CBEC TO SET UP INSTITUTIONAL FORUM FOR SERVICE TAX DIALOGUE WITH INDUSTRY

New Delhi, Friday 6th July 2007 – The Central Board of Excise and Customs (CBEC) will soon form an institutional forum to discuss and debate various issues on services tax inviting participation from trade and industry bodies in view of the large number of clarifications and advisories being sought by the industry. The forum will help the Board and the Field Formations to strengthen their interface with industry to understand each others' views, perceptions and problems relating to a host of issues including administrative changes required and  compliance level expected.

This was disclosed by  Mr P C Jha, Member, CBEC at an interactive meeting on Services Tax  organized by the  PHD Chamber of Commerce and Industry (PHDCCI) of its members with CBEC and senior officials of Finance Ministry in New Delhi today. Mr Jha was responding to a suggestion made by Mr Sanjay Bhatia, Presdient, PHDCCI.

Mr Jha remarked that India's tax-GDP ratio at 12 to 15 per cent still compares unfavorably with that of developed countries, which are having ratios in the range of 30-35 per cent. Explaining the rationale of imposition of service tax, he said that the contribution of the services sector to the GDP is a whopping 54 per cent. Yet, the tax on the sector was introduced only very recently. Presently, share of services tax to the total collection of taxes from the indirect taxes was only a mere 9 per cent at Rs 50,000 crore covering 100 items and constitute only 1 per cent of the GDP. Currently, there are 4.5 lakh service tax payers and the recent increase in threshold exemption have taken out 2 lakh tax payers from the tax net. It is also necessary to bring more services in the tax net in view of the introduction of GST by 2010 since at that point VAT, CST and Services Tax should converge.

Mr Jha said that uniformity in the application of the service tax rules was the avowed objective of the Board. Field Formations and Commiserates are regularly  advised to follow uniform procedures. He wanted industry to bring to the notice of the Board wherever there is lack of uniformity and assured corrective actions on a time bound manner. However, he told that level of compliance in the services tax was very low and requested the industry to help the Board in increasing the compliance level. he also informed that the Board has discontinued the practice of sending summons to the assesses for minor things like seeking clarifications. This is meant to improve the relationship between the assesses and the tax administration.
While explaining  that the intention behind consolidating circulars into two master circulars, Mr Jha observed that all clarifications/ decisions cannot be issued immediately since they have to be examined in the right perspective. These decisions and clarifications will be issued from time to time but would be incorporated in the  master circulars for the purpose of consolidation.

Mr Gautam Bhattacharya, Commissioner, Services Tax   while replying  to a volley of questions from the floor including the imposition of service tax  the commercial rental, work contracts, tax on input services in the absence of output tax, tax on services rendered and culminated abroad. He said that services tax on commercial rentals is a legal reality and its sanctity should be seen from that angle. To a query whether input tax credit can be availed on commercial rentals on the basis of output tax on rentals, he answered in the affirmative and added that it would be on a case to case basis. Wherever output services are not discernible, the assesses can claim abatement the quantum of which is based on costing. Also, the Nexus Theory, which is deployed to avail set of  against import of capital goods by the service providers has to be examined on a case to basis since a uniform policy cannot be laid down.

To reply to a question from the floor that the Chambers and similar business organizations should be exempted   from the purview of the services tax, Mr Bhattacarya said that the Board has to act under the direction given by the law and said that it was the purview of the Finance Ministry to take  a view on such matters. On the question of  service tax on remittance of royalty, he refused to comment since the matter is subjudice.

Earlier, in his Welcome Address, Mr Sanjay Bhatia said that in the absence of an integrated VAT, there will be no opportunity to offset service tax on commercial rentals against output taxes, as these cannot be set off against State VAT. This predicament will be faced by large number of retail and information technology sector for whom property rentals are a large part of the cost. Also, other incidental expenses such as electricity , water, common services and maintenance charges for the building are included in the rent, which is also taxed.

The other speakers at the meeting included Ms Chitra Gouri Lal, Chief Commissioner, Central Excise, Mr T R Rustagi, former Jt Secretary, Finace, Mr R A Poddar, Chairman, Indirect Committee, PHDCCI, Mr R Muralidharan, Indirect Tax Committee, PHDCCI and Mr Manu Verma, Ernst& Young