Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
Gautam Bhattacharya
Joint Secretary, Tax Research Unit
Telephone No.011-23093027
Fax No.011-23093037
E-mail: g.bhattacharya @ nic.in
D.O.F.No.334/03/2010-TRU
New Delhi, dated 1st July 2010
Dear Madam/ Sir,
Subject: Issuance of notifications after enactment
of the Finance Act, 2010:
The Finance Bill 2010 was enacted on 8th May 2010. Section 76 and 77 of the
Finance Act, 2010 (14 of 2010) pertain to service tax issues. Certain new
taxable services were introduced and certain changes in the scope of the
existing taxable services (under section 65, with consequential changes in
section 66 of the Finance Act, 1994) were made under section 76 of this Act. The
provisions of section 76 (A) & (B) (except retrospective provisions relating to
commercial coaching and training and renting of immovable property services)
were to come into effect from a date to be notified, which is also known as
appointed date. This date has been notified to be the 1st day of July 2010
(Refer Notification No.24/2010-Service Tax dated the 22nd June 2010).
2. Services provided or payments made prior to the effective date;
2.1 Vide Finance Act, 2010, eight new services were added to the list of taxable
services while the scopes of nine existing services were modified. As these
changes become effective from 01.07.2010, activities that are covered under
taxable service categories due to above additions or modifications, would start
attract service tax from this date. It is however, possible that a part or full
payment of the consideration for such services provided after the appointed date
has already been received prior to that date, i.e. advance payments. The
examples are: where a domestic air journey performed after 1st July 2010, but
the ticket is issued on payment prior to such date or where a construction
activity falls within the taxable service only after the said date but the
payment (full or in part) has been made before this date. While legally tax is
payable on such amounts received, it has been decided to specifically exempt
service tax on that partial or full amount which is received by the service
provider/ person liable to pay the tax (and not by an agent, who in turn
transfers such amount to such person after this date) before 01.07.2010, pertain
to a service which has become taxable on account of the provisions of the
Finance Act, 2010 and is provided on or after 01.07.2010. Any amount received
after 01.07.2010 by the service provider/ person liable to pay the tax would be
subjected to tax. (Refer Notification No.36/2010-Service Tax dated the 28th June
2010 as corrected vide corrigendum dated 29th July, 2010).
3. Transport of passenger by Air service:
3.1 As stated in the Letter D.O.F.No.334/1/2010- TRU, dated 26th February 2010,
in Budget 2010, service tax on transport of passengers by air was extended to
cover all domestic and international air passengers embarking in India with
effective tax rates as given below:
- ten percent (current rate of service tax) of the gross value of the ticket
or rupees one hundred per journey, whichever is less, for passengers travelling
in any class, within India;
- ten percent (current rate of service tax) of the gross value of the ticket
or rupees five hundred per journey, whichever is less, for passengers embarking
in India for an international journey in economy class:
The aforesaid rates are subject to non-availment of CENVAT credit. (Refer
Notification No.26/2010-Service Tax dated 22nd June 2010). All charges except
statutory levies (levied under a law for time being in force), if any mentioned
in a ticket is to be taken as ‘gross value of the ticket’ for this purposes.
3.2 Exemption from service tax has also been provided on journeys to and from
North-Eastern States (i.e. Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim and Tripura) from the service tax (Refer Notification 27/2010 -
Service Tax date 22nd June 2010). Considering that Bagdogra airport, though
located in West Bengal being the gateway airport for Sikkim, has also been
accorded this benefit.
3.3 Doubts have been raised that in case a ticket covers more than one domestic
journey/flight/sector (say Mumbai-Delhi-Mumbai), whether Rs. one hundred would
be charged for each journey/flight/sector (i.e. in the aforementioned example
one for Delhi-Mumbai flight and one for Mumbai-Delhi flight) or would it be
charged once for the entire ticket. In this regard, it is clarified that since
the taxable activity relates to ‘embarkation in India for domestic journey….’,
each time such embarkation in India takes place the tax is chargeable. In other
words tax would be separately chargeable for each journey/flight/sector. In this
regard the clarifications issued vide circular No. 96/7/2007-ST dated 23.07.2007
has no application as the said circular did not cover situations of multiple
embarkations in India. Similarly, in round trip tickets involving multiple
journies/flights/sectors with one of the sector involving embarkation or
disembarkation at North-Eastern States /Bagdogra, the journey/flight/sector that
involves embarkation or disembarkation at North-Eastern States /Bagdogra would
alone be covered under aforesaid exemption.
