Highlights of Changes in Indirect Taxes

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HIGHLIGHTS OF CHANGES IN INDIRECT TAXES:

We are presenting you detailed analyses of changes made in Indirect Taxes viz. Service Tax,

Excise and Customs vide the Union udget, !"#$.

UNION BUDGET 2014: CHANGES IN SERVICE TAX:

%fter the introduction of the &egative 'ist (ased Service tax regime in )uly, !"#!, the emphasishas (een to ensure sta(ility and continuity. The main focus in service tax at the present *uncture

is to +iden the tax (ase and enhance compliance.

The changes (eing made (y amendments in &otifications and ules can (e categorized into t+o

(road categories (ased on +hen they +ould come into effect- i/ changes +hich +ill haveimmediate effect0 and ii/ changes +hich are proposed to (e given effect to only from #st

1cto(er, so as to coincide +ith the Service Tax eturn cycle.

%s far as statutory amendments are concerned, they +ould come into effect only from the date on

+hich the ill receives the assent of the 2resident.

A. Changes In Cha!e" V #$ !he F%nan&e A&!' 1((4 )*%++ C#,e In!# F#"&e *hen !he

F%nan&e B%++ )N#.2-' 2014 %s ena&!e-:/

I. Changes %n "e+a!%#n !# !he Nega!%e +%s!:/

To (roaden the tax (ase in Service tax, Sale of space or time for advertisements in

(roadcast media, namely radio or television, extended to cover such sales on other

segments li3e online and mo(ile advertising, etc. Sale of space for advertisements in printmedia ho+ever +ould remain excluded from Service tax.

Service provided (y radio4taxis (rought under the Service tax. The a(atement presently

availa(le to rent4a4ca( service +ould also (e made availa(le to radio taxi service, to (ringthem on par.

II. O!he" I,#"!an! Changes %n !he F%nan&e A&!' 1((4:/

1. Va"%a+e Ra!es #$ In!e"es! $#" De+ae 3a,en! #$ Se"%&e Ta 3"es&"%e B N#!%$%&a!%#n

N#. 1252014/ST Da!e 11/6/2014:/

To encourage prompt payment of Service tax, ne+ interest rates on delayed payments

under Section 56 of the 7inance %ct, #88$, +hich +ould vary as per the extent of delay

has (een prescri(ed as under-

Extent of delay Simple interest rate per annum

Up to six months #9:

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;ore than six months and up

to one year

#9:for first six months and !$:for the period of

delay (eyond six months.

;ore than one year#9: for first six months, !$: for second sixmonths and

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Section 9" is amended excluding reference of first proviso to Section 59 +herein po+er +as

granted to +aive the 6": penalty imposa(le in cases +here Service tax has not (een levied, not

paid or short levied or short paid on account of suppression of facts or +ilful misstatement (utdetails of transactions are availa(le in the specified record. The said po+er has no+ (een

removed.

< Changes in Section 9! of the 7inance %ct, #88$-4

Section 9!#/ is amended along +ith Section #!7#/ of the Central Excise %ct #8$$, +here(y the)oint Commissioner or %dditional Commissioner or any other officer notified (y the oard can

authorize any Central Excise 1fficer to search and seize.

< Changes in Section 9==%/ of the 7inance %ct, #88$-4

Section 9==%/ is amended to provide that every application made (efore the %ppellate Tri(unal

in an appeal for rectification of mista3e or for any other purpose or for restoration of an appeal or

an application only shall (e accompanied (y a fee of five hundred rupees. @o+ever, earlier theappeal for grant of stay +as also to (e accompanied (y a fee of five hundred rupees.

< Changes in Section 95 of the 7inance %ct, #88$-4

Section 95 is amended (y incorporating po+er to recover dues of a predecessor from the assetsof a successor purchased from the predecessor on the same line as it is provided under Section ##

of the Central Excise %ct, #8$$.

< Changes in Section 8$ of the 7inance %ct, #88$-4

Section 8$ is amended to o(tain the po+er to ma3e ules on the follo+ing-4

a/ Imposition on assessees the duty of furnishing information, 3eeping records and ma3ingreturns and specify the manner in +hich they shall (e verified.

(/ 7or +ithdra+al of facilities or imposition of restrictions including restrictions on utilization

of Cenvat credit on service provider or exporter, to chec3 evasion of duty or misuse of Cenvat

credit.

c/ To issue instructions in supplemental or incidental matters.

