Since Board is not consistent, pay service tax of Rs 46.80 crores - C&AG tells Prasar Bharti Corporation
The Audit report says - test check of records of service tax division-X, in Delhi I Commissionerate of service tax, revealed that Prasar Bharti Corporation, registered with service tax department in August 2003 collected broadcasting service charges of Rs.936.05 crore in respect of Doordarshan commercial service and All India Radio commercial broadcasting service from 16 July 2001 to 31 March 2003 from clients. Service tax of Rs.46.80 crore due on these service charges was, however, not paid. Department too did not initiate any proceedings to recover the same. On this being pointed out the Ministry stated that as per Board’s letter dated 27 March 2003, Prasar Bharti (Doordarshan and All India Radio) was not liable to pay service tax prior to 1 April 2003. Reply of the Ministry is not tenable as Board in its earlier circular dated 9 July 2001 had clarified that, under provisions of section 22 of Prasar Bharti Act, 1990, the Corporation, was exempted from only direct taxes since they were not borne by it from its own income, but not indirect taxes. Board in its subsequent circular dated 27 March 2003 rendered Corporation not liable to pay service tax and yet again modified its decisions through subsequent circular of 14 July 2003 making Prasar Bharti liable to pay service tax from 1 April 2003. Since specific notification under section 93 (1) or (2) of Finance Act, 1994 as amended, was not issued granting exemption to the Corporation from payment of service tax, it was recoverable for the period 16 July 2001 to 31 March 2003.
What does Section 22 of Prasar Bharti Act,1990 say?
22. Corporation not Liable to be Taxed.
Notwithstanding anything contained in the Income-tax Act, 1961, or any other enactment for the time being in force relating to income-tax or any other tax on income, profits or gains, the Corporation shall not be liable to pay any income-tax or any other tax in respect of --------
(a) any income, profit or gains, accruing or arising out of the Fund of the Corporation or any amount received in that Fund; and
(b) any income, profits or gains, derived or any amount received, by the Corporation.
Obviously the Board’s Circular dated 9th July 2001 was issued by incorrect interpretation of the above Section which was made good in 27th March 2003 circular. Since this section was omitted from the Act from 1st April 2003, another Circular dated 14th July 2003 was issued to collect service tax from 1st April 2003.
But it is not so easy to convince the AG Audit and now they say, having given a wrong circular in 2001, Board is bound to follow it. Once AG audit raises an objection SCNs will follow, by alleging suppression of facts etc.
What would have happened if the department had collected Service Tax from Prasar Bharti?
The AG auditors auditing the Prasar Bharti Accounts would have raised another objection that they were not liable to pay Service tax in view of Section 22 of the Prasar Bharti Act and the corporation lost 48.60 crores by paying a tax which they were not required to pay.