Highlights of budget-2011 service tax

HIGHLIGHTS OF BUDGET-2011

The Finance Bill 2011 has made numerous changes in the Service Tax Law, which has far reaching implication. Some of highlights are mentioned below:

1. Service Tax law has been made stringent by incorporating prosecution provisions w.e.f. enactment of the Bill, which can be enforced only with the approval of Chief Commissioner of Central Excise. However, no provision for pre arrest power has been made.

2. The search could be conducted by the Superintendent with the approval of Joint Commissioner, whereas earlier Assistant Commissioner/Deputy Commissioner was authorized to conduct the search with the approval of Commissioner.

3. Interest rate has been enhanced w.e.f. 1-4-2011 from 13% p.a. to 18% p.a. on delayed payment of service tax.

4. W.e.f. enactment of the Bill, penalty on delayed payment of service tax has been halved and maximum penalty could be 50% of the tax payable.

5. Penalty on delay in filing of Service Tax return has been enhanced from Rs. 2000/- to Rs. 20,000/- w.e.f. enactment of the Bill, which would effect those, who delay the payment of service by more than 30 days.

6. Penalty provisions relating to fraud, suppression etc. has been considerably proposed to be changed w.e.f. enactment of the Bill. The penalty has been fixed to 100% however, in case of transaction captured in the books of accounts, 50% of penalty shall be liable. If the same has been paid alongwith interest and penalty within 30 days, penalty of 25% shall be leviable.

7. A new sub-section 4A has been inserted w.e.f. enactment of the Bill, u/s 73 for concessional penalty of 25% or 1% p.m., where the tax is paid before issuance of Show Cause Notice, which was detected by the department while conducting the audit/verification/ investigation is being further reduced to 1% per month of the tax amount for the duration of default with an upper ceiling of 25% of the tax amount.

8. W.e.f. 01.04.2011, service tax would be payable on accrual basis instead of realization of value of taxable service.

9. The Point of Taxable Rules, 2011 has been issued w.e.f. 01.04.2011 to bring clarity about the applicability of rate of tax under different situations and service shall be deemed to have been provided on the date of service is provided or to be provided, date of invoice or date of payment which ever is earlier.

10. Provision relating to self adjustment of payment of tax has also been changed in view of the change in the payment of tax from ‘cash’ basis to ‘accrual basis’.

11. Tax adjustment limit for excess payment has been enhanced from Rs. 1 Lac to Rs. 2 Lacs w.e.f. 1-4-2011.

12. Exemption provided to SEZ has been streamlined by issuing a fresh notification effective from 1-3-2011.

13. The Finance Minister has ensured to introduce a new scheme of refund to exporters in line with duty draw back and it is expected that the scheme may be announced in the next month.

14. The Cenvat Credit Rules, 2004 have also been amended by changing the definition of the Input, Input services, Exempted Goods, Exempted Services, Capital Goods and further provisions in Rule 6 have been overhauled and provisions of Rules 6(5) has been omitted. Most of these changes will come from 01.04.2011.

15. The Service Tax has been levied on two new services w.e.f. date to be notified:

a). Services provided by air-conditioned restaurants having a license to serve alcoholic beverages in relation to serving of food and/or beverages. However it has been announced that an abatement of 70% will be given when such services will be notified. Therefore, effectively service tax shall be leviable on 30% of such value.

b). Short-term accommodation provided by a hotel, inn, guesthouse, club or camp-sites, or any other similar establishment for a continuous period of less than three months. However it has been announced that an abatement of 50% will be given when such services will be notified. Therefore, effectively service tax shall be leviable on 50% of such value

16. Scope of existing taxable services has been altered or expanded w.e.f. date to be notified. Some of them are mentioned below:

a) The scope of the ‘Club or Association Service’ is being expanded to include services provided to non-members within its ambit.

b) The scope of ‘Authorized Service Station Service’ is being expanded to:

(i) include services provided by any person;

(ii) cover all motor vehicles other than those meant for goods carriage and three-wheeler scooter auto-rickshaws; and

(iii) also cover the services of decoration and similar services in respect of vehicles along with the services already covered.

c) The definition of ‘Business support services’ is being amended to include the services provided by way of operational or administrative assistance in any manner.

d) The scope of Legal consultancy services is being expanded by bringing within its ambit the:

(i) Service provided by a business entity to individuals in relation to advice, consultancy or assistance in any branch of law, in any manner;

(ii) Representational service provided by any person to any business entity (representational services, provided to individuals will continue to be exempt); and

(iii) Service of ‘arbitration’ provided by an arbitral tribunal to any business entity.

However, services provided by individual to individual of any kind shall not be taxable.

e) In the Commercial Training or Coaching service, the definition of “Commercial training or coaching centre” is being amended to bring all unrecognized courses within the tax net, irrespective of the fact that such courses are conducted by an institute which also conducts courses which may lead to grant of a recognised degree or diploma.

f) The scope of Health services is being expanded by including:

a) All services, including diagnostic services, provided, by a centrally air-conditioned (wholly or partially) clinical establishment having more than 25 beds for in-patient treatment during any part of the year;

b) Diagnostic services being provided by a clinical establishment with the aid of laboratory or other medical equipment; and

c) Services provided by a doctor, not being an employee of a clinical establishment, from the premises of such establishment.

However, it has been announced that 50% of abatement shall be granted.

17. In case of Air Travel Services, Service Tax has been levied for the domestic traveler other than economic class w.e.f. 01.04.2011 at the standard rate i.e. 10% of taxable value. However, economy class journey in Domestic Sector tax has been enhanced from Rs. 100/- to Rs. 150/- and for international journey in economy class, it has been enhanced from Rs. 500/- to Rs. 750/- per journey.

18. Retrospective exemption has been granted w.e.f. 01.04.2000 to 06.07.2009 for point to point travel in contract carriage or tourist travel.

19. Special exemption from the service tax has been granted by specifying that no service tax shall be levied or collected in respect of membership fees collected by the associations for the period from 16-06-2005 to 31-03-2008.

20. W.e.f.. 1-4-2011, exemption has been granted for the transportation of goods by road, rail or by air when origin and destination are outside India, if payment is made by a person within India. This exemption has created a doubt whether service tax law has extra territorial operation.

21. Business exhibition held outside India has been exempted from the levy of service tax w.e.f. 1-3-2011. This exemption has also created a doubt whether service tax law has extra territorial operation.

22. In case of prepaid cards/recharge coupons, telecom companies are liable to pay service tax on the value of taxable services, which has been paid by the consumer, not on the value which is charged by the telegraph authority. For this purpose, provision of service tax rules has been suitably amended w.e.f. 1-3-2011.

CUSTOM

23. In the custom, first time provisions of ‘Self Assessment’ have been introduced for easy clearance and logistic cost.

EXCISE

24. In excise, the branded garments has been liable to 10% duty, however, the manufacturer can pay duty at one place for their entire job worker.

25. Concessional rate of duty has been enhanced from 4% to 5% for the merit goods.

26. 130 Items has been brought under the Excise Duty at the rate of 1% without CENVAT facility.

27. Adjudication of show cause notice has been made time bound from 6 months to 1 years and penalty provisions has been re-drafted to make it more lucid and penalty shall be 50% if paid within 30 days.