INSTITUTE OF BUSINESS LAWS
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Transcript INSTITUTE OF BUSINESS LAWS
BUDGET 2011
INDIRECT TAXES
RAGHAVAN RAMABADRAN
COVERAGE
SERVICE TAX
CENVAT CREDIT
EXCISE
CUSTOMS
TAX PLANNING AND LITIGATION STRATEGIES
CENTRAL SALES TAX / GST
SERVICE TAX
COVERAGE
New Services / Expansion of Existing
Services
Point of Taxation Rules
Services provided in SEZ
Other changes
HOTEL & RESTAURANT
SERVICES
Services provided by A/C Restaurants having
license to serve alcoholic beverages
Service provided by hotels, inns, guest houses,
clubs & others at camp site for Continuous stay of
less than 3 months
Tariff less than Rs.1,000 per day to be exempted
Suitable abatements proposed to be given from the
gross value
HEALTH CARE SERVICES
Cosmetic & Plastic Surgery Services
Budget 2009
Health Check-up and Treatment Services
-Payment made by Insurance Co. directly to
hospital for health check-up or treatment or
Budget 2010
-Payment made by Business Entity directly to
hospital for health check-up or preventive care
All Health Care Services provided by hospital,
nursing home, dispensary, clinic, etc.
- More than 25 beds for in-patients
- Central A/C
Government Hospitals remain excluded
Budget 2011
HEALTH CARE SERVICES…
Diagnostic Services
- Specifically excluded from the scope of
Technical Testing and Analysis Service since
2003
Services Provided by Consultant Doctors in
Hospital Premises
Budget 2011
Budget 2011
LEGAL SERVICES
Earlier Coverage
Services provided by Business Entity to
another Business Entity
• Consultancy and Advisory services only covered
• Appearance before courts, etc. not covered
• Individual lawyers kept out of levy
LEGAL SERVICES
Proposed Coverage
All services by business entity covered consultancy, advisory, opinions,
appearance
Services provided by arbitral tribunal in
respect of arbitration also covered
Appearance services provided by
Individual Lawyers also covered unless
provided to Individual clients
OTHER EXPANSIONS
Authorized Service Station Service
Earlier coverage
• Only services provided by persons authorized by
vehicle manufacturer
• Motor car/ Light Motor Vehicle/ Two Wheeled
Motor Vehicle
• Repair, Reconditioning and Restoration
Proposed expansion
• Services provided by any person
• All Motor Vehicles (except goods carriage and
three wheeler auto rickshaw)
• Decoration and other similar services
OTHER EXPANSIONS
Commercial Training or Coaching Service
Earlier excluded
• Commercial coaching and training services provided by
an institute or establishment issuing degree or
certificate recognized by law
Now covered
• Commercial coaching and training services provided by
any institute or establishment
Fact that degree or certificate recognized by law
issued for other courses not relevant
TELECOM SERVICE VALUATION
Value of the taxable service = gross amount
paid by the person to whom telecom service
is provided by the telegraph authority
• Gross Amount received from the
subscriber and not the amount paid by the
distributor or any other intermediary
WORKS CONTRACT –
COMPOSITION SCHEME
Input service credit restricted to 40% if
Sub-contractor providing any of the following
services
• Erection, Commissioning and Installation service
• Commercial or Industrial construction
• Construction of Residential Complex service
Tax paid by sub-contractor on full value after
availing credit on inputs
SEZ Refund- Notification 17/2011-ST
Notification No.17/2011-ST
Exempts services received by SEZ for authorised
operations
Services ‘wholly consumed’ within SEZ – option not to
pay the service tax.
Borrows the criteria of “wholly consumed” services from
Export of Service Rules, 2005
Specified services not wholly consumed within SEZ,
refund restricted to extent of proportionate quantum.
Export of Services Rules, 2005
Rearrangement of services in various categories:
Description of services
Previous
category
Now
Preferential location services (PLC)
III
I
Rail travel agent
III
II
Health Check-up
III
II
Credit rating
II
III
Market research
II
III
Transport of goods by air, rail or
road, opinion poll
II
III
Similar rearrangement made in respect of Import of Services
EXPORT OF SERVICES RULES, 2005
Notification No.8/2011-ST
Exempts transportation of goods by road, rail
and air
• Provided to person located in India
• Where goods are transported from outside
India to final destination outside India.
