D.I.T

MAHARASHTRA VALUE ADDED TAX ACT, 2002 INTRODUCTION WHAT IS VALUE ADDED TAX (VAT)? VAT (Value Added Tax) is a multistage tax system for collection of sales tax. The system envisages levy of tax on the sale at each stage and contemplates allowing of set off of tax paid on purchases. Thus, tax is getting paid on the value addition in the hands of each intermediately vendor. The process covers whole chain of distribution i.e. from manufacturers till retailers. Prior to 1-4-2005, the system for levy of tax in Maharashtra was, in general, single point tax system. As a consequence to national consensus for introduction VAT, the earlier Bombay Sales Tax Act, 1959 is replaced by Maharashtra Value Added Tax Act, 2002. The Act has come into force with effect from 01/04/2005. Thus, from 1-4-2005, sales tax is being collected under VAT system in Maharashtra. Salient features of this Act are mentioned hereunder:

A. TAX ON GOODS SPECIFIED IN SCHEDULES: Section 2(12) – “Goods” means every kind of movable property. The definition specifically includes live stocks, growing crop, grass and tree, plants including produce thereof under given circumstances. However, it excludes newspapers, money, stocks, shares, securities, lottery tickets and actionable claims.

RATE OF TAX: [SECS. 5 & 6] AS PER SCHEDULES: Schedule ‗A‘ –

Essential Commodities (Tax free)

Nil

Schedule Gold, Silver, Precious Stones, Pearls ‗B‘ – etc.

1%

Schedule Declared Goods and other specified ‗C' – goods

4%

Other goods w.e.f. 1/5/10

5%

At Schedule Foreign Liquor, Country Liquor, Motor specified ‗D‘ – Spirits, etc. rates Schedule All other goods (not covered by A to D) 12.5% ‗E‘ –

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PROVISIONS: All the goods are classified under Schedule A to E.  Schedule A covers goods, which are generally necessities of life. Goods covered by schedule  A is free from tax. Some of the items covered by Schedule A are agricultural implements, cattle feed, books, bread, fresh vegetables, milk, sugar, fabrics, plain water etc.  Schedule B covers jewellery, diamonds and precious stones.  Goods covered by Schedule B are subject to tax at 1%.  Goods covered by Schedule C are subject to tax @ 4%. Schedule C covers items of daily use  or raw material items like drugs, readymade garments, edible oil, utensils, iron and steel  goods, non ferrous metal, IT products, oil seeds, paper, ink, chemicals, sweetmeats, farsan,  industrial inputs, packing materials etc.  Schedule D covers liquor which is subject to 20% tax. It also covers various types of motor  spirits that are subject to tax from 4% to 34%.  All items which are not covered in any of the above Schedules are automatically covered in residuary Schedule E. Goods covered by Schedule E are subject to tax at 12.5%.

B. COMPOSITION OF TAX: PROVISIONS: (1) (a) The State Government may, by a notification in the Official Gazette, provide for a scheme of composition, subject to such conditions and restrictions as may be provided therein, of tax payable by the dealers who are engaged in the business, as prescribed, of reselling at retail, any goods or merchandise and different types of schemes may be notified for different classes of retailers. (b) For the purpose of this sub-section, a dealer shall be considered to be engaged in the business of selling at retail if 9/10th of his turnover of sales consists of sales made to persons who are not dealers and if any question arises as to whether any particular dealer is a retailer, then the question shall be referred to the Joint Commissioner, who shall after hearing the dealer, if necessary, decide the question. The order made by the Joint Commissioner shall be final. (c) Nothing in this sub-section shall apply to a dealer who is a manufacturer or who is an importer or who purchases any goods from a registered dealer whose sales of the said goods

