Sales Tax Review

March  2007

Service Tax Corner

Sale of space in business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes under ‘Sale of space or time for advertisement services’.

Renting of motor vehicles capable of carrying more than twelve passengers for hire or reward, excluding such motor vehicle or maxi cab rented to an educational body, imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre under ‘Rent-a-cab services’.

Consultancy in the discipline of computer hardware engineering under ‘Consulting Engineer's service’.

Banking and Financial Services so as to replace the words "any other person" with "commercial concern" in the definition of taxable service. Cash management service to be included within the scope of the service. It is clarified that a transaction shall be treated as a financial lease, if the following conditions are fulfilled:–

A contract for leasing of a specific asset is entered into between two parties,

The contract is for use and occupation of the specific asset,

The lease payments are calculated so as to cover the full cost of the asset together with the interest charges, and

The lessee is entitled to own or has the option to own, the asset at the end of the lease period after making the lease payment.

Management Consultant's services so as to rename the service as Management or business consultant's service, and explicitly include business consultancy within its scope.

"Goods" includes computer software under ‘Management, maintenance or repair services’.

Services in relation to pre-recruitment screening, verifying the credentials and antecedents of the candidate and authenticity of documents submitted by the candidates are included under ‘Manpower recruitment or supply services’.

Services provided by mandap keepers in relation to use of mandap for organizing marriage functions is included under ‘Mandap keeper services’.

Services provided by pandal or shamiana contractor in relation to use of pandal or shamiana for organizing marriage functions is included under ‘Pandal or Shamiana services’.

Event management services provided in relation to organizing marriage functions is included under ‘Event Management services’.

The above changes will be effective from the date of enactment of the Finance Bill, 2007.

• Exemptions from service tax

1. The threshold level of service tax exemption for small service providers has been increased from the present level of Rs. 4 lakh to Rs. 8 lakh with effect from 1-4-2007, provided that the aggregate value of taxable services rendered by such provider of taxable service from one or more premises, does not exceed Rs. 8 lakh in the preceding financial year. [Notification No. 4/2007-Service Tax dated 1-3-2007]
   
   Consequent upon increase in threshold limit of exemption from Rs. 4 lakh to Rs. 8 lakh, Notification No. 26/2005 & 27/2005 have been amended to raise the limit for obtaining service tax registration from Rs. 3 lakh to Rs. 7 lakh.
   
   (Notification No. 5/2007, 6/2007 and 7/207 – Service Tax dated 1-3-2007)
    

2. Exemption from service tax is being provided to services provided by resident welfare associations to their members, where the monthly contribution does not exceed Rs. 3,000/- per month. [Notification No. 8/2007-Service Tax dated 1-3-2007]
    

3. Exemption from service tax is being provided to –

1. All taxable services provided by Technology Business Incubators (TBI)/Science & Technology Entrepreneurship Parks (STEP), recognized by National Science & Technology Entrepreneurship Board of Department of Science & Technology, also known as "incubators" [Notification No. 9/2007-Service Tax dated 1-3-2007]
    

2. Taxable services up to Rs. 50 lakh in a financial year provided by incubatee entrepreneur who is located within the premises of an incubator where the total business turnover of the incubatee entrepreneur does not exceed Rs. 50 lakh in a financial year/preceding financial year. Exemption is available to an incubatee for a period of three years w.e.f. the date of signing an agreement with the incubator. [Notification No. 10/2007-Service Tax dated
   1-3-2007]

4. Exemption from service tax is being provided to technical testing and analysis services provided in relation to testing of newly developed drugs including vaccines and herbal remedies on human participants by a clinical research organization approved to conduct clinical trials by the Drugs Controller General of India.
   
