Tag Archives: Service Tax

CENVAT CREDIT CANNOT DENIED FOR NON-PAYMENT BY SERVICE PROVIDER

Memories Photography Studio Vs. Commr. of C. EX. & S.T., Vadodara [2015 (12) TMI 266 – CESTAT AHMEDABAD]

Facts:

The Department denied Cenvat credit to Memories Photography Studio (“the Appellant”), on the ground that the service provider has not discharged the duty liability. It was alleged that the Appellant should have taken precaution to verify whether the service provider has discharged Service tax liability or not.

Held:

The Hon’ble CESTAT, Ahmedabad, held that a service recipient can only see the Cenvatable document under which Service tax paid/ payable has been indicated. However, it is not the case of the revenue that the service provider does not exist. Hence, the Appellant has correctly availed the Cenvat credit and it is not deniable.

20 Dec 2015 – Due date for Paying Service Tax & Excise Duty Extended for Tamil Nadu

CENTRAL EXCISE & SERVICE TAX

For Tamil Nadu: Due date for Paying Service Tax & Excise Duty extended to 20th December 2015

Owing to the floods in Southern India, CBEC has provided that for the state of Tamil Nadu, the due date for paying service tax and excise duty by an assessee for the month of November 2015 has been extended to 20th December 2015.

[Notification No. 26/2015-Service Tax, Dated: December 09, 2015 & Notification No. 25/2015-Central Excise (N.T.), Dated: December 09, 2015]

Source: www.cbec.gov.in

Service tax rate increased to 14.5% effective from 15.11.2015.

Service tax rate changed from 14% to 14.5%.
0.5% added towards Swach Bharat Cess.

This is effective from 15.11.2015.

Notification enclosed.

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More about the cess –

1. No CENVAT Credit available on payment of Swachh Bharat Cess.

2. Swachh Bharat Cess should be disclosed separately in Invoice.

3. Swachh Bharat Cess has to be paid in CASH only, it can’t be adjusted against CENVAT Credit available.

FAQ

Q.1 What is Swachh Bharat Cess (SBC)?

Ans. It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015,called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service.

Q.2 What is the date of implementation of SBC?

Ans. The Central Government has appointed 15thday of November, 2015 as the date from which provisions of Swachh Bharat Cess will come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers).

Q.3 Whether SBC would be leviable on exempted services and services in the negative
list?

Ans. Swachh Bharat Cess is not leviable on services which are fully exempt from service tax or those covered under the negative list of services.

Q.4 Why has SBC been imposed?

Ans. SBC has been imposed for the purposes offinancing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

Q.5 Where will the money collected under SBC go?

Ans. Proceeds of the SBC will be credited to the Consolidated Fund of India, and the Central Government may, after due appropriation made by Parliament, utilise such sums of money of the SBC for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

Q.6 How will the SBC be calculated?

Ans. SBC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the same taxable value as service tax.

Q.7 Whether SBC would be required to be mentioned separately in invoice?

Ans. SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly. SBC may be charged separately after service tax as a different line item in invoice. It can be accounted and treated similarly to Education cesses.

Q.8 Whether separate accounting code will be there for Swachh Bharat Cess?

Ans. Yes, for payment of Swachh Bharat Cess, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-

Q.9 What would be effective rate of service tax and SBC post introduction of SBC?

Ans. Effective rate of service tax plus SBC, post introduction of SBC, would be [14% + 0.5%].

Q.10 Whether SBC is a ‘Cess’ on tax’ and we need to calculate SBC @ 0.50% on the amount of service tax like we were earlier doing for calculating Education Cess and SHE Cess?

Ans. No, SBC is not a cess on Service Tax. SBC shall be levied @ 0.5% on the value of taxable services.

Q.11 Whether SBC is levied on all or selected services?

Ans. The Central Government was empowered to impose SBC either on all or some of the taxable services. Vide , Government has notified that SBC shall be applicable on all taxable services except services which are either fully exempt from service tax under any notification issued under section 93(1) of the Finance Act, 1994 or are otherwise not leviable to service tax under section 66B of the Finance Act, 1994.

Q.12 How will the SBC be calculated for services under reverse charge mechanism?