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are not liable to tax by virtue of the provisions contained in, sub-section (1) of section 8 or who sells at retail liquor including liquor imported from out of India, Indian Made Foreign Liquor or Country Liquor except as provided in sub-section (2). (2) The State Government may, by a notification in the Official Gazette, provide for a scheme of composition, subject to such conditions and restrictions as may be provided therein, of tax payable by dealers who are running any eating house, restaurant, hotel, refreshment room or boarding establishment and the tax payable by dealers who are caterers and serve food and non-alcoholic drinks or tax payable by dealers running bakeries or dealers of second hand motor vehicles whose principal business is buying or selling motor vehicles or vendors selling Indian Made Foreign Liquor or Country Liquor at retail and holding licence in Form FL II appended to the Bombay Foreign Liquor Rules, 1953 or in Form CL III or in Form CL/FL/TOD/lII appended to the Maharashtra Country Liquor Rules, 1973, framed under the Bombay Prohibition Act, 1949 (Bom. XXV of 1949). (3) Where a dealer is liable to pay tax on the sales effected by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract, he may subject to such restrictions and conditions as may be prescribed, in lieu of the amount of tax payable by him under this Act, whether in respect of the entire turnover of sales effected by way of works contract or in respect of any portion of the turnover corresponding to individual works contract, pay lump-sum by way of composition,(a) equal to five per cent, of the total contract value of the works contract in the case of a construction contract, and (b) eight per cent, of the total contract value of the works contract in any other case, after deducting from the total contract value of the works contract, the amount payable towards sub-contract involving goods to a registered sub-contractor: Explanation. - For the purposes of this sub-section,(i) "construction contract" shall mean construction contract as may be notified by the State Government in the Official Gazette, from time to time, and (ii) "the amount payable towards sub-contract involving goods" means the aggregate value of the goods on which tax is paid and the quantum of said tax paid by the sub-contractor or the sub-contract value on which tax by way of composition is paid by the sub-contractor, as the case may be. (3A) The State Government may, by notification published in the Official Gazette,(a) provide a scheme of composition for the registered dealers who undertake the construction of flats, dwellings or buildings or premises and transfer them in pursuance of an agreement along with the land or interest underlying the land; (b) Prescribe the rate of tax by way of composition, in lieu of the amount of tax payable on the transfer of goods (whether as goods or in some other form), in the execution of such works contracts by such registered dealer under this Act. (4) Where a dealer is liable to pay tax in respect of any period on or after the appointed dayon sales effected by way of the transfer of the right to use mandap or tarpaulin (whether or not for a specified period), then he may, subject to such conditions and restrictions, as may be prescribed, pay in lieu of the amount of tax payable by him a sum equal to one and half per cent, of the turnover of sales effected by him.

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C. REDUCTION IN SET-OFF The set-off available under any rule shall be reduced and shall accordingly be disallowed in part or full in the event of any of the contingencies specified below and to the extent specified. (1)If the claimant dealer has used any taxable goods as fuel, then an amount equal to three per cent of the corresponding purchase price shall be reduced from the amount of set-off otherwise available in respect of the said purchase. (1A) On the purchases of natural gas to which sub-rule (1) does not apply, unless the natural gas purchased is resold or sold in the course of inter-State trade or commerce or in the course of export out of the territory of India or dispatched outside the State, to any place within India, not by reason of sale, to his own place of business or of his agent or where the claimant dealer is a commission agent, to the place of business of his principal, an amount equal to three per cent of the purchase price shall be reduced from the amount of set-off otherwise available in respect of the said purchases. Explanation: - For the purpose of this sub-rule, "natural gas" will be deemed to have been sold or resold if the sale is after conversion from one form of natural gas to another form. (2)(a) If the claimant dealer manufactures any tax free goods then an amount equal to the amount calculated at the rate notified from time to time, by the Central Government for the purposes of sub-section (1) of section 8 of the Central Sales Tax Act, 1956 of the purchase price of the corresponding taxable goods purchased by him (not being goods treated as capital assets or used as fuel and natural gas) shall be reduced from the amount of set-off otherwise available in respect of the said purchases. Explanation: - For the purpose of this clause "manufactured tax free goods" will not include,(a) sarki pend, de-oiled cakes, and (b) any other goods covered by SCHEDULE A, if they are sold in the course of export out of the territory of India covered by section 5 of the Central Sales Tax Act, 1956. (b) If the claimant dealer re-sells any tax free goods and the tax- free goods are packed in any material, then an amount equal to the amount calculated at the rate notified from time to time, by the Central Government for the purposes of sub-section (1) of section 8 of the Central Sales Tax Act, 1956 of the purchase price of the corresponding purchases of packing materials, if any, shall be reduced from the amount of set-off otherwise available in respect of the said purchases of packing materials. Provided that no reduction under this clause shall be made if the goods packed are sold in the course of export out of territory of India and the export is covered by section 5 of the Central Sales Tax Act, 1956. (3)(a)If the claimant dealer dispatches any taxable goods outside the State, to any place within India, not by reason of sale, to his own place of business or of his agent or where the claimant dealer is a commission agent, to the place of business of his principal, then an amount equal to four percent of the purchase price of the corresponding taxable goods (not being goods treated as capital assets or used as fuel and natural gas) shall be deducted from the amount of set-off otherwise available in respect of the said purchases.

