TRADE NOTICE NO. 01/2010-ST

Dated Shillong, The  4th  MARCH’2010

 

 

Trade and all concerned are informed that the  Finance  Minister  has  introduced  the  Finance  Bill,  2010,  in  the  Lok Sabha  on  26th  February  2010.  Clause  75  and  76  of  the  said  Bill  covers  the legislative changes relating to Chapter V of the Finance Act, 1994 (i.e. Service Tax). While some fresh exemptions from service tax have been granted, some existing exemptions have either been withdrawn or modified.   All these changes have been notified under notification nos. 2/2010-ST to 17/2010-ST all dated 27th February 2010. While most of the legislative changes in the Finance Act, 1994 would come into force from a date to be notified after the enactment of the Finance Bill, 2010, the notifications  (except notification nos.  7/2010-ST,  8/2010-ST and  9/2010-ST which would come into effect from  01.04.2010) would become effective from  27th February 2010.   Salient features of some of these proposals in respect of Service Tax are indicated below. For full details, relevant provisions of the Finance Bills and above mentioned Notifications should be referred to, which are available in the following websites :

 

1.    http://www.cbec.gov.in

2.    http://www.indiabudget.nic

3.    http://www.finmin.nic.in

4.    http://cexstshillong.gov.in

 

2.       NEW SERVICES INCLUDED IN THE LIST OF TAXABLE SERVICES

 

2.1     Eight  services,  hitherto  not  included  separately  within  the  list  of  taxable

services, are being included in the said list through appropriate amendments in sub-section  105 of Section  65 of the  Finance  Act,  1994.    One of them, namely promotion, marketing etc. of lottery and similar games of chance presently figures as part of Business Auxiliary Service  (BAS). This is now being introduced as an independent entry in the list of taxable services. Consequential amendments have been made in the definition of the BAS.

 

2.2     The new services are,-

·   Services of promoting, marketing or organizing of games of chance, including
     lottery [Section 65 (105) (zzzzn)].

·    Health services, namely:

health check up undertaken by hospitals or medical establishments for the employees of business entities##; and

health  services  provided  under  health  insurance  schemes  offered  by insurance companies##. [Section 65 (105) (zzzzo)]

 

[ ##The tax on these health services would be payable only to the extent payment for such medical check up or preventive care or treatment etc. is made directly by  the  business entity  or the  insurance  company to  the  hospital  or  medical establishment].

 

 

·    Services provided for maintenance of medical records of employees of a business

entity [Section 65 (105) (zzzzp)].

 

·    Services of promoting of a ‘brand’ of goods, services, events, business entity etc

[Section 65 (105) (zzzzq)].

 

·    Services of permitting commercial use or exploitation of any event organized by

a person or organization [Section 65 (105) (zzzzr)].

 

·    Services provided by Electricity Exchanges [Section 65 (105) (zzzzs)].

 

·    Services related to two types of copyrights hitherto not covered under existing

taxable   service ‘Intellectual  Property  Right   (IPR)’,  namely,  those  on    (a)

cinematographic films; and (b) sound recording [Section 65 (105) (zzzzt)].

 

·    Special services provided by a builder etc. to the prospective buyers such as
     providing preferential location or external or internal development of complexes
     on extra charges [Section 65 (105) (zzzzu)].

 

2.3     The tax on these services would come into effect from a notified date
after  the  enactment  of  the  Finance  Bill,  2010.  It  is  requested  that  during  this interim  period,  the  relevant  information  for each  of  the  aforementioned  services such as revenue and taxpayer potential, issues that require further clarification, anticipated legal or implementation problems that are likely to be faced, may please be gathered and inputs of significance, if any, may be brought to the notice of Tax Research Unit latest by the second week of March, 2010.

 

3.       ALTERARTION OR EXPANSION IN THE SCOPE OF EXISTING SERVICES

 

3.1     In the case of following existing taxable services, the scope has been altered

either to expand their scope or to remove certain difficulties that have been faced during tax implementation. These changes are as follows,-

 

·   The scope of the taxable service  ‘Air Passenger Transport Service’  [section  65
     (105) (zzzo)] is being expanded to include domestic journeys, and international
     journeys in any class.

