ICAI Webinar- service tax

1. ICAI Webinar- service tax Module I

2. Goods and service taxation-Powers at present divided between the Centre and the States (VII sch.to Constitution of India- This is due to the quasi-federal nature of our constitution

3. Central government – powers of taxation – goods and services • Levy of customs duties – i.e taxes on import and export of goods • Levy of excise duties – i.e. taxes on goods( other than alcoholic liquor for human consumption) manufactured in India • Levy of service tax – i.e on services rendered in India • Central Sales Tax – i.e. on sale of goods inter-state

4. Central government – powers of taxation – goods and services • Levy of customs duties – i.e taxes on import and export of goods • Levy of excise duties – i.e. taxes on goods( other than alcoholic liquor for human consumption) manufactured in India • Levy of service tax – i.e on services rendered in India • Central Sales Tax – i.e. on sale of goods inter-state

5. powers of taxation- cannot be overstepped by respective legislatures • There cannot be any overlap of the powers of taxation • Centre cannot encroach upon State’s powers and vice versa • Different aspects of a single composite transaction can be taxed by respective governments- like in works contracts for instance, by vivisecting the contract

6. Present scheme of service taxation • Moved away from prescriptive form taxation ( nearly 120 taxable services prior to 1.7.2012) starting from only 3 services in the year 1994 • Wef 1.7.2012 – negative list based taxation in vogue – all services are taxable except those in the negative list

7. Meaning of “service” Definition of “ service ” S. 65B (44) first time in history of service tax law - means - Any activity - For consideration - Carried out by a person for another - Includes declared services( S.66E)

8. Meaning of “service” Definition of “ service ” S. 65B (44) first time in history of service tax law - means - Any activity - For consideration - Carried out by a person for another - Includes declared services( S.66E)

9. Meaning of “service” Definition of “ service ” S. 65B (44) first time in history of service tax law - means - Any activity - For consideration - Carried out by a person for another - Includes declared services( S.66E)

10. Meaning of “service” Definition of “ service ” S. 65B (44) first time in history of service tax law - means - Any activity - For consideration - Carried out by a person for another - Includes declared services( S.66E)

11. Definition of “service ”.S.65(44) • Service must be rendered by one person to another ( i.e. there must be two persons distinct from each other) -Exceptions to this rule are :- -Services provided by foreign branches/offices -Services provided to members of an unincorporated body of persons such as a club

12. Declared services- what are these?Section 66 E • Nine activities are :- 1. Renting of immovable property 2. Construction of a complex, where consideration is received before completion of construction- “ construction would include, addition, alteration, replacements, or remodelling of existing civil structure

13. Declared services- what are these? 3.Temporary transfer/permitting use or enjoyment of intellectual property rights 4. development, design, programming customisation, adaptation, upgradation, enhancement, implementation of IT software

14. Declared services- what are these? 5.Agreeing to an obligation to refrain from an act( non –compete agreements)or to tolerate an act an act or situation, or to do an act 6.Transfer of goods by way of hiring leasing/licensing without transfer of right to use the goods

15. Declared services- what are these? 7. Activities in relation to delivery of goods on hire purchase or any system of payment by instalments; 8. Service portion of execution of works contracts

16. Declared services- what are these? 9. Service portion of any activity wherein goods being food or any other article of human consumption or any drink(whether or not intoxicating ) is supplied in any manner as a part of the activity

17. Scheme of service taxation • Every tax law contains • Charging provision and • Machinery provisions • Service tax law defines when the tax liability arises, where to register, how to assess and pay the tax, file the returns, maintain books and records, powers of officers over the assessee, grievance redressal mechanism by way of appeal, revision rectification settlement of cases, recovery of dues etc. – much on the same lines as under the central excise law

18. Service tax - webinar Module II

19. Negative list of services • Contained in Section 66 D • There are now16 broad heads covering :- • Services by governemnt, RBI,foreign diplomatic missions, services relating to agriculture, Trading of goods, manufacture of production of goods, selling of space in print media, access to road or bridge on payment of toll, transmission and distribution of electricity, renting for residential use, transportation of passengers by rail, metro mono railtramway inland waterways, public transport, stage carriage, railways otherthan first class and AC coach, metered cabs and autorickshaws, transportation of goods by road other than GTA service and courier service, by aircraft or vessel from outside india,by inland waterways, funeral,burial, crematorium or mortuary • Details given in Guidance Note No. 4 at page 425/462)

