The Hindu Business Line : They also serve, but by making things difficult

THE Roos' law states thus: "If there is a harder way of doing something, someone will find it." The makers of service tax law in India seem to fit the bill perfectly.

A slew of 15 notifications has been issued hours after the President gave his assent to the Finance (No. 2) Bill 2004. Since inception till date, there have been over 160 notifications/circulars issued under the service tax laws.

Notifications galore

The Notifications start off with an amendment to the Service Tax Credit Rules to accommodate the "cross VATability of services" innovated in Budget 2004.

Adding to the ever-growing list of options provided to the service tax provider, Notification No 11/2004 gives an option to an insurer carrying on life insurance business liable for paying the service tax in relation to the risk cover in life insurance to pay an amount calculated at the rate of 1 per cent of the gross amount of premium charged by such insurer. Just as there is no free lunch in economics, such freebies do not come free of cost — the benefit is available only if:

the entire premium paid by the policyholder is only towards risk cover in life insurance;

the part of the premium payable towards risk cover in life insurance is shown separately in any of the documents issued by the insurer to the policyholder.

There are very few people who would have read the small font that insurance policies normally use. One would probably have to do so now and find out the extent of risk and non-risk cover.

Instead of adding to the list of Notifications, the Government has decided to tinker with the existing notifications. Credit cannot be availed if the following acts are done:

i) credit of duty paid on inputs or capital goods has been taken under the provisions of the Cenvat Credit Rules, 2004; or

ii) such service provider has utilised the benefit under the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2003-Service Tax, dated June 20, 2003 [G.S.R. 503 (E), dated the 20th June, 2003 (this notification grants a omnibus rebate to the value of goods and materials provided they are reflected separately in the invoice)

Notification No 21/97 is applicable to mandap keepers; 39/97, tour operators; 40/97, tour operators; 12/01, mandap keeper; 19/03, commissioning and installation; 02/04, tour operator; 09/04, rent a cab scheme operator; 10/04, commercial concern.

Exemptions

Paying taxes through a bank would not attract service tax as Notification No 13/2004 mercifully clarifies, but by remaining silent on the other banking transactions that would attract service tax, the Government seems to be giving banks a free hand to levy service tax on any banking transaction.

Notification No 14/2004 takes a lot of trouble to notify that procurement of goods or services, which are inputs for the client, production of goods on behalf of the client provision of service on behalf of the client in the course of providing business auxiliary services are exempt.

All forms of business entities, save individuals, cannot use this exemption unless they provide the services in relation to agriculture, printing, textile processing or education. Management consultants providing ERP software system have been exempted.

The holder of an IP is exempt to the extent of cess paid towards the import of technology under the provisions of Section 3 of the Research and Development Cess Act, 1986 (32 of 1986).

Abatements

Commercial concerns engaged in construction service are eligible for an abatement of 33 per cent. There are varied opinions on the quality of the food provided by the Indian Railways. The Government has ensured that there are no complaints about the price of the goods by exempting the services provided by railway caterers.

So next time you plan a journey by train, make sure it has a pantry car. Being impressed with the quality of food provided by outdoor caterers, the Government has decided to hike the abatement to 50 per cent of the gross amount charges.

Of course, the requirement to provide a "substantial and satisfying meal" remains. One wishes this phrase is reproduced for the railway caterers. The benevolence to caterers does not stop here.

If one is catering in an academic institution or medical establishment, there is no service tax provided the caterer is situated in the premises. It is really absurd that the qualification to avail exemption is that one should be in the premises.

Pandal or shamiana contractors are better off — they get an abatement of 70 per cent if they provide catering services. Vocational training institutes or recreational training institutes are also exempt. Other enabling notifications ensure that no service tax is levied before September 10, 2004.

Considering the spate of abatements, rebates and exemptions prevalent, the service tax law has become zany. Dr Kelkar's "grand bargain" of a Goods and Service Tax with three rates and setoffs seems much simpler.

(The author is a Hyderabad-based chartered accountant.)