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Budget 2014 – Impact on Service Tax Regime

February 19, 2014 Service Tax

Finance Budget 2014 presented by Hon’ble Finance Minister Sh. ​Arun Jaitley on 10th July, 2014 brings new hopes for the growth of Indian Economy through promoting manufacturing and infrastructure sector. FM has also give assurance that the powere to bring Retrospective Amendments will be exercised with extreme cautious which has certainly sent a positive message to investors at large. Further, Income Tax payers has been given a relief under this Budget by way of increasing several tax exemption limits through which their tax liability will be reduced marginally. Duties of Customs and Excise has been reduced on several products including Battery waste, Coal Tar pitch, Crude glycerin, PVC sheet, personal computers, footwear, sports gloves etc. FM has also provided tax exemptions/concessions so as to promote Renewable sources of Energy like Solar, Biogas or Wind.

On the other hand, with a view to improve human and fiscal health, FM has increased Duties on Cigarettes, Cigar, Gutkha, Pan Masala, and aerated waters containing sugar. Service sector has been growing at a faster pace in this economy and so as the tax collection from this sector. FM also understands the importance of this sector in the growht of GDP and keeping it in mind, he has windened the tax base of service tax by way of withdraing several exemptions and amending several provisions under this law. I have laid down the impact of the current Budget proposals on the Service Tax Regime:

  1. Following services will now be exempted (w.e.f. 11-07-2014) :
  1. Services provided by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto.
  1. Services by way of Transportation of Organic Manure and Cotton (ginned or baled) with in India by rail or vessel or road shall be exempted.
  1. Services by way of loading, unloading, packing, storage or warehousing of rice, cotton (ginned or baled).
  1. Services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves.
  1. Services of Life Insurance provided by life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees.
  1. Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India.
  1. Tax shall be levied on following services:
  1. Services by way of sale of space or time for advertisements other than print media. (To be Notified after President Assent)
  1. Services of transportation of passengers by a radio taxi. (To be Notified after President Assent)
  1. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organisation approved to conduct clinical trials by the Drug Controller General of India. (w.e.f. 11-07-2014)
  1. Services provided to Educational Institute by way of renting of Immovable property and Educational Auxiliary Services excluding security, house keeping, catering, transportation of students or staff and services relating to admission and examination in such educational institutions. (w.e.f. 11-07-2014)
  1. Services of transportation of passengers by a Air-Conditioned contract carriage other than motor cab shall be taxable at abated value of 40% subject to no CENVAT credit on inputs, input services and capital goods shall be availed. (w.e.f. 11-07-2014)
  1. Changes in Reverse Charge Mechanism
  1. Reverse charge provisions will now apply on services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company – 100% tax to be paid by such Bank / Financial Institution / NBFC. (w.e.f. 11-07-2014)
  1. Service tax shall be paid in equal proportion by the service receiver and the provider in case of renting of motor vehicle where no abatement is claimed for computing tax liability. (w.e.f. 01-10-2014)
  1. BIG IMPACT on agents of exported goods operating in India – Intermediary services will now include an agent or broker or facilitator of supply of goods. Now the services provided by such intermediaries from India will not be considered as Export of Services in terms of amended Place of Provisions Rules, 2012. (w.e.f. 01-10-2014)
  1. All assessees shall now deposit their service tax liability electronically through internet banking. (w.e.f. 01-10-2014)
  1. Service tax on Works Contract, other than Original Works, shall be levied on 70% of the Total Amount charged for such contract. (w.e.f. 01-10-2014)
  1. Rate of Interest on late payment of Service Tax has been raised in following manner: (w.e.f. 01-10-2014)
Sr. No   Period of DelayRate of Simple Interest
1.Up to Six months18 per cent
2More than six months up to One year18 per cent. for the first six months of delay and 24 per cent for the delay beyond six months
3More than One year18 per cent. for the first six months of delay; 24 per cent for the period beyond six months up to one year and 30 per cent for any delay beyond one year.
  1. Law has now been clarified that the service receiver is not required to comply with the conditions for availing abatement benefit while paying its liability under Reverse Charge on transportation of goods service.
  1. Tour Operator is allowed to take CENVAT credit of input service from other tour operator while taking the benefit of abatement. (w.e..f. 01-10-2014)
  1. Transportation of Goods in Vessel will now enjoy the abatement of 60% instead of 50%. (w.e..f. 01-10-2014)
  1. Point of Taxation for Service Receiver, if payment to service provider was not made in three months from the date of invoice, then POT shall be the date immediately following the said period of three months.​​ POT for invoices issued prior to 01st October, 2014 shall be determined as per existing rules. (w.e..f. 01-10-2014)
  1. Service Tax Dues can now be recovered from the successor of the business by way of attaching all goods in the possession of the successor, if the predecessor fails to pay its service tax liability.
  1. Timeline of six months and one year from the date of notice has been prescribed for computing tax liability with respect to cases having limitation period of 18 months and 5 years respectively.
  1. The Resident Private Limited Company has also been included as a class of persons eligible to make an application for Advance Ruling in Service tax.
  1. Power to waive penalty u/s 80 which was levied under first proviso to section 78(1) of the Act i.e. penalty up to 50% of service tax, has been removed.
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