Service Tax on AC Restaurants is unconstitutional

November 24, 2016[2016] 75 taxmann.com 272 (Kerala)

Service Tax : Levy of service tax on Air Conditioned Restaurants is unconstitutional since when food is supplied as part of any service, such transfer would be deemed as sale. Thus, there is no component of service which could be charged to service tax when food is supplied by Air Conditioned Restaurant

• The Kerala High Court held that levy of service tax on air conditioned restaurants is unconstitutional. It relied on its own judgment in case of Kerala Classified Hotels & Resorts Association v. Union of India [2013] 35 taxmann.com 568 (Kerala) where it was held that the Article 366(29A)(f) of the Constitution empowers the State Governments to impose sales tax on supply of goods, whether it is by way of or as a part of any service and when food is supplied as part of any service, such transfer would be deemed to be a sale. Thus, there is no component of service which could be charged to service tax when food is supplied by Air Conditioned Restaurant.

Editor's Comment:

• The Government [vide LETTER C.NO.ST-20/STD/MISC./SEVOTTAM/62/12/4693, DATED 13-8-2015] has clarified that service-tax could not be levied either on takeaway orders or home deliveries by the Air Conditioned Restaurants.

• In case of takeaway orders or home deliveries, the dominant nature of the transaction is that of sale and not service, as the food is not served at the Restaurant. Further, no other element of service is offered at the Restaurants, be it ambience, live entertainment, Air Conditioning, or personalized hospitality. The Service tax can be levied if there is an element of 'Service' involved which would typically cover the case where food is served in Restaurant.

• However, the Kerala High Court held that the goods sold at Restaurants could only be considered as sale, irrespective of the fact whether any service is involved in it or not. The aforesaid ruling of the High Court is pending before the Apex Court. 

CBEC Clarification on Freight Forwarders

Service tax on freight forwarders for transportation of goods from India: CBEC Clarification

CBEC has clarified that a freight forwarder, when acting as a principal, will not be liable to pay service tax when the destination of the goods is from a place in India to a place outside India, as under:

CBEC Circular No. 197/7/2016 -Service Tax dt. 12 Aug. 2016

1. The Board has received representations regarding service tax on freight forwarders on transportation of goods from India.

2. It may be noted that in terms of rule 10 of the Place of Provision of Services Rules 2012, (herein after referred to as 'POPS Rules 2012', for brevity) the place of provision of the service of transportation of goods by air/sea, other than by mail or courier, is the destination of the goods. It follows that the place of provision of the service of transportation of goods by air/sea from a place in India to a place outside India, will be a place outside the taxable territory and hence not liable to service tax. The provisions of rule 9 of the POPS Rules 2012, should also be kept in mind wherein the place of provision of intermediary services is the location of the service provider. An intermediary has been defined, inter alia, in rule 2(f) of the POPS Rules 2012, as one who arranges or facilitates the provision of a service or a supply of goods between two or more persons, but does not include a person who provides the main service or supplies the goods on his own account. The contents of the succeeding paragraphs flow from the application of these two rules.

2.1 The freight forwarders may deal with the exporters as an agent of an airline/carrier/ocean liner, as one who merely acts as a sort of booking agent with no responsibility for the actual transportation. It must be noted that in such cases the freight forwarder bears no liability with respect to transportation and any legal proceedings will have to be instituted by the exporters, against the airline/carrier/ocean liner. The freight forwarder merely charges the rate prescribed by the airline/carrier/ocean liner and cannot vary it unless authorized by them. In such cases the freight forwarder may be considered to be an intermediary under rule 2(f) read with rule 9 of POPS since he is merely facilitating the provision of the service of transportation but not providing it on his own account. When the freight forwarder acts as an agent of an air line/carrier/ocean liner, the service of transportation is provided by the air line/carrier/ocean-liner and the freight forwarder is merely an agent and the service of the freight forwarder will be subjected to tax while the service of actual transportation will not be liable for service tax under Rule 10 of POPS.

2.2 The freight forwarders may also act as a principal who is providing the service of transportation of goods, where the destination is outside India. In such cases the freight forwarders are negotiating the terms of freight with the airline/carrier/ocean liner as well as the actual rate with the exporter. The invoice is raised by the freight forwarder on the exporter. In such cases where the freight forwarder is undertaking all the legal responsibility for the transportation of the goods and undertakes all the attendant risks, he is providing the service of transportation of goods, from a place in India to a place outside India. He is bearing all the risks and liability for transportation. In such cases they are not covered under the category of intermediary, which by definition excludes a person who provides a service on his account.

