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Budget 15-16 proposals: Amendments in sections 73, 76 and 78 (all related to penalty)Budget 15-16 proposals: Insertion of transition provision by way of section 78BBudget 15-16 proposals: Omitting section 80 (provided for waiver of penalty)Extending the scope of advance rulings to resident firms, with immediate effect (from 1.3.2015)Amendment in reverse charge mechanism, with immediate effect (from 1.4.2015)To prescribe full reverse charge on manpower supply and security service provided by individual, HUF, partnership firm to a body corporate, with immediate effect (from 1.4.2015)Prescribing reverse charge on service provided by a mutual fund agent, mutual fund distributor and agents of lottery distributor, with immediate effect (from 1.4.2015)Amendments in section 86 (remedy against the order passed by commissioner (Appeals) in a matter involving rebate of service tax shall lie in terms of section 35 EE of the Central Excise Act)Amendments in the provisions relating to Settlement CommissionShifting the liability of payment of service tax on aggregator of a service where service is provided under the brand name of the aggregator, with immediate effect (from 1.3.2015)Amendments in rules 4 (prescribing documentation, time limit and procedure for registration)Registration for single premises shall be granted within two days of filing the applicationProvisions for issuing digitally signed invoices and maintaining of records in electronic form added in rules 4A and 5 of the Service Tax Rules, 1994, with immediate effect (from 1.3.2015)The period for taking Cenvat Credit is being extended from six months from the date of invoice to one year from the date of invoice.Cenvat Credit allowed on input and capital goods received directly by job workers. ‘Export goods’ and ‘Exempt goods’ defined. New exemptions for,- (a) Precondition, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables (b) Service by a Common Effluent Treatment Plant operator (c) Varistha Bima Yojana (d) Ambulance services (e) Admission to a museum, zoo, national park, wild life sanctuary, and a tiger reserve (f) Service provided by exhibitor of movie to a distributor or an AOP consisting of exhibitor as one of its member (g)Transport of export goods by road from the place of removal to a laChange in abatement rates and conditions thereof for transport of passengers and goods by train; transport of goods by road by a GTA; transport of goods by vessels; executive/business class travel by air; and withdrawal of abatement on services provided in relation to chit, with immediate effect (from 1.4.2015) Amendment in reverse charge mechanism, with immediate effect (from 1.4.2015) To prescribe full reverse charge on manpower supply and security service provided by individual, HUF, partnership firm to a body corporate, with immediate effect (from 1.4.2015) Prescribing reverse charge on service provided by a mutual fund agent, mutual fund distributor and agents of lottery distributor, with immediate effect (from 1.4.2015)Amendment in rule 4(7) of the Cenvat Credit Rules to allow credit of service tax paid by recipient of service in partial reverse charge immediately on payment of tax ,with immediate effect (from 1.4.2015)Service Tax to be levied on service by way of access to amusement facility (amusement parks, water parks , theme parks etc)Service Tax rate is increased from 12.36% to 14%. New rate shall come into effect after the enactment of the Finance Bill, 2015. Notification No. 42/2012-ST is being rescindedSwachh Bharat Cess- Govt. to impose cess on all or any taxable service at the rate of 2% of the value of taxable serviceWe are committed to implementing a state of the art indirect tax system, the Goods and Services Tax, from April 1, 2016 - Finance MinisterNow issuing of Digital Invoices recognised in Service Tax.The term “government” defined Section 65B(26A)Section 80 providing waiver from penalty is proposed to be omitted.
Service Tax on Works Contract
18 September, 2012 Ahmedabad :
Service Tax on Works Contract

Introduction of Negative List based Service Tax is one step forward for new GST regime. North Block is still to learn lesson “Aiming high without losing ground”. By way of trying to simplify complex tax structure babus have made it like a Pandora's Box. The consequential amendments have increased complexities.

Smooth sailing of Works Contract (Composition Scheme for payment of service tax) Rules, 2007 has come to an end as it has been done away from 01.07.2012. A new definition of works contract under section 65 B encompasses a wide range of services like construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property. However, a sigh of relief has been given to assessee by extending works contract scheme to movable property which was not there prior to introduction of Negative List based Service Tax. Therefore, assessee can also enter into agreement of works contract in respect of movable property also.

Service Tax on Works Contract was in force since 01.06.2007. Before the introduction of Finance Act, 2012 assessee can either opt to pay Service Tax at full rate on service portion after deducting the material value or to pay under Composite Scheme. However the scenario now has changed. The valuation of Works Contract is to be done in accordance amendments made in Service Tax (Determination of Value) Rules, 2006 issued vide Notification No 24/2012-ST dated 06.06.2012. As per newly inserted Rule 2A valuation of Works Contract can be done as follows:

As per Rule 2A(i)Value of service portion in the execution of a works contract = Gross amount charged for the works contract - the value of property in goods.

Gross amount charged for the works contract shall exclude value added tax or sales tax paid or payable, on transfer of property in goods involved in the execution of works contract. 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.

However if valuation of Works Contract Services is not possible as per Rule 2A(i), than valuation of service portion involved in the execution of the works contract shall be determined in the following manner.

In case of works contracts entered into for execution of original works, service tax shall be payable on 40% of the total amount charged for the works contract. As per Explanation given 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.

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 70% of the total amount charged for the works contract;

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 60% of the total amount charged for the works contract.

However, Cenvat Credit of Input services and capital goods is available subject to provisions of Cenvat Credit Rules, 2004.

The question as to whether works contract is for original work will always remain burning issue between department and assessee. Further as per Notification No. 30/2012-ST dated 20.06.2012, if the service provider is an Individual/Firm/LLP and the service receiver is the body corporate, it is prescribed that 50% of Service Tax on Works Contract is to be paid by Service Provider and remaining 50% of Service Tax on Works Contract is to be paid by the Service Receiver. Liability to pay service tax, where both service provider and service receiver both are liable to pay tax, is independent of each other and both the service provider and service receiver have option to adopt valuation method of their choice. This is again a litigative issue where it may happen that service provider may opt for tax on sixty percent value where service receiver may opt for tax on forty percent value only.

Works Contract Service along with new valuation rules and reverse charge mechanism is now going to create more ambiguity under new scheme which in turn will lead to more litigations. By bringing different rates of service tax for works contract, the aim to simplify tax structure, will never be achieved rather it would lead to frivolous litigations only which will in turn bend the back of already burdened judiciary system.

Courtesy: Team STO
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