SERVICE TAX ABATEMENT RATE CHART UPDATED 01.04.2015

Following changes has been made in service tax abatement rate in Finance Bill,2015.We have prepared updated service tax abatement chart as on 01.04.2015 which is given after brief description of amendment in Budget-2015

Uniform Abatement for transport by rail, road and vessel: A uniform abatement of 70% has been prescribed for transport by rail, road and vessel to bring parity in these sectors. Service tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of Cenvat credit on Inputs, Capital goods and Input services.

Presently, Service tax is payable on 30% (in case of rail transport)/ 25% (in case of road transport)/ 40% (in case of transport by vessels). Further, there is no condition for availment of Cenvat credit on Inputs, Capital goods and Input services in case of transport by rail, which is now withdrawn.

· Reduction in abatement for classes other than economy class: The abatement for classes other than economy class (i.e. business/ first class) has been reduced from 60% to 40%. Accordingly, Service tax would be payable on 60% of the value of such higher classes.

At present, Service tax is payable on 40% of the value of transport of passenger by air for economy as well as higher classes (i.e. business/ first class).

· Abatement in relation to Chit fund withdrawn: Abatement for the services provided in relation to Chit fund stands withdrawn. Consequently, Service tax shall be paid by on full consideration received by the foremen of Chit fund.

Abatement Rate Chart under Service Tax updated  01.04.2015
Sr No.	Description of taxable service	Abatement	Taxable	Conditions
1	2	3	4	5
1	Services in relation to financial leasing including hire purchase	90	10	Nil.
2	Transport of goods by rail	70	30	Nil.
3	Transport of passengers, with  or without accompanied belongings by rail	70	30	Nil.
4	Bundled service by way of 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 other place, specially arranged for organizing a function) together with renting of such premises	30	70	(i) CENVAT credit on any goods classifiable under Chapters 1 to 22 of the Central Excise Tariff Act, 1985 (5 of 1986) used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
5	Transport of passengers by air, with or without accompanied belongings (Only for Economy class wef 01.04.2015)	60	40	CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
	Other than Economy Class (means business class /First class) wef 01.04.2015	40	60
6	Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.	40	60	Same as above.
7	Services of goods transport agency in relation to transportation of goods.	75	25	CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
	wef 01.04.2015	70	30
8	Services provided in relation to chit	30	70	Same as above.
	wef 01.04.2015	0	100	Same as above.
9	Renting of any motor vehicle designed to carry passengers	60	40	Same as above.
10	Transport of goods in a vessel	60	40	Same as above.
	wef 01.04.2015	70	30	Same as above.
11	Services  by a tour operator in relation to,- (i)  a package tour	75	25	(i) CENVAT  :Same as above
				(ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour.
	(ii)  a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour	90	10	(i) CENVAT :Same as above
				(ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation.
				(iii) This exemption shall not apply in such cases where the invoice, bill or challanissued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation.
	(iii) any services other than specified at (i) and (ii) above.	60	40	(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.
				(ii)The bill issued indicates that the amount charged in the bill is the gross amount charged for such a tour.
12	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			(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.
	(i)for residential unit having carpet area upto 2000 square feet or where the amount charged is less than rupees one crore;	75	25	(ii)The value of land is included in the amount charged from the service receiver.
	(ii) for other than the (i) above.	70	30

Explanation. –

A.     For the purposes of exemption at Serial number 1 -

                        (i)      The  amount charged shall be an amount, forming or representing as interest, i.e. the difference between the installments paid towards repayment of the lease amount and the principal amount contained in such installments;

                      (ii)      the exemption shall not apply to an amount, other than an amount forming or representing as interest, charged by the service provider such as lease management fee, processing fee, documentation charges and administrative fee, which shall be added to the amount calculated in terms of (i) above.

B.     For the purposes of exemption at Serial number 4 -

The amount charged shall be the sum total of the gross amount charged and the fair market value of all goods and services supplied in or in relation to the supply of food or any other article of human consumption or any drink (whether or not intoxicating) and whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider,  if any; and

(ii)  the value added tax or sales tax, if any, levied thereon:             

         Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.           

