1. Presents
A Knowledge Master Class
On
“Understanding New Regime of Service Taxation in India”
Conducted by
Dr. Sanjiv Agarwal
FCA, FCS
Thursday,
13th December, 2012
Gurgaon © Dr. Sanjiv Agarwal
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2. SESSION – I
Overview of Taxation of
Services and Major Changes
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3. This Presentation Covers
• Economic Overview
• Overview of Taxation of Services – Past and Present
• Major Changes
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4. Indian Economy – An Overview
 India’s economy is the 11th largest economy in the world
and the second fastest growing even in today’s recession
 World is presently facing recession-II but Indian economy
is still better than comparable economies.
 Agriculture, services and industry are the major sectors of
Indian economy. Contribution of different sectors in
March, 2012 was :
 Agriculture 19%
 Services 59%
 Industry 22%
to be contd……. 4

5. Service Tax Share of Services in
GDP
Agricult ure
19%
Service
Sect or
Indust ry 59%
22%
GDP C O MPO S ITIO N IN MARC H, 2012
5

6. Growth in Tax GDP Ratio – Slow but
Steady
Years Tax GDP ratio
2003-04 9.2%
2007-08 11.9%
2009-10 9.7%
2010-11 10.3%
2011-12 10.1%
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7. Taxonomy of Indian Taxation
TAXATION POWERS OF UNION
 Income Tax – on income, except
agricultural income
 Excise Duty – on goods manufactured
 Custom Duty – on imports
 Service Tax – on specified services
 Central Sales Tax – on inter-state sale of goods
 Stamp Duty – on 10 specified instruments
to be contd…..
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8.  Introduced in India in 1994 as a simple, modest tax with
just three services.
 Service tax – an indirect tax.
 Approach to Service Tax – Selective as against
comprehensive one.
 Desirable from revenue, equity and economic view point.
 Governed by Finance Act, 1994 and a dozen of rules.
 Legislative dependence on other laws.
 Scattered and heterogeneous large mass of service
providers as well as wide spectrum of services.
 Jurisdictional application.
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9. Selective Approach to Service Tax
 Selective v Comprehensive approach
 Taxation by choice
 Service not defined but taxable service defined.
 > 120 taxable services [section 65(105)]
 Resulted in distortions / prejudice
 Untapped tax potential
 Economically unjustified
 Issues – Classification, Illogical definitions,
Constitutional challenges, deemed services etc.
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10. Shift to Comprehensive Approach
 W.e.f. 1st July 2012
 Finance Act, 2012 – A land mark Act to shift from positive
to negative approach.
 It took 18 years to shift from selective approach (positive) to
comprehensive approach (negative )to tax services
 All services to be taxed other than services specified in
the negative list and exempted services – Section 66B.
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11. Taxation of Services by Finance Act, 2012
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
(-)
Exemptions
(=)
Taxable Services 11

