Recent changes service tax and cenvat creit - w.e.f 01.04.2016

K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com
www.vaithilegal.com

 Finance Act 2015 had amended Section 66D(a) of the
Finance Act, 1994 in order to substitute ‘support services’
with ‘service’.
 However the amendment was to take effect from a notified
date and the Government has notified the effective date as
01.04.2016.
 Changes have been made to Service Tax Rules, 1994 as well
as Notification No. 30/2012 w.e.f. 01.04.2016.
 Originally when support services were provided by
Government or local authority to business entities, the
business entities were required to pay service tax under
reverse charge mechanism.

 With effect from 01.04.2016, in respect of services provided
or agreed to be provided by Government or local authority
to business entities, the business entities are required to pay
service tax under reverse charge mechanism.
 The earlier exclusions in respect of renting of immovable
property / postal department for certain services / services in
relation to aircraft or vessel, inside or outside the precincts of
a port or an airport / transport of goods or passengers
continue.
 Scope widened from ‘support service’ to ‘service’.

 Section 65B(26A) was introduced by Finance Act, 2015 w.e.f. 14.04.2015
to define ‘Government’.
 Government means:
Departments of the Central Government;
A State Government and its Department;
 A UnionTerritory and its Departments;
 But shall not include any entity whether created by a Statute or
otherwise, the accounts of which are not required to be kept in
accordance with Article 150 of the Constitution and the Rules made
thereunder.
 Article 150 of the Constitution of India provides that the accounts of the
Union and of the States shall be kept in such form as the President may on
the advice of the CAG prescribe.
 Government Accounting Rules, 1990, framed for Government
Departments under Article 150.

 Section 65B(31) defines ‘LocalAuthority’ to mean:
(a) a Panchayat referred to in Article 243(d) of the Constitution;
(b) a Municipality referred to in Article 243P(e) of the Constitution;
(c) a Municipal Committee and a District Board legally entitled to or
entrusted by the Government with, the control or management of a
municipal or local fund;
(d) a Cantonment Board as defined in Section 3 of the Cantonments Act,
2006
(e) a regional council or a district council constituted under the Sixth
Schedule to the Constitution;
(f) a development board constituted under Article 371 of the
Constitution; or
(g) a regional council constituted under Article 371A of the Constitution;

 Section 65B(17) defines “Business entity” to
mean any person ordinarily carrying out any
activity relating to industry, commerce or any
other business or profession.

 Am I a Business Entity?
 Have I made payment to a Government or
local authority which is not by way of rent or
for services referred to Section 66D(i),(ii) or
(iii)?
 Is the payment for services provided by the
Government or local authority?
 Is any exemption applicable for the said
service?

 Services by Government, Local Authority or Governmental
Authority by way of any activity in relation to any function
entrusted to a municipality under Article 243W.
(Amendment to Entry 39).
 Article 243W refers to State by law endowing municipalities
with powers and authority in respect of preparation of plans
for economic development and social justice and
implementation of schemes entrusted to them including
those in relation to matters listed in the twelfth schedule.

1. Urban planning including town planning.
2. Regulation of land-use and construction of buildings.
3. Planning for economic and social development.
4. Roads and bridges.
5. Water supply for domestic, industrial and commercial
purposes.
6. Public health, sanitation conservancy and solid waste
management.
7. Fire services.
8. Urban forestry, protection of the environment and promotion of
ecological aspects.
9. Safeguarding the interests of weaker sections of society,
including the handicapped and mentally retarded.

11.Urban poverty alleviation.
12. Provision of urban amenities and facilities such as parks,
gardens, playgrounds.
13. Promotion of cultural, educational and aesthetic aspects.
14. Burials and burial grounds; cremations, cremation grounds;
and electric crematoriums.
15. Cattle pounds; prevention of cruelty to animals.
16.Vital statistics including registration of births and deaths.
17. Public amenities including street lighting, parking lots, bus
stops and public conveniences.
18. Regulation of slaughter houses and tanneries.

 Services provided by Government or a local
authority to another Government or Local
Authority is exempt from service tax,
however, this is not applicable to services
specified in Section 66D(a)(i),(ii) and (iii) –
(Insertion of Entry 54)
 Services provided by Government or Local
Authority by way of issuance of Passport,
Visa, Driving License, Birth Certificate or
Death Certificate. (Insertion of Entry 55).

