MARCH 26, 2012
Post Budget Scrips
By CAKR Ramankutty, FCA
Professionals like CAs, CWAs CS affected-Receipts based tax payment only upto Rs 50 Lakhs
Sub Rule (c ) of Rule 7 of the POT Rules, has been substituted by Notification 4/2012 dated 17.03.2012 effective 1.04.2012. The substituted rule excludes sub rule (c) which provided for an exception for the specified category of persons including CAs, CWAs, Company Secretaries, Architects etc from payment of service tax on invoice based amount of value of service. These specified category of the persons were permitted to pay service tax based the receipts of the amount billed. The reason for such a special treatment was due to the cash system of accounting followed by professionals as against the mercantile system of accounting followed by business/Industry. However determination of tax based on the receipts is continued in a slightly different method by amending the Service Tax Rules 1994 vide notification 3/2012 dated 17.03.2012. According to the newly added proviso individuals and partnership firms have the option of paying service tax based on the payment receipts where the amount of receipts do not exceed Rs fifty lakhs. The method of accounting employed by the professionals being cash basis the present amendment is to definitely affect CAs, CWAs etc where the receipts is more than 50 Laks.
Waiver of Penalty on Renting of Immovable Property- proposed amendment to include sub-section (4A) of section 73 also.
Sub clause (L) of clause 143 of the Finance Bill Chapter V, proposes to amend section 80 with a view to waive penalty if service tax and interest as on 6 th march 2012 are paid within a period of six months from the date on which the Finance Bill 2012 receives the assent of the President. The new section which starts with non obstante clause refers to section 76, 77 or section 78 only and does not refer to penalty leviable under section sub section 4A of section 73 where penalty is leviable if the non payment of tax is detected during the course of Audit /investigation etc. There are cases where the service providers opted to make payment of service tax on the service of renting of immovable property after the retrospective amendment was upheld by decisions of High Courts and the Dept. Audit for the period started after the retrospective amendment by Finance Act 2010/or High Court decisions. Letters/notices are being issued invoking penalty under 73 (4A) after the payment of service tax in arrear with interest during or after the audit. Therefore the proposed amendment by introduction of Section 80A has to include penalty under 73(4A) and also the amount of service tax and interest paid prior to the introduction of Finance Bill 2012-13. This will relieve honest taxpayers of the burden of penalty under 73(4A).
No abatement provided for Construction of a complex, building, civil structure or part thereof …etc
The services are falling under the proposed "Declared Services". It appears that no abatement is provided from value of taxable services. If there is no abatement provided whether the category would include only construction contracts were there is no material supply within the scope of contract? This has to be clarified by Board. With regard to works contract TRU circular has clarified that works contract does not include labour contracts. The exemption upto 12 residential units is no more available after the passing of the Finance Bill; residential complex is defined as any complex comprising of building or buildings having more than one single residential unit. The exemption for "personal use" is also not available after the Finance Bill is passed.
Services provided to Government or Local authorities
Proposed Mega exemption Notification (Circular Exhibit-A2) serial number 12 exempts certain construction related services rendered to Government or Local authorities. The specified services rendered to Government or Local authorities only are exempt. In many of the States in India the drinking water supply is not provided by Government or Local authorities, it is provided by statutory body like Gujarat Water Supply And Sewerage Board, Hyderabad Metropolitan Water Supply &Sewerage Board, Karnataka Urban Water Supply and Drainage Board, Bangalore Water Supply and Sewage Board, Punjab Water Supply and Sewerage Board etc. Presently Show Cause Notices are issued for construction of pipelines, water tank etc for the Statuory bodies as stated above and the service provider has to litigate the matter to get the relief. [Nagarjuna construction Co Ltd V Commr. CE.Hyderabad - (2010-TIOL-789-CESTAT-BANG) Larsen & Tubro Ltd V Commr. Service Tax Ahmedabad - (2011-TIOL-218-CESTAT-AHM), Lanco Infotech - 2009-TIOL-2139-CESTAT-BANG - etc]. Therefore the exemption should include Statutory bodies providing drinking supply to the general public.
Residential building for personal use or 'Gambling or betting' which has to find place in Negative list?.
Usually exemption notifications are issued by the Government "in the public interest so to do". The services in the negative list whether selected in the public interest ? One fails to understand what is the public interest behind the decision for not taxing "Gambling or betting" and the decision to withdraw the exemption for residential building for personal use. !!!
(The author is Cochin-based CA practicing Indirect Taxes)