·   Presently the taxable service, ‘Information Technology Software Service’ [section
    65 (105) (zzzze)] is subjected to tax only in cases where such IT software is used
    for furtherance of business or commerce.   The scope of the taxable service is being  expanded  to  tax  such  service  even  if  the  service  provided  is  used  for purposes other than business or commerce.

·    An  Explanation  is  being  added  in  the  definition  of  the  taxable  service
     ‘Commercial Training or Coaching Service’ [section 65 (105) (zzc)] to clarify that
     the  term  ‘commercial’ appearing in  the  relevant  definitions,  only  means  that
     such training or coaching is being provided for a consideration, whether or not
     such training or coaching is conducted with a profit motive.    This change is
     being given retrospective effect from 01.07.2003.

·    In the definition of the taxable service  ‘Sponsorship Service’  [section  65  (105)
     (zzzn)],  the  exclusion  relating  to  sponsorship  pertaining  to  sports  is  being
     removed.

·    In  the  definition  of  the  taxable  services        ‘Construction  of  Complex  service’

[section  65  (105)  (zzzh)],  and  ‘Commercial  or  industrial  construction  service’
[section 65 (105) (zzq)], it is being provided that unless the entire consideration
for the property is paid after the completion of construction (i.e. after issuance
of completion certificate by the competent authority), the activity of construction
would    be    deemed    to    be    a    taxable    service    provided    by    the
builder/promoter/developer to the prospective buyer and the service tax would
be charged accordingly.

 

·    Amendments are being made in the definition of the taxable service ‘Renting of
     immovable property’ [section 65 (105) (zzzz)] to,-

(i)       provide explicitly that the activity of ‘renting’ itself is a taxable service.

This change is being given retrospective effect from 01.06.2007; and
(ii) provide that renting of vacant land, where the agreement or contract
          between the lessor and lessee provides for undertaking construction
          of buildings or structures on such land for furtherance of business or
          commerce during the tenure of the lease, shall be subjected to service
          tax.

·    The definitions of the taxable services, namely the ‘Airport Services’ [section 65

(105)  (zzm)],  the ‘Port  Services’ [section 65  (105)  (zn)]  and  the ‘Other  Port

Services’ [section 65 (105) (zzl)] are being amended to provide that,-

(a)   all services provided entirely within the airport/port premises would

fall under these services; and

(b)   an authorization from the airport/port authority would not be a pre-
       condition for taxing these services.

·    An  explanation  is  being  added  in  the  definition  of  the  taxable  service
     ‘Auctioneer’s Service’ [section 65 (105) (zzzr)] to clarify that the phrase ‘auction
     by government’ means an auction involving sale of government property by any
     auctioneer and not when the government acts as an auctioneer for sale of the
     private property.

·    The  definition  of  the  taxable  service  ‘Management  of  Investment  under  ULIP
     Service’ [section 65 (105) (zzzzt)] is being amended to provide that the value of
     the taxable service for any year of the operation of policy shall be the actual
     amount charged by the insurer for management of funds under ULIP or the
     maximum  amount  of  fund  management  charges  fixed  by  the  Insurance
     Regulatory & Development Authority (IRDA), whichever is higher.

3.2     The  scope  of  modifications  in  the  aforesaid  taxable  services  and  other

significant details pertaining to amendments being made in the Finance Act,
1994. These modifications would come into
effect from a notified date after the enactment of the Finance Bill, 2010.   It is
requested that during this interim period, the impact of the above changes,
issues that require further clarification, anticipated legal or implementation problems may please be assessed and inputs in this regard may be brought
to the notice of Tax Research Unit latest by the second week of March’2010.

 

4.       OTHER AMENDMENTS TO THE FINANCE ACT, 1994

 

4.1     Finance Act, 1994 is being amended to,-

a)    insert an explanation in sub-section (3) of Section 73 to clarify that no

penalty shall be imposed where service tax along with interest has been
paid  before  issuance  of  notice  by  the  department.  This would be
effective from the date of enactment of the Finance bill, 2010; and

b)    provide  definition  of  the  term   ‘business  entity’  so  as  to  include  an

association  of  persons,  body  of  individuals,  company  or  firm  but  to exclude an individual. This would be effective from a notified date after the enactment of the Finance bill, 2010

 

4.2     For other editorial changes being made in the Finance Act, 1994, please refer

to the Finance Bill, 2010.

