As you are aware that Central Government has issued a total of sixteen new notifications numbering from 25/2012-ST to 40/2012-ST on 20th June, 2012, the team “Do You Know” has made an attempt to provide you a gist of provisions contained in these notifications. These notifications will assist in implementation of new regime of Service Tax based on negative list of services. Detailed discussion enumerating the impact of these notifications will be shared in due course.

Note: All these notifications shall come into force on the 1st day of July, 2012.

The earlier proposed mega exemption Notification No. 12/2012-ST dated 17/03/2012 contained a list of 34 taxable services which were exempt from service tax. Vide this notification a total of 39 taxable services are exempted from service tax.

FIVE additional services which are exempted from service tax through this notification are:
  1. Lending of books and other knowledge enhancing material is now exempt from service tax.
  2. Services provided by Employees State Insurance Corporation to persons governed under the Employees Insurance Act, 1948 is now exempt.
  3. Services by way of transfer of a going concern, as a whole or an independent part thereof.
  4. Provision of facilities of public conveniences like bathroom, washrooms, toilets, urinals or lavatories is now exempt.
  5. Any service provided by Government authority in relation to any function entrusted to a municipality under article 243W of Constitution is now exempt.
  6. Services provided by a sub-contractor to other contractor in relation to works contract is exempt from service tax, if the other contractor is also providing works contract services which are exempt.

A few amendments in relation to already exempted 34 services are also made.

There has been no fundamental change in the manner of valuation of service for the purpose of payment of service tax barring some marginal changes carried out to align the scheme of valuation of taxable services and the Service Tax (Determination of Value) Rules, 2006 with the new system of taxation.

One of such change is in relation to abatements wherein all earlier issued notifications that prescribed the abatements for working out the taxable value from the gross amount charged have been merged into one single exemption notification i.e. Notification No. 26/2012- ST dated 20/6/12. The earlier proposed notification no. 13/2012-STdated 17/03/2012 in this regard is superseded vide this notification even before its implementation. The prominent changes between the two notifications are given below for your notice:

  • In relation to Supply of food or any other article of human consumption or any drink, in a premises, including hotel, convention center, club, pandal, shamiana or any place specially arranged for organizing a function, abetment is available for service tax calculated on the value of service as is in excess of the service tax computed on 70% of gross value of service, when the service is bundled together with renting of such premises.
  • In the old notification, service tax computed on 50% of the value of service is abated in relation to “Transport of goods in a vessel”,when provided from one port in India to another. Now the same benefit is available without any such condition.
  • A new abatement in relation to below mentioned service is added to the new notification, where service tax computed on total value in excess of service tax computed on 25% of value shall be exempt
    • Service by way of “Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority”.Subject to the conditions that value of land should be included for computing the value of service provided and CENVAT credit of inputs used for providing the taxable service has not been taken.
27/2012-ST Exemption to services for the official use of foreign Diplomatic Mission

The earlier effective notification no. 33/2007-ST was issued to exempt all taxable services provided by any person for the official use of a foreign diplomatic mission or consular post in India. Further the notification no. 34/2007-ST was issued to exempt all taxable services provided for the personal use or for the use of the family members of diplomatic agents or career consular officers posted in a foreign diplomatic mission or consular post in India.

With effect from 1st July, 2012, the similar exemption benefits which were available in two different notifications cited above, are now combined under a single notification no. 27/2012-ST.

4. 28/2012-ST  Place of Provision of Services Rules,2012 

Earlier the cross-border service provision was governed by Export of service Rules, 2005 or Taxation of service (Provided from outside India and received in India) Rules, 2006. Now as an attempt to align the service tax provisions towards implementation of GST, Place of Provision of Service Rules, 2012 are introduced for governing all such cross border transactions.

In addition to this, these rules are equally applicable for those who have operations with suppliers or customers in the state of Jammu and Kashmir. Additionally service providers operating within India from multiple locations, without having centralized registration will find them useful in determining the precise taxable jurisdiction applicable to their operations

These rules are formed to ensuring a certain level of harmonization with international practices in order to avoid both the double taxation as well as double non-taxation of services.