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Provided that, if the taxable goods are dispatched outside the State and the rate of tax specified in the SCHEDULE against the corresponding taxable goods purchased, is less than four per cent., then the reduction from set-off under this clause shall be calculated at such lower rate of tax specified in the SCHEDULE against the corresponding goods. Provided further that the deduction provided in this sub-rule shall not apply if the goods dispatched are brought back to the State within six months of the date of dispatch whether after processing or otherwise; Provided also that, the provisions of this clause shall not be applicable in respect of the contingencies specified in clause (b) (b) If the claimant dealer manufacturers the goods covered under entries 5, 6, 7, 8, 9 and 10 of Schedule "D" appended to the Act and dispatches the said goods not by reason of sale, outside the State to any place within India to his own place of business, or the place of business of his agent or where the claimant dealer is a commission agent, to the place of business of his principal, then an amount equal to four per cent. of the value of the goods so dispatched shall be reduced from the amount of the set-off otherwise available in respect of the aforesaid manufactured goods. (4)If the claimant dealer has made a sale by way of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract then, if the claimant dealer has opted for composition of tax under sub-section (3) of section 42, the corresponding amount of set-off other than the set-off pertaining to purchases of capital assets and set-off pertaining to goods in which property is not transferred shall be reduced and the set-off shall be allowed and calculated, (a) by multiplying the said amount of set-off by the fraction 16/25 where the dealer has opted to pay tax @ 8% on the total contract value, and (b) in respect of periods starting on or after 20th June 2006 by reducing from the amount of set-off a sum equal to 4% of the purchase price on which such set-off is calculated where the dealer has opted to pay tax @ 5% on the total contract value in the case of construction contracts. Explanation: - For the purposes of this sub-rule, the expression "claimant dealer" shall also include a sub-contractor if the principal contractor has awarded the contract or part of contract to a sub-contractor and the principal contractor has opted in respect of the said contract for the composition of tax under sub-section (3) of section 42. (5)If the business in which the dealer is engaged is discontinued and is not transferred or otherwise disposed of and is not continued by any other person, then the set-off on purchases not being purchases treated as capital assets, corresponding to the goods held in stock at the time of discontinuance shall be disallowed and accordingly be reduced fully. (6) If out of the gross receipts of a dealer in any year, receipts on account of sale are less than fifty per cent. of the total receipts, (a) then to the extent that dealer is a hotel or club, not being covered under composition scheme, the dealer shall be entitled to claim set-off only,(i) on the purchases corresponding to the food and drinks (whether alcoholic or not) which are served, supplied or, as the case may be, resold or sold, and (ii) on the purchases of capital assets and consumables pertaining to the kitchens and sale, service or supply of the said food or drinks, and

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(b) in so far as the dealer is not a hotel or restaurant, the dealer shall be entitled to claim setoff only on those purchases effected in that year where the corresponding goods are sold or resold within six months of the date of purchase or are consigned within the said period, not by way of sale to another State, to oneself or one's agent or purchases of packing materials used for packing of such goods sold, resold or consigned: Explanation :- For the purposes of this sub-rule, the "receipts" means the receipts pertaining to all activities including business activities carried out in the State but does not include the amount representing the value of the goods consigned not by way of sales to another State to oneself or one's agent. Provided that for the purposes of clause (b), the dealer who is a manufacturer of goods not being a dealer principally engaged in doing job work or labour work shall be entitled to claim set-off on his purchases of plant and machinery which are treated as capital assets and purchases of parts, components and accessories of the said capital assets, and on purchases of consumables, stores and packing materials in respect of a period of three years from the date of effect of the certificate of registration. (7)Omitted w.e.f. 1-5-2011. (7A) If the claimant dealer has purchased office equipment, furniture or fixtures and has treated them as capital assets and he is not engaged in the business of transferring the right to use these goods (whether or not for a specified period) for any purpose, then the corresponding amount of set-off to which he is otherwise entitled shall be reduced by an amount equal to three percent of the purchase price on which such set-off is calculated and the balance shall be allowed. (7B) If the claimant dealer is holding a license for transmission or as the case may be, distribution of electricity under the Electricity Act, 2003 or is a generating company as defined in the said Act, then in respect of the periods starting on or after the 1st April 2005, save as otherwise provided under sub rule (1) and (1A), an amount equal to the amount calculated at the rate notified from time to time, by the Central Government for the purposes of sub-section (1) of section 8 of the Central Sales Tax Act, 1956 of the purchase price of the goods purchased including goods treated as capital assets by him for use in the generation, transmission, or, as the case may be, distribution of electricity shall be reduced from the amount of set-off otherwise available in respect of the said purchases of goods including goods treated as capital assets. (8) The claimant dealer shall deduct the amount required to be reduced under this rule from the amount of set-off available in respect of the period in which the contingencies specified in this rule occur and claim only the balance amount as set-off and when the amount so required to be deducted exceeds the said amount of set-off available in respect of that period, he shall pay an amount equal to the excess at the time when he is required to pay the tax in respect of the said period. (9)(a) For the purposes of sub-rule (1), sub-rule (1A),clause (a) of sub-rule (2) and sub-rule (3), any reference to the corresponding goods on the purchase of which set-off is claimed, shall be construed in relation to any period starting on or after the 1st April 2005, as a reference to the corresponding goods (not being consumable, stores, or goods treated as capital assets, parts, components and accessories of capital assets) which are resold or are so dispatched outside the State or are used in or relation to the manufacture of goods so sold or