Ans. In case of reverse charge under section 68(2) of the Finance Act, 1994, the liability has been shifted from service provider to the service recipient. As per section 119 (5) of the Finance Act, 2015, the provisions of Chapter V of the Finance Act, 1994, and the rules made thereunder are applicable to SBC also. Thus, the reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC. In this context, to clarify, Government has issued notification No. 24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swachh Bharat Cess mutatis mutandis.

Q.13 How will SBC be calculated for services where abatement is allowed?

Ans. Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value as provided in the notification No. 26/2012-Service Tax, dated 20th June, 2012. So, this notification would apply for SBC also in the same manner as it applies for service tax.

For example, in the case of GTA, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X 30% = 4.35% (4.20%+0.15%)

Q.14 Whether Cenvat Credit of the SBC is available?

Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax.

Q.15 What would be the point of taxation for Swachh Bharat Cess?

Ans. As regards Point of Taxation, since this levy has come for the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC for the first time. SBC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules would be applicable in this case. Therefore, in cases where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In cases where payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.

Q.16 How would the tax (Service Tax and SBC) be calculated on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006.?

Ans. The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and 10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for restaurant and outdoor catering services.

Q.17 How would the tax be calculated on restaurant services covered under Service Tax(Determination of Value) Rules, 2006.?

Ans. Swachh Bharat Cess would be calculated on the value arrived at in accordance with the Service Tax (Determination of Value) Rules, 2006. For example, the effective Swachh Bharat Cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% of the total amount, i .e, 0.2% of the total amount. The cumulative service tax and Swachh Bharat Cess liability would be [14% ST + 0.5% SBC] of 40% of the total amount, i.e., 5.8% of the total amount charged.

Q.18 Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents)

Ans. Sub-rule (7D) to rule 6 has been inserted vide notification 25/2015-Service Tax, dated 12thNovember, 2015 so as to provide that the person liable for paying the service tax under sub‑rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay SBC as determined as per the following formula:-

Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%

The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.

Q.19 How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?

Ans. In respect of reverse charge mechanism, SBC liability is determined in accordance with Rule 7 of Point of Taxation Rules, as per which, point of taxation is the date on which consideration is paid to the service provider. Thus, SBC liability in such case will be 0.5% X Value of taxable service.

Q.20 Does a person providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules, does he need to reverse the SBC also?

Ans. As SBC is not integrated in the Cenvat Credit chain and reversal under Rule 6 is payment of amount equal to 7% of the value of exempted services, hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.

CBEC Clarification: GTA service includes ancillary services such as loading/packing

CBEC vide Circular No. 186/5/2015-ST, Dated: October 05, 2015 has provided a clarification regarding treatment given to various ancillary services provided by GTA’s in the course of transportation of goods by road.

Goods Transport Agency (GTA) has been defined to mean any person who provides service to a person in relation to transport of goods by road and issues consignment note/ invoice/ challan etc. The service provided is a composite service which may include various ancillary services like loading/ unloading, packing/unpacking, transshipment, temporary storage etc., provided in the course of transportation of goods by road. These ancillary services may be provided of self or be sub-contracted, as the case may be. In either case, a consignment note/ invoice/ challan etc. issued by GTA for providing the said service includes the value of ancillary services provided. These services are not provided as independent activities but are the means for successful provision of the principal service, namely, the transportation of goods by road.

Thus, it has been clarified that a single composite service is not required to be fragmented to its components as separate services, if it is provided as such in the ordinary course of business. Thus, a composite service consisting of more than one service would be treated as a single service based on the nature of main or principal service which gives a transaction its essential feature. Thus, if ancillary services are provided in the course of transportation of goods by road and the charges for such services are included in the invoice issued by the GTA, such services would form part of GTA service and, therefore, the abatement of 70%, presently applicable to GTA service, would be available on it.

Further, wherein GTA undertakes to deliver the goods at destination within a stipulated time, such service would also be considered as ancillary to GTA service and abatement benefit would be available for the same.

