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TMI BlogChanges relating to service tax through Finance Bill, 2008 and notificationsX X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2007. Details of the changes are explained in the Explanatory Notes. Salient features of the changes are discussed hereinafter: 2. INCREASE IN THRESHOLD EXEMPTION LIMIT FOR SMALL SERVICE PROVIDERS 2.1 The annual threshold limit of service tax exemption for small service providers is being increased from Rs.8 lakh to Rs.10 lakh by amending notification No.6/2005-Service Tax, dated 01.03.05 vide notification No.8/2008-Service Tax, dated 01.03.08. Amendment shall come into effect from 01.04.2008. 2.2 Consequent upon the increase in the threshold exemption limit from Rs.8 lakh to Rs.10 lakh, the annual turnover limit for obtaining service tax registration shall also be increased from Rs.7 lakh to Rs.9 lakh by amending notification Nos.26/2005-Service Tax and No.27/2005-Service Tax, both dated 07.06.05 vide notification Nos. 9/2008-ST and 10/2008-ST, both dated 01.03.08 respectively. Amendments shall come into effect from 01.04.2008. Increased threshold limit of Rs.10 lakh shall be applicable to small service providers for the financial year 2008-09 onwards. 3. CLASSIFICATION OF TAXABLE SERVICES: 3.1 Taxable services are defined separately under clause (105 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic taxable service may change. The scope and coverage of a taxable service are to be determined strictly in accordance with the language of the relevant statutory provision existing during the material period. 4. FOLLOWING SERVICES ARE SPECIFICALLY INCLUDED IN THE LIST OF TAXABLE SERVICES: (i) Services provided in relation to information technology (IT) software for use in the course, or furtherance, of business or commerce [section 65(105)(zzzze) refers]; (ii) Services provided in relation to management of investment, known as segregated fund, under unit linked life insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme [section 65(105)(zzzzf) refers]; (iii) Services provided by a recognised stock exchange in relation to securities [section 65(105)(zzzzg) refers]; (iv) Services provided by a recognised association or a registered association (commodity exchange) in relation to sale or purchase of any goods or forward contracts [section 65(105)(zzzzh) refers]; (v) Services provided by a processing and clearinghouse in relation to processing, clearing and settlement of transactions in securities, goods or forward contracts [section 65( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 65(65)]. Management, maintenance or repair service - maintenance of software, both packaged and customized and hardware [section 65(64)]. Banking and other financial services - 'provision and transfer of information and data processing' [section 65(12)]. Business support service - various outsourced IT and IT enabled services [section 65(105)(zzzq)]. Business auxiliary service - services provided on behalf of the client such as call centres [section 65(19)]. 4.1.4 IT software services provided for use in business or commerce are covered under the scope of the proposed service. Said services provided for use, other than in business or commerce, such as services provided to individuals for personal use, continue to be outside the scope of service tax levy. Service tax paid shall be available as input credit under Cenvat credit Scheme. 4.1.5 Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically shall be covered within the scope of the proposed service. 4.1.6 With the proposed levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aditional life insurance policies, policyholder of ULIP can choose portfolios for investment with different investment aims such as low, medium and high-risk category or combination thereof. ULIP enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds. The investment risk is borne by the ULIP policyholder. 4.2.2 The fund available for investment is known as segregated fund. Insurance companies charge from the policyholder, initially and periodically, various charges, in addition to risk premium, relating to management of the segregated fund under various names, such as, premium allocation charges, fund management fees, fund switching charges, surrender charges etc. These are consideration for providing services relating to investment management. 4.2.3 The proposed service enables levy of service tax on services provided in relation to management of the investment portion of ULIP premium also known as segregated fund. Consideration for management of the segregated fund shall be computed as the difference between the total premium paid and the sum of premium for risk cover plus amount of segregated fund. Service tax is li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid. 4.5 INTERNET TELECOMMUNICATION SERVICE: 4.5.1 In budget 2007-08, six separate taxable services (telephone, pager, leased circuit, telegraph, telex and fax) related to telecommunication were merged into a single taxable service namely telecommunication service. Telecommunication service was comprehensively defined so as to include all services provided in relation to telecommunicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... currency, including money changing, provided by an authorized dealer in foreign currency or an authorised money changer, in addition to a foreign exchange broker. An explanation is being added to the effect that explicit mention of the consideration for the services provided in relation to purchase or sale of foreign currency is not relevant for the purpose of levy of service tax. Taxable services [sections 65(105)(zzk) and 65(105)(zm)] are being amended suitably. With these amendments, services provided in relation to purchase or sale of foreign currency by a foreign exchange broker, money changer and authorised dealer of foreign exchange shall also be leviable to service tax. 5.1.4 To enable determination of taxable value, where the consideration for the services provided in relation to purchase or sale of foreign currency is not explicitly indicated by the service provider, a method under rule 6(7B) of the Service Tax Rules, 1994 shall be prescribed. As per this provision, the service provider has the option to pay service tax calculated at the rate of 0.25% of the gross amount of currency exchanged. Illustration: Buying rate : US$ 1 = Rs.38 // Selling rate : US$ 1 = R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles having the above two types of permits. 