< Changes in Section 86 of the 7inance %ct, #88$-4

%fter su(4section #)/, the su(4section #A/ has (een inserted in Section 86 providing that if any

difficulty arises in giving effect to Section #"= of the 7inance %ct, !"#$ related to amendments

made (y the said %ct, the Central ?overnment may, (y an order, not later than one year from thedate on +hich the 7inance ill, !"#$ passes remove the difficulty.

< Insertion of &e+ Section #"" of the 7inance %ct, #88$-4

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Section #"" has (een inserted stating that no Service tax shall (e levied or collected in respect of

taxa(le services provided (y the EmployeesB State Insurance Corporation set up under the

EmployeesB State Insurance %ct, #8$9 during the period prior to the )uly #, !"#!.

4. The Cen!"a+ E&%se "#%s%#ns ,ae a+%&a+e !# Se"%&e !a %e Se&!%#n =; #$ !he

F%nan&e A&!' 1((4 %s e%ng a,ene !# "es&"%e !ha! !he "#%s%#ns #$ $#++#>%ng Se&!%#ns #$!he Cen!"a+ E&%se A&! sha++ a+' ,7!a!%s ,7!an%s' !# Se"%&e !a:/

Se&!%#n 9A)2-:This Section prescri(es that any explanation inserted in a &otification or

special order at any time +ithin one year of issue of notification or order, for clarifying

the scope or applica(ility thereof, shall have effect from the date of issue of such

notification or order.

Se&!%#n 19 A:This ne+ Section is (eing inserted in the Central Excise %ct to stipulate

that third party sources shall furnish periodic information, as specified, in the manner asmay (e prescri(ed.

Se&!%#n 19B:This ne+ Section is (eing inserted in the Central Excise %ct to prescri(e

that failure to provide information under section #6% of the %ct +ould attract penalty as

specified.

?ana!#" $%e 3"e/e#s%! @ Se&!%#n ;9F: Section rug Controller?eneral of India.

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En!" (:Concept of Dauxiliary educational servicesB has (een omitted and the follo+ing

services received (y eligi(le educational institutions are exempted from service tax- i/

transportation of students, faculty and staff of the eligi(le educational institution0 ii/catering service including any mid4day meals scheme sponsored (y the ?overnment0 iii/

security or cleaning or house43eeping services in such educational institution0 iv/

services relating to admission to such institution or conduct of examination.

7urther, for the purposes of this exemption, educational institutionF is (eing defined in theexemption N#!%$%&a!%#n N#. 2952012/ST Da!e. 20/8/2012as institutions providing educational

services specified in the negative list.

7urthermore, the exemption hitherto availa(le to services provided (y +ay of renting ofimmova(le property to educational institutions stands +ithdra+n.

En!" 1=:Service (y +ay of renting of a hotel, inn, guest house, clu( or campsite or

other commercialplaces meant for residential or lodging purposes, having a declared

tariff of a unit of accommodation (elo+ rupees one thousand per day or eGuivalent isexempt from Service tax i.e. Exemption not availa(le if declared tariff H s. #,"""4 2erday irrespective of fact +hether for commercial purpose or not. @ence, this exemption,

upto the specified threshold level, is availa(le to any entity providing service (y +ay of

accommodation, including dharmashalas or ashram or such other entities. Tax (ase has(een +idened (y removal of term Dother commercial placesB.

Exemption provided on Transport of organic manure (y vessel, rail or road (y ?T%/ (y

amending entries at En!". N#. 20 an 21. Therefore, organic manure +ill (e on par +ith

fertilizer +hich is already exempted.

Exemption provided on Services (y +ay of loading, unloading, pac3ing, storage or+arehousing, transport (y vessel, rail or road ?T%/, of cotton, ginned or (aled,amendment of entry at En!". N#. 20 21 an 40J.

En!" 2;- 2resently service of passenger transportation (y a contract carriage other than

for the purposes of tourism, conducted tour, charter or hire, is exempt from Service tax.

The scope of exemption is (eing reduced (y +ithdra+ing the exemption in respect of air4conditioned contract carriages. %s a result, any service provided for transport of

passenger (y air4conditioned contract carriage including +hich are used for point to point

travel, +ill attract service tax, +ith immediate effect. Service tax +ill (e charged at ana(ated value of $": of the amount charged from service receiver0 therefore, effective tax

+ill (e $.8$$:.