5. 29/2012-ST Exemption on property tax paid on immovable property

There is no change in the benefit granted under earlier effective Notification No. 24/2007-ST in this regard. The purpose of issuing this notification is to give effect of the new charging Section 66B of the Finance Act.

Notification No. 24/2007-ST is now rescinded.

The effective Notification No. 36/2004-ST dated 31/12/2004 in this regard and the earlier proposed Notification No. 15/2012-ST dated 17/03/2012 is superseded by this notification.

The effect of this notification is summarized below:

A Services deleted from reverse charge mechanism i.e. w.e.f. 1/07/2012 service tax for below mentioned services shall be collected from service provider instead of service receiver:
  • Insurance Auxiliary service by an agent
  • Services in relation to General Insurance business
  • Services in relation to distribution of Mutual Fund by a distributor or agent of mutual fund.
B. New services which are brought under the ambit of reverse charge mechanism from 1/07/2012 are:
  • Services provided or agreed to be provided by an arbitral tribunal to business entity – 100% reverse charge.
  • services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services to business entity – 100% reverse charge.
  • 100% reverse charge for services provided or agreed to be provided by Government or local authority by way of support services to business entity excluding
    • renting of immovable property, and
    • services specified in Section
      • 66D(a)(i): service by department of Posts to any person other than government.
      • 66D(a)(ii): services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport 
      • 66D(a)(iii): transport of goods or passengers.
  • Service provided by any individual, partnership firm or an HUF whether registered or not including association of persons to a body corporate in relation to:
    • supply of manpower for any purpose – 75% reverse charge
    • service portion in execution of works contract – 50% reverse charge
    • provision of service in relation to Rent a cab service on abated value to any person who is not engaged in the similar line of business – 100% reverse charge
    • provision of service in relation to Rent a cab service on non-abated value to any person who is not engaged in the similar line of business – 40% reverse charge.

7. 31/2012-ST Exemption to specified services received by exporter of goods

One of the benefits given by Central Government for export promotion includes exemption of certain specified taxable service received by an exporter of goods and used for export of good, from the whole of the service tax leviable under Finance Act, 1994. The benefit was granted vide Notification No. 18/2012-ST which is now superseded by a new Notification No. 31/2012-ST. There are two major consequential effect which are pointed below for your notice:
  • Service provided by a commission agent located outside India and received by an exporter of goods, who is engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him is now taxable i.e. exemption from such services is withdrawn.
  • Earlier there was a condition to pay an amount of service tax even on such specified services equivalent to the service tax in excess of 1% of the F.O.B. value of goods exported. Now this condition is no more effective.

8. 32/2012-ST Exemption of services provided by TBI/STEP

With effect from 1st April 2007, vide Notification No. 9/2007-ST, the services provided by Technology Business Incubator (TBI) or Science and Technology Entrepreneurship Park (STEP) recognized by the National Science and Technology Entrepreneurship Development Board (NSTEDB) of the Department of Science and Technology, were exempted from whole of Service Tax. Further the services provided by an entrepreneur located within the premises of so recognized TBI/STEP were also exempted vide Notification No. 10/2007-ST.

In the new regime of Service Tax, the benefits of exemption given to entrepreneurs under Notification No. 10/2007-ST is totally rescinded but TBI/STEP are provided with similar benefits as they were enjoying before, vide this Notification No. 32/2012-ST. The new notification also contains revised formats for information to be furnished in this regard.

9. 33/2012-ST Exemption to Small Service Providers

Vide this notification the government has granted exemption in relation to taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of the service tax leviable thereon under Section 66B of the Finance Act, 1994.

Government has rescinded the earlier effective Notification No. 6/2005-ST and issued Notification No. 33/2012-ST amending the definition of “aggregate value”. The new definition is given below:
“aggregate value means the sum total of value of taxable services charged in the first consecutive invoices issued during a financial year but does not include value charged in invoices issued towards such services which are exempt from whole of service tax leviable thereon under Section 66B of the said Finance Act under any other notification”.
10. 34/2012-ST Rescinding of certain notifications

In order to give way to the new regime of service tax based upon the negative list of services it was necessary to do away with certain existing provisions which in the new era stands to be inconsistent.

