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1 Feb 2017

Key Changes in Service Tax vide Finance Bill, 2017

Hon’ble Finance Minister Shri Arun Jaitley presented Union Budget for Financial Year 2017-18 on 1st February 2017. In the Budget speech, Hon’ble Finance Minister proposed a number of changes under Direct Taxes, but it was highlighted that due to impending implementation of GST, no remarkable changes have been set forth in the current budget forIndirect Taxes. In spite of that, a few significant changes have been introduced under Service Tax.

The amendments proposed under Service Tax vide the Union Budget have been divided in 3 categories on the basis of applicability date. Below is a gist of the same :-

  1. Changes applicable w.e.f. 2nd February 2017

    1. Services provided by Indian Institute of Management: The exemption applicable to services provided by IIMs to its students w.r.t. 2 year Residential Management Programme is now being extended to non-residential programmes as well.

    2. Exemption w.r.t. Regional Connectivity Scheme: Under the Regional Connectivity Scheme (RCS), exemption from service tax is being provided in respect of the amount of viability gap funding (VGF) payable to the selected airline operator for transportation by air, embarking from or terminating in a Regional Connectivity Scheme (RCS) airport, for a period of one year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) airport.

    3. Exemption to Army, Naval, and Air Force Group Insurance Fund: Life Insurance to members of Army, Naval and Air Force under Group Insurance schemes of Central Government is being made exempt from levy of Service Tax.

    4. Amendments in CENVAT Credit Rules, 2004: (i) Rule 6: Clause (e) of Explanation I to Rule 6(3) and 6(3A) shall not apply to banks and financial institutions including NBFCs. (ii) Rule 10: Sub-rule (4) of Rule 10 has been inserted to implement a cap of 3 months for approval of transfer of credit by jurisdictional Dy./Assistant Commissioner from the date of receipt of application by the said authority.

  2. Changes applicable w.e.f. the date of receipt of assent of the President

    1. Process amounting to manufacture or production of goods excluding alcoholic beverages for human consumption: The Negative list entry in respect of the said service is proposed to be omitted. However the same has been placed under Mega Exemption Notification 25/2012-ST vide Entry 30. As a result the activity which was “non-taxable” is now categorized as “exempted”. Consequently, the respective interpretation of the said service under Section 65B(40) of Finance Act, 1994 is proposed to be deleted and is being included in the general exemption notification.

    2. Amendment in Rule 2A of Service Tax (Determination of Value) Rules, 2006: In order to nullify the impact of decision of the Hon’ble Delhi High Court in the case of Suresh Kumar Bansal v. UOI (2016) 70 taxmann.com 55 (Delhi), Rule 2A has been amended so as to exclude value of property in land or undivided share of land from the value of service portion in execution of works contract involving transfer of goods and land or undivided share of land, as the case may be. Further, the provisions of abatement related to Construction Service have also been included in the said rule which are applicable as per the timeline of changes to abatement notification with respect to the said service.

    3. Amendments in Advance Ruling: (i) The definition of “Authority” is being given the same meaning as Authority for Advance Ruling provided under Income Tax Act. (ii) The application fee is being increased to Rs. 10,000/- so as to align it with Central Excise Act. (iii) The Authority shall pronounce its ruling within 6 months on the lines of the Central Excise Act. (iv) The pending applications before the Authority for Advance Rulings (Central Excise, Customs and Service Tax) shall be transferred to the Authority constituted under Section 245-O of the Income Tax Act.

    4. Non-availability of Service Tax exemption as provided w.r.t. R&D Cess: Due to the proposed repeal of Research and Development Cess Act, 1986, a consequent change is being proposed under Service Tax through which exemption of Service Tax, which was provided for an amount equivalent to R&D Cess paid on import of technology, would not be available on a taxable service involving import of technology on which R&D Cess is not payable.

  3. Changes applicable with retrospective effect subject to assent of the President

    1. Exemption for upfront amount for grant of long term lease extended from 01/06/2007: Benefit of exemption of Service Tax from one time upfront payment payable for grant of long term lease of industrial plots which was available from 22-09-2016 is being extended to be made available from 01-06-2007.

    2. Exemption to Army, Naval, and Air Force Group Insurance Fund: A retrospective exemption is proposed starting from 10-09-2004 and ending on 01-02-2016 for group insurance schemes for life insurance of members of Army, Naval and Air Force.