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dispatched and are contained in the goods so sold, resold or dispatched and the packing material used along with the goods so sold, resold or dispatched. Any reference to the corresponding purchase price, corresponding taxable goods or corresponding purchases of packing material shall be construed accordingly. (b) While reducing set-off under,(i) sub-rule (2), for the purpose of determining the purchase price of the corresponding taxable goods, where it is not possible to ascertain the purchase price by reference to the books of account, the ratio of the sale price of the taxable goods and tax free goods or where there is no sale price, the value of the taxable goods and tax free goods shall be applied; and (ii) sub-rule (3), the ratio of the value of the goods inclusive of any duty of Excise as it appears in the books of accounts of the goods dispatched as aforesaid and the sale price of other goods shall be applied for deciding the corresponding purchase price. (10) If the dealer has executed a contract, at any time after the 1st April 2005, of processing of textiles, then set-off on the goods purchased on or after the said date, shall be allowed to the extent of tax paid on purchases in excess of the amount calculated at the rate notified from time to time, by the Central Government for the purposes of sub-section (1) of section 8 of the Central Sales Tax Act, 1956 on the purchase price, (a) as regards the goods in respect of which property is transferred during the said processing, and (b) as regards packing materials used for packing of the said textiles, and (c) as regards other purchases including purchases of capital assets shall be calculated as permissible under other rules.

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APPLICABILITY OF SERVICE TAX MEANING As on 1 st May, 2011, 119 services are taxable services in India. These taxable services are specified in Section 65(105) of the Finance Act, 1994. Section 64 of the Finance Act, 1994, extends the levy of service tax to the whole of India, except the State of Jammu & Kashmir. Generally, the liability to pay service tax has been placed on the „service provider‟. However, in respect of the taxable services notified under Sec.68 (2) of the Finance Act,1994, the service tax shall be paid by such person and in such manner as may be prescribed at the rate specified in Sec.66 of the Act and all the provisions of Chapter-V shall apply to such person as if he is the person liable for paying the service tax. The following services have been notified under Sec.68 (2) of Finance Act, 1994: A. the services,(i) in relation to telecommunication service; (ii) in relation to general insurance business; (iii) in relation to insurance auxiliary service by an insurance agent; and (iv) in relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) any company established by or under the Companies Act, 1956 (1of 1956); (c) any corporation established by or under any law; (d) any society registered under the Societies Registratio n Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; (e) any co-operative society established by or under any law; (f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under; or (g) anybody corporate established, or a partnership firm registered, by or under any law. 1. CHARGEABLE SERVICES : section 66 b of chapter 5 of the finance act, 1994 is charging section which mentions the ― determinants ― of services tax. The section can be analysed as follows: (a) There shall be levied a tax (hereinafter referred to as the service tax) (b) At the rate of 12% (c) Other than those services specified in the negative list (d) On the value of all the services (e) Provided or agreed to be provided (f) In the taxable territory (g) By one person to another (h) Collected in such manner as may be prescribed

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2. SERVICES EXCLUDED FROM DEFINITION : The definition of services u/s 65 B(44) provides that ―service‖ does not include, (a)TITLE: Any activity that constitutes only a transfer in title if goods or immovable property by way of sale, gift or any other manner. (b) GOODS: A transfer, delivery or supply of goods which is deemed to be sale of goods within the meaning of clause (29A) of article 366 of the constitution. (c) MONEY: A transaction only in money or actionable claim (d)EMPLOYEE: A services provided by employee to an employer in course of employment (e) FEES: Fees payable to a court or a tribunal set up under law for the time being in force (f) MP/MLA: Duties of an mp/mla (g) CONSTITUTIONA POST: duties of a person holding constitutional post (h) GOVERNMENT BODY: duties of a member of a govt. body.

3. DECLARED SERVICES: Meaning of Declared Services: The definition of term ―service‖ is given in section 65B (44) of Finance act, 1944 which includes ―Declared Services‖. According to section 65B (22) “Declared services” means any activity carried out by a person for another person for consideration and declared as such under section 66E. 66E. Declared services. With effect from 1st July, 2012 The following shall constitute declared services, namely:(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. Explanation.- For the purposes of this clause,(I) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of nonrequirement of such certificate from such authority, from any of the following, namely:(A) architect registered with the Council of Architecture constituted under the Architects Act, 1972 (20 of 1972.); or (B) chartered engineer registered with the Institution of Engineers (India); or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority;

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(II) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; (g) activities in relation to delivery of goods on hire purchase or any system of payment by instalments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.

