Key amendment introduced by Finance Act 2012

Key amendment introduced by Finance Act, 2012 in the finance Act, 1994 (amendment in Service Tax). 

Summery of key amendments are as follow:

• Applicable Tax rate:
• Service Tax @ 12%
• EC @ 2%
• SHEC @ 1%

Note: Service Tax rate is being restored at statutory rate of 12% from 10% from this Finance Act.

• Composition Rates--
• For life insurance: 3% for the first year premiums , @1.5% for the subsequent years(restoring full Cenvat credit);
• Money changing: raising the existing rates proportionately by 20%;
• Distributor or selling agent of lotteries: Raising the specified amounts proportionately and suitably rounded off to Rs 7,000 and 11,000;
• For works contracts from 4% to 4.8%.

• The charging section is replaced by new section 66B. Now Every Service is chargeable to service tax @12% except the service specified in the negative list.

• The old definitions containing in section 65 is replaced by the new definition by inserting the new section 65B. 

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Amendments in detail (Area Wise):

a)   In finance Act 1994.

b)   In STR rules

c)   In Point of Taxation Rules.

d)  In Cenvat Rules 2004.

1) In finance Act, 1994

This finance act replaced some old section by the new section. The list of the newly inserted section and deleted section are as under: 7A

Sections introduced by the Finance Act 2012.

Sections Deleted by the Finance Act 2012.

Earlier to the finance Act, 2012 service tax is levied on specified services (i.e. cover under 65(105)) through charging section Section 66 or 66A of finance act, 1994. Charging Section Section 66 covers the three area/matters which deal with the levy of service tax. 

First is rate i.e. Service Tax will be levied @ 12%. 

Second is levy of service tax i.e. levied on the value of taxable service specified in section 65(105). 

Third is collection of service tax i.e. collected in such manner as may be prescribed. 

And section 66A tells about the taxability in case of import of service. Through finance act 2012 this two sections is deleted and a new section 66B is introduced in place of this. Now section 66B is charging section under service tax. This new section also covers all the three area which was covered by the old section i.e. rate, levy, collection.

According to new Section 66B “There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed”

This new section also talks about three matters. 

First is Rate i.e. Service Tax will be levied @ 12%. 

Second is levy i.e. levy on the value of all service provided and agreed to be provided in the taxable territory by one person to another person. 

Third is collection i.e should be collected in prescribed manner.

Note the service specified above should be the other than the service specified in the negative list.

Now the question arise, what do you mean by the Service. Because earlier the definition of service is not given in the service tax act. That way the new definitions are introduced under section 65B in place of section 65 and 65A and sub section 44 of this section define the meaning of the service. As per section 65B(44) ""service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a)      an activity which constitutes merely,––

(i)      a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii)      a transaction in money or actionable claim;

(b)      a provision of service by an employee to the employer in the course of or in relation to his employment;

(c)      fees taken in any Court or tribunal established under any law for the time being in force.

Explanation 1.— For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,––

(A)     the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or

(B)     the duties performed by any person who holds any post in pursuance of the Provisions of the Constitution in that capacity; or

(C)     the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section.

Explanation 2.–– For the purposes of this Chapter,—

(a)      an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons;

(b)      an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons.

Explanation 3.— A person carrying on a business through a branch or agency or

representational office in any territory shall be treated as having an establishment in that territory;"

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