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01 April, 2015

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What’s Changing in Service Tax & Cenvat Credit w.e.f 1.4.2015–by CA Ankit Gulgulia (Jain)

asdasd1. Rationalization of exemptions at S. Nos. 12, 14, 16, 20, 21 and 29 of notification No. 25/2012-ST

Service Tax rate shall remain to be at 12.36% as on 1st April, 2015. The enhanced rate of 14% shall become effective after enactment of Act and from date to be notified by Government

A) 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:-

(a) a historical monument, archaeological site or remains of national importance, archeological excavation or antiquity;

(b) canal, dam or other irrigation work; and

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Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is being withdrawn.

B) 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to construction, erection, commissioning or installation of original works pertaining to an airport or port is being withdrawn (S. No 14 of the notification No. 25/12-ST).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.

C) 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 ₹ 1,00,000 for a performance (S. No 16 of notification No. 25/12-ST).

D) Exemption to transportation of food stuff by rail, or vessels or road will be limited to food grains including rice and pulses, flour, milk and salt. Transportation of agricultural produce is separately exempt, and this exemption would continue (S. Nos. 20 and 21 of notification No. 25/12-ST).

E) Exemptions are being withdrawn on the following services:

(a) services provided by a mutual fund agent to a mutual fund or assets management company,

(b) distributor to a mutual fund or AMC,

(c) selling or marketing agent of lottery ticket to a distributor. Service Tax on these services shall be levied on reverse charge basis. (S. No 29 of notification No. 25/12-ST).

2. Omitting the entry at S. No. 32 in notification No. 25/2012-ST

Exemption is being withdrawn on the following service,-

(a) Departmentally run public telephone;

(b) Guaranteed public telephone operating only local calls;

(c) Service by way of making telephone calls from free telephone at airport and hospital where no bill is issued.

(S. No. 32 of notification No. 25/12-ST).

3. New exemptions Effective from 1st April, 2015

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

ü Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.

ü Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is being exempted.

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

ü 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.

ü 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 it’s members is being exempted.

ü 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 dated 20.6.2012. 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).

4. Change in Abatement

ü At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road by a goods transport agency and 40% for goods transport by vessels. The conditions prescribed also vary. A uniform abatement is now being prescribed for transport by rail, road and vessel and Service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat Credit on inputs, capital goods and input services.

{Effective Post Abated Rate would be 3.708% i.e. 12.36% x 30%}

ü At present, Service Tax is payable on 40% of the value of air transport of passenger for economy as well as higher classes, e.g. business class. The abatement for classes other than economy is being reduced and Service Tax would be payable on 60% of the value of such higher classes.

{Effective Post Abated Rate other than economy class would be 7.416% i.e. 12.36% x 60%}

ü Abatement is being withdrawn from services provided in relation to chit. Consequently, Service Tax shall be paid by the chit fund foremen on the full consideration received by way of fee, commission or any such amount. They would be entitled to take Cenvat Credit.

5. Amendment in reverse charge mechanism

ü 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 under 75:25.

ü Services provided by,- (i) mutual fund agents, mutual fund distributors; and (ii) agents of lottery distributor

are being brought under reverse charge consequent to withdrawal of the exemption on such services. Accordingly, Service Tax in respect of mutual fund agent and mutual fund distributor services shall be paid by the assets management company or, as the case may be, by the mutual fund receiving such services. In respect of agents of lottery, Service Tax shall be paid by the distributor of lottery.

6. Amendment in Cenvat Credit Rules

Ø Rule 4(7) is being amended to allow Cenvat Credit of Service Tax paid under partial reverse charge by the service receiver without linking it to the payment to the service provider. This change will come into effect from 1.4.2015.

Ø The period for taking Cenvat Credit is being extended from six months from the date of invoice to one year from the date of invoice.

Ø Certain other changes are being made in the provisions of the Cenvat Credit Rules, 2004, which, inter-alia, include allowing Cenvat Credit on input and capital goods received directly by job workers, defining “export goods” for the purposes of rule 5, defining “exempt goods” for the purposes of rule 6, making applicable the provision of rule 9(4) to importer dealers, authorizing imposition of restrictions on registered dealers under rule 12AAA, and provisions relating to recovery of credit wrongly taken and imposition of penalty.

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