[aaykarbhavan] Budget, Judgments, Information [1 Attachment]

Budget 2014-15 – Amendment in Service Tax Provisions

Posted In Service Tax | Articles | No Comments »

SERVICE TAX

I. Broadening the tax base:

(i) Review of the Negative List of services:

• Service tax leviable currently on sale of space or time for advertisements in broadcast media, namely radio or television, has been extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media, however, would remain excluded from service tax. Print media is being defined in service tax law for the purpose. This change will come into effect from a date to be notified later, after the Finance (No.2) Bill, 2014 receives the assent of the President.
• Service tax to be levied on the services provided by radio taxis or radio cabs, whether or not air-conditioned. The abatement presently available to rent-a-cab service would also be made available to radio taxi service, to bring them on par. Service tax on radio taxi services will come into effect from a date to be notified later, after the Finance (No.2) Bill, 2014 receives the assent of the President.

(ii) Review of general exemptions extended under Notification No. 25/2012-ST in exercise of powers conferred under section 93(1) of the Finance Act, 1994:

• Exemption extended to clinical research on human participants is being withdrawn.
• Exemption extended to air-conditioned contract carriages like buses is being withdrawn.

(iii) Rationalization of general exemptions extended under Notification No. 25/2012-ST in exercise of powers conferred under   section 93(1):

• Exemption in respect of services provided to Government or local authority or governmental authority, will be limited to services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation.
• At present, all services provided by educational institutions [providing educational services specified in the negative list] to their students, faculty and staff does not attract service tax; this will continue. However, in respect of services received by such educational institutions, presently, exemption is being operated through the concept of 'auxiliary educational services'. Doubts have been raised and clarifications have been sought regarding the scope and meaning of 'auxiliary educational services'. To bring clarity, it is proposed to omit the concept of 'auxiliary educational services' and specify in the notification, the services which will be exempt when received by the educational institutions. Accordingly, in respect of services received by an eligible educational institution: (i) transportation of students, faculty and staff; (ii) catering service including any mid-day meals scheme sponsored by the Government; (iii) security or cleaning or house-keeping services in such educational institutions; and (iv) services relating to admission to such institution or conduct of examination, are being exempted from service tax. In view of this rationalization, exemption extended so far in respect of renting of immovable property service received by educational institutions, stands withdrawn.
• Exemption available to accommodation services provided by hotels, dharamshalas or ashrams when they provide rooms for less than Rupees One Thousand per day, is being re-worded to bring out the intent clearly.

However, in cases of (ii) and (iii) above, where the general exemptions are withdrawn, if the aggregate value of taxable service provided in a financial year does not exceed Rupees Ten Lakh, exemption will be available in terms of Notification 33/2012-ST. Changes in the exemption notification No. 25/201 2-ST to come into effect immediately.

II. Service tax on service portion in Works Contracts – Rationalization:

• In Rule 2A of the Service Tax Valuation Rules, category 'B' and 'C' of works contracts proposed to be merged into
  one single category, with service portion as 70%; this change will come into effect from 1^st October, 2014.

III. Service tax on taxable portion in respect of transportation service by vessels:

• Taxable portion in respect of transport of goods by vessel to be reduced from 50% to 40%. Effective service tax will decrease from the present 6.18% to 4.944%. This will come into force from 1^st October 2014.

IV. New exemptions

• Life micro-insurance schemes for the poor, approved by IRDA, where sum assured does not exceed Rupees Fifty Thousand to be exempted from service tax.
• Transport of organic manure by vessel, rail or road (by GTA) is being exempted.
• Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled, is being exempted.
• Services provided by common bio-medical waste treatment facility operators to clinical establishments are being exempted.
• Specialized financial services received by RBI from global financial institutions in the course of management of foreign exchange reserves, e.g., external asset management, custodial services, securities lending services, etc. are being exempted.
• Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India are being exempted.
• New exemptions will come into effect immediately,i.e.11.7.2014

V. Retrospective Exemption:

• Service provided by Employees' State Insurance Corporation (ESIC) during the period prior to 1.7.2012 to be exempted from service tax.

