TaxTMI 
TaxTMI 
Changes relating to service tax through Finance Bill, 2008 and notifications
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....* Taxation of Services (Provided from outside India and Received in India) Rules, 2006, and * Works Contract (Composition Scheme for Payment of Service tax) Rules, 2007. Details of the changes are explained in the Explanatory Notes. Salient features of the changes are discussed hereinafter: 2. INCREASE IN THRESHOLD EXEMPTION LIMIT FOR SMALL SERVICE PROVIDERS 2.1 The annual threshold limit of service tax exemption for small service providers is being increased from Rs.8 lakh to Rs.10 lakh by amending notification No.6/2005-Service Tax, dated 01.03.05 vide notification No.8/2008-Service Tax, dated 01.03.08. Amendment shall come into effect from 01.04.2008. 2.2 Consequent upon the increase in the threshold exemption limit from Rs.8 lakh to Rs.10 lakh, the annual turnover limit for obtaining service tax registration shall also be increased from Rs.7 lakh to Rs.9 lakh by amending notification Nos.26/2005-Service Tax and No.27/2005-Service Tax, both dated 07.06.05 vide notification Nos. 9/2008-ST and 10/2008-ST, both dated 01.03.08 respectively. Amendments shall come in....
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....ices. Specifying a service separately as a taxable service does not necessarily mean or suggest that services falling within the scope of newly specified service were not earlier classifiable under any one of the existing taxable services. Grouping of services under a specific taxable service may change. The scope and coverage of a taxable service are to be determined strictly in accordance with the language of the relevant statutory provision existing during the material period. 4. FOLLOWING SERVICES ARE SPECIFICALLY INCLUDED IN THE LIST OF TAXABLE SERVICES: (i) Services provided in relation to information technology (IT) software for use in the course, or furtherance, of business or commerce [section 65(105)(zzzze) refers]; (ii) Services provided in relation to management of investment, known as segregated fund, under unit linked life insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme [section 65(105)(zzzzf) refers]; (iii) Services provided by a recognised stock exchange in relation to securities [section 65(105)(zzzzg) refers]; (iv) Services provided by a recognised association or a registered associatio....
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....vices and IT enabled services (ITeS) are already leviable to service tax under various taxable services: * Consulting engineer's service - advice, consultancy or technical assistance in the discipline of hardware engineering [section 65(105)(g)]. * Management or business consultant's service - procurement and management of information technology resources [section 65(65)]. * Management, maintenance or repair service - maintenance of software, both packaged and customized and hardware [section 65(64)]. * Banking and other financial services - 'provision and transfer of information and data processing' [section 65(12)]. * Business support service - various outsourced IT and IT enabled services [section 65(105)(zzzq)]. * Business auxiliary service - services provided on behalf of the client such as call centres [section 65(19)]. 4.1.4 IT software services provided for use in business or commerce are covered unde....
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....y of specific exclusion. Specific exclusion of 'consultancy in the discipline of computer software engineering' from the scope of 'consulting engineer's service' is not necessary and, therefore, being deleted. * To clarify that a consultancy service, covering both hardware and software consultancy, shall be classifiable under 'Consulting engineer's service'. 4.2 INVESTMENT MANAGEMENT SERVICE PROVIDED UNDER ULIP: 4.2.1 Unit-Linked Insurance Plan (ULIP) is an insurance product offered by life insurance companies combining both risk cover and benefits of investment. ULIP being a combination product, premium amount paid under ULIP consists of risk premium and investment component. Risk premium may be for life or health or any other authorized purposes. Unlike in the case of traditional life insurance policies, policyholder of ULIP can choose portfolios for investment with different investment aims such as low, medium and high-risk category or combination thereof. ULIP enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds. The investment risk is borne by the ULIP policyholde....
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....ised associations and registered associations commonly known as commodity exchanges and processing and clearing houses. 4.3.3 Large number of intermediation services relating to capital market are already leviable to service tax. Service tax paid is available as input credit under Cenvat Credit Scheme. 4.4 SUPPLY OF TANGIBLE GOODS FOR USE: 4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods. 4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service. 4.4.3 Proposal is to levy service tax on such services provided in relation to sup....
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....oreign exchange brokers provide services as an intermediary in relation to purchase or sale of foreign currency on a commission/brokerage basis. Purchase or sale of foreign currency is undertaken by foreign exchange broker and also by persons authorised under Foreign Exchange Management Act, 1999 to deal in foreign exchange and having licence issued by RBI. Such authorised persons are known as money changers or authorised dealers of foreign exchange. Services in relation to purchase or sale of foreign currency is, therefore, provided by foreign exchange broker, money changer and also authorised dealer of foreign exchange. 5.1.2 Foreign exchange broker indicates the consideration for the services provided (commission) explicitly. Whereas money changers/authorised dealers of foreign exchange providing same services may not necessarily indicate the consideration explicitly. 5.1.3 Section 65(12) is being amended so as to levy service tax on purchase or sale of foreign currency, including money changing, provided by an authorized dealer in foreign currency or an authorised money changer, in addition to a foreign exchange broker. An explanation is being added to the effect ....
