Office of the Commissioner of Central Excise & Customs,
P. O. Box No. 81, Telangkhedi Road, Civil Lines, Nagpur – 440 001.
C. No. IV(16)30-07/Tech./2008/ Nagpur, the 29TH Feb,2008
TRADE NOTICE NO. 813/04/ 2008
|
Subject :- |
Budget 2008-09 – Changes in Central Excise & Service Tax |
The Finance Minister has introduced the Finance Bill, 2008 in Lok Sabha on 29th February, 2008. Changes in excise and customs duties have been made through the Finance Bill (clauses 63 to clause 84, clauses 117 and 120) and through Notification Nos.20/2008-Customs to 29/2008-Customs, 11/2008-Customs (NT), 2/2008-CE to 14/2008-CE, and 10/2008-CE (NT) to 14/2008-CE (NT), all dated 1st March, 2008. The salient features of these changes in respect of excise and customs duties are indicated below. A Chapter-wise summary of the changes is available in the Explanatory Notes. For full details, however, kindly refer to the relevant provisions of the Finance Bill and the notification. Changes in rates of duty (except for items brought into the SSI exemption) take effect from the midnight of 29th February / 1st March, 2008. The legislative changes, except those declared under the Provisional Collection of Taxes Act, 1931 would come into effect only upon the enactment of the Finance Bill.
Similarly the details of changes relating to service tax are as under :-
(i) Clause 85 of the Finance Bill, 2008, and
(ii) Notification Nos.4/2008-Service Tax to 15/2008-Service Tax, all dated 1st March, 2008.
Changes are being proposed in the provisions of the,-
• Finance Act, 1994,
• Service Tax Rules, 1994,
• CENVAT Credit Rules, 2004,
• Export of Services Rules, 2005,
• Taxation of Services (Provided from outside India and Received in India)
Rules, 2006, and
• Works Contract (Composition Scheme for Payment of Service tax) Rules,
2007.
Details of the changes are explained in the Explanatory Notes. Salient features of
the changes are discussed hereinafter:
I. CENTRAL EXCISE
2. General CENVAT Rate: (Notification No. 2/2008-CE)
2.1 The general rate of excise duty (CENVAT) has been reduced from 16% to 14%. This reduction applies to all goods that hitherto attracted this general rate of 16%. In some cases, a deeper reduction has been made, the details of which are indicated in the subsequent paragraphs. These changes have been carried out by notification. The other advalorem rates of 24%, 12% and 8% have been retained.
2.2 Since the reduction in the general rate has been carried out by notification, the possibility of the same product/ item being covered by more than one notification cannot be ruled out. In such a situation, the rate beneficial to the assessee would have to be extended if he fulfils the attendant conditions of the exemption.
3. Drugs and Pharmaceuticals:
3.1 Excise duty on drugs and pharmaceuticals falling under Heading Nos. 3001, 3003 (except Menthol crystals), 3004, 3005 and 3006 (except 3006 60 and 3006 92 00) has been reduced from 16% to 8%. Thus, the general effective rate for all goods of Chapter 30 is now 8%. However, certain specified items such as life saving drugs continue to be fully exempt. Excise duty has been fully exempted on Anti-AIDS drug ATAZANAVIR, and bulk drugs for its manufacture.
4. Automobiles:
4.1 Excise duty on Small cars has been reduced from 16% to 12%. There is no change in the definition of small cars. Large cars will continue to attract duty at 24%. A concessional rate of duty of 14% has been provided for “Hybrid cars” driven by a combination of an internal combustion engine and an electric motor. The definition prescribed in the relevant notification may kindly be critically examined and if there are any suggestions for providing more clarity, the same may be conveyed to me at the earliest.
4.2 Electrically operated vehicles enjoy a concessional rate of duty of 8%. Of this category, full exemption has now been provided to Electric cars. Specified parts of electric cars have also been fully exempted on end-use basis. It may kindly be ensured that the exemption for parts/ components is monitored effectively and there is no misuse.
4.3 Excise duty on buses and vehicles for the transport of more than 13 persons has been reduced from 16% to 12%. Simultaneously, the duty on the chassis of such vehicles has also been brought down from ‘16% +Rs.10,000-’ to ‘12% +Rs.10,000/-.
4.4 There is also a reduction in the excise duty on two-wheelers and three-wheelers (for the transport of upto 7 persons) from 16% to 12%.
5. Food Processing Sector:
5.1 Full exemption from excise duty has been provided to some more food products viz. tender coconut water; Paws, mudi (puffed rice) and the like; milk containing edible nuts and other ingredients; and Tea/ coffee pre-mixes containing tea/ coffee, milk and sugar.
5.2 On a few more food items - muesli, corn flakes & similar breakfast cereals; and ‘sharbats’, a concessional rate of duty of 8% has been provided.
5.3 On specified packaging material used mainly for packaging of processed foods, the rate of duty has been reduced from 16% to 8%. These items are: Open Top Sanitary (OTS) cans, aseptic packaging paper and aseptic bags.
5.4 There is already a full exemption for specified equipment for the installation of a cold storage, cold room or refrigerated vehicle, for the preservation, storage and transportation of agricultural produce on end-use basis. Another item has been added to this list.
