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Abatements and Composision under service tax

December 11th, 2016

12.1 Composition Schemes

¨     In some cases, finding of value of service is not easy e.g. sale or purchase of foreign exchange, air travel agent – in such cases, optional composition schemes provided.

¨     In case of composite contracts, e.g. construction,  finding value of service is difficult. In such cases, optional composition schemes are available.

¨     Each contract is a different contract and can be valued on different basis..

 

12.2 Abatement schemes

¨     Notification No. 26/2012-ST dated 20-6-2012 provides for abatement.

¨     In case of some services, abatement is available i.e. part of tax is exempted – e.g. 40% in case of air travel, 30% in case of GTA service, 40% in case of renting or hire of motor vehicle to carry passengers.

¨     Restrictions on Cenvat Credit

¨     In some cases, abatement scheme is used as composition scheme

12.3 Services Under Composition Schemes

¨     Air Travel Agent – 0.6% (domestic travel) – 1.2% (international booking) of basic fare – Rates specified in Rule 6(7)

¨     Sale and Purchase of Foreign Currency – Rates specified in Rule 6(7B)

¨     Life Insurance Service – Rates specified in rule 6(7A)

¨     Lottery Ticket Promotion – Rates specified in Rule 6(7C)

¨     Restaurant service – On 40% amount excluding Vat

¨     Works Contract Service – On 40%/60%/70% value – Rules 2A of Valuation Rules

¨     25% Abatement Scheme if gross amount includes value of land

12.4 Abatements

¨     Mandap, Shamiana or convention along with food – 70% of amount

¨     Chit Related Services – No abatement – 100% – No Cenvat

¨     Financial leasing and hire purchase – Management fee, processing fees plus 10% of interest

¨     Renting of motor vehicle – 40% – No Cenvat [reverse charge in some cases]

¨     Renting of hotels, guest houses, clubs – 60%

¨     Tour Operator – Package Tour – 25%, mere booking of hotel (including room rent charges) – 10%, Other cases – 40%

¨     Rail Transport  of goods and AC/First class passengers – 30% (payable by railways)

¨     GTA – 30% – No Cenvat

¨     Passenger transport by air – 40% – Cenvat of only input services allowable

12.5 Valuation under rule 6

¨     Some abatements and compositions are subject to condition of non-availment of Cenvat

¨     In such cases, if Cenvat credit is taken, valuation for purpose of rule 6 of Cenvat Credit Rules (for payment of 6% ‘amount’ or reversal of Cenvat) as per provisions in those Rules

12.6 Abatement and Exemption Schemes at a glance

Following is the summary of important abatements and composition schemes w.e.f. 1-7-2012 as amended upto 1-4-2015.

 

Taxable Service Partial abatement / Composition Scheme Conditions Relevant Notification/Rule
Accommodation booking service by tour operator 10% of amount charged (Abatement Scheme, though really it is composition scheme) No Cenvat Credit. Invoice should be inclusive of cost of accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012.
Air Travel Agent Option to pay service tax at flat rate on ‘basic fare’ @ 0.6% in case of domestic booking and 1.2% in case of international booking – plus education cess (Composition Scheme) No restriction on availment of Cenvat credit Rule 6(7) of Service Tax Rules
Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Tax on 70% of amount charged including fair value of goods and services supplied by service receiver (to service provider) under same or different contract (composition scheme) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Sr. No. 4 of Notification No. 26/2012-ST dated 20-6-2012
Chit related services Tax on 100% of amount charged (No abatement ) Cenvat Credit allowed [As per Sr. No. 8 of Notification No. 26/2012-ST dated 20-6-2012, service tax was payable on 70% of value upto 1-4-2015, subject to non-availment of Cenvat credit].
Financial leasing and hire purchase Tax on lease management fee, processing fee, documentation charges and administrative fee plus 10% of interest No restriction on availment of Cenvat Credit Sr. No. 1 of Notification No. 26/2012-ST dated 20-6-2012
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, if value of land is included in the amount charged from the service receiver If construction contract is for residential complex (need not be works contract) includes value of land plus (a) the carpet area of residential unit is less than 2,000 Sq. Ft and (b) the amount charged for residential unit is less than Rs one crore (Abatement scheme under Sr No. 12(i) of Notification No. 26/2012-ST dated 20-6-2012 as amended on 1-3-2013)   [During period 1-3-2013 to 8-5-2013, the word used was ‘or’ in place of ‘and’. Hence, if any one of the criteria i.e. less than 2,000 Sq ft carpet area or less than one crore gets fulfilled, service tax was payable on 25% of value. Now, w.e.f. 8-5-2013, the 25% rate applies when both conditions are fulfilled. For larger flats (carpet area of residential unit 2,000 Sq. Ft or more or the amount charged for residential unit is Rs one crore, service tax on 30% value]

If construction contract (need not be works contract) is for industrial or commercial construction and includes value of land, service tax payable on 30% of value.

