Huge impact of Exemption under Service Tax not continued in GST

There could be a number of service providers who are not updated on the GST law. Some maybe hearing rumours that many changes are expected. However 1 month has passed. Those service providers who were enjoying the exemption would be in shock if they continue not to collect the GST applicable normally at 18%. If one does not collect and pay the impact maybe as high as 25% along with the interest and penalty in later years. In this article we examine what exemptions have been done away with in the GST regime.

Cases where Exemptions not carried forwarded from Service Tax Law which are taxable under GST are listed below:

a. Trading of Goods: Earlier Covered under Negative list - Sec 66D (e) of Finance Act

Sale of goods amount to Supply as defined under Sec 7 of the CGST Act and hence Taxable. Trading of goods was not subject to Sales Tax/VAT and hence not liable for Service Tax due constitutional restriction on Central to levy tax on State matters. However now the Constitution being amended to enable both State and Centre to levy tax on sale of goods and accordingly GST would be applicable on sale of goods unless specifically exempted elsewhere.

b. Services by way of Carrying out any process amounting to manufacture or production of goods: - Earlier Covered under Negative list - Sec 66D (f) of Finance Act

c. Selling of Space for advertisement in Print Media - Earlier Covered under Negative list - Sec 66D (g) of Finance Act

d. Betting, Gambling and Lottery - Earlier Covered under Negative list - Sec 66D (i) of Finance Act

Services provided to the united nations or a specified international organisation - Earlier exempted vide entry 1 of the Mega Exemption Notification 25/2012-ST

e. Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

• a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958 (24 of 1958);
• canal, dam or other irrigation works;
• pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal; or

Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST

Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

• a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;
• a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or
• a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act; under a contract which had been entered into prior to the 1st March, 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date:

Provided that nothing contained in this entry could apply on or after the 1st April, 2020;

Earlier exempted vide entry 12A of the Mega Exemption Notification 25/2012-ST

Services by way of construction, erection, commissioning, or installation of original works pertaining to an airport or port provided under a contract which had been entered into prior to 1st March 2015 and on which appropriate stamp duty, where applicable, had been paid prior to such date:

Provided that Ministry of Civil Aviation or the Ministry of Shipping in the Government of India, as the case may be, certifies that the contract had been entered into before the 1st March 2015:

Provided further that nothing contained in this entry could apply on or after the 1st April 2020

Earlier exempted vide entry 14A of the Mega Exemption Notification 25/2012-ST

Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright-

(a) covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or

(b) of cinematograph films for exhibition in a cinema hall or cinema theatre;]

Earlier exempted vide entry 15 of the Mega Exemption Notification 25/2012-ST

Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year

Earlier exempted vide entry 19 of the Mega Exemption Notification 25/2012-ST

19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year

Earlier exempted vide entry 19A of the Mega Exemption Notification 25/2012-ST

Services by way of transportation by rail or a vessel from one place in India to another of the chemical fertilizer and oil Cakes, Cotton ginned or baled.

Earlier exempted vide entry 20(j) & (k) of the Mega Exemption Notification 25/2012-ST

Services provided by a goods transport agency, by way of transport in a goods carriage of chemical fertilizer and oil Cakes, Cotton ginned or baled.

Earlier exempted vide entry 21(e) & (i) of the Mega Exemption Notification 25/2012-ST

Services by the following persons in respective capacities -

(a) sub-broker or an authorised person to a stock broker;

(b) authorised person to a member of a commodity exchange;

(c) selling agent or a distributer of SIM cards or recharge coupon vouchers;

(d) sub-contractor providing services by way of works contract to another contractor providing works contract services which are exempt;

Earlier exempted vide entry 29(a)(b)(f) & (h) of the Mega Exemption Notification 25/2012-ST

Services by way of carrying out,

(i) any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption; or

(ii) any intermediate production process as job work not amounting to manufacture or production in relation to -

1. printing or textile processing;
2. cut and polished diamonds and gemstones; or plain and studded jewellery of gold and other precious metals, falling under Chapter 71 of the Central ExciseTariff Act, 1985 (5 of 1986);
3. any goods excluding alcoholic liquors for human consumption, on which appropriate duty is payable by the principal manufacturer; or
4. processes of electroplating, zinc plating, anodizing, heat treatment, powder coating, painting including spray painting or auto black, during the course of manufacture of parts of cycles or sewing machines upto an aggregate value of taxable service of the specified processes of one hundred and fifty lakh rupees in a financial year subject to the condition that such aggregate value had not exceeded one hundred and fifty lakh rupees during the preceding financial year;”.]

Earlier exempted vide entry 30 of the Mega Exemption Notification 25/2012-ST

Services by operator of Common Effluent Treatment Plant by way of treatment of effluent;

Earlier exempted vide entry 43 of the Mega Exemption Notification 25/2012-ST

Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members;

Earlier exempted vide entry 46 of the Mega Exemption Notification 25/2012-ST

Services by way of right to admission to exhibition of cinematographic film

Earlier exempted vide entry 47(i) of the Mega Exemption Notification 25/2012-ST

Conclusion:

Deciding the eligibility of exemption would be crucial business decision for any entity. Availing wrong exemption could lead to huge long term demand along with interest and penalty burden and at the same time not availing exemption could impact the competitiveness business and compliance cost. As discussed non-availing eligible exemption could lead to reversal of input tax credit when demanded by department which would be a major threat for any business to survive.

Hence, assessee and professional suggesting their clients need to make sure the compliance from all the corners of law.

This article is adapted from a Classification & Exemption Book to be released by Bharat Law House this Month jointly authored by Madhukar N Hiregange, Vasant K Bhat& Nagendra Hegde (All Chartered Accountant)