VI. Certain other amendments in Chapter V of the Finance Act, 1994:

(i)      In section 67A, for determination of rate of exchange, rules to be prescribed.

(ii)     Section 73 to be amended to prescribe time limit for completion of adjudications; time limit to be followed, as far as possible.

(iii)    Reference to first proviso to sub-section (1) of section 78, in section 80, to be omitted. In case of serious offences, waiver of penalty not to be available, though details may be available in records.

(iv)    Section 82(1) to be amended, along the lines of section 1 2F (1) of the Central Excise Act, so that Joint Commissioner or Additional Commissioner or any other officer notified by the Board can authorize any Central Excise Officer to search and seize.

(v)    Section 83 to be amended to include a reference to sections 5A (2A), 15A and 15B of the Central Excise Act : (a) Section 5A(2A) prescribes that insertion of an explanation in notifications/orders within one year shall have the effect as if it had always been part of the notification; (b) Section 1 5A is being inserted in the Central Excise Act to prescribe that specified third party sources shall furnish periodic information in the manner as may be prescribed; (c) Section 15B is being inserted in the Central Excise Act to prescribe that failure to provide information under section 15A would attract penalty.

(vi)   Vide section 83, Section 35F of the Central Excise Act is already applicable to service tax. Section 35F of the Central Excise Act is now being substituted with a new section which prescribes a mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both, for filing appeal before the Commissioner (Appeals) or the Tribunal at the first stage and 10% of the duty demanded or penalty imposed or both, for filing the second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs.10 Crore. All pending appeals/stay applications would be governed by the statutory provisions prevailing at the time of filing such stay applications/appeals. When the amended section 35F in the Central Excise Act comes into force, it would, mutatis mutandis, apply to service tax by virtue of section 83 of the Finance Act, 1994.

(vii)   Sub-section (6A) of section 86 proposed to be amended to omit the words "for grant of stay or".

(viii)  In section 87, power to recover dues of a predecessor from the assets of a successor purchased from the predecessor, is to be provided, as it is available in section 11 of the Central Excise Act.

(ix) Section 94 to be amended to obtain rule making power (a) to impose upon assessees, inter alia, the duty of furnishing information, keeping records and making returns and specify the manner in which they shall be verified; (b) for withdrawal of facilities or imposition of restrictions (including restrictions on utilization of CENVAT credit) on a service provider or exporter, to check evasion of duty or misuse of CENVAT credit; and (c) to issue instructions in supplemental or incidental matters.

Amendment at sl.no.(i) above shall come into effect from a date to be notified after the Finance (No.2) Bill, 2014 receives the assent of the President; others will come into effect from the date of assent.

VII. Compliance enhancement:

• Simple interest rates per annum payable under section 75, to vary on the basis of extent of delay in payment of service tax. This will come into force on 1^st October 2014.

Extent of delay	Simple interest rate per annum
Up to six months	18%
From six months and upto one year	24%
More than one year	30%

VIII. Service Tax Rules: [changes to have immediate effect]

• Service provided by a Director to a body corporate to be brought under the reverse charge mechanism; service receiver, who is a body corporate will be the person liable to pay service tax.
• Services provided by Recovery Agents to Banks, Financial Institutions and NBFC to be brought under the reverse charge mechanism; service receiver will be the person liable to pay service tax.

IX. Cenvat Credit:

• Service tax paid under full reverse charge: the condition to pay invoice value to the service provider for availing credit of tax paid, to be omitted [change to have immediate effect].
• Re-credit of Cenvat credit reversed on account of non-receipt of export proceeds within the specified period, to be allowed, if such export proceeds are received within one year from the specified period on the basis of documentary evidence of receipt of payment [change to have immediate effect].
• Rent-a-cab operator and tour operator: service tax paid by sub-contractor in the same line of business would be allowed as eligible credit to the main service provider to avoid double taxation, subject to certain conditions [with effect from 1^st October 2014]. Refer amendment in Notification No.26/2012-ST.
• GTA service: service receiver may avail abatement, without having to obtain non-availment of Cenvat Credit certificate from service provider [change to have immediate effect]. Refer amendment in Notification No.26/2012- ST.
• Time limit for taking credit on input and input services: credit shall be taken within six months from the date of the invoice or challans or other documents specified [change to have effect from 1^st September, 2014].

