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TMI BlogLegislative changed made / proposed through Budget 2011X X X X Extracts X X X X X X X X Extracts X X X X ..... notifications. 1.3 A number of changes have also been made in the Cenvat Credit Rules, 2004 vide notification 3/2011-CE (NT) and these changes will take effect on 01.04.2011, barring a few that are being given effect on 01.03.2011. 1.4 The highlights of all these changes are discussed in the following paragraphs. 2. New Services 2.1 The following two new services have been proposed: (i) Services by air-conditioned restaurants having license to serve liquor; and (ii) Short-term accommodation in hotels/inns/clubs/guest houses etc. 2.2 The scope of these services and other relevant details are given in Annexure-A. 3. Alteration or expansion in the scope of existing services A number of existing services are being modified or substituted as follows: 3.1 Authorized Service Station‟s Services [section 65 (105) (zo)]: The existing service is being replaced with a new definition to cover all persons and all motor vehicles other than those meant for goods carriage or three wheeler auto rickshaw. 3.2 Life Insurance Service [section 65 (105) (zx)]: The scope of this service is proposed to be expanded to cover all services, including in relation to management of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd payment is made; (iii)Intentional and unrecorded violations should be dealt with severely with no concession whatsoever. 4.3 Thus the undue advantage obtained by carrying on surreptious activities at the cost of law-abiding business is sought to be neutralized. The revised system also encourages informed decision-making by the taxpayers at the early stages of investigation or verification by the Department. Changes proposed in the compliance mechanism are given in the following paragraphs. 4.4 The maximum penalty for delay in filing of return under section 70 is proposed to be increased from Rs.2,000/- to Rs.20,000/-. However, the existing rate of penalty is being retained under rule 7C of the Service Tax Rules, 1994. The maximum penalty is presently reached after a delay of 40 days. The new limit will impact only those who delay filing of return for longer durations. 4.5 The provisions of section 73 (1A) and both the Provisos of section 73 (2) are proposed for deletion. As a result, the benefit of reduced penalty shall not be available in cases of fraud, mis-statement, suppression, collusion etc. in the ordinary course. However, revised benefit will be available under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Captured true & complete position in records 50% of tax amount: Proviso to Section 78 (a) 1% per month; max of 25% if all dues paid before notice: Sec 73(4A); (b) 25% of tax if all dues paid within 30 days (90 days for small assesses): Provisos to Section 78 -do- Not so captured Equal amount: Section 78 No mitigation at all Not possible 4.12 Power to issue search warrant under section 82 is proposed at the level of Joint Commissioner and the execution of search warrant at the level of Superintendent. 4.13 Provisions relating to prosecution are proposed to be re-introduced and shall apply in the following situations: (i) Provision of service without issue of invoice; (ii) Availment and utilization of Cenvat credit without actual receipt of inputs or input services; (iii) Maintaining false books of accounts or failure to supply any information or submitting false information; (iv) Non-payment of amount collected as service tax for a period of more than six months. 4.14 There shall be no power of arrest and the prosecution can be launched only with the approval of Chief Commissioner. 5. Service Tax Rules, 1994 5.1 A number of changes have been made in the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In tune with this practice, certain services are being rearranged as follows: (i) Service provided by builders [section 65(105)(zzzzu)] is being added to sub-rule 1(i) and will thus be considered as exported, subject to compliance with other conditions, if the immovable property is situated outside India. (ii) Rail travel agent [65(105) (zz)] and health check-up or preventive care [65(105)(zzzzo)] are being added to sub-rule 1(ii) and will thus be considered as exported, subject to compliance with other conditions, when they are performed outside India; and (iii)Services of credit rating agency [65(105)(x)], market research agency [65(105)(y)], technical testing and analysis [65(105)(zzh)], transport of goods by air [65(105)(zzn)], goods transport agency [65(105)(zzp)], opinion poll [65(105)(zzs)] and transport of goods by rail [65(105)(zzzp)] are being deleted from sub-rule 1(ii) and thus the additional condition of performance outside India will stand removed. Thus they will be considered as exported, subject to compliance with the relevant conditions, if the recipient is located abroad. 8. Amendments to Taxation of Services (Provided from Outside India and Received in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l complex, in case tax has been paid on full value of the service after availing Cenvat credit on inputs i.e. without availing exemption notification 1/2006-ST dated 01.03.2006. This has been done to ensure that the credit on inputs is not availed of indirectly while availing of the composition scheme. 11. Amendments to Cenvat Credit Rules, 2004 11.1 A number of changes have been brought about in Cenvat Credit Rules, 2004 (Notification 3/2011-CE (NT) dated 01.03.2011). Important changes relating to Service Tax are given at Annexure C. 12. Exemptions: 12.1 Notification 26/2010-ST dated 22-6-2010 is being amended by Notification 4/2011- ST and the service tax applicable in respect of „Transport of passengers by air service" is being revised as follows: (a) Domestic (economy) : From Rs.100 to Rs.150 (b) International (economy) : From Rs.500 to Rs.750 (c) Domestic (other than economy) : Standard rate of 10% 12.2 Exemption is being given to services rendered to an exhibitor participating in an exhibition held outside India (Notification No. 5/ST-2011). 12.3 Exemption from service tax is being provided to „Works contract service‟ when rendered for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te "wholly consumed" services. (b) No service tax is required to be paid ab-initio if the same are meant to be "wholly consumed" within SEZ, including services liable to tax on reverse charge basis under section 66A. (c) Refund of the remaining services i.e. which are not wholly consumed shall be available on pro rata basis i.e. ratio of SEZ turnover to total turnover. (d) Suitable rule has been introduced in Cenvat Credit Rules, 2004 to waive the requirements of rule 6 in case of services provided, without payment of tax, to a SEZ unit for its authorized operations. 