MINISTRY OF FINANCE
OFFICE OF THE COMMISSIONER OF SERVICE TAX
ST - TRADE NOTICE No. 06/2008 dated 03.03.2008
Sub: Service Tax – Budget Changes – Finance Bill 2008 – communication of
Explanatory Notes on Service Tax and Notifications No. 4/2008-ST to
15/2008-ST all dated
10/2008-CE (NT) dated
The Finance Minister has introduced the Finance
Bill, 2008 in the Lok Sabha
The copies of the following are enclosed for information and necessary action.
1. Explanatory Notes on Service Tax provisions proposed in the Finance bill 2008.
SALIENT FEATURES OF CHANGES MADE IN BUDGET 2008.
INCREASE IN THRESHOLD EXEMPTION LIMIT FOR SMALL SERVICE PROVIDERS
· The annual threshold limit of service tax exemption for small service providers is being increased from Rs.8 lakh to Rs.10 lakh.
· Consequent upon the increase in the threshold exemption limit from Rs.8 lakh to Rs.10 lakh, the annual turnover limit for obtaining service tax registration shall also be increased from Rs.7 lakh to Rs.9 lakh.
· Increased threshold limit of Rs.10 lakh shall be applicable to small service providers for the financial year 2008-09 onwards.
CLASSIFICATION OF TAXABLE SERVICES:
· Taxable services are defined separately under clause (105) of Section 65 of the Finance Act, 1994. Services are supplied as a single composite service by bundling number of different services or disaggregating a single supply into different components. Tax liability may vary depending upon the treatment of the transaction either as a single composite service or multiple supply of service. For the purpose of levy of service tax, a single composite service is to be classified under any one of the specified taxable services.
· For the purpose of classification of a service covering number of separate services, a view has to be taken as to whether an individual service is merely a component of the overall supply or is itself a distinct and independent supply.
· Section 65A states the principles for classification of taxable services. Classification of a composite service is based on that component of the service which gives the essential character.
· Seven services are being separately defined as taxable services. Specifying a service separately as a taxable service does not necessarily mean or suggest that services falling within the scope of newly specified service were not earlier classifiable under any one of the existing taxable services. Grouping of services under a specific taxable service may change.
(i) Services provided in relation to information technology (IT) software for use in the course, or furtherance, of business or commerce [section 65(105)(zzzze) refers];
(ii) Services provided in relation to management of investment, known as segregated fund, under unit linked life insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme [section 65(105)(zzzzf) refers];
(iii) Services provided by a recognised stock exchange in relation to securities [section 65(105)(zzzzg) refers];
(iv) Services provided by a recognised association or a registered association (commodity exchange) in relation to sale or purchase of any goods or forward contracts [section 65(105)(zzzzh) refers];
(v) Services provided by a processing and clearinghouse in relation to processing, clearing and settlement of transactions in securities, goods or forward contracts [section 65(105)(zzzzi) refers];
(vi) Services provided in relation to supply of tangible goods, without transferring right of possession and effective control of said tangible goods [section 65(105)(zzzzj) refers]; and
(vii) Services provided in relation to internet telecommunication [section 65(105)(zzzu) refers]. Services provided in relation to internet telephony has been covered within the scope of the proposed service. Hence internet telephony service shall be omitted.
SCOPE OF SPECIFIED TAXABLE SERVICES IS BEING AMENDED:
1. Foreign exchange broker service
2. Cargo handling service
3. Tour operator service
4. Business auxiliary service
5. Renting of immovable property service
6. Transactions between associated enterprises
EXEMPTIONS FROM LEVY OF SERVICE TAX:
service provided by a person located outside
the case of services provided for the transport of goods by road in a goods
carriage, service tax is required to be paid by certain categories of persons
who pay the freight instead of the service provider namely Goods Transport
Agency. Taking into account the special nature of the goods transport agency (
the benefit of Cenvat credit has been withdrawn to
· Section 78 is being amended so as to provide that penalty for failure to pay service tax under section 76 shall not apply where penalty is leviable under section 78.
· Section 77 is being amended so as to provide specific penalty for specific contraventions.
OTHER AMENDMENTS IN THE ACT:
· Replacement of “client” or “customer” with “any person”: 39 specified taxable services are being amended so as to substitute “any person” in place of “client” or “customer”. This change will come into effect from a date to be notified after enactment of the Finance Bill, 2008.
