Service Tax @10% from 24.02.2009 – Costly reduction in tax
Many assessees are cursing the government for its magnanimity in reducing the Service Tax from 12% to 10%, especially on the assumption that the reduced rates are applicable for the services rendered from 24.02.2009, as the opinion that receipt of payment and not rendering of service is the relevant date, has no great fan following.
Assessees are running helter-skelter for some sane clarification, which neither Consultant nor Service Tax officer is able to provide.
Take this case.
An assessee, who is a corporate giant, has rented out several premises. He collects rent in advance every month. So he had already collected the rent for February 2009 and he was to pay the tax to the Government yesterday. In the meantime he had sent invoices to his tenants, for the rent for the month of March 2009 by charging Service tax of 10%.
Now some of the tenants have returned the invoices asking him to adjust the excess Service Tax paid for the period from 24.02.2009 to 28.02.2009, from the Service Tax payable for March 2009. Some tenants have asked for a refund. And some tenants perhaps unaware of the change have not asked anything.
Now his problem is – rather his problems are
1. Can he adjust the invoice for the next month – will the Department agree if he pays less tax next month?
2. Should he refund the tax to the tenants and claim refund from the Department? Can he pay back the money by a credit note?
3. Can he pay back to some tenants who have demanded it and ignore the others? What will happen if the others demand it later?
4. What should he do for tenants who have demanded that the invoices for February should be revised? Can he do it?
5. His computer does not understand all these complications and his employees have no clue as to how to adjust accounts and prepare the returns.
6. Should he first refund the excess tax to the tenants and then claim refund from the Department? Or can he pay the tax at the reduced rate to the government and then make refunds to the tenants. Will he be breaking any law? He is scared that whatever he does, he is sure to get a Show Cause Notice.
7. Why can't he quietly pay the old 12% rate and forget it? Tenants are not going to keep quiet.
8. For the next couple of years, he is planning to hire a couple of assistants to calculate the difference, correspond with the Department and clients and in tallying his accounts.
“Who asked the Government for a reduction and if at all for getting some votes, they had to do it, why couldn't they reduce it from 1st of March instead of 24 th February?” he asks in exasperation. He is sure that he will not vote Congress because they reduced the tax and made his life miserable.
There is another assessee who is into maintenance contracts and he finds that cleaning toilets and greasing the wheels of elevators are far superior and comfortable jobs than complying with Service Tax Law.
This man has collected his service charges in advance on a monthly, quarterly, half-yearly and annual basis.
Now some of his clients are asking him to rewrite the invoices showing Service Tax @ 10% from 24.2.2009.
He has another complication – suppose he has not attended to any repair or maintenance work between 24.2.2009 and 28.2.2009, but has collected charges for the whole month. When was the rendering of service if that is the crucial date for paying tax?
If somebody had paid the higher tax, will the recipient get the CENVAT Credit? Department can always say that the excess payment was not tax and just an amount, notwithstanding some feeble judgements. But the Tribunal is the first stage of justice.
Are we in for a good crop of litigation?
The Board will eventually issue a clarification, but perhaps after the damage is done.
We request, pray, beg the Board to urgently issue a clarification that for the aberrations after 24.02.2009, there will be no cases. You can't reduce tax and cause misery! It defies logic.