 Services provided by Government or Local Authority
where the gross amount charged for such services does
not exceed Rs.5000/-. However, this is not applicable to
services specified in Section 66D(a)(i),(ii) and (iii).
 In case there is a continuous supply of service by the
Government or Local Authority, the section shall apply only
where the gross amount charged for such service does not
exceed Rs.5,000/- in a FinancialYear – (Insertion of Entry 56).
 Services provided by Government or Local Authority by way
of tolerating non-performance of a contract for which
consideration in the form of fines or liquidated damages is
payable to the Government or the Local Authority under
such contract. - (Insertion of Entry 57).

 Services provided by the Government or Local Authority by
way of:
(a) registration required under any law for the time being
in force;
(b)testing, calibration, safety check or certification
relating to protection or safety of workers, consumers
or public at large required under any law for the time
being in force. - (Insertion of Entry 58)
 Services provided by Government or Local Authority by way
of assignment of rights to use natural resources to an
individual farmer for the purposes of agriculture. –
(Insertion of Entry 59)

 Services by Government, Local Authority or Governmental
Authority by way of any activity in relation to any function
entrusted to a Panchayat under Article 243G of the
Constitution – (Insertion of Entry 60)
 Article 243G refers to State by law endowing Panchayat with
powers and authority in respect of preparation of plans for
economic development and social justice and
implementation of schemes entrusted to them including
those in relation to matters listed in the eleventh schedule.

1. Agriculture including agricultural extension;
2. Land improvement, implementation of land reforms, land
consolidation and soil conservation;
3. Minor irrigation, water management and watershed
development.
4. Animal husbandry, dairying and poultry.
5. Fisheries.
6. Social forestry and farm forestry.
7. Minor forest produce.
8. Small scale industries, including food processing industries.
9. Khadi, village and cottage industries.
10. Rural housing.
11. Drinking water

12. Fuel and fodder.
13.Roads, culverts, bridges, ferries, waterways and other
means of communication.
14. Rural electrification, including distribution of electricity.
15.Non-conventional energy sources.
16.Poverty alleviation programme.
17. Education, including primary and secondary schools.
18.Technical training and vocational education.
19.Adult and non-formal education.
20. Libraries.
21.Cultural activities.
22.Markets and fairs.

23. Health and sanitation, including hospitals, primary health
centres and dispensaries.
24. Family welfare.
25.Women and child development.
26. Social welfare, including welfare of the handicapped and
mentally retarded.
27. Welfare of the weaker sections, and in particular, of the
Scheduled Castes and the ScheduledTribes.
28. Public distribution system.
29. Maintenance of community assets.

 Services provided by Government or a Local
Authority by way of assignment of rights to
use any natural resource where such right to
use was assigned by the Government or the
Local Authority before the 1st of April 2016;
However the exemption shall apply only to
service tax payable on one time charge
payable, in full upfront or in installments, for
assignment or right to use such natural
resource. - (Insertion of Entry 61)

 Services provided by Government or a Local Authority by
way of allowing a business entity to operate as a telecom
service provider or use radio frequency spectrum during
the financial year 2015-16 on payment of licence fee or
spectrum user charges, as the case may be; - (Insertion of
Entry 62)
 Services provided by Government by way of deputing
officers after office hours or on holidays for inspection or
container stuffing or such other duties in relation to import
export cargo on payment of Merchant Overtime Charges
(MOT); - (Insertion of Entry 63)

 Taxes, Cesses or Duties levied are not consideration
for any particular service as such and hence not
leviable to service tax. These taxes, cesses or duties
include excise duty, customs duty, service tax, State
VAT, CST, Income Tax, Wealth Tax, Stamp Duty, Taxes
on profession/ trade/ callings/ employment, octroi,
EntertainmentTax, LuxuryTax and PropertyTax.
 Fines and penalty chargeable by Government or a
Local Authority imposed for violation of a statute, bye
laws or regulations are not liable to service tax.

 Any activity undertaken by the Government or local authority against a
consideration constitutes a service and the amount charged for performing
such activities is liable to service tax. It is immaterial whether such activities
are undertaken as a statutory or mandatory requirement under the law and
irrespective of whether the amount charged for such service is laid down in
a statute or not. As long as the payment is made (or fee charged) for getting
a service in return (i.e. as a quid pro quo for the service received), it has to be
regarded as a consideration for that service and taxable irrespective of by
what name such payment is called. It is also clarified that service tax is
leviable on any payment in lieu of any permission or license granted by the
Government or local authority. However registration, testing etc. has been
exempted.
 Allocation or auction of natural resources to categories of persons other
than individual farmers would be leviable to service tax.

