AMENDMENTS IN NEGATIVE LIST BY FINANCE BILL, 2016

[Dr. Sanjiv Agarwal]

Educational Services

Amendment made by Finance Bill, 2016

Finance Bill, 2016 has omitted the negative list entry in clause (l) of section 66D. With this omission, specified educational services shall no more be in the negative list and liable to Service Tax. However, these services shall continue to be exempt from Service Tax under Entry No. 9 of Notification No. 25/2012-STas amended by Notification No. 9/2016-ST dated 01.03.2016.

To give effect to this legislative change, definition of 'approved vocational education course' in clause (11) of section 65B has also been omitted and brought in Notification No. 25/2012-ST under clause 2 (ba).

The definition of educational institution has been substituted in clause 2(oa) of Notification No. 25/2012-ST so as to cover the educational institutions which were covered under erstwhile clause (l) of section 66D.

The amendments in relation to educational services are thus as follows –

• Omission of clause (l) of section 66D.
• Insertion of definition of 'approved vocational education course' in clause 2(ba) of Notification No. 25/2012-ST
• Substitution of definition of 'educational institution' in clause 2(oa) of Notification No. 25/2012-ST.

All the aforesaid changes shall be effective from the enactment date of Finance Act, 2016.

Services by Stage Carriage

Amendment made by Finance Bill, 2016 (w.e.f. 01.06.2016)

Finance Bill, 2016 has omitted sub clause(i) relating to stage carriage w.e.f.  1.6.2016 [i.e., section 66D (o)(i)]. Thus, w.e.f. 01.06.2016, negative list entry of 'service of transportation of passengers with or without accompanied belongings, by a stage carriage' will no longer the covered in negative list and shall be liable to levy of Service Tax. Service Tax shall be  levied on transportation of passengers by air conditioned stage carriage with effect from 1st June, 2016, at the same level of abatement as applicable to the transportation of passengers by a contract carriage, that is, 60% without credit of inputs, input services and capital goods.

However, a new entry at S.No. 23(bb) has been inserted in Notification No. 25/2012-ST vide Notification No. 9/2016-ST dated 01.03.2016. W.e.f. 01.06.2016 to provide exemption to services by a stage carriage. Thus, services of air conditioned stage carriage only will become Taxable w.e.f. 1.6.2016.

CBEC has clarified vide TRU Letter DOF No. 334/8/2016-TRU dated 29.02.2016 as follows:

"The Negative List entry that covers “service of transportation of passengers, with or without accompanied belongings, by a stage carriage” is proposed to be omitted [section 66D (o)(i)] with effect from 1.06.2016. Clause 146 of Finance Bill 2016 may please be seen. As a consequence, the above services become taxable with effect from 1.06.2016. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification [Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 1st March, 2016 refers]. The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of Cenvat credit. [Notification No. 08/2016-St dated 29th February, 2016 refers]"

Transportation of Goods by Aircraft / Vessel

Amendment made by Finance Bill, 2016 (w.e.f. 01.06.2016)

Finance Bill, 2016 has omitted sub-clause(ii) relating to transportation of goods by an aircraft or a vessel from outside India w.e.f. 1.6.2016 [i.e. section 66D(p)(ii)]. Thus, w.e.f. 01.06.2016, negative list entry of 'service by way of transportation' of goods by an aircraft or a vessel from a place outside India upto the customs station of clearance, will no longer be covered in the negative list and shall be liable to levy of Service Tax.

However, a similar exemption has been provided in entry No. 53 in Notification No. 25/2012-ST vide Notification No. 9/2016-ST dated 1.3.2016 w.e.f. 1.6.2016.

CBEC has clarified vide TRU Letter DOF No. 334/8/2016-TRU dated 29.02.2016 as follows –

"The entry in the Negative List that covers services by way of transportation of goods by an aircraft or a vessel from a place outside India up to the customs station of clearance [section 66D (p)(ii)] is proposed to be omitted with effect from 1.06.2016. Clause 146 of Finance Bill 2016 may please be seen in this regard. However such services by an aircraft will continue to be exempted by way of exemption notification [Not. No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse  charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provider availing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.

In addition, Cenvat credit of eligible inputs, capital goods and input services is being allowed for providing the service by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India. Consequential amendments are being made in Cenvat Credit Rules, 2004 [Not. No. 23/2004-CE (N.T.), as amended by Sl. Nos. 2(b) and 5(h) of Notification No. 13/2016-C.E. (N.T.) dated refers. ]"

Discussions to this article

[Ashok Aggarwal]

It is good that the Board has clarified that the service tax paid on freight charged by the Indian flag vessel or that paid by reverse charge mechanism would not be taken for valuation for charging customs duty. Still when Freight is added in the value of imported goods on which the Customs duty and CVD equal to Central Excise duty is charged, there is no justification of charging Service tax also in addition to Custom duties. It practically means the freight portion would be subjected to both Central Excise duty as well as the Service tax in adition to Basic Customs duty and 4% SAD in lieu of Sales tax/VAT/CST.

However, it will create a new dispute because most of commodities are imported with CNF or CIF terms where freight is paid by the overseas seller of goods and the freight is included in the value which is not declared or intimated to the importer. In such cases how the importer will pay service tax by reverse charge mechanism ? Board will have to clarify this aspect also.