3. It follows therefore that a freight forwarder, when acting as a principal, will not be liable to pay service tax when the destination of the goods is from a place in India to a place outside India.

4. Keeping this in mind, field formations may deal with cases purely on the basis of the facts of the case, the terms of contract between the entities concerned, the provisions of the Finance Act, 1994, the POPS Rules 2012 and other rules.

Payment of Service Tax by Cheque

Clarification issued regarding payment of Service Tax through non electronic modes

by CA Bimal Jain

The CBEC vide Instruction F.No 137/08/2013-Service Tax dated July 22, 2016, issued direction that the discretion vested in the jurisdictional Deputy/Assistant Commissioner, to allow the assessee to deposit Service tax by any other mode, under rule 6(2) of the Service Tax Rules, 1994, should be exercised judiciously and rationally. The supervisory officers should, from time to time, check such exercises of discretion so that there are no unwarranted refusals.

Presently, every assessee is required to pay Service tax electronically through internet banking, however, the jurisdictional Deputy/Assistant Commissioner, may, for reasons to be recorded in writing, allow the assessee to deposit service tax by any other mode e.g cheque

Krishi Kalyan Cess exemption

NOTIFICATION

No. 35/2016-Service Tax



New Delhi, the 23rd June, 2016



G.S.R. ---(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), read with sub-section (5) of section 161 of the Finance Act, 2016 (28 of 2016), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts taxable services with respect to which the invoice for the service has been issued on or before the 31st May, 2016, from the whole of Krishi Kalyan Cess leviable thereon, subject to condition that the provision of service has been completed on or before the 31st May, 2016.



[F.No. B-1/21/2016 - TRU]

(Mohit Tiwari)

Under Secretary

No Service tax Audit by Department

In the Delhi High Court Mega Cabs Pvt. Ltd. filed writ petition (C) No. 5192/2015 [[Mega Cab v UOI and Anr.] challenging the validity of Rule 5A(2) of the Service Tax Rules as substituted by Notification No. 23/2014-ST, dated 05.12.2014, clause (k) of sub-section (2) of section 94 of the Finance Act, 1994 as inserted w.e.f. 06.08.2014 by the Finance Act, 2014 and also the Circular No. 181/7/2014-ST dated 10.12.2014 directing departmental officers to conduct audit of the service tax assessees as provided in the departmental instructions. In the matter, Delhi High Court has entertain the said writ petition and by order dated 22.05.2015 please to issue Notice to the Union of India, Ministry of Finance, and also to the Service Tax (Audit) Department, Delhi. 

Yesterday, (03.06.2016), the Delhi High Court delivered a landmark Judgment [Mega Cab v UOI and Anr. in WP(C) 5192/2015] - no more audit of assessee records by the Central Excise and Service Tax Department and strike down Rule 5A(2) of Service Tax Rules as ultra vires to the Finance Act, 1994.

The Court also held that "verification" in clause (k) of sub-section (2) of section 94 of the Finance Act, 1994 cannot be constructed as  "audit" which is specialized function otherwise clause (k) suffered from the vice of excessive delegation of legislative power by the Parliament.

The Court also strike down the Circular No. 181/7/2014-ST (F. No. 137/46/2014-ST), dated 10-12-2014 regarding Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates as well as circular dated Circular No. 995/2/2015-CX (F. No. 206/03/2014-CX.6),dated 27-2-2015 regarding Central Excise and Service Tax Audit norms to be followed by the Audit Commissionerates.

The High Court further held that Audit Manual – 2015 issued by the Department also has no statutory force by observing that earlier Audit Manual 2011 was also declared without any statutory backing Travelite (India) v UOI 2014 (35) S.T.R. 653 (Del.). The Government has not down anything to remove the defect pointed out in Travelite (India) judgment.

The Court also quashed impugned letter C. No. I-26(494)ST/AMR-48B/Mega Cabs/C-IV/gr-1/2013/383 dated 30.04.2015 issued by service tax Department to Mega Cab regarding audit.

