Taxation of Services -CONFUSION

Taxation of Services – Confusion Persists

byDr. Sanjiv Agarwal 
Source:Tax Guru

India has migrated to new regime of Service Tax w.e.f. July 1, 2012 where in all services, except negative list of services and exempted services are liable to suffer Service Tax @ 12.36 percent. While the government expects over 125 lakh crore rupees from Service Tax in current fiscal, it appears that the task may be achieved easily but at the cost of rising disputes and confusion.
In the garb of simplification and trimming of the statutory provisions, the Act has become more complicated and too much dependent upon rules and subordinate notifications. While interpretation of law itself will pose lot of challenges to all stake holders including the law implementing officers, it will give rise to disputes, litigation and consequential delayed or no recoveries.

It is indeed laudable that CBEC has this time issued an education guide for assessees as well as officers to understand the changes in Service Tax law and procedures. This is a welcome move but it comes with a rider. On are hand, government says that ‘it is necessary that these changes are well understood by the tax payers as well as our staff’. To this end, CBEC has issued an elaborate educational guide. It has also specified, that any Board Circular that is contrary to the revised law will stand automatically superseded. This will create problems for assessee to ascertain which ones prevail and which one stand superseded. CBEC ought to bring out a comprehensive list of live Circulars.

It is shocking to see that while with this educational guide, CBEC claims to have elaborately and comprehensively explained the taxation issues, it at the same time disowns any responsibility for the same. It states that it is merely based on broad understanding of a team of officers. It is neither a Circular nor a manual of instructions. It does not command any legal backing to be binding. In such a situation, expecting compliance with the law in letter and spirit is itself on a shaky foundation. Even the tax liability can be disputed by the officers. It also leaves room for all types of disputes. If government can not take a stand on issues, where should the assesses look at!!

There are many loose ends in the present taxation and it is expected that CBEC should come out with a legally binding Circular with all sorts of clarifications duly owning the same. It also needs to instruct its officers not to indulge in invoking harsh penal provisions in the first year of the new law