Notification No. 9/2011-ST exempts
Transportation of goods by air service from so
much of value
As equal to amount of air freight included in the
value determined u/s 14 of Customs Act.
POINT OF TAXATION RULES
Point of taxation, earlier of the:
Provision of services
Issuance of invoice
Receipt of payment
Specific provision for determination of Point of Taxation
in case of:
Change in rate of taxes
Introduction of new taxable service
Continuous supply of services
Associated enterprises
Copyright
CENVAT CREDIT
Definition: Capital Goods
To include goods used outside the
factory for generation of electricity for
captive use
ISSUES
Outside factory
Part of electricity sent outside?
Within the factory
Part of electricity sent outside?
Captive Mines
Vikram Cement (SC)?
Inputs : New Definition
all goods used in the factory
any goods including accessories,
cleared along with the final product,
the value of which is included in the
value of the final product and goods
used for providing free warranty for
final products
Appollo Tyres – Kerala HC
Inputs : New Definition
All goods used for generation of
electricity or steam for captive use
Vikram Cement (SC) -captive mines?
All goods used for providing any
output service
Inputs: Not to include
Light diesel oil, high speed diesel oil or motor spirit,
commonly known as petrol;
Any goods used for
construction of a building or a civil structure or a part
thereof; or
laying of foundation or making of structures for support
of capital goods,
Except for port service, airport service, industrial or
commercial construction, construction for commercial
complex and works contract service
• Renting of immovable property- Credit on cement
and steel?
Inputs : Not to include
Capital goods except when used as parts or components
Motor vehicles
Credit on tower/ shelter?
Credit on dumpers?
Any goods such as food items, goods used in a
guesthouse, residential colony, club or a recreation facility
and clinical establishment, when such goods are used
primarily for personal use or consumption of any
employee
Definition of Input not to
include
Any goods which have no relationship
whatsoever with the manufacture of a final
product
Relationship – Nexus theory?
First Aid kit for the car?
Tattoos along with confectionary items?
Toothbrush with toothpaste?
Input Services
Not to include
Services used in relation to setting up of a factory,
premises of provider of output service or an office
relating to such factory or premises
Activities relating to business
• Excluded to overcome High Court judgments in
case of Coca-Cola and Ultra Tech Cement
Specifically included
Business exhibition
Legal services
Input Services – Not to
Include
Architect Service, port service, airport service,
industrial or commercial construction, construction for
commercial complex and works contract used for
Construction of building or civil structure or a part
thereof
Laying of foundation or making of structures for
support of capital goods
Except for provision of above services
General Insurance, Rent-a-Cab, Authorized Service
Station, Supply of tangible goods for use relating to
motor vehicle other than taxable services covered
under capital goods
Input Services- Not to
Include
Service used primarily for personal use or
consumption of employees
Outdoor catering
Beauty treatment
Health Services
Cosmetic and plastic surgery
Membership of a club
Health and Fitness Centre
Life insurance, health insurance and travel benefits
extended to employees on vacation such as Leave
or Home Travel Concession
ISSUES
Can renovation / modernisation result in construction
of building?
Activity relating to business
Mobile phones for official purpose
Rent-a -cab for official purpose
Rent of office building
Insurance of plant and machinery
Key man Insurance
Other Cenvat Amendments
Rule 3(5B)- Reversal of credit on partial writing off or
provision for partial writing off of value of inputs and
capital goods
Proviso to Rule 4(7)- Return of payment of input
service to service recipient
Whether full or proportionate credit reversal?
Reverse proportionate credit
Credit of service tax paid on import of services
introduced with retrospective effect from 18.4.2006
Rule 6 : Definitions
Definition of “Exempted Goods”
Goods exempt from whole of duty
Goods chargeable to nil rate of duty
Goods in respect of which 1% exemption availed
Definition of “Exempted Services”
Services exempt from whole of Service Tax
Services on which no Service Tax is leviable
Services whose part of value is exempt subject to nonavailment of cenvat
Trading
Rule 6 : Trading is exempted
service now
Orion Appliances (Tri-Ahd) – Trading is not exempted service, Rule 6
not applicable.
