2TAXATION OF SERVICES –NEGATIVE LIST REGIME Services under Negative ListServices under Exempted listOther Exemptions/AbatementsAll remaining services to be taxable under Negative List Approach
3Hot Topics Sale of PLOTS Sale of Developed PLOTS Joint Venture Joint Venture of Development of Lands( Plot Sale)Joint Venture Agreement and Sale of FlatsJoint Venture Agreement and Area SharingCompletion Certificate Vs. Occupancy Certificate
4Hot Topics Rate of Tax on Ancillary Services Like PLC service EDC/IDC ChargesIFMS – Refundable/Non RefundableCar Parking ( Open and Covered)Forfeiture AmountTransfer Charges/Admin ChargesOriginal Works Contract Vs. Finishing Services ( Valuation ????)Free of Cost Material Supplied by the Contractee
5Hot Topics CENVAT Credit Issues :- Whether CENVAT is eligible on all the Input services or there are some exclusions/ConditionsCompleted Projects and Unsold UnitsTownship ProjectsReversal of CENVAT credit for sale of Land/PlotAdjustment of Credit Note/DiscountPoint of Taxation
6Carried out by one person For another person For consideration DEFINITION OF SERVICE:Any activityCarried out by one personFor another personFor considerationIncludes a declared servicebut excludes IMAGE
7Entries of Declared List governing Construction/Builders Services (Section 66E) (a) Renting of immovable property;(b) Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion-certificate by the competent authority;(h) service portion in the execution of a works contract;
8Renting of Immovable Property Service Taxable w.e.fIt was already taxable. Validity of the levy was upheld bymany courts.Covers following(an illustrative list):• Renting for temporary purpose like marriages or other social functions;• Permitting use of property for vending/dispensing machine• Renting for entertainment or sportsAs per Rule 5 of the Place of Provision of Services Rules, 2012, the place of provision of services provided directly in relation to an immovable property, shall be the place where the immovable property is located or intended to be located.
9Exemptions for Renting ….. Negative ListServices by way of renting of residential dwelling for use as residence.Services relating to agriculture or agricultural produce by way of renting of vacant land; warehousing etc.Mega Exemption5. Services by a person by way of renting of precincts of a religious place meant for general public.9. Renting of immovable property to an educational institution in respect of education exempted from service tax.18. Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a unit of accommodation below Rs.1000/- per day or equivalent.24. Vehicle parking to general public (Taxable w.e.f. 01-Apr-13)
11CONSTRUCTION SERVICE: Booking of flats under construction(i.e. before issuance of completion certificate) is taxable;Sale of plots are not taxable;Builders are also allowed abatement of 75%/70%(based on type of property), provided the land value is also included in total consideration;No Abatement allowed on Preferential Location Charges, associated incomes(e.g. transfer charges, cancellation charges)CENVAT Credit is allowed oninput servicesCapital goods;CENVAT Credit on inputs(e.g. steel, cement) barred
12Amt Charged > Rs. 1 crore Type of PropertyResidentialCarpet Area < 2000 Sq. ft.Amt Charged > Rs. 1 croreCommercialApplicable Ratew.e.f. 1st March, 2013Are both conditions fulfilled?YES %NO %3.708%
13No service tax on sale of completed properties Completion Certificate from Competent Authority required for sale of flat to be exempt from service tax.Competent Authority means The Government or any authority authorized to issue completion certificate under any law for the time being in force and In case there is non-requirement of such certificate from such authority, then from any of the following namely:-Architect Registered with Council of Architecture constituted under the Architects Act, 1972; orChartered Engineer Registered with Institution of Engineers (India); orLicensed Surveyor of the respective local body of the city or town or village or development or planning authority.
14WORKS CONTRACT SERVICE: Works contract means a contract which involves-Transfer of property in goodsAndsuch contract is for the purpose of :ConstructionErectionCommissioningInstallationCompletionFitting outRepairMaintenanceRevocationAlterationof movable or immovable property
15Material & Labour can be segregated WORKS CONTRACT SERVICE:Valuation under Works Contract Service(Rule 2A of Service tax (Determination of Value) Rules, 2006)Material & Labour can be segregatedYes12.36% on Labour portionOriginal Works(40% )R&M of Goods(70%)Others(60%)4.944% of Gross amount charged8.652% of Gross amount charged7.416% of Gross amount charged
17Exemptions from Service Tax in Real Estate Sector Mega Exemption: Entry No.12Service of Construction, Erection, Commissioning, Installation, Completion, Fitting Out, Repair, Maintenance, Renovation, or Alteration.The Government, a Local Authority or a Governmental AuthorityIn Relation to :a civil structure or any other ‘original works’ meant predominantly for use other than for commerce, industry, or any other business or profession;a historical monument, archaeological site or remains of national importance, archaeological excavation, or antiquity specified under the Ancient Monuments and Archaeological Sites and Remains Act, 1958a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment;canal, dam or other irrigation works;pipeline, conduit or plant for (i) water supply (ii) water treatment, or(iii) sewerage treatment or disposal; orf) a ‘residential complex’ predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;
18Exemptions from Service Tax in Real Estate Sector Mega Exemption: Entry No.13Service provided by way ofConstruction, Erection, Commissioning, Installation, Completion, Fitting Out, Repair, Maintenance, Renovation, or Alteration ofA road, bridge, tunnel, or terminal for road transportation for use by general public.A civil structure or any other original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas.A building owned by an entity registered under section 12AA of the Income tax Act, 1961 and meant predominantly for religious use by general public.A pollution control or effluent treatment plant, except located as a part of a factory.A structure meant for funeral, burial or cremation of deceased.
