Service Tax-Negative list in focus
NEGATIVE LIST APPROACH
The most important change under service tax is the proposed
introduction of the negative list for taxation of services. The negative list
approach would be a paradigm shift in the manner the services are taxed.
Presently, service tax is levied on a list of approximately 120 services. As a
result, all services provided in India will become taxable, barring a short list
of 17 services which will be kept out of the service tax net. The key services
which have been proposed to be kept out of the service tax net are government
services besides those which compete with the private sector, pre-school and
school education, recognised education at higher levels and approved vocational
education, renting of residential dwellings, entertainment and amusement
services etc.
While the introduction of the negative list approach was expected,
it entails sweeping changes to the service tax legislation. As a result, every
service provider will be required to have a relook at its business, to determine
aspects like point of taxation, availability of CENVAT credit, determination of
place of supply vis-à-vis export or import of service etc. The Budget also
proposed various measures which may bring happiness to assessees.
SIMPLIFIED REGISTRATION
As part of an effort to harmonise Central Excise and Service Tax,
a common simplified registration form and common returns for Central Excise and
Service Tax have been introduced. This is a welcome measure, even though the
frequency of compliances of service tax assessees may increase from a
six-monthly to a monthly basis. Refund of service tax has always been a subject
matter of concern, both for the assessee and the department. In order to get rid
of the cumbersome paper work and verification, this Budget has sought to replace
the refund provision with a seemingly more simplified provision. However, a
specific notification prescribing the detailed procedure and safeguards in this
regard would be issued shortly. One will need to wait and watch if this will
actually simplify grant of refund to service exporters.
The Point of Taxation Rules, which were introduced in 2011, had
various ambiguities and issues on practical implementation. Certain amendments
have been made in these rules to provide greater clarity and remove the
ambiguous provisions. Perhaps, one area where the industry has been left
disappointed is widening of the definition of ‘input service'. There was strong
expectation that the definition of ‘input service' would be given a broader
coverage and made more liberal. Besides an amendment pertaining to services
relating to motor vehicles, no further amendment has been proposed in this
Budget on ‘input services'. A word of appreciation for the efforts of the Tax
Research Unit is in order. They have come out with a detailed yet extremely
simple note, to guide assessees on the sweeping changes sought to be introduced
under service tax, like the negative list, place of supply rules etc.
(The authors are Tax Partner, and Associate Director, Ernst &
Young, respectively.)
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