Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
***
Gautam
Bhattacharya
Joint
Secretary, Tax Research Unit
Telephone
No.011-23093027
Fax
No.011-23093037
E-mail:
g.bhattacharya @ nic.in
D.O.F.No.334/03/2010-TRU
New Delhi, dated 1st July 2010
Dear Madam/ Sir,
Subject: Issuance of
notifications after enactment of the Finance Act, 2010:
The Finance Bill 2010 was enacted on
8th May 2010. Section 76 and 77 of the Finance Act, 2010 (14 of
2010) pertain to service tax issues. Certain new taxable services were
introduced and certain changes in the scope of the existing taxable services
(under section 65, with consequential changes in section 66 of the Finance Act,
1994) were made under section 76 of this Act. The provisions of section 76 (A)
& (B) (except retrospective provisions relating to commercial coaching and
training and renting of immovable property services) were to come into effect
from a date to be notified, which is also known as appointed date. This date has
been notified to be the 1st day of July 2010 (Refer Notification
No.24/2010-Service Tax dated the 22nd June 2010).
2.
Services provided or payments made prior to the effective date;
2.1 Vide
Finance Act, 2010, eight new services were added to the list of taxable
services while the scopes of nine existing services were modified. As these
changes become effective from 01.07.2010, activities that are covered under
taxable service categories due to above additions or modifications, would start
attract service tax from this date. It is however, possible that a part or full
payment of the consideration for such services provided after the appointed
date has already been received prior to that date, i.e. advance payments. The
examples are: where a domestic air journey performed after 1st July
2010, but the ticket is issued on payment prior to such date or where a
construction activity falls within the taxable service only after the said date
but the payment (full or in part) has been made before this date. While legally
tax is payable on such amounts received, it has been decided to specifically
exempt service tax on that partial or full amount which is received by the
service provider/ person liable to pay the tax (and not by an agent, who in
turn transfers such amount to such person after this date) before 01.07.2010,
pertain to a service which has become taxable on account of the provisions of
the Finance Act, 2010 and is provided on or after 01.07.2010. Any amount
received after 01.07.2010 by the service provider/ person liable to pay the tax
would be subjected to tax. (Refer Notification No.36/2010-Service Tax dated the
28th June 2010 as corrected vide corrigendum dated 29th
July, 2010).
3. Transport of passenger by Air service:
3.1 As stated
in the Letter D.O.F.No.334/1/2010- TRU, dated 26th February 2010, in
Budget 2010, service tax on transport of passengers by air was extended to
cover all domestic and international air passengers embarking in India with
effective tax rates as given below:
(a) ten percent (current rate of service tax) of the
gross value of the ticket or rupees one
hundred per journey, whichever is less, for passengers travelling in any class, within India;
(b) ten percent (current rate of service tax) of the gross
value of the ticket or rupees five
hundred per journey, whichever is less, for passengers embarking in India
for an international journey in economy class:
The aforesaid rates are subject to non-availment of
CENVAT credit. (Refer Notification No.26/2010-Service Tax dated 22nd
June 2010). All charges except statutory
levies (levied under a law for time being in force), if any mentioned in a
ticket is to be taken as ‘gross value of the ticket’ for this purposes.
3.2
Exemption from service tax has also been provided on journeys to and from
North-Eastern States (i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim and Tripura) from the service tax (Refer Notification
27/2010 - Service Tax date 22nd June 2010). Considering that Bagdogra
airport, though located in West Bengal being the gateway airport for Sikkim,
has also been accorded this benefit.
3.3 Doubts
have been raised that in case a ticket covers more than one domestic
journey/flight/sector (say Mumbai-Delhi-Mumbai), whether Rs. one hundred would
be charged for each journey/flight/sector (i.e. in the aforementioned example
one for Delhi-Mumbai flight and one for Mumbai-Delhi flight) or would it be
charged once for the entire ticket. In this regard, it is clarified that since
the taxable activity relates to ‘embarkation in India for domestic journey….’,
each time such embarkation in India takes place the tax is chargeable. In other
words tax would be separately chargeable for each journey/flight/sector. In
this regard the clarifications issued vide circular No. 96/7/2007-ST dated
23.07.2007 has no application as the said circular did not cover situations of
multiple embarkations in India. Similarly, in
round trip tickets involving multiple journies/flights/sectors with one
of the sector involving embarkation or disembarkation at North-Eastern States
/Bagdogra, the journey/flight/sector that involves embarkation or
disembarkation at North-Eastern States /Bagdogra would alone be covered under
aforesaid exemption.
