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Ease Of Doing Biz: Rationalization Of Service Tax

Published on Tue, Mar 01,2016 | 21:04, Updated at Tue, Mar 01 at 21:04Source : 

By Sagar Shah, Head – Indirect Taxes, BDO India LLP

The Finance Bill 2016 fine print does have some goodies for service tax payers. It is heartening to see that quite a few important pre-budget recommendations are being heard and have become part of the budget proposals. Some important proposals:

1.   Rate of Interest for delay in payment - The Finance Act, 2014 introduced a new regime of interest rates which were in the range of 18% to 30% based upon the period of delay in payment of taxes. Interest of 30% for a delay beyond a period of 1 year was more of an “usury” and less of “interest”. In modern times the term usury would mean the practice of making unethical or immoral monetary loans that unfairly enrich the lender. As per the website “Wikipedia” - A loan may be considered usurious because of excessive or abusive interest rates or other factors.

The proposed amendment in the Finance Bill, 2016 now intends to rationalize the interest rates to be classified in two parts as under:
•        For tax collected and not paid within specified time – 24% p.a.
•        In other cases – 15% p.a.
Further, in cases of service providers whose annual taxable turnover is less than 60 lacs, the rate of interest would be 12% p.a.

2.      Rationalisation of provisions in relation to prosecution :
The recent Make My trip case where prosecution was invoked merely on the basis of “reason to believe” (or suspect) that there was an evasion of service tax, wherein the company had to approach the Delhi Court to intervene is all in public domain. It is very heartening to see the provisions in relation to prosecution being rationalised ( so as to avoid more such fiasco’s) by clipping the powers of the departmental officers to invoke arrest only in cases where the officer has reason to believe that tax has been collected but not paid and also when the amount involved exceeds INR two crores. This does absolve all service providers who couldn’t pay tax since they were not aware or the liability to pay is being disputed, from the fear of unnecessary prosecution pressures. In such a case, the department would now have to establish its claim to evasion of tax and only then invoke powers to arrest.
3.    Retrospective refunds/exemptions:
Something which is retrospective in law but beneficial to the assesse – pretty unusual. Yes it is, but the Finance Bill 2016 does provide for retrospective exemptions and refund for exporters and government contractors in specified scenarios. The case in point can be that of a civil contractor for government who was exempt till 31.3.2015 and then his services became taxable. Obviously for ongoing contracts as well he would have ended paying taxes whether or not his terms of tender/contract which was signed before this date clearly meant no tax to be paid by government to him, this would mean a huge loss. The proposed amendment would now enable every such contractor to claim exemption if his contract was entered into before 1.4.2015 and he has this window till 31.3.2020.
 4.      Amendment in CENVAT Credit Rules:

A major area of dispute that always arose was in relation to the   apportionment of credit utilised in relation to taxable and exempted services/goods. Probably this would be the largest area of litigation under the current scenario and it is good to see some amendments in this direction. Having said so, only time would test whether these would resolve the issues in totality or would continue to have (or increase) interpretational issues.
Clearly the Finance Minister (and the bureaucrats) have shown an intention in terms of easing out things for taxpayers with these and various other initiatives including reducing litigation, speedy disposal of cases and so on. And after doing all these, Indirect taxes in totality would still add to the revenues year on year!

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