It is a general practice of Service Tax Department to conduct audit of service tax assessee for last five years by deputing their own officers of the rank of inspector and Superintendents. Service Tax Department also seeks voluminous details and seeks information in self-specified format/annexures of about 32 pages, which are not prescribed under the law. Service Tax Department without assigning any reasons and routinely conducts audit even when it is not prescribed under the law and not conducting special audit.

It may be noted that earlier Rule 5A(2) was struck down as ultra vires by  the Hon'ble Delhi High Court in the matter of Travelite (India) v UOI 2014 (35) S.T.R. 653 (Del.), after that amendment was made by the Finance Act, 2014 by inserting clause (k) of sub-section (2) of section 94 and on the basis of that sub-rule (2) to Rule 5A has been again enacted. Whereas in Circular No. 181/7/2014-ST dated 10.12.2014, stand has been taken by the Government that Travelite (India)  judgment can be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act.

The High Court has given detailed judgment considering various judgments. Now this judgment made is clear that the officers of the Department has no power to conduct audit at all. Similarly, the CAG officers also have no power to conduct audit of the assesse records.

Delhi High Court strike down new Rule 5A(2) of Service Tax Rules

Contributing for ease of doing business. Today, (03.06.2016), the Delhi High Court delivered a landmark Judgment [Mega Cab v UOI and Anr. in WP(C) 5192/2015] - no more audit of assesse records by the Central Excise and Service Tax Department as well as CAG and strike down new Rule 5A(2) of Service Tax Rules as ultra vires to the Finance Act, 1994.

Reversal input tax credit due to non-payment of taxes by the selling dealers

PATH BREAKING JUDGEMENT

Assessee cannot be asked to reverse input tax credit due to non-payment of taxes by the selling dealers

Sri Lakshmi Textiles Vs. the Commissioner of Commercial Taxes and Others [2016 (1) TMI 329 – MADRAS HIGH COURT]

Facts:

Sri Lakshmi Textiles(“the Petitioner”) is a partnership firm engaged in the business of inner garments and textiles registered under Tamil Nadu Value Added Tax Act, 2006 (“TN Vat Act”). The Petitioner was regularly filing the VAT return and paying the VAT liability after adjusting the corresponding input tax credit. For the Assessment Year 2013-2014, the Petitioner had reported total turnover and taxable turnover of Rs. 2,02,88,151/- and Rs. 15,98,693/- respectively in his return.

The Department alleged that because some of the selling dealer of the Petitioner had not paid the tax, the Petitioner is required to reverse the corresponding input tax credit and further sought to levy penalty under Section 27(3) of the TN VAT Act on the Petitioner.

Held:

The Hon’ble High Court of Madras relied upon the decision in the case of Sri Vinayaga Agencies Vs. the Assistant Commissioner (Ct), Chennai and another [(2013) 60 VST 283 (Mad)] and held that when the fact of Petitioner paying the taxes to his supplier is not under dispute, the Petitioner cannot be compelled to reverse the input tax Credit due to non-payment of VAT liability by the selling dealer

Annual Return under Service Tax (Applicable w. e. f. 01.04.2016):

Annual Return under Service Tax (Applicable w. e. f. 01.04.2016):

Rule 7, 7B and 7C of Service Tax Rules 1994 are being amended to provide for filing of annual return by assessee. The important points are as under:

(i)       This return shall be in addition to the half yearly returns filed by the assessee;

(ii)       The due date for filing the annual return is 30th November of succeeding financial year;

(iii)       Annual return can be revised within one month from the date of filing of return;

(iv)      Late filing fees for delay in filing the annual return is Rs. 100/- per day for the period of delay, subject to maximum amount of Rs. 20,000/-;

(v)      The format for the same shall be prescribed separately. Further, assessee or a class of assessee exempted from filing the annual return shall also be notified separately.