6. Information Technology & Communication sector
6.1 Packaged software hitherto attracted excise duty of 8%. This has been enhanced to 12%. There is no change in the excise duty on other software. Excise duty has been fully exempted on Wireless data modem cards. Consequently, CVD shall also be exempted on imported cards. However, 4% additional duty of customs will be applicable.
6.2 Specified convergence products viz. MP3/ MP4/ MPEG4 player having video and audio reception facility have been provided a concessional excise duty of 8%.
7. Paper and Paper products
7.1 Excise duty on writing paper, printing paper and packing paper falling under heading nos. 4802, 4804, 4805, 4807, 4808 and 4810 has been reduced from 12% to 8%.
7.2 Excise duty has been fully exempted on paper and paper products, manufactured from non-conventional raw materials, upto first clearance of 3500 metric tonne in a year from a unit.
7.3 Excise duty on paper and paper products, manufactured from non-conventional raw materials, beyond clearance of 3500 metric tonne per year from a unit (not having an attached bamboo/wood pulp plant) has been reduced from 12% to 8%.
8. Other Concessions:
8.1 Excise duty has been fully exempted on composting machines and menthol/ menthol crystals.
8.2 Excise duty has been reduced from 16% to 8% on water filtration and purification devices, veneers & flush doors, heat resistant rubber tension tape and inks for writing instruments such as marker pens, highlighters, magic pens etc.
8.3.1 Excise duty on pan masala, not containing tobacco, with betel nut content not more
than 15%, has been reduced from 16% to 8%. It has also been exempted from National Calamity Contingent Duty. The exemption is available subject to the fulfillment of certain conditions. The availment of this exemption may be closely monitored to prevent any misuse.
9. Cement:
9.1 Excise duty has been revised on bulk cement from Rs.400 per tonne to “ 14% or Rs. 400 per tonne, whichever is higher”. However, there is no change in the rates of duty applicable to cement manufactured and cleared in bulk by mini-cement plants.
9.2 Excise duty has been increased on cement clinkers from Rs.350 per tonne to Rs.450 per tonne.
10. Cigarettes:
10.1 Excise duty rates on non-filter cigarettes have been enhanced to bring them at par with filter cigarettes of corresponding length. The revised rates of excise duty (basic + NCCD + Health Cess) on non-filter cigarettes are as under:
|
S. No. |
Description |
From |
To |
|
|
Non-filter cigarettes |
(Rs per 1000) |
|
|
1. |
Not exceeding 60 mm in length |
168 |
819 |
|
2. |
Exceeding 60 mm but not exceeding 70 mm in length |
546 |
1323 |
Enhancement of duties (basic + NCCD + Health Cess) has been made through suitable schedule entries in the Finance Bill, which are covered by the declaration under the Provisional Collection of Taxes Act, 1931.
11. Petroleum
11.1 The duty rates on MS/HSD intended for sale without a brand name have been converted from ‘ad valorem + specific rate’ to pure ‘specific rate’ as under:
|
S. No. |
Description |
From |
To |
|
1 |
Motor Spirit |
6% + Rs.13 per litre |
Rs.14.35 per litre |
|
2 |
HSD |
6% + Rs.3.25 per litre |
Rs. 4. 60 per litre |
11.2 The duty rates on branded fuels would continue to attract the present ad valorem cum specific rates i.e. as under:
a) Motor Spirit : 6% + Rs.13 per litre
b) HSD : 6% + Rs. 3.25 per litre
12. NCCD: (Clause 117 of the Finance Bill, 2008)
12.1 National Calamity Contingent duty (NCCD) at the rate of 1% has been imposed on mobile phones. The CENVAT Credit Rules have been amended to provide that input or capital goods credit of other duties of excise cannot be utilized for the payment of this NCCD.
12.2 NCCD of 1% hitherto leviable on Polyester filament yarn has been withdrawn. Suitable bill entries have been incorporated in the Finance Bill to delete this item from the NCCD Schedule. Till the enactment of the Finance Bill, however, an exemption notification has been issued.
13. Export Oriented Units:
13.1 The effective rate of duty applicable to clearances of goods to domestic tariff area from export oriented units, software technology parks, electronic hardware technology parks etc. has been revised from ‘25% of the basic customs duty + excise duty payable on
like goods’ to ‘50% of the basic customs duty + excise duty payable on like goods’.
14. SSI Exemption:
14.1 General SSI exemption has been extended to HDPE/ PP tapes consumed captively in the manufacture of sacks/ bags. This change will come into effect from 1st April, 2008.
15. Miscellaneous
15.1 Excise duty exemption on “shuttle-less looms” has been withdrawn. These goods will now attract 8% excise duty/CVD.
15.2 Consequent upon reduction of excise duty rates, abatement rates allowed from maximum retail sales price for various items have been suitably reduced. [notification No.14/2008-CE (NT) refers].
15.3 Notification No. 108/95-CE dated 28.08.1995 exempts, among other things, goods supplied to projects funded by the U.N. or other international organizations subject to the fulfillment of certain conditions. For the removal of doubts, an explanation has been inserted in the notification to clarify that the benefit is available to goods brought into a project that are not withdrawn by the supplier or the contractor. The intention is to clarify that the exemption is not available to goods brought for temporary use in a project. It has also been provided that the expression “goods are required for the execution of the project” shall be construed accordingly. While extending the benefit of this exemption, the field formations may ensure that essentiality certificates issued by the sponsoring authority take into account this clarification. A similar explanation has been inserted in the corresponding Customs Notification No. 84/97-Cusltoms dated 11.11.1997.
