Tag Archives: service tax

Swachh Bharat Cess on Service Tax

Press release from PIB dated 12th November, 2015

Swachh Bharat Cess will come into effect from 15th November 2015, at the rate of 0.5% on all services, which are presently liable to service tax. This will translate into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be used for financing and promoting Swachh Bharat initiatives.

Some doubts are being raised with respect to the levy of Swachh Bharat Cess, such as,-

(i) what would be Swachh Bharat Cess on services where service tax is being paid under the alternative rates of service tax?

(ii) what would be the value of taxable services for computation of Swachh Bharat Cess?

(iii) whether reverse charge mechanism would apply for the levy of Swachh Bharat Cess?

(iv) what would be the point of taxation for Swachh Bharat Cess ?

In this regard, it is clarified that answers to the above queries are in the provisions of sub-section (5) of Section 119 of the Finance Act, 2015 by which all the provisions of service tax as contained in Chapter V of the Finance Act, 1994 have been made applicable to Swachh Bharat Cess. It is, thus, very clear that all the provisions including those related to computation of taxable value, assessment, exemption, payment, penalty applicable to service tax would also apply in respect of Swachh Bharat Cess.

Service tax is presently levied at alternative rates in respect of service provided by air travel agents, life insurance service, service in relation to sale/purchase of foreign exchange including money changing and service by lottery distributors/selling agents, subject to fulfilment of conditions prescribed under the Service Tax Rules. Option has been provided for levy of Swachh Bharat Cess also at alternative rates in respect of the above mentioned services. The alternate rate of Swachh Bharat Cess would be:

Service Tax Liability (at the alternate rate) X 0.5/14.

As regards the taxable value for the levy of Swachh Bharat Cess, it would be the same on which service tax is levied. Swachh Bharat Cess would be calculated on abated value or value arrived at under the Service Tax (Determination of Value) Rules, 2006, as the case may be. For example, the effective Swachh Bharat Cess in respect of services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment, would be 0.5% of 40% i.e 0.2%. The cumulative service tax and Swachh Bharat Cess liability would be 5.8% (14.5% of 40%) of the total amount charged.

Similarly, a person liable to pay service tax on reverse charge basis would be laible to pay Swachh Bharat Cess also on reverse charge basis. As regards Point of Taxation, since this levy has come for the first time and all services (except those services which are in the Negative List or are wholly exempt from service tax) are being taxed, it is a new levy, which was not in existence earlier. Rule 5 of Point of Taxation Rules would be applicable in this case. Therefore, in case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In case payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.

Thus, it may be seen that all issues relating to Swachh Bharat Cess are addressed in the Service Tax provisions itself by virtue of the applicability of Chapter V of the Finance Act, 1994 and the rules made thereunder.

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Yoga exempted from service tax

The Ministry of Finance (Department of Revenue) has vide its notification no. 20/2015 dated 21st October, 2015 exempted yoga from the purview of service tax. Basically yoga has been included as a charitable activity which thenceforth becomes exempted from service tax.

Also exempted are

business facilitator or a business correspondent to a banking company with respect to a Basic Savings Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company’s rural area branch, by way of account opening, cash deposits, cash withdrawals,obtaining e-life certificate, Aadhar seeding;

 (ga) any person as an intermediary to a business facilitator or a business correspondent with respect to services mentioned in clause (g);

 (gb) business facilitator or a business correspondent to an insurance company in a rural area; 

http://www.servicetax.gov.in/htdocs-servicetax/st-notifications/st-notifications-2015/st20-2015

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Digitally signed invoices in excise and service tax

CBEC has issued a notification no. 18/2015 dated 6th July, 2015 regarding procedure for digitally signed invoices in excise and service tax. The salient features of the notification are :

1. Every assessee proposing to use digital signature shall use Class 2 or Class 3 Digital Signature Certificate duly issued by the Certifying Authority in India.

  1. (i) Every assessee proposing to use digital signatures shall intimate the following details to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise, at least fifteen days in advance:
  2. a) name, e-mail id, office address and designation of the person authorised to use the digital signature certificate;
  3. b) name of the Certifying Authority;
  4. c) date of issue of digital certificate and validity of the digital signature with a copy of the certificate issued by the Certifying Authority along with the complete address of the said Authority:

Provided that in case of any change in the details submitted to the jurisdictional Deputy Commissioner or Assistant Commissioner, complete details shall be submitted afresh within fifteen days of such change.

(ii)  Every assessee already using digital signature shall intimate to the jurisdictional Deputy Commissioner or Assistant Commissioner of Central Excise the above details within fifteen days of issue of this notification.

