Saturday 23 March 2013

Service Tax-with New Changes



Service Tax

Service tax was first introduced by finance act 1994 with 5 services and out 5 only three were taxable at that time. Steadily and gradually till the year 2011 covered approximately 125 or more services covered in tax net and 119 services were taxable. But the finance act 2012 brings major revolution in service tax by introducing place of provisioning rules 2012 as well as  negative list of services before brings these changes govt. also introduced point of taxation rule 2011 vide finance act 2011. Although government brings time to time changes in services tax it also amends various laws to enhance and increase revenue and also to reduce litigations, as the matter of fact is that only in service tax we used to saw least compliances asked by the authority.
The approach adopted by the authorities was quite flexible as compare to other tax laws. The year 2011 and 12 was the year of revolution in Service tax field as in these two years cumulatively proposed and approved two major changes first one is point of taxation law which re defines the point of taxation of services and another one is Negative list of services and place of provisioning of services . This list contains certain services which are not taxable and all other services which are not falls in this negative list are taxable. The negative lists of services were proposed in finance bill 2012 which on later stages approved and becomes finance act 2012.



Rules

Government of India for the sake of easiness and efficient operating issued time to time various rule and regulation in that regard which are listed below. With the help of these rules an assessee can assess his tax liability and discharge as well.

Place of Provisioning Services Rules 2012
Point of Taxation Rules, 2011
Service Tax (Determination of Value) Rules, 2006
Service Tax Rules, 1994

There are other various rules for different type of issues such as dispute resolution, attachment of property, settlement commission, advance ruling etc. 

And Service Tax input and out put are taken care by CENVAT Credit Rules, 2004

Place of provisioning of services Rules 2012 (POP)
are introduced by omitting the rules related to import and export of services.

Service Tax (Determination of Value of Service) Rules, 2006
Does not have any fundamental changes, majority of changes are related to taxability and definition of Works Contract Services

Out of above rule we are going to discuss only Point of Taxation rules as these changed the time of taxing a service and due to that these are named Point of taxation.

 

POINT of Taxation Rules, 2011


This rules put light on the time of taxability of services and time of discharge of liability.
As we all are aware that service is taxable at the time of provisioning at the time it provided or yet to be provided then liability to pay service tax arises but when.

Earlier in service tax regime tax liability arises at the time of receiving of payment of services provided or yet to be provided and the tax liability deferred to till time service provider receives payment of provisioning of services, if he did not receive those payments the service provider need not to pay tax but after implementation of point of taxation rules 2011 position has been changed. Now onwards the service provider has to discharge his tax liability with the prescribed time limit once he issues the invoice or he received advance payments or service had been provided but no payment have been received.
Earlier in the service tax, Tax is payable on the “cash basis” means tax is levied at the time of receipt of fee/service charges. Now tax is payable on “Mercantile Basis” means assessee needs to pay tax at the time of issuance of invoice or date of payment for the service provided or to be provided which ever is earlier. Tax will be levied at the time service is provided means point in time when a service provided or to be provided.

Applicability

Point of taxation rules are applicable w.e.f. 01.04.2012 

 

Exemption to Small Service Provider (SSP)

As the taxable event is providing of services so that rate of tax will be applied which are applicable on such point of time and the payment of tax shall be allowed to be deferred till the receipt of payment upto a value of Rs 50 lakhs of taxable services.

The facility has been granted to all individuals and partnership firms, irrespective of the description of service, whose turnover of taxable services is fifty lakh rupees or less in the previous financial year.

Negative List Approach


Applicability

Negative list based comprehensive approach will be applicable from 01.07.2012.

Negative List of Services (Sec 66D of Finance Act, 1994)

Negative list" means the services which are listed in section 66D and there are 17 services listed in this list. Negative list of services covered description of those services which are non – taxable. And those services which are not part of negative list are taxable.

Declared List of Services (Sec 66E of Finance Act, 1994)


Declared Services are activities that have been specified in Section 66 E of the Act. When such activities are carried out by one person for another in the taxable territory for a consideration then such activities are taxable services


Service Tax Liability under Reverse charge mechanism


Reverse Charge
Under the reverse charge service tax is payable by the service recipient instead of service provider. Before the enactment of finance act 2012 there were only 6 services which falls under the ambit of this mechanism like wise the GTA service, insurance business, mutual fund distributor’s services, sponsorship services and services provided place out side India.

After enactment of Finance act 2012 the position has been changed now there are 10 services which comes under this mechanism but the most important and subtle part of this changed mechanism is that now both services provider and services recipient needs to discharge the tax liability in the specified proportion.

This mechanism of distribution of Service Tax between the Service Provider and Service Recipient shall only be applicable if such services are provided by any individual, Hindu Undivided Family, proprietary firm, partnership firm whether registered or not including association of persons, located in the taxable territory to any company


Specified Proportion for discharge of Tax liability


Nature of Service                      Percentage of Service Tax         Percentage of Service Tax
                                                              payable by Service             payable by Service
                                                                       Provider                           Recipient

In relation to Services provided or agreed
to be provided by way of renting or hiring             60%                            40%
any motor vehicle designed to carry
passenger on Non abated value


In respect of Services provided or agreed to
be provided by way of supply of                            25%                            75%
manpower for any purpose


In respect of Services provided or agreed to
be provided by way of works contract                    50%                             50%


in addition to above few services also added wherein tax payable by recipient  vide notification no 15/2012 dtd. 17 march 12.


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