Credit scheme for manufacturer & service provider, trader was not
covered.
Impact:
Three options available:• Pay 5% of Margin (Sale Price – Purchase Price) payable
• Proportionate Credit reversal under Rule 6(3A)
• Maintain separate accounts for inputs & pro-rata credit reversal on input services under
Rule 6(3A)
Will it cover sale of inputs & capital goods?
Will credit on common capital goods be available?
Other Issues of Rule 6
Rule 6(5) Omitted : 17 services of capital nature were
granted full credit even if partially used for exempted
goods
Rule 6(5) was similar to Rule 6(4) for capital
goods
Other Issues of Rule 6
If excise duty paid on exempted goods, the same
shall be reduced from 5% payable under Rule 6
If part of value of service exempted subject to nonavailment of cenvat, 5% of value of exempted portion
If exemption subject to non-availment of credit,
payment under Rule 6(3) deemed to be cenvat not
taken
Supreme Court judgment in the case of Lifelong
Appliances now given statutory recognition
CENTRAL EXCISE
EXCISE
CHANGE OF RATE
DEEMED MANUFACTURE
OTHERS
WITHDRAWAL OF EXEMPTION
Withdrawal of exemption for 130
goods.
Duty @ 1% ad valorem subject to
non-availability of cenvat credit on
inputs and input services
Duty @ 1% not available as credit to
buyer
CONCESSIONAL RATE OF DUTY
For 76 goods - Option given
to pay duty @ 5%
For goods attracting duty @
4% - duty increased to 5%
Full credit available on inputs,
input services and capital
goods
OTHER RATE CHANGES
Branded ready-made garments brought under the
tax net
Concept of merchant manufacturer re-introduced
Cement – Duty changed from specific rate to advalorem
Ambulance – Unconditional 10% duty instead of
earlier refund mechanism
Deemed Manufacture
Chapter 26 : Conversion of ores into
concentrates
Chapter 71 : Refining of gold dore
bars
Chapter 72 : Process of galvanization
Exemption to Power Projects
Goods supplied to mega power projects & ultra
mega power projects – Full exemption – No
condition of exemption from BCD & CVD at the
time of import
Goods required for expansion of existing mega
power projects also included
Entry made wider than project imports under
tariff heading 9801
Power cables specifically covered
CUSTOMS
CUSTOMS
SPECIFIC SECTORS
AVIATION
IT
AUTOMOBILE
EXPORT INCENTIVES
SELF ASSESSMENT
AVIATION
BCD imposed @ 2.5%
Education Cess payable now
CVD & SAD Exemption continues
Restriction on interchangeability
between passenger and charter
services removed
SUMMARY OF TAX
IMPLICATIONS
Sl
No
Description
BCD
CVD / Excise
Service tax
1
Customized software
Exempted
Exemption
Available
No Exemption
2
Packaged software
(Single or multiple
licenses shrink wrap
with RSP)
Exempted
CVD u/s 4A of
CE Act on RSP
Exemption
Available
3
Packaged software
(Volume licenses with
no RSP)
Exempted
Exemption on
Right to Use CVD on media
only
No Exemption
on Right to Use
4
Electronic download
Not leviable
Not leviable
No Exemption
AUTOMOBILE – CKD
Tariff rate for car (CBU) – 100%
Car in the form of CKD – 10%
Car in SKD – 60%
Parts otherwise – 10%
CKD means unit having all the necessary
components, parts or sub-assemblies for
assembling a complete vehicle, but does not
include:
Kit/Unit containing a pre-assembled engine or gearbox
or transmission mechanism; or
Chassis/Body assembly of a vehicle on which any of
the component or sub-assembly viz. engine or
gearbox or transmission mechanism is installed.
EXPORT INCENTIVES
Exports under EPCG also entitled to
rewards schemes namely SFIS, FMS,
FPS, etc.
