JULY 05, 2009

Advance Ruling for Service Tax

Tapas Misra, Advocate

SINCE service tax is added to the price of services and passed on to the customer, in situations where the service provider has a significantly greater bargaining strength or if the nature of service is such that service receivers are scattered individuals, the service provider does  not bother too much whether at all there is an obligation to pay tax. We have seen examples in the case of ‘renting', when no landlord bothered to even find out if the law at all required service tax to be levied on ‘rent'. They simply charged it and threatened tenants with eviction if they questioned the levy.

Similarly, I've seen a restaurant at Mumbai air port charge service tax while selling a plate of samosas (in addition to VAT!). As the restaurant is used as a lounge by Air India for its Gold Card frequent fliers, any amount charged to Air India for this service would undoubtedly be chargeable to service tax, but using that pretext to levy service tax on sale of food items is a misuse of tax provisions.

There are endless instances of similar ‘illegal' collection of service tax which the government pockets without authority of law and which leave the citizen poorer because each particular instance may be too small, or the circumstances too forbidding, for creating a dispute.

The service provider, on the other hand, may be simply trying to ‘err on the side of caution' and de-risking himself from possible interest and penalties. The law provides no redress from this situation.

Suggestion:

A mechanism needs to be prescribed under the statute enabling service providers and service receivers (consumers) to seek a ruling in advance as to whether the transaction in question at all attracts service tax. Such ruling has to be provided within a specified time frame and in case a consumer has paid service tax for a transaction held not to be taxable, he should be able to get refund thereof.