SERVICE TAX – CHALLENGES BEFORE THE NEW MEMBER

By Vijay Kumar

Service Tax has been a jinxed Tax right from the beginning. The levy which started with three services in 1994 has now expanded into more than 70 services with more services added every year. Over the years, because of piece meal addition of new services to the existing services, without a comprehensive study while going in for new services vis a vis the existing services, there exists confusion in the minds of the taxpayers. Take for example:-

Cargo Handling service: This service was brought under tax net from 16.8.2002. But, as the crucial word “cargo” has not been defined, there is wide spread confusion among the trade and the officers as to what constitutes “cargo”. Going by the “well known examples of cargo handling” given by the Board in its letter B 11/1/2002 TRU dated 1.8.2002 , like cargo handling by the Container Corporation of India, Air Ports Authority of India, Inland Container Depot, Container Freight Stations, one can interpret the word “ cargo” as the goods meant for loading in a ship or aircraft. But the circular goes on - that “goods meant to be transported by any means of transportation namely, truck, rail, ship or aircraft”. This has provided enough scope for (mis)interpretation of the word “cargo” and the levy is extended to all the goods carried in a truck or rail. If an agency is loading, transporting and unloading the “goods”, the field formations are ready with demands for service tax under cargo handling service. But is it the real intention of the statute to levy tax on all goods handled? If that be so, why the words “loading, unloading, packing and unpacking of CARGO was used in the definition? It could have been the “loading, unloading, packing and unpacking of GOODS! And why the well known examples used in Board’s Circular deals with only export/import cargo? In spite of the widespread confusion, no clarification is given and even the material handling within the premises of a factory is considered as “cargo handling” by most of the filed formations.

Further, para 6 of the Board Circular dated 1.8.2002 explains that all goods meant for export are excluded from this levy. Fine! But para 5 goes on clarifying that “ Cargo handling services are provided in ports also. Since port services covers all the services in relation to goods and vessels, therefore more specific to port, the service provided in a port in relation to handling of goods would be appropriately classified under port service.

You guessed it right. Cargo handling for export goods is exempted, but the cargo handling done in port for export of goods is not exempted, as it is classified under port service! (There is no exemption for port service rendered for export of goods). If you are a cargo handling agency, providing cargo handling service for export of goods, you can claim exemption only up to the port. Only the brilliant lawmakers can clarify how the goods can be exported without brining into the port! Interestingly, para 6 of the above circular states that if the goods are packed at Agra, for transportation to Bhopal where it is transshipped and ultimately reaches Mumbai, from where it is exported, no service tax would be leviable on cargo handling at Agra. So as the goods travel across the length and breadth of the country, the service is exempted, but once they reach their port of loading, it attracts levy as port service.

Another issue is, port service came into tax net much before the cargo handling service. (Port service from 16.7.2001 and cargo handling from 16.8.2002). So, for the period between 16.7.2001 and 16.8.2002, whether cargo handling service done in port can be classified as port service, when cargo handling was not a taxable service?

DDT hopes that the new member who is known for his dynamism would set the things right and issue clarification on the above issues before the demands hit the tax payers.

Excise Duty may be abolished

“The government is likely to abolish excise duty in the next year’s budget with a view to effectively enforcing the sales tax regime. With the government directive of keeping customs duties, income tax and sales tax as the main sources of revenue, excise duty needed to be abolished.” Radical changes are taking place in Taxation in Pakistan as reported today by the famous Pakistani Newspaper, Dawn would show. Dawn was founded by Mohammed Ali Jinnah.

Hum Hai Naa

This is how the Finance Minister Chidambaram assured Parliament. “We will address the problem, if there is any”, he told the Rajya Sabha regarding the Withdrawal Tax and the Fringe Benefit Tax. Regarding withdrawal tax, he said, "The objective is not to raise revenue but establish tax trial. I am confident we will succeed. If we fail, we will reconsider." The FM said that the Finance Bill was a reasonable package “and we have given concessions, we have given exemptions. We have made adjustments wherever there was valid criticism.”