Scope of New Taxable Services and Extension of Existing Taxable Services in Finance Act, 2010 – TRU Clarifies
PURSUANT to the notification of effective date of new taxable services and expansion of the scope of existing taxable services, issue of various notifications providing for exemption, abatement etc, TRU has come out with a DO letter explaining the intricacies of these new changes. The highlights:
A. Advance Payments: With regard to services provided or payments made prior to effective date of July 1, 2010 for the eight new taxable services added through Finance Act, 2010, TRU clarifies part or full payment of the consideration received by the service provider/person liable to pay service tax (and not by an agent, who in turn transfers such amount to such person after this date) for such services provided after the appointed date has already been received prior to that date, are specifically exempted from service tax even if the taxable service is provided on or after July 1, 2010. However, any amount received after July 1, 2010 by the service provider/person liable to pay tax would be subjected to tax.
B. Air Transport Service: As regards transport of passengers by air service, it is clarified that service tax on transport of passengers by air was extended to cover all domestic and international air passengers embarking in India with concessional tax rates subject to non-availment of CENVAT credit.
However, in case a ticket covers more than one domestic journey/flight/sector, 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 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 journeys/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.
Further, Rule 4A of the Service Tax Rules, 1944 is amended to provide that 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.
C. Port and Airport Services: The definition 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'.
Further, certain exemptions and abatements presently available under individually defined taxable services are extended when such activities are undertaken within airport or port by issuing relevant notifications in this regard.
D. Sponsorship Service: 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.
E. Construction Services: 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.
Further after interaction with stakeholders, the scope of the phrase ‘authority competent' to issue completion certificate has been widened by issuing an order for removal of difficulty. Completion certificate issued by an architect or chartered engineer or licensed surveyor can be now taken to determine the service tax liability. Also, the abatement of seventy five percent 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.
Further, 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.
F. Transport of Goods by Rail: Service tax on transport of goods by railways will now take effect from January 2011.
G. Transmission of Electricity: Earlier vide Budget notification 11/2010-ST, dated February 27, 2010, transmission of electricity was exempted from service tax. After post budget interactions, 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.
D.O.F.No.334/03/2010-TRU. , Dated: July 1, 2010