Change in Service Tax in Budget 2010

Summary of Important Changes Proposed In Service Tax by Budget 2010

1. EIGHT NEW SERVICES TO BE INTRODUCED

Following eight new services are proposed to be introduced:

·                                 Services of promoting, marketing or organizing of games of chance, including lottery [Section 65 (105) (zzzzn)].

·                                 Health services, namely, health check up undertaken by hospitals or medical establishments for the employees of business entities; and health services provided under health insurance schemes offered by insurance companies.[Section 65 (105) (zzzzo)]

·                                 Services provided for maintenance of medical records of employees of a business entity [Section 65 (105) (zzzzp)].

·                                 Services of promoting of a ‘brand’ of goods, services, events, business entity etc [Section 65 (105) (zzzzq)].

·                                 Services of permitting commercial use or exploitation of any event organized by a person or organization [Section 65 (105) (zzzzr)].

·                                 Services provided by Electricity Exchanges [Section 65 (105) (zzzzs)].

·                                 Services related to two types of copyrights hitherto not covered under existing taxable service ‘Intellectual Property Right (IPR)’, namely, those on (a) cinematographic films; and (b) sound recording [Section 65 (105) (zzzzt)].

·                                 Special services provided by a builder etc. to the prospective buyers such as providing preferential location or external or internal development of complexes on extra charges [Section 65 (105) (zzzzu)].

[The tax on these services would come into effect from a notified date after the enactment of the Finance Bill, 2010.]

2. ALTERATION OR EXPANSION IN THE SCOPE OF EXISTING SERVICES

3. OTHER AMENDMENTS – NO PENALTY IF TAX PAID BEFORE ISSUE OF NOTICE

Finance Act, 1994 is being amended to insert an explanation in sub-section (3) of Section 73 to clarify that no penalty shall be imposed where service tax along with interest has been paid before issuance of notice by the department.

[This would be effective from the date of enactment of the Finance bill, 2010]

4. EXEMPTIONS

The following exemptions from service tax are being provided with effect from 27th February, 2010, namely,-

• Statutory taxes charged by any government (including foreign governments, where a passenger disembarks) on air passenger would be excluded from taxable value for the purpose of levy of service tax under the Air Passenger Transport Service.

• Exemption from service tax is being provided to services relating to ‘Erection, Commissioning or Installation’ of,-

·                                 Mechanized Food Grain Handling Systems etc.;

·                                 Equipment for setting up or substantial expansion of cold storage; and

·                                 Machinery/equipment for initial setting up or substantial expansion of units for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic, marine or meat products.

• Packaged I.T. software, pre-packed in retail packages for single use, is being exempted from service tax leviable under IT Software Service, subject to specified conditions. These conditions include that either the customs duty (in case of import) or excise duty (in case of domestic production) has been paid on the entire amount received from the buyer.

• At present, exemption from service tax is available to transport of fruits, vegetables, eggs or milk by road by a goods transport agency. The scope of exemption is being expanded by including food grains and pulses in the list of exempted goods

• Exemption from service tax is being provided to Indian news agencies under ‘Online Information and Database Retrieval Service’ and ‘Business Auxiliary Service’ subject to specified conditions.

• Exemption from service tax is being provided to the ‘Technical Testing and Analysis Service’ and ‘Technical Inspection and certification service’ provided by Central and State seed testing laboratories, and Central and State seed certification agencies.

• Exemption from service tax is being provided to the transmission of electricity.

5. WITHDRAWALS OR AMENDMENTS TO EXISTING EXEMPTIONS

The following changes have been brought about in the existing exemptions,-

·                                 Exemption from service tax on service provided in relation to ‘Transport of Goods by Rail’ is being withdrawn. However, exemption has been provided to certain specified goods transported by rail. An abatement of 70% of the gross value of the freight charged on goods (other than exempted goods) is being provided.

·                                 The exemption from service tax on ‘Commercial training or coaching service’ extended to vocational training institutes vide notification No. 24/2004-ST dated 10.09.2004 is being limited by introducing a new definition of vocational training institutes. Service tax exemption will be available only to industrial training institutes or industrial training centers affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered under Schedule I of the Apprentices Act, 1961. The List figuring under Schedule I of the Act covers engineering as well as non-engineering skills/trades.

·                                 Exemption from service tax, presently available to Group Personal Accident Scheme provided by Govt. of Rajasthan to its employees, under General Insurance Service is being withdrawn.

·                                 Notification No.1/2002-ST dated 01.03.2002 is being superseded by Notification No.14/2010-ST, dated 27th February 2010 to provide that the construction and operation of installations, structures and vessels for the purposes of prospecting or extraction or production of mineral oils and natural gas in the Exclusive Economic Zone and the Continental Shelf of India and supply of any goods connected with these activities would be within the purview of the provisions of Chapter V of the Finance Act, 1994. Similar changes have been made in the definition of the term ‘India’ appearing in the Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India & Received in India) Rules, 2006.

6. AMENDMENT TO EXPORT OF SERVICE RULES, 2005

Export of Service Rules, 2005 has been amended as follows:

• The taxable service, namely ‘Mandap Keeper Service’ has been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely ‘Chartered Accountant Services’, ‘Cost Accountant Services’ and ‘Company Secretary’s Services’, have been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(iii) [residual category of services].

The condition prescribed under rule (2) (a) i.e. ‘such service is provided from India and used outside India’ has been deleted (Notification No.6/2010-ST, dated 27th February 2010 refers).

Remarks: In case of Mandap Keeper Service, earlier at least part performance outside India was required to qualify the service as ‘Export’. Now the service will qualify as export if the immovable property is situated outside India.

In case of three other taxable services also, namely ‘Chartered Accountant Services’, ‘Cost Accountant Services’ and ‘Company Secretary’s Services’, earlier at least part performance outside India was required to qualify the service as ‘Export’. Now, the service will be treated as export, if the recipient of the service is located outside India subject to some further conditions as prescribed under Rule 3(1)(iii).

Further, to avoid the complications and disputes, one of the common conditions ‘such service is provided from India and used outside India’ has been deleted, which is a great relief.

 Source : Taxguru.in