Service Tax on Service of Service Tax collection?
YOU open a restaurant, serve food, charge your customers and at the end of the day, have your meal in your own restaurant and pay the bill to the restaurant owner! Funny? Please read this.
Prior to negative list regime, Notification No dated 10.09.2004 exempted the taxable service provided by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, to the Government of India or the Government of a State in relation to collection of any duties or taxes levied by the Government of India or the Government of a State from the whole of the service tax leviable thereon under section 66 of the said Act.
Vide Notification No dated 20.06.2012, 81 Notifications have been rescinded and Notification is one among them. Collection of taxes by any Bank or financial institution is neither under negative list nor exempted under Mega Exemption Notification. So, with effect from 1st July, the commission received by any Bank or Financial institution from Government of India or from any State government for the services they render in collection of taxes and duties is liable for payment of service tax. May be the change was intentional, with an eye on the revenue earned by the Banks in collecting various taxes and duties, but it has resulted in a funny situation of Government ending up paying service tax on the services received for collection of service tax! And when the Government was ready to forgo service tax on construction undertaken for Government, it could have as well continued the exemption for collecting taxes.