4. NEGATIVE LIST OF SERVICES: 66D. Negative list of services. (With Effect from 1st July, 2012) The negative list shall comprise of the following services, namely:(a) services by Government or a local authority excluding the following services to the extent they are not covered elsewhere(i) services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers; or (iv) support services, other than services covered under clauses (i) to (iii) above, provided to business entities; (b) services by the Reserve Bank of India; (c) services by a foreign diplomatic mission located in India; (d) services relating to agriculture or agricultural produce by way of(i) agricultural operations directly related to production of any agricultural produce including cultivation, harvesting, threshing, plant protection or testing; (ii) supply of farm labour; (iii) processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essential characteristics of agricultural produce but make it only marketable for the primary market; (iv) renting or leasing of agro machinery or vacant land with or without a structure incidental to its use; (v) loading, unloading, packing, storage or warehousing of agricultural produce; (vi) agricultural extension services;

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(vii) services by any Agricultural Produce Marketing Committee or Board or services provided by a commission agent for sale or purchase of agricultural produce; (e) trading of goods; (f) any process amounting to manufacture or production of goods; (g) selling of space or time slots for advertisements other than advertisements broadcast by radio or television; (h) service by way of access to a road or a bridge on payment of toll charges; (i) betting, gambling or lottery; (j) admission to entertainment events or access to amusement facilities; (k) transmission or distribution of electricity by an electricity transmission or distribution utility; (l) services by way of(i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force; (iii) education as a part of an approved vocational education course; (m) services by way of renting of residential dwelling for use as residence; (n) services by way of(i) extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount; (ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers of foreign exchange or amongst banks and such dealers; (o) service of transportation of passengers, with or without accompanied belongings, by(i) a stage carriage; (ii) railways in a class other than(A) first class; or (B) an airconditioned coach; (iii) metro, monorail or tramway; (iv) inland waterways; (v) public transport, other than predominantly for tourism purpose, in a vessel, between places located in India; and (vi) metered cabs, radio taxis or auto rickshaws; (p) services by way of transportation of goods(i) by road except the services of(A) a goods transportation agency; or (B) a courier agency; (ii) by an aircraft or a vessel from a place outside India up to the customs station of clearance; or (iii) by inland waterways; (q) funeral, burial, crematorium or mortuary services including transportation of the deceased.

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5. EXEMPTION NOTIFICATION: The following taxable services have been exempted from the whole of the service tax leviable thereon under section 66B of the said act vide mega exemption notification no.25/2012-ST dated 20-06-2012 namely: 1. Service provided to the united nation or a specified international organization 2. Health care services by a clinical establishment, in authorized medical practitioner or para- medics 3. Services by a veterinary clinic in a relation to health care of animal or birds 4. Service by an entity registered under a section 12AA of the income tax act, 1961 by way of charitable activities. 5. Services by person way of a religious place or religious ceremony‘s 6. Services provided by – an arbitral tribunal or advocate 7. Services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by clinical research organization approved to conduct clinical trials by the drug controller general of India. 8. Services by way of training or coaching in recreational activities relating to arts, culture or sports. 9. Services provided to an educational institution in respect of education exempted from service tax. 10. Services provided to a recognized sports body. 11. Services by way of sponsorship of sporting events. 12. Services provided to the government, a local authority or governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration. 13. Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration. 14. Services provided by way of construction, erection, commissioning, and installation of original works pertaining. 15. Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright. 16. Services by a performing artist in a folk or classical art forms of (1) music, or (2) dance, or (3) theatre, excluding services provided by such artist as a brand ambassador. 17. Services by way of collecting or providing news by an independent journalist, press trust of India or united news of India. 18. Services by way of 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 rupees 1000 per day or equivalent. 19. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess, other than those having the facility of air conditioning or central air heating in any part of the establishment, at any time during the year.

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20. Services by way of transportation by rail or a vessel from one place in india to another. 21. Services provided by a goods transport agency, by way of transport in a goods carriage. 22. Services by way of giving on hire. 23. Transport of passengers, with or without accompanied belongings. 24. ―omitted‖ 25. Services provided to government, a local authority or a governmental authority. 26. Services of general insurance business provided. 27. Services provided by an incubate up to a total turnover of fifty lakh rupees in a financial year. 28. Services by an unincorporated body or a nonprofit entity registered under any law for the time being in force, to its own members by way of reimbursement of charges or share of contribution. 29. Carrying out an intermediate production process as job work. 30. Services by an organizer to any person in respect of a business exhibition held outside India. 31. Services by way of making telephone calls. 32. Services by way of slaughtering of animals. 33. Services received from a provider of service located in a non-taxable territory. 34. Services of public libraries by way of lending of books, publications or any other knowledge-enhancing content or material. 35. Services by employees‘ state insurance corporation to persons governed under the employees insurance act, 1948 (34 of 1948). 36. Services by way of transfer of a going concern, as a whole or an independent part thereof. 37. Services by way of public conveniences such as provision of facilities of bathroom, washroom, lavatories, urinal or toilets. Services by a governmental authority by way of any activity in relation to any function entrusted to a municipality under article 243W of the constitution.