5.3.2 Section 65(115) defining tour operator is being amended so as to include services provided in relation to a journey from one place to another, generally known as point-to-point tour, in a vehicle having contract carriage permit, even if the vehicle does not meet the criteria specified for tourist vehicles. With this amendment, journey from one place to another conducted in a vehicle having contract carriage permit shall be leviable to service tax under tour operator service. Service tax is not leviable under tour operator service only if the tour is conducted in a vehicle having stage carriage permit. Field formations may collect data from transport authorities regarding details of contract carriage permits issued. 5.3.3 It may be noted that services provided in relation to a journey from one place to another conducted in a tourist vehicle having contract carriage permit for use by educational bodies shall be excluded from the scope of the taxable service. Educational bodies do not include commercial training or coaching centres. 5.4 BUSINESS AUXILIARY SERVICE: 5.4.1 Services provided in relation to promotion or mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all such cases. 6. TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES: 6.1 Service tax is levied at the rate of 12% of the value of taxable services (section 66). Section 67 pertaining to valuation of taxable service for charging service tax states that value shall be the gross amount charged for the service provided or to be provided and includes book adjustment. As per rule 6 of the Service Tax Rules, 1994, service tax is required to be paid only after receipt of the payment. 6.2 It has been brought to the notice that the provision requiring payment of service tax after receipt of payment are used for tax avoidance especially when the transaction is between associated enterprises. There have been instances wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognized as revenue/expenditure in the statement of profit and loss account for the purpose of determining corporate tax liability. 6.3 As an anti-avoidance measure, it is proposed to clarify that service tax is leviable on taxable services provided by the person liable to pay service tax even if the amount is not actually received, but the amount is credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that fulfillment of the condition of non-availment of Cenvat credit by the service provider is, at times, difficult to prove, when the service tax is required to be paid not by the service provider but by the consignor or consignee who pays the freight. Taking into account the special nature of the goods transport agency (GTA) service, it is being exempted from the payment of service tax unconditionally to the extent of 75% of the freight. In other words, service tax is required to be paid only on 25% of the freight irrespective of who pays the service tax. Simultaneously, the benefit of Cenvat credit has been withdrawn to GTA service under Cenvat Credit scheme by deleting the said service from the scope of output service in the CENVAT Credit Rules, 2004. Henceforth, the person who is required to pay service tax under reverse charge method on GTA service can pay service tax on 25% of the freight unconditionally. Recipient of GTA service paying service tax under reverse charge method is no more required to prove non availment of CENVAT credit by the GTA service provider. 7.3 The above exemptions shall come into effect from 1 st March, 2008. 8. PENALTY 8.1 Penalty for del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of enactment of the Finance Bill, 2008. 10. AMENDMENTS IN THE SERVICE TAX RULES, 1994: 10.1 PAYMENT OF SERVICE TAX IN ADVANCE: Assessee having centralized registration is allowed to pay service tax in advance. However, such facility is not available for other categories of taxable persons. It is proposed to extend the facility to pay service tax in advance to all taxable persons subject to the condition that the details of advance payment should be intimated to the jurisdictional Superintendent of Central Excise within 15 days of such payment. Service tax paid in advance is allowed to be adjusted against service tax liable to be paid for the subsequent period. It is sufficient to intimate the details of such adjustment in the periodical return to be filed. For this purpose, rule 6(1A) is being incorporated. 10.2 Rule 6(4B)(iii) provides self-adjustment of excess amount of service tax paid in certain circumstances with a monetary limit of Rs.50,000/-. This rule is being amended to increase the said monetary limit from Rs.50,000/- to Rs.1,00,000/- 10.3 Rule 7B provides facility to file revised return to correct mistake or omission, within a period of 60 day from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice is different from the actual location of the tangible goods (place of consumption of service). 12.2 The place of performance and the physical location of the goods are immaterial when both places are within a single taxing jurisdiction i.e. country of taxation. However, if these two places are in two different taxing jurisdictions, the taxing jurisdiction shall be the place of actual location of the goods at the time of provision of service. 12.3 Rule 3(1)(ii) of the Export of Services Rules, 2005 and rule 3(ii) of Taxation of Services (Provided from Outside India and received in India) Rules, 2006 are being amended (Notification Nos.5/2008-ST and 6/2008-ST, both dated 01.03.2008) by inserting a proviso to determine the country of use or consumption of the taxable services provided. The proviso enables to determine the taxing jurisdiction based on the place of actual location of the tangible goods at the time of provision of service in the case of following three services: (a) management, maintenance or repair, (b) technical testing and analysis, and (c) technical inspection and certification, These services are also provided remotely through internet or any el ..... X X X X Extracts X X X X X X X X Extracts X X X X
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