By
the Finance Act, 2012, the Central Government has changed the taxation of
services, whereas the earlier, the such tax was levied by adopting “selective
approach” and only specified services were taxed, whereas now, the Government
has adopted the “comprehensive approach” to tax services, under which all
services would be taxable unless any of the services is specifically
excluded/exempted. In new tax regime,
the compliance has gone up mainly due to the new modified scheme of service tax
on reverse charge basis, where the service receiver is made liable to pay
service tax instead of service provider. There are also certain categories of
services which are subject to partial reverse charge mechanism where both
service provider and service recipients are required to pay their share of tax.
In new tax regime, term ‘service’ has been defined for the
first time. As per new definition of service, it means, any activity carried
out by a person for another for consideration and includes declared services.
The intent was to tax every activity and thereby widen the tax base. The
definition has two parts. The first part of definition covers almost every
economic activity. The second part of definition extends the definition of
service to some transactions that may not otherwise be commonly fall within the
definition of service. The logic behind introduction of concept of ‘Declared
Service’ is to reduce possibility of confusion about existence of service
element in these transactions. In relation to information technology software,
licensing of intellectual property rights and transfer of goods by way of
hiring, licensing or leasing, there are cases where transactions suffers double
taxation which have been addressed by lawmakers in new tax regime. Transfer of
goods by way of hiring, leasing or licensing is a declared service. However,
the definition excludes transactions where transfer of right to use such goods
takes place. A transfer of right to use is taxable event that creates liability
to VAT and no service tax means there is no double taxation. However the above
approach has not been followed in case of information technology software and
intellectual property rights.
Additionally, the new tax regime has brought concepts like
taxable and non- taxable territory, place of provision of service rules, mega
exemption notification and re- defined abatements. The PoPs rules are much
simpler and precise in its application, which would definitely help to reduce
litigation in cross border transactions. However terms such as ‘used at’ or
‘provided from’ are carried forward in new rules which could result in some
disputes.
The
new tax regime is more than a year old. The objective of new scheme is to widen
tax base, make the law more clear and transparent and is seen as step towards
GST.