15.4 Notification No. 49/2003-CE dated 10.6.2003 provides exemption to specified goods manufactured by new units or units undertaking substantial expansion in the State of Uttarakhand or Himachal Pradesh. The goods or activities to which this exemption is applicable are specified in the schedule. Entry at Sl. No. 13 of the schedule has been amended so as to provide exemption to printers and monitors capable of connecting to a computer or network.
15.5 Some editorial changes have been carried out in the First Schedule to the Central Excise Tariff Act through a notification issued under section 5 (1) of the said Act. The details are as under:
(i) Section 2(f) (iii) of Central Excise Act contains definition of “deemed manufacture”. Similarly, the Notes in some of the chapters of the Tariff also define certain processes as amounting to “manufacture”. In respect of the processes of labeling and relabelling and packing/repacking, the definitions in the chapter notes are not aligned with the definition contained in Section 2(f) (iii). The chapter notes have been amended suitably.
(ii) The First Schedule of the Central Excise Tariff Act has been amended so as to align entries related to parts and accessories of printers falling under heading 8443 of the Excise Tariff with the corresponding entries in the Schedule to the Customs Tariff
15.6 Sl. No. 7 of Notification No. 64/95-CE dated 16.3.1995 provides exemption to goods meant for use in the launch vehicle project or a satellite project of ISRO. Inadvertently, the description of goods in Col. 2 was printed under Col. 3 pertaining to conditions. This has now been rectified.
16. Other amendments in Central Excise Act:
[To come into effect on enactment of Finance Bill, 2008, unless otherwise specified]
a) Section 2 of the Central Excise Act, 1944 is being amended to insert an explanation in clause (d) to provide that for the purposes of this clause, “goods” include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
b) Section 3A is being inserted in the Central Excise Act, 1944 empowering the Central Government to charge excise duty on the basis of capacity of production in respect of notified goods, and to notify the procedure for the same.
c) Section 11B of the Central Excise Act, 1944 is being amended to provide for the refund of interest paid on any duty of excise.
d) According to the provisions of Section 11D of the Central Excise Act, 1944, a person liable to pay duty is required to deposit with the Central Government any amount that he collects as representing duty of excise in excess of the duty assessed or determined and paid on any excisable goods. As such, recovery of amounts collected in this manner is possible only from persons who are liable to pay duty. Sub-section (1A) has now been inserted to enable the Central Government to recover such amounts from any person. Besides, it has also been provided that any person who recovers an amount representing it as duty of excise on excisable goods, which are wholly exempt or chargeable to Nil rate of duty, would also be required to deposit it with the Central Government. Consequential amendments have been carried out in section 11 DD to enable recovery of interest on such amounts if they are not deposited in time. The analogous provision contained in section 28 B of the Customs Act has also been amended in the same manner.
e) Section 35FF is being inserted in the Central Excise Act, 1944 to provide for payment of interest on pre-deposits made by appellants who succeed in appeal, if the amount of pre-deposit is not refunded within three months from the date of communication of the order of the appellate authority to the adjudicating authority.A similar provision (Section 129 EE) is being inserted in the Customs Act, 1962.
h) Note 16 of Chapter 39 to the Central Excise Tariff Act, 1985 is being amended to specify that the process of lamination or of lacquering shall also amount to manufacture in addition to the process of metallization.
17. Amendment in Rules:
a) Rule 18 of the Central Excise (No.2) Rules, 2001 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.
b) Rule 12 of the Central Excise Rules, 1944 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.
c) Rule 18 of the Central Excise Rules, 2002 is being amended to allow with retrospective effect, rebate of duty paid on excisable goods cleared from the factory for exports.
d) The CENVAT Credit Rules, 2004 are being amended to bring in the following significant changes:
(i) Rule 3 [except sub-rule (4)] is being amended to allow removal of capital goods outside the premises of the provider of the output service without any time restriction, if the same is for providing output service. This change shall come into effect from 1st April, 2008.
(ii) Sub-rule (4) of Rule 3 is being amended to provide that in case of National Calamity Contingent duty (NCCD) payable on mobile phones, credit of any duty of excise other than NCCD will not be utilized for payment of the said NCCD. This change shall come into effect from 1st March, 2008.
(iii) Rule 6 is being amended to provide,-
* Following options to a manufacturer, using common inputs or input services for manufacture of dutiable as well as exempted goods and opting not to maintain separate accounts. Such manufacturers can:
- either reverse the credit attributable (to be worked out in a manner prescribed in the rule) to the inputs and input services used in the manufacture of exempted goods; or
- pay 10% amount of the value (to be determined in accordance with the provision of section 4/4A of the Central Excise Act, 1944) of the exempted goods.
