SERVICE TAX - Changes effective from 14th May, 2016

[Monarch Bhatt]

Finance Bill, 2016 has received the presidential assent on 14^th Day of May, 2016 and became Finance Act, 2016. It is to be noted that numerous changes was proposed in the Finance Bill 2016, and it will come into effect from 14^th May, 2016. The highlights of major amendments made under service tax and effective from 14^th day of May, 2016 are as follows.

1. Change in the rate of interest – Section 75

Service tax collected but not deposited with the central government	Interest is payable @ 24% p.a.
In all other cases	Interest is payable @ 15% p.a.

2. Dispute Resolution Scheme, 2016

Indirect Tax Dispute Resolution Scheme, 2016, has come into effect, wherein under the scheme, the assesse whose cases are pending before Commissioner (Appeals) can file a declaration after paying the duty, interest and penalty equivalent to 25% of duty, in turns the proceedings against the assessee will be closed and he will also get immunity from prosecution. It is to be noted that this scheme will not apply in certain specified type of cases.

3. Annual Return

Service tax assesse providing the services above a certain threshold limit will be required to file an annual return from 01^st April, 2016. The Annual return is to be filed in addition to the ST3 returns (six monthly) filed by the assesse. The details to be submitted in the annual return, threshold limit for filing of annual return, etc. has not been announced by the board. Soon, I am expecting that government or board may issue notification and circulars in this regards.

The Annual return is to be filed on or before 30^th November of each succeeding financial year. The same can be revised within one month from the date of filing. The delay in filling of annual return can be condoned by paying penalty amount which will be ₹ 100/- per day. However penalty for delayed filing of annual return in any case cannot exceed ₹ 20,000/-.  

4. Lottery distributor or selling agents of the State Government - liable for the payment of service tax

The definition of service has been amended by amending an explanation 2 of section 65B (44). Therefore, the activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to service tax. 

5. Right to use the radio-frequency spectrum and subsequent transfers - liable for the payment of service tax

Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is declared as a service under section 66E of the Finance Act, 1994. Therefore, assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a service leviable to service tax and not sale of intangible goods.

6. Limitation period increased from 18 months to 30 months

Section 73 has been amended to increase the time limit for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. by one year. Therefore, instead of 18 months it can be demanded within a period of 30 months.

7. Retrospective effect to allow refund of service tax on services used beyond the factory

Notification No. 41/2012 - ST, dated 29^th June, 2012 was amended vide notification No. 1/2016-ST dated 3^rd February, 2016 so as to, inter alia,  allow refund of service tax on services used beyond the factory or any other place or premises of production or manufacture of the said goods, for export of the said goods.

The said amendment is being given retrospective effect from the date of application of the parent notification, i.e. from 01.07.2012. The refund application can be made by the exporters, whose claims of refund were earlier rejected in absence of such amendment, within a period of one month from the date of enactment. i.e. upto 13/06/2016.

8. Retrospective effect to allow the Service Tax exemption to canal, dam or other irrigation works

Definition of Governmental authority was amended with effect from 30.01.2014 so as to exempt services provided by way of construction, erection, maintenance, or alteration etc. of canal, dam or other irrigation works provided to entities set up by Government but not necessarily by an Act of Parliament or a State Legislature. However, services provided prior to 30.01.2014 to such bodies remained taxable. The benefit of exemption is proposed to be extended to the said services provided during the period 01.07.2012 to 29.01.2014.

Refund of Service Tax paid on the said services during the period 01.07.2012 to 29.01.2014 shall be allowed in accordance with the law including the law of unjust enrichment. Refund Application shall be filed within a period of six months from the date of enactment. i.e. upto 13/11/2016.

9. Restoration of exemptions – Services provided to Government, a local authority or a governmental authority

The following exemption provided under the notification number 25/2012 – ST was withdrawn with effect from 01.04.2015.

“(a) Exemption from  Service Tax on services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of -

(i) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

(ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;

(iii) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65B of the said Act;“ 

The Central Government has restored the entry which was deleted in the last Union budget 2015-2016 with retrospective effect i.e. from 01/03/2015. The entry is granting the exemption in relation to Government, a local authority or a governmental authority in relation to specified services. 

