Transcript RECENT DEVELOPMENTS IN INDIRECT TAX LEGISLATIONS …

Introduction to Key Rules under Service
Tax
Agenda
Service Tax Rules, 1994
Point of Taxation Rules, 2011
Place of Provision of Services Rules, 2012
Recent Amendments in Service Tax Appellate
Procedures
2
Introduction
• Finance Act, 1994 defines the liability of an assessee for payment of service
tax
• Rules, which are a form of delegated legislation act as tool for application of
provisions laid down by an act
• In case of service tax, these delegated legislations include:
− Service Tax Rules,1994
− Point of Taxation Rules, 2011
− Place of Provision of Services Rules, 2012
• Important principle of delegated legislation states that a rule cannot be read
in isolation
• Rules need to be interpreted with the provision of the concerned section
3
Service Tax Rules, 1994
4
Index
Rule 1 – Short title and commencement
Rule 2 – Definition
Rule 3 – Appointment of Officers
Rule 4 – Registration
Rule 5 – Records
Rule 6 – Payment of Service Tax
Rule 7 – Returns
Rule 8 – Form of appeals to Commissioner of Central Excise (Appeals)
Rule 9 – Form of Appeals to Appellate Tribunal
Rule10 – Procedure and facilities for large taxpayer
5
Rule 2 – Definitions
• This rule provides the definition of various terms used in various subsequent
rules
Rule 3 – Appointment of Officers
• The Central Board of Excise and Customs may appoint such Central Excise
Officers as it thinks
• The officers are appointed to exercise the powers of the Act within such local
limits as it may assign to them
6
Rule 4 - Registration
• Who should register –
 Every person liable to pay service tax shall register within 30 days from
the date on which service tax is levied
• Single registration is required for multiple taxable services
• Incase of transfer of business, fresh registration is required
• Premises to be registered Premises to be
registered
Incase of centralized
billing & providing
services from more than
one premises
Register premise from
where centralized billings
are located
No centralized billing &
providing services from
more than one premises
Registration is required
for all the premises
7
Rule 4A – Issuance of Invoice, Bill, Challan or
Consignment Note
• Every person providing taxable is required to issue invoice for the taxable
service provided mentioning all the prescribed details
• Invoice has to be issued within 30 days from the date of completion of provision
of service or receipt of payment, whichever is earlier
• Exceptions in the following cases:
Banking Company or
Financial Company
• Invoice to be
within 45 days
issued
Goods transport agency –
Continuous Supply of
Service
• Invoice should contain
specific details related to
the goods to be
transported by road
• Invoice to be issued
within 30 days of the date
when each event
specified is complete
• Service Provider shall
also issue consignment
note to the recipient of
service(Rule 4B)
• In case of Input Service Distributer, invoice shall be issued for each of the
recipient of the credit distributed
8
Rule 5 – Records
• Computerized records in accordance with various laws in force are also
acceptable
• Every assessee shall furnish the list of documents as maintained for
accounting transactions at the time of filing return for the first time
• Records to be preserved for the period of 5 subsequent years
Rule 5A – Access to registered premises
• Any officer authorized by Commissioner can carry out any scrutiny or
verification of any registered premises to safeguard the interest of revenue
• Every assessee shall within 15 days from the date of demand shall submit all
the necessary documents as prescribed in the rules
9
Rule 6 – Payment of Service Tax
• Due date of payment of Service tax to Central Government is as follows:
 6th day of the month following the calendar month, if paid electronically;
 5th day of the month in any other case subject to permission from
jurisdictional Assistant / Deputy Commissioner after recording reason in
writing;
 31st March, in case the services are provided in the month of March
• Every assessee mandatorily required to pay Service tax electronically
• An assessee may take credit of excess Service tax paid on account of
specified reasons subject to refund of such excess payment / issuance of
credit notes to the customer
10
Rule 6 – Payment of Service Tax
• Service Tax can be paid in advance and adjustment of the same is permitted
in the subsequent period
• Details of self adjustment to be intimated to the Superintendent within 15
days from the date of such payment
• Assessee can opt for provisional assessment of payment of service tax
• In case of delayed payment, Interest has to be paid as under:
Delay in payment of Service Tax
Rate of Interest
Up to 6 (Six) months
18% p.a.