(termed as Abatement Scheme – actually it is composition scheme)

Cenvat credit of input services and capital goods can be taken but not of input goods Sr No. 12 of Notification No. 26/2012-ST dated 20-6-2012 as amended w.e.f. 1-3-2013
Foreign Currency – sale and purchase At slab rates prescribed under rule 6(7B) on total gross amount of currency exchanged (Optional Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7B) of Service Tax Rules
Foreign Currency – sale and purchase Value is difference between buying or selling rate and RBI reference rate (Normal Scheme of valuation) No restriction on availment of Cenvat Credit Rule 2B of Service Tax (Determination of Value) Rules
Life Insurance 3% of net premium (excluding investment or savings part, if such amount is informed to policy holder)   – If not so informed, 3% in first year and 1.5% in subsequent years(Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7A) of Service Tax Rules
Lottery ticket promotion At slab rates as specified in rule 6(7C)   (Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7C) of Service Tax Rules
Outdoor caterer Tax on 60% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 50%) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of motor cab [The words were – ‘Renting of any motor vehicle designed to carry passengers’ upto 1-10-2014] Tax payable on 40% of amount charged (Abatement Scheme) Cenvat credit on inputs and capital goods not available. However, w.e.f. 1-10-2014, Cenvat credit on input service of motor cab is available. Cenvat credit of any other input service is not available [Upto 1-10-2014, Cenvat credit was not available at all]. Sr. No. 9 of Notification No. 26/2012-ST dated 20-6-2012 as amended w.e.f. 1-10-2014
Restaurant service Tax on 40% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 30%) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes Tax payable on 60% of amount charged (Abatement Scheme) (Till 1-7-2012, the tax payable was on 50% amount). Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 6 of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Package tours (“package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour).

 

Tax is payable on 25% of gross amount charged (Abatement Scheme) Cenvat credit of input service of tour operator is allowed w.e.f. 1-10-2014 [till 1-10-2014, Cenvat credit was not available at all]

Bill to be inclusive of all charges for the tour.

Sr. No. 11(i) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour (If Bill includes cost of accommodation)

 

Tax is payable on 10% of   amount charged (termed as Abatement Scheme – really it is a composition scheme) Cenvat credit of input service of tour operator is allowed w.e.f. 1-10-2014 [till 1-10-2014, Cenvat credit was not available at all]

Bill to be inclusive of charges for such accommodation

Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Other than package tours and other than service of booking accommodation where Bill includes cost of accommodation

 

Tax is payable on 40% of amount charged (Abatement Scheme) Cenvat credit of input service of tour operator is allowed w.e.f. 1-10-2014 [till 1-10-2014, Cenvat credit was not available at all]

Bill to be inclusive of all charges for the tour

Sr. No. 11(iii) of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods   by rail Tax payable on 30% of amount charged (w.e.f. 1-10-2012) (Abatement Scheme) No Cenvat credit allowable [Till 1-4-2015, there was no restriction on availment of Cenvat Credit] Sr. No. 2 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods   by road by Goods Transport Agency (GTA) Tax payable on 30% of amount charged w.e.f. 1-4-2015 [Till 1-4-2015, service tax was payable on 25% of value] (Abatement Scheme) No Cenvat Credit available to service provider (It has been clarified vide MF(DR) letter dated 10-7-2014 that service receiver is not required to establish that service receiver has not availed Cenvat credit) Sr. No. 7 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods   in a vessel from one port in India to another Tax payable on 30% of amount charged w.e.f. 1-4-2015 (During 1-10-2014 to 1-4-2015, service tax was payable on 40% of value. Till 1-10-2014, service tax was payable on 50% of value) (Abatement Scheme) No Cenvat Credit available Sr. No. 10 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers, with or without accompanied belongings, by (a) a contract carriage other than motor cab (b) a radio taxi [The words ‘radio taxi have been added w.e.f. 1-10-2014] Tax payable on 40% of amount charged No Cenvat Credit available Sr No. 9A of Notification No. 26/2012-St inserted w.e.f.1-10-2014
Transport of passengers by air Tax payable on 40% of amount charged for economy class and on 60% on executive or business class w.e.f. 1-4-2015 [Till 1-4-2015, serviced tax was payable on 40% of value even in respect of business class or executive class] (Abatement Scheme) Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 5 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers   by rail Tax payable on 30% of amount charged (w.e.f. 1-10-2012) (Abatement Scheme) No Cenvat credit allowed [Till 1-4-2015, there was no restriction on availment of Cenvat Credit] Sr. No. 3 of Notification No. 26/2012-ST dated 20-6-2012
Works Contract Service Tax on value of service calculated as per rule 2A(i) or Tax on 40%/70% of gross amount charged as specified in rule 2A(ii) [Till 1-10-2014, in some cases, service tax was payable on 60% of value] (Composition Scheme)

 

Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available Rule 2A of Service Tax (Determination of Value) Rules

 

 

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