Budget 2017-18: Gist of Service Tax Amendments

February 3, 2017 3865 Views
Kishore kumar
CA
AKSHAY GOYAL
Chartered Accountant

Since the biggest indirect tax reform 'Goods and Services Tax' is round the corner, any major change in the current indirect tax structure at this phase would have resulted in undue hardship on the taxpayers. Keeping an eye on the same, the Hon'ble Finance Minister while presenting his fourth Budget for 2017-18 has proposed some handy amendments in the service tax law without disrupting the current indirect tax regime. These changes have been categorized into two broad categories:

A. CHANGES EFFECTIVE FROM FEBRUARY 02, 2017

1. Process Amounting to Manufacture/Production of Goods excluding alcoholic liquor for human consumption

Clause (f) of Section 66D of the Finance Act, 1994 in respect of "services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption" has been proposed to be omitted from the Negative List. However, the exemption shall continue to prevail as it has been positioned under Entry No. 30 of the mega exemption notification issued vide Notification No. 25/2012-ST dated 20th June 2012 .

Subsequently, in order to support the above amendment, the definition of "process amounting to manufacture" has been placed in the mega exemption notification instead of the Negative List.

2. Exemption on Life Insurance services by Army, Naval and Air Force Group Insurance Funds to their members

It has been proposed to award an exemption by way of insertion of Entry No. 26D under the Notification No. 25/2012 dated 20th June 2012 on life insurance services provided or agreed to be provided by Army, Naval and Air Force Group Insurance Funds to the Army, Naval and Air Force respectively. However, Insurance must have been provided under the Group Insurance Schemes of the Central Government in order to claim the exemption.

3. Various Other Amendments

 a)  Services provided by IIMs by way of two year full time residential Post Graduate Program in Management for the post graduate diploma in Management (PGDM) to which admissions are through Common Admission Test (CAT) by IIM were being exempted earlier. It has been proposed to omit the word "residential" from the said exemption and grant the benefit of exemption to all the apprentices whether staying off campus or on campus.

 b)  Air transport is a quite critical imperative for the Government while drifting the overall economic growth of the country. To ensure this, a regional air connectivity was desirable from a public policy perspective which may require financial support in the initial periods to trigger participation of players. National Civil Aviation Policy (NCAP) has in this regard announced a Regional Connectivity Scheme (RCS) wherein a financial (viability gap funding or VGF) support shall be provided to the airline operators to meet the gap between the cost of airline operations and expected revenues on such routes.

The RCS operations are however provided various concessions including tax concessions, free of cost land for RCS Airports, last mile connectivity, among others. However, there still left an anomaly as service tax is being levied on the VGF amount payable to these airline operators for the service of transport of passengers, with or without belongings, by air, embarking from or terminating in an RCS.

In this Budget, it has been proposed to grant an exemption to these services provided by the selected airline operator under the Regional Connectivity Scheme for a period of one year.

 c)  Explicitly providing for banks and financial institutions (including NBFCs), it has been proposed to amend the Rule 6(3) & 6(3A) CENVAT Credit rules, 2004 such that for reversal purposes of common credit, the value shall now include the value of service by way of extending deposits, loans or advances in so far as is the consideration is represented by way of interest or discount.

 d)  Rule 10 of the Cenvat Credit Rules has been amended to provide for approval from jurisdictional AC/DC for transfer of CENVAT credit under the scheme of transfer of business, merger, amalgamation, lease or transfer of business to a joint venture.

B. CHANGES EFFECTIVE FROM THE DATE OF PRESIDENTIAL ASSENT

1. A collective Authority for Advance Ruling ("AAR") under Direct Taxes & Indirect Taxes

Following amendments have been proposed in relation to AAR:

 a)  Definition of "Authority" to be suitably amended in order to merge the Current AAR for Income Tax with those of Indirect Tax (Customs, Excise and Service Tax)

 b)  Application fee for seeking advance ruling to be increased from INR 2,500 to INR 10,000 to bring a parity with the Income Tax Law

 c)  The time limit provided to Authority for pronouncement of an advance ruling to be extended from 90 days to 6 months at par with the time limit prescribed under the Income Tax Law.

 d)  Suitable provisions to be made for transfer of pending applications and proceedings before the AAR of Central Excise, Customs and Service tax (as on the date on which the Finance Bill, 2017 receives the assent of the President) to the one dealing with Income Tax.

2. Exemption on Life Insurance services by Army, Naval and Air Force Group Insurance Funds to their members

It has been proposed toaward an exemption on life insurance services provided or agreed to be provided during the period commencing from 10th September 2004 (the date from which the services of life insurance became taxable)and ending with 1st February 2017 by Army, Naval and Air Force Group Insurance Funds to the Army, Naval and Air Force respectively. However, Insurance must have been provided under the Group Insurance Schemes of the Central Government in order to claim the exemption.

Further, refund shall be granted of such service tax collected during this period (which should not have been collected) provided the application for refund is filed within a period of 6 months from the date on which the Finance Bill receives the assent of the president.

3. Exemption on upfront amount paid on grant of long-term lease of Industrial Plots

Previously, the one-time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for grant of long-term lease of Industrial Plots (30 years or more) by State Government industrial development corporations/undertakings to industrial units was exempted with effect from 22nd Sep, 2016.

The Finance Minister in this budget has proposed to outspread this benefit with retrospective effect from 1st June, 2007. Further, refund shall be granted of such service tax collected during this period (which should not have been collected) provided the application for refund is filed within a period of 6 months from the date on which the Finance Bill receives the assent of the president

4. Clarification on Determination of Service Portion in the execution of a Works Contract involving transfer of goods ad land or undivided share of land

It has been proposed to retrospectively amend the valuation rules with effect from 1st July, 2010 such that the value of service portion in execution of works contract, which involves transfer of land or undivided share of land, shall not include the value of property in such land or undivided share of land. The amendment seems to be more in clarificatory in nature to put to rest the ongoing and impending proceedings.

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