  1. Every assessee who opts to maintain records in electronic form and who has more than one factory or service tax registration shall maintain separate electronic records for each factory or each service tax registration.
  1. Every assessee who opts to maintain records in electronic form, shall on request by a Central Excise Officer, produce the specified records in electronic form and invoices through e-mail or on a specified storage device in an electronically readable format for verification of the authenticity of the document and the request for such records and invoices shall be specified in the letter or e-mail by the Central Excise Officer.
  1. A Central Excise Officer, during an enquiry, investigation or audit, in accordance with the provisions of section 14 of the Central Excise Act, 1944 and as made applicable to Service Tax as per the provisions contained in section 83 of the Finance Act, 1994, may direct an assessee to furnish printouts of the records in electronic form and invoices and may resume printouts of such records and invoices after verifying the correctness of the same in electronic format; and after the print outs of such records in electronic form have been signed by the assessee or any other person authorised by the assessee in this regard, if so requested by such Central Excise Officer.
  1. Every assessee who opts to maintain records in electronic form shall ensure that appropriate backup of records in electronic form is maintained and preserved for a period of 5 years immediately after the financial year to which such records pertain.

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Service tax on restaurants/ hotels

The Ministry of Finance has in an indirect way clarified that  effective service tax rate in respect of services provided in relation to serving of food or beverage by a restaurant, eating joint or mess having the facility of air–conditioning or central air-heating in any part of the establishment is 5.6% (14% of 40%) of the total amount charged.

This clarification has in a Ministry press release where they were clarifying regarding service charges levied by the restaurants/ eating places. The Ministry has said that such service charges does not come to the government.

In the last para it has clarified regarding the actual service tax rate on foods and beverages that can be charged by air-conditioned restaurants/ eating out places/ hotels.

So the next time you go to an air-conditioned restaurant or eating place and see a service tax of 14% of the amount rather than 5.6%, take the manager to task.

Click to access serviceTax_By_Hotels14072015.pdf

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New Service Tax Rate

The new service tax rate of 14% is applicable from 1st June, 2015. This has been brought about by a notification dated 19th May, 2015 issued by the Service Tax department. The notification is worded in official legalese so in order to understand this notification you have to visit another notification issued on 1st March, 2015. Would it not have been better for the government to clearly state that the service tax rate of 14% becomes applicable from 1st June, 2015.

However, the sum effect is that new service tax rate comes into force on 1st June, 2015. It is a consolidated rate of 14% without there being any cess in it. So the education cess and secondary education cess has been removed. It is a straight rate of 14%.

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Service tax regn – simplification

Govt. has simplified the procedures for service tax registration vide their order dated 28th February, 2015 gist of which is given below:

In supercession of Order No. 2/2011-Service Tax dated 13-12-2011, the Central Board of Excise and Customs specifies the following documentation, time limits and procedure with respect to filing of registration applications for single premises, which shall come into effect from 1-3-2015.
2. General procedure
(i) Applicants seeking registration for a single premises in service tax shall file the application online in the Automation of Central Excise and Service Tax (ACES) website www.aces.gov.in in Form ST-1.
(ii) Registration shall mandatorily require that the Permanent Account Number (PAN) of the proprietor or the legal entity being registered be quoted in the application with the exception of Government Departments for whom this requirement shall be non-mandatory. Applicants, who are not Government Departments shall not be granted registration in the absence of PAN. Existing registrants, except Government departments not having PAN shall obtain PAN and apply online for conversion of temporary registration to PAN based registration within three months of this order coming into effect, failing which the temporary registration shall be cancelled after giving the assessee an opportunity to represent against the proposed cancellation and taking into consideration the reply received, if any.
(iii) E-mail and mobile number mandatory: The applicant shall quote the email address and mobile number in the requisite column of the application form for communication with the department. Existing registrants who have not submitted this information are required to file an amendment application by 30-4-2015.
(iv) Once the completed application form is filed in ACES, registration would be granted online within 2 days, thus initiating trust-based registration. On grant of registration, the applicant would also be enabled to electronically pay service tax.
(v) Further, the applicant would not need a signed copy of the Registration Certificate as proof of registration. Registration Certificate downloaded from the ACES web site would be accepted as proof of registration dispensing with the need for a signed copy.
3. Documentation required
The applicant is required to submit a self attested copy of the following documents by registered post/ Speed Post to the concerned Division, within 7 days of filing the Form ST-1 online, for the purposes of verification:-
(i) Copy of the PAN Card of the proprietor or the legal entity registered.
(ii) Photograph and proof of identity of the person filing the application namely PAN card, Passport, Voter Identity card, Aadhar Card, Driving license, or any other Photo-identity card issued by the Central Government, State Government or Public Sector Undertaking.
(iii) Document to establish possession of the premises to be registered such as proof of ownership, lease or rent agreement, allotment letter from Government, No Objection Certificate from the legal owner.
(iv) Details of the main Bank Account.
(v) Memorandum/Articles of Association/List of Directors.
(vi) Authorisation by the Board of Directors/Partners/Proprietor for the person filing the application.
(vii) Business transaction numbers obtained from other Government departments or agencies such as Customs Registration No. (BIN No), Import Export Code (IEC) number, State Sales Tax Number (VAT), Central Sales Tax Number, Company Index Number (CIN) which have been issued prior to the filing of the service tax registration application.
4. Where the need for the verification of premises arises, the same will have to be authorised by an officer not below the rank of Additional /Joint Commissioner.
5. The registration certificate may be revoked by the Deputy/Assistant Commissioner in any of the following situations, after giving the assessee an opportunity to represent against the proposed revocation and taking into consideration the reply received, if any:
(i) the premises are found to be non existent or not in possession of the assessee.
(ii) no documents are received within 15 days of the date of filing the registration application.
(iii) the documents are found to be incomplete or incorrect in any respect.
6. The provisions of sub-rules (5A) and (6) of rule 4 of the Service Tax Rules, 1994 may be referred to regarding change in any information or details furnished by an assessee and transfer of business to another person, respectively. Similarly, sub rule (7) of the Service Tax Rules, 1994 may be referred to in case a registered person ceases to provide the service for which he has been granted registration.