En!" 29: The exemption in respect of services provided to ?overnment or local

authority or ?overnmental authority has (een made more specific. Services (y +ay of

+ater supply, pu(lic health, sanitation conservancy, solid +aste management or slumimprovement and up4gradation +ill continue to remain exempted (ut the exemption

+ould not (e extenda(le to other services such as consultancy, designing, etc., not

directly connected +ith these specified services.

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En!" 28A:Exemption availa(le for specified micro insurance schemes approved (y

I>% expanded to cover all life micro4insurance schemes +here the sum assured does

not exceed s. 6", """4 per life insured.

En!" 41: Specialized financial services received (y I from outside India, in the

course of management of foreign exchange reserves, e.g. external asset management,custodial services, securities lending services, are (eing exempted.

En!" 42: Exemption availa(le on services provided (y the Indian tour operators to

foreign tourists in relation to tours +holly conducted outside India.

&e+ definition provided for certain terms K DEducational institutionB, Dlife micro

insurance productB, DradioKtaxiB, Drecognised sports (odyB and deletion of term K

Dauxiliary education serviceB

C. Changes %n !he Se"%&e Ta R7+es' 1((4 V%e N#!%$%&a!%#n N#. (52014/ST Da!e. 11/6/

2014)E$$e&!%e F"#, 11/6/2014 Un+ess O!he">%se S!a!e-:/

Service provided or agreed to (e provided (y a >irector of a Company or (ody corporate

to the said company or the (ody corporate has (een (rought under the everse Charge

;echanism. Service receiver, +ho is a (ody corporate, +ill (e the person lia(le to pay

Service tax.

Services provided (y ecovery %gents to an3s, 7inancial Institutions and &7Cs has

also (een (rought under the everse Charge ;echanism.

E4payment of Service tax has (een made mandatory +ith effect from 1cto(er #, !"#$.

elaxation from e4payment may (e allo+ed (y the >eputy Commissioner %sst.

Commissioner on case to case (asis.

D. Changes %n Ree"se Cha"ge ?e&han%s, V%e N#!%$%&a!%#n N#. ;052012/ST Da!e 20/8/

2012'7+ a,ene N#!%$%&a!%#n N#. 1052014/ST Da!e 11/6/2014 )E$$e&!%e F"#, 11/6/

2014 Un+ess O!he">%se S!a!e-:/

Corresponding changes pertaining to the services (rought under everse Charge

;echanism discussed in 2oint C, supra/ have (een made.

In case of enting of motor vehicle +here the service provider does not ta3e a(atement,the portion of Service tax paya(le (y the service provider and service receiver has (een

modified as 6": each effective from 1cto(er #, !"#$.

E. Changes %n !he Se"%&e Ta )De!e",%na!%#n #$ Va+7e- R7+es' 2008 V%e N#!%$%&a!%#n N#.

1152014/ST Da!e 11/6/2014!# a,en Se"%&e 3#"!%#n %n *#"s C#n!"a&! )E$$e&!%e F"#,

1/10/2014-:/

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In ule !% of the Service Tax >etermination of Lalue/ ules, !""=, category DB and DCB

of Wor3s Contract reproduced (elo+/ has (een merged into one single category, +ith

percentage of service portion as 5":, for the chargea(ility of Service tax.

(B) in case of works contract entered into for maintenance or repair or reconditioning or

restoration or servicing of any goods, service tax shall be payable on seventy percent of the totalamount charged for the works contract;

(C) in case of other works contracts, not covered under subclauses (!) and (B), includingmaintenance, repair, completion and finishing services such as gla"ing, plastering, floor and

wall tiling, installation of electrical fittings of an immovable property, service tax shall be

payable on sixty per cent of the total amount charged for the works contract;#

F. Changes %n !he 3#%n! #$ Taa!%#n R7+es' 2011 )The 3OT R7+es- V%e N#!%$%&a!%#n N#.

1;52014/ST Da!e 11/6/2014' a,en%ng 3#%n! #$ Taa!%#n %n "ese&! #$ Ree"se Cha"ge

)E$$e&!%e F"#, 1/10/2014-:/

The 2oint of Taxation in respect of everse Charge under the first 2roviso to ule 5 of

the 21T ules has (een amended to (e the payment date or the first day that occurs

immediately after a period of three months from the date of invoice, +hichever is earlier.