Between 6 (Six) months and 1 (One) year
24% p.a.
More than 1 (One) year
30% p.a.
11
Rule 6 – Payment of Service Tax – Composition
Scheme
Air Travel Agent
Service
Insurance
Service
Purchase or sale
of foreign
currency,
including money
changing
Distributer or
Selling Agent of
lottery ticket
• Option to pay 0.6% of the basic fare in case of domestic bookings, and; 1.2% of
the basic fare in case of International bookings
• Option once exercised, shall be applicable for the entire financial year
• Option to pay on the Gross amount charged – Amount allocated for investment
or savings, & 3% of the premium charged in the 1st year & 1.5% of the premium
charged in the subsequent year
• Option is only available in cases where the entire premium paid is only towards
risk cover in life insurance
• Option to pay service tax according to the % of gross amount of currency
exchanged as prescribed in the said Rules
• Option once exercised, shall be applicable for the entire financial year
• Option to pay service tax according to the rate as specified
• Option once exercised, shall be applicable for the entire financial year
12
Rule 6A – Export of Services
 The service provided or agreed to be provided shall be treated as export of
service when,-
 the provider of service is located in the taxable territory,
 the recipient of service is located outside India,
 the service is not a service specified in the section 66D of the Act,
 the place of provision of the service is outside India,
 the payment for such service has been received by the provider of
service in convertible foreign exchange, and
 the provider of service and recipient of service are not merely
establishments of a distinct person
13
Rule 7 – Returns
• Due dates for filing returns are as under:
 For Half Year April – September – By 25th of October
 For Half Year October – March – By 25th of April
• Delayed filing of service tax return by an assessee allowed with payment
of an amount as under
 Rs 500 for delay up to 15 days from the due date
 Rs 1000 for delay in excess of 15 days but not exceeding thirty days
from the due date
 Rs 1000 plus Rs 100 for every day of delay from the 31st day till the
date of furnishing of return for the delay beyond thirty days from the
due date
- Subject to maximum of Rs. 20000
• Revised return can be filed within the period of 90 days from the date of
submission of Original in order to correct mistake or omission
14
Rule 8 & 9 – Forms of Appeal
Appeal before Commissioner of Central Excise (Rule 8)
• An appeal to the filed before Commissioner of Central Excise(Appeals) shall be
in a form ST-4
• Shall be accompanied by a copy of order in original
Appeal before Tribunal (Rule 9)
• Appeal under sub section (1) of Section 86 of the Finance Act to the
Tribunal shall be made in Form ST-5
• Appeal under sub section (2 & 2A) of Section 86 of the Finance Act to
the Tribunal shall be made in Form ST-7
• Appeal filed in Form ST-7 Shall be accompanied by a copy of order
passed by the Commissioner of Central Excise & the Central Board of
Excise and Customs directing the CCE to apply to the Appellate
Tribunal
• Memorandum of cross objection shall made in Form ST-6
15
Rule 10 – Procedure & Facilities to a tax payer
• A large taxpayer shall submit the returns for each of the registered
premises.
• A large taxpayer may be required to make available all the documents/
information as required for carrying out scrutiny and verification
• A large taxpayer may opt out to be a large taxpayer by giving intimation of
at least thirty days in advance
• Any notice issued immediately before the date of grant of acceptance by
the Chief Commissioner of Central Excise, shall be deemed to have been
issued by Central Excise Officers of the said Large Taxpayer unit.
• Provisions of these rules, insofar as they are not inconsistent with the
provisions of this rule shall mutatis mutandis apply in case of a large
taxpayer.
16
Point of Taxation Rules, 2011
17
Introduction to POTR
• Why POTR
– Rules to determine when is a service deemed to be provided
• Why required
– Liability to pay Service tax has been linked to deemed provision of service
under Rule 6 of Service Tax Rules, 1994
• What does it contain
• Provisions to determine point of taxation w.r.t.:
– Services generally provided;
– Continuous supply of services;
– Services to associated entities;
– Special services
– Levy of tax on new services;
– Change in effective rate of tax;
18
Services generally provided
• Point of taxation in case of a service provided in India shall be the earliest of
following:
• When a service is provided or agreed to be provided;
• Issue of invoice; or
• Receipt of payment.
