Amendment ST Determination of Rules

SERVICE TAX (DETERMINATION OF VALUE) SECOND AMENDMENT RULES, 2012 - AMENDMENT IN RULES 2B, 3, 5 & 6; INSERTION OF RULE 2C; SUBSTITUTION OF RULE 2A AND OMISSION OF RULE 7

NOTIFICATION NO. 24/2012 - SERVICE TAX, DATED 6-6-2012

In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) number 11/2012 - Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, vide number G.S.R. 209 (E), dated the 17th March, 2012, the Central Government, hereby makes the following rules further to amend the Service Tax (Determination of Value) Rules, 2006, namely :-

1. (1) These rules may be called the Service Tax (Determination of Value) Second Amendment Rules, 2012.

(2) They shall come into force from the 1st day of July, 2012.

2. In the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as the said rules), for rule 2A, the following rule shall be substituted, namely:-

"2A. Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:-

 (i)  Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract.

Explanation.- For the purposes of this clause,-

(a)  gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract;

(b)  value of works contract service shall include, -

(i)  labour charges for execution of the works;

(ii)  amount paid to a sub-contractor for labour and services;

(iii)  charges for planning, designing and architect's fees;

(iv)  charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(v)  cost of consumables such as water, electricity, fuel used in the execution of the works contract;

(vi)  cost of establishment of the contractor relatable to supply of labour and services;

(vii)  other similar expenses relatable to supply of labour and services; and

(viii)  profit earned by the service provider relatable to supply of labour and services;

(c)  Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

(ii)  Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:-

(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

(B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract;

(C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

Explanation 1.- For the purposes of this rule,-

(a)  "original works" means-

(i)  all new constructions;

(ii)  all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable;

(iii)  erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

(b)  "total amount" means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of the works contract, whether or not supplied under the same contract or any other contract, after deducting-

(i)  the amount charged for such goods or services, if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.".

3. In the said rules, in rule 2B, the words, brackets, letters and figures "referred to in sub-clause (zm) and (zzk) of clause (105) of section 65 of the Act," shall be omitted.

4. In the said rules, after rule 2B, the following rule shall be inserted, namely:-

"2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor catering.- Subject to the provisions of section 67, the value of service portion, in an activity wherein goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:-

TABLE

	Sl. No.	Description	Percentage of the total amount
	(1)	(2)	(3)
	1.	Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant	40
	2.	Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of such outdoor catering	60

Explanation 1.- For the purposes of this rule, "total amount" means the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink(whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting-

 (i)  the amount charged for such goods or services, if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:

Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.

Explanation 2.- For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986).".

5. In the said rules, in rule 3, for the words "where the consideration received is not wholly or partly consisting of money", the words "where such value is not ascertainable" shall be substituted.

6. In the said rules, in rule 5, in sub-rule(1), in the Explanation, for the words, brackets, letters and figures "services specified in sub-clause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority", the words "the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided." shall be substituted.

7. In the said rules, in rule 6,-

(a)  in sub-rule (1),-

 (i)  in clause (viii), for the words "in any manner; and" the words "in any manner;" shall be substituted;

 (ii)  in clause (ix), for the words "insurance agent", the words "insurance agent; and" shall be substituted;

(iii)  after clause (ix), the following clause shall be inserted, namely:-

"(x)  the amount realised as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service.";

(b)  in sub-rule (2),-

 (i)  for clause (iv), the following clause shall be substituted, namely:-

"(iv) interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable;"

(ii)  after clause (v), the following clause shall be inserted, namely:-

"(vi) accidental damages due to unforeseen actions not relatable to the provision of service; and

(vii) subsidies and grants disbursed by the Government, not directly affecting the value of service.".