The said amendment +ill apply only to invoices issued after 1cto(er #, !"#$. % transition

rule for the same has also (een prescri(ed under ne+ ule #" of the 21T ules, +hich

provides as under-

$%& 'otwithstanding anything contained in the first proviso to rule , if the invoice in respect ofa service, for which point of taxation is determinable under rule has been issued before the $st

day of ctober, *%$+ but payment has not been made as on the said day, the point of taxationshall,

(a) if payment is made within a period of six months of the date of invoice, be the date on whichpayment is made;

(b) if payment is not made within a period of six months of the date of invoice, be determined as

if rule and this rule do not exist

G. Changes In N#!%$%&a!%#n N#. 125201;/ST Da!e 1/6/201;"e+a!%ng T# Ee,!%#n F"#,

Se"%&e Ta T# SE Un%!s #" !he Dee+#e" V%e N#!%$%&a!%#n N#. 652014/ST Da!e 11/6/

2014 )E$$e&!%e F"#, 11/6/2014-:/

It is provided that the Central Excise 1fficer +ould issue authorization in 7orm %4!,

+ithin fifteen +or3ing days from the date of receipt of 7orm %4#.

%uthorization shall (e valid from the date on +hich 7orm %4# is verified (y the Specified

1fficer of SEM. @o+ever, if 7orm %4# is furnished after a period of #6 days from the date

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of its verification (y the Specified 1fficer, the authorization shall have validity from the

date on +hich it is furnished.

SEM Units or the >eveloper +ill, pending issuance of 7orm %4!, (e entitled to avail

upfront exemption on the (asis of 7orm %4#. @o+ever, in such a case, the SEM Unit

>eveloper +ould (e reGuired to furnish a copy of authorization issued (y the CentralExcise 1fficer +ithin < months from the date of receipt of specified services. If a copy of

authorization is not provided +ithin the said period of < months, the service providershall pay Service tax on the service so provided availing the exemption.

%s regards services covered under full everse Charge, it is mentioned specifically in

7orm that there +ould (e no reGuirement of furnishing service tax registration num(er of

service provider.

It is provided that a service shall (e treated as exclusively used for SEM operations if the

recipient of service is SEM unit or developer, invoice is in the name of such unit

developer and the service is used exclusively for furtherance of authorized operations inSEM.

Certain dou(ts have (een raised (y field formations as regards the *urisdiction for the

purposes of granting refunds under notification &o. #!!"#evelopers. It is clarified that the *urisdictional >eputy Commissioner %ssistant

Commissioner of Central Excise for all purposes under the said notification +ould (e the

authority +ith +hom SEM Units or the >evelopers are registered for ta3ing upfrontexemption or for the purposes of Chapter L of the 7inance %ct, #88$. In this context,

attention is also invited to Circular &o. #"6"9!""94ST, dated #=.8.!""9. If SEM units

have o(tained a centralized registration under the Service Tax ules, it +ill have option

to file a common service tax refund in respect of all units covered under the Centralizedegistration or file a unit4+ise refund at its option, to the authority having *urisdiction

over centralized registration.

H. Changes In Aa!e,en! N#!%$%&a!%#n N#. 2852012'Se"%&e Ta Da!e/ 20.08.2012V%e

N#!%$%&a!%#n N#. =52014/ST Da!e 11/6/2014 )E$$e&!%e F"#, 11/6/2014 Un+ess O!he">%se

S!a!e-:/

It is clarified that a(atement on the ?T% services is applica(le only if Cenvat credit on

inputs, capital goods and input services is not availed (y the service provider. Servicerecipient +ill not (e reGuired to esta(lish satisfaction of this condition (y the service

provider.

Taxa(le portion in respect of transport of goods (y vessel has (een reduced from 6": to

$": +ith effect from 1cto(er #, !"#$.

Service related to transportation of passenger (y air4conditioned contract carriages or

radio taxi has no+ (ecome taxa(le. Therefore, a ne+ entry is inserted at Sr. &o. 8%

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providing taxa(le portion of such services to (e $": +ith the condition that Cenvat credit

of inputs or capital goods or input services has not (een availed.

The condition in entry &o. 8 is amended +ith effect from 1cto(er #, !"#$ allo+ing credit

of input service of renting of a motor ca( if such services are received from a person

engaged in the similar (usiness i.e. a su(4contractor providing services of renting ofmotor ca( to the main contractor. The +hole of the Cenvat credit has (een allo+ed +ith

respect to input service of renting of any motor ca(, received from a person +ho ispaying Service tax on $": of the value of services. The Cenvat credit eligi(ility +ill (e

restricted to $": of the credit of the input service of renting of any motor ca( if Service

tax is paid or paya(le on full value of the services i.e. no a(atement is availed.

