Abatements and Composision under service tax

12.1 Composition Schemes

¨     In some cases, finding of value of service is not easy e.g. sale or purchase of foreign exchange, air travel agent – in such cases, optional composition schemes provided.

¨     In case of composite contracts, e.g. construction,  finding value of service is difficult. In such cases, optional composition schemes are available.

¨     Each contract is a different contract and can be valued on different basis..

 

12.2 Abatement schemes

¨     Notification No. 26/2012-ST dated 20-6-2012 provides for abatement.

¨     In case of some services, abatement is available i.e. part of tax is exempted – e.g. 40% in case of air travel, 25% in case of GTA service, 40% in case of renting or hire of motor vehicle to carry passengers.

¨     Restrictions on Cenvat Credit

¨     In some cases, abatement scheme is used as composition scheme

12.3 Services Under Composition Schemes

¨     Air Travel Agent – 0.6% (domestic travel) – 1.2% (international booking) of basic fare – Rates specified in Rule 6(7)

¨     Sale and Purchase of Foreign Currency – Rates specified in Rule 6(7B)

¨     Life Insurance Service – Rates specified in rule 6(7A)

¨     Lottery Ticket Promotion – Rates specified in Rule 6(7C)

12.4 Composition Scheme (Continued)

¨     Restaurant service – On 40% amount excluding Vat

¨     Works Contract Service – On 40%/60%/70% value – Rules 2A of Valuation Rules

¨     25% Abatement Scheme if gross amount includes value of land

12.5 Abatements

¨     Mandap, Shamiana or convention along with food – 70% of amount

¨     Chit Related Services – 70% – No Cenvat

¨     Financial leasing and hire purchase – Management fee, processing fees plus 10% of interest

¨     Renting of motor vehicle – 40% – No Cenvat [reverse charge in some cases]

¨     Renting of hotels, guest houses, clubs – 60%

¨     Tour Operator – Package Tour – 25%, mere booking of hotel (including room rent charges) – 10%, Other cases – 40%

¨     Rail Transport  of goods and AC/First class passengers – 10% w.e.f. 1-10-2012 [if not further extended]

¨     GTA – 25% – No Cenvat

¨     Passenger transport by air – 40% – Cenvat of only input services allowable

12.6 Valuation under rule 6

¨     Some abatements and compositions are subject to condition of non-availment of Cenvat

¨     In such cases, if Cenvat credit is taken, valuation for purpose of rule 6 of Cenvat Credit Rules (for payment of 6% ‘amount’ or reversal of Cenvat) as per provisions in those Rules

12.7 Abatement and Exemption Schemes at a glance

 

Taxable Service

Partial abatement / Composition Scheme

Conditions

Relevant Notification/Rule

Accommodation booking service by tour operator 10% of amount charged (Abatement Scheme, though really it is composition scheme) No Cenvat Credit. Invoice should be inclusive of cost of accommodation Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012.
Air Travel Agent Option to pay service tax at flat rate on ‘basic fare’ @ 0.6% in case of domestic booking and 1.2% in case of international booking – plus education cess (Composition Scheme) No restriction on availment of Cenvat credit Rule 6(7) of Service Tax Rules
Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises ( including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises Tax on 70% of amount charged including fair value of goods and services supplied by service receiver (to service provider) under same or different contract

(Composition Scheme)

Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Sr. No. 4 of Notification No. 26/2012-ST dated 20-6-2012
Chit related services Tax on 70% of amount charged (Abatement Scheme) No Cenvat Credit allowed Sr. No. 8 of Notification No. 26/2012-ST dated 20-6-2012.
Financial leasing and hire purchase Tax on lease management fee, processing fee, documentation charges and administrative fee plus 10% of interest No restriction on availment of Cenvat Credit Sr. No. 1 of Notification No. 26/2012-ST dated 20-6-2012
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, if value of land is included in the amount charged from the service receiver Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme) Cenvat credit of input services and capital goods can be taken but not of input goods Sr No. 12 of Notification No. 26/2012-ST dated 20-6-2012
Foreign Currency – sale and purchase At slab rates prescribed under rule 6(7B)on total gross amount of currency exchanged (Optional Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7B) of Service Tax Rules
Foreign Currency – sale and purchase Value is difference between  buying or selling rate and RBI reference rate (Normal Scheme of valuation) No restriction on availment of Cenvat Credit Rule 2B of Service Tax (Determination of Value)  Rules
Life Insurance 3% of net premium (excluding investment or savings part, if such amount is informed to policy holder)  – If not so informed, 3% in first year and 1.5% in subsequent years(Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7A) of Service Tax Rules
Lottery ticket promotion ` 7,000 or ` 11,000 per ` 10 lakhs of tickets printed by State lottery  (Composition Scheme) No restriction on availment of Cenvat Credit Rule 6(7C) of Service Tax Rules
Outdoor caterer Tax on 60% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 50%) Cenvat credit of input services and capital goods is available. Cenvat credit on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of motor vehicle designed to carry passengers Tax payable on 40% of amount charged  (Abatement Scheme) No Cenvat credit available Sr. No. 9 of Notification No. 26/2012-ST dated 20-6-2012
Restaurant service Tax on 40% amount excluding State Vat (Composition Scheme) (Till 1-7-2012, it was 30%) Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on food items (covered under Chapters 1 to 22 of CETA) not available. Cenvat credit of other inputs is available. Rule 2C of Service Tax (Determination of Value) Rules
Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes Tax payable on 60% of amount charged (Abatement Scheme) (Till 1-7-2012, the tax payable was on 50% amount). Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 6 of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Package tours (“package tour” means a tour wherein transportation, accommodation for stay, food, tourist guide, entry to monuments and other similar services in relation to tour are provided by the tour operator as part of the package tour to the person undertaking the tour). Tax is payable on 25% of gross amount charged (Abatement Scheme) No Cenvat credit available.

Bill to be inclusive of all charges for the tour.

Sr. No. 11(i) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – providing services solely of arranging or booking accommodation for any person in relation to a tour (If Bill includes cost of accommodation)

 

Tax is payable on 10% of  amount charged (Abatement Scheme) No Cenvat credit available.

Bill to be inclusive of charges for such accommodation

Sr. No. 11(ii) of Notification No. 26/2012-ST dated 20-6-2012
Tour operator – Other than package tours and other than service of booking accommodation where Bill includes cost of accommodation

 

Tax is payable on 40% of amount charged (Abatement Scheme) No Cenvat credit available.

Bill to be inclusive of all charges for the tour

Sr. No. 11(iii) of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 2 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  by road by Goods Transport Agency (GTA) Tax payable on 25% of amount charged (Abatement Scheme) No Cenvat Credit available (Certificate should be taken from the GTA that he has not availed Cenvat credit, as tax is payable by service receiver under reverse charge – this headache was not there earlier) Sr. No. 7 of Notification No. 26/2012-ST dated 20-6-2012
Transport of goods  in a vessel from one port in India to another Tax payable on 50% of amount charged (Abatement Scheme) No Cenvat Credit available) Sr. No. 10 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers by air Tax payable on 40% of amount charged (Abatement Scheme) Cenvat Credit of input services allowable but no Cenvat credit of inputs and capital goods Sr. No. 5 of Notification No. 26/2012-ST dated 20-6-2012
Transport of passengers  by rail Tax payable on 30% of amount charged (Abatement Scheme) No restriction on availment of Cenvat Credit Sr. No. 3 of Notification No. 26/2012-ST dated 20-6-2012
Works Contract Service Tax on value of service calculated as per rule 2A(i) or Tax on 25%/40%/60% of gross amount charged as specified in rule 2A(ii) (Composition Scheme)

Tax on 25% of amount charged including fair market value of all goods and services supplied by recipient (termed as Abatement Scheme – actually it is composition scheme)

Cenvat credit of input services and capital goods is available. Cenvat credit of excise duty on goods, the property of which is transferred is not available. Cenvat credit of other inputs (like consumables) is available Rule 2A of Service Tax (Determination of Value) Rules