3.4 Since the scope of air transport of passenger service has been modified vide
Finance Act, exemption, which were available earlier to crew of the aircraft
operator, and international transit passengers by way of definition in the Act
have been retained vide Notification (Refer Notification No.25/2010-Service
Tax).
3.5 The scheme of tax on passengers embarking in India for an international
journey in higher classes (i.e. other than economy class) remains unchanged.
3.6 As per the provisions of Rule 4A of the Service Tax Rules, 1944, invoice/
bill/ challan is required to be issued by the provider of taxable service within
14 days of the provision of the taxable service or the receipt of the
consideration. In case of air-travel, the airlines or the agent may not issue a
separate invoice to the passenger but may issue the ticket showing the price of
such ticket as well. In such a case, the requirement of an invoice would cast an
additional compliance burden on the service provider. Hence the said rule is
amended to provide that in case of this taxable service, the ticket (in any
form, including electronic form whatever may be the name) showing the name of
the passenger, description of the journey (details like place of embarking and
disembarking, class of travel, flight number, etc.,) and the amount of service
tax collected would be deemed to be the invoice/ bill /challan for the purposes
of the rule (Refer Notification No.39 / 2010-Service Tax as corrected vide
corrigendum dated 30 th July 2010).
4. Port and Airport Service
4.1 In the Finance Bill, 2010, with intent to ease the classification disputes,
the definitions of port, other port and airport services were amended to
comprehensively cover under their ambit, all services provided within an airport
or a port or other port irrespective of whether or not such activities are authorised by the authorities or whether or not they are otherwise classifiable
as distinct taxable services. In effect all services that are wholly rendered
within the prescribed area of the port or other port or an airport, are to be
classified within the ambit of ‘port services’ or ‘airport services’.
4.2 During the post budget interactions with the stakeholders, apprehensions
were expressed that that the change may have certain unintended effects and
certain services (including certain essential services) hitherto exempted, may
attract service tax unintentionally. Further, it was also pointed that the
abatements and exemptions presently available under individually defined taxable
services would get denied when provided within airport or port merely as they
would now be taxable under newly introduced taxable services.
4.3 In order to address these genuine concerns, the following measures have been
taken,-
- Certain basic activities undertaken within airports and ports have been kept
out of the tax by exempting them. (Refer Notification No.31/2010 - Service Tax
dated the 22nd June 2010);
- Service tax paid on certain taxable services that are used in relation to
or for export of goods are eligible for refund under Notification No. 17/09-ST.
Presently, the list of eligible services under the said notification includes
port service but does not include ‘airport service’. In order to correct the
anomaly, the said notification has been amended to include ‘airport service’ in
the list of eligible services under the said refund scheme (Refer Notification
No. 37/2010-Service Tax, dated the 28th June 2010).
- Commercial and Industrial construction service in relation to airport is
excluded from service tax, in the definition itself. As such services would now
be classified as ‘airport service’ when provided wholly within the airport,
exclusion has been now provided by way of an exemption notification (Refer
notification No. 42/2010-Service tax, dated the 28 th June, 2010)
- Construction of ports was not excluded under the erstwhile definition from
exclusion similar to that was available for airports. To bring parity in this
matter, commercial and industrial construction service provided within the port
area, in relation to construction, repair, alteration, renovation of wharves,
quays, docks, stages, jetties, piers and railways is exempt from the whole of
service tax (Refer Notification No. 38 /2010-Service Tax, dated the 28th June
2010).
- Currently abatements are available to certain services such as ‘Renting of a
cab’, 'Erection, Commissioning & Installation Service’, ‘Goods Transport Agency
service’ and ‘construction services’. Similar abatements would be available to
such services, when provided wholly within an airport or a port or other port,
under the new definition of airport or port or other port services.
(Notification No. 40/2010-ST dated 28th June, 2010 as corrected by corrigendum
dated 30th June, 2010 and notification no. 43/2010-ST, dated 28th June, 2010
refers)
- Exemptions/exclusions are available to warehousing of agriculture products
and cold storage facilities under 'Storage & Warehousing Service, transport of
export goods in an aircraft by an aircraft operator and site formation and
clearance, excavation and demolition services etc. when provided in the course
of construction Port or airport. These benefits would continue to be available
when such services are provided wholly within port/airport and are classified
under port/ airport service (Refer Notification No. 41/2010-ST, dated 28th June,
2010 refers).
