MARCH 4, 2011

Service tax on legal consultancy - Dear FM, why to exclude services provided to individuals?

By G P Sastry

BUDGET 2011 has done so many changes in the field of Central Excise and Customs and these charges are more than those spelt out in the Budget-2011 speech of the Finance Minister. The significant changes are, where the details of particulars and clearances reflected in the regular books are of accounts, but Excise Duty is not discharged, the maximum penalty imposable is brought down from 100% to 50%.

Similarly, any inputs used in the factory are now entitled for Cenvat Credit as against usage “in the manufacture of final products whether directly or indirectly” as existing now. Thus, even a pump used for drawing water from the borewell or an air condition used in the control room is now eligible for Cenvat.

Similarly, input services like Rent-A-Cab Services, Mobile Telephones, Video Conference facilities, etc., are all eligible for Cenvat Credit so long as they are used within the factory premises.

The biggest change that will have far reaching effect is levy of 1% Excise Duty on hither to exempted goods including items like fertilizers and common usage items like slates, flavoured milk, fly ash and tender coconut and the list is running to 76 items and they are now liable for excise duty without Cenvat Credit facility on inputs or input services. This is an indirect levy of almost 2% since the raw material used there for would also attract Excise Duty @ 1%. For instance, fly ash being the raw material for manufacture of bricks is also liable for 1% Excise Duty at fly ash stage and finished bricks are also liable for Excise Duty for another 1% tax and with no Cenvat Credit benefit, the total liability is almost 2%.

On the Service Tax front, a sea change is brought in by introduction of Service Tax on hospital services including diagnostic services which is made applicable for all the hospitals with more than 25 beds. However, central A/C facility is made as prerequisite for such levy and now we may find many corporate hospitals going back to window or split A/C system to avoid Service Tax liability.

Similarly, Service Tax is made applicable for Guest Houses, Hotels, bars and restaurants and it will have a big burden for the industry and uphill task for the department to ensure total compliance of tax liability. It may be impossible for the Central Excise and Service Tax department at the present level to monitor such huge volumes of business without harassment and substantial leakage of revenue at every stage.

Service Tax on legal profession is also expanded but does not explain why the legal consultancy provided by an advocate to another individual should be made outside the purview of Service Tax liability which would only result in undue wastage of time for verification of records.

Exemption from audit and scrutiny for assesses with less than 60 lakhs annual turnover is a welcoming feature and retaining the SSI exemption for Central Excise upto Rs.1.50 crores and Service Tax upto Rs.10.00 lakhs does not carry any sense more particularly with huge number of services being brought into Service Tax net and it becomes impossible for the department to manage for such huge assessee based.