shall be  the sum total of the  amount charged for the service including the fair market value of all goods and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider, if any; and

(ii) the value added tax or sales tax, if any, levied thereon.

 Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.           

Discussions to this article

[deepak gulati]

Sir

can you please clarify that in case of Abatement how much benefit of Input services is allowed, e.g. In case of Restraunt the service tax is 5.80% and can the service provider take full credit of service tax paid on Rental for the premises of Restraunts.

[KASTURI SETHI]

Sir,

Excellent article on abatement. Your article has enriched my knowledge. It also serves as ready recknor. You serving not only TMI but also visitors of this site.

With regards.

K.L.SETHI

[Ganeshan Kalyani]

Sir, I came across a query where the querist has asked that in respect of service tax on GTA, the service recipient is liable to pay the tax subject to some conditions. Sir when the liability is paid by the recipient of service then what would be the output liability that the service provider I.e. GTA have against which he need not have to claim the input tax credit. Please discuss Sir.