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SERVICE TAX CHANGES IN BUDGET 2009

Amendments proposed by Finance Bill, 2009 SERVICE TAX

(A) Following New Services are brought under Service Tax Net,

(i) Transport of goods by rail,

Transport of Goods through Rail

Presently, transportation of goods in containers by rail, by other than Government railways is taxable under Section 65(105)(zzzp) of the Finance Act, 1994 (‘the Finance Act’) since 2006. It is now proposed to impose service tax on goods transported by railways, whether in containers or otherwise.After application of this clause the Freight on all good through railway will be cost more .

(ii) Transport of,

· Coastal goods; or

· Goods through national waterway; or

· Goods through Inland water

(iii) Service in relation to Cosmetic surgery or Plastic surgery

This service proposes to cover cosmetic surgery and plastic surgery undertaken to preserve or enhance physical appearance or beauty. However, any surgery undertaken to restore or reconstruct one’s anatomy or bodily functions affected due to congenital defects, developmental abnormalities, degenerative diseases, injury or trauma is outside the scope of this service.

(iv) Services in relation to Advice, Consultancy or assistance in any branch of law, provided by any business entity not being an individual

Service provided in the field of law except in case where service provider or service recipient is an individual. Thus tax would be limited to services provided by a business entity to another business entity and services provided by an individual advocate either to an individual or even to a business entity and by a corporate legal firm to an individual would be outside the purview of taxable service. Further service of appearance before any court of law or any statutory authority is also outside this levy.

Proposed clause is

“(zzzzm) to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner:

Provided that any service provided by way of appearance before any court, tribunal or authority shall not amount to taxable service.

Explanation.—For the purposes of this sub-clause, “business entity” includes an association of persons, body of individuals, company or firm, but does not include an individual;”

The date of effect of the above new services will be Notified in the notification.(not known yet)

(B) Following amendments have been proposed in relation to existing service

• (i) The definition of stock-broker has been amended so as to exclude the sub-broker from its net. Hence, sub-broker shall not be liable to service tax anymore.

The words ‘sub-broker’ has been deleted from charging provisions of the Finance Act, which defines ‘stock broker’ .  This has been necessitated as in terms of the amended provisions of SEBI Rules, sub-broker has no independent role as he is not authorized to raise any bill on the clients.

• (ii) The definition of “Information Technology Software Services” has been amended to replace the word ‘acquiring’ with ‘providing’. This amendment is being given retrospective effect,

Exclusion clause in this service has been modified to provide that it would apply only if the activity results in manufacture of ‘excisable goods’. The impact of this change would be that even if a process of manufacture is undertaken for the customer, but the resultant product does not fall under the category of excisable goods, such as alcoholic beverages, service tax would be attracted.

• (iii) The definition of “Business Auxiliary Services” has been amended so as to provide that only those processes which result in the manufacture of excisable goods, are excluded from the purview of Business Auxiliary Services

Exclusion clause in this service has been modified to provide that it would apply only if the activity results in manufacture of ‘excisable goods’. The impact of this change would be that even if a process of manufacture is undertaken for the customer, but the resultant product does not fall under the category of excisable goods, such as alcoholic beverages, service tax would be attracted.

(C) The following amendments has been proposed in the rules and notifications

(1) Rule 6(3) of Cenvat Credit Rules, 2004 has been amended to prescribe that the provider of both taxable and exempted services, and who does not maintain separate books of accounts relating to inputs, shall pay an amount equal to 6% of the value of exempted services instead of 8%.

(2) Rule 3(5B) of Cenvat Credit Rules, 2004, is being amended to provide that a service provider shall pay back the amount of credit taken on inputs/capital goods fully written off.

(3) Explanation provided in the Works Contract Rules, 2007 is being modified so as to allow the benefit of optional composition only to such works contracts where the tax payer declares the entire value of goods (whether supplied under any other contract for a consideration or otherwise) and services used in the execution of works contracts as the ‘gross value charged’ for the works contracts. This restriction shall not be applicable to current works contracts where either the execution has commenced or any payment has been made on or before 07.07.2009.

23/2009 – Service Tax, dated 07-07-2009

Amends the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

(D) The following other important amendments have been proposed :
Exemption Scheme
(1) To simplify the Scheme of Zero-rate export and refund of service tax paid after clearance of exportable goods from the factory, Following major changes have been proposed;

• (i) Services received by exporters from goods transport agents and commission agents, where the liability to pay service tax is ab initio on the exporter, would be exempted from service tax. Thus, there would be no need for the exporter to first pay the tax and later claim refund.

• (ii) For other services received by exporters, the exemption would be operated through the existing refund mechanism based on self-certification of the documents where such refund is below 0.25 per cent of fob (free on board) value, and certification of documents by a Chartered Accountant for value of refund exceeding the above limit.

(2) Exemption from levy of service tax on the membership and other fees colleted by Export Promotion Councils and Federation of Indian Export Organization (FIEO) till 31st March, 2010

16/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service, referred to in sub-clause (zzze) of clause (105) of section 65 of the Finance Act, provided or to be provided by the certain associations, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.

(3) Exemption from levy of service tax to the passenger vehicle run by private undertakings: In order to bring uniformity with the vehicles having “Stage Carriage Permit” and run by State Government, which are exempted from service tax, the vehicle having “Contact Carriage Permits” and run by private undertakings are also being exempted from service tax.

20/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service referred to in sub-clause (n) of clause (105) of section 65 of the Finance Act.

Download Budget Related Notification

23/2009 – Service Tax, dated 07-07-2009

Amends the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.

22/2009 – Service Tax, dated 07-07-2009

Amends the Taxation of Services (Provided from outside India and Received in India) Rules, 2006.

21/2009 – Service Tax, dated 07-07-2009

Amendments in Notification No. 1/2002 – Service Tax, dated the 1st March, 2002.

20/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service referred to in sub-clause (n) of clause (105) of section 65 of the Finance Act.

19/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service, referred to in sub-clause (zm) or (zzk)  of clause (105) of section 65 of the Finance Act.

18/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service  pertaining to sub-clause  (zzb) and (zzp) of clause (105) of section 65 of the Finance Act.

17/2009 – Service Tax, dated 07-07-2009

Supersedes notification No.41/2007- Service Tax, dated the 6th October, 2007.

16/2009 – Service Tax, dated 07-07-2009

Exempts the taxable service, referred to in sub-clause (zzze) of clause (105) of section 65 of the Finance Act, provided or to be provided by the certain associations, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.