ST-3 Returns due on 25.10.2012

Notification No.47/2012 Service tax has been notifified on 28.9.2012 under which it has been mandated that ST-3 returns due on 25.10.2012 will be covering transactions only for the period 1.4.2012 to 30.6.2012. 

As there has been significant amendments to service tax act as on 1.7.2012, the ST-3 form is being modified to adopt to the changes for the period 1.7.2012 to 30.09.2012.  The revised form and due date will be announced soon.

Service Tax on Director Fees & Impact under Section 309/310 of Companies Act

Section 65B(44) of Finance Act, 1994 as Amended by Finance Act 2012 defines Service as follows :

"service" means any activity carried out by a person for another for consideration, and includes a declared service.

This definition further goes on to exclude in clause (b)

(b)  a provision of service by an employee to the employer in the course of or in relation to his employment

 This definition under 65B(44) and above exclusion makes it amply clear that :

Services of a Director who is not an Employee of the Company (ie) Non Executive Directors are covered under the scope of Service tax.  Accordingly any  remuneration to Non Executive Directors both monetary and non monetary are subject to Service Tax from 1.7.2012.

Valuation of Service

All monetary benefits like Fees, Commission, bonus etc to be taken at the monetary value.  Non monetary benefits like Car, Phone, accommodation etc to be valued as per valuation Rules and subject to Service Tax

Foreign Directors (Only Non Executive)

Irrespective of Directors are within India or abroad Service tax is applicable on their monetary and non-monetary considerations for services rendered as Director

Who Pays Service Tax

From 1.7.2012 to 6.8.2012 for Non Executive Directors within India, liability is on the Directors to pay Service tax.  Hence they need to have registration under Service Tax and discharge their liability.  On their option they can choose to take the Rs.10 lakh exemption limit for discharge of their liability

From 1.7.2012 for Directors outside India (Foreign Directors), the company has to pay Service tax on Reverse Charge Mechanism as a Representative Assessee.  Here there is no provision for Rs.10 lakh exemption.  For the full amount (irrespective of the quantum) service tax needs to be paid.

On 7.8 2012 Notification No.45/2012 was introduced under which even for local Non Executive Directors service tax liability has to be discharged by the Company.  In this situation, the company has to get itself registered under Service Tax and discharge the Service tax liability.

In short, the situation as on today is that for all Non Executive Directors the company has to discharge service tax liability under Reverse Charge Mechanism as per Notification No.45/2012.

Implications under Company Law

Due to the above changes in Service Tax and the Service Tax amount being 12.36% of the monetary and non monetary benefit of the Non Executive Directors the expenses on Directors to the company has increased to that extent, this in turn affects section 198, 309 & 310 of the Companies Act, 1956.  This would mean that some companies have to approch Central Government again if they breach the threshold limits specified in these sections.  To avoid this complication for the financial year 2012-13 the Ministry of Corporate Affairs have issued a Notification No.24/2012 dated 9.8.2012 wherein it exempts companies from applying to Central Government for approval for increase in remuneration of Directors only on account of Service Tax.  Note, this provision is only for the year 2012-13 and from next year onwards the companies have to apply for approval inclusive of service tax.

Account Code for Payment of Service Tax

With the changes in Service tax due to introduction of 'Negative list', the account codes for payment of service tax has also being changed to provide for payment under one head called "All Taxable Services"

Circular No.F.No.341/21/2012-TRU has been issued dated 6.7.2012 providing for the below account codes.

Accounting codes for the purpose of payment of service tax under the Negative List approach, with effect from 1^st July, 2012 is as follows:

Name of Services	Accounting codes
	Tax collection	Other Receipts	Penalties	Deduct refunds
All Taxable Services	00441089	00441090	00441093	00441094

NOTE: (i) service specific accounting codes will  also continue to operate, side by side, for accounting of service tax  pertaining to the past period (meaning, for the period prior to 1^st July, 2012); (ii) Primary Education Cess on all taxable services will be booked under 00440298  and Secondary and Higher Education Cess on all taxable services will be booked under00440426  ; (iii) a new sub-head has been created for payment of “penalty”; the sub-head “other receipts” is meant only for payment of interest etc. leviable on delayed payment of service tax; (iv) the sub-head “deduct refunds” is not to be used by the assessees, as it is meant for use by the Revenue/Commissionerates while allowing refund of tax.

Service Tax from 1.7.2012 - Changes a review

Collection of Service Tax has undergone a sea change today with the Government notifying 1.7.2012 as the date for implementation of "Negative List Based Taxation" for Service Tax.  To enable this the Government has carried out the following changes.