8. In the said rules, rule 7 shall be omitted.

RBI on Trade Credits

Date: Sep 11, 2012

Trade Credits for Import into India

RBI/2012-13/202 A.P. (DIR Series) Circular No. 28 September 11, 2012 To, All Category - I Authorised Dealer Banks Madam / Sir, Trade Credits for Import into India Attention of Authorized Dealer Category - I (AD Category - I) banks is invited to A.P. (DIR Series) Circular No. 87 dated April 17, 2004 and A.P. (DIR Series) Circular No. 24 dated November 01, 2004. 2. As per the extant guidelines, for import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the Reserve Bank from time to time. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction. 3. On a review, it has been decided to allow companies in the infrastructure sector, where "infrastructure" is as defined under the extant guidelines on External Commercial Borrowings (ECB) to avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions: - (i) the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and (ii) AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years. 4. The all-in-cost ceilings of trade credit will be as under: Maturity period All-in-cost ceilings over 6 months LIBOR* Up to one year 350 basis points More than one year and up to three years More than three years and up to five years * for the respective currency of credit or applicable benchmark The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any. 5. All other aspects of Trade Credit policy will remain unchanged and should be complied with. The amended trade credit policy will come into force with immediate effect and is subject to review based on the experience gained in this regard. 6. Necessary amendments to the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 dated May 3, 2000 are being issued separately wherever necessary. 7. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 8. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law. Yours faithfully, (Rashmi Fauzdar) Chief General Manager

View your arrear demand.

View your arrear demand.

As a Taxpayer friendly initiative, a facility to view details of Arrear Demand of taxpayers as communicated by their Jurisdictional Assessing Officers (A.O.) to the Central Processing Centre (CPC) is now enabled on the e-filing website

i.e.

https://incometaxindiaefiling.gov.in/portal/index.do

Taxpayers can now log in to 'My Account' window and view their Arrear Demand.

Taxpayers can view the details of their Arrear Demand in 'My Account' as communicated by their jurisdictional Assessing Officers to CPC

-CA. V.M.V.SUBBA RAO

Key recommendations of expert committee on GAAR

Key recommendations of expert committee on GAAR The expert committee on GAAR, as constituted by the Prime Minister, has submitted its report. Inter-alia, the key recommendations of expert committee are as under: 1) GAAR should be deferred by three years; 2) GAAR should be applicable only if a tax benefit of Rs. 3 crore and above has been obtained by the taxpayer; 3) In case of deferral of tax benefit, present value of tax benefit should be considered; 4) Non-applicability of GAAR on a resident of Mauritius holding valid tax residency certificate; 5) GAAR should not be applicable if FII offers to be taxed under domestic laws; 6) GAAR should not be applicable if non-resident invests in listed securities through FIIs; 7) Abolition of tax on gains arising from transfer of listed securities (both capital gains and business income); 8) Grandfathering of existing structures or investment. In other words, only income arising after implementation of GAAR should be subject to provisions; 9) GAAR should not be allowed to over-ride the anti-avoidance provisions of treaties (i.e. limitation of benefit, etc.); 10) Onus should be on revenue to prove if a transaction is impermissible avoidance agreement; 11) Amendment to the Act to provide that only arrangements with sole purpose (and not one of the main purpose) of obtaining tax benefit should be covered under GAAR; 12) Tax consequences of 'impermissible avoidance arrangements' should be limited to the tainted part of the transaction; 13) Definition of 'connected person' under Sec. 99 should be restricted to 'associated person' and 'associated enterprise' only; 14) AAR should decide the GAAR cases within 6 months; 15) A 'negative list' for the purpose of invoking GAAR should be provided; 16) 'Tenure of arrangements, payment of taxes and an option to exit' should be given due weightage while deciding if arrangements lack commercial substance; 17) GAAR not to be invoked if taxpayer submits a satisfactory undertaking to pay tax along with interest in case GAAR provisions are made applicable in relation to the remittances; 18) Tax auditor should report the probable transaction which may accrue to the tax payer a tax benefit of Rs. 3 crore and above; 19) Extensive training of Assessing officer to be placed in the regime of International Taxation; and 20) Various illustrations have been given where GAAR will be considered as applicable or not applicable. (View report of Committee)

GAAR Comments Invited

Press Information Bureau
Government of India
Ministry of Finance

01-September-2012 15:41 IST

The Expert Committee Headed by Dr. Parthasarathi Shome on Gaar Submits the Draft Report; Comments from Stakeholders and General Public Invited by 15th September,2012

The Government had constituted an Expert Committee on General Anti Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the GAAR guidelines as well as a roadmap for implementation.

The Committee, chaired by Dr. Parthasarathi Shome, has submitted its draft report after analysis of the GAAR provisions and noting the concerns expressed by various shareholders. The draft report has recommended certain amendments in the Income-tax Act, 1961; guidelines to be prescribed under the Income-tax Rules, 1962; circular to clarify GAAR provisions along with illustrations; and other measures to improve tax administration specifically oriented towards GAAR matters.

The report of the Committee has been uploaded on the Finance Ministry's website (http://finmin.nic.in) for comments from stakeholders and the general public.

