TIOL-DDT 620
24.05.2007
Thursday

Yesterday’s DDT mentioned, ¶The Service provider who pays the Service Tax @ 2% will not be eligible for cenvat credit.¶

An alert netizen, KartikSolanki points out that the restriction is only in relation to inputs. As per the notification no. 32/2007, a works contractor, who opts to pay service tax @ composition rate of 2% can not avail CENVAT credit of any duties or cess paid on 'inputs'.

Yes Sir, you are right; the bar is only for inputs and not for input services or capital goods. Is this a conscious decision or an error? After all when abatement is given under Notification No. 1/2006, no credit at all is allowed.

Another important feature is that the stipulation in Notification Number 1/2006 that value of materials / goods supplied / used in the works contract needs to be added to the gross amount charged, is not found in the new works contract composition scheme rules. Hence, in a Rs 10 Crore commercial construction contract, if the value of own material used by the service provider is, say, to the extent of Rs 3 Crores, that fact would result in the said contract falling within the definition of ‘works contract’. Additionally, in the same contract, if client supplies materials worth Rs 5 Crores or 20 Crores, then 2% service tax needs to be paid by the service provider on Rs 10 Crores only (Gross amount charged) and not on Rs 15 Crores or Rs 30 Crores.

Was the government planning to give a bonanza to the assessees? Now all the eligible service providers can get into the works contract wagon and save a lot of Service Tax. In a Rs. 10 Crore construction activity, if the cost of materials supplied by the client is Rs. 8 Crores, under construction service, the tax liability would have been Rs.39.6 Lakhs (12% of 33% of Rs. 10 Crores). Now under Works Contract, it would be only Rs. 4 lakhs (2% of Rs. 2 Crores).

Why was the abatement of 67% given? Maybe, under the assumption that 67% constitutes goods and 33% is service. And what was wrong with the abatement scheme? Maybe a little more abatement could have been given. Importing Sales Tax concepts into Service Tax may not be all that wise a step. We have to wait for the issues to settle.

Exemption from service tax to foreign missions/ consulates and to the personnel

At present ‘service specific exemptions’ are available to certain specified foreign missions/ consulates (vide notification Nos. 5/96-ST, 10/96-ST, 44/98-ST, 50/98-ST, 51/98-ST and 1/2001-ST), while for UN and other International Organizations a general exemption is available under Not. No.16/2002-ST. It was observed that the present service tax exemption scheme to foreign missions/ consulates and their personnel is selective and is not flexible enough to be useful for negotiations with other countries, to the extent of providing or modifying the tax concessions on reciprocal basis. It was also noted that a relatively flexible exemption system is available in respect of excisable goods vide serial No. 81 of Notification No. 6/2006-CE dated 1/3/06, and therefore, it may be preferable to modify the service tax exemption scheme in the same pattern.

And it has been decided to prescribe the scheme for service tax exemption in similar lines to the excise exemption, with required modifications.

Government has issued two notifications yesterday to exempt

1. all taxable services provided to foreign diplomatic missions or consular posts in India for their official use, and

2. all taxable services provided to diplomatic mission agents or career consular officers posted in a foreign diplomatic missions or consular posts in India for their personal use.

Of course the exemption comes with stringent conditions, certification, verification et all!

For the Diplomatic Mission:

1. Get a certificate of eligibility from the Protocol Division of the Ministry of External Affairs.

2. The Head of the Mission has to give a copy of that certificate to the Service Provider.

3. He should give an undertaking that the services are for use in his mission.

4. He should maintain an account of the undertakings issued, name, address, invoice number and registration number of the Service Provider.

For the Service Provider:

1. Mention the sl No. and date of the undertaking in the invoice.

2. Retain the documents given by the mission for verification.

Just imagine the number of audit paras after one year.

Consequently the earlier exemption notifications are rescinded.

Notification Nos 33, 34 and 35/2007-Service Tax, Dated: May 23, 2007 and letter from Commissioner, Service Tax.

ITR-1 is the simplest form in the world – PC

The Finance Minister Chidambaram, addressing the Convocation Ceremony of the first Batch of Tax Return Preparers (TRPs) said that the TRP scheme was a unique initiative of the Government to encourage young men and women graduates to embark upon a successful career as TRPs and eventually as financial advisors to small and marginal taxpayers.

Projecting direct taxes as a progressive tax and the taxes of the future, the Finance Minister emphasised that an unprecedented and highest ever tax collection of Rs.2,29,505crore was achieved by the Income Tax department at the lowest cost of 0.59%.

Allaying the common misconception that tax laws and procedures in India were among the most complicated in the world, the Finance Minister emphasised that the tax return forms, specially the return form ITR-I, were among the simplest in the world.

The TRPs would help collect more taxes and inculcate the habit of voluntary tax compliance among small and marginal taxpayers. The Finance Minister personally distributed certificates to 23 TRPs, each of whom had scored 100% in the certification test.

In her welcome address, CBDT Chief, IndiraBhargava said that the Tax Return Preparer Scheme announced in the union budget 2006-07 is one of the boldest attempts by the Income-tax department to provide quality taxpayer service to the small and marginal taxpayers so that the citizens can fulfil their tax obligation with ease. She said, the scheme gives a unique opportunity for the Income Tax Department to provide self-employment opportunities to the bright youth of the country and give them a platform to extend a helping hand to the members of their community.

The Department has already set up a Resource Centre that is headed by a Commissioner of Income-tax to monitor the implementation of the scheme. The Resource Centre will constantly monitor the work of the TRPs in the field and issue quality alerts to them, as and when needed.

Can Abhishek Bachan and Aishwarya Bachan be asked to pay Service Tax on the telecast of their marriage?

This was a question the Tribunal asked. Excerpts from the CESTAT judgement.

By taking a common example from recent time, coverage of marriage rites between celebrity couple Arun Nair and Elizabeth Hurley are reported to be exclusively sold to “Hello” magazine and similarly there are rumours of sale of “marriage function” of leading movie actor AbhishekBachhan with Aishwarya Rai to a particular channel for broadcasting. Will such sale of performance rights coverage would convert the seller into an advertising agency, providing any service in relation to advertisement to a client. The answer is emphatic ‘No’.

This was incidentally the case of BCCI. The Cricket Board won the case with as much ease as Australia beating BanglaDesh.

See our Breaking News for more details.

Until Tomorrow with more DDT

Have a nice day.

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