The Hindu Business Line : Shipping cos' hearing posted for July 3

Under pressure from the Director-General of Central Excise Intelligence (DG-CEI) to pay service tax retrospectively from August 2002 to March 2006, domestic shipping companies have moved the Bombay High Court, seeking reversal of the order.

With the DG-CEI seeking time from the court to prepare their clarification, the court has adjourned the next hearing till July 3. The Indian National Shipowners Association (INSA), in which all shipping companies are members, has filed the writ petition earlier this month.

In the last few months, the DG-CEI slapped notices on the shipping companies asking them to pay service tax retrospectively in respect of all services received and consumed by their respective ships outside India during August 2002 to March 2006.

The companies were issued summons by the department, seeking "full details" of their foreign exchange payment, including dry docking expenses at foreign ports, during this period.

Industry sources say the net service tax for the retrospective period would come to a total of nearly Rs 80 crore to Rs 100 crore, especially as 2004-05 was a boom time for the industry and ships had to undergo extensive dry-docking at foreign ports.

Clarifications

The DG-CEI move came shortly after the Government came out with some clarifications earlier this year on the issue of service tax payable by the shipping companies. While these clarifications gave clear exemption to shipping companies from paying service tax on services consumed outside India, the issue of payment of the tax for August 2002 to March 2006 was left untouched.

"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.

jurisdiction issue

In its writ petition, INSA has also brought out the issue of extra-territorial jurisdiction of the tax authorities. "Extra-territorial jurisdiction is conferred by the Legislature by specific language and provision, for example as in the Income Tax Act 1981and 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," INSA had pointed out in an earlier memorandum to the Government.

The association plans to take up with the Government its plea of re-examining the issue of services "wholly consumed in foreign ports", which have been exempted from service tax. Industry sources said there were several services, such as P&I insurance, manpower requirement and freight broking services, taken collectively in foreign and Indian ports. "It is difficult to cull out services that are wholly consumed overseas. The whole issue of service tax payable by shipping companies needs a re-visit," according to an industry source.

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