 Rule 6 of the Service Tax Valuation Rules 2006 provides for
items which will be included or excluded in value and Rule
6(2) deals with exclusions.
 Clause (iv) covers interest on delayed payment of any
consideration for the provision of services or the sale of
property whether movable or immovable.
 Notification No.23/2016 dated 13.04.2016 has inserted a
proviso to this clause to provide that this clause shall not
apply to any service provided by Government or Local
Authority to a business entity where payment for such
service is allowed to be deferred on payment of interest or
any other consideration.

 Rule 7
 Notification No.24/2016 dated 13.04.2016 has inserted a
fourth proviso as per which in case of services provided by
the Government or Local Authority to any business entity,
the point of taxation shall be the earlier of the dates on which
 (a) any payment part or full, in respect of such
service becomes due as specified in the invoice, bill, challan
or any other document issued by the Government or Local
Authority demanding such payment or
▪ (b) payment for such services is made.

 Services provided by a Senior Advocate
 Originally in respect of all legal services, reverse charge mechanism was
applicable when the services are provided to business entities.
 Service Tax Rules amended whereby in respect of service provided or
agreed to be provided by a firm of advocates or an individual advocate
other than a Senior Advocate by way of legal services, the business
entity shall be liable to pay service tax.
 Legal services of a senior advocate to a person other than a person
ordinarily carrying out any activity relating to industry, commerce or any
other business or profession is exempted.
 Non-senior advocates / firms – services to law firms or advocate or any
person other than a business entity or business entity upto Rs.10 lakhs
turnover continues to be exempt.
 Amendments stayed by various courts.

 Services of a person represented on an Arbitral Tribunal to an Arbitral
Tribunal taxable.
 Earlier exemption through Notification No.25/2012 withdrawn from
01.04.2016.
 Section 2(d) of the Arbitration and Conciliation Act, 1996 defines ‘Arbitral
Tribunal’ to mean a sole arbitrator or a panel of arbitrators.
 Concept of service
 Under the new Section 11(14), High Court is to frame Rules for
determination of fees of the ArbitralTribunal.
 SoleArbitrator ?
 On whom should the person represented on the arbitral tribunal charge
service tax?

 Transportation of passengers
with or without accompanied
belongings by ropeway, cable
car or aerial tramway is taxable.
 Gulmarg Gondola, Manali
Ropeway, Raigad Ropeway,
Glenmorgan Ropeway, Srisailam
Ropeway, etc.

 Pre 01.07.2012 in respect of services provided by agent or distributors to MF or
AMC, service tax was payable by MF or AMC.
 Post 01.07.2012, services of agent or distributor to MF or AMC was exempted.
 Exemption withdrawn from 01.04.2015 and MF or AMC made liable under reverse
charge mechanism.
 Services by mutual fund agents / distributors to MF or AMC taxable from
01.04.2016.
 Commission accrues as on 31.03.2016 and is paid only after 01.04.2016.
 The Point of Taxation Rules amended vide Notification No.21/2016 dated
30.03.2016 by way of insertion of a third proviso to Rule 7 which reads as under:
 ‘Provided also that where there is change in the liability or extent of liability of a
person required to pay tax as recipient of service notified under sub-section (2) of
Section 68 of the Act, in case service has been provided and the invoice issued before
the date of such change, but payment has not been made as on such date, the point
of taxation shall be the date of issuance of invoice.’

 Services of assessing bodies empanelled centrally by the Directorate
General of Training, Ministry of Skill Development by way of
assessments under skill development initiative schemes.
 Services provided by project implementation agencies under Deen Dayal
Upadhyaa Grameen Koushalya Yojana under Ministry of Rural
Development by way of offering skill or vocational training courses
certified by NationalCouncil forVocationalTraining.

 Service tax exemption in respect of service in relation to IT software
leviable to service tax under Section 66B read with Section 66E where
such IT software is recorded on a media which requires affixation of RSP
under Legal Metrology Act subject to conditions.
 Excise exemption in respect of media with recorded IT software on
which there is no requirement to affix RSP under the Legal Metrology
Act subject to conditions.
 Services provided by an artist by way of a performance in folk or classical
art forms of (i) music, or (ii) dance or (iii) theatre if the consideration
charged for such performance is not more than one lakh and fifty
thousand rupees is exempted from service tax. Limit increased from one
lakh to one lakh and fifty thousand.