[Circular No. 186/5/2015-ST, Dated: October 05, 2015]

Detailed Manual Scrutiny of Service Tax Returns

CBEC vide Circular No. 185/4/2015-ST, Dated: June 30, 2015 has revised the earlier prescribed procedure for carrying out detailed scrutiny of returns laid down vide Circular No. 113/07/2009-ST dated 23-4-2009. With the introduction of the Point of Taxation Rules, 2011, which shifted the liability of payment of service tax from receipt basis to accrual basis, and the advent of negative list-based comprehensive taxation of services in 2012, need for revision became persistent. Thus, with effect from 01.08.2015, detailed scrutiny of ST-3 returns would be carried out in the prescribed manner.

In order to put in place a strong ‘return scrutiny’ system, a two part system of return was envisaged- a preliminary scrutiny which would be online covering all the returns; and a detailed manual scrutiny of scrutiny returns, identified on the basis of risk parameters, to be done by the Division/Range offices and should be carried out in the manner outlined in the Circular, illustrated as below:

  1. Preliminary Online Scrutiny

The purpose is to ensure the completeness of the information furnished in the return, arithmetic correctness of the amount computed as tax and its timely payment, timely submission of the return and identification of non-filers and stop-filers. On the basis of validation checks returns having certain errors are marked for Review and Correction (Rnc).

  1. Detailed manual scrutiny

The purpose is to ensure the correctness of the assessment made by the assessee and this includes checking the taxability of the service and the correctness of the value of taxable services. In doing this Proper Officer must rely mainly on assessment related documents like agreements/contracts and invoices.

  1. Selection of returns for detailed scrutiny

Core focus would be in respect of such assessees whose total tax paid (Cash + CENVAT) for the FY 2014-15 is below Rs 50 Lakhs. Each Commissionerate has to select equal number of assessees for carrying out returns scrutiny from each of the these three total tax paid bands (Cash + CENVAT) viz. Rs 0 to 10 lakhs, Rs 10-25 lakhs, Rs 25-50 lakhs for the financial year 2014-15.

  1. Methodology

Detailed scrutiny of returns must be conducted by the Service Tax Range headed by the Superintendent and assisted by a complement of inspectors. However, the Divisional DC/AC shall be responsible for the overall supervision of this business process in respect of his/her division. Before return scrutiny is initiated, the assessee must be given prior intimation of at least fifteen days and the purpose of the exercise must be spelt out in an intimation letter. To begin with, the returns for the financial year 2013-14 should be taken up for detailed scrutiny. One of the important objective of return scrutiny is to ensure validation of the information furnished in the self-assessed ST-3 return. The Validation exercise would require reconciling information furnished in the ST-3 return with ITR Form Nos. 4, 5, 6 and 26AA and any third party information made available.

  1. Documentation of Findings / Checklist

– Reconciliation for validation of the information furnished in the ST-3 return;

– Taxability in respect of services which may have escaped assessment;

– Classification (for the purposes of due availment of abatement/ exemption benefit);

-Valuation; and

– CENVAT Credit availment/utilization

Circular further provides for Proforma of Intimation Letter, Assessee Master Information, Checklist, Observation sheet for documenting scrutiny findings, Scrutiny Report, Monthly MIS Report and Draft Scrutiny Report.

[Circular No. 185/4/2015-ST, Dated: June 30, 2015]

Service Tax – Reverse & Partial Reverse Mechanism Chart – FY 15-16

Reverse and Partial Reverse Mechanism Chart with effect from 01.04.2015 and The extent of service tax payable thereon by the person who provides the service and any other person liable for paying service tax for the taxable services

