© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS SERVICE TAX - VALUATION, ABATEMENT COMPOSITION SCHEME, TAXABLE TERROTORY, PLACE OF PROVSION OF SERVICE By Advocate Bharat Raichandani

NEW REGIME

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 3 NEED FOR CHANGE?  Facilitate launch of GST in a more familiar environment  Simplicity and certainty in tax processes  Neutrality of tax to business  Encouraging exports  Optimizing compliances

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 4 PARADIGM SHIFT IN REGIME

5 NEW LEVY  Section 66B: There shall be levied a tax at the rate of twelve per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 6 SERVICE-DEFINED  Explanation 2: Unincorporated association or a body of persons and a member thereof, to be treated as distinct persons Establishment of a person in a taxable territory and a non- taxable territory to be treated as distinct persons  Explanation 3: A person carrying business through a branch or agency in any territory shall be treated as having an establishment in that territory.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 7 IMPORTANT ELEMENTS  Tax levied on all services,  Except those specified in negative list,  Provided or agreed to be provided,  In the taxable territory, and  By a person to another

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 8 PHRASE – AGREED TO BE PROVIDED  Not defined in the Act  Guidance Note: Services taxable on agreement even before actual provisioning Advances retained on cancellation of contract taxable

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 9 TAXABLE TERRITORY  Defined as “the territory to which the Act applies”.  Section 64 : The Act extends to whole of India except State of Jammu & Kashmir  Jammu & Kashmir considered as non-taxable territory  ‘India’ defined.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 10 SERVICE-DEFINED  Section 65B(44) defines ‘Service’ as: any activity carried out by a person for another for consideration  And includes Declared Services  Not to include: Mere Transfer of title in: o Goods or Immovable property By way of sale/gift or in any other manner "such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution.“

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 11 SERVICE-DEFINED Not to include Continued… Mere transaction in Money or Actionable claim Services in the course of employment provided by an employee to employer Fees payable in a court/ tribunal

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 12 ACTIVITY  Not defined in the Act  Guidance Note: Meaning as understood in common parlance should be given Activity could be active or passive so to include act of forbearance etc

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 13 CONSIDERATION  Not defined in the Act  Guidance Note: Definition of consideration from Indian Contract Act, 1872 could be borrowed Anything which the receiver does or abstain from doing for receiving the service Would include both monetary as well as non- monetary Section 67 to determine value of non-monetary consideration  Whether direct nexus with activity required?

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 14 WHETHER – CONSIDERATION ?  Advance forfeited for cancellation of agreement to provide service  Excess payment made by mistake  Security deposit forfeited for damages/faulty action of receiver

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 15 VALUATION

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 16 VALUATION : RULE 2 A  W.e.f. July 1, 2012  Works Contract Service Rule 2A substituted o Value of service = Gross amount charged less actual value of goods transferred in execution Actual value of goods for VAT purposes to be considered for determining material value

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 17 VALUATION: RULE 2 A  Where value is not determined then: Service value shall be computed as : o Original work – 40% of total amount charged o Contract for maintenance or repair, renovation or restoration of any goods – 70% o Other works – 60%  Original works means: All new constructions All types of additions and alterations to abandoned or damaged structures on land that are required to make them workable Erection, commissioning or installation of plant, machinery or equipment or structures

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 18 VALUATION: RULE 2 A  ‘Total amount’ means: Gross amount charged Plus FMV of all goods and services supplied in or in relation to the contract whether or not supplied under the same contract Less The amount charged for such goods and services, and Less VAT or sales tax levied thereon  Specific bar inserted for availing excise duty credit in respect of inputs used in works contract services

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 19 VALUATION : RULE 2C W.e.f. July 1, 2012 Value to be determined in the manner as discussed in Rule 2A Credit of inputs allowed except those specified in Chapter 1 to 22. DESCRIPTIONEARLIER TAXABLE VALUE CURRENT TAXABLE VALUE W.E.F Supply of food and beverages at restaurant 30%40% Outdoor Catering 50%60%

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 20 VALUATION : RULE 6 Value to include: Amount realized as demurrage or by any other name for provision of service beyond originally contracted period in any manner relatable to service Value to exclude: Interest on deposits and delayed payment of any consideration for the provision of service or sale of goods Accidental damages due to unforeseen actions not relatable to provision of service Subsidies/grant by Govt. not effecting the value of service

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 21 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE % CONDITIONS Services in relation to financial leasing including hire purchase 10Nil. Transport of goods by rail30Nil. Transport of passengers, with or without accompanied belongings by rail 30Nil.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 22 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE % CONDITIONS Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for function together with renting of such premises 70Cenvat credit on any goods under Chapters 1 to 22 used for providing output service has not been taken in terms of Cenvat Credit Rules, Transport of passengers by air, with or without accompanied belongings 40CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 23 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE % CONDITIONS Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. 60CENVAT credit on inputs and capital goods not taken Services of goods transport agency in relation to transportation of goods 25CENVAT credit on inputs, capital goods and input services not taken

