VIP Road Chartered Accountants Association

Important Changes Brought-In By The Finance Act, 2005

By: Bishnu Kumar Agrawal, ACA

E-Mail: binnumakharia@yahoo.co.in

Service Recipient To Be Treated As Service Provider

In case the service provider does not belong to India and the service recipient belongs to India, the recipient of taxable services himself is to be treated as the provider of the taxable services and the services are taxed in his hands.

The service provider should have established his business or has a fixed establishment or has his permanent address or usual place of residence in a country other than India, and the recipient of service should have his place of business, fixed establishment, permanent address or usual place of residence in India.

Taxable services received and consumed outside India by an individual, not in the course of commerce or industry or any other business is specifically exempt.

The Department clarifies that charging service tax from the recipient when the service is provided by a non-resident is a well-accepted international practice.

Advance Receipt Made Taxable

A person is liable to pay the tax as soon as the consideration towards the taxable services is received. In case the services are provided continuously and the consideration is determined periodically, services are treated as provided separately and successively each time the payment is due or each time the payment is received.

When advance payment is received for a non-taxable service that becomes taxable during the course of provision of service, payments have to be apportioned appropriately between two periods and the part of service, which is provided on or after the service becomes taxable is only liable for service tax.

Threshold Exemption Scheme Introduced

A threshold exemption scheme has been introduced exempting from service tax aggregate value of taxable services not exceeding four lakh rupees received by the service provider during a financial year. The exemption is related to first payments received in a financial year irrespective of the actual date of provision of services.

Registration Requirements Modified

Followings will need to comply with procedures relating to Registration and Filing of Return:

Input Service Distributors (ISD), and
Small Service Providers (SSP) whose aggregate Value of Taxable Service exceeds Rs. 3 lakhs p.a.

Though these persons may not be liable to pay Service Tax, but only for the sake of accountability, they need to get registered with the Department.

Provision for More Than One Centralized Registration Introduced

Amendments have been made to facilitate more than one centralized registration, i.e. more than one office such as zonal or regional office depending upon centralized billing or accounting systems.

The Registration Certificate for centralized registration shall be granted by the Commissioner of Central Excise / Chief Commissioner of Central Excise / Director General of Service Tax, as the case may be, depending on the fact as to in whose jurisdiction all the offices fall.

Export of Taxable Services Rules, 2005 Introduced

Export of Service Rules, 2005 has been introduced to deal with the Services Exported. These Rules have explicitly classified the Taxable Services in three broad categories:

Services in relation to Immovable Property
Services Performed Outside India
Recipient of Service is Located Outside India

To avail relief from service tax on export of taxable services, taxable services exported are to be delivered outside India and used outside India and payment for the services exported should have been received by the service provider in convertible foreign currency.

Facilities Extended to Assesses Having Centralized Registration

Service providers who have opted for centralized registration may, at times, have difficulty in accurately computing their tax liability by the due date of payment. Facility has been extended to them to make suo-moto adjustments of the excess amount paid, if any, and utilize the excess amount for payment of service tax for the subsequent period.

Goods Transport Agency

An abatement of 75% in taxable service of Goods Transport by Road is available on the condition that the Goods Transport Agency:

Has not availed Credit on Inputs and Capital Goods used for providing Taxable Service, and
Has also not availed benefit of Notification No. 12/2003-Service Tax dated 20.6.2003

A Declaration is required in the consignment note issued by the Goods Transport Agency to the effect that above conditions are duly complied with, for the purpose of availment of abatement by the person liable to pay service tax.

Gem and Jewellery Sector

Taxable Services of "Production or Processing of Goods for, or on behalf, of a Client" provided by a Commercial Concern in the Course of Manufacture of Cut and polished diamonds and Gem stones or plain and studded jewellery of gold, and other precious metals are exempted.

All Taxable Services received from Abroad by an Indian Recipient in relation to these goods are held to be liable to be taxed under "Reverse Charge" norms.

Shipping Industry

Only certain specified taxable services are exempt which are provided by a Non-resident person from outside India, and consumed outside India in the course of sailing of a ship.

Ship should have been registered as an Indian Ship under The Merchant Shipping Act, 1958, or The Coasting Vessels Act, 1838, or Inland Vessels Act, 1917. In the case of Chartered Ship, it should have been licensed under the Merchant Shipping Act, 1958

The ships should be owned or chartered by:

A Citizen of India, or
A Company, or
A body established by or under any Central or State Act which has its principal place of business in India, or
A Cooperative Society that is registered under the Cooperative Societies Act or any other law relating to cooperative societies.

Exemption is applicable only to those specified taxable services provided in relation to:

Handling of Ships in a Port Outside India, or
Handling or Storage of Goods carried in a Ship in a Port Outside India, or
Any other services related to handling of Ships or Goods carried in a ship.

Vessels going Outside the Country for Dry-docking (maintenance or repairs) are not eligible for the exemption.