X. Place of Provision of Services Rules:

• Provision for prescribing conditions for determination of place of provision of repair service carried out on temporarily imported goods, to be omitted.
• Intermediary of goods to be given the same treatment as is given to intermediary of services.
• Vessels (excluding yachts) and aircraft to be excluded from Rule 9(d); hiring of vessels or aircrafts, irrespective of whether short term or long term, will be covered by the general rule, which is place of location of the service receiver.

[The above changes to have effect from 1^st October 2014]

XI. Point of Taxation Rules:

• In case of reverse charge services, to bring certainty in the determination of point of taxation, it is proposed to provide that point of taxation will be the payment date or first day after three months from the date of invoice, whichever is earlier. The amended point of taxation will apply to invoices issued after 1^st October 2014. A transition rule is proposed to be prescribed [change to have effect from 1^st October, 2014].

XII. Simplification of partial reverse charge mechanism:

• In renting of motor vehicle, portion of service tax payable by service provider and service receiver will be 50% each. This will come into effect from 1^st of October 2014.

XIII. SEZ – procedural simplification: [changes to have immediate effect].

• To be provided that the Central Excise Officer would issue Form A-2, within fifteen days from the date of receipt of Form A-1.
• Exemption would be available from the date when list of service on which SEZ is entitled to upfront exemption is endorsed by the authorised officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later, exemption would be available from the date on which Form A-1 is so furnished.
• Pending issuance of Form A-2, exemption will be available subject to condition that authorization issued by the Central Excise officer will be furnished to service provider within a period of three months from provision of service.
• As regards services covered under reverse charge, the requirement of furnishing service tax registration number of service provider shall be dispensed with.
• A service shall be treated as exclusively used for SEZ operations if the recipient of service is a SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in the SEZ.

- See more at: http://taxguru.in/service-tax/budget-201415-amendment-service-tax-provisions.html#sthash.PYFIZRaI.dpuf

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Budget 2014 - Letting loose TDS compliance requirements

CA. V.K. Subramani

 

There was a great expectation that the new Government would present a Super Budget 2014 which would uplift the economy in all fronts from sluggishness. The Finance Minister of UK who visited India recently, added to the hype / optimism by saying that the new Government is firing the cylinders for the past seven weeks and there is a great scope for increased co-operation by way of British investment in India.

A commoner who witnessed the budget presentation by Hon'ble Finance Minister Arun Jaitely would draw courage to compare the present incumbent and his illustrious predecessor. The presentation was contrasting on two accounts viz. (i) an interval while presenting the budget; and (ii) presenting the budget in sitting posture, contrary to the past practice.

A prima facie comparison would also show that the Finance Minister (perhaps not keeping well) did not evince great interest in his economic program nor did he present a blue print as claimed by the media to convince the close followers of budget presentation over the years. This is without prejudice to the fact that the expenditure outgo presentation was balanced and not populist, indicating the priority areas for over all economic development.

In the realm of income-tax, the Budget 2014 has virtually plugged many loopholes used by the taxpayers either originally or in view of its backing by the judiciary/ appellate authorities. Though it was expected that the tax administration would harp on plugging the loopholes regardless of the party in dispensation, the changes shows the singular pursuit of amending the law to make the Revenue - always a winner, at times unjustified.

TDS compliance in retrospect

The Income-tax law contains provisions for collecting taxes on income and also creating a trail to identify persons who may have income chargeable to tax but are remaining the outside the tax net. One of the mechanisms providing the trail was the requirement of tax deduction at source known as TDS or the tax collection at source known as TCS.

These provisions meant for tax deduction or collection were toothless for many years until the Finance (No.2), Act 2004 provided the bite to the tax law and administration by inserting a proviso for disallowance of expenditure when the tax ought to be deducted at source was not deducted by the payer.

