Rationalization of Service Tax Abatements and various relief measures

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Customer Care No. 91-11-45562222
Rationalization of Service Tax Abatements and
various relief measures
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• I. Rationalization of Abatements w.e.f. 1st
  April 2016 in Notification No.26/2012-ST
• 1.0 Passenger/Goods Transportation by Rail
  credit on input services extended
•  ? Earlier, the notification provided for
  abatement subject to not taking cenvat credit on
  inputs, capital goods and input services.
•  ? The restriction regarding availment of credit
  on input services has been removed.
•  ? Given the fact that such abatement is mainly
  given to take care of the goods portion there was
  no justification to restrict the credit on input
  services as the output service suffered tax.
•  ? This amendment enables taking of credit on
  input services eventhough abatement is availed.
•  
•  

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• 2.0 Transport of Goods in Containers by Rail
  credit on input services extended
•  ?  Abatement of 70 was available subject to
  non-availment of credit on inputs, input services
  and capital goods.
•  ?  Now the abatement is restricted to 60 with
  cenvat credit benefit on input services.
•  ?  A distinction has been drawn between
  transport of goods by rail in containers and
  others, with differential treatment.
•  ?  In case of rail transport of goods by
  containers lesser abatement is available with
  credit facility on input services alone.
• 3.0 Transport of goods by Vessel credit on
  input services extended
•  ?  Earlier the notification provided for
  abatement of 70 subject to not taking cenvat
  credit on inputs, capital goods and input
  services.
•  ?  The restriction regarding availment of credit
  on input services has been removed.
•  ?  Given the fact that such abatement is mainly
  given to take care of the goods portion there was
  no justification to restrict the credit on input
  services as the output service suffered tax.
•  ?  This amendment enables taking of credit on
  input services eventhough abatement is availed.
•  

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4.0 Abatement rate on residential construction
activity single rate  ?  Abatement is
currently provided on the basis of carpet area of
the unit and the amount charged. Two abatement
rates of 75 and 70 are presently provided
for.  ?  The distinction on the basis of carpet
area and amount charged has been removed and
consequently the abatement would be at 70.  ? 
The distinction probably did not yield much
result and created administrative hassles and
hence this move.  ?  Irrespective of the carpet
area and amount charged a single abatement rate
has been prescribed. 5.0 Abatement rate on
package tour rationalised  ?  Abatement is
presently on the basis of three different
criteria viz., package tour, solely arranging or
booking accommodation and other services of tour
operator.  ?  The criteria relating to package
tour has been removed and consequently the
abatement would be only for arranging or booking
accommodation and other services. The abatement
rates would be 90 and 70 respectively with
attendant conditions.  ?  Only two types of
abatements are prescribed for tour operator
services instead of three.  ?  Tour operator
services would now be eligible for two different
abatements based on the nature of service.  
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• 6.0 Abatement on shifting of used household goods
  by GTA rationalised
•  ?  Any services given by GTA in relation to
  transportation of goods is entitled to 70
  abatement.
•  ?  For transportation of goods other than used
  household goods the abatement would remain the
  same. For services relating to used household
  goods, the abatement would be 60 and the service
  provider should not have availed credit on
  inputs, input services and capital goods.
•  ?  More abatement is available for
  transportation of goods other than used household
  goods.
•  ?  Abatement on GTA services would be linked to
  type of goods transported.
• 7.0 Abatement rate w.r.t. Foreman of Chit Fund
  rationalised
•  ?  No abatement is currently conferred
  consequent to amendments by the Finance Act, 2015
  in respect of such services.
•  ?  The present amendment seeks to give abatement
  of 30 without cenvat benefit.
•  ?  Accordingly, the position prior to 2015 is
  sought to be restored.
•  ?  Abatement rate is 30 on services of a
  foreman of chit fund.

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• II. Relief Measures
• 1.0 Services by Shipping Lines
•  ?  Services by way of transportation of goods by
  a vessel from customs station of clearance in
  India to a place outside India is presently
  exempt. Consequently it is treated as exempted
  service for the purpose of cenvat credit.
•  ?  In view of the amendment such service would
  not be treated as exempt service. Further section
  66D(p)(ii) is sought to be omitted from the
  negative list so as to make services by a vessel
  from a place outside India upto the customs
  station of clearance in India taxable.
•  ?  The restrictions on availment of credit would
  be avoided. Hence the Shipping lines can avail
  and use input credits.
•  
• 2.0 Amendment to rule 41/2012-ST retrospective
  effect
•  ?  Notification No.1/2016-ST dated 3.2.2016
  recently amended notification no.41/2012 to allow
  refund of service tax on services used beyond the
  factory or any other place or premises of
  production or manufacture of the said goods for
  the export of the said goods.
•  ?  The said amendment is made retrospective
  w.e.f. 29.6.2012.
•  ?  This is mainly to avoid hardship to exporters
  and to avoid litigation.
•  ?  Giving retrospective effect to the amendment
  introduced in the first week of February would
  surely encourage the exporters and settle pending
  disputes.