* 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. Such provider of output services can,-
- 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
- pay 8% amount of the value (determined in terms of section 67 of the Finance Act, 1994) of the exempted services. This change shall come into effect from 1st April, 2008.
iv) A new 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/challan/bill issued by its other office. This change shall come into effect from 1st April, 2008.
v) A new rule 15A is being inserted to provide for general penalty upto Rs.5000/- in case of contravention of any of the provisions of the 13 CENVAT Rules, 2004, for which no specific penal provision exists. This change shall come into effect from 1st March, 2008.
e) The Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 are being issued under section 4A(4) of the Central Excise Act, 1944 to provide the manner for determination of retail sale price, where the same is not declared on the packages or tampered or altered or obliterated. This change shall come into effect from 1st March, 2008.
II SERVICE TAX
2. INCREASE IN THRESHOLD EXEMPTION LIMIT FOR SMALL SERVICE PROVIDERS
2.1 The annual threshold limit of service tax exemption for small service providers is being increased from Rs.8 lakh to Rs.10 lakh by amending notification No.6/2005-Service Tax, dated 01.03.05 vide notification No.8/2008-Service Tax, dated 01.03.08. Amendment shall come into effect from 01.04.2008.
2.2 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 by amending notification Nos.26/2005-Service Tax and No.27/2005-Service Tax, both dated 07.06.05 vide notification Nos. 9/2008-ST and 10/2008-ST, both dated 01.03.08 respectively. Amendments shall come into effect from 01.04.2008. Increased threshold limit of Rs.10 lakh shall be applicable to small service providers for the financial year 2008-09 onwards.
3. CLASSIFICATION OF TAXABLE SERVICES:
3.1 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.
3.2 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 i.e., whether the component is merely ancillary to the principal supply or the component can be considered as separate taxable service in its own right. A service, which does not constitute for a customer an aim in itself but a means of better enjoying the principal supply, is considered as a supply ancillary to the principal supply.
3.3 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. There is a need to determine whether a given transaction is the one containing major and ancillary elements or the one containing multiple and separate major elements. In the case of a transaction containing a major and ancillary elements, classification is to be determined based on the essential features or the dominant element of the transaction. A supply which comprises a single supply from an economic point of view should not be artificially split. The method of charging or invoicing does not in itself determine whether the service provided is a single service or multiple services. Single price normally suggests a single supply though not decisive. The real nature and substance of the transaction and not merely the form of the transaction should be the guiding factor for deciding the classification.
3.4 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. The scope and coverage of a taxable service are to be determined strictly in accordance with the language of the relevant statutory provision existing during the material period.
4. FOLLOWING SERVICES ARE SPECIFICALLY INCLUDED IN THE LIST OF TAXABLE SERVICES:
(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.
4.1 INFORMATION TECHNOLOGY SOFTWARE SERVICE:
4.1.1 Information Technology (IT) software service includes,-
• Development (study, analysis, design and programming) of software.
• Adaptation, up-gradation, enhancement, implementation and other similar services in relation to IT software.
• Provision of advice and assistance on matters related to IT software, including:
o Conducting feasibility studies on the implementation of a system,
o Providing specifications for a database design,
o Providing guidance and assistance during the start-up phase of a new system,
o Providing specifications to secure a database,
o Providing advice on proprietary IT software.
• Acquiring the right to use,-
o IT software for commercial exploitation including right to reproduce, distribute and sell,
o software components for the creation of and inclusion in other IT software products,
o IT software supplied electronically.
4.1.2 Software consists of carrier medium such as CD, Floppy and coded data. Softwares are categorized as “normal software” and “specific software”. Normalised software is mass market product generally available in packaged form off the shelf in retail outlets. Specific software is tailored to the specific requirement of the customer and is known as customized software.
4.1.3 Packaged software sold off the shelf, being treated as goods, is leviable to excise duty @ 8%. In this budget, it has been increased from 8% to 12% vide notification No. 12/2008-CE dated 01.03.2008. Number of IT services and IT enabled services (ITeS) are already leviable to service tax under various taxable services:
• Consulting engineer’s service - advice, consultancy or technical assistance in the discipline of hardware engineering [section 65(105)(g)].
• Management or business consultant’s service - procurement and management of information technology resources [section 65(65)].
• Management, maintenance or repair service - maintenance of software, both packaged and customized and hardware [section 65(64)].
• Banking and other financial services - ‘provision and transfer of information and data processing’ [section 65(12)].
• Business support service - various outsourced IT and IT enabled services [section 65(105)(zzzq)].
• Business auxiliary service - services provided on behalf of the client such as call centres [section 65(19)].
4.1.4 IT software services provided for use in business or commerce are covered under the scope of the proposed service. Said services provided for use, other than in business or commerce, such as services provided to individuals for personal use, continue to be outside the scope of service tax levy. Service tax paid shall be available as input credit under Cenvat credit Scheme.
4.1.5 Software and upgrades of software are also supplied electronically, known as digital delivery. Taxation is to be neutral and should not depend on forms of delivery. Such supply of IT software electronically shall be covered within the scope of the proposed service.
4.1.6 With the proposed levy on IT software services, information technology related services will get covered comprehensively.
4.1.7 Following consequential amendments in other taxable services are also being made:
• At present, ‘Information technology service’ is specifically excluded from the scope of Business auxiliary service [section 65(105)(zzb)]. Consequent on the proposed IT software service, information technology services get covered comprehensively for the purpose of levy of service tax and, therefore, specific exclusion of ‘Information technology service’ under Business auxiliary service is being deleted.
