Proposed amendments in service tax by Union Budget 2017

CHANGES EFFECTIVE RETROSPECTIVELY AFTER ENACTMENT OF FINANCE BILL, 2017

Special provision for Valuation of service portion in execution of works contract involving transfer of goods and land or undivided share of land [Section 128 of Finance Bill, 2017 &Service Tax (Determination of Value) Rule, 2006]

in order to overcome the ratio laid down by the judgment of Delhi High Court in the matter of Suresh Kumar Bansal, Anuj Goyal & Others Vs Union of India & Others [(2016) 43 STR 3 (Delhi)], it has been proposed to retrospectively insert relevant rules in Service Tax (Determination of Value) Rule, 2006 for valuation of service portion in execution of works contract involving transfer of goods and land or undivided share of land i.e. sale of under Construction Flats. The valuation mechanism proposed to be inserted in above rules is similar to the abatement available under Notification 1/2006-ST (upto 30 th June, 2012) and Notification No. 26/2012-ST (From 1 st July, 2012 onwards). The details of the valuation proposed in summarized in table below

Period 01/07/2010 to 30/06/2012– Gross Amount charged for the works contract includes the value of goods as well as land or undivided share of land – 25% of such value - Conditions to be full filled (i) the CENVAT Credit of duty paid on inputs or capital goods or the CENVAT Credit of service tax on input services, used for providing such taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) the service provider has not availed the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated the 20th June, 2003 [G.S.R.503(E), dated the 20th June, 2003]. (iii) the gross amount charged shall include the value of goods and materials supplied or provided or used for providing the taxable service by the service provider.

Period 01/07/2012 to 28/02/2013 – Amount charged for works contract includes the value of goods as well as land or undivided share of land – 25% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Period 01/03/2013 to 07/05/2013 – Amount charged for works contract includes the value of goods as well as land or undivided share of land – 30% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Period 01/03/2013 to 07/05/2013 – in case of works contract for construction of residential units having carpet area upto 2000 sq. ft. or where the amount charged is less than Rs. 1crore and included the value of goods as well as land or undivided share of land – 25% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Period 08/05/2013 to 31/03/2016 – Amount charged for works contract includes the value of goods as well as land or undivided share of land – 30% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Period 08/05/2013 to 31/03/2016 – in case of works contract for construction of residential units having carpet area upto 2000 sq. ft. or where the amount charged is less than Rs. 1crore and included the value of goods as well as land or undivided share of land – 25% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Period 01/04/2016 Onwards – Amount charged for works contract includes the value of goods as well as land or undivided share of land – 30% of such value - same as under Rule 2A of the Service Tax (Determination of Value) Rules 2006

Exemption to services provided by State government Industrial Development Corporation or Undertaking to Industrial Units (Section 104).

Retrospective exemption has been given to one time upfront amount (premium, salami, cost, price, development charge or by whatever name called) in respect of taxable service by way of grant of long term lease of thirty years or more of industrial plots. This exemption has been granted for the period from 1st June 2007 i.e. the date when renting of immovable property services first became taxable to 21st September 2016 i.e. the date after which such services were exempt vide notification no. 41/2016, dated 22nd Sept 2016 (both days inclusive).

If any service tax has been paid on such amount during the said period, the same can be claimed back as refund within a period of six months from the date on which the Finance Bill 2017 receives the assent of the President.

CHANGES EFFECTIVE FROM 2nd FEBRUARY, 2017

Amendment in Mega Exemption Notification No. 25/2012-ST by Notification No.7/2017-Service Tax, dated 2nd February 2017

Services provided by Indian Institute of Management (Sr. No. 9B) Presently the exemption is provided to two year full time residential post graduate programmes in management.

Now the scope of the exemption is partially increased by extending the exemption to two year full time post graduate programmes - residential as well as non-residential.

