Service Tax – Date vs Rate
FOR the first time in the fifteen year old history of Service Tax in India, the Tax rate was reduced w.e.f 24.02.2009. On 25th, we carried an article by the Chennai Duo, Jai Kumar and Natarajan - Service Tax: 12 to 10. How to be done? wherein the authors took a view that the rate of Service Tax is the rate prevailing on the date of realisation. All our distinguished contributors vehemently disagreed and opined that the rate is the rate prevailing on the date of rendering service.
All the contributors have referred to the Tribunal judgement in Reliance Industries Ltd., vs CCE wherein the Tribunal held that in absence of specific provision, the rate of tax applicable to the service tax shall be the rate prevailing on the date of rendering the services.
But as rightly noted by the Tribunal, there is absence of specific provision.
Why so?
In Customs, there is Section 15, for Date for determination of rate of duty and tariff valuation of imported goods.
Similarly in Central Excise, there is Rule 5 - Date for determination of duty and tariff valuation.
But unfortunately, in Service Tax, there is no such provision. And in the absence of a specific provision, the Tribunal has held that it is the date of rendering the service. This is a LAW created by the Tribunal.
What is the Date of Rendering Service ? In Service Tax, it is really difficult to ascertain this date, at least in some services. Is Rendering the starting point or ending point – remember the classic concept that service tax is a consumption based service! Take our own case. When somebody subscribes to TIOL, he pays us in advance sometimes for two or three years and we pay the Service tax in the month after the month of receipt of payment. We mail him a password on receipt of payment and sometimes even without receiving the payment. Now on sending the password, have we rendered service? The subscriber may not use it at all. Have we rendered the service when we got the payment, when we gave the subscriber a password or when he started using our service?
Rejection of Service vs Return of duty paid goods: In Central Excise, when duty paid goods are returned, there is a system of taking credit of the duty paid, but what happens when services are rejected? Suppose our subscriber has not used our service and asks for a refund of the subscription fee paid and we refuse, are we liable to pay Service Tax? And what happens if our fee is inclusive of Service Tax? Have we collected any amount as representing service tax?
So the Date of rendering Service is a mythical date – difficult to ascertain. In Customs, the duty is on import and in Central Excise, it is on manufacture, but still, the rate is the one prevailing on the date of filing Bill Of Entry and the date of clearance respectively, even though the dates of import and manufacture can be easily ascertained. Then in Service Tax, can the unascertainable date of rendering service be the valid date for determining the rate of tax? The only clear available date is the date of payment and it seems to be the most logical date that can be accepted. The date of rendering the service, like paternity, is only an opinion, while the date of receipt of payment, like maternity, is a fact and perhaps we should follow a fact rather than an opinion.
It is time the Board should come up with a clarification immediately, not that Board can clarify in the absence of a specific provision and that Board clarification is going to be accepted but at least for the sake of uniformity, Board should issue a clarification and later amend the law in tune with Section 15 of the Customs Act and Rule 5 of the Central Excise Rules.
We are happy that the issue has provoked so much debate and we hope the Board will react sooner than later! A Netizen asked us, will Jai Kumar and Natarajan have the same opinion, if the service Tax rate was increased? Perhaps then they would have advocated the Tribunal decision in Reliance.