· Section 66 is being amended so as to include seven newly specified services in the list of taxable services. This change will come into effect from a date to be notified after enactment of the Finance Bill, 2008.
· In order to facilitate small service taxpayers in filing of service tax returns, a scheme similar to Tax Return Preparers Scheme in Income Tax is proposed in the Budget, 2008-09. Section 71 is being incorporated for this purpose.
· Section 72 is being incorporated to authorise Central Excise Officer to make assessment on the basis of best judgment in certain specified circumstances.
order to settle disputes pending as on 01.03.2008 involving tax arrears
(service tax, interest and penalty) not exceeding Rs.25,000/-, Service Tax
Disputes Resolution Scheme is being introduced. The scheme is valid during
· Section 95 is being amended to empower the Central Government to issue orders for removal of difficulty in respect of implementing, classifying or assessing the value of any taxable service incorporated by the Finance Bill, 2008 upto one year from the date of enactment of the Finance Bill, 2008.
AMENDMENTS IN THE SERVICE TAX RULES, 1994:
· PAYMENT OF SERVICE TAX IN ADVANCE: It is proposed to extend the facility to pay service tax in advance to all taxable persons subject to the certain conditions. For this purpose, rule 6 (1A) is being incorporated.
· Rule 6(4B)(iii) provides self-adjustment of excess amount of service tax paid in certain circumstances with a monetary limit of Rs.50,000/-. This rule is being amended to increase the said monetary limit from Rs.50,000/- to Rs.1,00,000/-
· Rule 7B provides facility to file revised return to correct mistake or omission, within a period of 60 day from the date of submission of the return. This rule is being amended to increase the said time limit from 60 days to 90 days
· Rule 7C empowers the Central Excise Officer to reduce or waive the penalty for delayed filing of return, where the gross amount of service tax payable is nil.
AMENDMENTS IN CENVAT CREDIT RULES, 2004:
tax payable on
· Rule 3 is being amended to allow removal of capital goods outside the premises of the provider of output service without any time restriction, if the same is for providing output service.
· Rule 6 is being amended to provide the following options to a provider of output services, using common inputs or input services for providing taxable as well as exempted services and opting not to maintain separate accounts, namely:-
o either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used for providing exempted service, or
o pay 8% amount of the value (to be determined in accordance with section 67 of the Finance Act, 1994) of the exempted service.
· Rule 7A is being inserted to prescribe a procedure to enable the provider of output services to take credit on inputs and capital goods on the basis of an invoice, bill or challan issued by its other office.
· Rule 15A is being inserted to provide for general penalty upto Rs.5,000/- in case of contravention of any of the provisions of the CENVAT Credit Rules, 2004, for which no specific penal provision exists.
· CROSS BORDER SERVICES RELATING TO TANGIBLE GOODS:
· Information technology is used to provide services in relation to tangible goods located distantly. In such cases, the actual place of performance of the service is different from the actual location of the tangible goods (place of consumption of service).
· The place of performance and the physical location of the goods are immaterial when both places are within a single taxing jurisdiction i.e. country of taxation. However, if these two places are in two different taxing jurisdictions, the taxing jurisdiction shall be the place of actual location of the goods at the time of provision of service.
3(1)(ii) of the Export of Services Rules, 2005 and
rule 3(ii) of Taxation of Services (Provided from Outside India and received in
(a) management, maintenance or repair,
(b) technical testing and analysis, and
(c) technical inspection and certification,
These services are also provided remotely through internet or any electronic network including a computer network, or any other means.
WORKS CONTRACT (COMPOSITION SCHEME FOR PAYMENT OF SERVICE TAX) RULES, 2007
· Service tax payable for works contract service under the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007 is being increased from 2% to 4% of the total value of the works contract. Rule 3(1) of the said rules is being amended suitably (Notification No.7/2008-ST dated 01.03.2008).
The changes explained above are not exhaustive and are only for the purpose of providing guidance. Explanations are not to be treated as part of the statutory provisions and do not over ride them. The statutory provisions and the relevant notifications have to be read carefully for interpreting the law.
Assessees are requested to refer to the relevant notifications for effective dates of new levies, exemptions and amendments would come into force.
All the Trade associations are requested to bring the contents of the Trade Notice to the attention of their member’s, in particular, and the trade and all other concerned in general.
[Issued from file C. No. IV/16/ 04/2008
Encl: As above.
1. As per mailing list. (Both Trade and Department.)
2. Members of the R.A.C.
3. Copy to: Superintendent, Computer Section for publishing in the Departmental