Key Changes in Service Tax

1.    Krishi Kalyan Cess @ 0.5% on gross value of taxable services (from 01.06.2016) Total ST rate @ 15%

2.    AC Bus service by Road Transport Corporation taxable @ 6% (from 01.06.2016)

3.    Rate of ST for the package tour increased from 3.625% to 4.35%

4.    ST on foreman commission at 10.15%

5.    Rate of ST for sale of flats increased from 3.625% to 4.35%

6.    Rate of ST for transport of goods by Rail in container other than by IR increased from 4.35% to 5.8%

7.    Rate of ST for transport of used household increased from 4.35% to 5.8%

8.    Assignment of radio-frequency spectrum and subsequent transfers thereof taxable

9.     Senior advocate service liable to service tax.

10.  Transport of passengers ropeway, cable car or aerial tramway made liable for ST

11.Interest rate reduced to 15% (if ST not collected) and 24% (if ST collected)

12.Due date for issue of SCN extended from 18 months to 30 months

13.The monetary limit for prosecution cases enhanced to Rs.2 Crores.

14.Dispute resolution scheme for the cases pending before Commissioner (Appeals)

15.New levy on services exempted only if amount received and invoice raised before the notified date

16.Spl. Exemption for construction canal, dam or other irrigation works for the period 01.07.2012 to 29.01.2014.

17.Restoration of exemption for construction of non-commercial buildings for the contracts enter prior to 01.03.2015 for the period upto 31.03.2020

18.Spl. Exemption for constriction of ports and airports for the period from 01.04.2015 to 31.03.2020 for the contracts entered prior to 01.03.2015

19.Construction under House For All (Urban) Mission / Pradhan Mantri Awas Yojana (PMAY), exempted

20.Construction of low cost houses up to a carpet area of 60 sq.m per house under Govt. scheme exempted from service tax.

21.Levy of Central Excise duty/CVD and service tax on IT Software made mutually exclusive

22.Services provided by the Indian Institutes of Management (IIM) exempted

23.Business Entity receiving any service from government to pay service tax

24.Business entity located in India to pay service tax on ocean freight availed by foreign shipping line

25.HUF and One person company (<50l basis="" o="" on="" p="" pay="" quarterly="" t="" to="">
26.Annual returns to be filed by service provider by 30th Nov every year

Due date of filing ST-3 returns extended to 29th April from 25th

Govt extends the date of filing ST-3 returns to 29th April from 25th due to difficulties faced by taxpayers in ACES application

Restores Reverse Charge on Senior Advocates

Finance Minister restores "reverse charge" for service tax on Senior Advocates by CA Bimal Jain

 

The impasse over levying service tax on Senior Advocates seems to have been resolved. According to our sources, Finance Minister Arun Jaitley has restored the "reverse charge" mechanism when it comes to service tax on senior advocates.

Speaking to Bar & Bench, SCBA President Dushyant Dave said,

"I believe the Finance Minister has restored the "reverse charge" position. And if the sources are correct, I would like to personally thank the Finance Minister Arun Jaitley on behalf of the Bar and the fraternity of Senior Advocates for this clarification."

With this clarification from the Finance Minister, Senior Advocates like other advocates and law firms would now be covered under reverse charge mechanism i.e. the clients would deposit the tax with government directly.

In this year's Budget, Finance Minister Jaitley had decided to tax the services offered by senior advocates to an advocate or a law firm on a forward charge basis. This meant that the senior counsel would have to collect the tax (at the rate of 14 per cent) and deposit this with the authorities.

As expected, the provisions were immediately challenged in different courts; the Gujarat High Court had granted a stay, followed by a similar direction from the Delhi High Court.

Amendment to Mega Exemption Notification-ST

Finance Ministry grants service tax exemption for services provided by Government / local authority to business entity having turnover upto 10 lakhs in preceding financial year w.e.f. April 1, 2016; Amends Notification No. 25/2012-ST dated June 20, 2012 : Ministry of Finance Notification 

Clarification on Summons

Central Excise & Service Tax Summons not to be issued to Senior Management Officials in Ordinary Instance

In what could be a relief to the trade, the Central Board of Excise and Customs has tried to streamline the process of issuance of summons under section 14 of Central Excise Act, 1944 (as made applicable to service tax as well) by clarifying that the summon should be only used to obtain details /evidence as a matter of last resort in its circular No. F. No. 207/07/2014-CX-6 dated 20th January, 2015.

 Further, it has been clarified by the board that :-

è  "Senior management officials such as CEO, CFO, General Managers of a large company or a PSU should not generally be issued summons at the first instance. They should be summoned only when there are indications in the investigation of their involvement in the decision making process which led to loss of revenue."

è  Summons by Superintendents should be issued after obtaining prior written permission from an officer not below the rank of Assistant Commissioner with the reasons for issuance of summons to be recorded in writing.