This provision time and again underwent amendments viz. (i) Finance Act, 2008 extended the time limit for remittance of tax deducted at source in respect of expenditures booked in the last month of the financial year ; (ii) Finance Act, 2010 which extended the time limit for remittance of tax deducted at source if the tax was deducted at any time during the previous year; and (iii) Finance Act, 2012 which bailed out the payer from disallowance if the payee admitted the income, paid tax, filed return of income and furnished a declaration from his 'accountant' (as per section 288(2)).

TDS provisions liberalized now:

In the Budget 2014, section 40(a)(i) and section 40(a)(ia) have been amended. The scope of amendment is given below in simple terms.

 (i) In respect of payments to non-residents, if the tax deducted at source is remitted before the 'due date' specified for filing the return under section 139(1), such expenditure will not be liable for disallowance. Thus the expenditure liable for tax deduction both for residents and non-residents would become allowable if the amount of tax deducted at source is remitted before the 'due date' specified in section 139(1).

(ii) With regard to resident payees, the coverage of expenditure has been enlarged. The section 40(a)(ia) proposed to be amended reads as under :

"any interest, commission or brokerage, rent, royalty, fees for professional services or fee for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident for carrying out any work including supply of labour for carrying out any work, thirty percent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139. (the struck out portion belong to present provision and the words in italics represent the proposal in the Finance Bill, 2014).

(iii) Even expenditures such as salary, winning from lottery or crossword puzzle, winning from horse race, transfer of immovable property exceeding Rs.50 lakhs which are presently not hit by section 40(a)(ia) disallowance would get disallowed in the hands of the payer, if there is failure to deduct tax at source.

(iv) The quantum of disallowance is 100 percent presently for the failure to deduct tax at source (ignoring delayed compliance or the payee complying with the requirement to bailout the payer). The Finance Bill, 2014 however proposes disallowance to the extent of 30 percent only.

 (v) The effective tax liability on the tax payer due to disallowance of 30 percent would be at the most 10.20 percent (at the maximum marginal rate) of the expenditure. Thus 70 percent of the expenditure would get allowed.

(vi) The first proviso now says that if the taxpayer deducts tax in any subsequent year or what was deducted originally, is remitted beyond the due date, what was disallowed would become allowable. In other words, on compliance what was disallowed earlier would become allowable.

(vii) The proposal in the Finance Bill, 2014 is the same to allow what was disallowed i.e. 30 percent when the payer complies with the requirements of section 40(a)(ia) in the subsequent year.

Conclusion

The change proposed in section 40(a)(ia) to limit the disallowance to 30 percent may be a breather to the taxpayers at large. When the law has undergone changes from time to time providing some laxity to the payers, the need for partial disallowance of expenditure proposed in the Bill is debatable.

Where it is disallowed at 30 percent in the first instance and subsequently the taxpayer complies with the requirements, he becomes eligible for deduction. When such is the law proposed then the natural question is, what is the necessity for retaining the second proviso to section 40(a)(ia) which gives a complete relief to the payer upon payee complying with the procedural requirements prescribed therein.

It would have been a better proposition to apply flat rate of tax at 30 percent on the expenditure disallowed under section 40(a)(ia) by making reference to section 69/69A/69C which is applicable for unexplained cash credit, investments and unexplained expenditure. It would have paved the way better compliance by the taxpayers by complying with the TDS requirements.

The amendments proposed to be inserted in section 40(a)(ia) is reminiscent to the Finance Act, 1995 which provided for section 40A(3) disallowance to 20 percent of the expenditure w.e.f. 01.04.1996 and the Finance (No.2) Act, 1996 subsequently restored the earlier position of 100 percent disallowance. The history may repeat itself and the lawmakers may roll back this partial disallowance in the next budget.

Colors of ambiguity still on Heena

Posted In Excise Duty | Articles | No Comments »

CA Pradeep Jain, Prayushi Jain

There was dispute was going on between the trade and the Central excise department on the exemption on Heena Paste. This exemption was given in last year budget but there was ambiguity in drafting on such notification. We have written an article on the this issue just after the presentation of the budget. Now the Government has come with the clarification in the next budget. This article tries to analysis this issue.

