Proposed changes to service tax on cross border transactions by Finance Bill, CA Nilesh M Kapadia

Agenda Few General Changes Change in Exports Rules Imports Rules Works Contract on EPC Content services Reverse Charge

Few General Changes No change in rates – SHE Cess of 1% introduced Threshold increase from 4 Lakhs to 8 Lakhs Revised return now possible

Changes in Exports Rules Rule 3(2) – “Delivered outside India and used outside India” changed to “provided from India and used outside India”. Seeks to clarify ambiguity about delivery of an intangible like service

Exports Rules Consider following cases: –Agent getting orders for foreign principal from customers in India – If agent is in India If agent is from outside India –Agent getting orders for foreign principal from customers outside India – If agent is in India If agent is from outside India

Imports rules No change made Hence overseas agent of Indian exporter will continue to be taxable inspite of service having been rendered outside India Whether Ishikawajima Harima Heavy Industries (288 ITR 408 (SC)) can be relied upon – territorial nexus necessary for taxation of income from services in India

Works Contracts Constitutional Validity questionable – –Gannon Dunkerly and other cases Seeks to levy service tax on taxable service involved in execution of works contract. Term as defined includes EPC contracts, excluding in respect of certain specified types of infrastructure projects like roads, airports, railways, etc.

Works Contracts Valuation can be based on actual records of assessee, or under composition scheme (to be announced) where service tax is 2% entire works contract. Details awaited. No cenvat credit will be available on capital goods, inputs and input services.

Consider elements of EPC – IHI Case Description of scopeIn Indian rupeesIn US Dollars Offshore supplyNil81,711,877 Offshore servicesNil19,756,225 Onshore supply1,869,978,658Nil Onshore services1,774,353,28212,780,467 Construction and erection3,958,464,38436,795,623 Total7,602,796,324151,044,192

Content Services Many websites get content from overseas vendors Content may be write up on events, e.g. cricket matches, or fashion shows; or even mundane items like weather Content on tangible media would also amount to goods ( TCS case (178 ELT 22(SC)) – Double taxation???

Reverse Charge Reverse charge on sponsorship services Service tax was payable by sponsor, if the sponsor was body corporate of firm Now sponsor liable only if he is located in India; else reverse charge will not apply.

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