Table

Sl. No. Description of a service Percentage of service tax payable by the person providing service Percentage of service tax payable by any person liable for paying service tax other than the service provider
(1) (2) (3) (4)
1 in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil 100%
1A in respect of services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company (Effective from 01.04.2015) Nil 100%
1B. in respect of services provided or agreed to be provided by a mutual fund agent or distributor, to a mutual fund or asset management company (Effective from 01.04.2015) Nil 100%
1C. in respect of service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent Nil 100%
2 in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road to Company, Partnership Firm, Registered Factory, Registered Society, co-operative society, AOP, LLP, Person Registered Under Central Excise Act, 1944 including Excise Dealers Nil 100%
3 in respect of services provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm Nil 100%
4 in respect of services provided or agreed to be provided by an arbitral tribunal to any Business entity Nil 100%
5 in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services to any Business entity Nil 100%
5A in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate Nil 100%
6 in respect of services provided or agreed to be provided by Government or local authority excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994 to any Business Entity Nil 100%
7 (a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business by individual, HUF, firm or AOP to Body Corporate Nil 100%
(b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business by individual, HUF, firm or AOP to Body Corporate (Revised wef 01.10.2014) 50% 50%
8. in respect of services provided or agreed to be provided by way of supply of manpower for any purpose or security services by individual, HUF, firm or AOP to Body Corporate Nil 100%
9. in respect of services provided or agreed to be provided in service portion in execution of works contract by individual, HUF, firm or AOP to Body Corporate 50% 50%
10 in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory Nil 100%
11. in respect of any service provided or agreed to be provided by a person involving an aggregator in any manner to any Business Entity(Effective from 01.03.2015) Nil 100%

Explanation-I. – The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification.

Explanation-II. – In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service.

Explanation-III. Hitherto, support services provided by a Government/Local authority to any business entity was subject to 100% reverse charge. The scope of reverse charge has now been extended in case of all services provided by the Government/Local authority to such business entities. The exclusion from reverse charge on renting of immovable property and some specified services of Sec. 66D of the Act shall continue.

No Service tax Return Filing Till New ST3 – CBEC

All Service Tax assessees are hereby informed that they will not be able to file ST 3 returns in ACES now and have to wait until the modified version of ST 3 Form is made available in a few weeks. 

Please revisit ACES website(http://www.aces.gov.in) for further information. Inconvenience caused is regretted.

Message From CBEC

All about Service Tax Exemption to Small Service Providers – Upto Rs. 10 Lacs

Service Tax act/Rules has provided exemption to small scale service provider from service tax up to aggregate value of taxable services provided of 10 lakh in a Financial Year . This exemption was available before 01.07.2012 and continued even after 01.07.2012 in negative list regime with few changes wef 01.04.2012.

If in the previous financial year the aggregate value of taxable services provided by you was less than Rs.10 lakh and in the present financial year the aggregate value of taxable services provided by you is also less than Rs.10 lakh. Then no need to pay service tax .

If in the previous financial year aggregate value of taxable services provided was less than 10 lakh but this year aggregate value of taxable services provided is more than 10 lakh them you start paying service tax after crossing the threshold of Rs 10 lakh.

If in the previous financial year aggregate value of taxable services provided was more than 10 lakh but this year aggregate value of taxable services provided is less than 10 lakh them you start paying service tax from rupee one.

Aggregate value of Taxable Services provided
Service Tax applicable
Preceding Financial  Year
Current Financial year
Less than 10 lakh
Less than 10 lakh
No service tax
Less than 10 lakh
More than 10 lakh
Service tax applicable after 10 lakh
More than 10 lakh
Less than 10 lakh
service tax applicable from Rs one ,No exemption available

The Finance Act 2012, has amended the provision relating to small scale exemption recognizing that theaggregate value up to Rs 10 Lakhs will be in terms of invoices issued/to be issued for taxable services and not payments received.(Notification no.33/2012-ST dated 20.6.2012). This is w .e .f 1.7.2012. 

1.Meaning of aggregate value :The small service provider exemption of ` 10 Lakh is available towards “aggregate value not exceeding ` 10 Lakhs”, means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification.

The definition of the ‘aggregate value’ has been amended w.e.f. 01.04.2012 whereby the sum total of the value of taxable services charged in the first consecutive invoices issued/required to be issued during the financial year shall be considered instead of payments received.

The exemption as to small service provider is provided for the keeping the small service provider outside the tax net.

2Single Limit for all services By same person : where a taxable service provider provides one or more taxable services , the exemption under this notification shall apply to the aggregate value of all such taxable services and not separately for each  services; 

Suppose A person is providing service XXX and YYY . To avail this exemption aggregate service provided for service XXX and YYY should be less than 10 Lakh

the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed ten lakh rupees in the preceding financial year. 