• To include ‘testing and analysis of IT software’ services under Technical testing and analysis service [section 65(105)(zzh)].
• To include ‘Certification of IT software’ services under Technical inspection and certification service [section 65(105)(zzi)].
• To clarify as removal of doubts that ‘Management, maintenance or repair of properties’ includes Management, maintenance or repair of IT software [section 65(105)(zzg)]. Maintenance of packaged software (being goods) is also leviable to service tax under the said service.
• Services provided in relation to advice, consultancy and assistance on matters related to IT software shall be leviable to service tax under the IT software service. Consulting engineer’s service [section 65(105)(g)] in the discipline of computer hardware engineering is leviable to service tax whereas consulting engineer’s service in the discipline of computer software engineering is not leviable to service tax by way of specific exclusion. Specific exclusion of ‘consultancy in the discipline of computer software engineering’ from the scope of ‘consulting engineer’s service’ is not necessary and, therefore, being deleted.
• To clarify that a consultancy service, covering both hardware and software consultancy, shall be classifiable under ‘Consulting engineer’s service’.
4.2 INVESTMENT MANAGEMENT SERVICE PROVIDED UNDER ULIP:
4.2.1 Unit-Linked Insurance Plan (ULIP) is an insurance product offered by life insurance companies combining both risk cover and benefits of investment. ULIP being a combination product, premium amount paid under ULIP consists of risk premium and investment component. Risk premium may be for life or health or any other authorized purposes. Unlike in the case of traditional life insurance policies, policyholder of ULIP can choose portfolios for investment with different investment aims such as low, medium and high-risk category or combination thereof. ULIP enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds. The investment risk is borne by the ULIP policyholder.
4.2.2 The fund available for investment is known as segregated fund. Insurance companies charge from the policyholder, initially and periodically, various charges, in addition to risk premium, relating to management of the segregated fund under various names, such as, premium allocation charges, fund management fees, fund switching charges, surrender charges etc. These are consideration for providing services relating to investment management.
4.2.3 The proposed service enables levy of service tax on services provided in relation to management of the investment portion of ULIP premium also known as segregated fund. Consideration for management of the segregated fund shall be computed as the difference between the total premium paid and the sum of premium for risk cover plus amount of segregated fund. Service tax is liable to be paid as and when an amount is charged from the policyholder.
Illustration
(a) Total ULIP premium : Rs.100
(b) Premium for risk cover : Rs.10
(c) Segregated fund for investment : Rs.85
(d) Gross amount charged for the : Rs.5 [100 – (10 + 85)]
mangement of segregated fund
(e) Service tax @ 12% : Re 0.60 [ 12% of 5 ]
4.2.4 It may be noted that in the case of ULIP, risk premium attributable to risk cover is taxed under ‘Insurance service’ and management of investment is taxed under the proposed taxable service.
4.3 STOCK EXCHANGE, COMMODITY EXCHANGE AND PROCESSING & CLEARING HOUSE SERVICES:
4.3.1 Stock exchanges such as National Stock exchange, Bombay Stock Exchange are providing services to their members relating to transaction of securities for a consideration. Similarly, commodity exchanges such as Multi Commodity Exchange of India and National Commodities and Derivatives Exchange of India provide services relating to trading in goods and forward contracts. These bodies are regulated by Securities Contract (Regulation) Act, 1956 and the Forward Contracts (Regulation) Act, 1952. Stock exchanges and commodity exchanges also perform the duties and functions of processing and clearing of transactions either by themselves or by transferring such duties and functions to processing and clearing houses including Clearing Corporation.
4.3.2 It is proposed to levy service tax on services provided by recognised stock exchanges, recognised associations and registered associations commonly known as commodity exchanges and processing and clearing houses.
4.3.3 Large number of intermediation services relating to capital market are already leviable to service tax. Service tax paid is available as input credit under Cenvat Credit Scheme.
4.4 SUPPLY OF TANGIBLE GOODS FOR USE:
4.4.1 Transfer of the right to use any goods is leviable to sales tax / VAT as deemed sale of goods [Article 366(29A)(d) of the Constitution of India]. Transfer of right to use involves transfer of both possession and control of the goods to the user of the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers, compaction equipment, cranes, etc., offshore construction vessels & barges, geo-technical vessels, tug and barge flotillas, rigs and high value machineries are supplied for use, with no legal right of possession and effective control. Transaction of allowing another person to use the goods, without giving legal right of possession and effective control, not being treated as sale of goods, is treated as service.
4.4.3 Proposal is to levy service tax on such services provided in relation to supply of tangible goods, including machinery, equipment and appliances, for use, with no legal right of possession or effective control. Supply of tangible goods for use and leviable to VAT / sales tax as deemed sale of goods, is not covered under the scope of the proposed service. Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid.
4.5 INTERNET TELECOMMUNICATION SERVICE:
4.5.1 In budget 2007-08, six separate taxable services (telephone, pager, leased circuit, telegraph, telex and fax) related to telecommunication were merged into a single taxable service namely telecommunication service. Telecommunication service was comprehensively defined so as to include all services provided in relation to telecommunication.
