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F.No.B.11/1/2002-TRU
Government of
Ministry of Finance
Department of Revenue
1st
August, 2002
Subject:
Tax on 10 New Services to be effective from 2002- Instructions regarding.
Kindly refer to section 149 of the Finance Act, 2002 (20 of 2002) which, inter-alia, provides for the levy of service tax on 10 new services.
2. It has been decided that the levy and collection of service tax on the new services shall be effective from 16.8.2002 (Vide notification No.8 /2002-ST, dated 1.8.2002)
3.
As you are aware, certain
legislative amendments were made in sections 73, 75, 78, 82, 83, 94 and 95 of
the Finance Act, 1994 vide section 149 of the Finance Act, 2002. All
these changes will now be effective from 16.8.2002. The Service Tax Rules, 1994
have also been amended. Notification
No.12/2002-ST dated 1.8.2002 has been issued in this regard. These amendments
are also effective from 16.8.2002.
4.
Legislative changes: The following changes were made in the
Finance Act, 1994 by the Finance Act, 2002.
4.1
Section
73 has been amended to provide for relevant dates for computation of the period
of limitation for issue of show cause notice for recovery of service tax in
cases when return is filed, when no return is filed, when assessment is
provisional and when any sum has erroneously been refunded.
4.2
Section 75
has been amended to provide for charging of interest at the rate of fifteen
percent per annum (instead of the twenty four percent per annum) for delayed
payment of service tax.
4.3
Section 78 has been amended to empower the Assistant Commissioner/Dy.
Commissioner to impose penalty without prior approval of the Commissioner of
Central Excise in cases where the value of taxable service suppressed/furnished
does not exceed Rs. 2 lakh. Hitherto this limit was Rs 25,000.
4.4
Section 82 has been amended to provide specifically for the power to
seize documents relevant to any proceedings under the service tax law.
4.5
Section 83 has been amended to make section 11D of the Central Excise Act
applicable to service tax. Accordingly, if any amount is recovered by any person
as “service tax”, then such person bound to pay it to the Government. The
law provides for its recovery in case of his failure to do so.
4.6
Section
94 has been amended to empower the Government to make rules to allow credit of
service tax paid on the services consumed for providing a taxable service in
case where the services consumed and the service provided fall in the same
category of taxable service.
4.7 Section 95 has been amended to empower the Government to remove the difficulties arising in implementation of service tax levy on new services by order in the official gazette within a period of two years from the date on which the levy on new service comes into effect.
5.
Amendment in the
definition of “ banking and other financial services” and “banking
services”
5.1
The definition of “banking
and other financial service” has been amended to extend the levy of service
tax to body corporate other than those already specified earlier, providing
specified services. The levy on body corporate, which have come into tax net as
a consequence to this amendment, will be effective only from 16.8.2002. It may
be noted that as a result of this amendment, all body corporate providing the
specified “banking and other financial service” will come under the tax net.
Earlier, it was clarified vide Ministry’s instructions F. No.
B-11/1/2001 dated 9.7.2001 that asset
management companies are not NBFC. Hence they would not come under the purview
of service tax. This instruction stands amended now as Asset Management
Companies being “body corporate” will henceforth be liable to pay service
tax. Similarly all merchant bankers, portfolio managers, foreign exchange
brokers etc who are “body corporate” will henceforth be liable to pay
service tax.
5.2
The
definition of “banking company” has also been amended to assign it the
meaning as given in clause (a) of section 45A of the Reserve bank of India Act.
This amendment has been made to clarify the doubts, which were raised about the
applicability of service tax levy on banking and other financial services
provided by the State Bank of
6.
Retrospective
amendment in the provisions relating to “broadcasting service”
6.1
Vide
section 148 (1) of the Finance Act 2002, the definitions of “broadcasting”
and “taxable service” in relation to broadcasting service have been amended
retrospectively with effect from 16.7.2001 in order to clarify the scope of
service beyond doubt. Further a definition of “broadcasting agency or
organisation” has been inserted with effect from 16.7.2001. It is now
incorporated in the definition itself that in case of foreign broadcasting
channels, broadcasting would include the activity of selling of time slots or
obtaining sponsorship for broadcasting of any programme or collecting the
broadcasting charges on behalf of such channel by its branch office or
subsidiary or representative in India or any agent or any other person acting on
their behalf.
6.2
Attention is invited to section 148 (2) of the Finance Act. This has
mandated that the broadcasting agencies, who did not pay service tax earlier,
would have to pay all dues within thirty days from the date on which the Finance
Bill 2002 received the assent of the President (i.e. 11.5.2002), otherwise they
will have to pay dues along with the interest. The Commissioner would have no
doubt taken the necessary action accordingly. If any recoveries are still
pending, the same may kindly be brought to the notice of the Ministry by the
Commissioner concerned within a fortnight.
7.
Service Tax Credit Rules, 1994
7.1 The
Service Tax Credit Rules 2002 have been made to allow credit within the same
category of service. These rules
also specifies the procedural requirement to be fulfilled for availing credit of
service tax. Notification No.
14/2002-ST refers. These rules
broadly envisage the following procedures/conditions for availing credit.
