No tax after all - on services received abroad
DDT 131 on 08 06 2005had pointed out that the Government was trying to tax services received by Indians abroad. There is also an exemption to Indian ships getting services in foreign ports. We had questioned the government’s right to tax services in foreign lands. As reported by us recently, the Madras High Court had recently stayed the levy and liability of Indians on services received abroad. The controversial explanation to Clause 105 of Section 65 of the Finance Act, 1994 is proposed to be deleted in this year’s budget. Before the people started celebrating, they were told that almost the same provisions were brought back in Section 66A. And they were indeed. But surprisingly and a pleasant one at that, as action plans to fight this illegal levy in the courts were being drawn, the government has come out with the draft rules the Taxation of Services (Provided from Outside India and received in India) Rules, 2006. These rules make it clear that the government does not propose to tax services received abroad. As the very name suggests they want to tax only services provided by foreigners when the service is received in ndia. On this nobody has a quarrel. It is now well settled that when the service provider is abroad, he has no office in India and the service is provided/received in ndia, the Indian recipient is required to pay the Service Tax. Somewhere down the line, the government got this idea mixed up and wrote the law in legalese English which made the Indian recipient liable to pay Service Tax even for the services received abroad. The Government believed this theory so much that they started exempting certain services received abroad. The newly inserted Section 66A, unfortunately does not make the position any simpler. Thankfully the draft rules released by the Board yesterday clearly mentions that only services received in ndia are taxable. But why should government complicate matters so badly? Can’t they just make a one line provision in the Act that for taxable services provided in India by a foreigner not having an office in ndia, the Indian service recipient will be liable to pay Service Tax and in such cases this service will not be considered as an output service? Why complicated provisions in the Act followed by an entire set of rules to clarify the position? But that is how the laws are made.
The Board deserves all praise for coming out with these rules, before the confusion reaches irreparable levels and the DGs of the world rushing into implement the law. But things can be made simpler by just changing the Section 66A in plain words explaining the position and then there will be no need for these rules at all. Board has invited suggestions on the draft rules which may be sent by 31st March 2006 to tru.finmin@gmail.com. Board may as well take the opinion of the DG, Service Tax. Otherwise he will shoot off a letter later saying that the Board’s rules are wrong!