19Exemptions from Service Tax in Real Estate Sector Mega Exemption: Entry No.14Repair, maintenance are not included in this entryService by way ofConstruction, Erection, Commissioning, orInstallation of Original Works pertaining toAn airport, port or railways, including monorail or metro.A ‘single residential unit’ otherwise than as a part of a ‘residential complex’.Low-cost houses up to a carpet area of 60 square meters per house in a housing project approved by competent authority empowered under the 'scheme of affordable housing in partnership' framed by the ministry of housing and urban poverty alleviation, government of India.Post-harvest storage infrastructure for agricultural produce including a cold storages for such purposes.Mechanized food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.
20Charges collected by Builders and rate of Service Tax applicable on said charges S. NoChargesRate of Service tax1.Basic Charges3.09%/3.708%2.Preferential Location Charges12.36 % or 3.09%/3.708%3.Club ChargesTowards cost of constructionFor membership of club12.36%4.Car Parking- open & covered
21Only own service charges are taxable S. NoChargesRate of Service tax5.EDC/IDCOn Actual Payment BasisOn Adhoc basis without disclosing actual chargesActual Charges plus own service chargeNot TaxableFull amount is TaxableOnly own service charges are taxable6.External Electrification charges/ Electrical Installation Charges3.09%/3.708%/4.944%7.Administrative Charges for registration12.36%8.Interest Free Maintenance Security (IFMS)RefundableNon RefundableNon Taxable
22S. NoChargesRate of Service tax9.Firefighting Equipment Installation charges3.09%/3.708%/4.944%10.Power Backup Charges (Towards cost of installation of DG Sets and substations)3.09%/3.708%4.944%11.Administrative/Transfer Charges (In case of sale of flat by original buyer, builder charge said charged for modifying its records i.e. entering the name of new buyer in its records)12.36%
23Maintenance Services provided by a Developer/Builder Apart from construction Services developers/Builders also provide the services of maintenance of buildings/complexes constructed by it. For providing such services developer charges maintenance charges form the occupants of flats/offices. The nature of charges collected by builders and Rate of Tax applicable on the same has been summarised as under:Mai Maintenance ChargesChargesDescriptionTaxabilityMaintenance ChargesTowards maintenance of building/complex12.36%Electricity ChargesFor supplying electricity in flats/shops (Charged on actual basis)Non TaxableCommon Area Electricity ChargesTowards cost of electricity consumed in Common Area
24Impact of Negative List Regime Construction for NGO/ Charitable Institutions made taxableRenting for NGO/ Charitable Institutions made taxableServices in relation to development of plots provided by builders made taxableChanges in the definition of Residential ComplexCar Parking made taxable .Scope of entry no. 12 of Notification No. 25/2012 dated
25CENVAT OF INPUT SERVICES Credit on InputServiceWhether Credit can be taken against Output ServiceWorks Contract(including R&M)Construction ofComplexRenting of ImmovablePropertyYesNOManpower SupplyCommission/ BrokerageLegal ConsultancyTelephone BillsOther Services
26A builder ABC Ltd. construct and sold the building A builder ABC Ltd. construct and sold the building. Costs incurred by him for constructing the building & other relevant details are as under:S. NoParticularsAmount(Rs.)1.Total Gross Amount Charged1,00,0002.Cost of Land60,0003.Value of Material used22,0004.Cost of Labour Services4,0005.CENVAT Credit on Input12006.CENVAT Credit on Inputs services4127.CENVAT Credit on Capital Goods (Total CENVAT is RS % of the has been availed)200
27Relevant Notification/provision No. 26/2012 PARTICULARSValuation MethodsOption AOption BOption COption DRelevant Notification/provisionNo. 26/2012Separate Land Agreement is required to be madeRule 2A (i)Rule 2A (ii)Section 67Gross Amount ChargedRs. 1,00,000Less : - Exemption of 75%(Rs. 75,000)NILLess :- Cost of Land(Rs. 60,000)Less :- Value of Material(Rs. 22,000)Taxable ValueRs. 25,000Rs. 18,000Rs. 40,000Rs.40,000Service Tax thereon (12.36%)Rs. 3,090Rs. 2,225RsRs. 4,944Less :- CENVAT Credit on Input1200Less :- CENVAT Credit on Input Services412Less :- CENVAT Credit on Capital Goods200Service Tax to be paid in cashRs. 2,478Rs. 1,613Rs. 1,366Rs. 3,132