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• 3.0 One Person Company (OPC) and HUF treated on
  par with individuals and firms for tax payments
•  ?  Individuals and partnership firms are given
  special treatment under rule 6 of the ST Rules,
  who are allowed to pay tax on quarterly basis
  upon receipt of service proceeds (upto Rs.50 lacs
  turnover).
•  ?  This benefit has been extended to OPCs and
  HUF.
•  ?  This is to ensure equal treatment to OPCs and
  HUF on par with individuals and partnership
  firms.
•  ?  Thus tax payments by OPCs and HUFs can be on
  quarterly basis upon realisation of service
  proceeds subject to turnover limits.
•  
• 4.0 Certain Construction services provided to
  Government, local authority, governmental
  authority, ports and airports exempted
•  ?  Exemption in respect of construction services
  provided to Government, local authority,
  governmental authority, ports and airports was
  abruptly discontinued by the Union Budget
  2015-16.
•  ?  The amendment seeks to restore such exemption
  in respect of contracts entered into prior to
  1.3.2015. Even if tax payments have been made in
  the past refund would be available.
•  ?  Usually such contracts prescribe prices,
  which include all taxes. The abrupt removal of
  exemption caused hardship to service providers as
  they were not able to pass on the liability to
  the service recipient.
•  ?  This exemption for old contracts would ensure
  that the service providers are not burdened with
  taxes and the requirement of re-negotiating the
  price is avoided. Further the projects would not
  be burdened with such tax costs.

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• 5.0 Construction/Maintenance services w.r.t.
  canal, dam or irrigation works exempted for
  specific period
•  ?  Presently such exemption is available to
  Government, local authority or a governmental
  authority.
•  ?  The exemption is extended for a specific
  period from 1.7.2012 to 29.1.2014 to such works
  undertaken for bodies set up by Government but
  not necessarily by an Act of Parliament or State
  Legislature.
•  ?  This retrospective exemption for specific
  period would bring down the litigation.
•  ?  The benefit has been extended to such works
  for a specific period and even if tax payments
  have been refunds would be made available subject
  to doctrine of unjust enrichment.
•  
• 6.0 Special exemption to Indian Institute of
  Management
•  ?  Sl.no.9 of mega exemption notification
  exempts services provided by an educational
  institutions to its students, faculty and staff.
•  ?  Services provided by IIMs in respect of two
  specific courses are exempted specifically.
•  ?  This exemption raises doubts about the
  interpretation of sl.no.9 referred above.
• ? Similar exemption is not made available to
  other institutions providing similar courses.
•  

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• 7.0 Services by Mutual Fund Agent/Distributor to
  a Mutual Fund or Asset Management Company
  exempt
•  ?  Services provided or agreed to be provided by
  a mutual fund agent of distributor, to a mutual
  fund or asset management company suffers tax on
  reverse charge basis.
•  ?  Now it would suffer tax on forward charge
  basis w.e.f.1.4.2016.
•  ?  To enable the small sub-agents down the
  distribution chain to avail small scale exemption
  having threshold turnover of Rs.10 lakhs per year
  by fulfilling the necessary conditions.
•  ?  Service providers can now claim small scale
  exemption as reverse charge mechanism is no
  longer applicable.
• 8.0 Rule 6 compliance by banking
  companies/financial institutions
•  ?  Presently, in terms of rule 6(3B) of the
  Cenvat Rules a banking company and a financial
  institution including a non-banking financial
  company, engaged in providing services by way of
  extending deposits, loans or advances shall pay
  for every month an amount equal to 50 of the
  Cenvat Credit availed on inputs and input
  services in that month. This sub-rule is
  specially applicable to such companies/institution
  s and has overriding effect.
•  ?  In terms of the amended sub-rule proposed
  w.e.f.1.4.2016, an option is available even to
  such banking company/financial institution to
  follow other methods prescribed in the amended
  rule.
•  ?  Instead of thrusting a single method of
  arriving at the credit reversal in respect of
  common inputs or services, all the options are
  made available and it is for the assessees to
  choose the one, which suits them.
•  ?  Thus the assessees, who are banking
  companies/financial institutions having common
  inputs or input services, can choose from the
  various options placed before them and
  accordingly comply with the legal requirement.

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