 Services provided by Employees” Provident Fund Organisation (EPFO) to
persons governed under the Employees” Provident Funds and Miscellaneous
Provisions Act, 1952 is exempted.
 Services provided by Insurance Regulatory and Development Authority of
India (IRDA) to insurers under the Insurance Regulatory and Development
Authority of India Act, 1999 is exempted.
 Services provided by Securities and Exchange Board of India (SEBI) set up
under the Securities and Exchange Board of India Act, 1992 by way of protecting
the interests of investors in securities and to promote the development of, and to
regulate, the securities market is exempted.
 Services provided by National Centre for Cold Chain Development under Ministry
of Agriculture, Cooperation and Farmer’s Welfare by way of cold chain knowledge
dissemination is exempted.
 Services of life insurance business provided by way of annuity under the National
Pension System regulated by Pension Fund Regulatory and Development
Authority of India (PFRDA) under the Pension Fund Regulatory And Development
Authority Act, 2013 is exempted.

 Definition of capital goods now covers parts of wagon falling under sub-
heading 8606 92.
 Equipments or appliance used in an office in the factory is covered.
 Usage outside the factory for pumping of water for captive use is permitted.
 No cenvat credit shall be allowed on capital goods used exclusively in the
manufacture of exempted goods or in providing exempted services for a
period of two years from the date of commencement of the commercial
production or provision of services, as the case may be, other than the final
products or output services which are exempt from the whole of the duty of
excise leviable thereon under any notification where exemption is granted
based upon the value or quantity of clearances made or services provided in
a financial year provided that where capital goods are received after the date
of commencement of commercial production or provision of services, as the
case may be, the period of two years shall be computed from the date of
installation of such capital goods.

 Exempt service shall not include a service.
 which is exported in terms of Rule 6A
 by way of transportation of goods by a vessel from
customs station of clearance in India to a place outside
India.
 Effective from 01.03.2016.

 Goods used for pumping of water are covered.
 All capital goods which have value upto
Rs.10,000/- per piece shall be treated as input.
 The definition of inputs excludes capital good
except when the value of capital goods is upto
Rs.10,000/- per piece.

 ISD amended to mean an office of a manufacturer of final
products or service provider which receives invoices and
issues invoice for the purpose of distributing credit to such
manufacturer or service provider or outsourced
manufacturing unit.
 Effective 01.03.2016
 Far reaching amendment.
 Section 4A
 Rule 10A of theValuation Rules.
 Rule 7 of the Cenvat Credit Rules.

 Input service tax credit attributable to a particular
unit shall be distributed only to that unit.
 Service tax credit attributable to more than one unit
but not to all the units shall be distributed only
amongst such units to which the input service is
attributable and the distribution shall be on a pro
rata basis of the turnover of such units during the
relevant period to the total turnover of all such units
to which such input service is attributable.

 Input service credit attributable to all units shall be
distributed to all the units on a pro rata basis on the basis of
turnover of such units to the total turnover of all the units.
 Outsourced manufacturing unit (OMU) shall maintain
separate accounts for input service credit received from each
of the ISD and shall use it only for payment of duty on goods
manufactured for the ISD concerned.
 Credit of input service available to an ISD as on 31.03.2016
shall not be transferred to an OMU and credit shall be
distributed amongst other units excluding OMU.
 Rule 6 shall apply to units manufacturing goods and
providing services and shall not apply to the ISD.

 NCCD can be used only for payment of
NCCD.
 Cenvat credit shall not be used for payment
of infrastructure cess.
 Amendments effective from 01.03.2016.

 Cenvat credit shall be allowed to a manufacturer in respect of jigs /
fixtures / moulds / dies / tools sent to another manufacturer for
production or to a job worker for production on behalf as per
specifications.
 Credit can be availed even if these items are sent by the manufacturer of
final products to the premises of another manufacturer or job worker
without bringing to his own premises.
 Deferred credit in respect of service tax paid on assignment of right to
use any natural resource based on a formula.
 If the manufacturer further assigns in any financial year, balance cenvat
credit not exceeding service tax payable shall be allowed.
 Credit of user charges on assignment of rights to use natural resources
shall be allowed in the same financial year.

 Rule 6(1) has been amended with effective from 01.04.2016.
 A service provider who provides non exempted services as well as
exempted services / a manufacturer who manufactures non-exempted
goods removed and exempted goods removed shall follow any one of
the following options:
 Pay 7% of the value of the exempted services and 6% of the value of the
exempted goods subject to a maximum of the sum total of opening balance of
credit of input and input services available at the beginning of the period to
which the payment relates and the credit of input and input services taken
during that period or
 Pay an amount as determined under Rule 6(3A).

