Economy

Education cess on service tax to continue under new regime

| Updated on: Jun 29, 2012

The education cess on service tax will continue to be imposed even after the switchover to the negative list system.

The Joint Secretary (Tax Research Unit) of the Central Board of Excise and Customs, Mr V.K. Garg, in a letter to all Chief Commissioners of Excise and Customs, clarified that a new notification and new order, issued on Friday, will validate the continuation of education cess on Service Tax.

“Any board circular that is contrary to the revised law will stand automatically superseded,” he added.

But exporters will have no problem in getting exemption from service tax on payments to commission agents abroad. At the same time many new services such as train travel by air conditioned class will attract service tax from July 1.

The Government has introduced the concept of negative list which will replace the system of positive list, which was in operation since 1994.

It means that services not mentioned in the list or in the list of exemptions will attract service tax at the rate of 12 per cent plus education cess. The existing system prescribes service tax on nearly 120 services, which will now increase.

Interestingly, during a recent conference of Chief Commissioners, a group of officers from the Central Board of Excise and Customs suggested that the necessary preparations for smooth implementation of the new scheme are likely to take some time.

The group strongly felt that the operation of the scheme should commence only after the department was well prepared and also after the taxpayers have imbibed the full implication of changes that have been brought. The group felt that it would be ideal if the new provisions were made applicable after a gap of three-four months, i.e. by October.

Even some industry associations have asked for postponement, but the board does not seem to be in a mood to oblige, and is putting all its efforts to implement the new system from July 1.

The new system exempts 39 types of services from service tax. The Concept Paper on Negative List issued last August defined services as “Anything which does not constitute supply of goods, money or moveable property.”

The paper believes after the implementation of negative list approximately 25 per cent of the total value of services, that is roughly Rs 12.5 lakh crore, could be brought under the service tax net.

Published on June 29, 2012

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