1.            Levy of service tax on sale of space or time in any media (other than print media ie books not meant for commercial purposes and newspapers).  Earlier service tax was applicable only on selling of space or time slots for advertisements broadcast by radio or television

2.            Notification issued on the rate of foreign exchange to be used for computation of service tax liability on forex remittances also referred to as import of services (discussed above)

3.            Mandatory e-payment of service tax and excise

4.            Service Portion in Works Contract to be classified into two categories

a.            40% in case of Original Works

b.            70% in case of all other works contract

5.            Increase in Interest Rates

Delay                                                       Interest Payable

First 6 months                                          18%

More than 6 months but upto one year       24%

More than one year                                  30%

6.            Point of taxation on invoices issued from October 1, 2014 which are liable to service tax under reverse charge mechanism would be date of payment of such invoice or 3 months from the date of invoice whichever is earlier

7.            Definition of the term “intermediary” amended under Place of Provision of Supply Rules to include transaction in “goods” as well.  Hence, service tax would now be required to be paid even on commission received in foreign exchange for transactions in goods

Amendments effective from September 1, 2014

1.            No credit can be availed after 6 months from the date of issue of CENVAT documents prescribed under CENVAT Rules

 The conversion rate to be adopted for computation of service tax liability shall be the rate of exchange as per the generally accepted accounting principles on the date when point of taxation arises in terms of the Point of Taxation Rules, 2011;

• Point of Taxation on reverse charge mechanism arises on the date of payment of value of service (unless the invoice is remitted within 3 months from the date of invoice); and 
• While the term generally accepted accounting principles has not been defined, it would be safe to make reference to Accounting Standard 11 issued by the Institute of Chartered Accountants of India which deals with “The Effects of Changes in Foreign Exchange Rates”.  As per the said Accounting Standard, a foreign exchange transaction should be recorded by applying the exchange rate which is effective at the date of the transaction (para 9); 
• Thus, for computing the service tax liability, the exchange rate to be used would be the rate applicable on the date of transaction (date of payment / date of invoice) when the service tax liability arises. 

Impact of the above amendment on computation of service tax on forex payments  

Date of Payment                                            Exchange Rate

Within 3 months from the date of invoice          Date of Payment of value of service

After 3 months from the date of invoice             Date of Invoice
 
Our Comments
 
The service tax was being paid on import of services based on the value accounted in the books of accounts.  There was no necessity to amend the rules to link the same with the exchange rates notified by the customs authorities.  Having realized the mistake, the Finance minister in the Budget 2014 announced that rules would be issued to prescribe the rate of exchange to be applied for computation of service tax on forex payments.  The aforementioned amendments have been introduced in the service tax rules based on the announcements made in the Budget.  The said amendment would have certain amount of nuisance value to the extent of 

• What is the meaning of Generally Accepted Accounting Principles (Accounting Standards are applicable only to entities which are required to get their accounts audited); 
• The exchange rate is linked to the date on which service tax liability arises as per the Point of Taxation Rules, 2011.  What will happen if the assessee wishes to remit the service tax liability in advance ie even before the service tax becomes due as per the provisions of Point of Taxation Rules; and 
• Reconciliation between the forex outflow as per the books of accounts (based on the invoice date) and forex outflow on which service tax has been paid (based on the payment date).

Wipro Limited vs The State of Karnataka WP No 55411/2013 - Kar HC

• Dealers are required to declare the stock transfer inwards and inter state purchase details in the monthly VAT returns and electronically apply for Form F and Form C for the respective transactions.  In the instant case, the dealer inadvertently failed to mention the stock transfer inward and inter state purchase details in his monthly returns and accordingly was unable to apply for Form F and Form C.  The error was noticed only at the time of finalizing the Karnataka VAT Audit.  The dealer approached the Local VAT Officer and requested for issuance of Form F and Form C.  The VAT authorities issued an endorsement stating that the VAT returns filed by the dealer are incomplete because the stock transfer and inter state purchase details are not mentioned in the returns and accordingly Form F and Form C cannot be issued.  The Karnataka High Court observed that in case of incomplete returns, the KVAT Rules provide for issuance of Form 150 by the VAT authorities requiring the dealer to complete the returns within 10 days.  The said procedure was not followed by the VAT authorities.  The Court directed the dealer to treat the endorsement as notice in Form 150 and correct the returns within 10 days of receiving the order copy

M/s Maya Appliances (P) Ltd Vs Additional Commissioner of Commercial Taxes 2014-TIOL-504-HC-KAR-VAT