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6. DETERMINATION OF VALUE: G.S.R. (E).- In exercise of the powers conferred by clause (aa) of sub-section (2) of section 94 of the Finance Act, 1994 (32 of 1994) and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) number 11/2012 – Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, vide number G.S.R. 209 (E), dated the 17 th March, 2012, the Central Government, hereby makes the following rules further to amend the Service Tax (Determination of Value) Rules, 2006, namely:1. (1) These rules may be called the Service Tax (Determination of Value) Second Amendment Rules, 2012. (2) They shall come into force from the 1 st day of July, 2012. 2. In the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as the said rules), for rule 2A, the following rule shall be substituted, namely:―2A. Determination of value of service portion in the execution of a works contract.Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:(i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. (ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:(A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract (B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract. (C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

3. In the said rules, in rule 2B, the words, brackets, letters and figures ―referred to in subclause (zm) and (zzk) of clause (105) of section 65 of the Act,‖ shall be omitted. 4. In the said rules, after rule 2B, the following rule shall be inserted, name ly:―2C. Determination of value of service portion involved in supply of food or any other article of human consumption or any drink in a restaurant or as outdoor cate ring.Subject to the provisions of section 67, the value of service portion, in an activity wherein Page 14

goods being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity at a restaurant or as outdoor catering, shall be the specified percentage of the total amount charged for such supply, in terms of the following Table, namely:TABLE SR. No.

Description

(1) 1.

(2) Service portion in an activity wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of the activity, at a restaurant Service portion in outdoor catering wherein goods, being food or any other article of human consumption or any drink(whether or not intoxicating) is supplied in any manner as a part of such outdoor catering

2.

Percentage of the total amount (3) 40

60

Explanation 1: For the purposes of this rule, ―total amount‖ means the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink(whether or not intoxicating), whether or not supplied under the same contract or any other contract, after deducting(i) the amount charged for such goods or services, if any; and (ii) the value added tax or sales tax, if any, levied thereon: Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles Explanation 2: For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986).‖. 5. In the said rules, in rule 3, for the words ―where the consideration received is not wholly or partly consisting of money‖, the words ―where such value is not ascertainable‖ shall be substituted. 6. In the said rules, in rule 5, in sub-rule(1), in the Explanation, for the words, brackets, letters and figures ―services specified in sub-clause (zzzx) of clause (105) of section 65 of the Finance Act, 1994, the value of taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegrap h authority‖, the words ―the value of the telecommunication service shall be the gross amount paid by the person to whom telecommunication service is actually provided.‖ shall be substituted. 7. In the said rules, in rule 6,(a) in sub-rule (1),-

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(i) in clause (viii), for the words ―in any manner; and‖ the words ―in any manner;‖ shall be substituted; (ii) in clause (ix), for the words ―insurance agent‖, the words ―insurance agent; and‖ shall be substituted; (iii) after clause (ix), the following clause shall be inserted, namely:(x) the amount realized as demurrage or by any other name whatever called for the provision of a service beyond the period originally contracted or in any other manner relatable to the provision of service.‖; (b) in sub-rule (2),(i) for clause (iv), the following clause shall be substituted, namely:(iv) interest on delayed payment of any consideration for the provision of services or sale of property, whether moveable or immoveable;‖ (ii) after clause (v), the following clause shall be inserted, namely:(vi) accidental damages due to unforeseen actions not relatable to the provision of service; and (vii) subsidies and grants disbursed by the Government, not directly affecting the value of service.‖.

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7. POINT OF TAXATION: Point of taxation – means the point in time when a service shall be deemed to have been provided. With effect from 01/07/2011 it became compulsory for all service providers to adopt the rules of point of taxation rules, 2011. I.

Determination(RULE 3) A. ISSUE OF INVOICE: pot shall e the time when the invoice for the service provided or agreed to be provided is issued. B. PROVISION OF SERVICE: where the invoice is not issued with the prescribed time period, the point of taxation shall be the date of co mpletion of the service. as per rule 4A of the service tax rules, 1994, the time period for issuance of invoice is 30 days ordinarily and 45 days for bank and financial institutions. C. DATE OF PAYMENT: in a case, where the person providing the service, rece ives a payment before the time specified in (a) above, pot shall be the time, when he receive such a payment, to the extent of such a payment. D. ADVANCE: wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the POT shall be the date of receipt of each such advance. However, an option is provided to determine the point of taxation in respect of small advance up-to rupees 1000, in excess of the amount indicated in the invoice, on the basis of invoice or completion of service rather than payment.

II.