è Where for operational reasons it is not possible to obtain such prior written permission, oral/telephonic permission from such officer must be obtained and the same should be reduced to writing and intimated to the officer according such permission at the earliest opportunity

è In all cases, where summons are issued, the officer issuing summons should submit a report or should record a brief of the proceedings in the case file and submit the same to the  officer who had authorized the issue of summons .

Author's Note: - Such a sought of clarification is not a newly clarified matter. It is worthy to note that even DGCEI (Intelligence) in its instruction No. F.No. 406/CF/15/2006 dated 19th May, 2006 instructed the field formations in the similar manner. How far it is implemented, only time can tell !!

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Regards,

CA.Ankit Gulgulia (Jain)|B.COM(H), C.A, C.IFRS, C.B.V, LLB*

CBEC Circular on Service Tax Audit

CIRCULAR NO 181/7/2014-ST, Dated: December 10, 2014

Audit of the Service Tax assessees by the officers of Service Tax and Central Excise Commissionerates.

Section 94 of the Finance Act, 1994 deals with rule making powers of the Central Government in relation to service tax. Sub-section (2) of section 94, dealing with specific purposes for which rules can be made, was amended with effect from 06.08.2014, vide Section 114(J) of the Finance Act, 2014, and a new clause (k) was added to sub-section (2) of section 94, which is reproduced below –

"(k) imposition, on persons liable to pay service tax, for the proper levy and collection of tax, of duty of furnishing information, keeping records and the manner in which such records shall be verified."

2. In exercise of the rule making powers under clause (k) of sub-section (2) of section 94 of the Finance Act, 1994, the Central Government has inserted a new rule 5(A)(2) in the Service Tax Rules, 1994 vide notification no. 23/2014-Service Tax dated 5 th December, 2014. This rule, interalia, provides for scrutiny of records by the audit party deputed by the Commissioner. Such scrutiny essentially constitutes audit by the audit party consisting of departmental officers.

3. Verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the said Act is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute.

4. It may also be noted that the Hon'ble High Court of Delhi in the judgment dated 04.08.2014 in the case of M/s  Travelite  (India) (2014) TaxCorp(ST) 19175 (HC-DELHI) had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act.

5. Departmental officers are directed to audit the Service Tax assessees as provided in the departmental instructions in this regard. Difficulty, if any, in implementing the circular may be brought to the notice of the Board. Hindi version will follow.

F. No. 137/46/2014-Service Tax

CBEC on Service Tax on Joint Ventures

FinMin clears air on service tax levy on joint ventures

The Finance Ministry has made it clear that "taxable services" provided by members of a joint venture (JV) to a JV and vice-versa will attract service tax. This will be the case when the "taxable services" are provided for a consideration, the Finance Ministry said in a circular on Wednesday.

The same treatment will hold good when taxable services are provided between members of a JV for a consideration, says the circular.

India is currently adopting the concept of negative list for services taxation and except for a specified set of services in this list, all other services are subject to service tax.

As regards taxation of cash calls or capital contributions made by the members to the JV, the Ministry said that detailed and close scrutiny of the terms of JV agreement may be required in each case.

If "cash calls" are merely a transaction in money, they are excluded from the definition of service and, therefore, will not attract tax, says the circular.

Tax authorities at the field level have been advised to carefully examine the leviability of service tax with reference to the specific terms/clauses of each JV agreement.

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India is currently adopting the concept of negative list for services taxation and except for a specified set of services in this list, all other services are subject to service tax.

Service Tax Update Union Budget 2014-15

Service Tax Update Union Budget 2014-15

Please take care in depositing of Service Tax amount to central Govt.
As per proposed budget
Intt. Rate on delay deposit will be very high,  it is not a welcome step by Central Government
If delay upto 6 months
Rate of intt. Will be 18% ( SSP 15%)
if delay more than 6 months to 1 year
Rate of intt. Will be 24% (SSP 21%)
If delay more than 1 year
Rate of intt. Will be 30% ( SSP 27%) annual simple intt.
SSP=assessee who taxable services less than 60 lacs in a FY.
Rate of intt. Given by govt. on refund 6% pa simple intt.
Srrvice tax on ACCURAL BASIS, Original not receive but pay service tax from own pocket
now we understand position of service provider.