Effective from 1cto(er #, !"#$, the service of tour operator is also (eing allo+ed to avail

Cenvat credit on the input service of another tour operator, +hich are used for providing

the taxa(le service.

I. Changes %n 3+a&e #$ 3"#%s%#n #$ Se"%&es R7+es' 2012 )The 3O3 R7+es- V%eN#!%$%&a!%#n N#. 1452014/ST Da!e 11/6/2014 )E$$e&!%e F"#, 1/10/2014-:/

>efinition of DIntermediaryB has (een amended to include intermediary of goods in its

scope. %ccordingly, an intermediary of goods, such as a commission agent or

consignment agent shall (e covered under ule 8c/ of the 212 ules instead of ule on imported flat4rolled

products of stainless steel from 6: to 5.6:.

Concessional C> of 6: extended to machinery and eGuipment reGuired for setting up

of a pro*ect for solar energy production.

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Specified inputs for use in the manufacture of EL% sheets and (ac3 sheets and flat copper

+ire for the manufacture of 2L ri((ons exempted from C>.

eduction in C> from #": to 6: on forged steel rings used in the manufacture of

(earings of +ind operated electricity generators. Exemption from S%> of $: on parts

and ra+ materials reGuired for the manufacture of +ind operated generators.

Concessional C> of 6: on machinery and eGuipment reGuired for setting up of

compressed (iogas plants io4C&?/.

%nthracite coal, (ituminous coal, co3ing coal, steam coal and other coal to attract !.6:

C> and !: CL> to eliminate all assessment disputes and transaction costs associated+ith testing of various parameters of coal.

C> on metallurgical co3e increased from &il to !.6: in line +ith the duty on co3ing

coal.

>uty on ship (rea3ing scrap and melting scrap of iron or steel rationalized (y reducing

the C> on ships imported for (rea3ing up from 6: to !.6:.

To prevent mis4use and avoid assessment disputes, C> on semi4 processed half cut or

(ro3en diamonds, cut and polished diamonds and coloured gemstones rationalized at

!.6:.

To encourage exports, pre4forms of precious and semi4precious stones exempted from

C>.

The duty free entitlement for import of trimmings P em(ellishments and other goods

used (y the readymade textile garment sector for manufacture of garments for export is(eing increased from

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=!"#$4ST dated##th

)uly, !"#$

See3s to amend notification &o. !6!"#!4 Service

Tax, dated

the !"th )une, !"#!, so as to amend certain existingentries granting exemption on specified services and

inserting ne+ entries for granting exemption fromservice tax on specified services

5!"#$4ST dated##th

)uly, !"#$

See3s to amend notification &o.#!!"#etermination ofLalue/

ules, !""= so as to prescri(e the percentage of

service portion in respect of +or3s contracts, other

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than original +or3s contract.

#!!"#$4ST dated

##th )uly, !"#$

See3s to notify the interest rate applica(le in cases of

delayed

payment of service tax for the purposes of section 56

of the

7inance %ct, #88$.

9

#

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#886 so as to provide full exemption from excise duty to

goods supplied to &T1.

##!"#$4CE

See3s to amend notification &o. #"9864CE, dated %ugust !9,

#886 so as to allo+ transfersale of goods procured prior to#.S Control 2rogramme funded (y ?7%T;

#$!"#$4CE

See3s to amend notification &o.

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#886 so as to exempt intermediate goods manufactured and

consumed captively for further manufacture of matches.

!"!"#$4CE

See3s to rescind &otification &o. "escription

#5!"#$4CE &T/

See3s to amend &otification &o. $8!""94CE &T/, dated

>ecem(er !$, !""9.

#9!"#$4CE &T/

See3s to specify class of persons for the purposes of

section

!escription

##!"#$4Customs

See3s to amend notification &o. !$!""64Customs dated

;arch #,

!""6 so as to levy C> Q #": on specified

telecommunication products not covered under the IT%.

#!!"#$4 Customs

See3s to amend notification &o. #!!"#!4Customs, dated

;arch #5, !"#! so as to ma3e necessary changes in the

specified entries therein.

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# portion of customs dutylevia(le on imported IT products.

!"!"#$4 Customs

See3s to amend notification &o.

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goods imported prior to #.