Finance Bill 2016 got the President’s Assent on 14th May 2016: Consequent Changes in Service Tax

Honorable President of India Shri. Pranab Mukherjee has assented The Finance Bill, 2016 on 14th May 2016.

The Finance Bill was presented in the Lok Sabha on February 29, 2016. On May 05, 2016 it was passed by the Lok Sabha and later on it was approved by the Rajya Sabha on Wednesday, 11th May 2016.

Consequently, certain changes which have to become applicable with effect from enactment of Finance Bill 2016, will now be applicable w.e.f. 14-05-2016. The same are enumerated as below:

1. Exemption from service tax on services provided by way of construction, erection, maintenance or alteration etc. of canal, dam or other irrigation works with retrospective effect

With effect from 30.1.2014, even the authorities set up by the Government not necessarily by an Act of Parliament or state legislature covered under the definition of Government authority. Thus by virtue of said amendment in the definition of government authority, provision of said services to entities set up by Government are exempt w.e.f. 30.01.2014. However, the services prior to 30.01.2014 remained taxable.

New section 101 is inserted to extend the benefit of exemption to the said services provided during the period from the 1st July, 2012 to 29.01.2014. Also the refund of Service tax paid on the said services shall be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from 14.05.2016.

2. Restoration of exemption from Service Tax w.e.f. 1st March 2016

Section 102 and 103 has been inserted in the Finance Act 1994 in order to restore the exemption that was earlier withdrawn. Following exemption has been restored under the service tax namely:-

a) Services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –

i) Civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;

ii) A structure meant predominantly for use as (i) an educational, (ii) a clinical, or(iii) an art or cultural establishment; or

iii) A residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause (44) of section 65 B of the said Act.

b) Services provided by way of construction, erection, commissioning or installation of original works pertaining to an airport or port.

The aforementioned exemptions are available subject to the conditions that the given contract had been entered prior to the 1st March 2015 and on which stamp duty had been paid prior to such date. However, the benefit of above exemption has been restricted to 31.03.2020. Also the refund of Service tax paid earlier shall also be allowed in accordance with the law including the law of unjust enrichment. Application for refund may be allowed to be filed within a period of six months from 14.05.2016.

3. Retrospective Effect of Changes made w.r.t. Refund to Exporter of Goods

Earlier, NN 01/2016 – ST dated 03-02-2016 was issued to alter the provisions of NN 41/2012 – ST dated 29-06-2012 to the effect that definition of specified services was amended to substitute ‘Place of Removal’ with ‘factory or any other place or premises of production or manufacture of the said goods’. To extend the benefit of above said notification to persons who have filed refund claim earlier as well and to remove the ambiguity in service tax department for refund claim filed earlier, CG has amended it with retrospective effect from the date of parent notification i.e. from 01-07-2012.

Further, time period of one month is proposed to be allowed to the exporters whose claims of refund were earlier rejected in the absence of amendment carried out vide Notification No 01/2016 – ST. Therefore, now time limit of one month will be available from the date of enactment of Finance Act, 2016 to file rebate claims rejected earlier.

4. A major change has been introduced in the interest rates which are applicable for delayed payment of service tax by any person. Revised rates of interest are:

Sl. No.	Situation	Rate of Interest
1.	Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due.	24 per cent
2.	Other than in situation covered under serial number 1 above	15 per cent

5. Introduction of Indirect Tax Dispute Resolution Scheme, 2016 for assesses whose cases are pending before Commissioner (Appeals) on or before 01-03-2016.

6. Moving of Exemption on various services provided by Educational Institution from Negative List to Mega Exemption

7. Service tax applicability on long awaited dispute on right to use the radio - frequency spectrum transfers by government and subsequent transfers thereof. Previously, there was ambiguity whether to treat such right as sale of intangible goods or service.

8. Time limit for issuing notice for recovery of service tax which has not been levied or paid or which has been short levied or short paid or erroneously refunded, for cases not involving fraud, collusion, suppression etc. is being extended by one more year i.e. from eighteen months to thirty months.

9. Monetary limit for filing complaints for punishable offences has been increased from fifty lakh to two Crore.

10. Change in the explanation 2 of the Section 65B(44) to clarify that activity carried out by a lottery distributor or selling agents of the state government under the provisions of Lotteries (Regulation) Act, 1998 is leviable to service tax.

11. Change in Section 67A to provide the power to bring rules in order to determine the point in time of rate of service tax.

12. Explanation in Section 78A has been inserted to clarify that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, and the proceedings with respect to a notice issued under sub-section (1) of section 73 or the proviso to sub-section (1) of section 73 is concluded in accordance with the provisions of clause (i) of the first proviso to section 76 or clause (i) of the second proviso to section 78, as the case may be, the proceedings pending against any person under this section shall also be deemed to have been concluded.

Contributed By: 
Atul Kumar Gupta B Com (Hons) FCA, FCMA, LLB, MIMA, CIQA, PGDEMM
Central Council Member of ICAI (2016-2019)