3.4 Since
the scope of air transport of passenger service has been modified vide Finance
Act, exemption, which were available earlier to crew of the aircraft operator,
and international transit passengers by way of definition in the Act have been
retained vide Notification (Refer Notification No.25/2010-Service Tax).
3.5
The scheme of tax on
passengers embarking in India for an international journey in higher classes
(i.e. other than economy class) remains unchanged.
3.6 As
per the provisions of Rule 4A of the Service Tax Rules, 1944, invoice/ bill/
challan is required to be issued by the provider of taxable service within 14
days of the provision of the taxable service or the receipt of the
consideration. In case of air-travel, the airlines or the agent may not issue a
separate invoice to the passenger but may issue the ticket showing the price of
such ticket as well. In such a case, the requirement of an invoice would cast
an additional compliance burden on the service provider. Hence the said rule is amended to provide
that in case of this taxable service, the ticket (in any form, including
electronic form whatever may be the name) showing the name of the passenger,
description of the journey (details like place of embarking and disembarking,
class of travel, flight number, etc.,) and the amount of service tax collected
would be deemed to be the invoice/ bill /challan for the purposes of the rule
(Refer Notification No.39 / 2010-Service Tax as corrected vide corrigendum
dated 30 th July 2010).
4.
Port and Airport Service
4.1 In the Finance Bill, 2010, with intent
to ease the classification disputes, the definitions of port, other port and
airport services were amended to comprehensively cover under their ambit, all services
provided within an airport or a port or other port irrespective of whether or
not such activities are authorised by the authorities or whether or not they
are otherwise classifiable as distinct taxable services. In effect all services
that are wholly rendered within the prescribed area of the port or other port
or an airport, are to be classified within the ambit of ‘port services’ or
‘airport services’.
4.2 During the post budget interactions with
the stakeholders, apprehensions were expressed that that the change may have
certain unintended effects and certain services (including certain essential
services) hitherto exempted, may attract service tax unintentionally. Further,
it was also pointed that the abatements and exemptions presently available
under individually defined taxable services would get denied when provided
within airport or port merely as they would now be taxable under newly
introduced taxable services.
4.3
In order to address these genuine
concerns, the following measures have been taken,-
(i)
Certain basic activities
undertaken within airports and ports have been kept out of the tax by exempting
them. (Refer Notification No.31/2010 - Service Tax dated the 22nd June 2010);
(ii)
Service tax paid on certain
taxable services that are used in relation to or for export of goods are
eligible for refund under Notification No. 17/09-ST. Presently, the list of
eligible services under the said notification includes port service but does
not include ‘airport service’. In order to correct the anomaly, the said
notification has been amended to include ‘airport service’ in the list of
eligible services under the said refund scheme (Refer Notification No.
37/2010-Service Tax, dated the 28th
June 2010).
(iii)
Commercial and Industrial
construction service in relation to airport is excluded from service tax, in
the definition itself. As such services would now be classified as ‘airport
service’ when provided wholly within the airport, exclusion has been now provided by way of an
exemption notification (Refer notification No. 42/2010-Service tax, dated the
28 th June, 2010)
(iv)
Construction of ports was
not excluded under the erstwhile definition from exclusion similar to that was
available for airports. To bring parity in this matter, commercial and
industrial construction service provided within the port area, in relation to
construction, repair, alteration, renovation of wharves, quays, docks, stages,
jetties, piers and railways is exempt from the whole of service tax (Refer Notification No. 38 /2010-Service Tax,
dated the 28th June 2010).
(v)
Currently abatements are
available to certain services such as ‘Renting of a cab’, 'Erection,
Commissioning & Installation Service’, ‘Goods Transport Agency service’ and
‘construction services’. Similar
abatements would be available to such services, when provided wholly within an
airport or a port or other port, under the new definition of airport or port or
other port services. (Notification No. 40/2010-ST dated 28th June,
2010 as corrected by corrigendum dated 30th June, 2010 and
notification no. 43/2010-ST, dated 28th June, 2010 refers)
(vi)
Exemptions/exclusions are
available to warehousing of agriculture products and cold storage facilities
under 'Storage & Warehousing Service, transport of export goods in an
aircraft by an aircraft operator and
site formation and clearance, excavation and demolition services etc. when
provided in the course of construction Port or airport. These benefits would
continue to be available when such services are provided wholly within
port/airport and are classified under port/ airport service (Refer Notification
No. 41/2010-ST, dated 28th June, 2010 refers).
