The Hindu Business Line : The service see-saw

LUCA Pacioli, who introduced the concept of book keeping to the world, had a basic tenet — for every debit there will be an equal and opposite credit. And there is the theory that for every action there will an equal and opposite reaction. The Finance Minister, Mr Jaswant Singh, seems to have kept these two principles in mind while preparing the Budget for 2003-04.

The Finance Minister decreases the price of cars but increases fuel costs. Diesel prices are now inching closer to petrol prices of yesteryear, while the latter is already in stratosphere. In housewife parlance, this would be akin to increasing the prices of vegetables but decreasing the cost of pressure cookers. He makes computers more affordable but increases the cost of browsing by 8 per cent. He enthrals the salaried with his proposals, but quietly permits the States to levy 4 per cent additional excise duties on textiles, sugar and tobacco. The effect of the introduction of VAT on prices is not to be ignored.

In Budget 2003, in addition to the across-the-board 3 per cent increase in service tax, services now include business auxiliary services, commercial training or coaching, commissioning and installation, franchisee, Internet browsing, repairs and maintenance, technical testing and analysis, technical inspection and certification, foreign exchange broker and port services. The intention to tax all sorts of services is obvious considering the desire to apply these provisions to general services such as repairs and maintenance. This apart, a few other changes have also been made.

The seesaw battle over levy of this tax on clearing and forwarding agents and goods transport operators is proposed to be terminated. For the period July 16, 1997 to October 16, 1998, this tax would be paid by the person utilising these services. The relevant return in this regard is to be filed within six months of the Finance Bill getting the President's nod. A new clause (zzj) has been introduced in Section 65 to provide for the levy of this tax to a customer, by an authorised service station in relation to any service or repair of a maxi cab. A similar provision already exists in clause (zo) and, hence, adding a new clause seems unnecessary.

Exemptions are envisaged for cost of parts or material used while providing repairs and maintenance and commissioning or installation services. Commercial training or coaching could also involve the supply of some material but no exemption has been envisaged. The Bill has also introduced a new Section 65A that attempts to clarify classification of services. It stipulates that where a taxable service is, prima facie, classifiable under two or more sub-clauses, classification shall be as follows:

The sub-clause, which provides the most specific description, shall be preferred;

Composite services that cannot be classified as per the above diktat shall be classified as if they consisted of a service which gives them their essential character insofar as this criterion is applicable;

When the above two clauses do not assist, the classification would be under the sub-clause which occurs first among the sub-clauses which equally merit attention.

While the second stipulation would send all legal pundits scurrying for interpretation, the third stipulation is akin to the Duckworth principle in cricket — it provides a result but not necessarily the desired one.

Section 73 provides an opportunity for assessees to determine and pay service tax that has escaped assessment or has been under-assessed either on their own volition or on the instructions of the officer concerned. The rider here is that they would not apply taxes that were payable or ought to have been paid before the Finance Bill is approved by the President.

A facility of reduced penalty amounting to 25 per cent of the service tax payable has been provided for as per Section 73(2A).

It has become a fashion to include an Authority for Advance Rulings to pre-empt disputes. Even service tax has now become a casualty. Non-residents and residents having business links with non-residents can approach the Authority for their clarifications.

The necessity for this Authority needs to be reconsidered. After all, service tax is a fairly straightforward law and interpretations or disputes are minimal.

Taking a cue from Modvat/Cenvat, service tax credit can now be enjoyed for services provided by any service provider.

Though laudable, considering the sheer variety of services being offered, one wonders whether this enabling provision would actually prove beneficial, save for a few essential services such as transport, courier, telephone, advertisement, and so on.

It is difficult to imagine a chartered accountant utilising service tax credit from a beauty parlour or a mandap keeper.

It would be preferable to be specific about the services where this can be availed of, and ring-fence the other provisions from this clause to prevent disputes.

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