The comments and suggestions on the draft report may be submitted by 15th September, 2012 at the email address (jstpl2@nic.in) or by post at the address: Joint Secretary (Tax Policy & Legislation-II), Room No.152, North Block, Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, North Block, New Delhi – 110001 with "Comments on GAAR Committee" written on the envelope.

******

DSM/RS

 

ROC Filing Date Extended

FILLING OF BALANCE SHEET AND PROFIT AND LOSS ACCOUNT BY COMPANIES IN NON-XBRL FOR ACCOUNTING YEAR COMMENCING ON OR AFTER 1-4-2011 - DUE DATE FOR FILING OF e-FORM 23AC AND 23ACA (NON-XBRL) IS EXTENDED UP TO 15-10-2012  

GENERAL CIRCULAR NO. 28/2012, DATED 3-9-2012

Reference: General Circular No.21/2012 vide File No.l7/160/2012-CL-V, dated 2-8-2012

This Ministry had issued General Circular No. 21/2012, dated 2-8-2012 for extending time for filing e-form 23AC and 23ACA (non-XBRL) as per revised Schedule VI without any additional fees/penalty up to 15-9-2012 or within 30 days from the date of their AGM, which ever later. It is to inform you that with approval of competent authority, the filing of e-form 23AC and 23ACA (non-XBRL), is now extended up to 15-10-2012 or within 30 days from the date of AGM, which ever is later.

The lawyer is not rendering a service but is assisting the court in rendering justice

Lawyers try to come to terms with service tax

Mumbai 
August 30, 2012

While some lawyers welcome the concession on service tax imposed, others continue to say it isn't enough

The finance ministry's latest concession on service tax imposed on lawyers that was notified in June has been welcomed by some; others continue to say it wasn't enough and many remained unaware of the current law and how, or if at all, they had to pay this tax.

It all started in the government's 2009-10 budget, when it announced that law firms would have to pay service tax, explicitly exempting individual advocates representing clients before the courts.

The Bar Council of India (BCI) spoke out in favour of taxing law firms at the time. The Society of Indian Law Firms (SILF) was less pleased and took the Union government to court while lobbying the finance minister.

Advocates' associations such as the Supreme Court Bar Association (SCBA) showed solidarity with the law firm lawyers, and the Delhi High Court Bar Association (DHCBA) even went on strike in protest for its brethren.

Next year, on 28 February 2011, the service tax net widened and also included individual advocates advising businesses. SILF filed a second writ petition after the first court case against the tax was dismissed.

SILF and other lawyers continued their lobbying efforts, while the DHCBA held another strike against the service tax.

Lalit Bhasin, chairman of SILF, explained one particular bugbear in the regime, whereby lawyers would have to pay the service tax to the taxman as soon as the lawyer issued the invoice to the client. "We met the then finance minister Mr Pranab Mukherjee and told him that it is very difficult for us to pay service tax on the basis that our invoices may not be honoured," said Bhasin.

As often, client bill payments are delayed. "If you've already paid service tax based on the bills you've already sent out, and the bills get cleared later in the year, or even in the next financial year, it's a huge headache to keep track of whether you've paid taxes in excess or not," said one Delhi advocate about the previous rules.

In a 31 March 2011 notification the finance ministry gave lawyers that concession and made service tax payable by the recipient of the service and not by the lawyer. This reversal of service tax collection—separating the payment of tax from the service provider—one notable case where this had been done before was for transport services, after drivers and transport operators went on strike, lobbied and filed in court.

Even today, however, some lawyers appear to misunderstand the implication of those rules. One Delhi high court advocate stated wrongly: "Suppose a lawyer is dealing with a client that is a corporate client, (service tax) is payable by the client but has to be collected by the lawyer."

Still other problems persisted. By a strange twist of the service tax regime, the pay of every single lawyer on full-time and exclusive retainer for a law firm, was also subject to service tax, said Majmudar and Partners managing partner Akil Hirani.

Law firms dealt with the issue in a variety of ways, said Milan Chitalia, a partner at Mumbai-based accounting firm NPV and Associates, which advises a number of lawyers. One law firm told its associates to register and pay the service tax directly but that it would later reimburse them, while at another only the fees charged by associates in the litigation department were subject to service tax, he said.

On 29 April 2011, the Delhi high court then stayed the operation of service tax in the DHCBA's petition, which was followed by the Andhra Pradesh and Gauhati high courts also ordering interim stays on the operation of the tax in May.

