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India Service Tax update JUne 2015

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  • India Service Tax update JUne 2015

    The Central Board of Excise and Customs (CBEC) issued a number of Notifications on 19 May 2015 to amend provisions relating to Service tax and Cenvat Credit Rules, 2004 (Cenvat Rules). A summary of key amendments introduced by these notifications are as follows :

    1. The following amendments proposed in the latest Budget will be applicable w.e.f. 01 June 2015 (Notification 14/2015-ST):

    A. Increase in Service tax Rate

    Section 66B of the Finance Act, 1994 that prescribes the service tax rate, has been amended by Section 108 of the Finance Act, 2015. The rate of Service Tax is being increased from 12% to 14% (including cesses). The increase in Service Tax rate will come into effect from 1st June, 2015. (Notification No.14/2015-Service Tax, dated 19th May, 2015 refers)

    Sections 153 and 159 of the Finance Act, 2015 provide that section 95 of the Finance (No.2) Act, 2004 and section 140 of the Finance Act, 2007, levying Education Cess and Secondary and Higher Education Cess, respectively, on taxable services, shall cease to have effect from a date to be notified by the Central Government. The above provisions levying Education Cess and Secondary and Higher Education Cess should also cease to have effect from 1st June, 2015. (Notification No.14/2015-Service Tax, dated 19th May, 2015 refers), that is the date with effect from which the increase in the Service Tax rate comes into effect.

    Service tax rate will be increased from 12% to 14%. Levy of Swachh Bharat Cess has not been notified at present. Corresponding amendments have also been introduced in the Service Tax Rules, 1994 (‘ST Rules’) and Cenvat Rules to align them with new tax rate. These would also be applicable from 01 June 2015.

    i. Service tax on services provided by an air travel agent on domestic and international bookings shall be increased to 0.7% and 1.4% on the basic price of ticket respectively;

    ii. Service tax on services relating to exchange in foreign currency will be as follows:
    - 0.14% of the gross amount of currency exchanged for an amount Rs 1,00,000 subject to minimum amount of Rs. 35;
    - Rs 140 and 0.07% of the gross amount of currency exchanged for an amount of rupees exceeding Rs 100,000 and up to Rs 10,00,000; and
    - Rs 770 and 0.014 % of the gross amount of currency exchanged for an amount of rupees exceeding 10,00,000 subject to maximum amount of Rs 7000.

    iii. The manufacturer /services provider shall be required to pay 7% on value of exempted services instead of 6% under Rule 6(3) of the Cenvat Rules.

    Since education cess (‘EC’) and secondary and higher education cess (‘SHEC’) will be subsumed in Service tax, they shall not be charged separately. The relevant sections will also be omitted from the Finance Act, 1994. Also, there is an ambiguity at present whether the existing EC & SHEC can be utilized for payment of output Service tax liability. The CBEC had recently amended the Cenvat Rules to allow utilization of EC & SHEC against payment of Excise duty (not Service tax).

    B. Levy of Service tax on admission to entertainment events or access to amusement facilities w.e.f 01 June 2015

    i. Service tax will be levied on the service provided by way of access to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks and theme parks.

    ii. Service tax will be levied on service by way of admission to entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events other than the recognized sporting event, if the admission amount is more than Rs. 500 per person.


    iii. Service by way of admission to entertainment event, namely, exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical performance including drama and ballet shall continue to enjoy exemption from the levy of Service tax.

    C. Levy of Service tax on the manufacture of potable liquor w.e.f 01 June 2015

    Service Tax will be levied on contract manufacturing/job work for production of liquor, meant for human consumption, for a consideration.

    2. Exemption from Service tax on taxable services rendered under the Power System Development Fund Scheme of the Ministry of Power has been introduced vide Notification 17/2015- ST dated 19 May 2015. The notification also prescribes the procedure to avail exemption.

    3. Definition of ‘chit’ has been omitted pursuant to the omission of abatement on services provided in relation to chit (vide Notification 08/2015-ST dated 01 March 2015).

    4. Since manpower supply and security services are now under 100% reverse charge, they have been excluded from the list of services for which refund can be claimed under Rule 5B of Cenvat Rules read with Notification 12/2014-CE(NT) dated 03 March 2014 (refund on partial reverse charge services).

    The date from which all the services provided by Government or local authority to business entities will become taxable has not been notified yet.

    Also, in light of the rate change, it is important to ensure that correct rate of tax is levied on the invoices issued after 1st June.
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