 Rule 2(e) defines ‘exempted service’ to mean
 A taxable service which is exempt from the whole of service tax leviable
thereon;
 Service on which no service tax is leviable under Section 66B of the Finance
Act, 1994;
 Taxable service whose part of value is exempted on the condition that no
credit of inputs and input services used for providing such taxable service
shall be taken but
 But shall not include a service –
 Which is export in terms of Rule 6A of the ServiceTax Rules, 1994, or
 By way of transportation of goods by a vessel from a Customs Station of
Clearance in India to a place outside India.
 Exempted service shall include an activity which is not a service as defined in
Section 65B(44).
 Value of such activity shall be the invoice / agreement value or value
determined by using reasonable means.

 Exempted goods means excisable goods which are
exempt from the whole of the duty of excise leviable
thereon and includes goods which are chargeable to
nil rate of duty and goods in respect of which the
benefit of exemption under Notification No.1/2011
or under Serial Nos.67 and 128 of Notification
No.12/2012 is availed.

 A manufacturer or a service provider has to exercise the
option of payment or the method under Rule 6(3A) for all the
exempted services provided by him / exempted goods
manufactured by him and the option shall not be withdrawn
during the remaining part of the financial year.

 Total credit of inputs and input services taken during the month.
Denoted as ‘T’.
 Credit attributable to inputs and input services used exclusively in or in
relation to manufacture of exempted goods removed or provision of
exempted services called as ‘ineligible credit’ to be paid. – Denoted as
‘A’.
 Credit attributable to inputs and input services used exclusively in or in
relation to manufacture of non-exempted goods removed or provision of
non-exempted services called as ‘eligible credit’ need not be paid. –
Denoted as ‘B’.
 Credit left after attribution as above, would be called as ‘common credit’.
– Denoted as ‘C’.
 C =T – (A+B)
 Common credit attributable towards exempted goods and exempted
services shall be called as ineligible common credit and paid.

 Ineligible common credit – Denoted as ‘D’
 D = C x E/F
 E =Value of exempted services provided and value of
exempted goods removed during the preceding financial year.
 F is the sum total of
 Value of non-exempted services provided,
 Value of exempted services provided,
 Value of non-exempted goods removed, and
 Value of exempted goods removed, during the preceding financial year.
 In case no final products were manufactured or no output
service was provided during the preceding financial year, the
cenvat credit attributable to ineligible common credit shall
be deemed to be 50% of the common credit.

 Remainder of common credit shall be called as eligible common credit and
denoted as ‘G’.
 G = C – D
 Out of the total credit T which is a sum total of A, B, D and G, the manufacturer
/ service provider shall be able to attribute provisionally and retain credit of B
and G namely, eligible credit and eligible common credit and shall provisionally
pay the amount of credit of A and D namely ineligible credit and ineligible
common credit.
 These reversals are done every month provisionally based on the preceding
year data.
 Similar calculations are carried out based on actual data at the end of the year.
 If there is a shortage in reversal, the differential amount should be paid by the
30th June of the succeeding financial year.
 If there is an excess reversal, the excess amount reversed can be taken back as
credit.
 Intimation to Superintendent

 Where a manufacturer or service provider has failed to exercise the
option under Rule 6(3) and follow the procedure provided under Rule
6(3A), the central excise officer competent to adjudicate a case based on
the amount involved may allow the manufacturer or service provider to
follow the procedure and pay the amount referred to in Rule 6(3)(ii)
calculated for each of the months mutatis mutandis in terms of Rule
6(3A)(c) with interest calculated at the rate of 15% per annum from the
due date for payment of amount for each of the month till the date of
payment thereof.

 An assessee who has opted to pay an amount under clause
(ii) or (iii) of Rule 6(3) in the financial year 2015-16, shall pay
the amount along with interest or take credit for the said
financial year in terms of clauses (c) to (i) of Rule 6(3A) as
they prevail on the date of publication of this notification and
for the purpose of these provisions, shall be deemed to be in
existence till 30.06.2016.

 Manufacturer can take credit on inputs received under the
cover of an invoice issued by the warehouse of the said
manufacturer who receives inputs under the cover of
invoices on purchase of such inputs. Provisions applicable to
FSD, SSD shall apply to such warehouses.
 Annual return to be filed by manufacturer or service
providers 30th November of the succeeding year
 FIFO omitted.

K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com
www.vaithilegal.com

Recent changes service tax and cenvat creit - w.e.f 01.04.2016

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