4.5.2 Telecommunication services are also provided through internet. Services provided by any person in relation to internet telephony is leviable to service tax [section 65(105)(zzzu)].
4.5.3 Proposal is to define comprehensively internet telecommunication service and omit the present definition of internet telephony service. It may be noted that,-
(a) the present ‘internet telephony service’ shall get subsumed with in the proposed ‘internet telecommunication service’ [section 65(105)(zzzu)];
(b) Internet telecommunication service includes,-
(i) internet backbone services, including carrier service of internet traffic by one Internet Service Provider (ISP) to another ISP,
(ii) internet access services, including provision of a direct connection to the internet and space for the customer’s web page, and
(iii) telecommunication services, including fax, telephony, audio conferencing and video conferencing, provided over the internet.
4.5.4 Service provided by ISPs for accessing the internet through the computer network shall be specifically covered under the proposed service. At present, this service is covered under ‘On-line information and database access or retrieval service’.
5. SCOPE OF SPECIFIED TAXABLE SERVICES IS BEING AMENDED AS FOLLOWS:
5.1 FOREIGN EXCHANGE BROKER SERVICE:
5.1.1 Foreign Exchange (Forex) broking service is leviable to service tax. Foreign exchange brokers provide services as an intermediary in relation to purchase or sale of foreign currency on a commission/brokerage basis. Purchase or sale of foreign currency is undertaken by foreign exchange broker and also by persons authorized under Foreign Exchange Management Act, 1999 to deal in foreign exchange and having licence issued by RBI. Such authorised persons are known as money changers or authorised dealers of foreign exchange. Services in relation to purchase or sale of foreign currency is, therefore, provided by foreign exchange broker, money changer and also authorised dealer of foreign exchange.
5.1.2 Foreign exchange broker indicates the consideration for the services provided (commission) explicitly. Whereas money changers/authorised dealers of foreign exchange providing same services may not necessarily indicate the consideration explicitly.
5.1.3 Section 65(12) is being amended so as to levy service tax on purchase or sale of foreign currency, including money changing, provided by an authorized dealer in foreign currency or an authorised money changer, in addition to a foreign exchange broker. An explanation is being added to the effect that explicit mention of the consideration for the services provided in relation to purchase or sale of foreign currency is not relevant for the purpose of levy of service tax. Taxable services [sections 65(105)(zzk) and 65(105)(zm)] are being amended suitably. With these amendments, services provided in relation to purchase or sale of foreign currency by a foreign exchange broker, money changer and authorised dealer of foreign exchange shall also be leviable to service tax.
5.1.4 To enable determination of taxable value, where the consideration for the services provided in relation to purchase or sale of foreign currency is not explicitly indicated by the service provider, a method under rule 6(7B) of the Service Tax Rules, 1994 shall be prescribed. As per this provision, the service provider has the option to pay service tax calculated at the rate of 0.25% of the gross amount of currency exchanged.
Illustration:
Buying rate : US$ 1 = Rs.38 // Selling rate : US$ 1 = Rs.40
(i) Purchase of US$ 100 by the service provider:
Gross amount of currency exchanged in rupees = Rs.3800 (Rs.38 x 100)
Service tax payable = Rs.9.5 (0.25% x 3800
(ii) Sale of US$ 100 by the service provider:
Gross amount of currency exchanged in rupees = Rs.4000 (Rs.40 x 100)
Service tax payable = Rs.10 (0.25% x 4000)
5.2 CARGO HANDLING SERVICE:
5.2.1 Cargo handling service does not cover mere transportation of goods. Mere transportation of goods by road is covered under ‘Goods transport agency service’. Service providers, commonly known as packers and movers provide services of packing together with transportation, with or without other services like unpacking, loading, unloading etc. Such composite services, at present, are classifiable under cargo handling service or goods transport agency service depending upon their essential or predominant character of the services provided.
5.2.2 Section 65(23) which defines cargo handling service is being amended so as to include services of packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, unpacking, under cargo handling service. With this amendment, packing with transportation will be classifiable under cargo handling service only.
5.3 TOUR OPERATOR SERVICE:
5.3.1 Services provided in relation to a journey from one place to another in a tourist vehicle having contract carriage permit is leviable to service tax under tour operator service. Tour in a vehicle covered by the following categories of permits granted under the Motor Vehicles Act (MVA), 1988 and rules made thereunder are clearly leviable to service tax under tour operator service:
(i) Contract Carriage permit granted under section 74 of the MVA, 1988 and authorisation certificate issued under Motor Vehicles (All India Permit for Tourist Transport Operators) Rules, 1993; and
(ii) Permit granted under section 88(9) in accordance with the provisions of Section 74 of the MVA, 1988 in respect of tourist vehicles, for the purpose of promoting tourism.
Since the permits under the above two categories are granted only for tourist vehicle, service tax is leviable if the tour is provided in the above categories of vehicles. Field formations may verify the nature of permits issued to the vehicles from the transport authorities and collect service tax from vehicles having the above two types of permits.
5.3.2 Section 65(115) defining tour operator is being amended so as to include services provided in relation to a journey from one place to another, generally known as point-to-point tour, in a vehicle having contract carriage permit, even if the vehicle does not meet the criteria specified for tourist vehicles. With this amendment, journey from one place to another conducted in a vehicle having contract carriage permit shall be leviable to service tax under tour operator service.
