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Highlights of Amendments in Service Tax (Determination of Value) Rules, 2006

Surender Gupta
Service Tax Rules Amended: New Options for Valuation, Composition Rates for Catering, and Changes to Cost Inclusions The amendments to the Service Tax (Determination of Value) Rules, 2006, introduced by notification no. 24/2012, involve several key changes. Rule 2A now offers options to pay service tax on the value of services after deducting the value of goods, at a composite rate, or on specified percentages for different types of contracts. Rule 2B references were deleted due to the negative list introduction. Rule 2C prescribes composition rates for restaurant and outdoor catering activities. Amendments to Rules 3, 5, and 6 address value ascertainment and inclusion/exclusion of certain costs. Rule 7 was deleted, and concerns were raised about the omission of abatement for land-inclusive contracts. (AI Summary)

Vide notification no. 24/2012 ST dated 6-6-2012, CBEC has amended the provision relation to determination of value of Taxable Services in certain circumstances as follows:

Service Tax (Determination of Value) Rules, 2006 [As amended is available on http://www.taxtmi.com]

Substitution of Rule 2A:- To prescribe

  • First option to pay service tax on Value of services after deducting value of goods from the gross value.
  • Second option to pay service tax at composite rate
    • Pay ST on 40% value of original work
    • Pay ST on 70% value of maintenance or repair or reconditioning or restoration or servicing of any goods
    • Pay ST on 60% value of all other works contract

Amendment to Rule 2B:- Reference to clause (zm) and (zzk) deleted, as not required after introduction of negative list.

Insertion of new Rule 2C:- To prescribe rate of composition in case of activity at a restaurant or as outdoor catering as:

  • Pay ST on 40% value in case of Restaurant.
  • Pay ST on 60% value in case of Outdoor Catering.

Amendment to Rule 3:- Relating to the provisions where value is not ascertainable.

Amendment to Rule 5:- Relating to Inclusion in or exclusion from value of certain expenditure or costs, reference to clause (zzzx) removed.

Amendment to Rule 6:- Cases in which the commission, costs, etc., will be included or excluded:

  • amount realised as demurrage related to taxable services shall be included.
  • interest on delayed payment shall be excluded.
  • taxes levied by any Government on any passenger travelling by air shall be excluded.
  • accidental damages due to unforeseen actions not relatable to the provision of service shall be excluded.
  • subsidies and grants disbursed by the Government, not directly affecting the value of service shall be excluded.

Deletion of Rule 7:- This rule was to prescribe Actual consideration to be the value of taxable service provided from outside India.

 

Service Tax (Determination of Value) Rules, 2006 [As amended]

 

Service Tax
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Balasubramanian Natarajan on Jun 8, 2012

Dear Surider Guptaji

A notable omission in th erules is the absence of abatement in the case where cost of land is included. Earlier even the TRU letter has mentioned that the taxable value in such cases will be 25%. I do not know whether the same is a omission or dropped specifically. This will hit the builder and promoters very badly

balasunramanian n

Surender Gupta on Jun 8, 2012

 

Yes, you are correct, earlier in Notification no. 11/2012, CBEC has proposed to levy service tax on 25% value in case of a works contract where gross value included value of land. But in the final notification, they missed it, let us wait for clarification or more details from the CBEC  in this regard.

Ramanujam Varadarajan on Jun 8, 2012

One notable change is now the activity of maintenance, repair or servicing of goods is termed as works contract and thus Works contract valuation provisions are also applicable for comprehensive AMC contracts of goods.  As per the amended determination provisions, service tax is payable on AMC transactions either on actual basis or on adhoc value of 70%. 

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