Service Tax – Budget Highlights 2009
Monarch Bhatt-
The glimpse of service tax proposals forms the subject- matter of this article.
Nothing is certain but death and Tax- Benjamin Franklin
1. Economy may be good or bad, there may be any progress or not, there may be development or not, but imposition and leviability of taxes is certain for the growth of the country. Shri Pranab Mukherjee has also in his Budget done it for the benefit of the country at large.
2. There is no change in the rate of service tax, i.e., 10 per cent service tax, 2 per cent Education Cess and 1 per cent Higher and Secondary Education Cess.
Changes effective from July 7, 2009
3. The changes effective from July 7, 2009 are as follows :
(i) Territorial jurisdiction of ‘India’ extended - The territorial jurisdiction of India was extended up to Continental Shelf of India (CSI), i.e., up to 12 nautical miles and Exclusive Economic Zone (EEZ). Now, the territorial jurisdiction has been extended to cover the installations, structures and vessels in the entire CSI and EEZ.
(Notification No. 21/2009-ST, dated July 7, 2009)
The consequent change has also been made in the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
(Notification No. 22/2009-ST, dated July 7, 2009)
Impact : Thus, now it will attract service tax even on services provided in (EEZ) area vice versa it will attract the service tax under a reverse charge mechanism if the service has been received in such area from the outside India. Up till now, it was not attracting service tax.
(ii) Composition scheme under works contract service - The composition scheme is one where the assessees are required to pay the service tax on the gross amount of contract including the labours and materials used in the contract and cannot avail the Cenvat credit of duty paid on inputs. However, it was not including the value of goods supplied free of cost by the service receiver to the service provider. Certain conditions have been introduced with respect to calculation of ‘value’ of works contract service.
a- The works contract will include the value of goods used in the execution of works contract when either goods have been provided by the receiver of the service free of charge or under any other contract entered between the service provider and service receiver (including the contract other than the principle contract).
b- The value of works contract will also include the value of machinery and tools used in the execution.
Note : The value will not include the Value Added Tax or sales tax paid on the goods.
(Notification No. 23/2009-ST, dated July 7, 2009)
Impact : This enables the Government to eliminate the chances for evasion of service tax by showing less value of material used in the execution of works and showing it as free material supplied by the client or under any other contract.
(iii) Exemption to a particular service under certain existing category
A. Tour operator service - Contract carriage - The exemption has been granted to the service provider having contract carriage permit for inter-State or intra-State transportation of passengers. However, the exemption has not been granted to the tour operator operating tour or providing charter or hire services in respect of vehicles.
The contract carriage permit means a motor vehicle used to transport the passengers for a hire and reward as per section 2(7) of the Motor Vehicles Act, 1988.
(Notification No. 20/2009-ST, dated July 7, 2009)
B. Banking and other financial services and Foreign exchange broking service - Foreign currency exchange - The inter-bank transaction for the sale and purchase of foreign currency between the scheduled bank has been exempted from the payment of service tax.
(Notification No. 19/2009-ST, dated July 7, 2009)
Impact : The Government has granted it as a exemption but on the contrary it will be difficult for the bank to avail the credit of input service as now banking companies are required to treat this service as exempted service.
C. Club or association service - Export promotion councils - The exemption has been granted to the export promotion councils including Federation of Indian Export Organisation and other such 21 organisations from the payment of service tax up to March 31, 2010 on the membership fees paid by the members to the association.
(Notification No. 16/2009-ST, dated July 7, 2009)
Impact : It is not much beneficial and whether such organizations are really liable for the payment of service tax under the Club and association services? Levy of service tax itself is challengeable so there is no need for granting any exemption.
(iv) Amendment in Cenvat Credit Rules, 2004
A. Change in rule 6 (3) - pay 6 per cent of exempted service and 5 per cent of exempted goods and avail full Cenvat credit - The service provider who is providing both exempted and taxable services and maintaining the separate account for the value of input services and inputs received, may avail full Cenvat credit and pay 6 per cent instead of paying 8 per cent of the exempted service.
Similarly, a manufacturer manufacturing both dutiable and exempted goods but not maintaining the separate accounts for the value of inputs and input services used in the manufacture of dutiable and exempted final products, may avail full credit and pay only 5 per cent of the exempted goods.
Note : It is optional and not mandatory for the service provider and manufacturer.
(Notification No. 16/2009-CE (N.T.), dated July 7, 2009)
Impact : The rate has been reduced to streamline it with the payment of taxes on final products as duty rates have been reduced to 4 per cent and 8 per cent and service tax has also been reduced on output service from 12 per cent to 10 per cent. Hence, this rate has also been reduced now.
B. Change in rule 3 (5B) - Payment of taxes equivalent to written off in the books of account by service provider - In any situation or due to any reason if service provider is writing off the input or capital goods fully or provision has been made for write-off, then in such cases service provider shall make the payment of credit availed on the value of input or capital goods. Similar provision is there for the manufacturer but for the service provider it was not there which has been inserted now.
Questions and Answers
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