CHANGES EFFECTIVE FROM 1.4.2012 RATE OF TAX 1.

Increase in the rate of tax

1.1. The rate of service tax has been increased from 10% to 12% w.e.f. 01.04.2012. Thus, the

effective

rate

of service

tax (Including

Education Cess and Secondary & Higher Education cess) would be 12.36%. 1.2. As a consequence to the above increase, the rate of tax as applicable in certain situations as per the Point of Taxation Rules, 2011 (―PoT Rules‖) would be as under. Sl

Taxable

Issue of Receipt

No

Service

Invoice

Provided

Point of Tax

Effective

of

Rate

Payment

applicable

(1)

Earlier of date of Upto

After

After

receipt

of

31-3-2012

31-3-2012

31-3-2012

payment

or

12.36%

issue of invoice (2) Upto 31-3-2012

(3) Upto 31-3-2012

(4) After 31-3-2012

Upto

After

Date of issue of

31-3-2012

31-3-2012

invoice

After

Upto

Date of receipt

31-3-2012

31-3-2012

of payment

Upto

After

Date of receipt

31-3-2012

31-3-2012

of payment

(5)

Earlier of date of After

Upto

Upto

receipt

of

31-3-2012

31-3-2012

31-3-2012

payment

or

Issue of invoice

10.30% 10.30% 12.36% 10.30%

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(6) After 31-3-2012

After

Upto

Date of issue of

31-3-2012

31-3-2012

invoice

12.36%

Note: 1. Point of Tax means the point in time when a service shall be deemed to have been provided i.e. by 5th / 6th of the month following the month or quarter in which the said point in time gets striked. 2. In case of Sl. No. 3 and Sl. No. 5 above, if the payment is not credited in the bank within 4 working days from 01.04.2012, the new rate of 12.36% would apply as per Rule 2A1 of the PoT Rules. 1.3. Consequent changes in the composition rate of tax (1)

Service of sale or purchase of foreign currency Gross amount Amount of Tax Amount of

currency applicable

exchanged.

of

Tax

applicable

Prior

to w.e.f 01.04.2012

01.04.2012 Upto

Rs. 0.1%

1,00,000/-

of

gross 0.12% of gross amount

amount

of of currency exchanged

currency

subject to a minimum

exchanged

tax of Rs.30/-.

subject

to

minimum

tax

a of

Rs. 25/-. Rs.

1,00,001

Rs. 10,00,000/-

to Rs. 100 + 0.05% Rs. 120 + 0.06% of of gross amount gross of

of

currency currency exchanged in

exchanged

1

amount

th

in excess of Rs.1,00,000/-.

st

Inserted vide Notification No. 4/2012 – Service Tax dated 17 March, 2012 effective from the 1 April, 2012

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excess

of

Rs.1,00,000/-. Rs.

10,00,001 Rs. 550 + 0.01% Rs. 660 + 0.012% of

and above

of gross amount gross of

amount

of

currency currency exchanged in

exchanged

in excess

excess

of Rs.10,00,000/-

Rs.10,00,000/subject

to

of subject

to a maximum tax of a Rs. 6,000/-.

maximum tax of Rs. 5,000/-. Particulars

Prior

to Post

01.04.2012 01.04.2012 (2)

Life Insurance Service -

(i) On gross premium less amount allotted savings,

for if

investment/ such

amount 10%

12%

intimated to policy holder

(ii) In the other cases – a) On First year premium b) On

Subsequent premium

1.5%

3%

1.5%

1.5%

year

(3)

Works contract composition

4%

4.8%

(4)

Air Travel Agent Services

On Basic Fare

On Basic Fare

(i) Domestic Bookings

0.60%

0.60%

(ii) International Bookings

1.20%

1.20%

Note: The above rates are excluding education cess and secondary and higher education cess.

