The Hindu Business Line : `New service tax rules have significant implications'

THE Bangalore zone of Central Excise consists of more than 10,000 service tax payers and has witnessed more than 4,000 new registrations since the scope of the tax was widened to cover 57 additional services, which include business auxiliary services, commercial training centres, maintenance & repair services, and commissioning and installation of machinery among others.

Addressing members of the industry at a session on service tax, organised by the Confederation of Indian Industry (CII), Karnataka, Mr Sunder Raman, Chief Commissioner of Excise (Bangalore Zone), said the Commissionerate was receptive to industry's concerns on the newly introduced service tax notifications. He urged the industry to be more open in order to clarify their doubts with the Commissionerate and said issues and concerns of the companies should be substantiated with concrete arguments, so that they could be accommodated.

Bangalore Zone consists of almost all parts of Karnataka, which had a collection of Rs 100.3 crore from service tax during 2001-02. It witnessed only a marginal increase to Rs 106.8 core during 2002-03, according to sources.

In a presentation on the implications of service tax, Mr S. Madhavan, Executive Director, Pricewaterhouse Coopers Pvt Ltd, stated that service tax, being a new legislation, with little judicial precedent, contained a number of grey areas, specifically with regards to definitions and coverage, exports of services, and availing of credit on input services, among others.

These would have significant implications on the new services, which have been included under the tax, especially business auxiliary services and repairs and maintenance. Another challenge would be the question of how to deal with annual maintenance contracts and warranty services.

Problems also arise when considering the bundling of services, and integrated contracts, which offer a bouquet of services, and it remains to be seen how to determine specific services, which are taxable, and the extent of credit setoff available to the input services used in this regard, said Mr Madhavan.

A significant feature of the service tax notifications and legislations however, is that they show a broad movement towards an unified VAT law in the near future, which would envisage input tax credit for both goods and services to be set off against the output produced, in either goods and services, according to Mr Madhavan. Citing examples of global practices, Mr Madhavan said that India still maintained a distinction between goods and services, in terms of taxation, and work has to be done to integrate the two under the tax coverage in India.

In view of the service tax law still in a nascent stage in India, and had certain problem areas, proper service tax planning and management was crucial for organisations to effectively manage their service tax liabilities, he said.

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