New Services Brought Under The Tax Net

Transport of Goods Through Pipeline or Other Conduit: Consideration for the transportation service provided may be payable periodically or from time to time. Service provider is to pay tax as and when payment is received for the services provided or to be provided.

Site Formation and Clearance, Excavation, Earth moving and Demolition Services: Services provided in relation to Agriculture, Irrigation, Watershed development and Drilling, Digging, Repairing, Renovating or Restoring of Water Sources or Water Bodies are specifically excluded. Services provided in the course of Construction of Roads, Airports, Railways, Transport Terminals, Bridges, Tunnels, Dams, Major and Minor Ports are exempt.

Dredging Services: Service tax is leviable only on dredging, which is generally undertaken for removal of material such as silt, sediments, rocks etc. of rivers, ports, harbour, backwater or estuary for providing adequate draught for ships and other vessels and to maintain shipping channels.

Survey and Map Making: It does not cover "Survey and Exploration of Minerals". These services rendered by agency under the control of the Government or authorized by the Government, such as "Survey of India" are specifically excluded.

Cleaning Services: Clearing services, would be excluded, when provided:

in relation to Agriculture, Horticulture, Animal Husbandry or Dairying.
in respect of Non-commercial Buildings and Premises thereof.

Membership of Clubs or Associations: Services provided to members by clubs or associations in relation to provision of Services, Facilities or Advantages for a Subscription or Any Other Amount are taxable. Amount charged for sale of food or beverages would not be taxable provided documents are available. Life membership fee is also liable to tax.

Packaging Services: Packaging activity which amounts to manufacture under Central Excise Act, 1944 would not be liable to service tax.

Mailing List Compilation and Mailing: Services of persons / agencies who compile and provide Lists of Names, Addresses and Other Information from Telephone Directories, Internet or Any Other Source of Information are covered. Also covered are the services of sending documents, materials, information or any other goods by Addressing, Stuffing, Sealing, Metering or Mailing the Envelope or Packet for or on behalf of the client.

Construction of Residential Complexes: Residential complex constructed by an individual, which is intended for personal use as residence and is constructed by directly availing services of a construction service provider, is not covered under the scope of the service tax and not taxable.

Existing Taxable Services who's Scope Expanded

Commercial or Industrial Construction Service: Services included under this service are Renovation of Commercial or Industrial Building or Civil Structure, Post construction completion and finishing services and Construction, Repair, alteration, renovation or restoration of pipeline or conduit.

Erection, Commissioning or Installation Services: Services included under this service are Installation of Electrical and Electronic Devices including wirings and fittings thereof, Plumbing, Drain Laying or Other Installations for Transport of Fluids, Heating, Ventilation or Air-Conditioning including related Pipe Work, Duct Work, and Sheet Metal Work, Thermal Insulation, Sound Insulation, Fire Proofing or Water Proofing and Lift and Escalator, Fire Escape Staircases and Travelators.

Maintenance or Repair Service: Services relating to Maintenance or Management of Immovable Property such as Roads, Airports, Railways, Buildings, Parks, Electrical installations and the like have been covered. Maintenance or repair Including reconditioning or restoration or servicing of any goods or equipment, except motor vehicle undertaken as part of any contract or agreement is now made liable to service tax. The contract or agreement need not necessarily be a maintenance contract / agreement.

Broadcasting Services: Service tax is leviable on the charges recovered by the Broadcasting Agencies from the Multi-system operator (MSO) for providing the Signals and provision of Direct To Home (DTH) Signals by the Broadcasting Agencies to the Customers.

Sound Recording: This service has been expanded to include recording of sound on any media or device such as Digital Recording, and services rendered in relation to recording of sound or any Audio Postproduction Activity.

Video-Tape Production: This service has been expanded to include recording of any programme, event or function on any media or device such as Digital Recording, and services relating thereto and Video Post-Production Services.

Authorised Service Station: Specifically Included are the services of reconditioning or restoration of Motorcars, Two-wheeled Vehicles, and Light Motor Vehicles carried out by the authorized service stations or centers.

Beauty Parlour Service: All Services provided by Beauty Parlours including Hair Cutting, Hair Dressing, and Hair Dyeing are comprehensively covered.

Manpower Recruitment Service: Tax will be levied on temporary supply of manpower for a specified period or for completion of particular projects or tasks by manpower recruitment or supply agencies. Tax is to be charged on the full amount of consideration.

Franchise Service: The word "Franchise" has been amended to mean an agreement by which the Franchisor grants Representational Rights to Franchisee to Sell or Manufacture Goods or Provide Service, or undertake any Process Identified with the Franchisor by any Symbol such as Trade mark, Service Mark, Trade Name or Logo. No other condition is required to be fulfilled for levy of Service Tax.

Business Auxiliary Service: Amendments have been made to define this taxable activity as "production or processing of goods for or on behalf of the client".

Outdoor Catering Service: The definition of "Outdoor Caterer" has been modified so as to provide that it includes caterer engaged in providing services in connection with catering at a place provided by way of Tenancy or otherwise by the Person receiving such services.