Generally, any government body including municipality or local authority awards such contract for a period of five years and at the time of awarding the contract successful bidder has not taken into consideration the cost of taxes, as during the relevant time of filing of tender it was exempted from payment of service tax. Now, suddenly withdrawal of such exemption has resulted into payment of service tax by the successful bidder which he has not taken into consideration. To overcome such situations the said exemption benefit has been restored retrospectively with a condition that the contract or agreement has been entered between the parties prior to 1^st day of March, 2015 and appropriate stamp duty has been paid on it, if stamp duty is payable on it. 

The said exemption is applicable till 31^st March, 2020. From 01^st April, 2020 this exemption will cease to have any effect. 

The cases where, service provider has paid service tax on such services during the period 01/04/2015 to 29/02/2016, provision has been made under the Finance Act, 2016 to grant the refund of service tax paid by the assessee. Refund Application shall be filed within a period of six months from the date of enactment. i.e. upto 13/11/2016.              

10. Restoration of exemptions – Services provided to an airport / port by way of original works

New entry number 14A has been inserted to provide exemption from payment of service tax to the services provided by way of construction or erection or commissioning or installation of original works pertaining to an airport or port for which contracts had been entered prior to 1^st March, 2015 and certificate has been obtained to that effect from the Ministry of Civil Aviation or the Ministry of Shipping. 

Generally, such contracts are awarded for a period of five years and at the time of awarding the contract successful bidder has not taken into consideration the cost of taxes, as during the relevant time of filing of tender it was exempted from payment of service tax. Now, suddenly withdrawal of such exemption has resulted into payment of service tax by the successful bidder which he has not taken into consideration. To overcome such situations the said exemption benefit has been restored retrospectively with a condition that the contract or agreement has been entered between the parties prior to 1^st day of March, 2015 and appropriate stamp duty has been paid on it, if stamp duty is payable on it. Further, service provider availing such exemption must get the certificate from the respective Ministry of Civil Aviation or the Ministry of Shipping as the case may be, that they have entered into contract prior to 01/03/2015. 

The said exemption is applicable till 31^st March, 2020. From 01^st April, 2020 this exemption will cease to have any effect. 

The cases where, service provider has paid service tax on such services during the period 01/04/2015 to 29/02/2016, provision has been made under the Finance Act, 2016 to grant the refund of service tax paid by the assessee. Refund Application shall be filed within a period of six months from the date of enactment. i.e. upto 13/11/2016.

11. Approved vocational education course - omitted from the negative list entry and incorporated in mega exemption notification - Exemption continues

Clause (l) of section 66D of the Act i.e. Negative List was covering the specified educational services. These services are omitted from the Negative List but the service tax exemption on the same is being continued by incorporating it into mega exemption notification i.e. Notification No. 25/2012-ST as amended by notification No. 09/2016-ST, dated 1st March, 2016. Consequently, the definition of “approved vocational education course‟ is omitted by omitting clause (11) of section 65B and it is being incorporated in the mega exemption notification.

12. Amendments to Section 67A

Section 67A is being amended to obtain specific rule making powers in respect of Point of Taxation Rules, 2011. Point of Taxation Rules, 2011 is being amended to recover the new levy such as Krishi Kalyan Cess.

13. Amendments to sections 89

The monetary limit for filing complaints for punishable offences is now enhanced to ₹ 2 crore.

14. Amendments to sections 90 and 91 – Power to arrest

The amendment has been made under section 90 and section 91 wherein, assesse can be arrested only in the following circumstances.

• The tax payer has collected the service tax but not deposited it with the exchequer, and
• Amount of such tax collected but not paid is above ₹ 2 crore. 

15. Amendments to Section 93A – power to grant rebate

Section 93A of the Finance Act, 1994 is being amended so as to enable allowing of rebate by way of notification as well as rules.

16. Amendments to section 78A – Penalty on Directors, etc.

An explanation has been added to section 78A that it is deemed to be closed where the main demand and penalty proceedings have been closed under section 76 or section 78.