 

 

5.       EXEMPTIONS

 

5.1     The following exemptions from service tax are being provided with effect from

27th February, 2010’ namely,-

 

·          Statutory taxes charged by any government (including foreign governments,
where a passenger disembarks) on air passenger would be excluded from taxable
value  for  the  purpose  of  levy  of  service  tax  under  the  Air  Passenger  Transport Service. (Notification No.15/2010-ST, dated 27th February, 2010 refers).

 

·          Exemption  from  service  tax  is  being  provided  to  services  relating  to

‘Erection, Commissioning or Installation’ of,-

o     Mechanized Food Grain Handling Systems etc.;

o     Equipment for setting up or substantial expansion of cold storage; and

o     Machinery/equipment for initial setting up or substantial expansion of
       units for processing of agricultural, apiary, horticultural, dairy, poultry,
       aquatic, marine or meat products.

(Notification No.12/2010-ST, dated 27th February, 2010 refers).

 

·          Packaged I.T. software, pre-packed in retail packages for single use, is being
exempted from service tax leviable under IT Software Service, subject to specified
conditions.    These  conditions  include  that  either  the  customs  duty  (in  case  of import) or excise duty (in case of domestic production) has been paid on the entire amount received from the buyer  (Notification No.17/2010-ST and No.2/2010-ST, both dated 27th February, 2010 refer).

 

·          At  present,  exemption  from  service  tax  is  available  to  transport  of  fruits,
vegetables,  eggs  or  milk  by  road  by  a  goods  transport  agency.    The scope of
exemption is being expanded by including food grains and pulses in the list of
exempted goods (Notification No.4/2010-ST, dated 27th February, 2010 refers).

 

·          Exemption from service tax is being provided to Indian news agencies under ‘Online  Information  and  Database  Retrieval  Service’  and      ‘Business  Auxiliary Service’  subject  to  specified  conditions    (Notification  No.13/2010-ST,  dated  27th February’2010 refers).

·          Exemption from service tax is being provided to the ‘Technical Testing and
Analysis Service’ and ‘Technical Inspection and certification service’ provided by
Central and State seed testing laboratories, and Central and State seed certification agencies (Notification No.10/2010-ST, dated 27th February, 2010 refers).

 

·          Exemption  from  service  tax  is  being  provided  to  the  transmission  of

electricity (Notification No.11/2010-ST, dated 27th February, 2010 refers).

 

6.       WITHDRAWALS OR AMENDMENTS TO EXISTING EXEMPTIONS

 

6.1     The following changes have been brought about in the existing exemptions,-

 

a)       Exemption  from  service  tax on  service  provided  in  relation to  ‘Transport of

Goods  by  Rail’  by  notification  No.33/2009,  dated  1st  September,  2009  is  being
withdrawn  (Notification  No.7/2010-ST,  dated  27th  February,  2010  refers).    The
exemption provided to certain specified goods transported by rail vide Notification
No. 28/2009-ST, dated 31st August, 2009, which was subsequently withdrawn vide
notification  No. 36/2009-ST  dated 9th  September, 2009,  has  been  restored.

(Notification No.  8/2010-ST, dated  27th February,  2010 refers).   An abatement of
70% of the gross value of the freight charged on goods (other than exempted goods)
is being provided vide notification No.  9/2010-ST dated  27th February,  2010 by
adding  the  service  of  ‘Transport  of  goods  by  rail’  in  notification  No.  1/2006-ST
dated 01.03.2006.     All these changes will also come into effect from 01.04.2010.

 

b)       The exemption from service tax on ‘Commercial training or coaching service’
extended to vocational training institutes vide notification No.  24/2004-ST dated 10.09.2004 is being limited by introducing a new definition of vocational training
institutes.    Service  tax  exemption  will  be  available  only  to  industrial  training
institutes or industrial training centres affiliated to National Council of Vocational
Training (NCVT)  and  offering  courses  in  the  designated  trades  covered  under
Schedule I of the Apprentices Act, 1961.   The List figuring under Schedule I of the
Act  covers  engineering  as  well  as  non-engineering  skills/trades (Notification

No.3/2010-ST, dated 27th February, 2010 refers).

