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Ministry to frame rules on service tax rebate

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The Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, with the CII Vice-President, Mr Y.C. Deveshwar, addressing the CII National Council members in the Capital on Monday. — Kamal Narang

New Delhi , July 12

THE Government will finalise the Cenvat and Service Tax Rules detailing the procedures for claiming rebate on service tax against their excise liability and vice-versa before the passage of the Finance Bill.

Addressing the National Council of the Confederation of Indian Industry (CII) here on Monday, the Finance Minister, Mr P. Chidambaram, said, "The set-off rules are being framed now and we will make them available for the public." He was responding to concerns expressed by industrialists on certain procedural issues relating to set-off.

These included the fact that currently excise is paid at the factory-gate, whereas the service tax is charged at the head office. Further, companies incur bulk of their service-related expenses, such as on advertising or on phone calls, in their head-office, whereas their production is scattered across plants in the hinterland. In this case, there are doubts being raised whether it would be possible for a company to set-off the service tax on its phone bills incurred in Mumbai against the excise from its factory in, say Ratnagiri.

Mr Chidambaram said that all these concerns will be addressed once the Cenvat and Service Tax Rules are framed. A Finance Ministry official told Business Line that the Cenvat and Service Tax Rules would be an extension of the existing Cenvat Rules that are confined now to only goods.

"Assesses will be able to claim credit of service tax and excise duty across goods and services from the day the Finance Bill is passed by both the Houses," he said.

Mr Chidambaram said that if the facility to claim rebate on service tax against excise duty and excise duty against service tax is factored in, there is not much to complain about the Budget proposal to hike the service tax rate from 8 per cent to 10 per cent. "Post rebates, the effective service tax rate would actually work out to just around 6 per cent."

The Finance Minister said that the proposal to allow rebate across goods and services "is the first step towards a Goods and Service Tax and eventually we would like such an integrated tax on a national level."

Mr Chidambaram said that given that the services sector accounts for about 51 per cent of the country's gross domestic product, there is no reason to exempt services from tax. "If we can tax cars, steel, tyres and consumer goods, why should we not tax services as well," he quipped.

The Finance Ministry expects to mobilise Rs 14,150 crore from service tax during the current fiscal, up from Rs 8,300 crore for 2003-04. The main contributors are telephones (Rs 3,518 crore), insurance (Rs 1,278 crore), port services (Rs 441 crore), banking and other financial services (Rs 377 crore), brokerage (Rs 307 crore), courier (Rs 280 crore) and advertising (Rs 277 crore).

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