Notice to firms for claiming service tax abatement

There appears to be lack of clarity regarding availability of 75 per cent abatement under service tax for categories like coroporates, cooperative societies and partnership firms, which are not goods transport agencies.

Sources said the service tax departments in Thane, Mumbai and Kolkata had begun issuing show-cause notices to companies on the grounds that they had underpaid the service tax under the category of goods transport service by wrongfully claiming abatement.

Under the present norms, service tax under the category "transport of goods by road" has been imposed on the goods transport agency and the "service recipients" (consignor or consignee) of seven specified categories including a factory registered under the Factories Act, companies, societies, cooperative societies, excise dealers and partnership firms.

The confusion has arisen because the revenue department had on January 1, 2005 provided an abatement of 75 per cent of the gross amount charged to a customer by a goods transport agency.

An abatement of 75 per cent means that the service tax can be levied only on the 25 per cent of the gross amount charged for providing this taxable service.

The service tax directorate later on March 30, 2005 notified that the abatement benefit would not be available to the seven categories of persons who are liable to pay service tax ie consignor or consignee. This notification was, however, withdrawn in April, 2005.

When contacted, service tax expert JK Mittal said the action of the department prima facie appeared to be overreaching as the law provided abatements, and did not prevent a person liable to pay service tax for availing abatement, subject to fulfillment of conditions under the law.