Accordingly, Central Government has rescinded a total of eighty one notifications vide Notification no. 34/2012-ST.

11. 35/2012-ST Rescinding of notification 32/2007-ST

For the purpose of determining the taxability of service involved in execution of works contract, the Central Government had issued Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 via Notification No. 32/2007-ST.

With effect from 1st July 2012, the said rules are rescinded vide this notification. In order to determining taxability of the same, Rule 2A has been substituted in “Service Tax (Determination of Value) Rules, 2006 vide Notification No. 24/2012-ST.

12. 36/2012-ST Amendment in Service Tax Rules, 1994

The Central Government seeks to amend Service Tax Rules, 1994 in light of introduction of negative list of services and to facilitate various changes made in the Finance Act.

The new amended rules shall be known as Service Tax (Second Amendment) Rules, 2012. The gist of changes made in the said rules is given below:
  • In Rule 2-Definitions: there is an insertion of various definitions of the terms used in these rules like legal service, life insurance business etc…
  • Changes brought in Rule 2(1)(d) for effecting the revised reverse charge mechanism.
  • Substitution of the word and figures “Section 66B” for the word and figure “Section 66” wherever used in the said rules.
  • Insertion of new Rule 6A for determining whether the service is exported or not.
  • Omission of Rule 5B-Date for determination of rate.
  • Various other changes primarily focused to give operational and legal stability to the various changes made to the Act.
13. 37/2012-ST Seeks to amend Point of Taxation Rules, 2011

Vide this notification, there are only two amendments being made to the Point of taxation Rules, 2011:
  • From Rule 2 of the said rules, the definition of associated enterprises and taxable services as given in sub-rule 2(b) and 2(f) respectively is omitted.
  • the words, “provided or to be provided” wherever they occur in the said rules, are substituted by the words “provided or agreed to be provided”
14. 38/2012-ST Amendment of Notification 28/2011-ST

This notification is issued to amend the provisions as contained in Rule 2(c) of Point of Taxation Rules in relation to continuous supply of service.

With effect from 1st July, 2012, the Central Government vide Notification No. 38/2012-ST has prescribed the provision of:-

  • taxable services of telecommunication service, and
  • service portion in execution of a works contract
Shall be treated as continuous supply of service, for the purpose of Rule 2(c) of Point Of Taxation Rules, 2011.

The other three services which were also notified by central government as continuous supply of service vide notification no. 28/2011-ST, are now removed and the works contract service is now redefined as above in point no. 

The three services which were earlier notified are:

1. Commercial or Industrial Construction
2. Construction of Complex
3. Internet telecommunication

15. 39/2012-ST Notification under Rule 6A of Service Tax Rules

Prior to 1st July, 2012, provisions related to export of services are governed by “Export of Service Rules, 2005” wherein the exporter of service was granted rebate of service tax or duty paid on input services or inputs which are used for providing such taxable service as per Rule 5 of said rules.

In the new era of Service Tax effective from 1st July, 2012, a new Rule 6A is incorporated in Service Tax Rules, 1994 for governing the provisions of export of services as from the said date Export of Service rules, 2005 are no more effective.

This Notification No. 39/2012-ST has been issued to incorporate similar benefits in relation to rebate of duty paid on inputs and service tax paid on input services, which are used for providing services which are exported. The said notification also contains conditions and limitations of such rebate along with procedures and forms of application for rebate claims.

16. 40/2012-ST Special Economic Zones: 

Exemption of services provided to a unit located in a Special Economic Zone or Developer of SEZ and used for the authorized operations, from the whole of the service tax, education cess and secondary and higher education cess leviable thereon.

Via this notification the formula for ‘determination of refund of service tax paid’, given in Notification No. 17/2011-ST is redefined in more simplistic manner. Also, definitions for the terminologies used in the above said formula are revised. The notification also contains procedures for claiming the benefits of the exemptions contained in this notification.

By CA Atul Kumar Gupta
Former Chairman NIRC of ICAI
Former Chairman NIRC of ICWAI
Author of “An Introduction to Service Tax”
Author of “Comprehensive Guide to Service Tax”
Mobile : 9810103611