The Hindu Business Line : Move to consolidate all service tax circulars issued since 1994

Easing trade
The latest initiative of the Government to consolidate all existing circulars and instructions would help meet the demand of the trade and industry to make available all clarifications relating to service tax at one place.

Our Bureau

New Delhi, Aug. 23

The Finance Ministry on Thursday came up with two master circulars on service tax that seeks to consolidate all service tax related circulars, clarifications and communications issued since 1994.

With the issuance of these two circulars, all earlier circulars, clarifications and communications issued from time to time by the Central Board of Excise and Customs (CBEC), Director General (Service Tax) and various field formations on matters relating to levy of service tax stand superseded.

Coding System

The latest initiative of the Government to consolidate all existing circulars and instructions would help meet the demand of the trade and industry to make available all clarifications relating to service tax at one place in a simple and comprehensive manner. A coding system has also been put in place for easy reference.

Under the new dispensation, which would be prospective in nature, one circular would deal with matters relating to technical issues and the other on matters relating to procedures.

The master circular on technical issues has clarified that a sub-contractor is essentially a taxable service provider and that services provided by sub-contractors are in the nature of input services. It has noted that service tax would be leviable on taxable services whether or not such services are provided by a person in his capacity as sub-contractor.

Cenvat Credit

“The Government’s clarification that sub-contractors will be subject to service tax will badly hit industry, particularly for those who are opting for abatement as Cenvat credit will not be available to the service tax paid to the sub-contractor,” Mr J.K. Mittal, Co-Chairman of Assocham’s indirect tax committee, told Business Line. An industry that may suffer is construction services.

The master circular has also clarified that Cenvat credit of duty paid on capital goods and service tax paid on input services would be available for those opting to pay service tax for work contracts under the composition scheme.

Moreover, it has also now been specified under the master circular that in business chit funds, cash management service is provided for a consideration and therefore leviable to service tax under “banking and other financial services”.

Rustagi Report

The Government had in May, on the basis of the recommendations of the Rustagi report, withdrawn as many as 48 circulars that had become outdated due to changes in law and procedures over the last decade.

The Rustagi report, which was submitted to the Government in February 2007, had segregated the circulars and instructions issued by the revenue department into three categories—to be withdrawn, to be retained and to be modified. The Government has accepted the recommendations of the Rustagi report.

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