Insurance Regulatory and Development Authority: Avoidable expenditure on service tax: Failure to recover service tax from clients and subsequent payment thereof from own funds resulted in avoidable expenditure of Rs. 22.58 crore.
Insurance Regulatory and Development Authority (IRDA), Hyderabad has been rendering services to the Public/ Private Insurance companies, agents, brokers etc. by collecting charges/ fees. As per the provisions of the Finance Bill 2012, service tax is to be levied on all services except those specified under Section 66D (Negative List and exempted services). The services provided by IRDA were not included in the negative list. Hence, IRDA was required, with effect from 1 July 2012, to collect service tax on the charges/ fees collected for the services provided by it.
IRDA, instead of collecting the tax, requested (April 2012) the Ministry to get the services rendered by it included in the Negative List. IRDA did not, however, collect the service tax as per the provisions of the Act pending decision from the Ministry.
Ministry stated (July 2013) that it was a conscious decision of Government to keep exemptions at the minimum and as such the services of IRDA are liable to service tax.
Subsequently, IRDA sought opinion from a tax consultant, who confirmed (December 2013) the service tax liability and assessed the same for the period from 1 July 2012 to 2 December 2013 at Rs. 17.09 crore.
IRDA decided (December 2013) to collect service tax payable from 1 January 2014 from service receivers. It however, paid the service tax of Rs.22.58 crore for the period 01.07.2012 to 31.12.2013.
Audit observed (February 2014) that
- IRDA did not consider it prudent to recover service tax from its service receivers pending Ministry's reply which was received after 15 months.
- Even after receipt of Ministry's reply in July 2013, IRDA did not initiate action to recover service tax from its clients and instead it decided to pay the tax from its own funds.
IRDA stated (September 2014) that
- As there was no clarity on the subject, it sought the opinion of Ministry and the clarification was received in July 2013.
- Opinion sought from tax consultant was for calculation of service tax and not regarding its applicability.
- It felt that it was cumbersome to collect the service tax from agents (20 lakh), brokers (300), etc. and hence a conscious decision was taken to bear the service tax liability.
CAG observed:
- Services provided by IRDA were covered neither in the negative list nor by any specific exemption notification and were therefore liable to service tax.
- Tax consultant in his opinion also confirmed that services provided by IRDA were neither covered under negative list nor Mega Exemption List, therefore attracted service tax.
- IRDA could have attempted to collect service tax from its service recipients at the time of renewal of licenses as the services provided by IRDA were clearly taxable and its decision to bear the burden without initiating steps to recover the same was flawed.
- Therefore IRDA's decision firstly to not collect service tax and subsequently to bear the tax liability resulted in an avoidable expenditure of Rs.22.58 crore.
Export Inspection Council of India: Avoidable expenditure due to non-collection of service tax: Indecision of the Export Inspection Council of India in timely directing the Export Inspection Agencies for collection of service tax on inspection and certification services from the exporters of notified commodities resulted in a loss of Rs 9.98 crore.
Export Inspection Council of India (EIC) was set up on 1st January 1964 by Government of India (GoI) under section 3 of The Export (Quality Control and Inspection) Act, 1963 to ensure sound development of export trade of India through quality control and inspection and for matters connected therewith. EIC is assisted in its functions by the Export Inspection Agencies (EIAs), set up under section 7 of the act and located at Chennai, Delhi, Kochi, Kolkata and Mumbai. The mandate of EIC is to advise the Central Government regarding measures for the enforcement of quality control and inspection in relation to commodities intended for export. Work of inspection, testing and certification is carried out by EIAs, for which they charge such fees as may be prescribed by the Government. EIC exercises supervision and administrative control over the employees, accounts and records of the EIAs.
The services of inspection and certification being provided by the EIAs came within the ambit of service tax with effect from 01 July 2003. Resultantly, the service tax authorities had been raising demand of service tax and penal interest thereon from EIAs and their sub-offices. However, the Ministry of Commerce & Industry (administrative Ministry of EIC) vide its letter (November 2004) addressed to Chairman, Central Board of Excise and Customs (CBEC), sought exemption from applicability of service tax for EIC/EIAs on the plea that inspection and certification service being offered by the EIAs to exporters of notified commodities were statutory in nature. It was further argued that these services were being provided by Agencies at the notified rates/fees, which could not be modified by them and thus the Agencies were not liable to collect and pay service tax as their statutory obligations could not be construed as taxable services. In response, Chairman, CBEC clarified (March 2006) that the service tax was being levied, depending on the nature of the service provided and not on the basis of the status of the service provider and hence the Council and its field formations could not be exempted from levy of service tax. In view of the clarification of the CBEC, the Ministry of Commerce & Industry directed (April 2007) the EIC to find ways for collection of service tax. EIC, accordingly, decided in its 101st meeting (December 2007) to start collection of service tax from users of services of EIC/EIAs with effect from 01 October 2007. The EIC, however, started collection of service tax from exporters with effect from 01 December 2013. EIC also paid (September 2014) an amount of Rs.9.98 crore, on behalf of EIAs, towards service tax for the period from 01 December 2012 to 30 November 2013, though the amount of service tax for the period was not collected from the exporters.
Audit observed that in-spite of the clarification given by Chairman, CBEC, directions given by the administrative ministry and the decision taken by EIC in its 101st meeting, the EIC kept on postponing its liability towards service tax for almost 10 years. Thus, in absence of any directions from EIC, the EIAs did not collect service tax from the exporters.