This document summarizes changes to service tax and CENVAT credit rules in India effective April 1, 2016. Key changes include: 1) Business entities now pay service tax under reverse charge for all services from government/local authorities, not just support services. 2) Senior advocates are now directly liable for service tax on legal services, instead of clients paying under reverse charge. 3) Various exemptions and tax rates were added or amended for certain services. 4) CENVAT credit rules were amended to expand eligible capital goods and input definitions and improve credit distribution processes.

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Tax Quest
An e-newsletter from
K. VAITHEESWARAN & CO.
Advocates & Tax Consultants
Chennai, India.
April 2016
Issue No.4
CONTENTS
CHANGES IN SERVICE TAX AND
CENVAT CREDIT EFFECTIVE
01.04.2016

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SERVICE TAX – CHANGES W.E.F. 01.04.2016
1. Service provided by Government or Local Authority
1.1 Finance Act 2015 had amended Section 66D(a) of the Finance Act, 1994 in order to
substitute ‘support services’ with ‘any service’. However the amendment was to take
effect from a notified date and the Government has notified the effective date as
01.04.2016.
1.2 Changes have been made to Service Tax Rules, 1994 as well as Notification No. 30/2012
w.e.f. 01.04.2016 and the effects of these amendments are given below:
 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. This requirement was not applicable in respect of renting of
immovable property and services specified in Section 66D(a)(i); 66D(a)(ii); and
66D(a)(iii).
 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 continue.
 Section 65B(26A) defines ‘Government’ to mean the Departments of the Central
Government; a State Government and its Department; and a Union Territory 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.
 Section 65B(31) defines ‘Local Authority’ 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 Muncipal 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;
1.3 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.

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The amendment is significant and business entities would now have to identify and examine
payments that are made to Government or Local Authority and then determine whether such
payments are for services provided by the Government / Local Authority or otherwise. To
illustrate, tax paid to the Government is on account of a statutory levy and not for services
rendered. There are monies collected by the Government for exercise of sovereign functions.
The amendments are likely to result in multiple interpretations and have a huge potential for
litigation. Further, since the payment has to be made under reverse charge mechanism, cenvat
credit cannot be utilized to make these payments.
2. Senior Advocates
2.1 Originally in respect of legal services provided by an individual advocate or a firm of
advocates to a business entity, service tax was payable by the business entity under reverse
charge mechanism.
2.2 Notification No.25/2012 provided for an exemption in respect of legal services by an
individual advocate or a firm of advocates to an advocate or partnership firm of advocates
providing legal services / any person other than a business entity / a business entity with a
turnover upto Rs.10 lakhs in the preceding financial year.
2.3 Notification No.25/2012; Notification No.30/2012 and the Service Tax Rules have been
amended whereby in respect of Senior Advocates providing legal services, RCM is no
longer applicable and the Senior Advocates are themselves liable.
2.4 The Point of Taxation Rules has been amended by Notification No.21/2016 dated
30.03.2016 whereby a proviso has been inserted to Rule 7. This is to provide that if there
is a change in the liability or extent of liability under reverse charge mechanism, in case
service has been provided and the invoice issued before the date of change, but the
payment is not made as on such date, the point of taxation shall be the date of issuance of
invoice.
2.5 In respect of legal services provided by an individual advocate or firm of advocates to
business entities, reverse charge mechanism continues as before and the exemptions under
Notification No.25/2012 are also applicable.
The amending Notifications have been challenged and the Gujarat, Delhi and Kolkatta High
Courts have granted stay.
3. IT Software
3.1 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.
3.2 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.

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4. Other Changes
4.1 Services of a person represented on an Arbitral Tribunal to an Arbitral Tribunal taxable.
4.2 Transportation of passengers with or without accompanied belongings by ropeway, cable
car or aerial tramway is taxable.
4.3 Services by mutual fund agents / distributors to Mutual Funds or Asset Management
Companies taxable from 01.04.2016. Prior to 01.04.2016, Mutual Funds or AMCs were
liable under reverse charge mechanism. The amendment to Rule 7 of the POT Rules
would also have relevance.
4.4 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 exempted.
4.5 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 National Council for Vocational Training
exempted.
4.6 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 Rs. 1,50,000 is exempted from service tax. Limit increased from Rs.
1,00,000 to Rs. 1,50,000.
4.7 Services provided by Employees” Provident Fund Organisation (EPFO) to persons
governed under the Employees” Provident Funds and Miscellaneous Provisions Act,
1952 is exempted.
4.8 Services provided by Insurance Regulatory and Development Authority of India
(IRDA) to insurers under the Insurance Regulatory and Development Authority of India
Act, 1999 are exempted.
4.9 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.
4.10 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.
4.11 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.

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4.12 Services provided by Nirmaya Health Insurance Scheme implemented by a Trust
constituted under the provisions of National Trust for the welfare of persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 are exempted.
4.13 Changes made to Notification No. 32/2012 to cover Bio-incubators in addition to
Technology Business Incubator.
4.14 Service Tax Rules amended in order to provide for quarterly payment extended to One
Person Company (OPC) / Hindu Undivided Family (HUF). Facility of service tax
payments on receipt basis subject to conditions which was available to individuals /
partnership firms, extended to OPC.
4.15 Optional scheme for payment of service tax in the context of life insurance business
expanded to provide for 1.4% of single premium charged from policy holder in case of
single premium annuity policies.
4.16 Every assessee is required to submit an annual return for the financial year to which the
return relates in the form and manner specified by the 30th
day of November of the
succeeding financial year. The Government may exempt assesses or classes of assesses
from this requirement. This return can be revised within a period of one month from the
date of submission. If this return is filed after the due date, an amount calculated at the
rate of Rs. 100 per day for the period of delay subject to a maximum of Rs. 20,000 is
payable. This would be in addition to the half yearly returns.
5. Abatement
5.1 Notification No.26/2012 has been amended by Notification No.8/2016 and the table
below sets out the changes:-
Entry No. in the
Abatement
Notification
Service Old Abatement New Abatement
2. Transport of goods by
rail (other than services
mentioned under Sl.No.
2A)
70% - cenvat credit of
inputs, capital goods and
input services not
available
70% - cenvat credit on
input services available.
Inputs and capital goods
credit not available
2A (Inserted) Transport of goods in
containers by rail by
any person other than
Indian Railway
70% - cenvat credit of
inputs, capital goods and
input services not
available
60% - cenvat credit on
input services available.
Inputs and capital goods
credit not available
3. Transport of passengers
with or without
accompanied belongings
by rail
70% - cenvat credit of
inputs, capital goods and
input services not
available
70% - cenvat credit on
input services available.
Inputs and capital goods
credit not available.

