Service Tax Amendments

Following changes shall be applicable w.e.f. June 1, 2015

• Tax rates

Section 66B of Finance Act, 1994 wasamended by Finance Act, 2015 so as to increase rate of service tax from 12% to 14%. This new rate of 14% shall be applicable from June 1, 2015. Education Cess and Secondary & Higher Education Cess shall not be levied on taxable services w.e.f. June 1, 2015.

New Service Tax rates for composition schemes were introduced vide Notification No. 5/2015-ST dated 1-3-2015. These rates shall also be effective from June 1, 2015. Government issued Notification no 14/2015-ST and 15/2015-ST both dated 19-5-2015 in this regard.

Under Rule 6(3) of Cenvat Credit Rules, 2004, manufacturer or service provider is liable to pay an amount equal to certain percentage of value of exempted goods manufactured or value of exempted services rendered where he utilizes Cenvat credit in manufacture/provision of exempted as well as of dutiable goods/services and doesn't maintain separate account in this regard. Earlier this rate was 6% which had been increased to 7% w.e.f. June 1, 2015 vide Notification no 14/2015 – C.E. (N.T.) dated 19-5-2015.

• Access to amusement facilities

Till now, access to amusement facilities wasn't chargeable to service tax being covered under negative list provision, i.e., Section 66D(j). Now, such activities shall be subjected to service tax w.e.f. June 1, 2015 as Section 66D(j) had been omitted. Meaning of 'amusement facility' u/s 65B(9) had also been omitted.

• Admission to entertainment events

Till now this activity was covered under negative list provision, Section 66D(j).It is tobe noted that meaning of 'entertainment event' u/s 65B(24) had been omitted. Since said sections had been omitted, the obvious corollary would be that such activity will now be subjected to service tax. But such activity had been covered under exemption Notification No. 25/2012-ST dated 20-6-2012 vide Notification no 6/2015-ST dated 1-3-2015. Therefore, admission to those entertainment events which are specified in the said exemption Notification shall not be subjected to service tax.

• Alcoholic liquor for human consumption

Process of manufacture is not chargeable to service tax. Now, it shall not include alcoholic liquor for human consumption as Section66D(j) and Section 65B(40) had been amended accordingly. Therefore, Alcoholic liquor of human consumption shall be subjected to service tax. Further, exemption vide Notification no 25/2012-ST dated 20-6-2012 which is applicable to job work had been curtailed so as to exclude alcoholic liquor of human consumption. Therefore, carrying out an intermediate production process as job work in relation to alcoholic liquor for human consumption shall also be subjected to service-tax.

• Betting, Gambling or Lottery

These activities are not subjected to service tax being covered under negative list provision, Section 66D(i). An Explanation had been added to curtail its scope. Now the activities specified in newly substituted Explanation 2 of section 65B(44) shall be subjected to service tax in respect of betting, gambling or lottery. These activities include:

Activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any manner.
Activity carried out by a foreman of chit fund for conducting or organizing a chit in any manner.

Following are two amendments which shall come into force from date of notification

Meaning of 'Chit' omitted from Abatement Notification 26/2012-ST

NOTIFCATION NO 13/2015-ST, DATED 19 MAY, 2015

Earlier Government omitted entry relating to 'chit' from Notification no 26/2012-ST dated 20-6-2012 vide Notification no 8/2015-ST dated 1-3-2015. But, meaning of chit in said abatement Notification was not omitted. Now, the Government omitted such meaning of chit from said abatement Notification vide Notification no 13/2015-ST.

Service for Power System Development Fund Scheme

NOTIFICATION NO 17/2015-ST, DATED 19 MAY, 2015

Government has exempted taxable services provided under the Power System Development Fund Scheme of the Ministry of Power by way of:

re-gasification of Liquefied Natural Gas imported by the Gas Authority of India Limited (GAIL);

transportation of the incremental Re-gasified Liquefied Natural Gas (RLNG) (e-bid RLNG) to the power generating companies or plants as specified in thisnotification.