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....one place to another in a tourist vehicle having contract carriage permit is leviable to service tax under tour operator service. Tour in a vehicle covered by the following categories of permits granted under the Motor Vehicles Act (MVA), 1988 and rules made thereunder are clearly leviable to service tax under tour operator service: (i) Contract Carriage permit granted under section 74 of the MVA, 1988 and authorisation certificate issued under Motor Vehicles (All India Permit for Tourist Transport Operators) Rules, 1993; and (ii) Permit granted under section 88(9) in accordance with the provisions of section 74 of the MVA, 1988 in respect of tourist vehicles, for the purpose of promoting tourism. Since the permits under the above two categories are granted only for tourist vehicle, service tax is leviable if the tour is provided in the above categories of vehicles. Field formations may verify the nature of permits issued to the vehicles from the transport authorities and collect service tax from vehicles having the above two types of permits. 5.3.2 Section 65(115) defining tour operator is being amended so as to include services provided in relation to a journey from o....
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....s. 5.5 RENTING OF IMMOVABLE PROPERTY SERVICE: 5.5.1 Use of immovable property is allowed for placing vending / dispensing machines in malls and other commercial premises and erection of communication towers on buildings. In such cases, there may or may not be transfer of right of possession or control of the immovable property in favour of the person using such property. 5.5.2 Renting of immovable property includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Transactions mentioned in para 5.5.1 get covered under the category of other similar arrangement, if not covered under other categories. 5.5.3 It is proposed to clarify by way of removal of doubts that renting of immovable property service includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the immovable property. Field formations may ensure that service tax is collected in all such cases. 6. TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES: 6.1 Service tax is levied at the rate of 12% of the value of taxable serv....
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....under which two enterprises shall be deemed to be associated enterprises. Enterprise means a person who is engaged in the provision of any services of any kind. For details, relevant provisions of Income Tax Act may be referred to. 7. EXEMPTIONS FROM LEVY OF SERVICE TAX: 7.1 Taxable service provided by a person located outside India, in relation to booking of an accommodation in a hotel located in India for a customer located outside India, is being exempted from levy of service tax (Notification No.14/2008- ST dated 01.03.2008). 7.2 In the case of services provided for the transport of goods by road in a goods carriage, service tax is required to be paid by certain categories of persons who pay the freight instead of the service provider namely Goods Transport Agency. The actual amount of service tax payable is 25% of the amount of freight i.e. 75% of the amount of freight is provided as abatement, subject to the condition that no Cenvat credit of the duty paid has been availed of under Cenvat Credit Scheme. It has been represented that fulfillment of the condition of non-availment of Cenvat credit by the service provider is, at times, difficult to prove, when....
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....eme was announced by the Finance Minister in the Budget, 2006-07. In order to facilitate small service taxpayers in filing of service tax returns, a similar scheme is proposed in the Budget, 2008-09. Section 71 is being incorporated for this purpose. 9.4 Section 72 is being incorporated to authorise Central Excise Officer to make assessment on the basis of best judgment in certain specified circumstances. 9.5 In order to settle disputes pending as on 01.03.2008 involving tax arrears (service tax, interest and penalty) not exceeding Rs.25,000/-, Service Tax Disputes Resolution Scheme is being introduced. The scheme is valid during 1^st July, 2008 to 30^th September, 2008. 9.6 Section 95 is being amended to empower the Central Government to issue orders for removal of difficulty in respect of implementing, classifying or assessing the value of any taxable service incorporated by the Finance Bill, 2008 upto one year from the date of enactment of the Finance Bill, 2008. 9.7 The changes mentioned above [except 9.1 and 9.2] will come into force from the date of enactment of the Finance Bill, 2008. 10. AMENDMENTS IN THE SERVICE TAX RULES, 1994: 10.1 PAYMENT OF....
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....escribed in the rule) to the inputs and input services used for providing exempted service, or (ii) pay 8% amount of the value (to be determined in accordance with section 67 of the Finance Act, 1994) of the exempted service. 11.4 Rule 7A is being inserted to prescribe a procedure to enable the provider of output services to take credit on inputs and capital goods on the basis of an invoice, bill or challan issued by its other office. 11.5 Rule 15A is being inserted to provide for general penalty upto Rs.5,000/- in case of contravention of any of the provisions of the CENVAT Credit Rules, 2004, for which no specific penal provision exists. (notification No.10/2008-Central Excise (N.T.), dated 01.03.2008). 11.6 The changes mentioned in,- (i) 11.1 and 11.5 will come into effect from 1^st March, 2008, and (ii) 11.2, 11.3 and 11.4 will come into effect from 1^st April, 2008. 12. CROSS BORDER SERVICES RELATING TO TANGIBLE GOODS: 12.1 Information technology is used to provide services in relation to tangible goods located distantly. In such cases, the actual place of performance of the service is differ....