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2015: The Service Tax Year That Was

Published on Mon, Jan 04,2016 | 18:49, Updated at Mon, Jan 04 at 19:51Source : 

By: A R Krishnan, CA

1.    From a service tax perspective, the year 2015, will be remembered as the year in which there was some ‘action, reaction and inaction’.

2.    Budget 2015
2.1    The rate of Service tax was increased from 12% to 14.5% i.e. 14% service tax and 0.5% Swachh Bharat Cess (SBC). This ‘cess’ certainly added some ‘stress’ to many when the Government announced that the SBC is not integrated in the Cenvat Credit Chain, therefore credit of SBC cannot be availed nor can SBC be paid by utilizing credit of any other duty or tax. The increased rates coupled with inherent distortions in the Cenvat chain [due to artificial disallowances] and absence of credit of SBC added to the woes of the industry and the Common Man due to increased costs (The Common Man’s pocket certainly was cleaned! Remains now ‘Swachh’!).

2.2    There were some other significant changes in the Budget 2015. Service tax was re- introduced on mutual fund agents and distributors. Services provided by Government / Local Authority to Business entities ‘other than support services’ hitherto covered in the ‘negative list’ was removed from negative list from a date to be notified which is yet not notified. The avowed purpose was to subject the Government’s services also to service tax where the services are provided to Business Entity so as to provide the private sector a level playing field (and of course increase Government’s Revenues!). However since the date to take effect has still not been notified it appears the Government is having second thoughts.

2.3    As an assessee friendly measure the Service Tax Rules were amended to provide for registration within 2 days of filing online application through ACES website by way of electronic download of registration certificate. This is not applicable to Centralized Registration. Further the assessee has been given an option to provide for digitally signed invoice and maintenance of records in electronic form (Go Green!) but every page of the record so preserved have to be authenticated by means of digital signature! (Go Slow!)

3.    Departments’ internal working revamped – scaling new heights!
3.1    The Central Board of Excise and Customs (‘ Board’) issued detailed guidelines [Circular 185/4/2015-ST dated 30.6.2015] for conduct of scrutiny of service tax returns providing for -
(a)    Preliminary online scrutiny of returns. This is conducted online in ACES to ensure completeness, arithmetic correctness, timely submissions, identification of non- filers and stop-filers; and
(b)    Detailed manual scrutiny of returns where selected returns are identified on the basis of certain specified risk parameters in case of assessees where tax for Financial year 2014-15 is less than 50[1] lakhs. The purpose is to verify correctness of taxability and valuation, eligibility to exemption / abatement, Cenvat Credit Availment and utilization. There would be a detailed scrutiny of documents (agreements/ contract and invoices etc). The department even asks for reconciliation of information furnished by the assessee in his Service Tax returns with the information furnished by him in his Income tax Returns including Form 26AS. – a Himalayan task – department is indeed scaling new heights!

3.2    During the year the service tax audit on the assessees by the department was substantially strengthened with more Commissionerates being added having audit work as their exclusive domain. The Board issued certain audit norms to be followed by the Audit Commissionerates [Circular No. 995/02/2015-CX (F. No. 206/03/2014-CX. 6) dated 27.02.2015]. The Audit norms provided for selection of the auditee among various assessees as well as the frequency of audit on a particular assessee based on the tax paid. The norms also provided for methodology of Audit including inter alia that the Audit objections should be discussed with the assessee and also his views on audit objections should be solicited for and taken cognizance of.

3.3    The above two measures are indicators that for the Government, service tax is Serious and Big Business. From a revenue of Rs. 400 crores in 1994 when Service tax was introduced, today it is over Rs. 2,00,000 crores. The increased focus on scrutiny and audit is ‘action packed’ (not to say of allergic reactions from the assesses!)

4.    Government’s tax friendly initiatives
4.1    This year having been declared as the year of Taxpayer services, the Board accorded primacy to speedy sanction of refunds in case of export of services vide circular no. 187/6/2015- ST, dated 10.11.2015. The circular promised speedy disbursal of pending refund claims in case of exporters of services inter alia providing for provisional payment of 80% of the amount claimed as refund within 5 working days of the receipt of the documents pending verification of the claims.