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1.4. Transport of Passengers by air service – Abatement [Notification 06/2012-ST Dated 17th March, 2012] In suppression of notification 26/2010-ST dated 22nd June, 2010, abatement of 60% has been provided to the assessee providing Transport of Passengers by air service. Description

(i) Economy Class

Position upto 31st March, 2012 DOMESTIC JOURNEY a) 10 % of Gross value of Ticket, or b) Rs. 150 per journey Whichever is lower

Position w.e.f. April, 2012

1st

12% on 40 % of the value

of

taxable

services i.e. effective (ii) Other than economy 10 % of Gross value tax rate is 4.80% class of Ticket INTERNATIONAL JOURNEY (i) Economy Class a) 10 % of Gross value of Ticket, or 12% on 40 % of the b) Rs. 750 per journey value of taxable Whichever is lower services i.e. effective (ii)Other than economy 10 % of Gross value tax rate is 4.80% class of Ticket Not Available Cenvat credit of inputs Not Available Cenvat credit of Available Capital Goods Cenvat credit of input Available service Notes:

Not Available Available

1. ‗Economy class‘ means (i)

where there is more than one class of travel, the class attracting the lowest standard fare; or

(ii) where there is only one class of travel, that class. 2. The above rates are excluding education cess and secondary and higher education cess.

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CHANGES IN SERVICE TAX RULES, 1994 (STR) 2.

LLPs considered as partnership firms [Rule 2(1)(cd)]

2.1. Limited

Liability

Partnerships

(―LLPs‖)

would

be

considered

as

‗partnership firms‘ for the purpose of Service Tax Rules, 1994. Consequently, the due dates for payment of service tax in case of LLPs would be quarterly. 3.

Extension of time limit for issuance of invoice [Rule 4A(1)]

3.1. The time limit for issuance of an invoice has been extended as under : Sl.No

Type

.

provider

1.

For providers of banking 14 days and

of

other

service Upto 31.3.2012

From 1.4.2012 45 days

financial

services 2.

For others

14 days

30 days

The period of 14 days/30 days /45 days would be reckoned from (a)

the date of completion of provision of services or receipt of payment towards value of such taxable services, whichever is earlier in normal cases.

(b)

the ‗specified date‘ in case of continuous supply of services. The ‗specified date‘ is the date of completion of each event, as per the terms of the contract, which obligates payment by the service receiver. However, the words ‗continuous supply of service‘ have not been defined in the Service Tax Rules, 1994 but presumably the definition of ‗continuous supply of service‘ as per PoT rules would hold good. Further the said definition is amended to include services of recurrent in nature, the effect of

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the

said

amendment

is

elaborated

below

in

PoT

Rules

amendment section. 4.

Non-issuance of invoices in case of excess payments upto Rs. 1,000/- [Sixth proviso to Rule 4A]

4.1. Some times assessee‘s receive some minor amount in excess of the amount billed to their clients. In such cases where assessee receives an amount upto Rs. 1000/- in excess of the amount indicated by him on the invoice and such assessee is abiding by the provisions of Point of Taxation Rules, 2011, then such assessee need not issue invoice in respect of such excess monies received by him. 5.

Small / Medium tax payers [Proviso to Rule 6(1)]

5.1. The Service Tax Rules now provides the facility of paying service tax on receipt of payment basis to individuals and partnership firms (including LLPs) up to a taxable turnover of Rs 50 Lakh in a financial year provided that the aggregate value of taxable turnover did not exceed this limit in the previous financial year. 5.2. For computing the above limits, the turnover of the whole entity is required to be summed up and not any single registration. 6.

Adjustment of excess service tax allowed without limit and without the need to intimate to the department [Rule 6(4B)]

6.1. Under the existing dispensation an assessee can adjust excess service tax paid against his succeeding period’s [i.e. next month / quarter] liability provided the following conditions are fulfilled.

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6.1.1.The excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification; 6.1.2.The excess amount allowed to be adjusted (in a month / quarter) would be a maximum of Rs. 2,00,000/-. However, where an assessee is centrally registered, he may adjust the excess amount paid on account of delayed receipt of details of payments towards value of taxable services, without any monetary limit; 6.1.3.The details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within 15 days from the date of such adjustment. The rules have been amended to dispense with conditions 5.1.2 and 5.1.3 above. Thus, w.e.f. 1.4.2012 excess payments can be adjusted against succeeding period‘s liability without any limit and without intimating the department. However the first condition would still be required to be met.

