List of service tax amendments effective from 01/04/2011

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Budget 2011 (Finance Act 2011 ) has brought in following amendments in service tax laws effective from 01/04/2011 . Readers are already told12 service tax amendments which is effective from 01/03/2011 . Among many new things, point of taxation rule is most importanat and talked about amendment in Finance Act 2011 . Here is the list of amendments effective from 01/04/2011

a) Exemption is provided to the following services:

i) Value of air freight included in the assessable value of goods for charging customs duties is being excluded from taxable value for the purpose of levy of service tax under the ‘Transport of goods by air’ service.

ii) Services related to transportation of goods by road, rail or air when both the origin and the destination are located outside India is being exempted from service tax.

b) Withdrawal or amendments to existing Exemptions:

i) The rates of service tax on travel by air are being revised as follows:

(1) Domestic travel (economy class): from Rs.100 to Rs.150

(2) International travel (economy class): from Rs.500 to Rs.750

(3) Domestic travel (other than economy class) 10% (Standard rate)

ii) Exemption to inter-bank transactions of purchase and sale of foreign currency is being extended to any bank, including a bank located outside India, or money changer, by any other bank or money changer.

iii) Exemption to transport of goods by rail service is extended upto 30-Jun-2011.

c) Amendments to Rules & Notifications:

i) Rule 6(4B)(iii) of the Service Tax Rules, 1994 is amended to raise the monetary limit for adjustment of excess tax paid from Rs.1,00,000/- to Rs.2,00,000/-.

ii) Rule 6(7B) of the Service Tax Rules, 1994 pertaining to sale and purchase of foreign exchange is being amended to,—

(1) omit the proviso as well as the illustration; and

(2) reduce the composition rate from 0.25% to 0.1% of the gross amount of currency exchanged towards discharge of service tax liability. Transaction slabs and different rates of composition are introduced.

iii) It is being defined in Service Tax (Determination of Value) Rules, 2006 that the value of the money changing service:

(1) for a currency exchanged either from or to Indian Rupees, shall be equal to the units of currency exchanged multiplied by the difference in the buying rate or the selling rate, as the case may be, and the RBI reference rate for that currency at that time;

(2) for a currency where the RBI reference rate is not available, shall be 1% of the gross amount of Indian Rupees provided or received, by the person changing the money;

(3) where neither of the currencies exchanged is Indian Rupee, shall be equal to 1% of the lesser of the two amounts the person changing the money would have received by converting any of the two currencies into Indian Rupee on that day.

iv) Rule 6(6A) is being inserted in Service Tax Rules, 1994, to provide power to the Officer that if any amount of service tax has been self-assessed and not paid, the same shall be recoverable with interest by way of attachment under section 87 of the Act. Thus, there shall be no need to resort to provisions of section 73 where issuance of notice was mandatory.

v) Export of Services Rules, 2005 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 are being amended so as to move some of the specified services from one category to another.

d) The Point of Taxation Rules, 2011

New Rules have been framed and made effective from 01.04.2011 with relevant amendments to the Service Tax Rules. Transitional provision is introduced to provide an option to the service provider to adopt the rules from 1-7-2011. These rules determine the point in time when the services shall be deemed to be provided and consequently the point of time for payment of tax thereof.

e) CENVAT Credit Rules, 2004: Rules 2, 3, 4, 6 & 9 are being amended -i) To substitute the definitions of “inputs”, “input services”, “capital goods”, “exempted goods” and “exempted services” to clearly describe the scope of eligible & ineligible inputs and input services so as to minimize disputes in their interpretations. It is important to note that the term “exempted goods” now includes “trading”.

ii) To liberalise by allowing removal of inputs outside the factory for providing free warranty for final products without payment of duty.

iii) Rule 6 which stipulate options for reversal of CENVAT Credit where both taxable and exempted goods / services are manufactured / rendered, substantial changes are made amongst which the duty payable by service provider under Rule 6(3) is reduced from 6% to 5%. Also the term “value” is clarified for the purpose of computing the amount of reversal of CENVAT Credit.

iv) To provide that only 50% of the CENVAT credit availed will be available for utilization towards payment of service tax under ‘Banking and other financial services’ by a banking company and financial institution.

v) To provide that only 80% of the CENVAT credit availed will be available for utilization towards payment of service tax by the providers of life insurance service and management of investment under ULIP.

vi) To delete Rule 6(5) which stipulated that, 100% of CENVAT Credit was available for the specified 17 services where both taxable and exempted services are rendered.

vii) To provide that CENVAT Credit on input services will now be available on or after the day on which the invoice or bill is received subject to conditions for reversal of credit taken if the bill for input services is not paid within 3 months of the bill date. It is also stipulated that CENVAT credit must be reversed if any payment or part thereof, made towards an input service is refunded or a credit note is received. CENVAT Credit on service tax paid on reverse charge basis can be taken after the tax is paid by the service receiver. A transitional provision is introduced that where any bill issued before 1-Apr-2011, credit shall be allowed only after the bill is paid.

f) Amendments in the Act: Chapter V of Finance Act, 1994 is being amended to,—

i) Increase the rate of Interest under section 75 & 73B, on late payment / excess collection of service tax from the present 13% to 18%.

(Submitted by Shaleen Shah (Partner), VNCA ,

Vinod & Narendra Chartered Accountants

Cell: 9374067000 | Phone (Board): (079) 40069991