4.2    The Board vide Circular No.1009/16/2015 dated 23.10.2015 fixed the monetary limit of Rs. 1 crore and above for launching prosecution in case of evasion of service tax and misuse of Cenvat Credit. Consequently, the above limits would be applicable in case of arrest provisions also as against the existing limit of Rs. 50 lakhs [Circular no. 1010/17/2015 dated 23.10.2015]

4.3    The Government in its initiative to reduce litigation and clogging of cases in Courts provided monetary limits for filing appeals by the Department before CESTAT / High Courts and Supreme court-

Sr. no Appellate Forum Monetary limit
1 CESTAT Rs.10,00,000/-
2 High Courts Rs.15,00,000/-
3 Supreme Court Rs.25,00,000/-

5.    Wish List 2016
Interest rate to be reinstated at 18% from peak rate of 24% - 30%
5.1    W.e.f. 1.10.2014, the rate of interest on delayed payment of service tax has been increased from 18% p.a. to a slab system of interest rate in the range of 18% - 30% p.a. The interest for delayed payment of service tax is supposed to be compensatory in nature and not penal and penal provisions already exist in service tax. Paradoxically, interest on refunds (of-course focus is to get the principal amount!) is payable by the department only at 6% that too, from the date not when the tax was paid but from the date after the expiry of 3 months from when the refund application is made. It reminds me of my friend who habitually borrows money but says “it is not my principle to pay interest nor is it in my interest to pay the principal.” Thus the interest on delayed payment of service tax should be reinstated at old rate of 18% instead of the peak rate of 24% - 30%.

Make cenvat credit more on allowance mode than on disallowance mode.

5.2    The purpose of cenvat credit is to avoid the cascading effect of tax. However, the cenvat credit rules have several distortions and many a time it is more on disallowance mode aided by the overzealous department due to pressures of Revenue as well as ably supported by assessee’s lackadaisical approach in attending to documentation and procedures. Cenvat credit rules are more of ‘form over substance’. While the manufacturing industry has been exposed to excise over the years and have generally adapted, the service sector needs to catch up.

5.3    It is suggested that the cenvat credit rules should allow for a seamless credit chain [fully allowed] with no distortions or road blocks [no disallowances]. Further, the documentation and procedures could be further eased specially for the service sector where there are inherent difficulties.  

5.4    While the Government moves half way, the assessees in the service sector need to also focus on documentation and procedures.

6.    GST – so near yet so far
6.1    Inspite of the Government’s best efforts, the year 2015 also was a washout for the introduction of GST - a landmark tax reform proposed. Will it happen in 2016? Wait and Watch (wisdom in 3 words!). Thus it is a case of ‘so near yet so far’.
6.2    Here are  some GST reactions from various sections of society:      
     (a)  Manufacturer: ‘A great opportunity lost but we are still hoping and waiting [like the age old bachelor!]    

     (b)  Retailers: We definitely are waiting for GST for subsuming all taxes and reduce the cascading effect of taxes [Sure of tying the knot with GST!]  
     (c)  Governments (Sarkar): Mujhe Aur Paisa chahiye vikas ke leye!  
     (d)  Consultants / /professionals: Aane do GST Mauj Manayenge! Lekin kab tak wait karenge! Intezar ka phal aksar meetha hota hai!   

     (e)  Consumer Activist: Mehenghai badegi, Mehenghai badegi!!  
     (f)   House Wife: Mujhe be GST [Grah Service Tax] chahiye –18%-22% of husband’s salary for services rendered!  
     (g)  Common Man /Aam Aadmi: Arre bachh Gaya GST nahi aaya!! Acche din chhodo, Kaise Din bitayenge, wahi sochh raha hu!    

6.3    All this GST reminds me of my college days when some of my mischievous friends (not me) used to say ‘SHE IS BEAUTIFUL FROM FAR BUT FAR FROM BEAUTIFUL’. Is that all is GST? Time will Tell.

This column is sourced from the year end series of Bombay Chartered Accountants' Society

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