Service tax is not leviable under tour operator service only if the tour is conducted in a vehicle having stage carriage permit. Field formations may collect data from transport authorities regarding details of contract carriage permits issued.
5.3.3 It may be noted that services provided in relation to a journey from one place to another conducted in a tourist vehicle having contract carriage permit for use by educational bodies shall be excluded from the scope of the taxable service. Educational bodies do not include commercial training or coaching centres.
5.4 BUSINESS AUXILIARY SERVICE:
5.4.1 Services provided in relation to promotion or marketing of service provided
by the client is leviable to service tax under business auxiliary service. Organization and selling of lotteries are globally treated as supply of service. Lotteries (Regulation) Act, 1998 enables State Governments to organize, conduct
or promote lotteries. Lottery tickets are printed by the State governments and are sold through agents or distributors. Tickets are delivered by the State Government to the distributors at a discounted price as compared to the face value of the tickets. Services provided by the distributors or agents in relation to promotion or marketing of lottery tickets are leviable to service tax under the existing business auxiliary service.
5.4.2 Lotteries fall under the category of games of chance. Games of chance are known under various names like lottery, lotto, bingo etc. and are also conducted through internet or other electronic networks.
5.4.3 To clarify as removal of doubts, an explanation is added under business auxiliary service stating that services provided in relation to promotion or marketing of games of chance organized, conducted or promoted by the client are covered under the existing definition of business auxiliary service. Amendment is only for removal of doubts and field formations are, therefore, requested to ensure that service tax is collected on such services.
5.5 RENTING OF IMMOVABLE PROPERTY SERVICE:
5.5.1 Use of immovable property is allowed for placing vending / dispensing machines in malls and other commercial premises and erection of communication towers on buildings. In such cases, there may or may not be transfer of right of possession or control of the immovable property in favour of the person using such property.
5.5.2 Renting of immovable property includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce. Transactions mentioned in para 5.5.1 get covered under the category of other similar arrangement, if not covered under other categories.
5.5.3 It is proposed to clarify by way of removal of doubts that renting of immovable property service includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the immovable property. Field formations may ensure that service tax is collected in all such cases.
6. TRANSACTIONS BETWEEN ASSOCIATED ENTERPRISES:
6.1 Service tax is levied at the rate of 12% of the value of taxable services (section 66). Section 67 pertaining to valuation of taxable service for charging service tax states that value shall be the gross amount charged for the service provided or to be provided and includes book adjustment. As per rule 6 of the Service Tax Rules, 1994, service tax is required to be paid only after receipt of the payment.
6.2 It has been brought to the notice that the provision requiring payment of service tax after receipt of payment are used for tax avoidance especially when the transaction is between associated enterprises. There have been instances wherein service tax has not been paid on the ground of non-receipt of payment even though the transaction has been recognized as revenue/expenditure in the statement of profit and loss account for the purpose of determining corporate tax liability.
6.3 As an anti-avoidance measure, it is proposed to clarify that service tax is leviable on taxable services provided by the person liable to pay service tax even if the amount is not actually received, but the amount is credited or debited in the books of account of the service provider. In other words, service tax is required to be paid after receipt of payment or crediting/debiting of the amount in the books of accounts, whichever is earlier. However, this provision is restricted to transaction between associated enterprises. This provision shall also apply to service tax payable under reverse charge method (Section 66A) as taxable services received from associated enterprises. For this purpose section 67 and rule 6(1) are being amended.
6.4 The term ‘associated enterprise’ has the same meaning as assigned to it in section 92A of the Income Tax Act, 1961. It is a relative concept i.e. an enterprise is an associated enterprise when it is viewed in relation to other enterprises. This concept is used in the Income Tax Act for applying transfer pricing provisions. An enterprise which participates, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise is considered as associated enterprise. It also covers an enterprise in respect of which one or more persons who participate, directly or indirectly, or through one or more intermediaries, in the management or control or capital of the other enterprise.
6.5 Section 92A(2) of the Income Tax Act specifies various situations under which two enterprises shall be deemed to be associated enterprises. Enterprise means a person who is engaged in the provision of any services of any kind. For details, relevant provisions of Income Tax Act may be referred to.
7. EXEMPTIONS FROM LEVY OF SERVICE TAX:
7.1 Taxable service provided by a person located outside India, in relation to booking of an accommodation in a hotel located in India for a customer located outside India, is being exempted from levy of service tax (Notification No.14/2008- ST dated 01.03.2008).
7.2 In 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. The actual amount of service tax payable is 25% of the amount of freight i.e. 75% of the amount of freight is provided as abatement, subject to the condition that no Cenvat credit of the duty paid has been availed of under Cenvat Credit Scheme. It has been represented that fulfillment of the condition of non-availment of Cenvat credit by the service provider is, at times, difficult to prove, when the service tax is required to be paid not by the service provider but by the consignor or consignee who pays the freight. Taking into account the special nature of the goods transport agency (GTA) service, it is being exempted from the payment of service tax unconditionally to the extent of 75% of the freight. In other words, service tax is required to be paid only on 25% of the freight irrespective of who pays the service tax. Simultaneously, the benefit of Cenvat credit has been withdrawn to GTA service under Cenvat Credit scheme by deleting the said service from the scope of output service in the CENVAT Credit Rules, 2004. Henceforth, the person who is required to pay service tax under reverse charge method on GTA service can pay service tax on 25% of the freight unconditionally. Recipient of GTA service paying service tax under reverse charge method is no more required to prove non availment of CENVAT credit by the GTA service provider.