This exemption is subject to certain conditions and is applicable uptoApril 1, 2017.Following amendments are yet to be notified

Swachh Bharat Cess

Government has not notified levy of Swachh Bharat Cess. The enabling provisions in this regard are contained under Chapter VI of Finance Act, 2015.

Any Service by Government to Business Entity

Support services provided by Government to Business Entity are taxable as it is excluded from negative list provision. The Finance Act, 2015 contains provisions to replace 'support services' with 'any service', thus allowing levy of service tax on any service provided by Government to Business Entity. However, date from when such amendment take place had not been notified yet.

CBDT issues a Circular for Early and Satisfactory Resolution of Taxpayers’ Grievances Relating to Verification and Correction of Tax Demand Outstanding against them

The Income Tax Department has taken note of grievances of taxpayers arising on account of outstanding tax demand which may be inaccurate due to non-reporting or delayed reporting of TDS by deductors leading to mismatch between the claim and data available with the Department, non-posting of challans, non-disposal of rectification applications, incorrect details of income or pre-paid taxes reported by taxpayer etc.

In order to swiftly and accurately resolve such grievances, the Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance has issued a comprehensive Circular No. 8 of 2015 dated 14.05.2015 which is available on the websites of the Department http://www.incometaxindia.gov.in & www.incometaxindiaefiling.gov.in. The Circular explains the various steps to be taken by the taxpayers to view and submit their response with regard to their outstanding tax demand. The Circular elucidates the range of facilities available and the responsibilities of the Assessing officers to verify and take corrective actions. Demand up to Rs. 1,00,000/- for an Assessment year in case of an Individual or HUF which has already been paid but is shown as outstanding due to mis-match etc. can be rectified on the basis of evidence of tax paid as submitted by the taxpayer.

The taxpayers may view their outstanding tax demand on their e-filing account at www.incometaxindiaefiling.gov.in and follow the steps elucidated in the Circular to submit their response either agreeing with or disputing the demand.

The Income Tax Department is committed to early and satisfactory resolution of taxpayers’ grievances. About 95% of entries of Demand involve demand up to Rs. 1 lakh and about 90 % of such assessees are Individuals and HUFs. It is expected that majority of the grievances of small taxpayers can be redressed by following the procedure prescribed in the circular.

Increase in Service Tax Rate from 12% to 14% with Effect from 1st June, 2015

In the Union Budget, 2015, an increase in the rate of Service Tax from 12% to 14% had been proposed from a date to be notified. The Finance Bill, 2015 has since been enacted and the Central Government has notified 1st June, 2015 as the date from which the rate of 14% would become applicable. The provisions levying Education Cess and Secondary and Higher Education Cess would also cease to have effect from same date i.e. 1st June, 2015, as the same would be subsumed in the service tax rate of 14%. Certain other changes have also been notified with effect from 1st June, 2015. However, the date of giving effect to the provisions relating to imposition of a Swachh Bharat cess on all or any taxable service will be done in due course.

Government notifies income computation and disclosure standard for purpose of Section 145; effective from April 1, 2015

Section 145(2) of the Income-tax Act (‘the Act’) provides that the Central Government may notify Accounting Standards (‘AS’) for any class of assessees or any class of income. In 1996, two AS relating to ‘disclosure of accounting policies’ and ‘disclosure of prior period and extraordinary items and changes in accounting policies’ were notified.

In December, 2010 the CBDT has constituted the Committee to harmonize the AS issued by the ICAI with the provisions of the Act for the purposes of notification under the Act and to suggest amendments to the Act. The Committee recommended that some of the AS issued by ICAI related to ‘disclosure’ requirement, whilst some other contained matter are adequately dealt within the Act. In view of this, the Committee formulated the drafts of only fourteen Tax Accounting Standards (‘TAS’) issued by the ICAI. It submitted its final report along with draft of TAS in August, 2012 which was placed in public domain for comments.