4.4 All other services carried out within a port or other port or an airport
would be subjected to service tax under the category of port/other port/airport
services.
5. Sponsorship Service
As per the provisions of the Finance Act, 2010, the definition of existing
taxable service, namely ‘the Sponsorship Service’ was amended to remove the
exclusion available for sponsorship pertaining to sports. The measure was taken
to prevent exclusion benefiting certain sponsored sports events, which are
organized by private organizations or business entities as commercial ventures.
However exemption is provided for sponsorship services with reference to certain
sports championships or tournaments, such as national tournament (Refer
Notification No. 30/2010 - Service Tax dated 22nd June, 2010).
6. Construction services:
6.1 In the Finance Act, changes have been made in the construction services,
both commercial construction and construction of residential complex, using
‘completion certificate’ issued by ‘competent authority’. Before the issuance of
completion certificate if agreement is entered into or any payment is made for
sale of complex or apartment in residential complex, service tax will be leviable on such transaction since the builder provides the construction
service. Completion certificate issued by a Government authority was prescribed
as demarcation by introducing an Explanation in the Finance Act. During the post
budget discussions, it was pointed that practice regarding issuance of
completion certificates varies from state to state. Considering the practical
difficulties, the scope of the phrase ‘authority competent’ to issue completion
certificate has been widened by issuing an order for removal of difficulty (
Refer M.F.(D.R) Order No.1/2010 dated 22nd June 2010). Completion certificate
issued by an architect or chartered engineer or licensed surveyor can be now
taken to determine the service tax liability.
6.2 After the Budget was introduced views were expressed that the tax liability
on construction sector has been tightened at a time when the sector was
recovering after recession. After considering the issue, abatement available for
construction of industrial or commercial complex and also residential complex
has been prescribed as seventy five per cent. This means now tax incidence will
be the rate of service tax applied on twenty five per cent of gross value of
commercial or residential complex or unit, broadly representing the service
component in the construction, subject to conditions (Refer Notification
29/2010-Service Tax, dated 22nd June 2010). Importantly seventy five percent
abatement will be applicable only if the gross value of commercial or
residential complex or unit includes cost of land. Otherwise the existing rate
of abatement of 67% would continue to apply.
6.3 Exemption has been provided for construction of residential complex service,
when the same is rendered as part of Jawaharlal Nehru national Urban Renewal
Mission (JNNURM) and Rajiv Awaas Yojana (Refer Notification No.28/2010- Service
Tax, dated 22nd June 2010). These are flagship schemes of the Government of
India to provide shelter for the poor and the disadvantaged and hence taxable
service of construction of complex in the context of these two development
schemes have been kept out of the ambit of service tax.
7. Transport of Goods by Rail
7.1 Service tax on transport of goods by railways was introduced vide Finance
(No.2) Act, 2009, to bring parity between all modes of transportation of goods.
The levy is not yet operational and this levy will now take effect from January
2011 (refer Notification No.33/2010- Service Tax, No.34/2010- Service Tax, No.
35/2010- Service Tax all dated 22nd June 2010).
8. Transmission of Electricity:
8.1 Vide Budget notification 11/2010-ST, dated 27th February 2010, transmission
of electricity was exempted from service tax. Subsequent to post budget
discussions, taxable service provided by a distribution licencee or a
distribution franchisee authorised to distribute power under the Electricity
Act, 2003 for distribution of electricity is also exempt from levy of service
tax ( Refer Notification No.32/2010-Service Tax dated 22 nd June 2010).
9. Certain issues arising out of the budgetary changes and the post-enactment
legislations (especially taxes pertain to real estate sector) may not have been
covered in this communication. While some of the requests/ suggestions are under
examination, I look forward to receive your valuable feedback and suggestions on
any other unresolved issues. Kindly send them to me, or to Mr. J.M. Kennedy,
Director (TRU) or Mr. Samar Nanda, Technical Officer (TRU) within a fortnight so
that all such issues can be taken up and clarified wherever needed.
Regards,
Yours sincerely,
-signed-
(Gautam Bhattacharya)
To
All Chief Commissioners / Directors General
All commissioners of service Tax
All commissioners of Central Excise
All commissioners of Central excise and Customs