1. Budget 2012: Proposals relating to Service Tax
Draft
Budget 2012: Proposals relating to Service Tax
TRU, CBEC, Ministry of Finance
March 23, 2012

2. The budget summary GST Budget 2012 4. CX & ST Harmonization 5. Reverse
TRU
The budget summary
4. CX & ST
Harmonization
5. Reverse
charge
GST
1. Negative List
2. Cenvat
reform
3. POS
Rules
Budget 2012
Executive Summary

3. The negative list: Concept (1/4)
TRU
The negative list: Concept (1/4)
Activity for consideration
I: Immovable property
M: Money
A: Actionable claim
G: Goods
E: Employee
Not mere IMAGE
Taxable
3. Exemption
1. Taxable territory
2. Negative list
Executive Summary

4. Negative list: Highlights (2/4)
TRU
Negative list: Highlights (2/4)
Category
Highlights 1
Constitution or international obligations
List II e.g. tolls, betting, gambling or international convention e.g. services by diplomatic missions
Not services in relation thereto 2
Taxed as goods
Manufacture
Trading of goods 3
Lasting entries
Education , agriculture, renting of residential dwellings or funeral
Margin-based financial services
Executive Summary

5. Effect on major sectors (3/4)
TRU
Effect on major sectors (3/4)
Taxability
Area
Transportation
Construction
Real estate
Education
Health
Govt. and community
Financial
Business/ Miscellaneous
Changes
Low High
Passenger railway by higher classes taxed with ITC; inland waterways excluded;
Repairs etc. of airports/ports/railways taxed; rate 40/60%; ITCs made available
Renting to govt., > 90 days in hotels
Largely status quo, NSDC exempted; greater clarity provided: bundled services
Largely status quo; unrecognized health care taxed
To business entities reverse charged; regulators/autonomous bodies taxed
Interest on loans now exempt; reversals applicable; services to govt. taxed;
Mainly filling up of gaps
Executive Summary

6. Other relevant aspects (4/4)
TRU
Other relevant aspects (4/4)
Goods or property v services:
2. Services vs services
Dominant nature test
Declared services
Rules of interpretation
Ordinarily: Dominant nature or pith and substance test;
Rate same or higher
(Notification 12/2003 to be rescinded)
Deemed sale of goods in constitution; service portion specified;
To remove ambiguities: judicially held to be services;
8/9 already being taxed; 9th not being taxed by states
Normally uniform rate
When differential treatment:
Specific preferred over general
Bundled services:
Natural: essential character
Unnatural: highest liability
Executive Summary

7. Scientific allocation
TRU
Cenvat reform
Mitigate Cascading
Scientific allocation
Facilitation
ISD: to distribute credits scientifically:
Exclusive: only to that
More: proportionate to user turnover
Refunds: No question asked, if entitled to avail credit; ratio of exports to total turnover
Avail on challan: for reverse charged services
Allow credits:
Goods and services for legitimate business use
ITC to abated services: catering, restaurants, hotel stay, life insurance, construction
Principle of neutrality: no cost to business
Executive Summary 7 7

8. Place Of Supply Rules, 2012 Jurisdiction to tax Cross border taxation
TRU
Place Of Supply Rules, 2012
Objectives
The rules
Later rule to prevail
Main rule:B2B supplies: Location of receiver
Other Rules:B2C supplies:
Place of actual performance, or
Location of property/event/performance/ embarkation of journey
Location of supplier, or
Internationally aligned with a fair bit of originality to retain B2C revenue in India
Cross border
Within
Cross border taxation
J&K supplies
Jurisdiction to tax
SEZ
GST rollout
Executive Summary

9. Harmonization and compliance
TRU
Harmonization and compliance
Harmonisation & simplification
1.5 page common registration;1 page common return: EST,
Appellate provisions
Dispute settlement
Settlement commission
Revision Application Authority
Enforcement
Comprehensive special audit
Evasion an offence for prosecution now
Executive Summary

10. TRU
Reverse charge (1/2) 1
New services added: Service to business entities by govt/ individual advocates/arbitrators 2
J&K Supplies: Covered by POS Rules; reverse charged if provider in J&K 3
Reverse charge new scheme: Tax payable to the extent stated on 3 specified services

11. Reverse charge: new scheme (2/2)
TRU
Reverse charge: new scheme (2/2)
Liability to pay
Service provider:
Portion specified:
Transport: 60%;
Manpower : 25%
Construction: 50%
Avail ITC
Refund if necessary
Service receiver:
Portion payable:
Transport: 40%
Manpower: 75%
Construction: 50%
Independent liability

12. GST TRU ? Unified GST 2011-13 Towards Central GST 2005 State VAT 2004
CENVAT