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No service tax for Mumbai housing societies

MUMBAI: Housing societies do not have to pay service tax on maintenance charges collected from their members, a tax tribunal has ruled.

This will reduce the maintenance outgo of residents of nearly a lakh housing societies in Mumbai and Thane, particularly the upscale ones where the charges can go over Rs 1 lakh every month.

The recent decision by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) came in a case involving Tahnee Heights, a residential housing society on Nepean Sea Road, and Mittal Tower at Nariman Point that houses several offices.

The decision means a flat-owner or owner of a commercial premise in a housing society registered under the Maharashtra Co-operative Societies Act will have to pay much less. The society will not be required to impose a service tax charge (currently 12.36%) against maintenance charges collected from its members.

Typically in any housing society in Mumbai, the resident welfare association (RWA) formed from among members of the society caters to the administrative needs of the society. Maintenance charges are collected for purposes like water charges, electricity for common areas (lifts, stairways, lobbies), security, lift maintenance or repairs, and maintenance of common areas. Most of these charges that are collected are in the nature of reimbursement.

In some cases, the RWA enters into contracts with external service providers, say for regular lift maintenance or for providing service guards. These agencies charge service tax on their fees, which is paid by the RWA.

However, service tax authorities insisted housing societies pay up on the charges collected from its members. In tony areas or in luxury housing societies with a club house, gym or swimming pool, monthly maintenance charges can be steep, even running to more than Rs 1 lakh per flat. The service tax authorities contended the RWAs are providing taxable “club or association services”.

In the case, Tahnee Heights, which collected charges for maintenance, repairs and beautification, and Mittal Tower that raised expenses from its members towards water and security charges and repairs, paid service tax on the department’s “persuasion”. Later they filed refund claims, which were rejected. Consequently appeals were filed with the CESTAT.

“The CESTAT decision is the first of its kind for the western zone. The tribunal, based on decisions of other jurisdictions, accepted the principle of mutuality — the society provided services to itself which could not be subject to service tax. However, finality will be reached only once the Supreme Court adjudges on a similar matter pending before it,” said Bakul Mody, chartered accountant, who represented Mittal Towers.

Source: http://timesofindia.indiatimes.com/city/mumbai/Mumbai-housing-societies-spared-service-tax/articleshow/45876822.cms

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Service tax – mandatory electronic payment of tax

The Service Tax department has vide its notification no. 16/2013 dated 22nd November 2013 reduced the threshold limits beyond which service tax has to be paid through internet banking system. 

Hitherto Rule 6(2) of the Service Tax Rules 1994 provided that “where an assessee has paid a total service tax of Rs.10 lakhs or more including the amount paid by utilisation of Cenvat Credit in the preceding financial year, then he shall deposit the service tax liable to be paid by him electronically through internet banking”

This limit of Rs.10 lakhs has been reduced to Rs. 1 lakh vide the 2013 notification cited above. The amendment in the threshold limits apply with effect from 1st January 2014. Which means where in financial year 2012-13, the assessee has paid service tax of more than Rs.1 lakh then for all service tax payments on or after 1st January 2014, the payment has to be done by way of internet banking system. 

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service tax exemption for factory canteen

The service tax department has vide its notification no. 14/2013 dated 22nd october 2013 exempted “services provided in respect to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 and having the facility of air-conditioning or central heating at any time during the year” – so basically it means factory canteens are exempted from the negative provisions of service tax even if they are having air-conditioning or central heating at any time of the year. 