• In case invoice is not issued within time limit, point of taxation shall be the date of
completion of provision of the service.
• In case of receipt of advance – date of receipt shall be point of taxation.
Date of payment
• Earlier of date on which the payments are entered in books of account or is
credited to the bank account of the person liable to pay tax
• In case of change in effective rate of tax, four working days’ grace period is given
19
Continuous supply of services
• What shall constitute continuous supply:

Service provided or to be provided under a contract; and

Service to be provided continuously or on recurrent basis; and

The contract is for a period exceeding three months; or

Central government can notify certain services to be in the nature of
continuous supply
• Point of taxation in case of continuous supply shall be:
Date of which payment is liable to be made by service recipient, if –
 Whole or part of the payment is determined or payable periodically or from
time to time; and
 Such date is specified in the contract
• If before the event for payment specified in the contract  An invoice is issued; or
 A payment is received
service shall be deemed to be provided on earlier of the two events
20
Associated enterprises
• Point of taxation in case of transactions with associated enterprises
located outside India shall be earliest of the following:
– Date of payment;
– Date of debit in the books of accounts of the person receiving service
•
•
Special services
Applicable in case of royalty payments for copyrights, trademarks,
designs or patents
In case consideration is not ascertainable at the time of
performance of service and additional consideration is determined
later point of time, point of taxation shall be earliest of the following:
– Payment;
– Receipt of benefit by provider;
– Issue of invoice
21
New Services
• In case of new services taxed for the first time
– No tax will be payable to the extent invoice has been issued and payment
received before such services became taxable;
– No tax will be payable if the payment is received before the services become
taxable and the invoice is issued within the period specified as per Service Tax
Rules, 1994
It appears that there has been disregard to the concept of provision of service
and the only relevance is issue of invoice or payment whichever later after
change of rate. This is in contrast to case w.r.t. change in rate where in case
services have been provided before change in rate, no hardship even if payment
or invoice is received after change in rate.
22
Reverse charge mechanism
Invoice issued
on or after
October 1, 2014
Point of
taxation in
case of
Reverse
charge
Invoice issued
before October
1, 2014
Date of
payment or 3
months from
the date of
invoice,
whichever is
earlier
Payment made
within 6
months of
invoice
Date of
payment
Payment not
made within 6
months of
invoice
Date of invoice
23
Change in effective rate of tax
• In case of change in effective rate of tax, the point of taxation will
be determined in the following manner: (assuming the change is
effective from 1st January 2014)
Point of taxation where taxable services are provided before 1st January 2014
Issue of
invoice
th
10 January
th
15 December
th
15 December
Receipt of
payment
1
st
January
th
15 January
th
15 December
Point of taxation
st
1 January
th
15 December
th
15 December
Applicable Rate
New Rate
Old Rate
Old Rate
Point of taxation where taxable services are provided after 1st January 2014
Issue of
invoice
Receipt of
payment
Point of taxation
th
15 December
st
1 December
th
15 January
th
15 January
th
15 December
th
15 December
th
15 January
st
1 December
th
15 January
Applicable Rate
New Rate
Old Rate
New Rate
24
Place of Provision of Services
Rules, 2012
25
Place of Provision of Services Rules, 2012
(‘POPOS Rules’) – Why Introduced
• Introduced vide Notification No.28/2012-ST dated 20th June,2012
to determine the taxing jurisdiction for a service.
• The POPOS Rules, determine the place where the service is
provided and shall be deemed to have been provided.
• The POPOS Rules, replaced the ‘Export of Service Rules, 2005’
and ‘Taxation of Services (Provided from outside India and
received in India) Rules, 2006’.
• Primarily meant for Cross-border Services.
• Equally applicable for those service providers, who have operations
with suppliers and customers in the State of Jammu and Kashmir.
26
Place of Provision of Services Rules, 2012 (‘POPOS
Rules’) – Why Introduced
• Origination of such rules – POPOS Rules are framed aiming at addressing the
situations whereby service provider is located at one location and the service
receiver is located at another location and the services are rendered at some other
location however, consumed over a large geographical territory. As a result, it is
necessary to comply with certain rules determining the exact place of provision.
Illustration: ABC Inc., is located outside India, having its customers in India. In order to
train the customers of ABC Inc. in India, they engage XYZ Inc., a group outside India.