Retrospective - w.e.f. 01.04.2008
ASSESSMENT OF CUSTOMS
DUTY
Self-assessment by importer introduced for the
first time as a trade facilitation measure
Salient features
Selective verification by the Department with
powers to reassess.
If re-assessment is made, a speaking order
SHALL be passed within 15 days of such reassessment
Audit at importers premises proposed
TAX PLANNING AND
LITIGATION STRATEGY
Issue of Show Cause Notices
Where during audit, investigation or verification, found that
tax not paid due to fraud, suppression but details available
in records:
Notice can be issued in 5 years
Assessee liable to pay interest & 50% penalty (25%
penalty if paid within 30 days of adjudication order)
Where during audit, investigation or verification, found that
tax not paid due to fraud, suppression but details available
in records:
Assessee can deposit tax before issue of notice
Assessee liable to pay interest & penalty @ 1% p.m.
(subject to ceiling of 25%)
Issue of Show Cause Notices
Where fraud, suppression:
Notice can be issued in 5 year
Assessee liable to pay interest & equal penalty
Interest rate increased to 18%
Interest on refund still 6%
Issues
Prosecution
Fate of SCN not determined within 6 months/ one
year
Co-Noticee
Private records
PROSECUTION IN SERVICE TAX
Prosecution provisions were introduced in service tax in
1994
Omitted in 1998: Budget Speech
176. I am conscious of the fact that there is strong resentment against
the procedures and legal obligations relating to service tax. I have
removed a number of obnoxious and deterrent provisions in law. I also
propose to abolish several of the redundant and irritating Central
Excise Rules very shortly.
Prosecution provisions sought to be reintroduced in this
Budget
Service tax no longer ‘taxpayer’ friendly?
PROSECUTION IN SERVICE TAX
What would constitute “offence”?
Providing taxable service without issuing invoice
Availing or utilizing Cenvat credit without actual receipt of inputs and input services
Maintaining false books of account
Failing to supply any information or supplying false information
Failing to deposit any amount collected as service tax beyond six months
What is the punishment?
If amount > 50 Lakhs – Imprisonment upto 3 years
Others – Imprisonment upto 1 year
Previous sanction of Chief Commissioner required
No power to arrest
Central Sales Tax
In clause (a) of Section 15 of Central Sales Tax
Act, 1956, for the words ‘four percent’, the words
‘five percent’ have been substituted.
Therefore now Section 15(a) would read as:
Every sales tax law of a State shall, insofar as it imposes or
authorises the imposition of a tax on the sale or purchase of
declared goods, be subject to the following restrictions and
conditions, namely
(a) the tax payable under that law in respect of any sale or
purchase of such goods inside the State shall not exceed [five]
per cent of the sale or purchase price thereof, and such tax
shall not be levied at more than one stage
Thus, the ceiling limit of taxation on declared
goods has been raised from 4% to 5%.
GST
GST
“21. The introduction of the Direct Taxes
Code (DTC) and the proposed Goods and
Services Tax (GST) will mark a watershed.
These reforms will result in moderation of
rates, simplification of laws and better
compliance.”
GST
“23. Unlike DTC, decisions on the GST have
to be taken in concert with the States with
whom our dialogue has made considerable
progress in the last four years. Areas of
divergence have been narrowed. As a step
towards the roll-out of GST, I propose to
introduce the Constitution Amendment Bill in this
session of Parliament. Work is also underway on
drafting of the model legislation for the Central
and State GST.”
GST
“24. Among the other steps that are being taken for the
introduction of GST is the establishment of a strong IT
infrastructure. We have made significant progress on the
GST Network (GSTN). The key business processes of
registration, returns and payments are in advanced
stages of finalization. The National Securities Depository
Limited (NSDL) has been selected as technology partner
for incubating the National Information Utility that will
establish and operate the IT backbone for GST. By June
2011, NSDL will set up a Pilot portal in collaboration with
eleven States prior to its roll out across the country.”
Our contacts
Hyderabad
5-9-163, 5th Floor,
Opp. Methodist Church
Chapel Road, Nampally
Hyderabad.
E-Mail: [email protected]
Mob: +91-9963322188
Thank You
© Institute of Business Laws, 2010