7.

Amendment

to

Threshold

Exemption

[Notification

No.

5/2012 – Service Tax dated 17th March, 2012] 7.1. Presently the aggregate value of taxable services is the total amount received by the service provider during the Financial Year. The said has now been amended to streamline it with the Point of Taxation Rules, 2011. The aggregate value means the

sum

total

of value

of taxable

services charged in the first consecutive invoices issued or required to be issued during the Financial year excluding the value of exempted service. [Explanation in Notification No. 6/2005-ST Dated 1st March, 2005]

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CHANGES IN POINT of TAXATION RULES, 2011 (PoT RULES) 8.

Changes in the general rule and rule for continuous supply of service [Rule 3 and its Proviso]

8.1. The PoT Rules set out the criteria to decide the point of time when a service is deemed to have been provided for the purpose of collection of service tax and determination of rate of service tax. The general rule for determining the time of provision of service is as follows: A. Where the invoice is issued within 30/45 days of the date of completion of provision of services the earliest of the following dates: (i)

Date of issue of invoice

(ii)

Date of receipt of payment

B. Where the invoice is not issued within 30/45 days of the date of completion of provision of services the earliest of the following dates: (i)

Date of completion of provision of services

(ii)

Date of receipt of payment.

8.2. However, in case of ‗continuous supply of service‘ the above rule would be applicable subject to the following modifications –

(i)

where in terms of the contract the provision of the whole or part of the service is determined periodically on the completion of an event; and

(ii)

Such event obligates payment by the service receiver,

the date of completion of each such event shall be the date of completion of provision of services.

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8.3. A ‗continuous supply of service‘ has been defined to mean – [Rule 2(c)] (i)

any service provided or to be provided continuously or on recurrent basis by a service provider under a contract for a period more than 3 months; or

(ii)

such services which the Central Government prescribes by a notification to be in the nature of continuous supply of services.

Note: Services on recurrent basis would mean services which are provided on recurring basis and are not continuous in nature. Services provided by a Courier Agency would be considered as provided on recurrent basis wherein the said courier agency collects the courier at regular intervals from their clients. 9.

PoT in case of excess payments received upto Rs. 1,000/[Proviso to Rule 3]

9.1. In case where service provider receives excess payments not exceeding Rs. 1000/- in respect of an invoice, the point of taxation for such excess amount would be the date of issue of invoice or date of completion of service if invoice is not issued within prescribed time. 10. ‘Date of Payment’ defined [Rule 2A] 10.1. A new Rule 2A has been inserted to explain the ‗date of payment‘. In the normal course it shall be the earlier of the date of entry in the books of accounts or date of credit in bank account. However, when there is change in effective rate of tax or a new levy between the said two dates, the date of payment shall be the date of actual credit in the bank account, if the amount is credited in the bank more than four working days after the date of such change.

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10.2. Say, if the payment is received on 30th March, 2012 and as w.e.f. 1st April, 2012 service tax rate is 12% then the amount should be credited in the bank account on or before 9th April, 2012 (i.e. 4 working days from 1st April, 2012 being 1st, 2nd, 5th, 6th and 8th April bank holidays) else service tax applicable shall be 12% and not 10%. 11. PoT in case of new services [Rule 5] 11.1. When the new services are bought under the tax net for the first time and if, 11.1.1. Invoice is issued and payment for such invoice is received before introduction – No Service Tax 11.1.2. Payment is received before introduction and invoice is issued within 14 days of introduction of service – No Service Tax 11.2. Earlier, for para 11.1.2. above, no service tax was payable if the payment was received before the service became taxable and invoice was issued within the period referred to in rule 4A of the Service Tax Rules, 1994. 12. Point of taxation in case of exports, payment of tax under reverse charge and certain specified services [Rule 7] 12.1. Export of Services: Export of Services are not liable to service tax if the payment is received within the period specified by the RBI, including such extended period as may be allowed from time to time, subject to the fulfillment of the other conditions as laid down in Export of Services Rules, 2005. Similar provision was there in Rule 7 of the PoT Rules however the same has been omitted now w.e.f. 1 st April, 2012 and the same is made applicable vide STR.