20. Negative list of services ..contd • transportation of passengers by rail, metro mono railtramway inland waterways, public transport, stage carriages, railways otherthan first class and AC coach, metered cabs and autorickshaws, transportation of goods by road other than GTA service and courier service, by aircraft or vessel from outside india,by inland waterways, funeral,burial, crematorium or mortuary • Admission to entertainment events and access to amusement facilities is sought to be removed from negative list by the Finance Bill, 2015

21. Negative list of services – mega exemption notification • Apart from section 66D of the Act, Notification no. 25/2012 S.T. dated 20.6.2012 also exempts a number of services absolutely or subject to conditions. This notification is popularly called mega exemption notification

22. New rules for defining of “Place of provision of services” replaces the present import and export service rules • decides taxability of services wrt to J&K • helps service providers having multiple premises not covered by centralised registration- to decide where to register for services provided • Helps Determine whetherservices consumed in SEZs • Will eventually help in GST – inter-state supply services

23. Place of provision of services • Normally tax is sought to be levied in respect of services rendered in the Taxable territory(T.T) Section 65 B(52) i.e- • TT as per Constitution of India; • Territorial waters, continental shelf EEZ • Sea bed/ subsoil • Airspace above the territory • Installations and structures in continental shelf / EEZ for extraction of mineral resources

24. Place of provision of services • place of provision of service Rules notified • Basically location of service provider and location of service receiver location of goods very material • Uniform test not possible as services are of varied nature • different tests are laid down for performance based services, immovable property related services, services related to events, goods transportation services, services provided on board a conveyance like rail, aeroplane etc.

25. Place of provision of services • Location of service receiver means • A. where single registration has been obtained ( centralised or not ) then that premises; • B) if A above is not applicable then • i) location of the business establishment ;or • Ii)if services are received at a place other than the business establishment that is to say a fixed establishment elsewherethe location of such establishment • Iii) if services are received at more than one establishment- whether business or fixed- then the establishment most directly concerned with the provision of the service and • Iv) in the absence of any such place, the usual place of residence

26. Place of provision of services • Location of service receiver means • A. where single registration has been obtained ( centralised or not ) then that premises; • B) if A above is not applicable then • i) location of the business establishment ;or • Ii)if services are received at a place other than the business establishment that is to say a fixed establishment elsewherethe location of such establishment • Iii) if services are received at more than one establishment- whether business or fixed- then the establishment most directly concerned with the provision of the service and • Iv) in the absence of any such place, the usual place of residence

27. Place of provision of services(POP)- Rules explained • Rule 3 -General Rule stating - POP shall be the location of service receiver ( service tax is consumption / destination based tax) - but if such location is not available then the POP shall be location of service provider

28. Place of provision of services(POP)-Rule 4 • Performance based services • POP shall be location where services are actually performed (covers following situations) - goods required to be physically provided - goods provided in conjunction with supply of goods under another contract - services provided in the physical presence of the service receiver(cosmetic, plastic surgerybeauty parlour,health, fitness

29. Performance based services.. • Examples: • Repair, re-conditioning, storage and warehousing, courier,cargo handling,technical inspection, certification • Foreign music troupe coming to india and cargo handling agent in india moves the equipment –Service in India • Indian firm sends the engineer to Dubai to repair a machine- service at Dubai • Foreign company sends its engineer to India to rectify a defect in India – service in India

30. Performance based servicesRule 4 contd….. • Amendment wef 1st oct 2014 • This clause shall not apply where services are provided in respect of goods that are temporarily imported for repairs and re-exported after repairs without being put to use other than that which is required for repair

31. Place of provision of services(POP)-Rule 5 • Services relating to immovable property • E.g. real estate agent, hotel services, clubs, architects,construction service, interior decorators -POP shall be the place where immovable property is located

32. Place of provision of services(POP)-Rule 6 • Services relating to events • E.g fair, exhibition, sporting / cultural/eductional /scientific event and ancillary services such as admission - POP shall be the place where the event is actually held