3Single Limit for all offices /Location : where a taxable service provider provides taxable services from one or more premises, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each premises; 

Example:In service Tax person can get separate registration for deferential location .To calculate 10 lakh Limit ,Aggregate value of taxable services at all location ,even having different registration number , is to be considered.

In brief this exemption is available person wise not location or service wise.

4.Cenvat Credit not available if Exemption of 10 lakh  has been availed. 

5. Exemption is optional not mandatory : This exemption  is optional so that even such small service providers can opt to pay tax instead of availing the benefit of exemption. In case of such opting to pay service tax, the service provider would get the benefit of CENVAT Credit of duties and taxes paid on capital goods, inputs and input services. By this mechanism the CENVAT credit can get passed on whereby the basic cost of output service would get reduced if the service receiver can avail CENVAT credit.  

6.Once exercised Can not be reversed : The option as to non-availment of such small scale exemption and opting to pay tax once exercised, cannot be withdrawn during the remaining part of such financial year. 

Option is granted to service provider to avail benefit of threshold exemption to the tune of ` 10/- lakhs. In case option is exercised by service provider, service tax would be applicable only if the aggregate value of taxable service ( provided during the previous financial year exceed ` 10 Lakhs )

7.No exemption where service tax is payable under Reverse Charge: However the above exemption shall not be available to the person made liable to pay service tax under sec (68)(2) [Reverse Charge and Joint Charge liabilities]  

The liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism.

8. No Exemption If Service are provided under brand name or trade name of others :The person providing service under the brand name or trade name of others. Some persons are providing the services under name of brand name owner. These service providers would not be eligible to the exemption which is available to the small service providers.

If service provided under own brand name or trade name then eligible : If a person is providing a service under his own brand name, he would be entitled to the exemption.

9. The Basic Exemption subject to above condition is available to all type of Person :The basic exemption is not restricted only to individual or partnership firm but it is available to all assessees.

‘Person’ is not restricted to natural person. ‘Person’ has been defined Section 65 B of the Act.  The following shall be considered as persons for the purposes of the Act:

  1. an individual
  2. a Hindu undivided family
  3. a company
  4. a  society
  5. a  limited liability partnership
  6. a firm
  7. an association or body of individuals, whether incorporated or not
  8. Government
  9. a  local authority,  or
  10. every artificial juridical person, not falling within any of the preceding sub-clauses.

10. Abatement and exempted services is not to be counted for calculation of 10 Lakh: Various services has been exempted from service tax vide notification 25/2012 .If service provider is providing both exempted and taxable services than turnover of exempted services is not be added for calculation of 10 lakh .
Similarly abatement from gross amount charged by service provider  has been defined in notification 26/2012  .To calculate 10 lakh part only taxable part after abatement is to be considered.

Example: Person is providing services of renting motor vehicle designed to carry passengers. In a given financial year he has charged gross Rs 20 lakh for services . In notification 26/2012 only 40% part i.e 8 Lakh is taxable for renting of motor vehicle designed to carry passengers  (40% of 20 Lakh) . So he can can avail 10 lakh exemption available to small service provider ,as taxable part of services provided by him is less than 10 lakh Limit.


Relevant notification is given here under 

SECTION 66B OF THE FINANCE ACT, 1994 – CHARGE OF SERVICE TAX ON AND AFTER FINANCE ACT, 2012 – EXEMPTION TO SMALL SERVICE PROVIDERS

NOTIFICATION NO. 33/2012-ST, DATED 20-6-2012

[SUPERSESSION OF NOTIFICATION NO. 6/2005-ST, DATED 1-3-2005]

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act), and in supersession of the Government of India in the Ministry of Finance (Department of Revenue) notification No. 6/2005-Service Tax, dated the 1st March, 2005, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. number 140(E), dated the 1st March, 2005, except as respects things done or omitted to be done before such supersession, the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66B of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

 (i)  taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(ii)  such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

2. The exemption contained in this notification shall apply subject to the following conditions, namely:-

(i)  the provider of taxable service has the option not to avail the exemption contained in this notification and pay service tax on the taxable services provided by him and such option, once exercised in a financial year, shall not be withdrawn during the remaining part of such financial year;