The history:-

The notification no. 12/2012-CE dated 1.3.2012 exempted the Henna powder not mixed with any other ingredient" by its entry number 134. In next year budget, this entry was amended by notification 12/2013 and heena paste was also exempted. But the entry read as follow:-

S. No.	Chapter or heading or sub-heading or tariff item of the First Schedule	Description of excisable goods	Rate	Condition No.
	33	Henna powder or   paste, not mixed with any other ingredient	8%	-

Thus the aforesaid entry exempted the Heena paste but the word "not mixed with any other ingredient" also travelled with the Heena paste. It was pointed out by us at that time also that heena paste cannot be made without adding the liquid into the powder. But the department will view it as mixing other ingredient into it. But no clarification was issued by the CBEC at that time.

Later on, the audit wing raised the audit objection on the same lines. The demand of lakhs of Rupees was issued to the manufacturers. Pleading was made that if such interpretation was taken then the benefit of this notification will not extended to any manufacturer. Following the Rule of homogenous construction, the benefit of this notification should be allowed. However, the department was of stringent in view that there should be no ingredient in the henna paste which at no stretch of imagination was possible.

The post budget era:-

In this budget 2014, a clarification was issued by the department which read as follows:-

The clarification given by the budget, 2014 would have given relief to the poor manufacturers of heena paste which finally were exempted of tax if the powder is mixed with any liquid. But the exclusion of powder mixed with heena dye and any other cosmetics again gave the birth to new dispute era. Revenue shall again allege the assessee those who mix heena dye in the powder or any other cosmetic will not be entitled to claim the exemption. For this purpose, the samples will be taken and will be given to CRCL. Unless and until the report of the same is received, the manufacturer will not be allowed to clear the goods without payment of duty.

This Henna paste is very cheap selling marketable goods are of strong social values too:-

• No social function is completed without the application of henna on the hands and feet – whether the function is of engagement, marriage, baby shower, etc.

• When there is birth of any child at home, there is tradition of distributing the henna to all the neighborhood and relatives. This tradition is still alive in many parts of Rajasthan including Jodhpur.
• It is considered as a symbol of "akhand saubhagya" in Hindu culture and it is to be essentially applied hands and feet on various fasts like "karva chauth", "gangaur", "teej", etc. It is even required during the pooja in these fasts.
• It is an essentially to be there in the items of "pooja" of goddesses like laxmi, parvati, etc. In all the temples of these goddesses, henna is an important item which is applied on the hands and legs of statues of these deities, particularly on the festivals.
• No hawan/yagya is complete without applying henna.
• It is applied by Indian girls and ladies on all the occasions and festivals. On the diwali pooja, it is considered customary to sit there with henna on the hands.

The application of henna is not merely limited to hindu culture, rather it is an essential part of muslim festivals like Eid-ul-Fitr and Eid-ul-Azha.

Nobody can afford to add any other dye or any other cosmetic value in such cheaper product.

However, again new round of litigations will start wherein revenue who has always taken up the legal language in the raw form and as it is. Now the department will allege every mixture as made of heena dye or of any of the cosmetic product. Further the cosmetic definition holds its own ambiguity in itself. Every mixture would be sent for testing in laboratories, paras would be raised and representations shall be made. It is the same battle but with dissimilar fuel. Not the least, even the Henna grown in different locations contain certain ingredients from the land itself but the same cannot separated. the department will term it as "other ingredient than liquid. But the manufacturer will say that these are not dye or an ingredient having cosmetic nature.

Winding up:-

Yes the government gave the clarification to the relief of heena manufacturer but with a half hearted approach. Heena is a cheap selling commodity carrying huge social implications as seen above which at no incidence should be brought in the ambit of service tax. The exemptions with if's & but's is not justifiable and should be completely be exempted from the tax.

- See more at: http://taxguru.in/excise-duty/colors-ambiguity-heena.html#sthash.kFxI4SEG.dpuf

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Posted by: Dipak Shah <djshah1944@yahoo.com>

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