 

c)       Exemption from service tax, presently available to Group Personal Accident

Scheme provided by Govt. of Rajasthan to its employees, under General Insurance

Service is being withdrawn (Notification No.5/2010-ST, dated 27th February, 2010

refers).

 

d)       Notification   No.1/2002-ST  dated  01.03.2002   is   being   superceded   by

Notification  No.14/2010-ST,  dated   27th  February   2010  to  provide  that  the

construction and operation of installations, structures and vessels for the purposes
of prospecting or extraction or production of mineral oils and natural gas in the
Exclusive  Economic Zone  and the Continental Shelf of India and supply of any
goods connected with these activities would be within the purview of the provisions
of Chapter V of the Finance Act,  1994.    Similar changes have been made in the
definition of the term ‘India’ appearing in the Export of Services Rules, 2005 and
Taxation of Services (Provided from Outside India & Received in India) Rules, 2006.
(Notification  No.6/2010-ST  and  Notification  No.16/2010-ST,  both  dated 27th

February, 2010 refers).

 

7.       AMENDMENT TO EXPORT OF SERVICE RULES, 2005

7.1     Export of Service Rules, 2005 have been amended as follows:

 

·          The taxable service, namely ‘Mandap Keeper Service’ has been shifted from the list under rule 3(1) (ii) [i.e. performance related services] to the list under rule 3(1)(i) [immovable property related services] and three taxable services, namely  ‘Chartered  Accountant  Services’,  ‘Cost  Accountant  Services’  and  ‘Company Secretary’s Services’, have been shifted from the list under rule


3 (1) (ii) [i.e.  performance  related  services]  to  the  list  under  rule 3 (1) (iii)

[residual  category  of  services].     Notification  No.6/2010-ST,  dated 27th

February 2010 refers.   Identical changes have been made under the Taxation of services (Provided from Outside India and Received in India) Rules, 2006 as well (Notification No.16/2010-ST, dated 27th February 2010 refers);

 

·          The condition prescribed under rule (2) (a) i.e. ‘such service is provided from

India and used outside India’ has been deleted (Notification No.6/2010-ST, dated 27th February 2010 refers).

6.1     These changes have been carried out keeping in view certain difficulties that
were faced by the trade while following the aforesaid rules.

 

8.       AMENDMENT  TO  NOTIFICATION  NO.  5/2006-CE(NT)  ISSUED  UNDER

RULE 5 OF THE CENVAT CREDIT RULES, 2004

 

8.1     It  may  be  recalled  that  a  number  of  representations  were  received  from
exporters, especially the exporters of services regarding difficulties being faced in
availing the benefit of refund of accumulated credit under the scheme prescribed
under Notification No.  5/2006-CE (NT) dated 14.03.2006, issued under rule 5 of
the CENVAT Credit Rules, 2004.  While  certain  issues  germinated  from  the wordings  used  in  the  provisions  of  the  notification  or  interpretation  of  such
provisions, other issues were more in the nature of administrative difficulties in
operating  the  scheme.  As an immediate measure, CBEC  issued  a clarificatory
circular  No. 120/01/2010-ST,  dated 19.01.2010.  It  was  however  felt  that  a permanent  solution  would  require  supplementing  the  clarification  with  certain
amendments to the notification, part of which had to be  ‘retrospective’ in nature.
Accordingly, Notification No. 5/2006(CE) (NT) has been amended vide Notification
No. 7/2010-CE (NT), dated 27th February’2010.  This mainly deals with the procedure that needs to be adopted in case of the new refund claims. However, to
resolve the disputes arising on account of the wordings/ illustration provided in the
notification, the same is being amended retrospectively (w.e.f. 14.03.2006) (Clause
73  of  the  Finance  Bill,  2010  refers)  so  as  to  resolve  the  disputes  in  respect  of
pending cases as well. Therefore to visualize the entire revamped and simplified
refund scheme, both the amending notification and the Finance Bill provision must
be read in conjunction.

 

Authority : CBEC’s Explanatory Notes (Central Excise)’2010

 

Disclaimer : Though care has been taken to reproduce the text in its Original form, We cannot entirely rule out some inadvertent omission/mistake which might have crept in. For the purpose of authenticity, CBEC’s Explanatory Notes may be referred to.

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         Sd/

(A.  K. Jain)

Commissioner