Service Tax in Jammu and Kashmir
If I have an agent to sell my goods in Srinagar, I don't need to pay any Service Tax on the commission I give him - nor does he need to pay as there is no Service Tax in J&K. But if my agent is in Sydney, I have to pay Service Tax on the commission I pay him! Strange? But that is taxation!
While this column is scared of treading into the territory of the erudite G-Bee's ST se GST tak, an interesting clarification appearing in Delhi Service Tax Commissioner's website made the temptation irresistible.
The website says,
The doubt was raised if the services provided by a Delhi based company for conduction of topographical survey work of project area in Jammu and Kashmir is chargeable to Service Tax, if the contract for the construction of the project in the state of J & K was awarded to Mumbai based company.
It was clarified by the Board in consultation of the Ministry of Law that even if the object of service is in the state of J & K but as the service provider and the service receiver are outside the State of J & K, the Service Tax shall be chargeable from the service provider.
Has the Board really clarified this? This opens up quite a bit of possibilities. Now what will happen in the reverse scenario? If the service provider and the receiver are in J&K and the service is rendered in Delhi? Does the location of the service provider's home determine the tax liability? Will they be spared of the tax if they execute the agreement at Srinagar airport and fly back and should the agreement read, "I, xx, temporarily residing outside Srinagar airport in the State of Jammu and Kashmir hereby authorise and request Shriyyy, temporarily residing outside Srinagar airport to undertake, execute and provide the following services..."
If the Board has really given this clarification, why is it available only with the Delhi Commissioner's website?
And incidentally there is already a Service Tax in J&K - the state service tax - they seem to be far ahead of the rest of the country in introducing GST by simply having a definition in the Kashmir General Sales Tax Act that goods includes services.
This year, the State Finance Minister increased the Service Tax from 4% to 8% and brought in new services like courier services, marriage and banquet halls, private educational and professional institutions, coaching institutions, cable network, insurance, banking and other financial services. He informed the assembly that the Government of India is levying 12% Service Tax - maybe a justification for his doubling the tax!
Coming back to our Board - Is the Board confused with the concept of export and import of services? And does it feel like treating Kashmir as not part of India? That will give a lot of material to our neighbour when not busy with elections, emergencies and evicting chief justices.
A Pakistan PM/President/General (whoever they normally have at the head of government/state) is reported to have told an Indian Prime Minister who suggested that they have a bilateral summit in a third country, "fine, I would prefer Srinagar"
Link to Delhi Service Tax Commissioner's clarification on J&K Service Tax