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12.2. Reverse Charge Mechanism: In case of GTA, Sponsorship Services, Insurance Auxiliary Services, Business Auxiliary Services of distribution of Mutual Fund and Import of services the receiver of services are liable to pay service tax under reverse charge mechanism when the payment for said services are made to the service providers. However, if the payments for the services are not made within a period of 6 months then the normal PoT rule would apply. Further, if any services are received and invoice for the same is also received on or before 31st March, 2012 but the payment to the service provider is made on or after 1st April, 2012, but within the period of 6 months from the date of invoice, then the service tax rate applicable shall be 12%. 12.3. Specified Professionals: The specified professionals are individuals, proprietary firms and partnership firms providing the

following

services: (i)

Architect Services

(ii) Interior Decorator Services (iii) Practicing Chartered Accountant Services (iv) Practicing Cost Accountant Services (v) practicing Company Secretary Services (vi) Scientific and Technical Consultancy Services (vii) Legal Services. (viii) Consulting Engineering Services Now w.e.f. 1st April, 2012 all the assessee including the specified professional, as mentioned above, shall have to pay service tax as per the general rule of PoT Rules, expect whose taxable turnover is less than Rs. 50 Lakhs in the preceding financial year, as explained above in Para 5.

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However, if the services are provided by these specified professionals and the invoices for the same are also issued on or before 31st March, 2012 then the service tax will have to be paid by them on receipt of payment basis for these invoices and the rate of tax applicable shall be rate applicable at the time of receipt. 13. Determination of Point of Taxation based on best judgment [Rule 8A] 13.1. Where the Point of taxation cannot be determined due to nonavailability of the date of invoice or date of payment or both, then the Central Excise officer shall determine the point of tax on the basis various evidences to the best of his judgment, after giving the assessee an opportunity of being heard. CHANGES IN CENVAT CREDIT RULES, 2004 (CCR) 14. Capital Goods Definition [Rule 2(a)] 14.1. Prior to 1st April, 2012 all motor vehicles are capital goods only if that motor vehicle was registered in the name of the service provider providing any of the following output service - Courier Agency Services, Tour Operator Services, Rent-a-Cab Scheme Operator Services, Cargo Handling Services, Goods Transport Agency Services, Outdoor Caterer Services, Pandal or Shamiana Service. Now, Motor vehicles falling under tariff headings 8702, 8703, 8704, 8711 and their chassis shall be considered Capital Goods for the above specified service providers. [Rule 2(a)(B)]

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14.2. For all other assessee‘s Motor vehicles and their chassis shall be Capital goods if they are not falling under tariff headings 8702, 8703, 8704, 8711. [Rule 2(a)(A)(viii)] 14.3. Components, spares and accessories of motor vehicles, being capital goods for the assessee, shall also be considered as capital goods. [Rule 2(a)(D)] 15. Input Services Definition [Rule 2(l)] 15.1. Prior to 1st April, 2012 definition of Input Services specifically excluded General Insurance Business services [Sec 65(105)(d)], Authorised Service Station Services [Sec 65(105)(zo)], Service in respect of Renta-cab Scheme Operator‘s Services [Sec 65(105)(o)] and Supply of Tangible Goods Services [Sec 65(105)(zzzzj)] in so far as they relate to a motor vehicle which is not capital goods. However now from 1st April, 2012 Input service in respect of 

General Insurance Business services [Sec 65(105)(d)]



Authorised Service Station Services [Sec 65(105)(zo)]

shall be available only to a

manufacturer

of

a

motor

vehicle

in

respect of a motor vehicle manufactured by him or a provider of General Insurance Business Services [section 65(105)(d)] in respect of a motor vehicle insured or reinsured by him. Apart from them, the Cenvat credit of the above service shall not be available to other assessees. 16. Removal of Capital Goods as capital goods or scrap or waste [Rule 5A]