(ii)  the provider of taxable service shall not avail the CENVAT credit of service tax paid on any input services, under rule 3 or rule 13 of the CENVAT Credit Rules, 2004 (herein after referred to as the said rules), used for providing the said taxable service, for which exemption from payment of service tax under this notification is availed of;

(iii)  the provider of taxable service shall not avail the CENVAT credit under rule 3 of the said rules, on capital goods received, during the period in which the service provider avails exemption from payment of service tax under this notification;

(iv)  the provider of taxable service shall avail the CENVAT credit only on such inputs or input services received, on or after the date on which the service provider starts paying service tax, and used for the provision of taxable services for which service tax is payable;

(v)  the provider of taxable service who starts availing exemption under this notification shall be required to pay an amount equivalent to the CENVAT credit taken by him, if any, in respect of such inputs lying in stock or in process on the date on which the provider of taxable service starts availing exemption under this notification;

(vi)  the balance of CENVAT credit lying unutilised in the account of the taxable service provider after deducting the amount referred to in sub-paragraph (v), if any, shall not be utilised in terms of provision under sub-rule (4) of rule 3 of the said rules and shall lapse on the day such service provider starts availing the exemption under this notification;

(vii)  where a taxable service provider provides one or more taxable services from one or more premises, the exemption under this notification shall apply to the aggregate value of all such taxable services and from all such premises and not separately for each premises or each services; and

(viii)  the aggregate value of taxable services rendered by a provider of taxable service from one or more premises, does not exceed ten lakh rupees in the preceding financial year.

3. For the purposes of determining aggregate value not exceeding ten lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency under section 67 of the said Finance Act for which the person liable for paying service tax is as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994, shall not be taken into account.

Explanation. – For the purposes of this notification,-

(A)  "brand name" or "trade name" means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person;

(B)  "aggregate value" means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under section 66B of the said Finance Act under any other notification."

4. This notification shall come into force on the 1st day of July, 2012.

Service Tax on Directors

The Finance Act, 2012 has ushered in a new system of taxation of services popularly known as negative list. The new changes are a paradigm shift from the system in force upto 30th June, 2012 where only services of specified descriptions were subject to tax. In the new system all services except those specified in the negative list will be subject to taxation. In short, it has changed the methodology for applicability of service tax from “inclusive” to “blanket applicability with the exception of certain specific categories”. 

What is Service?

Service has been defined in clause 44 of new Section 65(B) of the Finance Act, 2012 as follows:


“Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include-
(a) An activity which constitutes merely,
(i) A transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) Such transfer, delivery or supply of any goods which is deemed to be sale with the meaning of clause 29(A) of article 366 of the Constitution; or
(iii) A transaction in money or actionable claim;                               
(b)   a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.


Is Service Tax payable on Sitting Fees/Commission paid by companies to Directors?


The services performed by a director (other than Managing Director/Executive Director/Wholetime Director who are employees of the Company) of a company fall within the ambit of taxable services with effect from 1st July, 2012. 
In respect of services provided by any non-resident director who does not have any fixed establishment in India or is not a resident in India, the companies would be statutorily required to pay the service tax in respect of any consideration which is given to such non-resident directors.
Accordingly, service tax would be applicable on sitting fees and/or commission to Non-Executive Directors of the Company (NEDs).


Is Service Tax payable on reimbursement of expenses of NEDs by the company?


There is a ‘Pure Agent’ concept in service tax.  Reimbursement of expenses to ‘Pure Agent’ is not liable to Service Tax. 


In some cases, travelling and hotel expenses incurred by NEDs to attend meetings are reimbursed by the company. This would also attract Service Tax as NEDs would not fit within the definition of ‘Pure Agent’ as they do not perform any activity on behalf of the principal.


Can company bear the service tax payable by the NEDs Is it a deemed Remuneration?


As per the explanation to section 198 of the Companies Act, 1956 (“the Act”), the term ‘remuneration’ includes any expenditure incurred by the company in respect of any obligation which, but for such expenditure by the company, would have been incurred by the Director.