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 24 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE % CONDITIONS Services provided in relation to chit 70CENVAT credit on inputs, capital goods and input services, not taken Renting of any motor vehicle designed to carry passengers 40Same as above Transport of goods in a vessel 50Same as above

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 25 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE %CONDITIONS Services by a tour operator in relation to,- (i) a package tour 25(i) CENVAT credit on inputs, capital goods and input services, not taken (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour. (ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour 10i) CENVAT credit on inputs, capital goods and input services, not taken (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iiI) When invoice includes only service charges? (iii) In any other case40(i) CENVAT credit on inputs, capital goods and input services, not taken (ii) The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 26 NOTABLE ABATEMENTS DESCRIPTIONTAXABLE % CONDITIONS Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority. 25(i)Cenvat credit on inputs used for providing the taxable services has not been taken (ii)The value of land is included in the amount charged from the service receiver.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 27 COMPOSITION SCHMES  Life insurance :-3% first year premiums, 1.5 % for subsequent (full cenvat credit restored)  Money Changing :- existing rates raised proportionally by 20 %.  Distributor or selling agents of lotteries:- Rs. 7,000/- and Rs.11,000/-  Works Contract Service:- 4% to 4.8%

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 28 COMPOSITION SCHMES  The Dual tax Structure for air transportation partly specific, partly ad valorem is being replaced with a uniform ad-valorem levy at standard rate with an abatement of 60% on all sectors and all classes.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 29 PLACE OF PROVISION OF SERVICE

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 30 PLACE OF PROVISION OF SERVICE RULES Intent : To determine the place where service is deemed to be provided To deal with cross border services To deal with supplier and customer based in J & K Replaces Export of Services Rules, 2005 and Import of Services Rules, 2006 Pre-cursor for roll-out of nation-wide GST

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 31 PLACE OF PROVISION OF SERVICE RULES Rule 3 : General Rule/ Default Rule Place of provision of service shall be location of service receiver Proviso : Where location of receiver not available then the place of provision of service shall be location of service provider Default rule shall apply where no other specific rule is applicable

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 32 PLACE OF PROVISION OF SERVICE RULES Rule 4 : Performance based services Place of provision of following services shall be the place where such services are performed: Services to be performed physically on goods made available by the service receiver.  Service provided on goods from remote location by electronic means place of provision shall be the location of goods  Not to include repair or re-engineering services on goods imported for re-export purposes Service provided entirely or pre-dominantly in the physical presence of an individual (Photography, cosmetic surgery etc)

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 33 PLACE OF PROVISION OF SERVICE RULES Rule 5 : Services in relation to immovable property Place of provision of such service is where the immovable property is located or intended to be located. Instances :  Construction, repairs, maintenance, renting of immovable property, civil engineering, etc  Real estate agent, auctioneers, architects, engineers, etc  Services connected with mining, exploration of oil/minerals/gas relating to specific site/sea bed  Hotel accommodation, warehouse space  Legal services relating to land such as planning permissions

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 34 PLACE OF PROVISION OF SERVICE RULES Rule 6 : Services in relation to events Place of provision of such service is where the event is actually held. Instances :  Services in relation to admission, organization of event, celebration, conference, fair, exhibition, etc  Services ancillary to such admission.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 35 PLACE OF PROVISION OF SERVICE RULES Rule 7 : Part performance of services at different location Rule applies to services mentioned in Rule 4, 5 or 6 Provided at more than one location including taxable territory Place of provision of such service is a location in taxable territory where the greatest proportion of services is provided.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 36 PLACE OF PROVISION OF SERVICE RULES Rule 8 : Services where both provider and receiver are located in a taxable territory Place of provision of such service is the location of recipient. Instance :  Repair of aircraft belonging to Air India outside India by an Indian service provider

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 37 PLACE OF PROVISION OF SERVICE RULES Rule 9 : Specified Services Place of provision of such service is the location of the provider. Services by Banking company, financial company, or a NBFC to account holders Online information and database access and retrieval services Intermediary services Services of hiring of means of transport vehicle upto one month

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 38 PLACE OF PROVISION OF SERVICE RULES Rule 10 : Place of provision of service of transportation of goods Place of provision of such service is the destination of goods Except in case of GTA where place of service is location of the person liable for payment

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 39 PLACE OF PROVISION OF SERVICE RULES Rule 11 : Place of provision of service of transportation of passenger Place of provision of such service is where the passenger embarks for a continuous journey Term continuous journey defined : a single ticket has been issued for entire journey More than one ticket has been issued for journey by one service provider, or by agent on behalf of more than one service provider, at the same time and there is no scheduled stopover in the journey.

© COPYRIGHT 2012, INSTITUTE OF BUSINESS LAWS 40 PLACE OF PROVISION OF SERVICE RULES Rule 12 : Place of provision of service provided on board conveyance Place of provision of service provided on-board during the course of transportation is the first scheduled point of departure of the conveyance

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