India: Significant Changes : Indirect Taxes

A QUICK GLANCE

The Budget 2015 presented by has definitely put down a significant meaning towards accomplishment of the goals through execution and not just listing down by introducing an array of amendments and changes. It's surely a shift towards a non-adversarial tax system. Some of the significant measures from an Indirect tax perspective are enlisted below:

SERVICE TAX

1. The rate of Service tax has been increased from 12.36% to 14%. The "Education cess" and "Secondary and Higher Education Cess" shall be subsumed in this revised rate. This shall be leviable from the date notified after the Finance Bill receives the asset of the President. Till then the present rates shall continued to be levied.

2. Swatch Bharat Cess: The Central Government has been empowered to impose a Swatch Bharat cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. It shall be levied from such date as may be notified by the Government after the enactment of the bill.

3. Negative List: The changes below in the Negative List shall come into effect from a date to be notified later, after the enactment of the Finance Bill, 2015.

3.1. Service tax shall be levied on the services provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

3.2. Service tax to be levied on service by way of admission to entertainment event of concerts, pageants, musical performances, concerts, award functions and sporting events other than the recognized sporting event, if the amount charged is more than Rs. 500 for right to admission to such an event. However, the existing exemption, by way of the Negative List entry to service by way of admission to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical performance including drama and ballet shall be continued, through the route of exemption. For this purpose a new entry is being inserted in notification No. 25/12-ST. The term recognized sporting event has been defined in the proposed amendment in the said notification

3.3. The entry in the Negative List that covers 'service by way of any process amounting to manufacture or production of goods' [section 66D (f )] is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption. Consequently, Service Tax shall be levied on contract manufacturing/job work for production of potable liquor for a consideration. In this context, the definition of the term " process amounting to manufacture or production of goods" [section 65 B (40)] is also being amended, along with the Negative List entry [section 66D (f)], with a consequential amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

3.4. Presently, services provided by Government or a local authority, excluding certain services specified under clause (a) of section 66D, are covered by the Negative List. Service Tax applies on the "support service" provided by the Government or local authority to a business entity. An enabling provision is being made, by amending section 66D (a)(iv), to exclude all services provided by the Government or local authority to a business entity from the Negative list. Consequently, the definition of "support service" [section 65 B (49)] is being omitted. Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any another entry in the Negative List, shall be liable to service tax.

4. The exemption provided to the services provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect.

5. The facility of Advance ruling is being extended to all the residents firms.

6. An explanation has been inserted in the definition of "Service" to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foreman in relation to chit, and lottery distributors and selling agents, in relation to lotteries. Further, vide another explanation it has been clarified that these activities are not covered in the negative list.

7. Banks providing agency service to or in relation to services of RBI, are liable to pay service tax on the agency services so provided by virtue of the existing section 66F(1).

8. It is being prescribed specifically in Section 67 of the Finance Act that 'consideration for a taxable service' shall include:

8.1. All reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases, courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in section 67.

8.2. Amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.

9. Section 76 is being amended to rationalize the provisions relating to penalties, in cases not involving fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules with the intent to evade payment of Service Tax, in the following manner,-

9.1. Penalty not to exceed 10 % of Service Tax amount involved in such cases;

9.2. No penalty is to be paid if Service Tax and interest is paid within 30 days of issuance of notice under section 73 (1);

9.3. A reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by way of an order is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

9.4. If the Service Tax amount gets reduced in any appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25% of penalty imposed) shall be admissible if service tax, interest and reduced penalty is paid within 30 days of such appellate order.

10. Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or willful isstatement of suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax, in the following manner:

10.1. Penalty shall be hundred per cent of Service Tax amount involved in such cases;

10.2. A reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax, interest and reduced penalty is paid within 30 days of service of notice in this regard;

10.3. A reduced penalty equal to 25% of the Service Tax amount, determined by the Central Excise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and

10.4. If the Service Tax amount gets reduced in any appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be admissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellate order.

11. Section 80 that provided of waiver of penalty in certain circumstances has been omitted.

12. Exemption presently available on specified services of construction, repair, maintenance, renovation or alteration service provided to the Government, a local authority, or a governmental authority ( vide S. No. 12 of the notification No. 25/12-ST ) shall be limited only to,-

12.1. a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;

12.2. canal, dam or other irrigation work; and

12.3. pipeline, conduit or plant for (i) water supply

(ii) water treatment, or (iii) sewerage treatment or disposal.

Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn.

13. Exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST). The other exemptions covered under S. No. 14 of notification No. 25/12-ST shall continue unchanged.

14. Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1, 00, 000 for a performance (S. No 16 of notification No. 25/12-ST).

15. Hitherto, any service provided by way of transportation of a patient to and from a clinical establishment by a clinical establishment is exempt from Service Tax. The scope of this exemption is being widened to include all ambulance services.

16. Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.

17. Service provided by way of admission to a museum, zoo, national park, wild life sanctuary and a tiger reserve is being exempted. These services when provided by the Government or local authority are already covered by the Negative List.

18. Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of its members is being exempted.

19. Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from Service Tax vide notification No. 31/12-ST dated20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS).

20. Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

21. Introduction of Aggregator Model [Please refer to article on "Agregators take a ride with the Budget" for more detail].

22. Provision for issuing digitally signed invoices is being added along with the option of maintaining of records in electronic form and their authentication by means of digital signatures.

23. Registration process under service tax has been simplified in order to grant registration within 2 days.

EXCISE

1. Central excise duty to be rounded off to 12.5% from 12.36 %.

2. Digitally signed invoices may be issued and records may be preserved in electronic form by a manufacturer.

3. Registration process has been simplified in order to make sure that the registration is granted within 2 working days of the receipt of a duly completed application form. Further, the verification of the documents and the premises, as the case may be, shall be carried out after the grant of registration.

4. Time limit for taking CENVAT credit on inputs services enhances from 6 months to 12 months.

5. Time limit for return of capital goods from job worker has been enhances from 6 months to 2 years.

6. Provision relating to reversal of CENVAT Credit, presently applicable to exempted goods and services shall be applicable to non excisable goods also.

7. CENVAT credit taken and not utilized also to be recovered under Rule 14.

8. Section 11AC of the Central Excise Act amended as follows:

8.1. Evasion of duty or nonpayment of duty but without fraud/collusion/suppression of facts etc.:

(a) A penalty not exceeding 10% of the duty determined or Rs. 5000 whichever is higher shall be payable

(b) No penalty to be paid if the duty and interest under Section 11AA is paid before the issue of the Show Cause Notice or within 30 days of the issue of the Show Cause notice.

(c) The penalty shall be reduced to 25% provided that the same along with duty and interest is paid within 30 days of the communication of the order.

8.2. Evasion of duty or nonpayment of duty but with fraud/collusion/suppression of facts etc.:

(a) A penalty equal to the duty so determined shall be payable.

(b) For the period beginning with 8th April, 2011 and upto the assent to the Finance Bill 2015, the penalty shall be 50% of the duty so determined provided the details of the transactions of evasion are recorded.

(c) 15% penalty shall be payable, of the duty determined, if the duty and interest payable thereon under Section 11AA is paid within 30 days of the issue of the SCN.

(d) The penalty shall be reduced to 25% provided the same along with duty and interest is paid within 30 days of the date of communication of such order.

CUSTOMS

1. The provisions regarding penalty as provided U/s 28 has been amended as follows:

(a) In cases not involving fraud/collusion/ suppression of facts etc., no penalty to be imposed in case the duty along with interest is paid within 30 days from receipt of notice and the proceedings in respect of such person shall be deemed to be concluded.

(b) In cases involving fraud/collusion/ suppression of facts etc., the amount of penalty payable shall be reduced to 15% ( which is at present 25%) if the amount of duty in full or in part, as may be accepted along with interest and such reduced penalty is paid within 30 days from the receipt of the notice.

2. However, in cases of short levy or non levy or short payment or nonpayment and erroneous refund of duty for reasons of collusion or any willful misstatement or suppression of facts, if the duty as determined U/s 28(8) and the interest payable thereon U/S 28AA is paid within 30 days from the date of the communication of the order, the amount of penalty shall be reduced to 25% of the penalty so determined.

3. In case of dutiable goods, other than prohibited goods, if any person does or omits to do any act which would render such goods liable to confiscation under Section 111 or Section 113, or abets to do such act or omission of such act, shall subject to the provisions of S-114A, be liable to penalty not exceeding 10% of the duty sought to be evaded or Rs. 5000/-, whichever is greater.

4. The scheme of Advance Ruling has been extended to the residents.

5. When proceedings are referred back, whether in appeal or revision or otherwise, by any court, Appellate tribunal or any other authority to the adjudicating authority for fresh adjudication or decision, the same shall not be entitled for Settlement.

6. Offences of making false declaration in the transaction of any business relating to customs (u/s 132 of customs act) to be predicate offence under PMLA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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