The copy of the notification is given below, since the URL of the service tax is not available for the specific notification.

*****************************************************************************************************

[TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (i) OF THE GAZETTE OF INDIA, EXTRAORDINARY,]

Government of India
Ministry of Finance 
(Department of Revenue)

 

 

Notification No. 14/2013-Service Tax

New Delhi, 22nd October, 2013

 

G.S.R.____ (E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994,  (32 of 1994),  the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.25/2012-Service Tax, dated the 20th June, 2012, namely:-

 

            In the said notification, in the opening paragraph, after entry 19, the following entry shall be inserted, namely:-

 

“19A. Services provided in relation to serving of food or beverages by a canteen maintained  in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year.”.

 

[F. No. B1/13/2013-TRU]

 

(Akshay Joshi)
Under Secretary to the Government of India 

 

 

Note.- The principal notification was published in the Gazette of India, vide notification No.25/2012-Service Tax, dated the 20th June, 2012, vide G.S.R.467(E), dated the 20th June, 2012 and was last amended by notification No.13/2013-Service Tax, dated the 10th September, 2013 vide G.S.R.616(E), dated the 10th September, 2013.

 

 

 

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Service Tax Return for April to September 2013

Service Tax Return (ST-3) for the period April -September’ 13 is now available in ACES for e-filing by the assesses in both offline and online version. The last date of filing the ST-3 return for the said period is 25th October, 2013. The assesses can file return either online or use the offline utility by downloading the latest version from http://acesdownload.nic.in/ or from ‘DOWNLOADS’ Section of ACES website. For details on how to e-file in ACES or any further information/assistance, assessees may read the Instructions given in the return form and the FAQs under ‘Help’ Section of the ACES websitehttp://www.aces.gov.in/ (https://www.aces.gov.in) or contact their jurisdictional Service Tax Officer.

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Guidelines on Arrest and Bail in respect of Service Tax offences

Central Board of Excise and Customs has released Circular no. 171/6/2013 dated 17th September 2013 giving guidelines for arrest and bail in relation to offences under Finance Act, 1994 i.e. in respect of Service Tax.  Extracts from the said circular is reproduced below. The full contents of the circular is available at the service tax website viz. http://www.servicetax.gov.in/st-circulars-home.htm

Subject:  Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994

 Section 103 (K) of the Finance Act, 2013 has introduced Sections 90 & 91 in the Finance Act, 1994, with effect from  10th May, 2013.  In terms of section 90 of the Finance Act , 1994, as amended, offences under section 89(1) (ii) shall be cognizable and all other offences shall be non-cognizable and bailable. In terms of section 91(1) read with section 89(1) (i) and (ii) of the Finance Act, 1994, as amended, the power to arrest has been introduced in cases involving evasion of service tax covered under section 89(1) (i) and (ii) of the Finance Act, 1994, as amended and the amount of service tax evaded  exceeds rupees fifty lakh. In this context, the following points may be noted for strict compliance:-

 

1.2       The following cases are covered under section 89(1) (i):

1.2.1     where a person knowingly evades the payment of service tax, or

1.2.2   avails and utilizes  credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules, or

1.2.3    maintains false books of accounts or fails to supply any information which he is required to supply or supplies false information,

 and the amount of service tax involved is more than fifty lakh rupees.

In such cases, the Assistant Commissioner or  the Deputy Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise,  have the same powers and be subject to the same provisions as an officer in-charge of a police station has, and  is subject to, under Section 436 of the Code of Criminal Procedure, 1973( 2 of 1974). This is in terms of section 91(3) of the Finance Act, 1994, as amended.

 

1.3       The following cases are covered under section 89(1) (ii):

1.3.1    where  a person has collected any amount exceeding fifty lakh rupees as service tax but fails to pay the amount as collected to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due.

In such cases,   after following the due procedure of arrest, the arrested person must be produced before the magistrate without unnecessary delay, and definitely within 24 hours. This is in terms of section 91(2) of the Finance Act, 1994, as amended. The magistrate will decide on whether or not to grant bail.

 

2.0        Conditions precedent

 

2.1        Since arrest impinges on the personal liberty of an individual, this power must be exercised carefully.  The Finance Act 1994, as amended,  has  specified categories of offences in respect of which only powers of arrest may be exercised and these offences are covered under clause (i) or clause (ii) of sub-section (1) of section 89 of the Finance Act, 1994.  Further, the Finance Act 1994 has also prescribed value limits of evasion of service tax exceeding  Rs 50 lakh, for exercising the powers of arrest.

