The Hindu Business Line : Can consumers refuse to suffer `service tax' add-on?

WHAT should have been more entertaining than the recent meeting between the Opposition leaders and the Prime Minister is the series of parleys between the striking truckers and the mandarins of the North Block.

On many occasions, the result of the talks was no different from our pursuit of the elusive gold in Athens. However, somebody wanted to put some fizz into the deadlock by suggesting: "Mr Lorry Driver, Mr Transport Tycoon, Mr Booking Babu, listen. You don't pay any service tax. We'll ask the consignors to do the dirty job." An insult of the nth order, if only you realise how serious it is for consumers.

Consignor is the one who goes to the transport company with a load to send, and pays freight unless it is a `to pay' transaction. He is the consumer of transport service, at the sending end, you may say, because the consignee is at the receiving end. But to put the consignor at the `receiving end' of a tax levy, as heinously suggested by bureaucrats, would have him running around between transport companies and the taxman.

Thus, receiving service would come with some pain freeloaded, even as the service provider does `service with a smile' or even a grin because he can see your plight as his proxy, reaching the State's share of the spoils to the exchequer.

Can law be that cruel, you may ask. As such, it is not, because rules governing service tax stipulate that the person liable to pay service tax is the provider. The only exception it talks of is where the provider is a non-resident or a person from outside India, and has no office in India, in which case the person receiving taxable service in India becomes liable to pay service tax. It is doubtful if even this exception can stand the test of legal scrutiny.

Again, if you were to search the law for some explicit provision mandating that service tax paid by the provider will be ultimately borne by the consumer, you may not find any. That explains why there are instances of big customers declining to be billed for service tax; the provider pays the tax and decides not to recover the same from his prize clients, for fear of losing business if he did otherwise. Smaller customers simply don't have that bargaining power.

Service tax expert Mr S. Sridharan talks of something interesting: that up to Oct 15, 1998, Sec 66 of the service tax legislation provided that "Every person providing taxable service to any person shall collect the service tax at the rate provided in section 66".

From Oct 16, 1998, the section was amended to read as "Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may prescribed."

Effectively, you can't blame the government for fleecing you with service tax; it is the service provider who does that to you, as long as you acquiesce.

"Initially the requirement was that the tax is to be collected and paid," explains Mr Sridharan.

"However there was no escape for failure to collect tax as the penal provisions referred to failure to collect tax. In 1998, penal provisions were modified as for failure to pay tax."

The Central Excise Act goes one step further and presumes that the incidence of duty has been passed on to the buyer. Section 12B reads: "Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods."

The opposite case, where the manufacturer pockets the tax paid by the consumer, `unjust enrichment' arises. But you don't have anything said about `unjust impoverishment' that consumers are subjected to when tax is passed on to them.

It would be hasty to say that law is flawed and so needs change to make it explicit that tax would be paid by the manufacturer of goods or provider of service, but ultimately pinch the pocket of the buyer or consumer. Perhaps statute is a mere witness to a slapstick comedy, where taxman's slap of levy on producer is transferred on to consumer.

In which case, it would make sense for consumers not to show the other cheek but to duck instead! For, not acquiescing to pay service tax on their bills may not, after all, cause any legal infraction.

E&OE@thehindu.co.in

More Stories on : Consumerism | Taxation | Errors & Omissions Expected

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Serve up some competition

Seafood industry looks for lifeline

Budget, service tax and all that

Unconvincing dollar rally

Return of inflation: Challenge to monetary policy

Momentum versus value investing

Funny mismatch

Can consumers refuse to suffer `service tax' add-on?

Drop in inflation rate