In such a case, both the services provider (XYZ Inc.) and service recipient (ABC Inc.)
are located outside India, however, the services are rendered in India and consumed in
India.
The POPS Rules help to determine the place of provision of service in such situations
and thus arrive at taxability of services involved
• Avoids double taxation of services.
• Applicable from July 1, 2012.
27
POPOS Rules - Selection of Applicable Rule
Performance based services
Rule 4
Services in relation to immovable property
Rule 5
Services relating to events
Rule 6
Services at more than one location
Rule 7
Provider and recipient located in taxable territory
Rule 8
Certain specified services
Rule 9
Goods transportation services
Rule 10
Passenger transportation services
Rule 11
Services provided on board or conveyance
Rule 12
None of the above – general rule
Rule 3
Service falling under more than one rule
Later Rules prevails
28
General Rule – Rule 3 – Location of the recipient of service.
Principle effect to the general rule:
Particulars
A. Location of service recipient is in taxable territory
Taxability under service tax
Yes
B. Location of service recipient is outside the taxable No
territory
C. Location of service provider is outside the taxable Yes, however, the liability to pay
territory and location of service recipient is in taxable service tax is on the receiver of
territory
service.
Illustrations:
 XYZ Ltd. provides Management Consultancy Services to their UK client ABC plc. –
place of provision of service is outside India
 ABC Inc. provides management advisory services to its subsidiary Company XYZ
Ltd. in India – the place of provision of service is India as XYZ Ltd is located in
India. However, the service tax liability is to be discharged by XYZ Ltd.
29
Rule 4- how to determine the location of service recipient
Location of
Service
Recipient
Place of
registration
– Single/
Centralized
Usual place
of residence
– place of
incorporation
No FE and BE
The
establishment
more directly
concerned with
the use of
service
Services used at
more than one
establishment
Business
establishment
(‘BE’) or Fixed
establishment
(‘FE’) (in case
services are used
at a place other
than BE)
No
• Location of service provider - not available in the ordinary course of business – Location of
service provider.
30
Rule 4 – Performance based services - location where the services
are actually performed
• Physical “Work on Goods” : place of performance :- The essential characteristic
of a service to be covered under this Rule is that the goods temporarily come into
physical possession or control of the service provider and without this happening, the
service cannot be rendered. Thus, the service involves movable objects or things
that can be touched, felt or possessed.
Illustration:
 XYZ Corp (an entity located outside India), provides maintenance and warranty
services for the telecommunication equipment to their subsidiary company
located in India by deputing engineers for such maintenance activities. In turn,
the Indian subsidiary reimburses the cost of such maintenance services to XYZ
Corp. – performance of services takes place in India- Services taxable in India
31
Rule 4 – Performance based services - location where the services
are actually performed……………….. Continued
• Electronic “Work on Goods” : situation of goods :- In case the services provided
from a remote location by way of electronic means, the place of provision shall be the
location where the goods are situated at the time of provision of service.
Illustration:
 IT Firm located in Delhi provides repair service in respect of software by electronic
means to a company in China. The place of provision service in this case is in China
as the software is located in China.
• Services w.r.t goods temporary imports in India only for repairs intended to be
exported subject to fulfillment of certain conditions– Not governed by Rule 4
• Repairing of imported goods which are brought to India in the normal of course of business
will be taxable though re-exported
• Services in relation to reconditioning or reengineering of imported goods are subject to
Service tax even if re-exported after such processes.
• Physical presence of service provider as well as receiver : place of
performance: In case of services provided to an individual, which require the
physical presence of the receiver or the person acting on behalf of the receiver, with
the provider for the provision of the service.
32
Rule 5 – Location of Immovable Property
• The place of provision of services provided directly in relation to an immovable
property shall be the place where the immovable property is located or intended to
be located.
Illustration:
 ABC Ltd (an Indian Company) has a group company located in UK. The UK
Company arranges for an office on rent located in UK and recharges the rent to ABC
Ltd. Location of immovable property outside India- rent recharged to ABC Ltd. not
taxable
Rule 6- Services relating to events – Actual place of occurrence of
such event
• The place of provision of services provided by way of admission to, or organization
of, a cultural, artistic, sporting, scientific, educational, or entertainment event, or a
celebration, conference, fair, exhibition, or similar events, and of services ancillary to
such admission, shall be the place where the event is actually held.