                                                                              

2.2        The legal stipulations in the Finance Act 1994 , as amended, contained in section 91 read with section 89 must be strictly adhered to. An officer of Central Excise not below the rank of  Superintendentof Central Excise can carry out an arrest on being authorized by the Commissioner of Central Excise. To authorize the arrest the Commissioner should have reason to believe that the person proposed to be arrested has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of section 89. The reason to believe must be based on credible material which will stand judicial scrutiny.

 

2.3     Apart from fulfilling the legal requirements, the need to ensure proper investigation, prevention of the possibility of tampering with evidence or intimidating or influencing witnesses and large amounts of service tax evaded are relevant factors before deciding to arrest a person. 

 

 

3.0      Procedure for arrest

 

3.1        The provisions of   the Code of Criminal Procedure 1973 (2 of 1974) relating to arrest and the procedure thereof must be adhered to .  It is therefore advised that the Commissioner should ensure that allofficers  are fully familiar with the provisions of the  Code of Criminal Procedure 1973 (2 of 1974).

 

3.2        There is no prescribed format for arrest memo but an arrest memo must be in compliance with the directions in D.K Basu vs State of West Bengal reported in 1997(1) SCC 416 ( see paragraph 35). The arrest memo should include:

3.2.1     brief facts of the case;

3.2.2     details of the person arrested;

3.2.3     gist of evidence against the person;

3.2.4    relevant section (s) of the Finance Act, 1994 or other laws attracted to the case and to the arrested person;

3.2.5    the grounds of arrest must be explained to the arrested person and this fact noted in the arrest memo;

3.2.6   a nominated person (as per the details provided by arrested person) of the arrested person should be informed immediately and this fact also may  be mentioned in the arrest memo;

3.2.7   the date and time of arrest may be mentioned in the arrest memo and the arrest memo should be given to the person arrested under proper acknowledgment;

3.2.8    a separate arrest memo has to be made and provided to each individual/arrested person. This should particularly be kept in mind in the event that there are several arrests in a single case.

 

3.3        Further there are certain modalities that should be complied with at the time of arrest and pursuant to an arrest, which include the following:

3.3.1    A female  should be arrested by or in the presence of a woman  officer;

3.3.2   Medical examination of an arrested person should be conducted by a medical officer in the service of Central or State Governments and in case the  medical officer is not available , by a registered medical practitioner, soon after the arrest is made. If an arrested person is a female then such an examination shall be made only  by, or under supervision of a female medical officer , and in case the female medical officer is not available, by  a female registered medical practitioner.

 

3.3.3   It shall be the duty of the person having the custody of an arrested person to take reasonable care of the health and safety of the arrested person.

 

4.0   Post arrest formalities

 4.1        The procedure is separately outlined for the different categories as listed in section 89(1) (i) and (ii) of the Finance Act, 1994, as amended:

 4.1.1     In cases covered under section 89(1) (i), the Assistant Commissioner or Deputy Commissioner is bound to release a person on bail against a bail bond. The bail conditions should be informed   in writing to the arrested person and also informed on telephone to the nominated person of the person (s) arrested .The arrested person should be also allowed to talk to a nominated person. The conditions will relate to, inter alia, execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount to be indicated in the personal bail bond and security will depend, inter alia, on the amount of tax involved.

 4.1.2       If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail forthwith.   However, only in cases where the conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within twenty-four (24) hours of arrest.  The arrested person may be handed over to the nearest police station for his safe custody, within 24 hours, during the night under a challan, before he is produced before the Court. 

 4.2         In cases covered under section 89(1) (ii) and only in the event of circumstances preventing the production of the arrested person before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody, within 24 hours, under a proper challan, and produced before the Magistrate on the next day, and the nominated person of the arrested person may be also informed accordingly.

 4.3     Formats of the relevant documentation i.e. the Bail Offer Letter, the Bail Bond and the Challan for handing over to the police, in the Code of Criminal Procedure, 1973. ( 2 of 1974) may be followed.

 4.4       Every Commissionerate should maintain a Bail Register which will have the details of the case, arrested person, bail amount, surety amount. The money/instruments/documents received as surety should be kept in safe custody. The money should be deposited in the treasury. The other instruments/documents should be kept in the custody of a single nominated officer. It should be ensured that the instruments/documents received as surety are kept valid till the bail is discharged.

 

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Service tax on educational sector

Central Board of Excise and Customs has clarified that educational sector is completely exempt from service tax. Therefore any services provided to an educational institution is also exempt. 

 

F. No.B1/14/2013-TRU

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise& Customs

Tax Research Unit

146-F, North Block

New Delhi, 19th September, 2013

To

Chief Commissioners of Central Excise and Service Tax (All),    

Director General (Service Tax), Director General (Central Excise Intelligence), 

Director General (Audit),

Commissioners of Service Tax (All),

Commissioners of Central Excise and Service Tax (All).