       C.  For the purposes of exemption at Serial number 12 –

      The amount charged shall be  the sum total of the  amount charged for the service including the fair market value of all goods and services supplied by the recipient(s) in or in relation to the service, whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services supplied to the service provider, if any; and

(ii) the value added tax or sales tax, if any, levied thereon: 

  Provided that the fair market value of goods and services so supplied may be determined in accordance with the generally accepted accounting principles.           

 2.   For the purposes of this notification, unless the context otherwise requires,-

a.       “chit” means a transaction whether called chit, chit fund, chitty, kuri, or by whatever name by or under which a person enters into an agreement with a specified number of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to a prize amount,

b.      "package tour" means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour,

c.       “tour operator” means any person engaged in the business of planning, scheduling, organizing, arranging tours (which may include arrangements for accommodation, sightseeing or other similar services) by any mode of transport, and includes any person engaged in the business of operating tours,
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The change in abatement rate is also a form of increase/decrease in Service Tax Rate so it is also covered  under change in Effective rate of Service Tax and Treatment is covered as under

Due to changes in abatement rate  the change in rate of Effective Service tax will take place from 01.04.2015, issues may build up in respect of the ongoing transactions for which certain advance payment is received prior to 01.04.2015, 2015 but the completion of provision of service may take place post facto thereof.

Here again by applying the provisions of Rule 3 of the POT Rules, the service provider would be liable to pay Service tax on the advance payments received at the prevailing rate of 12.36%. after giving effect to abatement.

However, the service provider may encounter the issue of adjusting this payment of tax for increase in Service tax rate afterwards when the service will be provided and invoice will be raised for the service for which advance has been received already.

Our Comments: Point of taxation involving change in effective rate of tax is governed by Rule 4 of the POT Rules, which provides for determination of Point of taxation when there is change in effective rate of tax as mentioned in the table below:

S. No.	In case a taxable service has been provided	Invoice has been issued	Payment received for the invoice	Point of taxation shall be	Applicable Rate
1.	BEFORE the change in effective rate of tax	AFTER the change in effective rate of tax	AFTER the change in effective rate of tax	Date of issuance of invoice or Date of receipt of payment, whichever is earlier	New Rate
2.		BEFORE  the change in effective rate of tax	AFTER the change in effective rate of tax	Date of issuance of invoice	Old Rate
3.		AFTER the change in effective rate of tax	BEFORE  the change in effective rate of tax	Date of receipt of payment	Old Rate
4.	AFTER the change in effective rate of tax	BEFORE the change in effective rate of tax	AFTER the change in effective rate of tax	Date of receipt of payment	New Rate
5.		BEFORE the change in effective rate of tax	BEFORE the change in effective rate of tax	Date of issuance of invoice or Date of receipt of payment, whichever is earlier	Old Rate
6.		AFTER the change in effective rate of tax	BEFORE the change in effective rate of tax	Date of issuance of invoice	New Rate

Accordingly, the above scenario of advance payments may be interpreted as under:

a) Services are completed after change in effective rate of tax but the invoice is raised before change in rate: In terms of Rule 3 read with Rule 4(b)(ii) of the POT Rules, no differential payment may be required (Refer S. No. 5 of the table);

b) Services are completed after change in effective rate of tax and the invoice is also raised after change in rate: In terms of Rule 3 read with Rule 4(b)(iii) of the POT Rules, differential payment will have to be paid at the time of such invoice (Refer S. No. 6 of the table).

Key Concerns:

Even after applying provisions of Rule 4 of the POT Rules, uncertainties and ambiguities will definitely prevail in the Trade in case of on-going services, which warrants some clarification/ relief from the Board such as:

·  One such question would be whether the service provider would also be required to pay interest on differential amount of Service tax;

·  Further considering Rule 4(a)(i) of the POT Rules (Refer S. No. 1 of the Table), why new rate would be applicable when services are rendered before change in effective rate of tax but invoice is raised and payment is made after change of rate. The Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST] held that “a tax on a thing or goods can only be with reference to a taxable event” and the same contention was upheld again in the case of Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], wherein the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service;