12. New system of taxation of services
 Negative list (17 in number) specified through
statutory provisions – Section 66D.
 „Service‟ defined for the first time.
 „Negative List‟ and „declared services‟ also
defined.
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13.  Section 65 Old definitions of Services / Taxable
Services
 Section 65A Classification of Services
 Section 66 Charge of Service Tax
 Section 66A Charge of Service Tax on Services
received from outside India.
 Import of Service Rules, 2006
 Export of Service Rules, 2005
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14. New Provisions in Service Tax
 Section 66 B deals with charge of service tax
on or after Finance Act, 2012
 Section 66 C provides for determination of
place of provision of service.
 Section 66 D comprises of negative list of
services
 Section 66 E comprises of the services which
constitute declared services
 Section 66 F provide principles of interpretation
of specified description of services
or bundled services
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15.  All services Taxable
[section 65B (44)]
 Declared services Taxable
(section 66E)
 Services covered under Not Taxable
negative list of services
(section 66D)
 Services exempt under Mega Exempted
Notification No. 25/2012-ST
dated 20.6.2012
 Other specified Exemptions Exempted
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16. GST: A Common Tax
on
Goods Services
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17. • Setting up of empowered committee for GST (like VAT) which can steer the road
map into action - done
• Broaden the tax base for excise duty (presently 40% comes from petroleum
products) – being done
• Finishing area based and product based exemptions – being done
• Rationalization of concessions and exemptions including that on exports – being
done
• Expanding service tax to almost all services – negative list introduced
• Common/unified tax rate for goods and services which may be ideally, revenue
neutral (a suitable GST rate) – dual tax proposed
• Avoiding or minimizing differential tax rates – under discussions
• Abolition of other small taxes - under discussions
• Abolition of CST in a phased manner - being done
• Power to levy service tax on select/agreed services to States - under discussions
• Issue of inter-State services and goods movement vis-à-vis levy of duty or tax to
be sorted out - under discussions
• Revenue sharing mechanism to be rationalized - under discussions
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18. Budget 2012
 No announcement on GST rollout date
 GST to be implemented in consultation with the States at the earliest
 GST network (GSTN) likely to be in place from August, 2012 (not yet done)
 GSTN to implement common PAN based registration, return filing and
processing of payments for centre and all states on a shared platform.
 Bringing closer of Service Tax and Central Excise for transition to GST
 Drafting of model legislation for CGST and SGST under progress.
 Common forms for Service Tax and Central Excise registration and return
proposed.
 Place of Supply Rules, 2012 to trigger debate to assess issues that may arise in
taxation of inter state services for eventual launch of GST.
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19. Past Recent Past Now & Future
National GST Dual GST ???????
…or end of beginning !!
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20.  Objective to widen tax base
 Service Tax law to be shorter by about 40 percent
 Effective rate of Service Tax shall be 12.36 percent w.e.f.
01.04.2012 including education cess.
 Definition of ‘service’ finds place in statutory provisions
 All services to be taxed including a set of services called ‘declared
services’
 Negative list of services containing 17 broad service categories to
be out of Service Tax ambit.
 Withdrawing of many existing exemptions / abetments or their
rationalization
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21.  Place of provision of service rules will determine the location of
service and become be basis of taxation.
 Withdrawal of export of service rules and import of service rules in
view of place of provision of service rules coming into operation.
 Concept of taxable territory and non- taxable territory brought in
 Basis of charge of Service Tax shifted under new section 66B.
 Taxation of Service to be determined by provision of service in
taxable territory and non taxable territory.
 Classification of service criteria replaced by new section 66F on
interpretation principles of specified description of service or
bundled services.
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22.  Consequent upon change in service tax rates, there is change of service tax rate in
composition scheme and specified rates w.e.f. 1.4.2012 (Composition scheme for
works contract withdrawn w.e.f 1.7.2012)
 Penalty wavier for arrears paid within specified time in respect of renting of
immovable property service.
 Retrospective exemption to road repairs and repairs etc of non commercial
government buildings.
 Under new reverse charge mechanism, onus of paying Service Tax will be shared by
service provider and service receiver in case of specified services.
 Service Tax on taxable services provided by service provider located in Jammu &
Kashmir state liable under reverse charge.
 New Accounting Codes for payment of tax under new regime ( for July – November
2012)
Tax Collection 00441089
Other Receipts 00441090
Penalties 00441093
Deduct Refunds 00441094 22

23.  Circular No. 165 dated 20.11.2012
 Notification No. 48/2012-ST dated 3.2.2012
 No change in law
 Only for statistical analysis
 New code created for penalty
 Registration obtained under the positive list approach
continue to be valid
 Registration under all taxable services to be amended
online under specific head of services

24.  No specific time limit to amend the registration
specified
 To be done with in 30 days
 For reverse charge, registration should be obtained as
service receiver under respective category.
 Accounting codes for residual entry
 Service Tax 00441480
 Interest 00441481
 Penalty 00441485

25.  Change in valuation rules in relation to works contracts and
outdoor catering / supply of food.
 Provision introduced for date of determination of value of
service, tax rate and rate of exchange.
 Payment of Service Tax on receipt basis for all service providers
being individuals / firms / LLPs, if aggregate value of taxable
services in previous year does not exceed Rs. 50 lakh.
 Criteria for Rs 10 lakh threshold exemption changed.
 Time limit for appeal by assessees to Commissioner (Appeals)
reduced from 3 months to 2 months
 Revision Application Authority and Settlement Commission
provisions made applicable to service tax.
 Special Audit of Service tax assesses by CAs /CWAs .
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26.  N. No. 47/2012-ST dated 28.09.2012 – for April to June
2012, quarterly return prescribed.
 Order No. 3/2012 - last date of return was extended upto
25.11.2012
 Modified ST-3 issued and available at -
www.aces.gov.in/download.jsp
 More or less, it is same as previous ST-3 return. Only the
year and return period column is pre-filled and constant
 Return format and time for next quarter/ period to be
notified
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27. Exports [Rule 6(A)]
 Service provider should be in India
 Service receiver should be outside India
 Both should not be mere establishments
 Service should not be in Negative list
 Service should be provided outside India
 Payment should be in convertible currency
Taxability as per POP Rules

28. ‘Service' has been defined in clause (44) of the new section
65B and means –
 any activity
 for consideration
 carried out by a person for another
 and includes a declared service (66E)
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