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16.1. Prior to 1st April, 2012 if the capital goods were clear as waste and scrap, the manufacturer were liable to pay an amount equal to the duty leviable on the transaction value. Now, if the capital goods are removed as capital goods or scrap or waste, the manufacturer or provider of output services shall pay an amount equal to the CENVAT Credit taken on the said capital goods reduced by the percentage points calculated by straight line method as specified below for each quarter of a year or part thereof from the date of taking the CEVAT Credit, namely: (a) for computers and computer peripherals : for each quarter in the first year @ 10% for each quarter in the second year @ 8% for each quarter in the third year @ 5% for each quarter in the fourth and fifth year @ 1% (b)

for

capital

goods,

other

than

computers

and

computer

peripherals @ 2.5% for each quarter: 16.2. However, if the amount so calculated is less than the amount equal to the duty leviable on transaction value, the amount to be paid shall be equal to the duty leviable on transaction value. 17. Conditions for allowing CENVAT Credit on Inputs and Capital Goods [Rule 4] 17.1. Inputs – Prior to 1st April, 2012 the provider of output service can take credit of duty paid on inputs on receipt of inputs in his premises. Now the

provider

of

output

service

is

also

required

to

maintain

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documentary evidence of receipt of such inputs in his premises and location of such inputs. [Second Proviso to Rule 4(1)] 17.2. Capital Goods - Prior to 1st April, 2012 the provider of output service can take credit duty paid on Capital goods on receipt of Capital goods in his premises. Now the provider of output service is also required to maintain documentary evidence of receipt of such Capital goods in his premises and location of such Capital goods. [Fourth Proviso to Rule 4(2)(a)] 18. Refund of Cenvat Credit [Rule 5] 18.1. Prior to 1st April, 2012 for claiming refund of Cenvat credit paid during the course of Export of Service, Cenvat Credit had to be co-related with the taxable output service i.e. Export Services. Now the assessee does not need to establish one to one co-relation that the inputs and input services were used to provide export of service. 18.2. The formula for computation of the refund amount is streamlined as per Notification no. 5/2006-CE (N.T.) which provides for refund of Cenvat credit used for Export services. Refund amount = [(Export turnover of goods+ Export turnover of services) x Net CENVAT credit] / Total turnover 19. Obligation on manufacturer of final product or provider of taxable service [Rule 6] 19.1. Assessee providing exempted services or manufacturing exempted goods and not maintaining separate accounts under Rule 6(2) of Cenvat Credit Rules, 2004, he shall have the option to pay an amount equal to 6 % (instead of 5% upto before 1 st April, 2012) of the value

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of the exempted goods and exempted services and take credit of the entire amount of Cenvat credit. [Rule 6(3)(i)]. Corresponding change from 5% to 6% has also been made in the proviso to the said Rule 6(3) 20. Manner of distribution of credit by Input Service Distributor (ISD) [Rule 7] 20.1. The (ISD) may distribute the CENVAT credit in respect of the service tax paid on the input service to its manufacturing units or units providing output service, subject to the following conditions, namely:— (a) the credit distributed against a document referred to in rule 9 does not exceed the amount of service tax paid thereon; (b) credit of service tax attributable to service used in a unit exclusively engaged in manufacture of exempted goods or providing of exempted services shall not be distributed; (c) Credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit; and (d) credit of service tax attributable to service used in more than one unit shall be distributed prorata on the basis of the turnover of the concerned unit to the sum total of the turnover of all the units to which the service relates. Note: Prior to 1st April, 2012 only conditions (a) and (b) as mentioned above were into existence. Now, the additional two conditions are also required to be fulfilled. 21. CENVAT Credit wrongly taken [Rule 14] – This amendment is applicable w.e.f. 17th March, 2012 21.1. Earlier Cenvat credit wrongly taken or utilized could be recovered from the assessee i.e. even if the assessee had availed the credit which was

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not available to him, but not utilized it, it could be recovered from the assessee. Now, such Cenvat credit can be recovered from the assessee only if he has utilized the credit for payment of duty. Mere availing of in-eligible Cenvat credit cannot be recovered from the assessee.

Disclaimers:- The opinion and views expressed in this compilation are those of the compilers. While every care is taken to ensure the accuracy of the contents of the compilation, compilers and GMJ & Co are not liable for any inadvertent errors.