On 20 June, after the March 2012 budget muddied the situation even further, the government finally came out with service tax rules for lawyers that were at least consistent (see box), though they are still not universally loved.

The new rules fix the problem of lawyers who are quasi-employees having to pay service tax within their firm by restricting service tax primarily to advice provided by lawyers to businesses but not individuals. The rules also intend that fees charged by an advocate appearing in court when instructed and paid by a law firm would not have to charge service tax again. But even those rules are not clear to everyone. "If a lawyer is briefed by a law firm, I have to collect the service tax from them?" the Delhi high court advocate said, guessing incorrectly at the current position.

Law firms have mostly consigned themselves to the new service tax realities. "In a way it's good," commented Hirani about the changes, although law firm profits would be reduced. Because the client was now collecting the service tax rather than the law firm, the firm could not use the tax credits anymore to set off service tax payments made by firms to their service providers.

However, when advising foreign companies, under export of service rules in most cases, the Indian lawyer would again have to become a tax collector and pay the service tax to the revenue when the invoice is raised.

So is the treatment of foreign companies for the purpose of the tax a problem for law firms? "Not really," said Bhasin. "One is reconciled to this, that service tax has to be paid."

Things are also uncertain, claimed Chitalia, with respect to corporate lawyers who are doing non-legal work, such as company incorporation, fund raising or transaction structuring within a law firm. He said that those services, which are not legal in nature, could very well be taxable when provided to the law firm.

DHCBA president Amarjit Singh Chandhiok , who is also an additional solicitor general of India, said that he and the DHCBA remained opposed to the principle of service tax being payable at all. "We are not happy with the situation because in this country the constitution provides justice for everybody so you can't tax the justice delivery systems.

"The lawyer is not rendering a service but is assisting the court in rendering justice."

While the Delhi high court stay order is still in effect, it doesn't apply to the current financial year, he said, and the new laws have not yet been examined by a court. The contentious issue therefore remains, and the DHCBA has sent representations to the government to resolve the problem. "When you can exempt doctors," said Chandhiok, "I am sure you can exempt lawyers."

[Source: Livemint]

e Payment of Customs Duty Mandatory

Circular No.24/2012-Customs

F.No.450/180/2009-Cus.IV(Pt.)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

*****

Room No. 229-A, North Block,

New Delhi, dated 5^th September, 2012.

To,

All Chief Commissioners of Customs

All Chief Commissioners of Central Excise and Service Tax

                                                                                  

           

            Subject: Making E-payment of Customs duty mandatory-regarding.

Sir / Madam,

            Kind attention is invited to Board Circular No. 33/2011-Customs dated 29^th July, 2011 wherein it was decided that by the Board that the date for mandatory E- payment of Customs duty shall be notified separately.

2.         It has been decided to make e-payment of duty mandatory for importers registered under Accredited Clients Programme and importers paying customs duty of one lakh rupees or more per Bill of Entry with effect from 17.09.2012.

3.         All Chief Commissioners of Customs are therefore advised to give wide publicity to enable trade to be ready in case any change in their software or any internal procedure for effecting E-payment is required. As a large number of taxpayers would be required to pay the taxes electronically, it is requested that importers, trade and industry may be provided all assistance so as to help them in adopting the new procedure.

4.         Suitable Public Notices or Standing Orders may be issued to guide the trade / Industry and officers.

Yours faithfully,

(G.S. Sinha)

OSD (Customs-IV)

Background Material of Two/Three Days Workshop on Enabling Service Tax Practice

Dear Member,

Sub:  Background Material of Two/Three Days Workshop on Enabling Service Tax Practice

As you are kindly aware, taxation of services has undergone a radical change with effect from July 1, 2012 - the selective system has given way to the comprehensive system. Under new dispensation, all services, other than services specified in the negative list, provided or agreed to be provided in the taxable territory by a person to another would be taxed under section 66B. The additional collection expected from service tax alone this year is estimated at more than Rs. 50,000 crores though the Finance Minister has conservatively estimated it to be above Rs. 18,000 crores.

These developments have opened new professional opportunities and challenges for our members.  To cope up with these emerging challenges in the area of service tax, the Indirect Taxes Committee of the ICAI is organising Two/ Three Days Workshops on "Enabling Service Tax Practice" across the country.  Another important objective of the Workshop is to bring more members in to the practice of indirect taxes so that when Goods and Services Tax is introduced, our members can play lead role and assist the Government in implementing the new tax regime.

