Customer Care No.

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Rationalization of Service
Tax Abatements and
various relief measures
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I. Rationalization of Abatements w.e.f. 1st April 2016 in

Notification No.26/2012-ST:
1.0 Passenger/Goods Transportation by Rail credit on input
services extended:
Earlier, the notification provided for abatement subject to not
taking cenvat credit on inputs, capital goods and input services.
The restriction regarding availment of credit on input
services has been removed.
Given the fact that such abatement is mainly given to take
care of the goods portion there was no justification to restrict
the credit on input services as the output service suffered tax.
This amendment enables taking of credit on input services
eventhough abatement is availed.

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2.0 Transport of Goods in Containers by Rail credit on input services extended:
Abatement of 70% was available subject to non-availment of credit on inputs, input services and capital
goods.
Now the abatement is restricted to 60% with cenvat credit benefit on input services.
A distinction has been drawn between transport of goods by rail in containers and others, with
differential treatment.
In case of rail transport of goods by containers lesser abatement is available with credit facility on input
services alone.
3.0 Transport of goods by Vessel credit on input services extended:
Earlier the notification provided for abatement of 70% subject to not taking cenvat credit on inputs,
capital goods and input services.
The restriction regarding availment of credit on input services has been removed.
Given the fact that such abatement is mainly given to take care of the goods portion there was no
justification to restrict the credit on input services as the output service suffered tax.
This amendment enables taking of credit on input services eventhough abatement is availed.

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4.0 Abatement rate on residential construction activity single rate:
Abatement is currently provided on the basis of carpet area of the unit and the amount charged.
Two abatement rates of 75% and 70% are presently provided for.
The distinction on the basis of carpet area and amount charged has been removed and
consequently the abatement would be at 70%.
The distinction probably did not yield much result and created administrative hassles and hence
this move.
Irrespective of the carpet area and amount charged a single abatement rate has been prescribed.
5.0 Abatement rate on package tour rationalised:
Abatement is presently on the basis of three different criteria viz., package tour, solely arranging
or booking accommodation and other services of tour operator.
The criteria relating to package tour has been removed and consequently the abatement would be
only for arranging or booking accommodation and other services. The abatement rates would be 90%
and 70% respectively with attendant conditions.
Only two types of abatements are prescribed for tour operator services instead of three.
Tour operator services would now be eligible for two different abatements based on the nature of
service.

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6.0 Abatement on shifting of used household goods by GTA rationalised:

Any services given by GTA in relation to transportation of goods is entitled to 70% abatement.
For transportation of goods other than used household goods the abatement would remain the same. For
services relating to used household goods, the abatement would be 60% and the service provider should
not have availed credit on inputs, input services and capital goods.
More abatement is available for transportation of goods other than used household goods.
Abatement on GTA services would be linked to type of goods transported.
7.0 Abatement rate w.r.t. Foreman of Chit Fund rationalised:
No abatement is currently conferred consequent to amendments by the Finance Act, 2015 in respect of
such services.
The present amendment seeks to give abatement of 30% without cenvat benefit.
Accordingly, the position prior to 2015 is sought to be restored.
Abatement rate is 30% on services of a foreman of chit fund.

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II. Relief Measures:
1.0 Services by Shipping Lines:
Services by way of transportation of goods by a vessel from customs station of clearance in India to a place
outside India is presently exempt. Consequently it is treated as exempted service for the purpose of cenvat credit.
In view of the amendment such service would not be treated as exempt service. Further section 66D(p)(ii) is
sought to be omitted from the negative list so as to make services by a vessel from a place outside India upto the
customs station of clearance in India taxable.
The restrictions on availment of credit would be avoided. Hence the Shipping lines can avail and use input credits.

2.0 Amendment to rule 41/2012-ST retrospective effect:

Notification No.1/2016-ST dated 3.2.2016 recently amended notification no.41/2012 to allow refund of service tax
on services used beyond the factory or any other place or premises of production or manufacture of the said goods
for the export of the said goods.
The said amendment is made retrospective w.e.f. 29.6.2012.
This is mainly to avoid hardship to exporters and to avoid litigation.
Giving retrospective effect to the amendment introduced in the first week of February would surely encourage the
exporters and settle pending disputes.

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3.0 One Person Company (OPC) and HUF treated on par with individuals and firms for tax payments:
Individuals and partnership firms are given special treatment under rule 6 of the ST Rules, who are allowed to
pay tax on quarterly basis upon receipt of service proceeds (upto Rs.50 lacs turnover).
This benefit has been extended to OPCs and HUF.
This is to ensure equal treatment to OPCs and HUF on par with individuals and partnership firms.
Thus tax payments by OPCs and HUFs can be on quarterly basis upon realisation of service proceeds subject to
turnover limits.

4.0 Certain Construction services provided to Government, local authority, governmental authority, ports and
airports exempted:
Exemption in respect of construction services provided to Government, local authority, governmental authority,
ports and airports was abruptly discontinued by the Union Budget 2015-16.
The amendment seeks to restore such exemption in respect of contracts entered into prior to 1.3.2015. Even if
tax payments have been made in the past refund would be available.
Usually such contracts prescribe prices, which include all taxes. The abrupt removal of exemption caused
hardship to service providers as they were not able to pass on the liability to the service recipient.
This exemption for old contracts would ensure that the service providers are not burdened with taxes and the
requirement of re-negotiating the price is avoided. Further the projects would not be burdened with such tax costs.

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5.0 Construction/Maintenance services w.r.t. canal, dam or irrigation works exempted for specific period:
Presently such exemption is available to Government, local authority or a governmental authority.
The exemption is extended for a specific period from 1.7.2012 to 29.1.2014 to such works undertaken
for bodies set up by Government but not necessarily by an Act of Parliament or State Legislature.
This retrospective exemption for specific period would bring down the litigation.
The benefit has been extended to such works for a specific period and even if tax payments have been
refunds would be made available subject to doctrine of unjust enrichment.

6.0 Special exemption to Indian Institute of Management:

Sl.no.9 of mega exemption notification exempts services provided by an educational institutions to its
students, faculty and staff.
Services provided by IIMs in respect of two specific courses are exempted specifically.
This exemption raises doubts about the interpretation of sl.no.9 referred above.
Similar exemption is not made available to other institutions providing similar courses.

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7.0 Services by Mutual Fund Agent/Distributor to a Mutual Fund or Asset Management Company exempt:
Services provided or agreed to be provided by a mutual fund agent of distributor, to a mutual fund or asset management
company suffers tax on reverse charge basis.
Now it would suffer tax on forward charge basis w.e.f.1.4.2016.
To enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs.10
lakhs per year by fulfilling the necessary conditions.
Service providers can now claim small scale exemption as reverse charge mechanism is no longer applicable.

8.0 Rule 6 compliance by banking companies/financial institutions:

Presently, in terms of rule 6(3B) of the Cenvat Rules a banking company and a financial institution including a non-banking
financial company, engaged in providing services by way of extending deposits, loans or advances shall pay for every month an
amount equal to 50% of the Cenvat Credit availed on inputs and input services in that month. This sub-rule is specially applicable
to such companies/institutions and has overriding effect.
In terms of the amended sub-rule proposed w.e.f.1.4.2016, an option is available even to such banking company/financial
institution to follow other methods prescribed in the amended rule.
Instead of thrusting a single method of arriving at the credit reversal in respect of common inputs or services, all the options
are made available and it is for the assessees to choose the one, which suits them.
Thus the assessees, who are banking companies/financial institutions having common inputs or input services, can choose
from the various options placed before them and accordingly comply with the legal requirement.

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