There is a view that payment of service tax is a liability or obligation of the NED. However NEDs have a right to pass it on to the service receiver i.e. the company. Since the company incurs expenditure in respect of such obligation, it may tantamount to ‘remuneration’. This may in some cases be treated as increase in remuneration compelling companies to apply to the Ministry of Corporate Affairs (“MCA”). 


For example, if a company is paying the maximum permissible sitting fee to its NEDs, the payment of service tax would tantamount to increase in the remuneration beyond the maximum permissible limit or if a company is paying maximum permissible 1% commission on net profits to its NEDs, the payment of service tax could tantamount to payment of commission over and above the maximum permissible.


While considering the concept of "expenditure", it is important to dwell upon the concept of "Out of pocket". The expenditure that the company incurs in paying service tax to the director can be treated as 'input services' and can be set off by the company against its excise/service tax liability. However, depending upon the type of business, this may not be totally offset.


There are varying views emerging on liability of Service Tax on directors.


Whilst one view is that the Service Tax is merely collected by the NED from the company and paid to the authorities, the other view is that it is a liability of the NED which is assumed by the company attracting deemed remuneration requiring the Central Government approval.


The Service Tax, being an indirect tax, it is an established fact that the service providers (NEDs in the present case) generally collect the service tax from the service receivers (company in the present case) and pay it to the Government. The company when paying the Service Tax amount to the NED, does not pay it on his behalf to a third party. The NED in turn is supposed to pay it to the Government and discharge his statutory obligation.


The Board of Directors of a company, if required, can pass a suitable resolution authorising payment of service tax on sitting fees and / or commission to NEDs but it appears that if it is treated as a deemed remuneration, it would require approval of Central Government.


As many companies would bear the service tax component of sitting fees / commission / reimbursement of out of pocket expenses payable to NEDs, MCA will be flooded with multiple applications on this subject.


Service Tax Additional burden on NEDs


Applicability of service tax on sitting fees / commission to NEDs would inter-alia put following additional burden on the NEDs.


1) Obtain service tax registration number.
2) Raise invoice for sitting fees and service tax component separately for each and every meeting of Board / Committee and for commission and Service Tax as and when the commission becomes payable.
3) Issue invoice within 30 days of completion of service/receipt of payment, whichever is earlier, on a running serial number commencing from No.1 for the Financial Year.
4) Pay service tax quarterly i.e. 5th of the month following the quarter (or 6th if deposited thru internet banking) in which the service is provided.  However, Service Tax for the month of March or quarter ending in March is to be paid by 31st March of the financial year.
5) Electronic filing of Return is mandatory by 25th of the month following the half year (viz. for April to Sept. by 25th Oct and Oct to March by 25th April). Nil return to be filed, even if no services have been provided.
6) Submit list of all accounts maintained at the time of filing first return.


Liberalised Scenario


The recent amendments made to Schedule XIII to the Companies Act dealing with the ‘Managerial Remuneration’ have liberalized the ‘Managerial Remuneration’ to a great extent. As per the new provisos introduced, a company which is neither a listed company nor a subsidiary of the listed company need not approach Central Government for permission for managerial remuneration subject to fulfillment of certain conditions. Similarly, the listed companies and its subsidiaries have also been exempted from the Central Government approval subject to fulfillment of certain conditions as stipulated in the amended Schedule XIII.


The Companies Bill, 2011 which has substantially liberalized the Managerial Remuneration does not envisage approval of Central Government in such cases. 
 
Clarifications required from MCA 


It would be in the interest of fairness that reimbursement of service tax should be kept outside the purview of ‘Managerial Remuneration’.


It would also be in the interest of the NEDs as well as the corporates if MCA issues a circular clarifying that the payment of Service Tax by the company to the Director in respect of sitting fees and/or commission would not tantamount to remuneration / increase in remuneration of the Director.


Clarifications required from MOF


CBEC vide its circular No. 115/09/2009 dated 31st July 2009 had clarified that the service tax is not payable on fees and commission payable to the Non Executive Directors on the Board of a company as they do not provide taxable service. The directors have fiduciary duties towards the shareholders and remunerations paid to Directors of companies would not be liable to service tax.. Even today, there is no change in the role of NEDs and the logic on which the CBEC had issued the said circular still holds good.


