Honeymoon of IT Sector with Service Tax is Over

Exchange Rate for imported goods is Rs 74.03 Per Pound Sterling and Rs 51.22 Per Yen-Exchange Rate for export is Rs 72.45 Per Pound Sterling and Rs 49.94 Per Yen-Customs Non-Tariff Notification No.128 Sensex slips further and closes at 8773 100 per cent EOUs allowed to export non-basmati rice-DGFT Notification No.59 Customs duty of 5 per cent imposed on import of Pig Iron, spiegeleisen, semi-finished products, flat products & long products Import of Crude Soyabean Oil subjected to 20 per cent customs duty- no change in import duty on refined soyabean oil-Customs Tariff Notification No.122 Time-limit for filing refund of service tax extended to 6 months-Service Tax Notification No.32 Rahul Bajaj asks Industry to prepare for the worst Tariff Value for import of Brass Scrap is 3525 and for poppy seeds 5206-Customs Non-Tariff Notification No. 127 CBEC clarifies the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise-Central Excise Circular No.877 Mandavariya (Kishangarh), District Ajmer notified for Unloading of imported goods and loading of export goods-Customs Non-Tariff Notification No.117 SC Ruling-the entitlement of benefit in terms of Section 32AB, Section 80HH and Section 80I of the Income Tax Act- conversion of Jumbo rolls of photographic films into small flats and rolls in the desired sizes amounted to manufacture/production-AIT-2008-413-SC SC Ruling-Whether any "gift" arose in terms of Section 2(xii) of the Gift-tax Act, 1958 on the allotment of rights issue by the appellant company to its shareholders vide Board's Resolution- Whether there was any element of "gift" as defined under Section 2(xii) in the appellant issuing Bonus shares in the ratio of 1:23-AIT-2008-412-SC DEPB benefit allowed on export of cement and steel-DGFT PN 108 exports of cement in all types and forms and primary steel products eligible for export incentives under Focus Market Scheme-DGFT Notification No.58 Import of Marble Tiles-DGFT Notification No.57 Clarification on setting up Duty Free Shops approved by FIPB-Customs Circular No.19 HC Ruling-Income Tax-"reserves" arising out of the acquisition of the business of Tata Cellular Limited could never have the character of "income" in the hands of the petitioners-pre-requisite condition contained in proviso to section 147 to enable the re-assessment to be opened after period of 4 years have elapsed have not been met-AIT-2008-410-HC HC Ruling-Central Excise- valuation of the goods for the purpose of excise duty and whether excise duty was chargeable under Section 4 or Section 4A of the Central Excise Act 1944-while construing rule 3, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and the industrial or institutional consumers in terms of the proviso to rule 2(p) for the purpose of chapter-II are the same-If the person who purchase the prepacked commodity not directly from the manufacturer or packers, they are consumers and the declaration will be of no effect-AIT-2008-408-HC Government considering imposition of import duty on steel Bad News for Consulting Engineers- whether turnkey contract can be vivisected?- The conclusion in Daelim case on the point, prima facie, being not in accordance with law, matter goes to Larger Bench-AIT-2008-405-CESTAT Larger Bench of CESTAT rules Credit is admissible on an input service relating to the business-AIT-2008-407-CESTAT credit of the service tax paid on the outdoor catering (canteen) service is admissible as input service under Rule 2(l) of the Cenvat Credit Rules, 2004-AIT-2008-406-CESTAT The payment for use of "services for MTNL/other companies via the interconnect/port/access/toll by the assessee would not fall within the purview of payments as provided for under section 194J of the Act, so as to be eligible for tax deduction at source-The interconnect charges/port access charges cannot be regarded as fees for technical services-AIT-2008-404-HC Computation of Value under Section 14 for Levy of Export Duty - Customs Circular No. 18 Advance Ruling- Whether the service fee paid by the applicant to Intertek Testing Management Limited UK under Global Management Service Agreement is taxable as "Royalties & Fee for Technical Services" as per the provisions of Article 13 of DTAA between India & UK? Whether the applicant is required to deduct tax at source on the service fee paid to Intertek Testing Management Limited, UK, at the rate of 10% plus applicable surcharge and cess as per the provisions of section 115A(1)(b)(BB) of the Income-tax Act-AIT-2008-401-AAR Larger Bench of SC Ruling-whether the revenue can be precluded from filing an appeal even though in respect of some other years involving identical dispute no appeal is filed -AIT-2008-403-SC SC Ruling-whether transfer of Banking Undertaking gave rise to taxable capital gains under Section 45 of the 1961 Act-it was not possible to compute capital gains and, therefore, the said amount of Rs. 10.20 cr. was not taxable under Section 45 of Income Tax Act-AIT-2008-400-SC Export duty of 8 per cent notified in place of earlier rate of Rs. 200 per tonne on export of iron ore fines-Customs Tariff Notification No.121 Pan Masala Packing Machines (Capacity Determination And Collection of Duty) Second Amendment Rules, 2008-Central Excise Non-Tariff Notification No.45 SC rules Ethylene and propylene manufactured by the assessee and used in its factory in the further manufacture of the same goods would be entitled to the benefit of exemption contained in notification no.217/86-AIT-2008-398-SC New DEPB Rates on export of all products notified–DGFT PN 102 service tax paid under Section 66A is available as 'input credit' under Cenvat Credit Rules, 2004 provided the said services are used as input services by the manufacturer or producer of final products or a provider of output taxable service-Service Tax Trade Notice No.43/2008 Anti-dumping duty imposed on import of cable ties from China & Taiwan-Customs Tariff Notification No.118 Definitive Anti-dumping duty imposed on import of Phenol from Singapore, South Africa & European Union-Customs Tariff Notification No.114 High-tech products entitled to benefits under High-Tech Products Export Promotion Scheme –DGFT PN 101