33
Rule 7 – Part performance of a service at different locations –
Rendered greatest portion of service
• Where any service referred to in Rules 4, 5, or 6 is provided at more than one location,
including a location in the taxable territory, its place of provision shall be the location in
the taxable territory where the greatest proportion of the service is provided.
Illustration: An Indian firm provides a ‘technical inspection and certification service’ for
a newly developed product of an overseas firm (say, for a newly launched sports car
which has to meet emission standards in different States or countries).
For instance, the testing is carried out in Hyderabad (20%), Delhi (25%), and an New
York (55%). Notwithstanding the fact that, the greatest proportion of service is outside
the taxable territory, the place of provision will be the place in the taxable territory
where the greatest proportion of service is provided, in this case Delhi.
This Rule is, however, not intended to capture insignificant portion of a service
rendered in any part of the taxable territory like mere issue of invoice, processing of
purchase order or recovery, which are not by way of service actually performed on
goods.
34
Rule 8 – Place of provision of services where provider and
recipient are located in taxable territory – Recipient of service.
• Place of provision of a service, where the location of the provider of service as well as of
the recipient of service is in the taxable territory, shall be the location of the recipient of
service.
• This Rule covers situations where the place of provision of a service provided in the
taxable territory may be determinable to be outside the taxable territory, in terms of the
application of one of the earlier Rules i.e. Rule 4 to 6, however, since, the service
provider, as well as the service receiver, are located in the taxable territory, the
applicability of Rule 8 arises.
Illustration: An electronic equipment belonging to XYZ Ltd (India based)
develops a technical snag in Sri Lanka. Engineers are deputed by Siemens,
Mumbai, to undertake repairs at the site in Sri Lanka. But for this rule, Rule 4(1)
would apply in this case and the place of provision would be Sri Lanka i.e. outside
the taxable territory. However, by application of Rule 8, since, the service provider
(ABC, Mumbai), as well as the receiver (XYZ Ltd), are located in India the place of
provision of this service will be India.
35
Rule 9 – Specified Services – Location of service provider
The place of provision of the following services shall be the location of the service
provider:
(a) Services provided by a banking company, or a financial institution, or a non-banking
financial company, to account holders;
(b) Online information and database access or retrieval services;
(c) Intermediary services;
(d) Service consisting of hiring of means of transport, up to a period of one month.
(e) Services consisting of hiring of all means of transport other than Air crafts and
vessels except yachts, up to a period of One month
Illustrations:
a. Opening and operation of bank accounts, transfer of money including telegraphic
transfers.
b. Web based services providing access or download of digital content by an entity
without any presence in India
c. Intermediary – As defined under Rule 2 of POPS Rules, accordingly, the services
of travel agents, tour operators, commission agent for a service (not for goods)
and recovery agents.
d. Hiring of vessels, aircrafts, motorcars, buses, trucks and vehicles designed for
transport of sick or injured persons.
36
Rule 9 – Specified Services – Location of service provider
• Definition of intermediary was restricted only to services effective till
September 30, 2014
• The new definition of intermediary is now widened to include intermediaries
facilitating supply of goods
• Services provided by Indian commission agents facilitating supply of goods on
behalf of their clients located outside India can be taxable by virtue of Rule 9
Illustrations:
M/s. XYZ, India have been engaged in promotion and marketing activities of the goods
of the client located say in Singapore. By virtue of amendment in definition of
‘intermediately’, now services provided to the client located in Singapore could not be
treated as ‘export’ and exigible for Service Tax.
37
Rule 10 – Place of Provision of a service of transportation of
goods – Destination of goods
• The place of provision of services of transportation of goods, other than by way of mail
or courier, shall be the place of destination of the goods.
‒ Except that the place of provision of services of goods transportation agency shall be
the location of the person liable to pay tax (as determined in terms of rule 2(1)(d)
of the Service Tax Rules, 1994).
Illustration: A consignment of diamond is consigned from Delhi to Mauritius. The
place of provision of goods transportation service will be Mauritius (outside India,
hence not liable to service tax).
38
Rule 11 – Passenger Transport Services – Embarkation Point
for a continuous journey
• The place of provision in respect of a passenger transportation service shall be the place
where the passenger embarks on the conveyance for a continuous journey.
