The revenue department launched another attack on the growing services sector in India with the launch of a revised and enlarged form for registration of service providers in the ST-1 series (not to be confused with the ST-1 state sales tax series. New forms for certificate of registration (ST-2) and the six monthly returns on tax payment (ST-3) were also laid down. Service sales upto three lakhs rupees are exempted from the tax and do not have to go through the complex registration procedure. The three forms also apply to service distributors who do not sell directly to the final consumers and thus constitute a special category. The new forms will be used for both fresh applicants as well as those seeking an amendment to old registrations.

In the new system, applications must be supported by the income tax PAN, originally designed as a one stop proof of existence of the applicant. Now the applicants must also attach the good old “proof of residence” document devised by the ration card regime of yesterday, besides a copy of the constitution of the business such as articles of association. The design of the form and the accompanying instructions seem to say that on the spot registration will be granted to applicants in the normal course on the strength of the documents without verification. However, the actual practice is bound to vary since there is no guideline as to what constitutes “proof of residence”.

The form requires specification of the particular premise from where the service will be rendered. Similarly, the detail of each service must be filled in the form. These details will be carried in the final registration certificate.

The rules require grant of registration within seven days of application failing which it will be deemed to be granted. Experience shows that in actual practice, the deeming provision does not work, usually the applicant does not protest on delay on account of fear of harassment at the hands of the excise officials.

There are as many as eight subjects in the complex ST-3 return form. Filling out the columns requires the services of highly literate and committed accountants. (Most of the information could be gathered in house by the department itself through EDI software but the tax payer should both pay tax and do the department's homework to stay clear of harassment of the procedures!

The service tax is now a growing barrier to growth. India is competitive in services and is emerging as the world leader in both mode 1 (cross border trade) and mode 4 (temporary movement) export. The world is talking of zero duties to promote trade and industry competitiveness. On the other hand, the service tax system is outmoded, the tax rate is very high, and the net incidence is at full rate of 10.2 percent in most cases compared to the excise where the incidence is hardly six percent after netting for the liberal CENVAT credit. The high rate leads to generation of black money and the attendant corruption. The procedures are cumbersome, credits on inputs seldom reach the beneficiaries.

Even after employing the best brains in the country, Finance Act 1994 serves as the base law, there is no separate law on the subject. In the absence of a code based classification or valuation system, stray circulars deal with the complex issues without effect on the ground.

There is no equity, government bodies, for example the postal service, does not pay the tax but private services like couriers must suffer the burden. Chartered accountants shell out 10.2 percent tax but lawyers are exempt (there are dark hints that the large number of lawyer in the UPA government, which includes the finance minister himself, is the reason behind the discrimination). The latest that the revenue department wants to tax the press, it has said in a draft circular that advertising agencies are not agents and must pay tax on the full value of payments received and not for value of the ban service rendered to the client. The languishing small and medium newspapers and struggling TV channels will be first hit with the 10.2 percent tax on advertisements.

CLA returns to old home

The regional office of the DGFT in Delhi, known as CLA, is returning to its old premises in the Y shape building (IP Bhavan) behind the Income Tax Office (ITO) in the Indraprasta Estate area of the Capital. The current location on Asaf Ali Road in the Peerless Bhavan will not be operative from 21 to 24 November during which the computer systems will move to the new premises. The Y shape building office will be functional from 25 November 2005.

The work load in CLA has gone up with the one third rise in exports and imports value. Fortunately, IT adoption and induction of fresh blood from the All India Services has kept the service level of the CLA at a good level is compared to other departments. The new location will add to the stature of the office and improve access to the trade.

Second hand equipment

The restrictions on second hand equipment are creeping back into the import policy. The DGFT issued a new circular to include second hand air conditioners and diesel generating sets, apart from laptops, personal computers and photo copiers which were already under the licensing regime through administrative circulars. There is no overt reason for the enlargement of the list. There is pressure from the multinational lobby which has taken over the consumer durable segment. It wants protection from used products of their own make sourced from outside India!

The licence regime applies even on one day old equipment. As of now, DGFT is relatively liberal in issuing licences for second hand machinery. Unless there is a serious objection on the import, the licence is issued under a well lubricated “negative list licence” system in trade circles.

(The column has resumed after the author's return from a trip abroad.)