DATE OF PAYMENT (RULE 2A): For the purposes of these rules, ‖date of payment‖ shall be the earlier of the dates on which the payment is entered in the books of account or is credited to the bank account of person liable to pay tax. however, the date of payment shall be the date of credit in the bank account whena. There is a change in effective rate of tax or when a service is taxed for the first time during the period between such entry in books of accounts and its credit in the bank account; and b. The credit in the bank account is after four working days from the date when there is change in effective rate of taxed or a service is taxed for the first time; and c. The payment is made by way of an instrument which is credited to a bank account. The ―data of payment‖ could be a subject of litigation particularly when effective rate of tax changes. In normal circumstances this date shall be the earlier of the dates of entry into books of accounts or actual credit in the bank account.

III.

CHANGE IN EFFECTIVE RATE OF TAX (RULE 4): ―Change in effective rate of tax‖ shall include a change in the portion of value on which tax is payable in terms of a notification (rule 2(ba)). THUS, change in rate of abatement or rate under composition scheme will also be ‗change in the effective rate of tax‘. not with standing anything contained in rule 3, the point of taxation in case where there is a change in effective rate of tax in respect of a service, shall be determine in the following manner, namely:-

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a. In case a taxable service has been provided before the change in effective rate of tax,_ I. Where the invoice for the same has been issue and the payment receive after the change in effective rate of tax, the point of taxation shall be date of payment or issuing of invoice, whichever is earlier: or II. Where the invoice for the same has been issued prior to change in effective rate of tax but the payment is received after the change in effective rate of tax, the point of taxation shall be the date of issuing of invoice; or III. Where the payment is received before the change in effective rate of tax, but the invoice for the same has been issued after the change in effective rate of tax, the point of taxation shall be the date of payment; b. In case a taxable service has been provided after the change in effective rate of tax,_ I. Where the payment of invoice is also made after the change in effective rate of tax but the invoice has been issued prior to the change in effective rate of tax, the point of taxation shall be the date of payment; or II. Where the invoice has been issued and the payment for the invoice received before the change in effective rate of tax, the point of taxation shall be the date of receipt of payment or date of issuance of invoice, whichever is earlier; or III. Where the invoice has also been raised after the change in effective rate of tax but the payment has been received before the change in effective rate of tax, the point of taxation shall be date of issuing of invoice. IV.

WHERE SERVICE TAXED FOR FIRST TIME [RULE 5]: where a service is taxed for the first time, then,(a) No tax shall be payable to the extent the invoice has been issued and payment received against such service became taxable. (b) No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.

V.

WHERE THE TAX PAYABLE BY RECEIPTS; OR FOREIGN ASSOCIATED ENTERPRISES [RULE 7]: Notwithstanding anything contained in these rules, made in this regard in respect of services notified under sub-section (2) of the Act, shall be the date on which payment is made. However, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist. Further, in case of ―associated enterprises‖, where the person providing the service is allocated outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier. VI. COPYRIGHTS, ETC. [RULE 8]: In respect of royalties pertaining to copyrights, trademarks, designs or patents, where the whole amount of consideration for provision of service is not ascertainable at the time when service was performed, and subsequently the use or the benefit of these services by a person other than the provider gives rise to any payment of consideration, the services shall be treated as having been provided each time when a

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payment in respect of such use or the benefit is received by the provider in respect thereof, an invoice is issued by the provider, whichever is earlier. VII. OTHER CASES [RULE 8A]: where the point of taxation cannot be determined as per these rules as the date of invoice or the date of payment or both are not available, the central Excise officer, may, require the concerned person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account such material and the effective rate of tax prevalent at different points of time, shall, by an order in writing, after giving an opportunity of being heard, determine the point of taxation to the best of his judgment. This is a residual rule by way of best judgment to handle situations where the taxpayer is unable to furnish one or more of the details needed i.e. date of payment or date of invoice or both determine POT.

8. POT & RATE CHANGE: The following exhibit sums up how rule 4 is applied due to change in the rate of tax from 10% to 12% on 1-4-2012 [1] [2] SERVICE INVOICE Before After 1-42012 1-4-2012 Before 14-2012 After 313-2012 After Before 313-2012 31-3-2012 Before 313-2012 After 313-2012

[3] PAYM ENT After 1-42012 After 1-42012 Before 1-42012 After 1-42012 Before 31-32012 Before 31-32012

[4] [5] POT RATE Earlier [2] 12 or [3] [2] 10

[6] RULE 4 (a) (i) 4 (a) (ii)

[3]

10

4 (a) (iii)

[3]

12

4 (b) (i)

Earlier [2] or [3] [2]

10

4 (b) (ii)

12

4 (b) (iii)

NOTES: 1. Educational cess 3% is will be charged in addition to the basic tax rate. 2. Short-cut to remember the rule for POT- if [1] involves ‗Before‘; If [1] involves ‗After‘, POT involves ‗After‘; Otherwise earlier of two. 3. Short-cut to remember rule for rate-If POT before 1-4-2012 after 1-4-2012, rate is 12.

