The Hindu Business Line : Shipping cos yet to ride out `service tax' storm

The companies now have less than two weeks to convince the DGST to withdraw the summons, failing which they will have to comply with the directive of the tax authorities.

Mumbai , Nov 19

EFFORTS of shipping companies to resolve the issue of payment of service tax dues for the last two years with the Central Board of Excise and Customs (CBEC) have come a cropper.

Informed sources told Business Line that the meeting between representatives of shipping companies with the CBEC Chairman in Delhi on Wednesday did not yield any significant breakthrough, even while the date for the recent summons issued by the Directorate-General of Service Tax (DGST) edge closer.

The sources said the CBEC Chairman expressed inability to intervene at this stage, as the summons have been issued to the ship owners.

The CBEC suggested that the shipping companies thrash out the issue with the DGST and later, if necessary, come back to the board.

The companies now have less than two weeks to convince the DGST to withdraw the summons, failing which they will have to comply with the directive of the tax authorities.

The DGST had recently issued summons to ship owners, asking them to furnish bills and other details of the services their ships availed of at foreign ports for the last two years for the purpose of computing their `service tax dues'.

This had come like a bolt from the blue for the industry, as it thought that the service tax issue was resolved in the light of the June 7 clarification from the Government that exempted shipping companies from the ambit of the tax.

The Indian National Shipowners Association (INSA) representatives have been arguing that the Government clarification had clearly exempted the main services availed of by ships at foreign ports, including port charges, from service tax.

They are, however, still not clear about the periphery services or `input services', such as dry-docking and insurance.

Sources said INSA representatives would meet the DGST in the next few days to put forth their views and explain that such services were not taxed anywhere in the world.

Ship owners fear that if the DGST went ahead with the imposition of the service tax with effect from the last two years, the tax burden would completely wipe out the benefits provided by the recent tonnage tax regime.

It has been estimated that the annual tax outgo of the shipping industry under the service tax account alone would be of the order of Rs 40 crore.

In fact, the industry is once again trying to get the attention of the Government on the multiple taxes it now has to shell out.

Shipping companies are now subject to an array of 12 different taxes, apart from tonnage tax, which range from tax on sale of ships and tax on dividend paid to withholding tax on interest earned on forex loans, lease tax and custom duty on spares.

Industry sources said the combined tax burden for the industry as a whole on these 12 taxes (apart from the tonnage tax) is annually about Rs 300 crore, the biggest burden being the service tax (approx Rs 40 crore), sale of ships (Rs 75 crore), tax on dividend paid (Rs 35 crore), withholding tax on interest earned on forex loans (Rs 15 crore) and custom duties (Rs 25 crore).

The industry claims that it is difficult to globally compete with this tax burden, especially as ship owners in foreign countries operate in a practically tax-free regime.

"Against this background, the DGST's summons to many shipping companies, asking them to furnish details about the services availed of at foreign ports for the last two years, assumes significance.

"The cumulative burden on the industry on this account for the last two years would be almost Rs 100 crore," an industry source said.

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