Coverage Today Introduction Tax Optimization - Impact under Service Tax Conclusion Aids for practice Case Study.

Value Addition –

Service Tax

CA. Madhukar N Hiregange

Coverage Today

• Introduction

• Tax Optimization - Impact under Service Tax

• Conclusion

• Aids for practice

• Case Study

Introduction

Present Taxes-

• Tax optimization

– arrangement of financial activities

– maximum tax benefits

– provisions of Service Tax and Rules

– use of exemption,

– selection of valuation method,

– structuring the transaction and

– selection of various benefits under the law

Tax Optimizations

• Drafting of the Agreement:

Which may result in decrease of tax burden.

• Tax Planning in case of Works Contract:

If bifurcation of the value of service and goods not there in P.O - may

end up paying higher taxes.

• Selection of vendors:

To avoid liability under JCM and additional

compliances under Service Tax.

Tax Optimizations

• SOP for availment of Cenvat Credit

Less scope for loss of credits, eligible CHA Credit Service paid.

• Tax Planning for SEZ Manufacturer

SEZ manufacturer shall follow procedures for claiming

exemption at the initial stage and the cost & procedures for

applying the refund would be reduced.

Tax Optimizations

• GTA Planning Transport services taken from GTO is not liable to RCM. Entry no. 21 (b) & (c) of notf no.25/2012 -ST exempts GTA

service single consignment less than Rs. 1500 & Rs. 750 in a single carriage

• Exemption to GTA service used for exportNotf no.31/2012-ST- in budget 2015, scope widened to transport of such goods from place of removal even to the Land Customs Station.

Tax Optimizations

• Leasing of Machinery:

Advisable to clearly mention about lease in the agreement to avoid double

payment of both Service Tax and K-VAT

• Re-imbursements

Actual reimbursements recovered at cost are not liable to ST - Intercontinental

Consultants & Technocrafts Pvt Ltd Vs Union of India 2013 (29) STR 9 (Del)-

budget 2015, consideration includes reimbursable expenditure – subject to

conditions

Tax Optimizations

• Input Service Distributor & Centralized Registration:

In Centralized registration credits can be taken by the main

company and distribute to other branches.

• Job work exemption

If exemption under notf 25/2012 availed, Rule 6 of CCR may

apply & will result in loss of credits.

Hence, if Cenvat is eligible, better not to claim the exemption.

Tax Optimizations

• Re-verify the Rule 6 option

If service provider paying straight a way 6/7% on exempted

turnover, they relook the option of formula based vice versa.

• Whether to avail exemption?

The effect of non-eligibility of credit on availing the exemption shall

be considered

• Filing of initial disclosure letter & Handling of departmental interactions efficiently and effectively

Tax Optimizations

• Refund of ST paid on inputs and input services

Rule 5 of CCR, the exporter claim refund for tax paid on inputs & input services used for providing export service subject to conditions in Notf No.27/2012-CE

• Benefits under Foreign Trade policy

– Service Export From India Scheme

– Export Promotion of Capital Goods

– Status holder

Tax Optimizations

• Other Measures:

Vendors / Customers Education to optimize credits.

Proper Training and Awareness to employees in purchase

and sales.

Reconciliation at Regular Intervals.

Internal Audit to Include Service Tax.

Internal control system

Tax Optimizations

• Other Measures:

Minimize the disputes and costs of litigation

Minimize the possibility of revenue audits

While interpreting the law, practice the policy of full

disclosure in acknowledged disclosure.

Be updated to take advantage of changing laws

Conclusion

• The possible value added list is only illustrative

• Possibility of further Tax Planning and Cost Control

• No hard and fast rule

• Depending on the facts and circumstances of each case

• Policies should be reviewed at the regular intervals

• Under all indirect tax law preferable.

Aids For Practice

• Adopting high ethical values – largest value adder to the

professional

• Attend many study circles/ seminars/ conferences/ workshops

• Good commentaries to understand

• Read articles in magazines/ online

• Online/ offline updating

• Patience & working under practitioner [not always possible]

Case Study

• Excellent Couriers & Logistics – Turnover – 800 Cr- 7500 franchisees- 3800

registered. Potential franchisees 20,000.

1. Freight forward to subsidiary in UK – 50 Cr. [Inward 30 Outward -20]

2. Transport services outsourced recovered from clients – 40 Cr.

3. Port/ airport service income / expenses 150 vs120 Cr

4. Capital exp – conveyors- 50 Cr; office equipment- 30 Cr; computers – 60Cr;

furniture – 80 Cr.

5. Expenses – Franchisee – 350cr; Vehicle hire 80 Cr; printing -6 Cr, packing –

20 Cr, branch expenses – 90 Cr.

Suggest to ECL under Service Tax to optimize its Service tax.

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[email protected] to Prakash N for ppt.