• In the instant case, the Karnataka High Court disallowed quantity / trade discount in tax invoices as deduction for taxable turnover computation under Rule 3 of Karnataka VAT (KVAT) Rules.  The Court observed that discount granted as incentive to dealers for past performance, not relatable to sale of goods mentioned in sale invoice.  Proviso to Rule 3(2)(c) of KVAT Rules mandates tax invoices to reflect trade discounts in respect of sale of goods mentioned therein.  Although gross value of goods plus tax along with quantity discount stated in invoice, assessee not entitled to Rule 3 deduction for defiance of aforesaid condition.  The High Court distinguished the SC ruling in IFB Industries and Patna HC ruling in Mapra Laboratories Pvt Ltd

ABB Limited vs The State of Karnataka 2014-VIL-90-KAR

• In the instant case, the Karnataka High Court held that a sale which occasions movement of goods from one State to another is a sale in the course of inter-State trade, no matter in which State the property in goods passes. It is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement, and it is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself. It would be sufficient if the movement was in pursuance of and incidental to the contract of sale.

Our Comments

• The VAT Departmental authorities are trying to create a robust system wherein they would be able to verify the procurements made by and sales executed by a dealer;
• The authorities would be able to verify if the input tax credit availed by purchasing dealers have been declared by the selling dealer in his VAT returns;
• While the system will help the departmental authorities in minimizing tax evasions by cross verifying the returns of the selling dealer with the returns filed by the purchasing dealer, the system could also create many issues;
• Currently, the departmental authorities are not allowing input tax credit on tax invoices issued in a particular month on which credit has been claimed in the subsequent months.  Refunds to SEZ units and SEZ developers is also being denied in such scenario;
• The delay in accounting the invoices in the same month of issue could be on account of various reasons like transactions executed in the last week of the month, works contract - were purchase is recorded based on approval from project managers;
• The new system would only help the officers determine the cases where the purchase invoices are not booked in the month in which invoices were raised and thereby deny the input tax credit;
• There does not seem to be any provision for revision of these uploaded statements;
• What would be the consequences of non filing of these statements

• For members contributing more than Rs 5,000 per month per member, the entire contribution of such members would be ineligible for the exemption under the said notification. Service tax would then be leviable on the aggregate amount of monthly contribution of such members; 

• Value of Taxable Services would not include electricity charges and water charges paid by association and reimbursement obtained from the members provided 
• Bills are issued in the name of the owner of the apartment; and
• No commission or consideration is collected by the association.
•  Value of Taxable Services would however include amounts collected towards electricity charges of common area charges where invoice is issued in the name of RWA since there is no principal agent relationship. 

Our Comments

• Sl No 28 of the Notification 25/2012 dated June 20, 2012 exempts reimbursement of charges / share of contribution "upto" Rs 5,000 per month per member for sourcing of goods or services from a third person for the common use of its members.  The word "upto" is generally understood to mean a threshold limit and tax needs to be paid only on such amount which is in excess of Rs 5,000.  However, the circular clarifies that in case contribution of member per month exceeds Rs 5,000 then such entire contribution would be taxable;
• Further, if due to certain renovation work in a particular month, the monthly contribution of the members exceeds Rs 5,000 in that particular month but remains below Rs 5,000 in all the other months, then the term "entire contribution of such members whose per month contribution exceeds Rs 5,000" could create issues and the departmental authorities could demand service tax on the entire contribution received from the member during the year.
• The clarification on utility bills could lead to a conclusion that utility bills not in the name of the apartment owners may be liable to service tax though the RWA collects the actual cost without any mark-up.  This clarification may not be so relevant wrt residential projects wherein electricity Meters are generally registered in the name of the owner.  However, wrt Commercial Projects where the electricity bills are not in the name of the tenants, service tax could be demanded on such electricity bills. 

The Circular could be downloaded by following this link

1.       Refunds under Rule 5 of the unutilized CENVAT Credit

Issue - Matching of FIRC with Export Invoices
Decision - Instruction has been issued to the field formation on 04.09.2013 for acceptance of self-certification submitted by the claimant for such refund claim

Issue - Problem in establishing nexus of input services with exports
Decision - The procedure for calculating the refund on the basis of the ratio of export turnover to total turnover that was introduced in 2012 will be applied for pending refund cases. Instructions will be issued accordingly