28Value for Reversal under Rule 6 (3) of CENVAT Credit Rules, 2004
29ExampleFor Instance:1) Value of flats sold by M/s ABC Ltd = Rs 1,00,00,000/-(Taxable Service)Service Tax discharged = Company is paying service tax at the rate of 3.09% on the above value.2) Gross Amount Charged for construction of Road = Rs 1,00,00,000(Exempted Service Entry No 13 of Notification No 25/2012 dated ).Further, ABC Ltd has availed CENVAT Credit of Rs 4.00,000 in respect of aforesaid services.What will be the amount which ABC Pvt Ltd is liable to pay as per Rule 6 (3) of CENVAT Credit Rules, 2004?
30Amount required to be paid as per Rule 6 (3) (i) of CENVAT Credit Rules, 2004 = 6% of Exempted Services= 6% of Rs 1,00,00,000= Rs 6,00,000Amount required to be paid as per Rule 6 (3) (ii) of CENVAT Credit Rules, 2004 =4,00,000 * 1,00,00,0002,00,00,000= Rs 2,00,000To Conclude: The value should be taken for the purpose of aforesaid Rule shall be Gross Amount Charged not the amount on which Service Tax has been paid.
32Person Liable to Pay Tax Every person providing taxable services to any person shall pay service tax in such manner and within such time as may be prescribed. [Section 68(1)]Central Government has power to notify such other person to discharge service tax liability and all provisions of service tax law would be applicable as if he is service provider.Board has notified such person by issuance of Notification No. 15/2012 – dated
33Person Liable to Pay Tax Description of ServiceService ProviderService ReceiverPerson LiableRate of TaxInsurance BusinessInsurance AgentInsurance Company12.36%Goods TransportGTASpecified personsSponsorshipAny personBody corporate or FirmLegal ServicesArbitral Tribunal or AdvocateBusiness EntitySupport ServicesGovernment or Local Authority
34Person Liable to Pay Tax Description of ServiceService ProviderService ReceiverPerson LiableRate of TaxHiring of Motor Vehicle -On abated ValueIndividual, HUF, Prop. Firm, P’ Firm, or AOPBusiness Entity registered as Body Corporate12.36%On non abated ValueProvider40% of 12.36%60% of 12,36%Supply of Manpower & Security Services for any purpose75% of 12.36%25% of 12.36%
35Person Liable to Pay Tax Description of ServiceService ProviderService ReceiverPerson LiableRate of TaxDirector ServicesNon Executive DirectorCompany12.36%Works ContractIndividual, HUF, Prop. Firm, P’ Firm, or AOPBusiness Entity registered as Body CorporateProvider50% of 12.36%Any Taxable Service?????Located in Non Taxable TerritoryAny person located in Taxable Territory
37Case Study-1ABC ltd has entered into a contract for construction of road meant for general public. ABC ltd sub contracts the aforesaid work to three contractors namely:DEF Ltd , the work of site formation for construction of roadXYZ Ltd , laying the surface of roadGHI Ltd , other physical activities in respect of such roads.What will be the Service tax implication on the aforesaid transactions?
38Services provided by way of construction of road meant for use by general public is Exempted from payment of Service Tax. Thus, any service which is used in the construction of said road shall be exempted from Service Tax as per Entry 13(a) of N/N 25/2012 dated Accordingly, all the aforesaid services in respect of roads are not exigible to Service Tax.Further, as far as laying of surface is concerned same is also covered under definition of Works Contract as engrafted under Section 65B (54) of Finance Act, Since, main Contractor enjoys exemption, the sub contractor also continue to enjoy the exemption in respect of Works Contract Services - Entry 29(h) of N/N 25/2012 dated
39Case Study-2M/s ABC Pvt Ltd is engaged in construction of hospitals and educational institutes. Whether M/s ABC Pvt Ltd. is required to pay Service Tax on the same?If M/s ABC Ltd is constructing such structures for the government, a local authority or a governmental authority, in that case M/s ABC is not required to pay Service Tax on the same as per Entry 12 (a) of Notification No 25/2012.However, if such structure are built for persons other than government, a local authority, governmental authority, M/s ABC Ltd is required to pay Service Tax on the same.