 

Madam/Sir,

 

Subject: Education services – clarification — reg.

 

             

            The following representations have been received seeking clarifications regarding the levy of service tax on certain services relating to the education sector:

 

  1. Private Schools Correspondents Confederation, Madurai.
  2. Tamil Nadu Nursery, Primary, matriculation and Higher Secondary Schools Association, Chennai.
  3. Punjab Association, Chennai.
  4. Association of Self financing Universities of Rajasthan
  5. Unaided Schools’ Forum, Mumbai.
  6. Vedavalli Vidyalaya, Wallajapet.
  7. Independent Schools Associations, Chandigarh.
  8. Mother Teresa Public School, New Delhi.
  9. BVM Global, Chennai.
  10. Sastra University, Tanjavur.
  11. HLC International, Chennai.
  12. Sodexo Food Solutions, Mumbai.
  13. Federation of Associations of Maharastra, Mumbai.

 

2.         The matter is covered by two provisions of the Finance Act, 1994. Section 66D of the Finance Act contains a negative list of services and clause (l) thereof reads as under:

“services by way of –

(i) pre-school education and education upto higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force;

(iii) education as a part of an approved vocational education course;”.

 

            Further section 93(1) of the Finance Act, 1994, enables the Government to exempt generally or subject to such conditions taxable service of specified description. By virtue of the said power, Government has issued a notification No.25/2012-ST dated 20th June, 2012, exempting certain services. Sl.no.9 thereof reads as follows:

 

“Services provided to an educational institution in respect of education exempted from service tax, by way of,-

(a) auxiliary educational services; or

(b) renting of immovable property;”.

 

As defined in the said notification, “auxiliary educational services” means any services relating to imparting any skill, knowledge, education or development of course content or any other knowledge–enhancement activity, whether for the students or the faculty, or any other services which educational institutions ordinarily carry out themselves but may obtain as outsourced services from any other person, including services relating to admission to such institution, conduct of examination, catering for the students under any mid-day meals scheme sponsored by Government, or transportation of students, faculty or staff of such institution.

 

3.         By virtue of the entry in the negative list and by virtue of the portion of the exemption notification, it will be clear that all services relating to education are exempt from service tax. There are many services provided to an educational institution. These have been described as “auxiliary educational services” and they have been defined in the exemption notification. Such services provided to an educational institution are exempt from service tax. For example, if a school hires a bus from a transport operator in order to ferry students to and from school, the transport services provided by the transport operator to the school are exempt by virtue of the exemption notification.

 

4.         In addition to the services mentioned in the definition of “auxiliary educational services”, other examples would be hostels, housekeeping, security services, canteen, etc.

 

5.         Thus the apprehensions conveyed in the representations submitted by certain educational institutions and organizations have no basis whatsoever. These institutions and organizations are requested not to give credence to rumours or mischievous suggestions. If there is any doubt they are requested to approach the Chief Commissioner concerned.

 

6.         All concerned are requested to acknowledge the receipt of this circular.

(J.M.Kennedy)

Director, TRU

Tel: 011-23092634

E-mailjm.kennedy@nic.in

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Service tax voluntary compliance encouragement scheme

The CBEC has issued circular no. 175/05/2013 dated 8th August 2013 whereby it has given some clarifications on the Service Tax Voluntary Compliance Encouragement Scheme. Unfortunately CBEC circulars do not carry proper URL. Therefore the relevant portions of the circular is reproduced herewith from the website i.e. http://www.servicetax.gov.in/st-circulars-home.htm

 

S No.

Issues

Clarification

1

Whether the communications, wherein department has sought information of roving nature from potential taxpayer regarding their business activities without seeking any documents from such person or calling for his presence, while quoting the authority of section 14 of the Central Excise Act, 1944, would attract the provision of section 106 (2) (a)?

Attention is invited to clarification issued at S. No. 4 of the circular No. 169/4/2013–ST, dated 13.5.2013, as regards the scope of section 106 (2) (a) of the Finance Act, 2013, wherein it has been clarified that the provision of section 106 (2)(a)(iii) shall be attracted only in such cases where accounts, documents or other evidence are requisitioned by the authorized officer from the declarant under the authority of a statutoryprovision.

 

A communication of the nature as mentioned in the previous column would not attract the provision of section 106 (2)(a) even though the authority of section 14 of the Central Excise Act may have been quoted therein.

2

An assessee has two units at two different locations, say Mumbai and Ahmedabad. Both are separately registered.  The Mumbai unit has received a Show Cause Notice for non-payment of tax on a revenue stream but the Ahmedabad unit has not.  Whether the Ahmedabad unit is eligible for VCES?

