The Hindu Business Line : Disservice to many a service

THE Government notified nine new services and expanded the scope of certain existing services with effect from June 16, 2005. Certain important procedural changes have also been notified. `Transport of goods, other than water, through pipeline or other conduit' is one of the new services introduced this year.

The Government had originally exempted construction of long distance pipelines from levy of service tax under the category of `construction service' introduced in September 2004.

However, the newly worded and expanded `commercial or industrial construction service' specifically includes construction of pipeline or conduit as a taxable category of service. Thus, construction of pipeline as well as transportation of goods through pipeline would now be taxable.

Services relating to `site preparation and clearance, excavation, earth moving and demolition' have also been notified, but exemption has been granted for infrastructure projects. Another important new service is construction of residential complexes wherein the term `residential complex' has been defined to mean a building having one or more facilities or services, such as lift, parking space, common water supply or effluent treatment system.

Abatement of 67 per cent of the value of taxable services has been granted to the construction of residential complexes category too, on the same lines as commercial or industrial construction service.

The other new services include membership of clubs or associations, dredging, survey and map-making, cleaning, packaging, mailing list compilation and mailing.

Construction service has been renamed as commercial or industrial construction service and the scope has been expanded to include completion and finishing services relating to construction of buildings, such as glazing, plastering, painting, tiling and so on.

Abatement of 67 per cent which was available earlier for the entire `construction service' would not be available for completion and finishing services such as glazing and so on, under the construction of commercial/industrial and residential complex categories.

The purpose for providing abatement to many taxable services, such as construction, erection, commissioning and installation, was that in the course of providing these taxable services, the service provider would be transferring various goods to the client, the value of which needs to be reduced for computation of the amount of taxable services.

In this background, it is difficult to comprehend the reason for not extending the benefit of abatement to completion and finishing services such as glazing, plastering or tiling, since the value of goods involved in these services would be equal or more compared to construction of a building.

Scope of service under the erection, commissioning or installation category has been expanded to include services such as installation of electrical and electronic devices, duct work, sheet metal work relating to heating, ventilation or air-conditioning, thermal insulation, installation of lift/escalator and so on.

Interestingly, the Government had clarified in January 2002 that installation of lifts would not amount to manufacture and, hence, not liable to excise duty based on the landmark decision of the Supreme Court in the Triveni Engineering & Industries Ltd (2000 120 ELT 273) case.

Also, the issue of excisability of structurals, such as duct work and sheet metal fabrication work, is before the larger Bench of the Supreme Court in the CCE vs Dodsal Manufacturing P Ltd (2001 127 ELT 324) case.

At the lower level, the Tribunal, in various decisions, had ruled that fabrication work would not amount to manufacture. Taking all these factors into consideration, the Government has now decided to impose service tax wherever excise duty is not levied.

Consequent upon introduction of threshold limit from April 2005, the Government now seems to be of the view that there is no requirement for providing exemptions to individuals since the threshold limit of Rs 4 lakh would take care of this situation. Accordingly, certain specific exemptions for individuals granted earlier under the categories of erection, installation and commissioning, business auxiliary services, photography and videography production have now been withdrawn.

Following the changes made in the procedures, the Service Tax Rules, 1994 and the Cenvat Credit Rules, 2004, have been amended to make it mandatory for the `input service distributor' to obtain registration within 30 days from June 16, 2005, or from commencement of business.

Before this amendment, the input service distributor did not require registration and it was sufficient to submit a half-yearly statement. Now the input service distributor is required to furnish half-yearly returns in the prescribed form.

The Government has now made it mandatory for small service providers whose value of taxable services exceeds Rs 3 lakh to obtain registration and file returns. Considering that the limit of Rs 4 lakh for applicability of service tax is itself very low, this is a retrograde step and would only result in unnecessary work at the field level. There are similar provisions under SSI in Central Excise, where the unit whose turnover exceeds the specified limit would only be required to file a declaration, and registration and filing of returns is not mandatory.

The limit for filing declaration under Central Excise is now Rs 90 lakh. While the Government is generous in fixing the limit for SSI scheme under excise, a different yardstick is being applied when it comes to service tax. It is also pertinent to note that under the State level VAT scheme, it was thought convenient for the Central Government to advocate to State governments to raise the threshold limit for registration of dealers to Rs 10 lakh.

However, the Central Government failed to prescribe a threshold limit since introducing service tax in 1994 and has now prescribed a very low limit Rs 4 lakh. It is, therefore, necessary that the Government immediately dropped the requirement of registration for small service providers and increased the threshold limit to Rs 10-20 lakh.

(The author is a Chennai-based advocate.)

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