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9. PERSON LIABLE TO PAY TAX (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed. Provided that1 Service provider and receiver should be „person‟ ¨

Service tax is payable when service is provided by one person to other.

¨ Thus, two ‗persons‘ are required – e.g. one branch cannot provide service to another branch (except foreign and Indian branch of same person). 2 Person [section 65B (37)] ¨ ―Person‖ includes,— (i) an individual ii) a Hindu undivided family (iii) a company (iv) a society (v) a limited liability partnership (vi) a firm (vii) an association of persons or body of individuals, whether incorporated or not (viii) Government (ix) a local authority, or (x) every artificial juridical person 3 When UJV can be „pe rson‟ ¨ Unincorporated Joint Venture (UJV) can be AOP and hence a ‗person‘ – can be held as service provider or receiver ¨ However, UJV can be ‗Person‘ only if there is joint control and conducting business together and the contract is indivisible. 4 Unincorporated clubs is „person‟ ¨ Unincorporated club, association or body of persons providing and its member shall be treated as distinct persons – Explanation 2(a) to section 65B(44) of Finance Act, 1994 w.e.f. 1-7-2012. 5 Branch in India and outside India are different establishments ¨ Branch/office in India and branch/office of same business entity outside India will be treated as different establishments (but not different persons) 6 Carrying on business through branch, agent or establishment A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory.

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1. RENTING OF IMMOVABLE PROPERTY UNDER SERVICE TAX: Further, on analytical reading of heading of present declared service i.e. renting of immovable property, it becomes clear that two words i.e. ―Renting‖ and ―Immovable property ―are of utmost importance. Immovable property for this purpose shall include building and part of building, and land appurtenant thereto, land incidental to the use of building or its part, common or shared areas and facilities relating thereto and in respect of buildings in a complex or industrial estate or any other building, all common areas and facilities within such complex or estate. Any machinery attached or fastened to or embedded to earth becomes part of immovable property. However, if a machine is fixed by bolts, it does not become an immovable property but remain ‗goods‘. Similarly, furniture fixed on ground by bolts, screw etc. are goods i.e., not an immovable property. Renting of certain kinds of property is specified in the negative list. These are – 

Renting of vacant land, with or without a structure incidental to its use, relating to agriculture.  Renting of residential dwelling for use as residence  Renting out of any property by Reserve Bank of India  Renting out of any property by a Government or a local authority to all non-business entity. Renting of all other immovable properties would be taxable unless covered by an exemption. These are –   



Threshold level exemption up to Rs. 10 lakh. Renting of precincts of a religious place meant for general public. Renting of a hotel, inn, guest house, club, campsite or other commercial places meant for residential or lodging purposes, having declared tariff of a room below rupees one thousand per day or equivalent. Renting to an exempt educational institution

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2. WORKS CONTRACT: “works contract” means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, Installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such activity. Nature of service Any service provided in execution of ―works contract‖ means a contract wherein transfer of property in goods involved in the execution of such contracts leviable to tax as sale of goods and such contract is for the purpose of carrying out(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre- fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or airconditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or (b) Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or © Construction of a new residential complex or a part thereof; or (d) Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or (e) Turnkey projects including engineering, procurement and construction or (f) Commissioning (EPC) projects Service portion in the execution of works contract is covered in the definition of declared services and not the consideration received for transfer of property in goods. Works contract may be in relation to movable or immovable property. However in order to qualify as works contract the following conditions must be satisfied;   

There must be transfer of property in goods in the execution of such contract Such transfer of property in goods is leviable to tax as sale of goods, and Such contract is for the purpose of carrying out construction, erection, commissioning, Installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such activity.

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3. OUTDOOR CATERING: ―Caterer‖ means any person who supplies, either directly or indirectly, any food, edible preparations, alcoholic or non-alcoholic beverages or crockery and similar articles or accoutrements for any purpose or occasion. (Section 65(24) of Finance Act, 1994 as amended) ―Outdoor caterer‖ means a caterer engaged in providing services in connection with catering at a place other than his own but including a place provided by way of tenancy or otherwise by the person receiving such services. (Section 65 (76) (a) of Finance Act, 1994 as amended) "Taxable service" means any service provided or to be provided to any person, by an outdoor caterer Service tax on restaurant and outdoor catering services Section 66E (i) of Finance Act, 1994 defines following as ‗declared service‘ – Service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity. Thus, mere supply of food is not ‗service‘ at all. Further, only service portion which is not ‗deemed sale of goods‘ can be subject to service tax. This service was earlier (upto 1-7-2012) partly covered as ‗outdoor catering‘ service under section 65(105) (zzt) of Finance Act, 1994 and partly under ‗restaurant service‘ under sectio n 65(105) (zzzzv) of Finance Act. Now, both outdoor catering and restaurant services have been clubbed under one head w.e.f. 1-7-2012.

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