(i) “input service” and “output service” service should fall in the same category of service i.e. they should fall in the same sub-clause of clause 90 of section 65 of the Finance Act 1994. (ii) credit will be available only in respect of such “input service” for which the bill/invoice is issued on or after 16.8 2002. (iii) credit can be availed on invoice/challan/bill issued by the input service provider indicating clearly the serial number, the registration no, address of the service provider, value of taxable service and amount service tax payable/paid. For instance, credit of service tax will be available to a consulting engineer in respect of the service provided to him by another consulting engineer. To give another illustration, an event manager can not claim credit of the service tax paid by a videographer. (iv) the person availing credit shall be responsible to ensure the correctness of credit availed and he shall maintain proper accounting records in this regard indicating the details of description and value of input service, service tax paid on input service, the details of service provider with service tax registration number and the service tax credit utilized for payment of service tax on final service. (v) he shall submit information in prescribed proforma to the jurisdictional officer along with ST-3 return. (vi) in case of wrong availment of credit or cases where it is discovered later on that service tax has not been paid, service tax credit will be recoverable and penal provisions of section 73, 75, 76 and 78 would be applicable. For instance, a service provider issued a bill for a service rendered. He also shows the ST amount payable. However, in the actual term, he did not pay this to the government for any reason, whatsoever. In that event the output service provider will have to reverse the credit. He can not take this plea that the credit is due to him as he was not at fault.
8.
Amendments in Service Tax Rules, 1994
8.1
In relation to “insurance auxiliary services relating to life
insurance” provided by the insurance agents, it has been prescribed that the
service tax shall be paid by the Insurance Company (Insurer). Notification No.
12/2002-ST refers. Accordingly in case of insurance agents, service tax in
respect of their services will have to be paid by the life insurance companies.
8.2
As per the provisions existing hitherto, in the case of a service
provider who is a non resident or from outside India and does not have an office
in India the service tax has to be paid either by such service provider or by a
person authorized by him. However, it is reported that difficulties arise in
collecting service tax from such service provider as they leave the country
after rendering the service. To
smoothen the tax collection, it has now been prescribed in the Service Tax Rules
that in such cases the service receiver in India would be liable to pay service
tax on behalf of the service provider (refer notification No. 12/2002-ST).
8.3
On delay in payment of service tax, penalty and interest is chargeable.
As regards the issue as to which date should be deemed to be the date of payment
of service tax, there are divergent views. In
some cases the date on which the service tax is credited to the government
account is being treated as the date on which service tax has been paid.
Even though the assessee deposits cheque on or before the stipulated
date, the government account
is credited after a few days of deposit of cheque.
It has now been decided that the date of presentation of cheque will
deemed to be the date on which service tax has been paid to the credit of the
Central Government provided the cheque is not dishonoured in the course of
clearing Notification No.12 /2002-ST refers.
8.4
Amendment in Form ST-3: Certain amendments have been made in the ST-3
form in view of introduction of credit within the same service. Notification No.
12/2002- ST refers.
9.
Presently,
practicing chartered accountants, cost accountants and company secretaries are
liable to pay service tax on the specified services provided in their
professional capacity as mentioned in the notification No. 59/98-ST dated
16.10.98. However this exemption has been misinterpreted to mean that even if a
CA/CS/Cost Accountants provides other taxable services such as management
consultancy, or manpower recruitment service, he is not liable to pay service
tax. This is not the correct interpretation. To clarify all doubts, an
Explanation has been added in the notification No. 59/98-ST dated 16.10.98. This
Explanation makes it clear that in case a CA/CS/Cost Accountants provides other
taxable services, service tax will have to be paid as such taxable service
(notification No.15 /2002-ST refers).
10.
Notification No. 6/99-ST dated 9.4.1999 exempts the service tax on such
taxable services where payment is received in
11.
Extension of service tax to ten more services:
In regard to the new services, which will be subject to service tax
from the 16 th July, 2002, certain issues have been brought to notice during the
course of discussion with the departmental officials or the concerned
Associations. These have been discussed and clarified in the Annexures appended
as per details below.
(i) Life insurance, including insurance auxiliary service relating to life insurance. (Annexure I) (ii) Cargo handling service (Annexure II) (iii) Storage and warehousing services (Annexure III) (iv) Event Management (Annexure IV) (v) Rail Travel Agent (Annexure V) (vi) Health club & fitness centres (Annexure VI) (vii) Beauty parlours (Annerure VII) (viii) Fashion Designers (Annexure VIII) (ix) Cable Operators (Annexure IX) (x) Dry cleaning service (Annexure X)
The
The section referred to
hereinafter are the sections or clauses of the Finance Act, 1994 as amended by
the Finance Act, 2002. Reference to sub-clause or clause means clause or
sub-clause of section 65 (1) of the Finance Act, 1994 as amended by the Finance
Act, 2002.
11.1 The new assessee are required to file for service tax
registration No. in form ST-1 to the jurisdictional superintendent within thirty
days from 16.8.2002. The ST-1 form is enclosed herewith (Annexure
XI). In case of failure to take registration within the stipulated time of
thirty days, the assessee would be liable to pay a mandatory penalty of five
hundred rupees.
12.
The Commissioners are requested to issue suitable trade notices for the
benefit of the new assesses detailing the scope and coverage of the new
services, gist of the service tax procedures and formalities to be complied with
by the assessees, formats of the application form for registration, service tax
returns, etc., the manner of payment of service tax, the banks through which
service tax payments can be made and other relevant aspects.
13.
In case of any doubts or difficulties arising in the implementation of
service tax on the new services, which require clarification at the Board’s
level, the Commissioners are requested to bring the same to the notice of the
undersigned immediately along with their suggestions/views for resolving these
difficulties.
(T.R.Rustagi)
Joint Secretary (TRU)
Telephone: 309 2687