33. Place of provision of services(POP)-Rule 7 • Where the provision of services ( in respect of services under Rules, 4,5& 6 above) is at more than one location - POP would be at such location in the taxable territorywhere greatest proportion of the service is provided

34. POP- Rule 7 example • A ltd. tests a new machine for an overseas company and the testing is carried out in India say Maharashtra 20%, TamilNadu 15% and Dubai 55% • POP would be Maharashtra where the greatest provision of service in India takes place

35. Place of provision of services(POP)-Rule 8 • Service receiver and service provider located in the taxable territory • POP shall be the location of the service receiver • E.g. IAF helicopter of army develops a snag in Nepal and Hindustan aeronatics sends its engineer to set right the snag. Both the IAF and Hind. Aero are located in India

36. Place of provision of services(POP)-Rule 9 • For 5 services, location of service provider will be the POP_ a) banking and financial services b) telecom. Services c) on line info and database access d) intermediary services( only for services and not for goods upto 30th sept.14 ; and including for goods from 1st oct.2014) e) hiring of means of transport upto 1 month( wef 1st oct.2014 hiring of aircrafts and vessels except yachts have been excluded from this rule)

37. POP – Rule 9 Intermediary service • Examples: • Travel agent, tour operator, stock broker, • Commission agent ( other than for goods) - but including for ‘goods’ wef 1.10.2014 • Recovery agent

38. Place of provision of services(POP)-Rule 10 • POP for Goods transportation services will be • Destination of the goods if the movement is other than by way of mail or courier e.g. a small appliance/part/component is sent to USA from Bombay by air- POP is outside India • But for GTA service, the location of the person liable to pay tax shall be the POP ( i.e. for reverse charge cases)

39. Place of provision of services(POP)-Rule 11 • POP for passenger transportation services - is the place where the passenger embarks on the conveyance for a “continuous journey”

40. Place of provision of services(POP)-Rule 12 • POP –of services provided on board the conveyance • Where services are substantially consumed while on board, shall be the first scheduled point of deparature of that conveyance • E.g. videa games, movies, music, beauty treatment on board provided a separate charge is made for these services

41. Place of provision of services(POP)-Rule 13 • Power to notify POP in order to prevent double taxation, non-taxation or for ensuring uniform application of Rules with the Central Government – both the description of services or circumstances in which the place of provision shall be the place of effective use and enjoyment of a service

42. Place of provision of services(POP)-Rule 14 order of application of rules - Where prima facie a POP of a service is determinable under more than one of the Rules, then it shall be determined as the Rule which occurs last ( for example,if Rule 5 and Rule 8 are equally competing, then Rule 8 would apply)

43. POP Rule 14- illustration • Mumbai architech renders service to Indian hotel chain ( located in Mumbai)for its newly acquired property in Dubai • Rule 5 ( property related)and Rule 8 ( location of parties) get involved • The issue gets resolved under Rule 14 ; therefore Rule 8 which is the last rule between 8 and 14 would apply

44. Reverse charge method of taxation • Object is to simplify collection, spare the illiterate sector from compliance, reduce no. assessees and paper work on the department’s radar • Extends now to 15 categories services at present • Means the service receiver has to pay the tax to the government • Also in some cases certain percentage of tax is to be paid by the service provider and balance to be paid by the service receiver

45. Reverse charge method of taxation- who are covered • Insurance agents service provided to insurance companies • 100% of service tax to be paid by the insurance company under reverse charge method.

46. Reverse charge method of taxation- who are covered • Wef 1.4.2015 • Services by mutual fund agent or distributor to a mutual fund or asset management company( 100% of tax payable)

47. Reverse charge method of taxation- who are covered • Wef 1.4.2015 • Services by selling or marketing agent of lottery tickets to a lottery distributor or selling agent( 100% of tax payable)

48. Reverse charge method of taxation • Services provided by recovery agents to a banking co. or financial institution or a non-banking financial company (wef 11th July 2014): • 100% of the service tax payable

49. Reverse charge method of taxation………………contd. • GTA service provided to registered factory, registered society, co-operative society, dealers of excisable goods, partnership firms including association of persons and body corporates. • 100% of tax to be paid by service provider.

50. Reverse charge method of taxation………… contd. • Sponsorship service provided by body corporate or partnership firm located in taxable territory • 100% of tax to be paid by service receiver.