By TIOL News Service

NEW DELHI, Feb 28, 2006 : THE Budget has assumed importance as far as service tax is concerned for the last couple of years and this year’s budget is no exception. The budget proposes to introduce certain new services, expand the scope of existing services, and seeks to amend Act and Rules.

Rate of Tax increased from 10% to 12%. The new rate will come into effect after passing of Finance Bill.

New services :

1. Registrar to an issue;

2. Share transfer agent;

3. ATM operations to include all services which are outsourced to maintain and manage ATMs;

4. Recovery Agent service : services provided by recovery agent to banks or financial institutions or to any business entity to recover debts are brought under service tax net.

5. Sale of Advertisement space or time : This service to cover internet advertisement, advertisements on buildings, vehicle, advertisement in motion pictures, television serials ( which is also know as product placement ), video or music albums, mobile phones, ATMs,

6. Sponsorship services : Sponsorship of any event by a firm or body corporate – naming an event or displaying the logo of the firm or company - is taxable. The person liable to pay tax is also the person sponsoring the event. Not the person conduting the event.

7. Air Transport of passengers embarking for international travel : Aircraft operator has to pay tax for international transport of passengers. Economy class exempted.

8. Transport of goods in containers by rail: persons, other than Indian railway, who provide this service are liable to pay tax . Tax is only on consideration received and retained by persons providing such service.

9. Business Support Service : to cover all services outsourced by business entities.

10. Auctioneer Services: persons providing auctioneer services are covered. Auctions done by Govt or under orders of court of law are edcluded.

11. Public Relation Service: Agencies providing services of image or commucation management are covered.

12. Ship management services: Services provided persons for running or operation of ship are covered.

13. Internet Telephony : this is already covered under service tax net as Online-information service. However, separate service created.

14. Transport by Cruise or ships :

15. Credit card related services ; To cover all services provided in respect of credit cards, debit cards, charge cards or other payment card.

All these services are already treated by the department as taxable services as covered under the existing services like BAS, Maintenance or repair and are under different stages of adjudication and appeals. Now the introduction of these services will make their case stronger as they can plead that these services were not taxable earlier. So the new taxes may bring in negative revenue.

Scope extended:

1. Commercial concern is now any person: 17 services are taxable only if provided by commercial concerns. Now they will be taxable if provided by any person.

2. Banking and Other Financial Services now expanded to include transfer of money through different modes and services provided by a banker to an issue.

3. Management consultancy service to include consultancy in different areas of management.

4. General Insurance service, Life Insurance Service, Insurance Auxiliary services to include any services provided to a policy holder any person by insurer including re-insurer.

5. Maintenance or Repair service : renamed as Management , maintenance, or management service to include management of immovable property.

6. Erection, Commissioning, Installation service to include erection, commissioning, or installation of structures, whether or not prefabricated.

7. Consulting Engineer Services to include the services provided by firm or body corporate.

8. Business Auxiliary services to include computer data processing. Amended the definition of Information Technology given in business auxiliary service

9. Technical Testing service to include clinical testing of drugs or formulations

Exemptions withdrawn which means tax liability introduced.

1. Premiums received from reinsurance , both domestic and overseas and premium booked outside India – Notification No. 3/94 amended by 3/2006

2. Exemption Notification No.59/98 withdrawn - all taxable services of chartered account in his professional capacity are now taxable.

3. Call centres and medical transcription centres are under tax net under Business Auxiliary Services. Notificn 8/2003 is withdrawn

4. Enterprise Resource Planning services provided by management consultants are taxable. – Notification 16/2004 rescinded.

5. Catering services provided by outdoor caterer in railway train are taxable – 19/04 withdrawn.

6. Out door catering done in academic or medical institutions are now taxable – 21/04 rescinded.

(See notification No. 2/2006-Service Tax for sl. No. 2 to 6. )

Changes in Act and Rules:

1. Reference to “Commercial concern” appearing in the definitions of 17 services replaced with “ Person”

2. Section 65 amended to treat club or association as a person separate and different from their members.

3. Explanation to Sec.65 (105)- seeks to levy tax on taxable services provided from outside India to a recipient in India- has been omitted. Behold it is still there as by provisions of Reverse Charge method.

4. Sec.66A : new section included to provide for provisions of Reverse Charge Method.

5. Section 67 : substituted with new provisions of valuation including the cases where consideration for taxable services is not received in money terms or explicitly known.

6. 73 (1A) : introduced for concluding of adjudication proceedings where the assessees pay the tax demanded voluntarily along with interest and penalty.

7. 73 A : Provisions on the lines of Sec 11D of Central Excise introduced. Reference to section 11 and 11D omitted from Sec.83

8. 73C : new provision introduced providing for attachment of property during pendency of any proceedings under Sec.73 or 73A.

9. Sec.76 : Amended to provide for levy of penalty @2% per month of tax liable to be paid.

10. Sec.83 : provides for separate recovery provisions for service tax defaulted from persons other than service providers.

11. New Rule 4(5A) introduced to provide for cancellation of registration in certain cases.

12. In rule 5 new sub-rule (3) & (4) introduced to make it mandatory on the part of service tax assessee to preserve the records for five years and to provide them for examination or inspection by the officers and to keep the records in the registered premises.