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Honeymoon of IT Sector with Service Tax is Over

By RS Sharma Advocate

IT Industry which is already hit by recession in US is no more immune from service tax.The Finance Bill has proposed withdrawal of exemption hereto being availed by IT Sector under Business Auxiliary Service by amending Section 65 of the Finance Act 1994 and also specifically including information technology software service under service tax net. The only solace to IT firms is that service tax will be effective after passing of the Finance Bill 2008 by both the Houses of Parliament and after rubber stamp of the President.

In addition the excise duty on packaged software has also been hiked to 12 per cent.

Section 65 is being amended to specifically include and define the following services in the list of taxable services,namely:

(i) information technology software service,

(ii) management of investment under Unit Linked Insurance Plan (ULIP) service,

(iii) stock exchange service,

(iv) recognised association or registered association commonly known as commodity exchange service,

(v) processing and clearing house service,

(vi) supply of tangible goods for use service;

(vii) internet telecommunication service.

Taxable service means any service provided or to be provided to any person, by any other person in relation to information technology software for use in the course, or furtherance, of business or commerce, including,—

(i) development of information technology software,

(ii) study, analysis, design and programming of information technology software,

(iii) adaptation, upgradation, enhancement, implementation and other similar services related to information technology software,

(iv) providing advice, consultancy and assistance on matters related to information technology software, including conducting feasibility studies on implementation of a system, specifications for a database design, guidance and assistance during the startup phase of a new system, specifications to secure a database, advice on proprietary information technology software,

(v) acquiring the right to use information technology software for commercial exploitation including right to reproduce, distribute and sell information technology software and right to use software components for the creation of and inclusion in other information technology software products,

(vi) acquiring the right to use information technology software supplied electronically;

The definition and scope of the following taxable services is being amended as a result of on levy of service tax on information technology software service, namely:-

(i) Business auxiliary service [section 65(19)], so as to omit the reference to exclusion of information technology service;

(ii) Consulting engineer service [section 65(105)(g)], so as to omit the exclusion of computer software engineering consultancy and provide that services provided by a consulting engineer in relation to advice, consultancy or technical assistance in the disciplines of both computer hardware engineering and computer software engineering shall also be classifiable under this service;

(iii) Technical testing and analysis service [section 65(106)] so as to specifically include testing or analysis of information technology software;

(iv) Technical inspection and certification service [section 65(108)] so as to specifically include inspection, examination and certification of information technology software;

(i) Banking and other financial services [section 65(12)] so as to levy service tax on purchase or sale of foreign currency, including money changing by an authorized dealer and authorized money changer;

(ii) Foreign exchange broker services provided by individual [section 65(105)(zzk)] so as to levy service tax on purchase or sale of foreign currency, including money changing by an authorized dealer and authorized money changer;

(iii) Business auxiliary service [section 65(19)] so as to clarify as a removal of doubt, that “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organized, conducted or promoted by the client;

(iv) Cargo handling service [section 65(23)] so as to specifically include services of packing together with transportation of cargo or goods, with or without one or more other services like loading, unloading, unpacking;

(v) Tour operator’s service [section 65(115)] so as to include any person engaged in the business of operating tours in a contract carriage and to provide that “tour” does not include a journey organized or arranged for use by an educational body imparting skill or knowledge or lessons on any subject or field, other than a commercial training or coaching centre;

(vi) Renting of immovable property so as to clarify as a removal of doubt, that renting of immovable property service includes allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the immovable property.

Further, the rate of Service Tax on Works Contract service under composition scheme has also been hiked to 4 per cent vide Service Tax Notification No. 7/2008 with effect from 1^st March 2008.

(The Writer is an Advocate & Consultant based in Delhi and is advising several MNCs and Indian Corporates on Service Tax, Central Excise & Customs matters. He can be mailed at rssharma@gmail.com)

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