P r esid en t Himanshu V. Kishnadwala Vice P r esid en t Rajesh S. Kothari Hon . S ecr et a r ies Nau sh ad A. P an jw an i P radip K. Th an aw ala Hon . Tr ea su r er Mayu r B. Nayak
Bombay Chartered Accountants' Society
7, J Bhavan No. 2, New Marine Lines, Mumbai 400 020 olly Tel. : 66595601 to 05 / Fax : 66595606 / E-mail : bca@ bcasonline.org; Website : www.bcasonline.org
22nd March, 2007
Mr. P. Chidambaram The Hon’ble Finance Minister Government of India North Block, Secretariat, New Delhi – 110 001.
Respected Sir, Subject: Suggestion on the proposal in the Finance Bill, 2007 relating to Service tax We have seen with interest the fourth consecutive budget presented by your Honour on behalf of United Progressive Alliance (UPA) Government in the Parliament on 28 th February, 2007 and appreciate your concern for challenges faced by the country and your efforts to accelerate economic growth of agriculture sector, industry, infrastructure and exports. There are certain provisions in the Finance Bill relating to Service tax, which may need your kind attention since they need to be modified or deleted. Some of the present proposals may be prone to be inequitable and/or may only increase litigation, without real addition to the net revenue to the Government. Our suggestions on various topics for rationalisation of law, rectification of certain anomalies and correction of drafting errors, given in the enclosed representation relating to Service tax. We hope that our representation will receive due consideration. Should a need to explain the recommendation be felt, please let us know, and we shall be more than happy to explain them to you personally. Thanking you, We remain, Yours truly, For BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY
Himanshu Kishnadwala President
Dilip Lakhani Govind Goyal Chairman Co-Chairman Indirect Taxes and Allied Laws Committee
BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY
Post-Budget – 2007 Representation on Service Tax
1. 2. 3. 4. 5. 6. 7. 8. 9. Renting of immovable Property .......................................................................................... 3 Service element in Specified Works Contract .................................................................. 3 CENVAT Credit Rules, 2004 .................................................................................................... 4 Revised Return: (Rule 7B) ...................................................................................................... 4 Penalty for delay in filing return (Section 70) ................................................................. 5 Adjustment of Excess Payment (Rule 6) ........................................................................... 5 Exemption to Resident Welfare Association........................................................5 Higher and Secondary Education Cess ............................................................................... 6 Basic Exemption Limit .............................................................................................................. 6
BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY 1. Renting of immovable Property: Renting, letting, leasing or licensing of specified immovable property is made liable to service tax. The service tax is on provision of service by service provider to service recipient for consideration. Clarification may be issued on the service element involved in renting or letting of immovable property and service tax is to be levied on that portion of renting or letting only. Deduction/abatement/exemption/exclusion for Return on Capital for investment made in immovable property may be allowed. In case of lending service under Banking and Financial service, interest on loan is specifically excluded from valuation of taxable service. Further, interest on overdraft facility, cash-credit facility and bill discounting etc. is also exempted vide Notification No. 29/2004-ST, dated 22/9/2004. Renting of immovable property by religious body is not liable to tax. The same treatment may also be granted to education body also as the object of such bodies is to generate funds by exploiting the immovable property for the purpose of achieving object of the body i.e. propagation/spread of education. Looking at the policy of the Government towards primary and secondary education (new education cess of 1%), even education bodies may be excluded from the levy of service tax under this category. 2. Service element in Specified Works Contract: In this category service element included in following works contract have been covered; Erection, commissioning and installation of plant, machinery, equipment etc. Commercial and Industrial Construction Construction of Residential complex Completion & Finishing, repairs, renovation, alternation and restoration of commercial & industrial construction and residential complex.