Service to the government by way of transport of passenger by air under VGF (Voluntary GAP Funding) scheme (Sr. No. 23A) finance. More than the overall difficulty of securing funds, some projects may not be financially viable though they are economically justified and necessary. For the successful completion of such projects, the government has designed Viability Gap Funding (VGF). Viability Gap Finance means a grant to support projects that are economically justified but not financially viable.

Thus Government gives grant under VGF scheme to facilitate the Regional Connectivity Scheme Airport (RCSA). Such grant to Airline operator is now exempted. This exemption is available for a period of one year from the date of commencement of operations of the RCSA.

Insurance Services to members of Army, Navy and Air Force (Sr. No. 26D) Life insurance provided by the Army, Naval and Air Force Group Insurance Funds to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government will now be exempt.

Further after the Finance Bill 2017 receives the assent of the president the retrospective exemption will be given from 10th September 2004 to 1st February, 2016 (both days inclusive). If any service tax has been paid on such schemes during this period, the same can be claimed back as refund within a period of six months from the date on which the Finance Bill 2017 receives the assent of the President (Section 105).

Amendments in Cenvat Credit Rules, 2004 by Notification No. 4/2017 Central Excise (N.T.)

Changes applicable to Banking Company and a Financial Institution including a NBFC [New Proviso inserted in Clause (e) of Explanation I of Rule 6 (3D)]

Effective from 1st April, 2016 there were amendments made in the Cenvat Credit Rules, 2004 (hereinafter referred to as the CCR) wherein the Banking Company, a Financial Institution and NBFC could opt for any of the option prescribed under Rule 6 of the CCR i.e. either to

i. Reverse the common credit based on the turnover or pay 7% of the value of exempted services; or

ii. Pay 50% of the Cenvat credit availed during the month.

Under the 1st option of reversal of common credit based on the turnover the said Banking Company, etc. shall not include the value of the services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. Thus, the credit on inputs and input services used towards such services would be available without any reversal requirement on the same.

However, by amending the CCR now effective from 2nd February, 2017 reversal of common credit used for taxable services and services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount by a Banking Company, etc. would be required to be done on the consideration which is in the form of interest or discount.

Transfer of Cenvat Credit [Rule 10(4) of the CCR]

In case of sale, merger, amalgamation, lease or transfer of a factory or a business with a specific condition to for transfer of liabilities of such factory or business then the Cenvat credit lying unutilized in the accounts of the seller, etc. would be allowed to be transferred to the purchaser, acquirer, etc.

Such transfer was allowed only if the stock of inputs as such or in process or capital goods on which credit has been availed is also transferred and duly accounted for to the satisfaction of the jurisdictional Deputy Commissioner or the Assistant Commissioner of Central Excise.

Now with this amendment the transfer of Cenvat credit shall be allowed within a period of 3 months from the date of receipt of application by the jurisdictional Deputy Commissioner or the Assistant Commissioner of Central Excise. However, on sufficient cause being shown and reasons recorded in writing be extended by the Principal Commissioner of Commissioner of Central Excise for a further period of not more than 6 months.

CHANGES EFFECTIVE FROM DATE OF ENACTMENT OF FINANCE BILL, 2017

p>Amendments in Advance Ruling Provisions Fee for making application [Section 96C(3)] - The fee for making an application for Advance Ruling will be increased to Rs. 10,000/- from Rs. 2,500/-.

Pronouncement of Advance Ruling [Section 96D(6)] - Currently, the Advance Ruling should be pronounced by the Authority in writing within 90 days of the receipt of application; however the now the pronouncement would be required to be done in writing in 6 month’s time.

Amendment in Negative List and correspondingly in Mega Exemption Notification No. 25/2012-ST by [Notification No.7/2017-Service Tax, dated 2nd February 2017]

Exemptions to Process amounting to Manufacture (Sr. No. 30) – Presently “Process amounting to manufacturing or production of goods” in a part of negative list entry. Further Mega Exemption notification provides exemption to certain intermediate process which are in relation to Agricultural, printing or textile processing and other items mentioned therein.