1. Rescinded Sections 65, 65A, 66 & 66A in Finance Act, 1994
2. Introduced Sections 65A, 66B, 66C, 66D, 66E & 66F in Finance Act, 1994
3. Issued Notifications Nos.25/2012-ST to 40/2012-ST dated 20.06.2012

What is this Negative List - Section 66D

Negative list consists of 17 services on which there is no service tax is charged (ie) these 17 items are exempt from Service Tax.   These include services provided by Central & State Governments, local authority, RBI, Services by foreign Diplomatic missions in India, services relating to agriculture, manufacturing of goods, trading of goods, transmission and distribution of electricity, admission to entertainment events, services by way of renting residential buildings, transport of passengers in State Transport vehicles (however First class and air-conditioned rail travel attracts service tax), transportation of goods other than GTA and courier, funeral, burial, cremation and mortuary services.  

What is taxable under Service Tax? Section 65B (44)

Other than the negative list all other services are taxable.  Service is defined under Section 65B, Clause (44) "to mean an activity carried out by a person or entity for another for consideration".  In short, all services are taxable other than those specified under Section 66D (Negative List). 

Mega Exemption List - Notification No.25/2012-ST dt.20.6.12

The complexity does not stop here, the Government has notified vide Notification Number 25/2012-ST dated 20.06.2012 a list known as Mega Exemption List.  This list consists of 39 items which are exempted from Service tax apart from the Negative List provided in Section 66D.

So a Service Provider has to check Section 66D & Mega Exemption List to check his nature of service and pay tax on the same.  

Reverse Charge - Notification No.30/2012-ST dt.20.6.12

To add masala to the service tax act this notification No.30/2012-ST dt.20.6.12 has been issued.   Which lists 11 services of which 8 services need to be paid by the receiver of services and balance 4 services need to be paid in a given proportion by the provider and receiver.   The gist of the items are as listed below

Table

Sl.No.	Description of a service	Percentage of  service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1	in respect of  services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business	Nil	100%
2	in respect of  services  provided or agreed to be provided  by a goods transport agency in respect of transportation  of goods by road	Nil	100%
3	in respect of  services  provided or agreed to be provided  by way of sponsorship	Nil	100%
4	in respect of  services  provided or agreed to be provided  by an arbitral tribunal	Nil	100%
5	in respect of  services  provided or agreed to be provided  by individual advocate or a firm of advocates by way of legal services	Nil	100%
6	in respect of  services  provided or agreed to be provided  by Government or local authority by way of support services excluding,-  (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994	Nil	100%
7	(a)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business	Nil 60%	100 % 40%
8.	in respect of  services  provided or agreed to be provided  by way of supply of manpower for any purpose	25%	75 %
9.	in respect of  services  provided or agreed to be provided  in service portion in execution  of works contract	50%	50%
10	in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory	Nil	100%

Abatement 

All earlier abatement notifications have been rescinded and a fresh notification number 26/2012-ST dt.20.6.2012 has been issued mandating the abatement percentages.  The following is the new abatement table

Table

Sl. No.	Description of taxable service	Percent- age	Conditions
(1)	(2)	(3)	(4)
1	Services in relation to financial leasing including hire purchase	10	Nil.
2	Transport of goods by rail	30	Nil.
3	Transport of passengers, with  or without accompanied belongings by rail	30	Nil.
4	Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal,shamiana or any other place, specially arranged for organizing a function) together with renting of such premises	70	(i) CENVAT credit on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
5	Transport of passengers by air, with or without accompanied belongings	40	CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
6	Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.	60	Same as above.
7	Services of goods transport agency in relation to transportation of goods.	25	CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
8	Services provided in relation to chit	70	Same as above.
9	Renting of any motor vehicle designed to carry passengers	40	Same as above.
10	Transport of goods in a vessel	50	Same as above.
11	Services  by a tour operator in relation to,- (i)  a package tour	25	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
	(ii)  a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour	10	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. (iii) This exemption shall not apply in such cases where the invoice, bill or challanissued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
	(iii) any services other than specified at (i) and (ii) above.	40	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.
12.	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority	25	(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii)The value of land is included in the amount charged from the service receiver.

New Service Tax Rules

Notification Number 36/2012-ST dt.20.06.12 have promulgated new Service Tax Rules known as Service Tax (Second Amendment) Rule 2012.  These rules have brought in some procedural changes in Service Tax regime.

Place of Provision of Services (POPS)

Notification No.28/2012-ST dt.20.6.12 has notified Place of Provision of Service Tax, Rules 2012.  This rule is relevant to determine where the services are rendered, whether it is within or outside India.