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Dr. Raja Chelliah Committee on Tax Reforms
recommended the imposition of Service Tax as an indirect tax at Central level
conceived of as a broadly neutral levy in relation to production and consumption
and was intended to cover in course of time commodities and services moving
towards a Value Added Tax. It was envisaged that when ultimately Central Excise
changes into a Value Added Tax at manufacturing level, service tax will gel in
the system covering commodities and services. The tax base was thus intended to
be covered by a single levy, the essence of such levy being to mitigate the
burden, avoid cascading effect and distribute the burden widely. It was in
acceptance of this proposition that the Finance Act, 1994 introduced the levy of
service tax. While the original levy covered three specific services, the
Finance Acts of subsequent years witnessed a continuous enlargement of the levy.
Starting with three services in 1994, by 2006 it had covered more than 100
services.
The Supreme Court in Laghu Udyog Bharati
case, considering the nature of the levy, held that service tax is levied by
reason of services which are offered, the imposition being on the person
rendering the services and being an indirect tax, it may be possible that the
same is passed on to the customers, though as far as levy and assessment are
concerned, it is the person rendering services who alone can be regarded as an
assessee and not the customer.
Considering the scope of Service Tax in
relation to other taxes on trade and calling, Courts have held that the aspect
of service provided is distinct and separate from the aspect of profession,
trade and calling and the two aspects not being identical, constitute different
fields for taxation. The Supreme Court while considering the levy of Profession
Tax vis-à-vis Income Tax, has taken the view that tax on income can be imposed
where there is income, while tax on the profession is on the carrying of the
profession and is irrespectively of the question of income. It is in this view
that the levy of service tax on services rendered by professionals like
Chartered Accountants or Management Consultants have been held to be valid.
When service tax was originally levied it
was expected that it would cover an unoccupied field. But this assumption does
not appear to have been accepted since the various successive Finance Acts have
chosen to impose service tax on transactions which fall within the purview of
Sales Tax. However, in respect of transactions which attracted liability to
Sales Tax as well as Service Tax, care had been taken to exclude from the value
of taxable services, the element of transaction of sale which attracted levy
under the Sales Tax Act. When services of erection, commissioning and
installation or catering service were brought within the purview of Service Tax,
appropriate abatement of specified percentages of the gross value included in
the total consideration was prodded to ensure that the transaction was not
doubly taxed under the Sales Tax and Service Tax Enactments. This distinction
has been maintained to avoid taxation of the same transaction under two
different fiscal Enactments.
Some of the later additions to the List of
Taxable Service do not appear to have appreciated the relevance of this
distinction. In fact the Finance Bill of 2007 has proposed to include within the
net of Taxable Service transactions which do not have an element of service
embedded therein. The Finance Bill seeks to include in the List of Taxable
Service “renting of immovable property” which is defined to include “renting,
letting, leasing, licensing or other similar arrangements of immovable property
for use in the course of furtherance of business or commerce”. The Explanation
clarifies that the aforesaid expression would include the use of immovable
properties as factories, office buildings, warehouses, theatres, exhibition
halls and multiple use buildings. The service rendered to any person by any
other person in relation to renting of immovable property for use in the course
of furtherance of business or commerce is deemed to be a taxable service. While
the definition “renting of immovable property” is elaborate and covers all
aspects relating to the transaction, the definition of “taxable service” with
regard to the above transaction appears to include only services rendered to any
person by any other person in relation to renting of immovable property. It is
difficult to assume from this definition that what is intended to be taxed is
the consideration for such a renting and not the consideration for service in
relation to such renting. Legally and factually, there is wide difference
between the two transactions. It appears to have been understood that the
amendment is intended to include within the net of Taxable Service the
transaction of renting of property. In such an event the consideration is likely
to include the rental value. A transaction of renting of the property does not
involve a service and is a transaction relating to property. The levy of service
tax would not admit of including such a transaction within its scope and such a
levy is open to challenge.
It is indeed surprising that Service Tax
which is a major revenue earner is not covered under a single Enactment. Since
the levy as it was introduced was intended to cover only three Services, a
separate Enactment was not considered necessary. The subsequent Finance Acts
have added various Services in an ad hoc manner, with the result that there is
overlapping of Services among the Entries. This has caused considerable
confusion in interpretation. Of course, the saving situation is that there is
common rate of tax. It is not inconceivable that in course of time differential
rate can be made applicable for different Services. However, considering the
nature and impact of the levy, it is absolutely essential that there should be
Comprehensive Enactment covering the tax. It is strange that this uncertain
situation has been allowed to continue for more than a decade, notwithstanding
that the scope of levy has been continuously extended.
(V. RAMACHANDRAN) |