ANALYSIS OF SERVICE TAX RATE INCREASE FROM 12.36% TO 14% (SUBSUMING EC AND SHEC) EFFECTIVE FROM 01.06.2015

The Hon’ble President has given assent to the Finance Bill, 2015 on May 14, 2015. Post that the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 has notified an increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015.

Service Tax Rate

Earlier 12.36%

New 14.00% (all inclusive)

In respect of certain services like money changing service, service provided by air travel agent, insurance service and service provided by lottery distributor and selling agent the service provider has been allowed to pay service tax at an alternative rate subject to the conditions as prescribed under rule 6 (7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules, 1994. Consequent to the upward revision in Service Tax rate, the said alternative rates shall also be revised proportionately. The new rates are summarized in the table below:

Service	Old Rate	New Rate
Air Travel Agent
Domestic booking	0.6 per cent	0.7 per cent
International booking	1.2 per cent	1.4 per cent
Life insurance
First year premium	3 per cent	3.5 per cent
Subsequent year premium	1.5 per cent	1.75 per cent
Money changing service
Amount of currency exchanged	0.12 per cent subject to	0.14 per cent subject to
upto INR 0.1 million	minimum of INR 30	minimum of INR 35
Amount of currency exchanged
exceeding INR 0.1 million and	INR 120 and 0.06 per cent	INR 140 and 0.07 per
upto INR1 million		cent
Amount of currency exchanged	INR 660 and 0.012 per cent	INR 770 and 0.014 per
exceeding INR1 million	subject to maximum of INR	cent subject to
	6,000	maximum of INR 7,000
Lottery
Where guaranteed prize payout is	INR 7,000	INR 8,200
more than 80 per cent
Where guaranteed prize payout is	INR 11,000	INR 12,800
less than 80 per cent

ANALYSIS OF POINT OF TAXATION WHEN THERE IS CHANGE IN EFFECTIVE RATE OF TAX

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

Invoice

has

Payment

Point

of

taxation

Applicable Rate

taxable  service

been issued

received

for

shall be

has

been

the invoice

provided

1.

BEFORE

the

AFTER

the

AFTER

the

Date of issuance of

New Rate

change

in

change

in

change

in

invoice

or

Date

of

effective

rate

effective

rate

effective

rate

receipt

of

of tax

of tax

of tax

payment,

whichever

is

earlier

2.

BEFORE

the

AFTER

the

Date of issuance of

Old Rate

change

in

change

in

invoice

effective

rate

effective

rate

of tax

of tax

3.

AFTER

the

BEFORE

the

Date of

receipt

of

Old Rate

change

in

change

in

payment

effective

rate

effective

rate

of tax

of tax

4.

AFTER

the

BEFORE

the

AFTER

the

Date of

receipt

of

New Rate

change

in

change

in

change

in

payment

effective

rate

effective

rate

effective

rate

of tax

of tax

of tax

5.

BEFORE

the

BEFORE

the

Date of issuance of

Old Rate

change

in

change

in

invoice

or

Date

of

effective

rate

effective

rate

receipt

of

of tax

of tax

payment,

whichever

is

earlier

6.

AFTER

the

BEFORE

the

Date of issuance of

New Rate

change

in

change

in

invoice

effective

rate

effective

rate

of tax

of tax

SWACHH BHARAT CESS

Swachh Bharat Cess is not notified till date, it will be notified separately at a later date.

Only an enabling provision is being incorporated in the Finance Bill, 2015 to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% on the value of such taxable services. The cess shall be levied from the date to be notified after the enactment of the Finance Bill 2015.

Hence, an illustrative clarification to this effect is much warranted from the Board before the new rate of Service becoming effective from June 1, 2015.

BALANCE OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS AS ON 01-06-2015

The question arises what will happen to the balance lying in ‘Education Cess’ and ‘Secondary and Higher Education Cess’ as on June 1, 2015. Will it be allowed to be adjusted with Service tax liability as this is being denied in terms of Rule 3(7)(b) of the Cenvat Credit Rules, 2004 (“the Credit Rules”).

The same issue arose in Excise when the rate of duty was changed from 12.36% to 12.50% subsuming the Education Cess and Secondary and Higher Education cess on 01-03-2015. Recently, the CBEC has issued a Notification No. 12/2015-Central Excise (N.T.) dated 30-04-2015 in this regard in case of Central Excise.

It is thus expected CBEC should come with a clarificatory circular on the above mentioned issue in case of Service Tax also.