Budget 2013 – Changes in Service tax

THE rate of Service Tax (i.e. 12.36%) has been retained. However, changes are proposed by way of introduction of 2 new services in Negative List, withdrawal of Service tax exemption in certain cases, change in taxable value for high end flats, one time Amnesty scheme etc.

In the following paragraphs the author has made an attempt to capture these proposed changes.

A. CHANGES IN ABATEMENTS (effective from 1 March 2013)

At present taxable portion for service tax purpose is prescribed as 25% uniformly for constructions where value of land is included in the amount charged from the service recipient.

Going forward, in the case of 'construction of complex, building or civil structure, or a part thereof, intended for sale to a buyer, wholly or partly except where the entire consideration is
received after issuance of completion certificate by the competent authority', where the carpet area of residential unit is upto 2000 square feet or the amount charged is less than One Crore Rupees , the taxable portion for service tax purpose will remain as 25%, however, in all other cases taxable portion for service tax purpose will be 30%. Thus, the effective Service Tax would be increased from 3.09% (i.e. 12.36% * 25%) to 3.708% (i.e. 12.36% * 30%) [See Notification 2/2013-ST]

B. EXEMPTIONS WITHDRAWN [w.e.f from 1 April 2013 – See Notfn. 3/2013-ST]

1. Air-conditioned restaurants: Currently, Service Tax (on 40% value) is leviable on air conditioned restaurants serving liquor. However, w.e.f. 1 April 2013, Service Tax (on 40% value) will be applicable on all Air Conditioned restaurants (irrespective of the fact whether they serve liquor or not). Thus, eating in restaurants is set to become costlier.

2. Services by way of vehicle parking to general public: Entry no. 24 in the Mega Exemption Notification exempts ‘Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility' is exempt. This exemption is being withdrawn. Thus, all “parking” will be liable to Service Tax. However, for small service providers exemption of Rs 10 lacs would be available.

3. Advancement of any other object of general public utility: Currently, advancement of any other object of general public utility up to a value of Rs 25 lacs p.a. is exempt. This exemption limit has been reduced to Rs 10 lacs p.a. (i.e. at par with other small service providers exemption)

4. Renting of immovable property by Educational institute to others : Currently, entry no. 9 in the Mega Exemption Notification (No. 25/2012-ST) exempts ‘Services provided to or by an educational institution in respect of education exempted from service tax by way of renting of immovable property'. Now, exemption will not be available to renting of immovable property by an educational institute to others.

5. Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft: Entry no. 25 in the Mega Exemption Notification exempts Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft. This exemption is being withdrawn and thus Service Tax will be leviable on this activity.

6. Film exhibited through a mode other than theatres : Entry no. 15 in the Mega Exemption Notification exempts ‘Temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films'. Now, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theatre. Thus, exhibition though TV/ satellite would be subject to Service Tax.

7. Exemption to transport of goods by rail/vessel: Entry no. 20 in the Mega Exemption Notification exempts transportation of certain goods by rail/vessel. Now, exemption to transportation of petroleum and petroleum products, postal mails or mail bags and household effects by railways and vessels will not be available. A worrisome fact is that this move may drive inflation further North.

8. Exemption to transport of goods by rail/vessel: Entry no. 21 in the Mega Exemption Notification exempts transportation of certain goods (fruits, vegetable, milk etc) by road. Now, Transportation of certain more goods (such as foodstuff, fertilisers, oil cakes, newspapers etc) by road has been exempted.

C. CHANGES IN THE NEGATIVE LIST I.E. SECTION 66D OF THE ACT (effective from the date of Presidential assent) [See Finance Bill, 2013]

1. Vocational training: Courses in 'designated trades' offered by Industrial Training Institute or Industrial Training Centre affiliated to State Council of Vocational Training will also be covered by the Negative List and thus not liable to Service Tax.

2. Testing relation to agriculture: Currently, Section 66D (d) (i) inter-alia exempts 'seed' testing. Now, it is proposed that all testing activities directly related to production of any agricultural produce like soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes will be covered by the Negative List and thus not liable to Service Tax.

3. Process amounting to manufacture or production of goods: Currently, vide Section 66D (f) of the Act “any process amounting to manufacture or production of goods” is covered in the Negative List. The term “any process amounting to manufacture or production of goods” is defined to mean a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 or any process on which duties of excise are leviable under any State Act for the time being in force.

Taking heed to the concerns voiced by many various industry chambers, Section 65B(40) of the Act is being amended to include processes on which duties of excise are leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955. This is a welcome move.

D. OTHER CHANGES (effective from the date of Presidential assent) [See Finance Bill, 2013]

1. Show Cause Notice: If a show cause notice issued under proviso to sub-section (1) of section 73 (i.e. fraud, suppression cases), is not found sustainable by an appellate authority or tribunal or court, the same will be deemed to be a notice issued for a period of 18 months.

2. Maximum penalty for failure to obtain registration : Maximum penalty imposable for failure to obtain registration will be Rs 10,000 only.

3. Officer in-charge would be punishable also: Section 78A is being introduced, to make provision for imposition of penalty on director, manager, secretary or other officer of the company, who is in any manner knowingly concerned with specified contraventions. This will surely create difficulties in the years to come for the directors/ officers of the Company.

4. Appeal to Appellate Tribunal/CESTAT: Section 86 is being amended to provide that in case of appeal filed by assessee, CESTAT can admit an appeal or permit the filing of Memorandum of Cross Objections after the expiry of the relevant period by the Department.

5. Offences: Section 89 is being amended to provide for imprisonment (upto 7 years in certain cases) where the amount exceeds Rs 50 lacs.

6. Cognizable offence : Section 90 is being introduced to specify and differentiate cognizable offences from non-cognizable and bailable offences.

7. Arrest: Section 91 is being introduced to provide for power to arrest. We hope these provisions are not mis-utilized.

E. ADVANCE RULING (Nofn. 4/2013-ST dated 01.03.2013 )

Scope of advance ruling is being extended to cover resident public limited companies . Thus, public limited Companies can now obtain Advance Rulings and this will go long in reducing the litigation between public limited Companies and Department.

F. AMNESTY SCHEME FOR NON FILERS AND STOP FILERS (effective from the date of Presidential assent) [See Finance Bill, 2013]

Finance Minister in his speech stated that there are 17 lacs registered assessees. However, only 7 lac asessees file returns.

Thus, to encourage voluntary compliance and broaden the tax base Voluntary Compliance Encouragement Scheme, 2013 is proposed to be introduced. This scheme will provide one-time amnesty by way of waiver of interest and penalty and immunity from prosecution for persons who pay the "tax dues". This scheme would be applicable for service providers who have not obtained registration, or disclosed true liability or not filed returns for the period from October 2007 to December 2012.

G. GST

This year the FM has assured that soon the Constitutional Amendment would be in place and also Draft GST bill will be introduced in Parliament. This step will enable the States to make their State GST laws and would make the process of introduction of GST faster.

H. CONCLUSION

Last Budget saw mammoth changes in Service tax legislation (introduction of Negative List regime and related rules) whereas the Finance Bill, 2013 doesn't trouble the Service Tax provisions much. Although many concerns of the industry pertaining to the Negative list, Point of Taxation Rules, 2011 and the Place of Provisions of Services Rules, 2012 are yet to be answered, the Budget 2013 comes as less complicated and is welcome