7.3 The above exemptions shall come into effect from 1st March, 2008.
8. PENALTY
8.1 Penalty for delayed payment of service tax is levied under section 76. Penalty under section 78 is levied for failure to pay service tax on account of fraud, misdeclaration etc. 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.
8.2 Section 77 is being amended so as to provide specific penalty for specific contraventions.
9. OTHER AMENDMENTS IN THE ACT:
9.1 Replacement of “client” or “customer” with “any person”: In number of taxable services, recipient of service is specified as “client” or “customer”. Service tax is levied on services. Ordinarily, the status of recipient of service should not determine the tax treatment of a given service. 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.
9.2 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.
9.3 To facilitate small taxpayers in filing and furnishing income tax returns, a scheme known as Tax Return Preparers Scheme was announced by the Finance Minister in the Budget, 2006-07. In order to facilitate small service taxpayers in filing of service tax returns, a similar scheme is proposed in the Budget, 2008-09. Section 71 is being incorporated for this purpose.
9.4 Section 72 is being incorporated to authorise Central Excise Officer to make assessment on the basis of best judgment in certain specified circumstances.
9.5 In 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 1st July, 2008 to 30th September, 2008.
9.6 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
9.7 The changes mentioned above [except 9.1 and 9.2] will come into force from the date of enactment of the Finance Bill, 2008.
10. AMENDMENTS IN THE SERVICE TAX RULES, 1994:
10.1 PAYMENT OF SERVICE TAX IN ADVANCE: Assessee having centralized registration is allowed to pay service tax in advance. However, such facility is not available for other categories of taxable persons. It is proposed to extend the facility to pay service tax in advance to all taxable persons subject to the condition that the details of advance payment should be intimated to the jurisdictional Superintendent of Central Excise within 15 days of such payment. Service tax paid in advance is allowed to be adjusted against service tax liable to be paid for the subsequent period. It is sufficient to intimate the details of such adjustment in the periodical return to be filed. For this purpose, rule 6 (1A) is being incorporated.
10.2 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/-
10.3 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
10.4 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.
(Notification No.4/2008-ST dated 01.03.2008).
10.5 The above changes will come into effect from 1st March, 2008.
11. AMENDMENTS IN CENVAT CREDIT RULES, 2004:
11.1 Service tax payable on GTA service shall be only on 25% of the gross amount charged as freight. GTA service providers shall not be allowed to avail input credit under Cenvat Credit Scheme. Rule 2(p) is being amended so as to exclude goods transport agency service from the scope of “output service”.
11.2 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.
11.3 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:-
(i) 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
(ii) pay 8% amount of the value (to be determined in accordance with section 67 of the Finance Act, 1994) of the exempted service.
11.4 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 nvoice, bill or challan issued by its other office.
11.5 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. (notification No.10/2008-Central Excise (N.T.), dated 01.03.2008).
11.6 The changes mentioned in,-
(i) 11.1 and 11.5 will come into effect from 1st March, 2008, and
(ii) 11.2, 11.3 and 11.4 will come into effect from 1st April, 2008.
12. CROSS BORDER SERVICES RELATING TO TANGIBLE GOODS:
12.1 Information technology is used to provide services in relation to tangible goods located distantly. In such cases, the actual place of performance of th service is different from the actual location of the tangible goods (place of consumption of service).
12.2 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.
12.3 Rule 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 India) Rules, 2006 are being amended (Notification Nos.5/2008-ST and 6/2008-ST, both dated 01.03.2008) by inserting a proviso to determine the country of use or consumption of the taxable services provided. The proviso enables to determine the taxing jurisdiction based on the place of actual location of the tangible goods at the time of provision of service in the case of following three services
(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.
12.4 The above change shall come into effect from 1st March 2008.
13. WORKS CONTRACT (COMPOSITION SCHEME FOR PAYMENT OF SERVICE TAX) RULES, 2007
13.1 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).
13.2 The above change will come into effect from 1st March, 2008.
14. GENERAL:
14.1 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.
CUSTOMS :
A separate Public Notice is being issued by this Commissionerate highlighting the Budgetary changes.
All Trade Associations, Chamber of Commerce & Members of Regional Advisory committee are requested to bring the contents of this Trade Notice to the knowledge of their Constituent Members in general & manufacturers in particulars.
If there is any doubt or difficulty on any point, you are requested to bring it immediately to the notice of Additional Commissioner (Technical) of the jurisdiction Deputy Commissioner / Assistant Commissioner as the case may be.
This is issued with the approval of Commissioner.
(SUCHITRA SHARMA)
ADDITIONAL COMMISSIONER (TECH.)
Authority :- Joint Secretary (TRU-I)
D.O.F. No. 334/1/2008-TRU
New Delhi, dated the 29th February, 2008.