Union Budget 2013 - 2014: Changes in Service Tax an overview

The service tax changes in Budget 2013 are largely guided by the objectives to provide a stable tax regime and improve voluntary compliance. The important changes are as follows:

1.       Legislative changes

Following changes are being made in the Finance Act, 1994:

1.      There are following changes in relation to the negative list:

1.      The definition of approved vocational course in section 65B(11) is being proposed to be changed to:

a) include courses run by an industrial training institute or an industrial training centre affiliated to State Council for Vocational Training; and

b) delete clause (iii) dealing with courses run by an institute affiliated to the National Skill Development Corporation.
 

2.      The definition of “process amounting to manufacture or production” in section 65B(40) is being expanded to include processes under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955
 

3.      The negative list entry in sub-clause (i) of clause (d) of section 66D is being modified by deleting the word “seed”. This will allow the benefit to all other testings in relation to “agriculture” or “agricultural produce”.

2.      The provisions of section 73 are being modified such that if the grounds for invoking extended period are not sustained, the Central Excise officer will be able to determine the demand for the shorter period of eighteen months.
 

3.      The penalty under section 77(a) is being restricted to Rs 10,000. A new section 78A is also being introduced to impose penalty on directors and officials of the company for specified offences in cases of willful actions.
New provisions are being introduced to prescribe revised punishments for offences in section 89, make certain offences cognizable and others non-cognizable and bailable. The Policy wing of the Board will be issuing detailed instructions in due course.
 

These changes will come into force when the Finance Bill, 2013 is enacted.

B. Exemptions

4.      The following changes are being made w.e.f April 1, 2013 in the exemption notification number 25/2012-ST dated June 20, 2012:

1.       Exemption by way of auxiliary educational services and renting of immovable property by (and not to) specified educational institutes under S. No 9 will not be available;
 

2.      The benefit of exemption under S. No 15 of the notification in relation to copyrights for cinematograph films will now be available only to films exhibited in a cinema hall or theatre. This will allow service providers to pass on input tax credits to taxable end-users;
 

3.      Exemption under S. No 19 will now be available only to non air-conditioned (non-centrally air-heated) restaurants; the dual requirement earlier that it should also have a license to serve alcohol is being done away with;
 

4.      The exemptions available to transportation of goods by railway and vessel under S. No 20 and services provided by a goods transportation agency (GTA) under S. No.21 are being harmonized. Thus exemption to transportation of petroleum and petroleum products, postal mails or mail bags and household effects by railways and vessels will not be available while the benefit of transportation of agricultural produce, foodstuffs, relief materials for specified purposes, chemical fertilizers and oilcakes, registered newspapers or magazines and defence equipments will be available to GTAs;
 

5.      The exemptions under S. No 24 for vehicle parking to general public and S. No 25 for repair or maintenance of government aircrafts are being withdrawn; and
 

6.      The definition of “charitable activities” is being changed by deleting the portion listed in sub-clause (v) of clause (k). Thus the benefit to charities providing services for advancement of “any other object of general public utility” up to Rs 25 Lakh will not be available. However the threshold exemption will continue to be available up to Rs 10 lakh.

3.       Abatement

5.      The abatement available under S. No 12 of notification 26/2012-ST dated June 20, 2012 for construction of a complex, building, civil structures etc. is being reduced from the existing 75% to 70% for construction other than residential properties having a carpet area up to 2000 sq ft or where the amount charged is less than Rs 1 crore. This will come into effect from March 1, 2013.
 

4.       Voluntary Compliance Encouragement Scheme, 2013 (VCES)

6.1 A new scheme is proposed to be introduced to encourage voluntary compliance with the following main features:

1.      The scheme can be availed of by non-filers or stop-filers or persons who have not made a truthful declaration in their return. However it will not be applicable to persons against whom any inquiry or investigation is pending by the issue of search warrant or summon or by way of audit;
 

2.      The defaulter will be required to make a truthful declaration of all his pending tax dues (from October1, 2007 to December 31, 2012) and pay at least half of that before December 31, 2013; remaining half to be paid by:

(a) June 30, 2014 without interest; or

(b) By December 31, 2014 with interest from July 1, 2014 onwards;

3.      On compliance with all the requirements the person will have immunity from interest (as specified), penalties and other proceedings;

6.2 The scheme will come into force when the Finance Bill is enacted. It is clarified that the tax-payers will need to settle their dues for the period after December 31, 2012 under the present law.
 

5.       Advance Ruling Authority

7.      The benefit of Advance Ruling Authority is being extended to resident public limited companies.
F. Disclaimer and requests
 

Notification No.4/2013 - Service Tax dated 1st March 2013. U/s 96A(b)(iii)

Under section 96A (b)(iii)of the Finance Act, 1994 (32 of 1994),  ( applicant under chapter V A  for advance ruling )

Central Government hereby specifies “the resident public limited company” as class of  persons for the purposes of the said clause.

