The Hindu Business Line : Fresh notice for shipping cos on service tax

The Director General of Central Excise Intelligence (DG-CEI) has slapped fresh notices on Indian shipping companies late last month, asking them to pay service tax retrospectively from August 2002 to March 2006 in respect of services received and consumed outside India by the companies during this period.

Informed sources said the DG-CEI has issued summons to shipping companies, demanding "full details" of their foreign exchange payments, including dry docking expenses at foreign ports, for this period. The notices have made it clear that if the companies do not furnish the details, the DG-CEI "will be forced to take action" against them.

Shipping cos seek time

Shipping companies have sought a 30-day time from DG-CEI to reply to the summons, the sources said.

The DG-CEI move came shortly after the Government came out with some clarifications on April 19, 2006 on the issue of service tax payable by the shipping companies. While these clarifications gave clear exemption to shipping companies from paying service tax, the issue of payment of the tax for August 2002 to March 2006 was left untouched. This prompted the DG-CEI to slap fresh summons on the companies, according to the sources.

"It is very difficult to furnish all our foreign exchange payments with bills and receipts for this period, as ships do require and provide a variety of services at foreign ports during their normal course of operation. It is time the Government came out with a clear statement on the issue of retrospective tax," an official of a shipping company said.

Industry sources say the net service tax for the retrospective period would come to a total of nearly Rs 80-100 crore, especially as the last two years had been a boom time for the industry and ships had to undergo extensive dry-docking at foreign ports.

The Indian National Shipowners Association (INSA) feels that the retrospective demand raised by the DG-CEI is "unfair and unreasonable". "Extra-territorial jurisdiction is conferred by the Legislature by specific language and provision, for example as in the Income Tax Act 1981, The Foreign Exchange Management Act 1999. There was no specific language or provision conferring extra-territorial jurisdiction for the levy of Service Tax for the period August 2002 to March 2006," an INSA official pointed out.

Indeed, ever since the shipping industry was brought under the new service tax net, INSA had taken up the issue through the Shipping Ministry. INSA's ground is that ships, in their routine operations, employed such services such as port services, repairs and dry-docking at foreign ports.