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7. Services of goods
transport agency in
relation to transportation
of goods other than used
house hold goods
70% - cenvat credit on
inputs, capital goods and
input services not taken by
the service provider
No change
7A (Inserted) Services of goods
transport agency in
relation to transportation
of used household
goods.
70% - cenvat credit on
inputs, capital goods and
input services not taken by
the service provider
60% - cenvat credit on
inputs, capital goods and
input services has not
been taken by the service
provider
8. (Inserted) Services provided by a
foreman of chit fund in
relation to chit
---- 30% - cenvat credit on
inputs, capital goods and
input services is not
available
10 Transport of goods in a
vessel
70% - cenvat credit on
inputs, capital goods and
input services is not
available
70% - cenvat credit on
inputs, capital goods is not
available. Cenvat credit
on input services is
available
11 Tour operator Multiple categories with
different percentages.
90% - arranging or
booking accommodation.
70% - others.
Conditions remain the
same.
12 Construction of a
complex, building, civil
structure or a part
thereof, intended for a
sale to a buyer, wholly
or partly except where
entire consideration is
received after issuance
of completion certificate
by the competent
authority.
75% and 70% depending
upon the category.
70%. Conditions remain
the same.
5.2 In the context of rent-a-cab service, an Explanation has been added to provide that the
amount charged shall be the sum total of the amount charged for the service including the
fair market value of all goods (including fuel) and services supplied by the recipients in
or in relation to the service whether or not supplied under the same contract or any other
contract provided that the fair market value of goods and services so supplied may be
determined in accordance with the generally accepted accounting principles.

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CENVAT CREDIT – CHANGES W.E.F. 01.04.2016
1. Capital Goods
 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.
2. Inputs
 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 goods except when the value of capital
goods is upto Rs.10,000/- per piece or when used as parts or components in the
manufacture of final products.
3. Rule 2(m) which defines ‘input service distributor’ is expanded to cover an outsourced
manufacturing unit. An office of a manufacturer which receives invoices issued under
Rule 4A of Service Tax Rules towards purchase of input services can now distribute the
credit to an outsourced manufacturing unit. The document so issued for distribution
would be the cenvatable document in the hands of the outsourced manufacturing unit.
4. Rule 4(5)(b) amended to cover even tools falling under Chapter 82 and the proviso now
provides that credit shall also be allowed where the jigs, fixtures, moulds, dyes and tools
falling under Chapter 82 are sent by the manufacturer of final products to another
manufacturer or job worker without bringing them to his own premises.
5. The validity of the order under Rule 4(6) allowing direct clearance of final products from
job worker’s premises increased to three financial years from one financial year.
6. Changes made to Rule 3(7) to provide for cenvat credit of service tax paid on the charges
paid or payable for the service provided by way of assignment by the Government or any
other person of the right to use any natural resource. Amendment covers various
scenarios.
7. Rule 6 of the Cenvat Credit Rules have been amended in order to provide a much better
system of cenvat credit management in the context of a manufacturer manufacturing and
removing non-exempted goods and exempted goods and a service provider providing
non-exempted services and exempted services. The amendment is comprehensive and
provides for a different set of formula. The overall intention behind the amendment is to
identify ineligible credit, eligible credit and common credit.
8. Banking Companies and Financial Institutions including NBFC engaged in providing
services by way of extending deposits, loans and advances in addition to the options
available shall have the option to pay for every month an amount equal to 50% of the
credit availed on inputs and input services in that month.

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9. Changes have been made in the manner of distribution of cenvat credit by an input
service distributor under Rule 7 and the scope also includes distribution to outsourced
manufacturing unit.
10. New Rule 7A allows a manufacturer having one or more factories to take credit on inputs
received under the cover of an invoice by a warehouse of the said manufacturer who
receives inputs under invoices issued in terms of the provisions of the Central Excise
Rules, 2002.
11. Rule 9(1)(a)(i) amended to cover a service provider.
12. Rule 9A provides for an annual return to be filed by a manufacturer of final products or
provider of output service for each financial year by the 30th
day of November of the
succeeding year.
13. Rule 14(2) which provided for a method which was known as ‘first in first out method’ in
the context of credit has been deleted.
14. A significant amendment is the introduction of an Explanation to Rule 6(1) whereby an
Explanation now provides that exempted services as defined in Rule 2(e) shall include an
activity which is not a ‘service’ as defined in Section 65B(44) of the Finance Act, 1994.
This amendment has far reaching implications since an activity which is not even a
service is sought to be treated as an exempted service which would result in lesser cenvat
credit. To illustrate, if there is a sale of immovable property which is not considered as a
service and there are other transactions which attract service tax Rule 6 comes into play.
Disclaimer: - Tax Quest is only for the purpose of information and does not constitute or purport to be an advise or
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