   [Refer Notification No. 11/2007-Service Tax dated 1-3-2007]
    

5. Exemption from service tax is being provided to services provided by the digital cinema service provider to the producer or distributor in relation to the delivery of content of cinema in digital form after encryption electronically. Exemption is not available if the content is delivered to the theatre for exhibition by any physical means. Transmission will be electronic either by wire or wireless means. Scope of the terms "cinematograph film" and "cinema theatre" are explained in the [Notification No. 12/2007-Service Tax dated 1-3-2007]

The above exemptions [except (1) and (3)] will come into effect from 1st March, 2007.

• Other important changes in the Finance Act, 1994

1. Section 70 is being amended to provide filing of return after the due date with prescribed late fee of not exceeding Rs. 2,000/-;
    

2. Section 83 is being amended to extend the applicability of certain sections of Central Excise Act, 1944, to service tax matters, namely-

1. section 14AA, which empowers the jurisdictional Commissioner of Central Excise to order for cost audit of Central Excise assessees by a cost accountant to study abnormal utilization of CENVAT credit, and
    

2. section 38A, which provides for protection, by way of savings, of pending actions under Rules and Notifications that are repealed, rescinded or amended, actions (like investigation, issue of show cause notice, adjudication etc.) under the provisions that existed prior to the said changes;

3. Section 96A is being amended to insert an Explanation in clause (b) of section 96A relating to definition of 'applicant' so as to clarify that in the 'joint venture in India' at least one of the participants or partners or equity holders shall be a non-resident.

The changes mentioned above will come into force from the date of enactment of the Finance Bill, 2007.

• Changes in the Service Tax Rules, 1994

1. Submission of original registration certificate: Rule 4 is being amended to modify Form ST-1 and Form ST-2 so as to dispense with the requirement of submission of original registration certificate to the department at the time of intimation of any changes;
    

2. Self adjustment of excess credit: Rule 6 is being amended to insert sub-rules (4A) and (4B) to extend the facility of self-adjustment of excess service tax paid, to all service tax assessees, subject to specified limitations and conditions.
   
   Self-adjustment of excess credit is allowed on account of reasons other than interpretation of law, taxability, classification, valuation or applicability of any exemption Notification.
   
   Excess amount paid and proposed to be adjusted should not exceed Rs. 50,000/- for the relevant month or quarter, as the case may be. However, assessees who have centralised registration can adjust the excess service tax paid on their own without any monetary limit provided the excess amount paid is on account of delayed receipt of details of payments from branch offices. The details of self-adjustment should be intimated to the Superintendent of Central Excise within a period of 15 days from the date of adjustment.
    

3. Filing of Revised return introduced: Rule 7B is being inserted to allow an assessee to rectify mistakes and file revised return within 60 days from the due date for filing of original return;
    

4. Sponsorship service: Rule 2(1)(d)(vii) is being amended so that service tax under reverse charge mechanism in relation to sponsorship service is required to be paid if the recipient of service is located in India. [Notification No.1/2007-Service Tax dated 1-3-2007]

The above changes [except (4) which will come into effect from 1st April, 2007] will come into effect from 1st March, 2007.

• Changes in the CENVAT Credit Rules, 2004

1. Rule 6(3) is being amended to provide an option to general insurance service providers providing taxable as well as exempted insurance schemes to utilise CENVAT credit proportionate to the inputs and input services used in providing taxable services.
   
   This change will come into effect from 1st April, 2007.
    

2. Rule 9 is being amended to insert sub-rule (11) to allow an assessee to rectify mistakes and file revised return within 60 days from the due date for filing of original return.

This change will come into effect from 1st March, 2007.

[Notification No.10/2007-Service Tax dated 1-3-2007].

• Changes in the Export of Services Rules, 2005: [Very Important for providers of Export Services]

1. Rule 3 is being amended to-

1. substitute the words 'delivered outside India and used outside India' with the words 'provided from India and used outside India' in sub-rule (2); and
    

2. to clarify that that both rules 3(1) and 3(2) are to be satisfied for provision of service to be treated as export of services.

[Notification No. 2/2007-Service Tax dated 1-3-2007].

The above changes will come into effect from 1st March, 2007.