Important Note
1. This analysis covers amendments made by Finance Bill 2016 in Finance Act, 1994 only.
2. Amendments made in STR, CCR, POT Rules and in various notifications are not covered under this analysis.
A. EXTRACT OF DO LETTER BY JS (TRU-II)
The Finance Minister has, while presenting the Union Budget 2016-17, introduced the Finance Bill, 2016 in the Lok Sabha on the 29th of February, 2016.
Clauses 145 to 157 of the Bill cover the amendments made to Chapter V of the Finance Act, 1994.
Chapter VI of the Bill (clause 158) proposes to levy Krishi Kalyan Cess, on any or all the taxable services at the rate of 0.5% of the value of taxable services with effect from 1st June, 2016.
Changes are also proposed in,-
- the Service Tax Rules, 1994 (STR);
- the Point of Taxation rules, 2011;
- the CENVAT Credit Rules, 2004(Cenvat Rules)
It may be noted that changes being made in the Budget are coming into effect on various dates, as indicated below:
(i) Changes coming into effect immediately w.e.f. the 1st day of March, 2016;
(ii) Changes coming into effect from the 1st day of April, 2016;
(iii) The amendments which will get incorporated in the Finance Act, 1994 on enactment of the Finance Bill, 2016;
(iv) The amendments made in the Finance Act, 1994, which will come into effect from 1st day of June, 2016 after the enactment of the Finance Bill, 2016; and
(v) Chapter VI of the Finance Bill, 2016, regarding levy of Krishi Kalyan Cess on all taxable services will come into effect from 1st June 2016.
B. Changes Made in Various Definitions Under Section 65B
1. Clause (11) of section 65 shall be omitted. Definition of approved vocational education course omitted here and inserted in Mega Exemption Notification i.e. NN 25/2012 dated 20.06.12. Applicable on enactment of Finance Bill 2016. By this amendment, it has been reorganized.
2. In clause (44) of section 65B, in Explanation 2, in sub-clause (ii), for item (a), the following item shall be substituted “(a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998;” By this amendment scope of service widened. Applicable on enactment of Finance Bill 2016.
3. Section 4(c) of the Lotteries (Regulation) Act, 1998 provides that the State Government shall sell the tickets either itself or through distributors or selling agents. Thus, as per the provisions of the Lotteries (Regulation) Act, 1998, the transaction between the State Government and the distributors or selling agents is on principal to agent basis. Any contract contrary to the aforesaid legal provisions is ultra vires the provisions of Indian Contracts Act, 1872 and thus not legally enforceable. Explanation 2 in section 65B(44) is proposed to be amended to clarify that activity carried out by a lottery distributor or selling agents of the State Government under the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), isleviable to service tax.
C. Changes Made in Negative List Under Section 66D
1. Clause (l) of Section 66D shall be omitted. (i.e. (i) betting, gambling or lottery). Now betting, gambling or lottery is not covered by negative list and is taxable service. Applicable on enactment of Finance Bill 2016.
2. In clause (o) of section 66D, sub-clause (i) shall be omitted. (i.e. (o) service of transportation of passengers, with or without accompanied belongings, by— (i) a stage carriage;). Now transportation services provided by a stage carriage is taxable. Applicable wef 01.01.2016. However, such services by a non-air-conditioned contract carriage will continue to be exempted by way of exemption notification [Notification No. 25/2012-ST, as amended by notification No. 09/2016-ST, dated 1st March, 2016 refers]. The service of transportation of passengers by air-conditioned stage carriage is being taxed at the same level of abatement (60%) as applicable to the transportation of passengers by a contract carriage, with same conditions of non-availment of Cenvat credit. [notification No. 08/2016-St dated 29th February, 2016 refers]
3. In clause (p) of Section 66D, sub-clause (ii) shall be omitted. (i.e. (p) services by way of transportation of goods—(ii) by an aircraft or a vessel from a place outside India to the first customs station of landing up to the customs station of clearance in India;). Applicablewef 01.01.2016. However such services by an aircraft will continue to be exempted by way of exemption notification [Not. No. 25/2012-ST, as amended by notification No. 09/2016-ST dated 1st March, 2016 refers]. The domestic shipping lines registered in India will pay service tax under forward charge while the services availed from foreign shipping line by a business entity located in India will get taxed under reverse charge at the hands of the business entity. The service tax so paid will be available as credit with the Indian manufacturer or service provideravailing such services (subject to fulfillment of the other existing conditions). It is clarified that service tax levied on such services shall not be part of value for custom duty purposes.
D. Changes Made Under Section 66E
In section 66E, after clause (i), the following clause shall be inserted, namely:—“(j) assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof.” Applicable on enactment of Finance Bill 2016.
Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that assignment by Government of the right to use the spectrum as well as subsequent transfers of assignment of such right to use is a service leviable to service tax and not sale of intangible goods.
E. Changes Made Under Section 73
In section 73,––in sub-sections (1), (1A), (2A) and (3), for the words “eighteen months”, wherever they occur, the words “thirty months” shall be substituted.
The limitation period for recovery of service tax not levied or paid or short- levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is proposed to be enhanced by one year, that is, from 18 months to 30 months by making suitable changes to section 73 of the Finance Act, 1994. Now period for issue of notice of demand under section 73 has increased from 18 months to 30 months. Applicable on enactment of Finance Bill 2016.
F. Changes Made Under Section 73 (4B)(a)
In sub-section (4B), in clause (a), for the words “whose limitation is specified as eighteen months in”, the words “falling under” shall be substituted.
Section 73 (4B)(a) reproduced here “The Central Excise Officer shall determine the amount of service tax due under sub-section (2)— (a) within six months from the date of notice where it is possible to do so, in respect of cases whose limitation is specified as eighteen months falling under in sub-section (1)”. Applicable on enactment of Finance Bill 2016.
G. Changes Made Under Section 75
In section 75, for the words ‘‘Provided that’’, the following shall be substituted, namely:— ‘‘Provided that in the case of a person who collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government, on or before the date on which such payment is due, the Central Government may, by notification in the Official Gazette, specify such other rate of interest, as it may deem necessary:
Provided further that’’.
Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government. Applicable on enactment of Finance Bill 2016.
H. Changes Made Under Section 78A
It is proposed to provide that penalty proceedings under section 78A shall be deemed to be closed in cases where the main demand and penalty proceedings have been closed under section 76 or section 78, by making suitable changes to section 78A by addition of an explanation. Applicable on enactment of Finance Bill 2016.
I. Changes Made Under Section 89
The monetary limit for filing complaints for punishable offences is proposed to be enhanced to Rs. 2crore from Rs. 50lakh . Applicable on enactment of Finance Bill 2016.
J. Changes Made Under Section 90 & 91
The power to arrest in service tax law is proposed to be restricted only to situations where the tax payer has collected the tax but not deposited it with the exchequer, and amount of such tax collected but not paid is above the threshold of Rs 2 crore. Sections 90 and 91 of the Finance Act, 1994 are being amended accordingly. Applicable on enactment of Finance Bill 2016.
K. Changes Made Under Section 93A
Section 93A of the Finance Act,1994 is being amended so as to enable allowing of rebate by way of notification as well as rules. Applicable on enactment of Finance Bill 2016.
Disclaimer: The above analysis has been drafted as per various provisions of Finance Act 1994, and notifications and circulars issued thereunder. The analysis may not be entirely correct for reader to reader due to different interpretations by different readers. The readers are advised to take into the consideration the prevailing legal position before acting on any of the comments in this reply. We shall not be responsible for any loss caused based on this interpretation.
The author can also be reached at capuneetgoyal.delhi@gmail.com
CAclubindia