The Workshop is designed to cover all important aspects of service tax like definition of 'service' and its taxability, declared service, concept of 'negative list of services', 'exempted service', tax liability under 'reverse charge mechanism' & 'joint charge mechanism', point of taxation, registration, valuation, import & export of service.  The Committee provides a Background Material, covering inter alia the above-mentioned topics, to the participants of the Workshop to facilitate easy understanding of the contents.

Considering the significant amendments made in service tax law, the Committee has updated the Background Material of the Workshop with all the amendments made by the Finance Act, 2012 and notifications/circulars issued till 24th August 2012. Additional chapters on 'Issues in Works Contract and Construction Activities' and 'Landmark Case Laws' have made this booklet a little more comprehensive. Keeping with its objective of disseminating current and updated knowledge amongst the members, the Committee has decided to host the Material on the Institute's website at http://220.227.161.86/27778bm-idtc310812.pdf 

It gives us immense pleasure to inform to you that as on date the said Workshop has been organized at more than 20 locations and more than 1800 members have been trained in the area of service tax. Members desirous of attending the Workshop may contact their Branch for hosting the same. 

With best regards


Secretariat, 
Indirect Taxes Committee
The Institute of Chartered Accountants of India
ICAI Bhawan
A-29, Sector - 62, NOIDA (U.P.)
India

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Success is not permanent and failure is not final

 

FAQ on Reverse Charge

Reverse charge for Directors & security services - FAQ

VIDE notifications 45 & 46/2012 ST Dated 07.08.2012, services provided by non employee directors to the Companies and security agencies have also been subjected to the levy of service tax. In this connection, the following questions are often raised.

1. Is service tax applicable for all directors of a Company?

Whole time directors and Managing Directors of the companies are considered as employees of the company in which they are directors. The definition of service itself excludes services provided by the employees to employers. Hence, there is no service tax in respect of such employee directors. Service tax will apply only in case of non employee directors.

2. Does reverse charge apply for all service recipients?

In respect of services provided by directors, obviously, the service recipient should be a company established under the Companies Act, like Private Limited Company, Public Limited Company, Government Company. In case of security agency services, the service recipient should be a business entity registered as a body corporate. Only in such cases reverse charge will apply.

3. If the service recipient is a partnership firm, whether reverse charge will apply for security services received by it?

No. Partnership firm is not a body corporate. Similar would be the case in case of other reverse charge liabilities, viz., manpower supply, works contract service and renting of vehicle services. But in case of support services provided by Government, Advocates, reverse charge will apply if the service recipient is "business entity" and they need not be body corporates.

4. What about the liability for the period 1 st July 2012 to 7th August 2012?

It may be noted that the services of Directors to the companies and security agency services are normally continuously provided for more than a period of 3 months. Hence, they would be "continuous supply of service" as defined in Point of Taxation Rules, 2011. As per first proviso under Rule 4 of the said Rules, the point of taxation in case of continuous supply of services has been defined as "in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service".

For example, if the security agency has already raised their invoice for the services provided by them during July 2012, before 7 th August 2012, the service recipient's liability to make the payment is recognized on the date of invoice and hence the point of taxation shall be the date of such invoice. Hence, if invoice has been raised by the security agency before 7 th August 2012, reverse charge will not apply, even if the payment is made by the service recipient after 7 th August 2012. But, if the invoice for the services provided from 1 st August to 31 st August 2012 is raised on 31 st August 2012, the date of invoice, i.e. 31 st August 2012 would be the point of taxation and hence the service recipient would be liable to make the payment of his portion of service tax liability under reverse charge, though part of the service has been provided before 7 th August 2012. In other words, there is no need to split up the liability into pre / post 7 th August 2012.

Similar would be the case in respect of services provided by the Directors to the Companies. If the liability to make the payment to the Director is recognized after 7 th August 2012, reverse charge will apply and if such liability is recognized by the company before 7 th August 2012, reverse charge will not apply.

If the services provided by the directors and security agencies does not qualify as continuous supply of service, then the point of taxation shall first be determined for the services provided. If the point of taxation is on or after 7 th August 2012, reverse charge will apply and if the point of taxation is before 7 th August 2012, reverse charge will not apply.

