Exempt Sethusamundram Project from service tax
It’s a 145 year dream coming true. Prime Minister Dr Manmohan Singh on Saturday inaugurated work on the Rs 2,428 crore Sethusamudram Ship Channel Project. The project will create a navigable sea route between the Gulf of Mannar and the Bay of Bengal. It will save precious fuel and reduce the sailing time for ships. It will also have a strategic importance for defence and security.
The vessels from east to west coast and vice versa have to sail around Srilanka, as there is a submerged reef called “Adam’s Bridge” near Rameswaram. The Sethusamudram project involves dredging of a Ship Channel in the shallow portion of the sea to connect the Gulf of Mannar and the Bay of Bengal.
But why all this in DDT?
Vide Finance Act 2005, nine new services have been brought under service tax and they are notified to be effective from 16.6.2005. One of the new services is “dredging service of rivers, ports, harbours ,backwaters and estuaries”. As per Section 65 of the Finance Act 1994, Dredging includes “ removal of material including , silt, sediments, rocks, sand, refuge, debris, plant or animal matter in any excavating, cleaning, deepening, widening or lengthening, either permanently or temporarily, of any river, port, harbour, backwater or estuary ”.
Sethusamudram project is nothing but dredging the shallow portion of the sea, to form a ship canal, appears to well suit the definition of the new dredging service. Whoever undertakes this mega project, be it Shipping Corporation of India or Dredging Corporation of India, it has to cough up huge amount of tax in the form of Service Tax to the Government which will further add to the cost of the much awaited project. Perhaps there can not be any better case to consider “the public interest” and issue an exemption notification to the Sethusamudram project from payment of Service Tax, given the fact that it has importance in nation’s defence and security angles.
Interestingly, the Government has already exempted construction services, site formation and clearing, excavation when performed in relation to the port. Therefore it would be prudent on the part of the Government to exempt the Sethusamudram Project from Service tax. DDT learns that already Central Excise officers deep south have been activated to keep an eye on the project to ensure that huge amounts of Service Tax do not escape – into the Sethusamudram. As the amount of Service Tax which may be demanded is going to be huge, may be they should post a Commissioner in charge of Service Tax for the project.