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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 ..... will take effect on the dates mentioned in the respective 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s may be imposed if the transactions are captured fully and truthfully in records and further abated if timely admission and 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day upto 50% of tax amount: Sec 76 Totally mitigated if tax and interest paid before issue of notice: Section 73(3) On showing reasonable cause under section 80 Cases of fraud, suppression etc. 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of tax when service is not finally provided. 7. Amendments to Export of Services Rules, 2005 7.1 Globally the taxation of services across different taxing jurisdictions is increasingly moving towards destination-based levy in respect of B2B services while origin-based levy is largely applicable to B2C services. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 10.1 A new sub-rule (2A) is being added in rule 3 in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 vide Notification 1/2011-ST so as to restrict the Cenvat credit to 40% of the tax paid on services relating to erection, commissioning installation; commercial or industrial construction and construction of residential 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) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erceding notification 9/2009-ST dated 03.03.2009. The new notification has the following unique features: (a) Criteria for the determination of wholly consumed services have been laid down in the notification, borrowing from the Export of Services Rules, 2005. It has also been specified that all services received by an entity in a SEZ, which does not have any other DTA operations, will constitute 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 large ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of services normally in combination with the meal and/or beverage for a consolidated charge. These services relate to the use of restaurant space and furniture, air-conditioning, well-trained waiters, linen, cutlery and crockery, music, live or otherwise, or a dance floor. The customer also has the benefit of personalized service by indicating his preference for certain ingredients e.g. salt, chilies, onion, garlic or oil. The extent and quality of services available in 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Bill. Annexure B Amendments, substitution or expansion of existing services 1. Authorized Service Station s Services [section 65 (105) (zo)]: The existing service is being substituted with a new definition to cover: a) Services provided by any person i.e. whether authorized service station or otherwise; b) All motor vehicles, other than vehicles used for goods transport and three-wheeler auto-rickshaws; and c) Repair, re-conditioning or restoration - which are already 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zq)]: 5.1 The scope of the service is being expanded to include operational or administrative assistance of any kind. The scope will cover all support activities for others on a contract or fee, that are ongoing business support functions that businesses and organizations commonly do for themselves but sometimes find it economical or otherwise worthwhile to outsource. 5.2 The words operational and administrative assistance have wide connotation and can include certain services already taxed under any other head of more specific 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, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1 The changes in Cenvat Credit Rules are guided, inter-alia, by the following considerations: a) Describe the scope of eligible inputs and input services more clearly so as to minimize disputes in their interpretations; b) Eliminate distortions and areas of tax avoidance arising from differential treatment of goods and services used for similar purposes; c) Provide a practical scheme for the segregation of Cenvat credits used in respect of final products and output services where they are partially exempted with condition that no such credits shall be taken; d) Liberalize 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he condition that no credit of input and input service shall be availed. Moreover it has been clarified that exempted service will include trading service. 1.13 Option to maintain separate accounts only in respect of inputs (and not together with input services) has also been given so that allocation as per formula given in rule 6(3A) is done only in so far as credits on input services are concerned. 1.14 The amount payable under rule 6(3)(i) in respect of services has been reduced from 6% to 5%. Moreover in the case of exempted services (that are partially taxed with no facility of credits) this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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