UDAN - Insertion 'inadvertently' Introduces New Condition
While granting exemption to air passengers, CBEC by mistake withdraws Cenvat credit on input services for renting of hotels
SNEAKING an entry into a notification is not a tough task. Add a letter to the numeric serial number and pronto you have got it - the list can be endless. Birds of a feather can certainly be flocked together!
But there can be unforeseen mishaps when such an exercise is conducted without diligence.
The case in question is the offshoot of the latest endeavour of the government - UDAN - "Ude Deshka Aam Nagrik".
The primary objective of the Regional Connectivity Scheme (RCS) of the Ministry of Civil Aviation is to facilitate/stimulate regional air connectivity by making it affordable. As per the Scheme, an all-inclusive airfare not exceeding Rs.2,500/- per RCS Seat will be applicable. Government has proposed several concessions like no landing and parking charges on RCS flights. Excise Duty at a rate of 2% shall be levied on Aviation Turbine Fuel (ATF) purchased by Selected Airline Operators from RCS Airports for an initial period of three (3) years from the date of notification of this Scheme. Accordingly, Government has notified the concessional rate of 2% excise duty for Aviation Turbine Fuel drawn by operators or cargo operators from the Regional Connectivity Scheme (RCS) airports, till 25th day of August 2019. [See Notification No. , Dated: August 26 2016]
The Scheme also proposes that Service Tax will be levied on 10% of the taxable value (abatement of 90%) of tickets for RCS Seats on an RCS Flight, without any input credit, for an initial period of 1 year from the date of notification of the Scheme by MoCA. Subsequently, this will be reviewed and notified accordingly. Service Tax will be payable by the passengers over and above the specified Airfare Cap. The Service Tax Notification issued is Notification No., Dated: August 30, 2016
But it is here that the folly arose.
The Service Tax notification amended Notification 26/2012-ST by inserting the following serial number -
Sl.No. | Description of taxable service | Percentage | Conditions |
|---|---|---|---|
(1) | (2) | (3) | (4) |
5A. | Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme Airport. | 10 | CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, 2004. |
Interestingly, before this serial number made an appearance, the serial numbers 5 and 6 read thus -
Sl.No. | Description of taxable service | Percentage | Conditions |
|---|---|---|---|
(1) | (2) | (3) | (4) |
5 | Transport of passengers by air, with or without accompanied belongings in (i) economy class (ii) other than economy class | 40 60 | CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. |
6 | Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. | 60 | Same as above |
So, after serial number 5A was sneaked into, the entries 5, 5A and 6 look thus -
Sl.No. | Description of taxable service | Percentage | Conditions |
|---|---|---|---|
(1) | (2) | (3) | (4) |
5 | Transport of passengers by air, with or without accompanied belongings in (i) economy class (ii) other than economy class | 40 60 | CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. |
5A. | Transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme Airport. | 10 | CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken by the service provider under the provisions of the CENVAT Credit Rules, 2004 . |
6 | Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. | 60 | Same as above |
Only a keen eye can notice the major amendment made by the Central Government, albeit unwittingly.
Inasmuch as whereas the condition attached to serial no. 6 above prior to insertion of Serial no. 5A was non-availment of CENVAT credit on Inputs and Capital goods, consequent upon the insertion of Serial no. 5A the condition has enlarged itself to mandate non-availment of CENVAT credit on Inputs, Capital Goods and Input Services.
Collateral damage, one may say, but that's unforgiving, to say the least.
If this is what Ease of Doing Business means, then let us get to the bottom of the rankings.
Even before the AamNagrik has taken to the skies, the hospitality sector is already in the pit!
Hopefully, the CBEC realises this gaffe and extinguishes the flames before they spread far and wide.
DDT is thankful to CA Anish Goyal from Surat for bringing this to our notice.