Notification clears doubts on service tax

A member of the Central Board of Excise and Customs (CBEC) is reported to have christened the service tax as the 'tax of the future'.

One could not disagree with him, considering the buoyant revenues that this tax is generating and the all-encompassing nature of the levy. A little bit tongue-in-cheek one can rephrase Haliburton's famous quote to "death and service taxes are inevitable".

Probably the only professionals who would disagree with this statement are doctors and advocates.

However, one was quite unsure about the fate of the enhanced rate of tax as well as the clarifications on the new taxes, since both the Opposition members as well as the truckers decided to go on strike. With the formal assent of the President to the Finance ( No 2 ) Bill 2004, on September 10, 2004, all fears have been laid to rest.

The notification on the service tax quickly followed. More than 70 services are now taxed at the new rate of 10.2 per cent, including education cess.

With "cross-vatability" between the Cenvat credit and the service tax credit being permitted, factories have the option of distributing credit between their various locations.

The notification clarifies that credit cannot be distributed without an authenticated invoice, bill or challan. Life insurance companies have been given the option of paying 1 per cent of the premium charged by them instead of the normal service tax.

This, however, is subject to the condition that the entire premium paid by the policyholder is only towards risk cover in the life insurance.

Over the years, the Service Tax Act provided abatements to tour operators, hotels, rent-a-cab scheme operator and commercial concerns. The government intends to continue with the abatements/reliefs.

But taking credit of the duty paid on inputs or capital goods under the provisions of the Cenvat Credit Rules, 2004; or availing the benefit under the notification of the finance ministry (department of revenue), No. 12/2003 - service tax, dated 20th June, 2003 (GSR 503 (E), dated June 20, 2003), will not entitle a concern from availing credit.

Ever since banking operations came under the service tax, one was left wondering what services of a banker would become service taxable. One is still left wondering since only one notification No. 13/2004 informs us that service tax would not be chargeable on payment of taxes through banks. The word "business auxiliary service" has probably not been understood by many people since its enactment.

Notification No. 14/2004 attempts to clear the fog by notifying that if one procures or produces goods or services on behalf of the client, service tax would not be applicable.

However, our joy is short-lived as we are informed that firms, companies and all other structures of business entities apart from individuals cannot claim this exemption unless the services are provided in relation to agriculture, printing, textile processing or education.