• “continuous journey” means a journey for which:

a single ticket has been issued for the entire journey; or

more than one ticket or invoice has been issued for the journey, by one service
provider, or by an agent on behalf of more than one service providers, at the
same time, and there is no scheduled stopover in the journey
• “Only such stopovers will be relevant for which one or more separate tickets are issued.
• Illustration of continuous journey:
A travel on Delhi-London-New York-London-Delhi on a single ticket with a halt at
London on either side, or even both, will be covered by the definition of continuous
journey. However if a separate ticket is issued, for instance, New York-Boston-New
York, the same will be outside the scope of a continuous journey.
39
Rule 11 – Passenger Transport Services – Embarkation Point
for a continuous journey…… Continued
Illustrations:
S.
No.
Journey
Place of
Provision
Taxability
1
Delhi-London-New
York- London-New
York (Single Ticket)
Delhi
Yes, New Delhi, being the place of
provision for continuous journey with single
return ticket.
2
New York-LondonDelhi
(Single Ticket)
New York
No, New York is place of provision for
continuous journey with single return ticket.
(a) Delhi-New YorkDelhi
(b) New York-BostonNew York
(Two Tickets)
(a) Delhi
(b) NewYork
Journey (a) is taxable since place of
provision is in taxable territory
Journey (b) is not taxable since place of
provision is not in taxable territory
3
40
Rule 12 – Services provided on board conveyances – First
Scheduled place of departure.
• Place of provision of services provided on board a conveyance during the course
of a passenger transport operation, including services intended to be wholly or
substantially consumed while on board, shall be the first scheduled point of
departure of that conveyance for the journey.
Illustration: Services of supply of food and beverages is provided as on-board
entertainment during Delhi- Mumbai part of a Bangkok-Delhi-Mumbai flight. The
place of provision of this service will be Bangkok (outside taxable territory, hence,
not liable to tax.
In case the above service is provided on a Delhi-Kolkata-Bangkok-Jakarta flight
during the Bangkok-Jakarta part, then, the place of provision will be Delhi (in the
taxable territory, hence liable to tax).
41
Rule 13- Power to notify services or circumstances
• In order to prevent double taxation or non-taxation of the provision of a service, or
for the uniform application of rules, the Central Government shall have the power
to notify any description of service or circumstances in which the place of
provision shall be the place of effective use and enjoyment of a service.
Relevance of the aforesaid Rule:
The Rule is an enabling power to correct any injustice due to the applicability of
rules in a foreign territory in a manner which is inconsistent with these Rules
leading to double taxation. Due to the cross border nature of many services it is
also possible in certain situations to set up businesses in a non-taxable territory
while the effective enjoyment, or in other words, consumption, may be in a
taxable territory.
42
Rule 14- Order of application of Rules – Latter rule prevails
• Notwithstanding anything stated in any Rule, where the provision of a service is,
prima facie, determinable in terms of more than one rule, it shall be determined in
accordance with the rule that occurs later among the rules that merit equal
consideration.
43
Recent Amendments in Service Tax
Appellate Procedures
44
Recent Amendments in Service Tax Appellate Procedures
•
For filing appeals, the appellant will be required to make a mandatory pre
deposit, not exceeding Rs.10 crores, as under:
Order issuing authority
Authority to whom the
appeal is to be made
Mandatory pre
deposit
Any Officer
below the rank of
Commissioner
Commissioner
(Appeals)
7.5% of the duty
demanded or
penalty imposed
Commissioner
Appellate Tribunal
Commissioner
(Appeals)
Appellate Tribunal
Additional 10% of
the duty demanded
or penalty imposed
45
Recent Amendments in Service Tax Appellate Procedures
•
Interest to be paid on mandatory pre deposit at a notified rate between
5% and 36% from the date of pre deposit;
•
Interest not to be paid for pre deposits made before commencement of
Finance (No.2) Act, 2014
•
7.5% and 10% to be computed as under *
–
–
In cases where duty alone or duty and penalty is disputed – On the
value of duty alone
In cases where penalty is disputed – On the value of penalty
* Refer to Circular no 984/08/2014-CX Dated 16.09.2014
46
Thank You
47