The Budget was expected to be of a different kind compared to the previous Budgets due to the political, social and economic upheaval the country has been through in the previous year. The highlight of this Budget is the introduction of ‘Negative List of Services' which would bring about a paradigm shift in the manner in which provision and consumption of services would be taxed going forward. Any activity qualifying the characteristics of ‘service' or the ‘ declared services' would be taxable unless found in the negative list. The negative list comprises 17 services which broadly includes, subject to exceptions and conditions:

services provided by the Government or local authorities, Reserve Bank and foreign diplomatic missions;

services relating to agriculture;

trading in goods;

manufacture;

renting of residential dwellings, entertainment and amusement services;

specified public transportation.

The declared services contain renting of immovable property, temporary transfer of intellectual property, service portion in a works contract, information technology software services etc. among others.

The negative list approach would come into effect from the date which would be notified in due course of time and consequently the provisions pertaining to the positive list approach would cease to exist from such notified date.

EXEMPTED SERVICES

The Budget has also proposed a list of exempted services in addition to the negative list of services. The exemption list, subject to exceptions and conditions, primarily includes services such as (i) health care, (ii) services provided by charities, religious persons, sportspersons etc. (iii) specific services provided to Government or local authorities, (iv) individual advocates providing services to non-business entities, independent journalists, (iv) construction services relating to specified infrastructure, canals, irrigation works, residential dwelling etc.

The additional list of exemption provides relief from service tax to services that are essentially intended towards the larger benefit of the society.

Further, the Budget has proposed to introduce the ‘Place of Provision of Services Rules, 2012' which would identify the taxing jurisdiction of a service and will replace the existing export and import of service rules.

Place of provision of service rule is critical to determine the taxable jurisdiction on import and export of services and potentially provides guidance on taxability of inter-State exchange of services under GST.

The draft rules have been released for comments and feedback, from the stakeholders, for the time being.

EASY REFUND

Refund of service tax has always been a subject matter of concern given the cumbersome procedure and voluminous documentation involved in the process.

To mitigate the hardship, the Budget has replaced the existing refund provision with a much simplified provision that intends to allow the benefit of refund based on a simple formulary approach.

If implemented in its true spirit, eligible CENVAT credit would simply be entitled for refund in the ratio of the export turnover to total turnover.

Further, the Budget also contains amendment to the Point of Taxable Rules, 2012 to bring in greater clarity on the subject, harmonisation of service tax and central excise by bringing about a common platform for registration and filing of returns, increase in rate of service tax and excise duty from the existing 10 per cent to 12 per cent, and specific changes to rates of duties of customs and excise across different industry sectors.

However, it is also evident from the proposals in the Budget that the Government has aimed at sweeping reforms on indirect taxation and has taken a wide variety of measures such as broadening of the tax base, mitigating tax cascading, simplifying tax refund procedures, harmonisation of compliances, and so on, to rationalise the existing indirect tax statues and prepare the ground for introduction of GST in the longer-term.

If the changes are effectively implemented and all irritants are removed, the dream of achieving the GST regime could soon be a reality which would, no doubt, be the biggest blockbuster reform in the history of indirect taxation.

(The author is Tax Partner, Ernst & Young.)

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