40Case Study-3M/s XYZ Pvt Ltd is engaged in maintenance & Repair of Ports. Whether M/s ABC Pvt Ltd. is liable to pay Service Tax on the same?Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same as vide Entry No 14 of Notification No 25/2012 dated , exemption has been provided only to services in respect of Construction of Ports.
41Case Study-4M/s XYZ Pvt Ltd is Renting out its Immovable Property to an NGO. Whether M/s XYZ Pvt Ltd is required to pay Service Tax on the same?Yes, M/s XYZ Pvt Ltd is required to pay Service Tax on the same as exemption has not been granted to such activity anywhere under Finance Act, 1994.
42Case Study-5Mr. A has rented a house to Mr. B, consisting of two floors. one floor of which is to be used as residence and the other for the purpose of running of a office? What shall be the Service Tax implications on the same?Such renting for two different purposes is not naturally bundled in the ordinary course of business. Therefore if a single rent deed is executed it will be treated as a service comprising entirely of such service which attracts highest liability of Service Tax. In this case renting for use as residence is a Negative List Service while renting for non-residence use is chargeable to tax. Since, the latter category attracts highest liability of Service Tax amongst the two services bundled together, the entire bundle would be treated as renting of commercial property.
43Case Study-6Mr. A has let out a house to Mr. B for Residential purposes. Further, along with such house Mr. A has also provided various amenities such as furniture, refrigerator, air conditioners etc. What shall be Service tax implications of the same?This will be a case of Bundled Services where a number of services have been provided in lieu of a Single Consideration. Accordingly, taxability of the same shall be determined as per Section 66F of Finance Act, As per said Section, if services are considered Naturally Bundled in the ordinary Course of business, it shall be considered as the provision of said service which provide essential character to it. In this case, Renting of Immovable Property is the essence of aforesaid activity. Further, Renting of property for residential purposes is not exigible to Service Tax. Thus, said activity of Renting by Mr. A shall not be exigible to Service Tax.
44Case Study-7Now the moot question arises whether a person providing Works Contract Services is mandatorily required to discharge its Service Tax Liability as per aforesaid Rule 2A or can avail any other method of valuation?Apart from adopting methods prescribed by Rule 2A, the person providing Works Contac service provider has an option to valued its service as per the provisions contained in Section 67 read with Rule 5 of Service Tax (Determination of Value) Rules, 2006
45Case Study- 8A builder engages three sub-contracts in order to execute the construction work (including material) of a new building. The said Sub-Contractors have been awarded the work as follows:Civil work has been given to Mr. AElectrification work has been given to Mr. BPlumbing & Fire fighting work has been given to Mr. CWhether all aforesaid contracts fall under the ambit of term original works as defined under Rule 2A of Service Tax (Determination of Value) Rules, 2006?
46The scope of term “Construction” can not be restricted to merely putting up walls, roof and floor etc. In different words, completion and finishing services [such as glazing, plastering, floor and wall tiling, installation of electrical fittings, plumbing works etc.] also fall within the ambit of term “Construction” which itself gets covered under the definition of term “Original Works”.Therefore, all above contracts are eligible to discharge service tax liability on the 40% of the total amount charged for the works contract.
47Case Study- 9What are the options available to a Builder for discharging its Service Tax Liability?In addition to discharging Service Tax liability after availing abatement as per Notification No 26/2012 dated , the builder can also discharge its Service Tax Liability as per Rule 2A of Service Tax (Determination of Value), Rules, 2006 provided it entered into a separate agreement with the allottee for the sale of land.
48Hot Topics Sale of PLOTS Sale of Developed PLOTS Joint Venture Joint Venture of Development of Lands( Plot Sale)Joint Venture Agreement and Sale of FlatsJoint Venture Agreement and Area SharingCompletion Certificate Vs. Occupancy Certificate
49Hot Topics Rate of Tax on Ancillary Services Like PLC service EDC/IDC ChargesIFMS – Refundable/Non RefundableCar Parking ( Open and Covered)Forfeiture AmountTransfer Charges/Admin ChargesOriginal Works Contract Vs. Finishing Services ( Valuation ????)Free of Cost Material Supplied by the Contractee
50Hot Topics CENVAT Credit Issues :- Whether CENVAT is eligible on all the Input services or there are some exclusions/ConditionsCompleted Projects and Unsold UnitsTownship ProjectsReversal of CENVAT credit for sale of Land/PlotAdjustment of Credit Note/DiscountPoint of Taxation