Budget 2012: Proposals relating to Service Tax Draft Budget 2012: Proposals relating to Service Tax TRU, CBEC, Ministry of Finance March 23, 2012

The budget summary GST Budget 2012 4. CX & ST Harmonization 5. Reverse TRU The budget summary 4. CX & ST Harmonization 5. Reverse charge GST 1. Negative List 2. Cenvat reform 3. POS Rules Budget 2012 Executive Summary

The negative list: Concept (1/4) TRU The negative list: Concept (1/4) Activity for consideration I: Immovable property M: Money A: Actionable claim G: Goods E: Employee Not mere IMAGE Taxable 3. Exemption 1. Taxable territory 2. Negative list Executive Summary

Negative list: Highlights (2/4) TRU Negative list: Highlights (2/4) Category Highlights 1 Constitution or international obligations List II e.g. tolls, betting, gambling or international convention e.g. services by diplomatic missions Not services in relation thereto 2 Taxed as goods Manufacture Trading of goods 3 Lasting entries Education , agriculture, renting of residential dwellings or funeral Margin-based financial services Executive Summary

Effect on major sectors (3/4) TRU Effect on major sectors (3/4) Taxability Area Transportation Construction Real estate Education Health Govt. and community Financial Business/ Miscellaneous Changes Low High Passenger railway by higher classes taxed with ITC; inland waterways excluded; Repairs etc. of airports/ports/railways taxed; rate 40/60%; ITCs made available Renting to govt., > 90 days in hotels Largely status quo, NSDC exempted; greater clarity provided: bundled services Largely status quo; unrecognized health care taxed To business entities reverse charged; regulators/autonomous bodies taxed Interest on loans now exempt; reversals applicable; services to govt. taxed; Mainly filling up of gaps Executive Summary

Other relevant aspects (4/4) TRU Other relevant aspects (4/4) Goods or property v services: 2. Services vs services Dominant nature test Declared services Rules of interpretation Ordinarily: Dominant nature or pith and substance test; Rate same or higher (Notification 12/2003 to be rescinded) Deemed sale of goods in constitution; service portion specified; To remove ambiguities: judicially held to be services; 8/9 already being taxed; 9th not being taxed by states Normally uniform rate When differential treatment: Specific preferred over general Bundled services: Natural: essential character Unnatural: highest liability Executive Summary

Scientific allocation TRU Cenvat reform Mitigate Cascading Scientific allocation Facilitation ISD: to distribute credits scientifically: Exclusive: only to that More: proportionate to user turnover Refunds: No question asked, if entitled to avail credit; ratio of exports to total turnover Avail on challan: for reverse charged services Allow credits: Goods and services for legitimate business use ITC to abated services: catering, restaurants, hotel stay, life insurance, construction Principle of neutrality: no cost to business Executive Summary 7 7

Place Of Supply Rules, 2012 Jurisdiction to tax Cross border taxation TRU Place Of Supply Rules, 2012 Objectives The rules Later rule to prevail Main rule:B2B supplies: Location of receiver Other Rules:B2C supplies: Place of actual performance, or Location of property/event/performance/ embarkation of journey Location of supplier, or Internationally aligned with a fair bit of originality to retain B2C revenue in India Cross border Within Cross border taxation J&K supplies Jurisdiction to tax SEZ GST rollout Executive Summary

Harmonization and compliance TRU Harmonization and compliance Harmonisation & simplification 1.5 page common registration;1 page common return: EST, Appellate provisions Dispute settlement Settlement commission Revision Application Authority Enforcement Comprehensive special audit Evasion an offence for prosecution now Executive Summary

TRU Reverse charge (1/2) 1 New services added: Service to business entities by govt/ individual advocates/arbitrators 2 J&K Supplies: Covered by POS Rules; reverse charged if provider in J&K 3 Reverse charge new scheme: Tax payable to the extent stated on 3 specified services

Reverse charge: new scheme (2/2) TRU Reverse charge: new scheme (2/2) Liability to pay Service provider: Portion specified: Transport: 60%; Manpower : 25% Construction: 50% Avail ITC Refund if necessary Service receiver: Portion payable: Transport: 40% Manpower: 75% Construction: 50% Independent liability

GST TRU ? Unified GST 2011-13 Towards Central GST 2005 State VAT 2004 CENVAT