4.4
All other services carried out within a port or other port or an airport would
be subjected to service tax under the category of port/other port/airport
services.
5. Sponsorship Service
As per
the provisions of the Finance Act, 2010, the definition of existing taxable
service, namely ‘the Sponsorship Service’ was amended to remove the exclusion
available for sponsorship pertaining to sports. The measure was taken to
prevent exclusion benefiting certain sponsored sports events, which are
organized by private organizations or business entities as commercial ventures.
However exemption is provided for sponsorship services with reference to
certain sports championships or tournaments, such as national tournament (Refer
Notification No. 30/2010 - Service Tax dated 22nd June, 2010).
6. Construction services:
6.1 In the
Finance Act, changes have been made in the construction services, both commercial
construction and construction of residential complex, using ‘completion
certificate’ issued by ‘competent authority’. Before the issuance of completion
certificate if agreement is entered into or any payment is made for sale of
complex or apartment in residential complex, service tax will be leviable on
such transaction since the builder provides the construction service.
Completion certificate issued by a Government authority was prescribed as
demarcation by introducing an Explanation in the Finance Act. During the post
budget discussions, it was pointed that practice regarding issuance of
completion certificates varies from state to state. Considering the practical
difficulties, the scope of the phrase ‘authority competent’ to issue completion
certificate has been widened by issuing an order for removal of difficulty (
Refer M.F.(D.R) Order No.1/2010 dated 22nd June 2010). Completion
certificate issued by an architect or chartered engineer or licensed surveyor
can be now taken to determine the service tax liability.
6.2 After the
Budget was introduced views were expressed that the tax liability on
construction sector has been tightened at a time when the sector was recovering
after recession. After considering the issue, abatement available for construction
of industrial or commercial complex and also residential complex has been
prescribed as seventy five per cent. This means now tax incidence will be the
rate of service tax applied on twenty five per cent of gross value of
commercial or residential complex or unit, broadly representing the service
component in the construction, subject to conditions (Refer Notification
29/2010-Service Tax, dated 22nd June 2010). Importantly seventy five percent abatement
will be applicable only if the gross value of commercial or residential complex
or unit includes cost of land. Otherwise the existing rate of abatement of 67%
would continue to apply.
6.3 Exemption
has been provided for construction of residential complex service, when the same
is rendered as part of Jawaharlal Nehru national Urban Renewal Mission (JNNURM)
and Rajiv Awaas Yojana (Refer Notification No.28/2010- Service Tax, dated 22nd
June 2010). These are flagship schemes of the Government of India to provide
shelter for the poor and the disadvantaged and hence taxable service of
construction of complex in the context of these two development schemes have
been kept out of the ambit of service tax.
7. Transport
of Goods by Rail
7.1 Service
tax on transport of goods by railways was introduced vide Finance (No.2) Act,
2009, to bring parity between all modes of transportation of goods. The levy is
not yet operational and this levy will now take effect from January 2011 (refer
Notification No.33/2010- Service Tax, No.34/2010- Service Tax, No. 35/2010-
Service Tax all dated 22nd June 2010).
8. Transmission
of Electricity:
8.1 Vide
Budget notification 11/2010-ST, dated 27th February 2010,
transmission of electricity was exempted from service tax. Subsequent to post
budget discussions, taxable service provided by a distribution licencee or a
distribution franchisee authorised to distribute power under the Electricity
Act, 2003 for distribution of electricity is also exempt from levy of service
tax ( Refer Notification No.32/2010-Service Tax dated 22 nd June 2010).
9. Certain
issues arising out of the budgetary changes and the post-enactment legislations
(especially taxes pertain to real estate sector) may not have been covered in
this communication. While some of the requests/ suggestions are under
examination, I look forward to receive your valuable feedback and suggestions
on any other unresolved issues. Kindly send them to me, or to Mr. J.M. Kennedy,
Director (TRU) or Mr. Samar Nanda, Technical Officer (TRU) within a fortnight
so that all such issues can be taken up and clarified wherever needed.
Regards,
Yours sincerely,
-signed-
(Gautam
Bhattacharya)
To
All
Chief Commissioners / Directors General
All
commissioners of service Tax
All
commissioners of Central Excise
All
commissioners of Central excise and Customs