5. Whether the Directors have to obtain registration and pay service tax for the month of July 2012?

Yes. But, till 1 st July 2012, the services provided by them was not a taxable service. Hence, if the value of other taxable services rendered by them, if any, during the financial year 2011-12 is less than Rs. 10 lakhs, they can claim exemption upto Rs.10 lakhs, during 2012-13 if the value of services provided by them to the companies and other taxable services, if any provided by them, is upto less than Rs.10 lakhs. This exemption is contained in notification 33/2012 ST Dated 20.06.2012 and subject to the conditions prescribed therein.

6. What is the portion of service tax payable under reverse charge?

In case of directors, the entire service tax liability has to be paid by the company. In case of security agencies, 75 % of the service tax liability (9%) shall be paid by the service recipient and 25 % of the service tax liability (3%) shall be paid by the security agencies.

7. Whether the security agencies can pay 3 % service tax in all cases?

No. Reverse charge will apply only if the service recipient is a business entity registered as a body corporate. In case of the services of security agencies are provided to other than business entities or to business entities who are not registered as body corporates, the entire service tax has to be paid by the security agency and no reverse charge will apply.

8. Whether the service tax thus paid under reverse charge can be availed as cenvat credit?

Entitlement to cenvat credit of service tax is to be decided with reference to the definition of input service under the Cenvat Credit Rules, 2004. Normally, the services of Directors and security agencies would be an eligible input service for a manufacturer and a service provider. Further, security service is specifically covered in the definition of input service. Hence, cenvat credit would normally be entitled subject to other conditions under the Cenvat Credit Rules, 2004.

9. What is the document based on which cenvat credit can be taken?

In case of service tax paid directly by the service recipient under reverse charge, the challan evidencing payment of service tax by the service recipient would be the relevant document to avail cenvat credit. In respect of the portion of service tax paid by the security agency, the invoice issued by the security would be the relevant document.

10. Whether the directors have to issue an invoice?

As per the provisions of the Service Tax Rules, 1994 every service provider must raise an invoice within 30 days of completion of the service.

By G Natarajan, Advocate, Swamy Associates

Service Tax on Vocational Education

SECTION 66D OF THE FINANCE ACT, 1994 - NEGATIVE LIST OF SERVICES - SERVICE TAX ON VOCATIONAL EDUCATION/TRAINING COURSE

CIRCULAR NO. 164/15/2012-ST, DATED 28-8-2012

1. Clarification has been sought in respect of levy of service tax on certain vocational education/training/ skill development courses (VEC) offered by the Government (Central Government or State Government) or local authority themselves or by an entity independently established by the Government under the law, as a society or any other similar body.

2. The issue has been examined. When a VEC is offered by an institution of the Government or a local authority, question of service tax does not arise. In terms of section 66D (a), only specified services provided by the Government are liable to tax and VEC is excluded from the service tax.

3. When the VEC is offered by an institution, as an independent entity in the form of society or any other similar body, service tax treatment is determinable by the application of either sub-clause (ii) or (iii) of clause (i) of section 66D of the Finance Act, 1994. Sub-clause (ii) refers to "qualification recognized by any law" and sub-clause (iii) refers to "approved VEC". In the context of VEC, qualification implies a Certificate, Diploma, Degree or any other similar Certificate. The words "recognized by any law" will include such courses as are approved or recognized by any entity established under a central or state law including delegated legislation, for the purpose of granting recognition to any education course including a VEC.

4. This Circular may be communicated to the field formations and service tax assessees, through Public Notice/Trade Notice.

ST Compliance by CA

Service Tax Compliance by Chartered Accountants having turnover exceeding Rs. 50 Lakh

Till 31.03.2011, point of taxation in case of eight specified services including Chartered Accountants (CAs) was determined on the basis of receipt of payment.  However, w.e.f. 01.04.2011, this benefit has been extended to all services albeit, in a slightly modified form.  Now all individuals, partnership firms (including limited liability partnership firms) having a turnover not exceeding Rs. 50 lakh in the previous year can pay service tax on receipt basis in the current financial year.

Relevant provision – Rule 6(1) of the Service Tax Rules, 1994

…………..
"(1)     The service tax shall be paid to the credit of the Central Government, -
(i)         by the 6th day of the month, if the duty is deposited electronically through internet banking; and

(ii)        by the 5th day of the month, in any other case,

immediately following the calendar month in which the [Service is deemed to be provided as per the rules framed in this regard.

Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the [Services is deemed to be provided as per the rules framed in this regard.

Provided further that the service tax on the service deemed to be provided in the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.

