Service Tax Based On Negative List

Table of content

 

1.0       NEW SERVICE TAX REGIME BASED ON NEGATIVE LIST APPLICABLE FROM 1ST JULY 2012

2.0       CHARGEABILITY OF SERVICE TAX

3.0       SERVICE AND DECLARED SERVICES

4.0       NEGATIVE LIST OF SERVICES

5.0       EXEMPTED SERVICES

6.0       ABATEMENT OF SERVICE TAX

7.0       POINT OF TAXATION OF SERVICE

8.0       PLACE OF PROVISION OF SERVICES RULES, 2012.

9.0       TAXABILITY OF BUNDLED SERVICES

10.0     REVERSE CHARGE OF SERVICE TAX

NEW SERVICE TAX REGIME BASED ON NEGATIVE LIST APPLICABLE FROM 1ST JULY 2012

Service Tax is the tax payable on services provided. Although it is a tax which is payable by the provider of service, however, it can be collected from the recipient of service. The Central Board of Excise & Customs (CBEC), Department of Revenue, Ministry of Finance, deals with the task of formulation of policy concerning levy and collection of Service Tax

Service Tax came into effect in 1994 through the Finance Act 1994, and was payable on a specified list of services. However, from 2012, Budget 2012 (which received assent of President on 28.05.2012) has made service tax applicable on all services except those in the Negative List, thus introducing the ‘New Service Tax Regime based on Negative List’. Vide Notification No. 19/2012-ST dated 05.06.2012, the Central Government has announced 01.07.2012 as the date of Introduction of the new regime.

The necessary notifications bringing into effect the new regime of service tax from 25/2012-ST to 40/2012-ST and Notification No. 28/2012-CX (NT) were issued on June 20, 2012 and have comprehensive changes relating to exemptions, Place of Provision Rules, 2012, changes to Service Tax Rules, 1994, Cenvat Credit Rules, 2004 etc. A few of the important ones amongst these are listed as follows:

Notification No. 25/2012-ST dt. 20-06-2012 –  Mega exemption notification

Notification No. 26/2012-ST dt. 20-06-2012  – Abatement notification

Notification No. 27/2012-ST dt. 20-06-2012  – Exemption to services for the official use of foreign Diplomatic Mission

Notification No. – 28/2012-ST dt. 20-06-2012 – Place of Provision of Services Rules, 2012

Notification No. 29/2012-ST dt. 20-06-2012 – Exemption on property tax paid on immovable property

Notification No. 32/2012-ST dt. 20-06-2012 – Exemption of services provided by TBI/STEP

Notification No. 33/2012-ST dt. 20-06-2012 – Exemption to Small service providers

Notification No. 40/2012-ST dt. 20-06-2012 – Exemption on services provided to SEZ authorised operations

Prior to 1st July 2012, (when the new service tax regime based on the Negative list became applicable), the sections which laid down the provisions regarding ‘chargeability to service tax’, were Section 66 and Section 66A of the Finance Act, 1994 but after 1st July 2012, the charging Section is Section 66B of the Finance Act, 1994.

Under the new section 66B of the Finance Act 1994, service tax at the applicable rate (currently it is 14%) shall be levied on all services provided or agreed to be provided in a taxable territory, other than services specified in the negative list.

Thus, as regards chargeability to service tax, the following three parameters are important for a service to be taxable as a service:

  • Service should be provided or agreed to be provided by a person to another. To determine when the liability to pay the service tax on a taxable service arises, i.e the point of taxation of service is determined in terms of the Point of Taxation Rules, 2011
  • Service should be provided in the taxable territory. Detailed rules called the Place of Provision of Services Rules, 2012 have been made in this regard.
  • Service should not be specified in the Negative list. The negative list of services is contained in section 66D of the Act. In all, there are seventeen heads of services that have been specified in the negative list.

Service tax does not have to be paid by the service provider for all taxable services provided in the taxable territory. Service tax on taxable services will not have to be paid in the following cases:

  • If in the previous financial year the aggregate value of taxable services provided was less than Rs.10 lakh and in the present financial year the aggregate value of taxable services provided is also less than Rs.10 lakh. Service tax has to be paid after crossing the threshold of Rs 10 lakh.
  • If the taxable service provided is covered under any one of the exemptions issued under the Act (Services under 53 heads of description of service, have been made exempt from the whole of the service tax leviable on them vide mega exemption notification no. 25/2012 – ST dated 20/6/12)

“Service” is defined under section 66B(44) of the Finance Act 1994.

It is defined to mean any activity carried out by a person for another for consideration, and includes a declared service. The words ‘activity’ and ‘consideration’ have not been defined under the Act.

The said definition further provides that ‘Service’ does not include –

  • any activity that constitutes only a transfer in title of (i) goods or (ii) immovable property by way of sale, gift or in any other manner
  • a transfer, delivery or supply of goods which is deemed to be a sale of goods within the meaning of clause (29A) of article 366 of the Constitution
  • a transaction only in money or actionable claim
  • a service provided by an employee to an employer in the course of the employment.
  • fees payable to a court or a tribunal set up under a law for the time being in force

Also, the Explanations to the definition of ‘service’ specifies that for the purpose of service tax:

  • an establishment of a person located in taxable territory and another establishment of such person located in non-taxable territory are treated as establishments of distinct persons
  • an unincorporated association or body of persons and members thereof are also treated as distinct persons

and thus are taxable services.

As per section 66B(44) of the Finance Act 1994, ‘service’ includes ‘declared service’. Declared Services are activities that have been specified in Section 66E of the Act and are comprised of the following nine activities:

(a) renting of immovable property;

(b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly,

except where the entire consideration is received after issuance of completion-certificate by the competent authority.

Explanation.— For the purposes of this clause,—

(I) the expression "competent authority" means the Government or any authority authorized to issue completion certificate under any law for the time

being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:––

(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or

(B) chartered engineer registered with the Institution of Engineers (India); or

(C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;

(II) the expression "construction" includes additions, alterations, replacements or remodeling of any existing civil structure;
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;

(d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software;

(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;

(f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods;

(g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments;

(h) service portion in the execution of a works contract;

(i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

 

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