Two separate service tax registrations are two distinct assessees for the purposes of service tax levy. Therefore, eligibility for availing of the Scheme is to be determined accordingly. The unit that has not been issued a show cause notice shall be eligible to make a declaration under the Scheme.

3

Whether a declaration can be made under the Scheme in respect of CENVAT credit wrongly utilized for payment of service tax? 

Any service tax that has been paid utilizing the irregular credit, amounts to non-payment of service tax. Therefore such service tax amount is covered under the definition of “tax dues”.

4

Whether a party, against whom an inquiry, investigation or audit has been initiated after 1.3.2013 (the cutoff date) can make a declaration under the Scheme?

Yes. There is no bar from filing of declaration in such cases.

 

 

5

There was a default and a Show Cause Notice was issued for the period prior to the period covered by the Scheme, i.e. before Oct 2007. Whether declaration can be filed for default on the same issue for the subsequent period?

In the context of the Scheme, the relevant period is from Oct 2007 to Dec 2012. Therefore, the 2ndproviso to section 106 (1) shall be attracted only in such cases where a show cause notice or order of determination has been issued for the period from Oct 2007 to Dec 2012. Accordingly, issuance of a show cause notice or order of determination for any period prior to Oct 2007, on an issue, would not make a person ineligible to make a declaration under the Scheme on the same issue for the period covered by the Scheme.    Therefore, declaration can be made under VCES.

6

In a case where the assessee has been audited and an audit para has been issued, whether the assessee can declare liability on an issue which is not a part of the audit para, under the VCES 2013?

Yes, declarant can declare the “tax dues” concerning an issue which is not a part of the auditpara. 

7

Whether a person, who has paid service tax for a particular period but failed to file return, can take the benefit of VCES Scheme so as to avoid payment of penalty for non- filing of return?

Under VCES a declaration can be made only in respect of “tax dues”. A case where no tax is pending, but return has not been filed, does not come under the ambit of the Scheme. However, rule 7C of the Service Tax Rules provides for waiver of penalty in deserving cases where return has not been filed and, in such cases, the assessee may seek relief under rule 7C.

8

A person has made part payment of his ‘tax dues’ on any issue before the scheme was notified and makes the declaration under VCES for the remaining part of the tax dues. Will he be entitled to the benefit of non-payment of interest/penalty on the tax dues paid by him outside the VCES, i.e., (amount paid prior to VCES)?

No. The immunity from interest and penalty is only for “tax dues” declared under VCES.

 

If any “tax dues” have been paid prior to the enactment of the scheme, any liability of interest or penalty thereon shall be adjudicated as per the provisions of Chapter V of the Finance Act, 1994 and paid accordingly.

9

Whether an assessee, who, during a part of the period covered by the Scheme, is in dispute on an issue with the department under an erstwhile provision of law, can declare his liability under the amended provisions, while continuing to litigate the outstanding liability under the erstwhile provision on the issue? 

In terms of the second proviso to section 106 (1), where a notice or order of determination has been issued to a person in respect of any issue, no declaration shall be made by such person  in respect of “tax dues” on the same issue for subsequent period. Therefore, if an issue is being litigated for a part of the period covered by the Scheme, i.e., Oct, 2007 to Dec 2012, no declaration can be filed under VCES in terms of the said proviso on the same issue for the subsequent period.

10

Whether upon filing a declaration a declarant realizes that the declaration filed by him was incorrect by mistake? Can he file an amended declaration?

The declarant is expected to declare his tax dues correctly. In case the mistake is discovered suo-moto by the declarant himself, he may approach the designated authority, who, after taking into account the overall facts of the case may allow amendments to be made in the declaration, provided that the amended declaration is furnished by declarant before the cut off date for filing of declaration, i.e., 31.12.2013. 

11

What is the consequence if the designated authority does not issue an acknowledgement within seven working days of filing of declaration? Whether the declarant can start making payment of the tax dues even if acknowledgement is not issued?

Department would ensure that the acknowledgement is issued in seven working days from the date of filing of the declaration.  It may however be noted that payment of tax dues under the Scheme is not linked to the issuance of an acknowledgement. The declarant can pay tax dues even before the acknowledgement is issued by the department.

12

Whether declarant will be given an opportunity to be heard and explain his cases before the rejection of a declaration under section 106(2) by the designated authority?

Yes. In terms of  section 106 (2) of the Finance Act, 2013, the designated authority shall, by an order, and for reasons to be recorded in writing, reject a declaration if any inquiry/investigation or audit was pending against the declarant as on the cutoff date, i.e., 1.3.2013.  An order under this section shall be passed following the principles of natural justice.