15. General 15.1 It may be noted that this letter does not set out all the changes in an exhaustive manner. It attempts to give a very broad and quick understanding of the important issues using largely words of common usage for easier understanding. The letter should thus not be used for interpreting the specific legal provisions in case it causes any ambiguity. The wordings used in the relevant statutory provisions or notifications alone have legal legitimacy. 15.2 Despite best efforts it is human to make some errors and omissions in the drafting of various provisions. I shall be extremely thankful if you ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a restaurant is directly reflected in the margin charged over the direct costs. It is thus not uncommon to notice even packaged products being sold at prices far in excess of the MRP. 1.2 In certain restaurants the owners get into revenue-sharing arrangements with another person, who takes the responsibility of preparation of food, with his own materials and ingredients, while the owner takes responsibility for making the space available, its decoration, furniture, cutlery, crockery and music etc. The total bill, which is composite, is shared between the two parties in terms of the contract. Here the consideration for services provided by the restaurants is more clearly demarcated. 1.3 Another arrangement is whereby the restaurant separates a certain portion of the bill as service charge. This amount is meant to be shared amongst the staff who attend the customers. Though this amount is exclusively for the services it does not represent the full of value of all services rendered by the restaurants. 1.4 The new levy is directed at services provided by high-end restaurants that are air- conditioned and have license to serve liquor. Such restaurants provide conditions and ambience ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady taxable - and services of decoration and any other related services. 2. Life Insurance business [section 65 (105) (zx)]: 2.1 Life insurance companies provide services relating to risk cover and managing investment for the policy holders. The former is already subjected to service tax. The latter is now being brought into the tax net. Similar services rendered by way of ULIP are already subject to service tax since 2008. 2.2 When the entire premium is only for risk cover the same shall continue to be taxed even in the revised definition. However in the case of other schemes, a significant portion of the premium is used towards investment, while the rest is allocated towards various overheads and mortality. IRDA in its circular Ref: IRDA/ACT/CIR/VIP/171/2010 dated November 21, 2010 has made it mandatory for the insurance companies to share this break-up with the policy holders in the case of "Variable Insurance Policies" under the heads: premium received, deductions towards mortality, commission and expenses, interest added and closing balance. Thus amounts relating to deductions for mortality, commission and expenses are not available for investment. After the enactment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cific description. The correct classification will continue to be governed by Section 65A. 6. Health services [section 65 (105) (zzzzo)]: 6.1 The existing service is being substituted with a new description as follows: a) Services provided by a clinical establishment having the facility of central air- conditioning in whole or any part of the establishment and more than 25 beds for in-patient treatment at any time of the year; and b) Services provided by a clinical establishment in relation to diagnostic tests of any kind or investigative services with the help of a laboratory or medical equipment c) Service provided by doctors, who are not employees, from the premises of a clinical establishment. 6.2 The head will not cover an establishment under the ownership or control of government or a local authority including Primary Health Centre and ESIC hospital. Autonomous medical institutes set-up by the government by a special act of parliament are also outside the levy. 6.3 Only such doctors will be covered who provide services from the specified premises of a clinical establishment in a capacity other than as employee of such establishment. 6.4 Finance Minister has anno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beralize the provisions in certain areas to meet the legitimate demands of business; 1.2 Details of important changes made in Cenvat Credit Rules, 2004 that impact service tax are given in the following paragraphs. A. Input 1.3 "Input" has been defined to include, inter-alia, all goods used in a factory by the manufacturer and goods used for providing any output service; 1.4 Goods that shall not constitute input have been specifically excluded. These shall include, besides petroleum items, any goods used for construction of a civil structure (by a manufacturer as well as a service provider) excepting when they are used in the provision of any of the specified construction services. Thus, goods used by a sub-contractor for rendering services of construction to the main contractor shall constitute input. 1.5 Exclusions also cover goods such as food items, goods used in a guesthouse, residential colony, club or a recreational facility or a clinical establishment which are primarily meant for the personal use or consumption of the employees. When any of these goods are used directly in the manufacture of final products or provision of a service they will constitute input. 1.6 Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is amount shall be 5% of the exempted value of the service. Thus if the exemption on a certain service is 60%, the amount required to be paid shall be 3% (60X5%) of the full value of the service. In case of exempt goods, amount payable will be reduced by the amount paid at the concessional rate. 1.15 For the purpose of applying the formula under rule 6(3A) the value of trading service as well as value of services covered by composition schemes has been defined. The value of trading service shall be the difference between the sale price and purchase price of goods. The value in respect of services covered by a composition scheme will be tax amount divided by the rate of service tax applicable under section 66 read with any general exemption. As the prevalent rate is 10% the value shall be ten times the amount of service paid or payable. 1.16 A substantial part of the income of a bank or a life insurance company is from investments or by way of interest in which a number of inputs and input services are used. There have been difficulties in ascertaining the amount of credit flowing into earning these amounts. Thus a banking company or a financial institution, including NBFC, provid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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