It would be in the interest of the NEDs as well as the corporates if MOF confirms that the clarification issued by CBEC vide Circular No. 115/09/2009 dated 31st July 2009 equally applies to fees and commission payable / reimbursement of expenses to Non-Executive directors and as such is not a taxable service under the newly inserted Section 66B of the Finance Act 2012.


If for some reason it is considered taxable under Section 66B, then it is requested to apply ‘reverse charge’ principle under which the company on whose Board they are appointed may be made liable to pay service tax on such payments. 

By: Narayan Shankar, Sr. VP & Company Secretary, M&M 

The author would like to thank Mohan Raghavan, VP (Excise), M&M for his inputs.

Disclaimer: The views expressed above are the individual views of the authors. These views are not of the organisations they belong to and the organisation need not necessarily subscribe to their views. 


In addition to the above – 


The CBEC has issued following notifications dated August 7, 2012 which are summarised here below :

Notification No. 45/2012-ST dated 7-8-2012 has amended the Notification No. 30/2012-ST dated 20-6-2012 and expanded the scope of reverse charge mechanism. With effect from 7-8-2012, two additional services will be covered under reverse charge mechanism:

S. No. Description of service % of service tax payable by person providing service % of service tax payable by person receiving service
1) Services provided or agreed to be provided by a director of a company to the said company Nil 100%
2) Security services provided or agreed to be provided by an-  Individual, Hindu Undivided Family, Partnership firm, whether registered or not, Association of persons

 

to a Business entity registered as a body corporate

25% 75%

The definition of Security services has been inserted vide Notification No. 46/2012-ST dated 7-8-2012 as Rule 2(1)(fa) of Service Tax Rules, 1994 which is given below:

“Security services” means services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity.

Partial Reverse Charge for Security Services: – The service provider is liable to charge & pay full Service taxfor a period up to and inclusive of 6th August, 2012 and from 7th August, he is liable to pay 25% of service tax and a Body Corporate has to pay 75% service tax.

Resolution with Problem:-

Service by Directors to the Company: As per this amendment, the services provided by a Director to the Company, the entire service tax has to be paid by the Company under Reverse charge 

Issues still Remain?

But what will happen for the period from 1st July 2012 and till 6th August 2012 – there was no reverse charge mechanism for the service by Director to the Company was taxable.

So, for the payment received by the Director for this period, has the Director to pay the tax? Does it mean all the directors have to obtain registration for payment of service tax for one month and 6 days, file ST 3, etc?

New Service Tax Accounting Code w.e.f 1st Jul 2012

Accounting Code for payment of service tax under the Negative List approach to taxation of services, with effect from the first day of July 2012 – regarding.

Negative List based comprehensive approach to taxation of services came into effect from the first day of July, 2012. For payment of service tax under the new approach, a new Minor Head – ‘All taxable Services’ has been allotted under the Major Head “0044-Service Tax”.

2. Accounting codes for the purpose of payment of service tax under the Negative List approach, with effect from 1st July, 2012 is as follows:

Name of Services
Accounting codes
Tax collection
Other Receipts
Penalties
Deduct refunds
All Taxable Services
00441089
00441090
00441093
00441094

NOTE: (i) service specific accounting codes will also continue to operate, side by side, for accounting of service tax pertaining to the past period (meaning, for the period prior to 1st July, 2012); 

(ii) Primary Education Cess on all taxable services will be booked under 00440298 and Secondary and Higher Education Cess on all taxable services will be booked under 00440426; 

(iii) a new sub-head has been created for payment of “penalty”; the sub-head “other receipts” is meant only for payment of interest etc. leviable on delayed payment of service tax; 

(iv) the sub-head “deduct refunds” is not to be used by the assessees, as it is meant for use by the Revenue/Commissionerates while allowing refund of tax.

3. Trade Notice/Public Notice may be issued to the field formations and tax payers. Please acknowledge the receipt of this Circular. Hindi version follows.

Comments – 

In short it means – 

All Service Tax Payments pertaining to periods upto 30th June 2012, existing or old category wise accounting codes are to be used.

Service Tax Payments pertaining to periods from and onwards 1st July 2012, the new (Above-mentioned) codes are to be used. 
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