It is also proposed in the Budget to notify an optional composition scheme, under which service tax will be levied @ 2% of the total value of works contract. The service provider may be permitted to opt for composition scheme contract wise. Under State VAT Act, such option is available. It is suggested the such optional composition scheme may also be extended to other types of works contract such as repairs and maintenance of goods or equipments, processing of goods, photography etc., which are already taxed under Service Tax
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BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY Law and where VAT is levied on value of goods involved in the execution of such works contract. 3. CENVAT Credit Rules, 2004 Rule 6(3) is amended to provide for an option to general insurance service providers providing taxable as well as exempted insurance schemes to avail CENVAT Credit on all inputs/input services and reverse CENVAT Credit on a proportionate basis (proportionate to the value of exempted services), without maintaining separate accounts for inputs and input services used for rendering taxable services (proportionate theory based on turnover of taxable and exempted services). Such option of availment of proportionate CENVAT credit is not available to other service providers or manufacturer-cum-service providers or trader-cum-service providers, who provide both taxable as well as exempted services (trading of goods etc). The restriction provided in Rule 6(3)(c) for utilization of CENVAT credit to the extent of 20% of out put service tax is not rational and having no nexus to the input services utilized in providing taxable or exempted services. It is therefore suggested that the scheme of proportionate availment of CENVAT Credit as available to General Insurance service providers may be extended to all service providers. Further it is also suggested that, new taxable services namely “Renting of immovable property” and “Service element involved in works contract” to be included in Rule 6(5) of CENVAT Credit Rules, 2004 (similar to the nature of services referred to in rule 6(5)), so that full CENVAT credit of service tax paid on such services would be available if such services are not exclusively used in or in relation to manufacturing of exempted goods or providing exempted services. 4. Revised Return: (Rule 7B): Rule 7 B is inserted to allow an assessee to rectify mistake and file revised return within 60 days from the date of filing of the original return. The limit of 60 days be increased to One Year. The literal meaning of the rule provides that revised return is to be filed within 60 days from the date of submission of return i.e. If the return for Half year October, 06 to March, 07 is filed on 20th April, 2007 (due date is 25th April, 2007) then 60 days will be counted from 20th April, 2007 and not from due date. Thus the date of filing revised return will be varying in each case depending upon the date of filing of original return. It is therefore suggested that the period for filing revised should be counted from the due date of submission of half yearly return in Form ST-3.
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BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY It is also to be clarified that whether delayed return visited with newly prescribed penalty not exceeding Rs 2,000/- would also be eligible for revision, if any mistake or omission occurred therein. 5. Penalty for delay in filing return (Section 70): It may be provided that no penalty should be imposed on delayed filing of returns having „NIL‟ service tax liability.
6. Adjustment of Excess Payment (Rule 6): Rule 4A is substituted to provide that, where an assessee has paid any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, then excess amount paid can be adjusted against service tax liability for the succeeding month or quarter subject to certain conditions. It is provided that excess amount can be adjusted against tax liability of succeeding month or quarter. The dictionary meaning of expression „succeeding‟ is to come next after something; to follow. Thus excess amount can be adjusted only against next month or quarter and not after that. Hence it is suggested that the expression „succeeding month or quarter‟ may be replaced by „succeeding months or quarters‟ or „subsequent months or quarters”. The monetary limit of RS 50,000/- may be removed as the provisions of the Act i.e. Section 68(1) does not provide for such limit. Moreover, since the amount paid is excess amount which is not a service tax, what remedies are available to the assessee to claim such excess amount. Section 11B, which is made applicable to service tax provides for refund of tax and not excess amount. Further in cases where the excess payment made for particular month or quarter is more than Rs 50,000/- say RS 60,000 then adjustment is possible for RS 50,000/and what happens to balance amount of excess payment. No remedy available for claiming refund of such excess amount? 7. Exemption to Resident Welfare Association: Service provided by Resident Welfare Association under the category of „Club or Association‟ for consideration not exceeding Rs 3,000/- is exempted from whole of tax. The expression “Resident Welfare Association” is not defined in the Notification. The said expression is to be defined in the Notification.
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BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY Clarification to be issued with regard to exclusion of amounts contributed towards Property tax & Water tax payable to Municipal Corporation, N. A. (Land) Tax and Sinking Fund etc. while computing the exemption limit of RS 3,000/- per member/per month. Exemption limit of Rs 3,000/- per month to be made applicable to each residential unit instead of per member as the member owning more than one residential units will be at disadvantageous position. 8. Higher and Secondary Education Cess: A new cess called „Higher and Secondary Education Cess‟ will be levied @ 1% on service tax leviable on taxable services effective from the enactment of the Finance Bill, 2007. This cess will be calculated in addition to Education Cess of 2%. Thus the calculation will 12%+2%+1%, thus creating three layers of tax with different account codes, which will be very complex and tedious. Therefore it is suggested that entire education cess may be calculated at 3% i.e. 12%+3% in two layers. 9. Basic Exemption Limit: The basic exemption limit for small service providers is increased from RS 4,00,000/to RS 8,00,000/- under Notification No. 6/2005. It is suggested that in view of Nation moving towards Goods & Services Tax in the financial year 2010-11, the exemption limit as increased to RS 8,00,000 be further increased to RS 10,00,000/- (Effective Tax impact incl. Ed. Cess of RS 1.24 Lakhs) , to have some parity with the exemption granted to Small Scale Industries under Central Excise Act, 1944 (increased to RS 1.50 Crores from Rs 1.00 Crores – Effective Duty impact incl. Ed. Cess of RS 24.72 Lakhs).
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