Service tax has now spread its tentacles to practically every corner of the organized sector. The tax virus changes form and style wherever it meets resistance, for example, it is not levied on road transport operators. In other cases, specially when it encounters the government sector, the tax withdraws to attack other vulnerable and unprotected sections of the economy.

Even after 11 years of its first appearance, the service tax is administered without a separate Act of Parliament. It attacks without the base of an underlying internationally accepted classification and valuation rule system. There is no separate trained cadre to formulate or implement this complex tax. Last, there no evidence of consultation with the major users before or after the levy of the tax.

In its latest virulent form following the budget proposal which came into effect on 5 May 2005, even the cleaning services and  mailing list providers are suffering the impost. The department of revenue has now issued a long circular laying down the scope and manner of the administration after the Budget changes.

The department has clarified that services export will be exempted only when they meet the three criteria, that is, they must be delivered outside India, must be used outside India and payment should be received in convertible foreign currency.

There is a provision for centralized registration instead of multiple registrations at each point of incidence. Threshold value of Rs. 4 lakh fixed for exemption to service tax. Taxable service on job work in the gem and jewellery sector has been exempted. Similarly, service received and consumed outside India by ships under the Indian Flag are not taxable. However, the exemption does not cover the barges and rigs which are taxed when sent abroad for repairs.

The service provider is one who has a fixed establishment or a permanent address from where the service is provided. This criteria is used to establish the taxability in the case of services import where the recipient is treated as the provider and is liable to the tax.

An interesting amendment is that the event of taxation is linked to the receipt of payment. The service tax can also be paid on the event of advance payment but the basic liability arises only when the consideration towards the taxable service is received. There is also a provision of refund where the payment is received but the service is not provided.

In the job work case, the definition has been widened and job work which does not amount to manufacture is under service tax while job work amounting to manufacture is under the excise tariff. All procurement of goods and services like those of commission agent are now under the head of “business auxiliary service”. There is no escape from the tax net.

For goods transportation through pipeline, the event of taxation will take place when the payment is received for the services. The domestic consumers of piped gas will first pay the excise on the production, next suffer the service tax on transportation to their homes and the last stage shell out the sales tax on the billed amount after netting for the subsidy to promote piped gas. A complicated system which both gives and takes from the consumers.

The circular also clarifies that activities preparatory to the main activity will come under the ambit of site formation will be taxed. Site clearance relating to agriculture, water and transport are not covered under the tax. Similarly, tax on dredging covers only rivers, ports and harbour but not lakes and dams. Map making by the government are not taxable even where the final product is priced and sold in the market.

There are as many as ten categories which are not taxable under the head of membership of clubs and their association. Packaging activities which amount to manufacture will be taxed under the excise, for non manufacturing packaging, the levy will be attracted on the gross amount which may include materials.

The construction of residential complexes with twelve or less residential units does not attract service tax. Complexes for personal use as residence are not taxable. An abatement of 33 percent on the gross amount is available in certain cases. Post construction activities of repair and alteration on residential complexes of more than 12 units regardless the year of construction will attract service tax. Maintenance of immovable property along with machinery maintenance is taxable. Motor vehicle maintenance other than from the authorized service station is not taxable.

The entire chain from customer to broadcaster including DTH is now is in the services tax net along with sound recording and video tapes. Beauty parlors now cover hair cutting and dyeing.  The definitions of manpower equipment and franchise equipments have been widened.

Corrections

In our previous note on the Indo Singapore FTA, we have mentioned that the three notifications covered exemption of 100%, 95% and 90% of the normal value of the peak duty of 15 percent. Our interpretation of the 100 percent exemption notification is correct. However, the other two exemptions are for the amounts in excess of 95 percent and 90 percent of the peak duty of 15 percent. In other words, the three exemptions apply zero, 14.25 percent and 13.5 percent duty on imports from Singapore.

In the meanwhile, the Automotive Tyres Manufacturers Association  (ATMA) led by Mr. Ravindran has compiled an interesting document covering  eight FTAs wat various stages of negotiation between India and other countries or regions. ATMA feels that the proliferation of RTAs is to be avoided and India should take the WTO route. Leading economists in the think tanks in the Capital also hold the same view and say that the Singapore agreement is not really necessary and the Island trader offers few manufactured goods of its own parentage to India.

Appointed

Mr. Harshs Vardhan Singh, currently the Secretary of the TRAI, has been selected as the Deputy DG of WTO by Mr Pascal Lamy, the DG is waiting. Harsha was picked in a global selection process involving many candidates from all over the world. He is now the second Indian to hold the post of Dy. DG at WTO. The first was Mr. Anwarul Hoda who is now the Member of the Planning Commission. The next four years which involve the completion of the Doha Round will be exciting and Harsh Singh will be in the thick of it all. He holds a Doctorate in Economics from Oxford followed by a long stint at WTO which ended in 1998 when he returned home.