Provided also that in case of taxable services covered under  sub-rule (1) of rule 3 of the Export of Services Rules, 2005, this sub-rule shall not apply subject to the condition that the payment is received within the period specified by the Reserve Bank of India,  including such extended period as may be allowed from time to time.

Provided also that in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or to be provided by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received."

In other words, the point of taxation (POT) in case of all service providers whose turnover exceeded Rs. 50 lakh in the year 2011-12 will be receipt of payment or issuance of invoice, whichever is earlier.  Thus, all CAs/firms of CAs with a turnover exceeding Rs.50 lakh in the year 2011-12 will also have to pay service tax on accrual basis.

Compliance advisory for firms maintaining books of accounts on cash basis

As majority of the CAs/firms of CAs (firm) maintain their books of account on cash basis, complying with the new system will require making adjustments/changes therein, though the firm can continue to maintain the Cash Method of Accounting.  The firm can creditService Charges A/c in the books on receipt basis and all other income and expenditure on cash basis.

Till 31.03.2012

The service tax recovered in respect of invoices issued before 31.3.2012 should be credited to Service Tax A/c No. l and the same should be debited when service tax is paid to the Government every quarter.  For this purpose, a separate Service Charges Register No. 1 can be maintained by the Firm containing the following columns.

(i) Date (ii) Invoice No. (iii) Name of Client (iv) Services Charges (v) Service Tax (vi) Total (vii) Date of Receipt (viii) Receipt No. (ix) TDS (ix) Amount Received

For accounting purposes, a separate Receipt Register No. 1 containing the following information in respect of invoices issued up to 31.3.2012 should be maintained:

(a) Date, (b) Receipt No. (c) Name of Client, (d) Date of Invoice (e) Invoice No. (f) Services Charges Received (g) Service Tax (h) TDS (i) Net Amount.

From 01.04.2012 onwards

The firm can maintain its regular accounts on cash basis of accounting. It can follow the following method for Service Tax purposes.

(i) The Firm should maintain a separate Service Charges Register No. 2 with following columns:

(a) Date (b) Invoice No. (c) Name of Client (d) Service Charges (e) Service Tax (f) Total (g) Date of Receipt (h) Receipt No. (i) Service Charges Received (j) Service Tax Received (k) TDS Deducted (I) Net Amount Received

(ii) At the end of each quarter the Firm should pay service tax as per total of item (e) which is the service tax on invoices issued during the quarter (Accrual Basis) plus item (j) which is the service tax actually received from the service receivers.  This service tax should be debited to Service Tax A/c No. 2 in the Books on the date of payment.

(iii) Service tax received on actual receipt basis as per Column (j) should be credited to Service Tax No. 2 A/c in the Books.

(iv)The debit balance in the Service Tax No. 2 A/c will represent service tax paid on invoices issued but not yet recovered.  This can be carried forward to next year.

(v)The actual payment of Service Tax in A/c No. 1 and 2 will be eligible to CENVAT Credit as per the provisions of CENVAT Credit Rules, 2004.

(vi)If the entire amount of invoice is not received but is settled for lesser amount and service tax received is of lesser amount, set off of service tax can be claimed as per the provisions of Service Tax Rules, 1994.  Similar will be the position if service is not provided either wholly or partially for any reason while the invoice for the same has been issued or the payment therefor has been received.

For accounting purposes, a separate Receipt Register No. 2 containing the following information in respect of invoices issued from 01.04.2012 onwards should be maintained:

(a) Date (b) Receipt No. (c) Name of Client (d) Date of Invoice (e) Invoice No (f) Service Charges, (g) Service Tax (h) Invoice Total (i) Services Charges Received (j) Service Tax Received (k) TDS (I) Net Amount Received.

The amount of Service Charges received, service tax received and TDS should be adjusted in respective accounts in the books.

Service tax in case of statutory audits

CAs may consider revisiting their service contracts in respect of statutory audits, which is a major source of revenue for majority of CAs and negotiate with their clients to pay the service charges within three months from the last date of filing the tax audit report i.e., 30^thSeptember of the relevant year. Now, when the time period of issuance of invoice has been increased from 14 days to 30 days from completion of service, CAs can issue the invoice on or before October 29 of a year – service will be taken to be completed when the audit report is filed on 30^th September.  Thus, in effect they will have three months to recover the fee and service tax from clients as service tax for the quarter Oct-Dec is payable by January 5^th/6^th of the next year. 

Source: IDTC, ICAI