The Finance Act, 1994 has introduced Service tax in India. Service Tax from the very beginning of its introduction is undergoing changes each year. As the amendments are brought into effect by means of different notifications, circulars, etc. but the assessees still face confusion. Such confusion often leads to:
- Non compliance of the laws relating to Service tax ;
- Underpayment of Service tax;
- Disputes between the assessee and the department;
- Tax evasion.
Highlights of the changes:
- The definition of “service” has been provided. The new Section 65(B) defines “service” as an activity performed by one person to another for consideration. It includes declared services.
- Approach for taxation has been shifted to negative list. In the earlier times services mentioned in section 65(105) were subject to taxation. Presently the approach has changed. The services not mentioned in the negative list are liable to service tax.
- List of exemptions have been provided. Services provided to the govt. or for public welfare have been exempted from service tax.
- Abatement has been provided at given rates on many services.
- Activity by erecting pandal or shamiana is a declared service, as such subject to service tax.
- The services provided to educational institutions are exempt from service tax.
Different changes those are likely to occur:
- Changes in the basic law – There has been no major change in the basic law but, a change is introduced by Section 103 (K) of the Finance Act, 2013, with effect from 10.5.13 granting the officers of the department the powers relating to arrest of an assessee at default. As per section 90 of the Finance Act, 1994, offences under section 89(1) (ii) are cognizable and all other offences are non-cognizable and bailable. The power to arrest has been given in cases of evasion of service tax under section 89(1) (i) and (ii) of the Finance Act, 1994, when the amount of the tax evaded is more than Rs. 50lakh. This has been clarified by the Circular No.171/6/2013-Service Tax issued by the department.
- Changes through important Notifications –
(a) Notification No. 02/2014 – Service Tax – This notification has altered the definition of “government authority” which was provided in the Notification No. 25/2012. In the old definition “Governmental authority’’ meant a board, or an authority formed with 90% or more participation through equity or control of the Government and established by an Act of the Parliament or a State Legislature to perform any function delegated to a municipality under the Constitution of India. As per the new definition “Governmental authority’’ refers to an authority or a body established by an Act of Parliament or a State Legislature or by the Government, with 90% or more participation through equity or control to perform any function delegated to a municipality under the Constitution.
(b) Notification No. 03/2014 – Service Tax – This notification has been issued to clarify that the service tax is not applicable on the taxable services provided by an ‘authorized person or an agent to the member of a recognized or a registered association, in connection with a contract’, by exercising the powers as per section 11C of the Central Excise Act, 1944 along with section 83 of the Finance Act. Though service was not being levied before the issuance of this notification according to the general practice but upon the issuance of this notification it is clear that service tax shall not be payable on the said service.
(c) Notification No. 04/2014 – Service Tax – This notification aims to introduce two additional exempted services: (a) An additional service i.e. ‘Services through loading, unloading, packing, of rice’ has been added to the list of exempted services by the present notification. (b) Another category of an exempted service i.e. ‘Health care services by a clinical establishment or by an authorized medical practitioner’ has been added to the list. ‘Services provided by cord blood banks through preservation of stem cells’ have also been added to the list of exempted services.
(d) Notification No. 05/2014 – Service Tax – This notification has been issued to remove the Export of Cotton Yarn from the categories of exports which are not counted for computation of export performance or to decide the entitlement under the Focus Market Scheme. As such export of Cotton Yarn shall be counted for calculation of export performance or to decide the entitlement under the Focus Market Scheme:
(e) Notification 6/2013 – Service Tax – This notification exempts the taxable services provided by a person staying in a taxable territory from the entire service tax leviable thereon as per section 66B of the Finance Act, 1994.
(f) Notification No 9/2013-Service Tax – This Notification has been issued to introduce the essential conditions for determining abatement percentage in Abatement Notification. The conditions are follows: (a) For a residential unit satisfying the following two conditions, such as:
i. The carpet area of the unit should be less than 2000 sq. feet; and
ii. The amount charged for the unit should be less than Rs.1 crore;
(b) For other than the (a) above.
The Abatement percentage shall be 75 if the condition (a) is satisfied, if the condition is not satisfied, the abatement percentage shall be 70. This notification is going to reduce 5% from abatement value for huge construction services.
(g) Notification No 16 /2013-Service Tax – This Notification has been issued for changing the Service Tax Rules, 1994 which shall be applicable from 1.12014 where any service tax liability exceeding Rs. 1 lakh, it has to be deposited electronically through internet banking.
(h) Notification No 12 /2013-Service Tax – This notification is issued to provide exemption through refund of service tax paid on some services received by the SEZ Unit or the Developer which are used for the authorized operations.