After examining the comments, the CBDT has revised the draft of twelve TAS submitted by the Committee and it has withdrawn draft of TAS which correspond to AS-4 on "Contingencies and Events Occurring After the Balance Sheet Date" and AS-5 on "Net Profit or Loss for the Period, Prior Period Items and changes in Accounting Policies". The Committee reiterates its stand taken in previous report that that the TAS notified under the Act is applicable only for computation of income chargeable under the head "profit and gains of business or profession" or "income from other sources" and not for the purpose of maintenance of books of accounts. It further reiterates that in the case of conflict between the provisions of the Act andtheseAccounting standards, the provisions of the Act shall prevail tothat extent.

The CBDT invited comments and suggestions on new draft of standards by February, 8, 2015. The CBDT has now notified the Income Disclosure and Tax Accounting Standards vide notification no. 32/2015, F. No. 134/48/2010-TPL, dated March 31, 2015.

Tax Planning

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SEBI notifies revised delisting norms

In order to make delisting more effective, the SEBI has notified revised regulations for delisting process through the reverse book-building route that would make the delisting easier for companies. Under the revised norms the timeline for completing the process has been reduced. It provides for relaxation of rules on a case-to-case basis. The key features of amendment are as under:

• Timeline for completing the delisting process has been reduced to 76 working days from 137 calendar days.
• Now stock exchanges would be given five working days to give their in-principle approval for delisting. 
• SEBI has retained the reverse book building process for determining the price of shares for the purpose of delisting. However, delisting would be considered successful only if at least 25 % of the public shareholders would participate in the reverse book building process. Further, the shareholding of the acquirer, together with the shares tendered by public shareholders, should be 90 % of the company's total share capital. 
• To ensure that a delisting plan has been decided in a fair manner, company's board would have to approve of it only after a due diligence process, for which it can appoint a merchant banker on behalf of the firm and the promoter. 
• Further, the company's board would have to certify that the company is in compliance with applicable securities law and that it would be in the interest of shareholders. 
• Companies having paid-up capital of not more than Rs 10 crore, and networth that does not exceed Rs 25 crore as on the last day of the previous financial year are exempted from following the Reverse Book Building process. 
• The exemption would be available only if there is no trading in the shares of the company in the last one year from the date of the board's resolution authorising the company to go in for delisting, and trading of shares of the company has not been suspended for any non-compliance during the same period.

Department couldn't allege suppression against assessee while issuing subsequent notices on same issues

Commissioner of Central Excise & Customs v. Rivaa Textiles Inds. Ltd.(2015) 54 taxmann.com 239 (Gujarat High Court)

Where all relevant facts were in knowledge of authorities when first show-cause notice was issued, while issuing second and third show-cause notices on similar facts, department couldn't allege suppression of facts by assessee. 

• Department carried out inspection on 16-9-1996 and issued notices on 14-3-1997 and 20-4-1998 alleging clandestine removal of goods.
• Later, department issued third notice dated 27-3-2001 invoking extended period alleging suppression of facts. 
• Assessee challenged third notice as time-barred, as all facts were within knowledge of department since 16-9-1996. 
• Department argued that if any suppression of material facts of fraud was detected, then extended period of limitation of five years was available to the department,therefore, the entire proceedings were legal and within the time-limit prescribed by the Act as the third notice was issued within 5 years from 16-9-1996.

High Court held in favour of assessee as under:

• Show-cause notices were issued with regard to part of transactions for different periods, but on basis of same inspection made on 16-9-1996. Once earlier show-cause notices were issued with regard to same inspection, then department could not claim having discovered suppression, fraud, etc., subsequently, as everything was within its knowledge since 16-9-1996. Hence, extended period of five years was not available to department.
• The High Court took note of the judgment of Supreme Court in Nizam Sugar Factory v. Collector of Central Excise 2006 (197) ELT 465 in which it was held that where all relevant facts were not in the knowledge of the authorities when the first show-cause notice was issued, while issuing second and third show-cause notices to the assessee on similar facts,it could not be taken as suppression of facts on the part of the assessee as the facts were already within the knowledge of the authorities.