2.       Valuation of goods sold at a price below the cost of production

Issue - Hon'ble Supreme Court in the case of Fiat India Private Limited held that where the products are sold for less than cost of production for an unduly long period of time for the purpose of market penetration, the transaction value cannot be accepted for the purpose of levy of excise duty.  Basis this decision, excise authorities are asking cost records of excise assessee for the past years
Decision - A Circular will be issued by January 15, 2014 to provide clarity on the modality to be adopted for implementing this decision

3.      Apart from the above, various other issues were discussed including - Reversal of CENVAT credit on removal of capital goods after use by considering transaction value (and not the depreciated value calculated at 2.5% per quarter), proposal to amend Input Service Distribution related provisions,  availment of CENVAT credit on endorsed bill of entry.  The entire text of the decisions taken by the Forum could be downloaded by following this link

1. Part of furniture
2. Electronic goods
3. Machinery and parts
4. Non-ferrous metals
5. Readymade garments
6. Tea
7. Chemicals
8. Cements
9. Packing materials
10. Lubricant oil and including waste oil.

Apart from the above, the notification provides for the following:

• In case of movement of goods as a result of sale, a photocopy of tax invoice would be required to be carried (in addition to entering details on departmental website) when goods covered in a single invoice are carried in more than one vehicle
• A dealer receiving notified goods from outside the State would be required to enter the details of the goods on departmental website before the goods enter the State territory
• For transport of taxable goods within revenue district for job work, details would be required to be entered into the departmental website.  Any further movement of these goods would be required to be supported by labour charges bill, self printed delivery challans or Form 515
• For dispatch of goods within the revenue district otherwise than as a result of sale / jobwork (ie branch transfers), the movement would be required to be supported by self printed delivery challans in Form 515
• The dealer having more than one place of business can request for multiple username and password
• Single e-sugam can be used for entering multiple commodities covered under the same invoice
• Multiple invoices relating to same consignment can be entered in a single e-sugam.

The text of the Notification can be downloaded by following this link.

Thus, where a developer enters into an agreement with the flat purchaser for sale of a flat which is complete to the extent of 30% as on the date of the agreement then VAT would be required to be charged only on the balance 70% of the unconstructed portion.

While the ratio sounds logical on the ground that constructed portion as on the date of agreement (in the above example 30%) represents the value of construction undertaken by the developer on his on account and does not involve any transfer of property in the goods, however, it could result in various implementation issues like:

a. Reversal of Credits / Sub-con deduction on constructed portion on which no VAT / Composition tax is being paid;

b. In case of projects involving construction of 100s of residential units, computation of the value of the work done at the time of signing each and every agreement;

c. Impact of this decision on the Service Tax; and

d. Impact on excess tax remittances (on constructed portion) for the period prior to this judgment.

The impact of this decision would vary on a case to case basis and hence a proper analysis would be required to be done on the possible impact taking into consideration the valuation methodology for determining the value of work completed, impact on service tax position, reconciliation of construction receipts as per books with the VAT returns etc.

1.  In a complex wherein air-conditioned as well as non air-conditioned restaurants are operational but the food is sourced through common kitchen, will service tax be payable on services rendered in the non air-conditioned restaurant?

Clarification: In a complex, if there are more than one restaurant, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided by air-conditioned restaurant would be liable to service tax and service provided in a non air-conditioned or non centrally air- heated restaurant will not be liable to service tax.  The latter would be considered as exempt services and accordingly CENVAT Credit would be required to be reversed on the same.

Our Comments: The important condition is that the restaurants should be separately named.

2.  In a hotel, if services are provided by air-conditioned restaurants in other areas like swimming pool or an open area attached to the restaurant, would service tax be applicable on the same?

Clarification: Yes, service tax would be applicable on services rendered by Air-conditioned restaurants in other areas of the hotel.

Our Comments:  If the hotel has both air-conditioned and non air-conditioned restaurant and services are provided by non air-conditioned restaurants in the other areas, service tax would not be leviable on the same.

3.  Whether service tax is payable on goods sold on MRP basis across the counter as part of the Bill / Invoice?

Clarification: If goods are sold on MRP basis (fixed under Legal Metrology Act), they would be excluded from total value for determination of value of service portion

Our Comments: The clarification seems to exclude those goods which are sold on MRP.  If goods sold at a rate higher than MRP, the same might attract service tax net.

The circular has no doubt provided clarification on few aspects relating to restaurant services (whether correct or otherwise).  However, CBEC has chosen to ignore certain important aspects which require clarifications from the department including:

• Availment of CENVAT Credit - Should supply of food be considered exempt goods / services and credit reversed on the same; and
• Applicability of service tax on takeaways / home delivery.

 The text of the Circular can be downloaded by following this link.