Service tax can't be imposed in J&K, says tribunal of pre-GST levy

A tribunal has rejected indirect tax authorities’ demand to levy service tax for goods transported to Jammu and Kashmir on the reverse charge mechanism. 

The case was from the earlier service tax regime,  prior to rollout of the current goods and services tax (GST). Experts say such a dispute would not arise in the GST regime. 

A company supplying petroleum products had got a notice for services given by a goods transport agency in J&K between April 2011 and September 2014. The company contended that service tax, imposed since 1994, excluded the state of J&K; hence, no such levy was possible. To which, the authorities said the tax should have been deducted by the company on the reverse charge mechanism. 

Generally, the seller of a service was liable to pay tax after deducting it from the service recipient. Under reverse charge, the buyer was to deduct the service tax before paying the service provider and to send on the tax amount to the government. 

The matter was settled in favour of the authorities by an order of the commissioner of service tax, Noida. The company was told to pay service tax of Rs 20 million and alike penalty. It then petitioned the Customs, Excise and Service Tax Appellate Tribunal at Allahabad.

The tribunal has ruled that service tax could not be imposed on services rendered in J&K. This levy does not apply there even through the reverse charge. Its counsel, Abhishek Rastogi, also partner at Khaitan & Co, said such a dispute could still arise for any period up to June 30, 2017, the eve of GST implementation. However, not under the GST, even though the GST law used the same language to say it does not apply to J&K. That was got over with the ordinances of 2017 which extended the Central GST and Integrated GST to J&K, he explained.