The Hindu Business Line : Effect of service tax changes

An unknown author once remarked about taxes: “ Of life’s two certainties, the only one for which you can get an automatic extension.” Service tax in India also gets an automatic extension during Budget time every year. Budget 2008 has brought a host of new services under the tax net. Existing service tax provisions provided scope for some relief by levying the tax on commercial concerns — this gap has been plugged by replacing client or customer with any person.

Getting into the exemption list are services provided by a person located outside India to a customer located outside India in relation to booking of accommodation in a hotel located in India. The composition rate for works contracts has been increased to 4 per cent, testing and other services provided through Internet would be regarded as export of services if the recipient is located outside and recipients of goods transport agency services would be eligible for a 75 per cent rebate.

New Path

The increase in the threshold limit from Rs 8 lakh to Rs 10 lakh was bound to happen and it also reflects the confidence of the Government in service tax revenues which is the reason they are prepared to let go some tax. Transactions between associated enterprises would attract service tax even if there are only entries in the books of account and no money is exchanged.

The unnecessary limit of 180 days for return of capital goods taken outside the premises has been removed and the limitation period for filing a revised return has been increased from 60 to 90 days. Other beneficial provisions include self-adjustment of service tax paid in advance with a cap of Rs 10 lakhs and penalty for delay in payment of service tax will not apply in cases where penalty for suppressing value is payable.

No Disputes

With the rampant litigation in service tax, a service tax dispute resolution scheme has been introduced for the period July- September 2008. This scheme would settle disputes pending as of March 1, 2008. While this is certainly a step in the right direction, limiting the scheme for a period of three months or restricting the applicability of the scheme to service tax which is less than Rs 25,000 could defeat the very purpose of the scheme. A look into the history of service tax legislation would show that it is the big taxpayers who normally end up litigating.

Others

Reducing the Cenvat rate from 16 to 14 per cent is a hint that this could be the service tax rate soon.

Not announcing a Service Tax Act was disappointing as was the lack of a directional roadmap to move towards GST. It is apparent that the Government has decided not to rock the boat in an election year and leave radical changes in case they come back later.

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