 

To allay any apprehension of undue delays and uncertainty, it is clarified that the designated authority, if he has reasons to believe that the declaration is covered by section 106 (2), shall give a notice of intention to reject the declaration within 30 days of the date of filing of the declaration stating the reasons for the intention to reject the declaration. For declarations already filed, the said period of 30 days would apply from the date of this circular.

 

The declarant shall be given an opportunity to be heard before any order is passed by the designated authority.          

13

What is the appeal mechanism against the order of the designated authority whereby he rejects the declaration under section 106 (2) of the Finance Act, 2013?

The Scheme does not have a statutory provision for filing of appeal against the order for rejection of declaration under section 106 (2) by the designated authority.

14

A declarant pays a certain amount under the Scheme and subsequently his declaration is rejected. Would the amount so paid by him be adjusted against his liability that may be determined by the department?

The amount so paid can be adjusted against the liability that is determined by the department.

15

Section 111 prescribes that where the Commissioner of Central Excise has reasons to believe that the declaration made by the declarant was ‘substantiallyfalse’, he may serve a notice on the declarant in respect of such declaration. However, what constitutes a ‘substantially false’ declaration has not been specified.

 

The Commissioner would, in the overall facts of the case, taking into account the reasons he has to believe, take a judicious view as to whether a declaration is ‘substantially false’. It is not feasible to define the term “substantially false” in precise terms.  The proceeding under section 111 would be initiated in accordance with the principles of natural justice.

 

To illustrate, a declarant has declared his “tax dues” as Rs 25 lakh. However, Commissioner has specific information that declaration has been made only for part liability, and the actual “tax dues”   areRs 50 lakh. This declaration would fall in the category of “substantially false”. 

This example is only illustrative.

16

What is the consequence if a declarant fails to pay atleast 50% of declared amount of tax dues by the 31st Dec 2013?

One of the conditions of the Scheme [section 107 (3)] is that the declarant shall pay atleast an amount equal to 50% of the declared tax dues under the Scheme, on or before the 31.12.2013. Therefore, if the declarant fails to pay atleast 50% of the declared tax dues by 31st Dec, 2013, he would not be eligible to avail of the benefit of the scheme.

17

Whether the CENVAT credit is admissible on the inputs/input services used for provision of output service in respect of which declaration has been made under VCES for payment of any tax liability outside the VCES?

 

The VCES Rules 2013 prescribe that CENVAT credit cannot be utilized for payment of “tax dues” under the Scheme. Accordingly the “tax dues” under the Scheme shall be paid in cash.

 

The admissibility of CENVAT credit on any inputs and input services used for provision of output service in respect of which declaration has been made shall continue to be governed by the provisions of the Cenvat Credit Rules, 2004.

18

(a)  Whether the tax dues amount paid under VCES would be eligible as CENVAT credit to the recipient of service under a supplementary invoice?

 

(b) Whether cenvat credit would be admissible to the person who pays tax dues under VCES as service recipient under reverse charge mechanism?

 

Rule 6(2) of the Service Tax Voluntary Compliance Encouragement Rules, 2013, prescribes that CENVAT credit cannot be utilized for payment of “tax dues” under the Scheme. Except this condition, all issues relating to admissibility of CENVAT credit are to be determined in terms of the provisions of the Cenvat Credit Rules.

 

As regards admissibility of CENVAT credit in situations covered under part (a) and (b), attention is invited to rule 9(1)(bb) and 9(1)(e)  respectively of the Cenvat Credit Rules.

19

In terms of section 106 (2)(b), if a declaration made by a person against whom an audit has been initiated and where such audit is pending, then the designated authority shall by an order and for reasons to be recorded in writing, reject such declaration. As the audit process may involve several stages, it may be indicated as to what event would constitute,-

(i) initiation of audit; and

(ii) culmination of audit.

Initiation of audit: For the purposes of VCES, the date of the visit of auditors to the unit of the taxpayer would be taken as the date of initiation of audit. A register is maintained of all visits for audit purposes.

 

Culmination of audit: The audit process may culminate in any of the following manner.-

(i)    Closure of audit file if no discrepancy is found in audit;

(ii) Closure of audit para by the Monitoring Committee Meeting (MCM);

(iii)  Approval of audit para by MCM and payment of amount involved therein by the party in terms of the provisions of the Finance Act, 1994;

(iv)  Approval of audit para by MCM, and issuance of SCN, if party does not agree to the paraso raised.

 

The audit culminates at a point when the auditparas raised are settled in any manner as stated above.

 

The pendency of audit as on 1.3.2013 means an audit that has been initiated before 1.3.2013 but has not culminated as on 1.3.2013. 

 

 

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