Explanation.- For the purposes of this notification,-

(a) “public limited company” shall have the same meaning as is assigned to “public company” in clause (iv) of sub-section (1) of  section 3 of the Companies Act, 1956 (1 of 1956) and shall include a private company that becomes a public company by virtue of section 43A of the said Act;

(b) “resident” shall have the same meaning as is assigned to it in clause (42) of section 2 of the Income-tax Act, 1961 (43 of 1961) in so far as it applies to a company.

Notification No.3 /2013 - Service Tax dt 1st March, 2013 on Amendments in the notification No.25/2012

Amendments in the notification No.25/2012-Service Tax, dated the 20th June, 2012, In the said notification,-

This notification shall come in to force on the 1st day of April, 2013.

Sl no	Entry No	Provisions of Amended  Entry	Provisions  of Existing Entry
1	9	Services provided to  an educational institution in respect of education     exempted from service tax, by way of,- (a)   auxiliary educational services; or (b)   renting of immovable property;	Services provided to or by an educational institution in respect of education     exempted from service tax, by way of,- (a) auxiliary educational services; or (b)renting of immovable property;
2	15	Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright,- (a) covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or (b) of cinematograph films for exhibition in a cinema hall or cinema theatre;	Temporary transfer or permitting the use or enjoyment of a copyright covered under clauses (a) or (b) of sub-section (1) of section 13 of the Indian Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical, artistic works or cinematograph films
3	19	Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of airconditioning or central air-heating in any part of the establishment, at any time during the year	Services provided in relation to serving of food or beverages by a restaurant, eating joint or a  mess, other than those having  (i) the facility of air-conditioning or central air-heating in any part of the establishment, at any time during the year, and  (ii) a licence to serve alcoholic beverages;
4	20	Services by way of transportation by rail or a vessel from one place in India to another of the following goods - (a)   petroleum and petroleum products falling under Chapter heading 2710 and  2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (a)   relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; (b)   defence  or military equipments; (d)   postal mail or mail bags; (e)   household effects; (c)    newspaper or magazines registered with the Registrar of Newspapers; (d)   railway equipments or materials; (e)   agricultural produce; (f)     foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or (g)   chemical fertilizer and oilcakes;	Services by way of transportation by rail or a vessel from one place in India to another of the following goods - (a)   petroleum and petroleum products falling under Chapter heading 2710 and  2711 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b)   relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; (c)    defence  or military equipments; (d)   postal mail or mail bags; (e)   household effects; (f)     newspaper or magazines registered with the Registrar of Newspapers; (g)   railway equipments or materials; (h)   agricultural produce; (i)     foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or (j)     chemical fertilizer and oilcakes;
5	21	Services provided by a goods transport agency, by way of transport in a goods carriage of,- (a) agricultural produce; (b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees; (c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty; (d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; (e) chemical fertilizer and oilcakes; (f) newspaper or magazines registered with the Registrar of Newspapers; (g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or (h) defence or military equipments;”;	Services provided by a goods transport agency by way of transportation of - (a)   fruits, vegetables, eggs, milk, food grains or pulses in a goods carriage; (b)   goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or (c)    goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;
6	24	Omitted ( Taxable)	Services by way of vehicle parking to general public excluding leasing of space to an entity for providing such parking facility;
7	25	Services provided to Government, a local authority or a governmental authority by way of - (a)   carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or (b)   repair or maintenance of a vessel .	Services provided to Government, a local authority or a governmental authority by way of - (a)   carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or (b)  repair or maintenance of a vessel or an aircraft;

Amendments in definitions

Sl no	Clause	Provisions of Amended  definition		Provisions of existing  definition
1	k (charitable activities)	“charitable activities” means activities relating to –      (i) public health by way of – (a)             care or counseling of (i)terminally ill persons or persons with  severe physical or mental disability,  (ii)persons afflicted with    HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (b)             public awareness of preventive health, family planning or  prevention of HIV infection;               (ii) advancement of religion or spirituality;             (iii) advancement of educational programmes or skill development relating to,- (a)      abandoned, orphaned or homeless children; (b)      physically or mentally abused and traumatized persons; (c)       prisoners; or (d)      persons over the age of 65 years residing in a rural area;              (iv) preservation of environment including watershed, forests and wildlife;	“charitable activities” means activities relating to -            (i) public health by way of - (a)   care or counseling of (i) terminally ill persons or persons with  severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (b)   public awareness of preventive health, family planning or  prevention of HIV infection;             (ii) advancement of religion or spirituality;             (iii) advancement of educational programmes or skill development relating to,- (a)      abandoned, orphaned or homeless children; (b)      physically or mentally abused and traumatized persons; (c)       prisoners; or (d)      persons over the age of 65 years residing in a rural area;              (iv) preservation of environment including watershed, forests and wildlife; or (v) advancement of any other object of general public utility up to a  value of,- (c)      eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12; (d)   twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;