Taxation Of Import Of Services In India And Levy Of Service Tax
N. Vijia Kumar
This article deals with the taxation of import of services in India and evaluation of levy of service tax in the light of some relevant circulars and notifications. The author has also referred to a decision of the Bombay High Court in Indian National Shipowners Association v. Union of India [2009] 18 STT 212.
1. Service tax evolution is not only informative but also interesting. This levy was imposed by the Finance Act, 1994 and the subsequent Finance Acts amended this Act to expand the base and increase the levy. This can be stated to be the only instance in the Indian Legislative history where a later Finance Act amends an earlier one.
Further, it would be astonishing to note that the Finance Act, 1994 is the only statute on the statute book which has no Statement of Objects and Reasons, and one of the few statutes that has not been considered either by a Parliamentary Committee or a Select Committee of the Parliament.
Yet another distinguishing feature is that this levy is imposed on the service sector but enforced by the Central Excise Authorities who are constituted under the Central Excise Act, 1944.
2. Service tax was introduced for the first time under Chapter V of the Finance Act, 1994. Section 66 of the Act was the charging section and provided for a levy of service tax at the rate of 5 per cent of the value of the taxable service.Taxable service was defined in section 65 to include only three services viz., any service provided to an investor by a stock broker, to a subscriber by the telegraph authority, and to a policy holder by an insurer carrying on general insurance business. Section 68 required every person providing the taxable service to collect service tax at the specified rate. Section 69 provided for the registration of a person responsible for collecting service tax. Sub-section (2) of section 5 indicated that it was the provider of the service who was responsible for collecting the tax and obliged to get registered. Sections 65, 66, 68 and 69 were subsequently amended, though the remaining sections continued as originally enacted with minor changes. Under section 70, every person responsible for collecting service tax is required to furnish to the Central Excise Officer in the prescribed form and verified in the prescribed manner, a clear return. Sections 71, 72 and 74 deal with filing of the returns, provision for assessment, reopening of assessment and rectification of mistake in the assessment order. Section 75 provides for payment of interest by the person responsible for collecting service tax if there is delay in paying the tax to the credit of the Central Government. Section 76 deals with exemption of penalty for failure to collect service tax. Section 77 deals with penalty for failure to furnish the prescribed return. Section 78 deals with penalty for suppression of the value of the taxable service. Section 79 deals with penalty for failure to comply with notice. Section 94 empowered the Central Government to make Rules for carrying out the provisions of ChapterV of the Finance Act, 1994. The Service Tax Rules, 1994 were framed pursuant to such power.
3. Service Tax Circular No. 36/4/2001, dated 8-2-2001 of the Government of India, Ministry of Finance clarified that services provided beyond the territorial waters of India are not liable to service tax, as provisions of service tax had not been extended to such areas. On March 1, 2002, Notification No. 1/2002-ST, dated 1-3-2002 was issued by which the provisions of Chapter V of the Finance Act, 1994 were extended to the Continental Shelf and Exclusive Economic Zone of India.
Notification No. 36/2004-ST, dated 31-12-2004 notified the following taxable services for the purposes of section 68(2) of the Finance Act, 1994, viz., services in relation to telephone connections as pager; general insurance business, insurance auxiliary service by an insurance agent; and transport of goods by road in a goods carriage. It was further provided that any taxable service by a person who is a non-resident or is from outside India, or does not have any office in India, is exigible to tax.
The Service Tax Rules, 1994 were amended on June 16, 2000, and a provision was added in rule 2, viz., rule 2(iv). By this provision while defining the term person liable to pay service tax, a person, who has received services outside India was made liable for the levy of service tax.
On June 16, 2005, an amendment was made in the Finance Act, 1994 by which an Explanation was added below section 65(105), to provide that if a service is provided by a person who does not have permanent residence in India, to a person having permanent residence in India it is deemed to be a taxable service. Section 66A was inserted in the Finance Act, 1994 with effect from April 18, 2006 to provide for Charge of service tax on services received from outside India.
4. Indian National Shipowners Association v. Union of India [2009] 18 STT 212 (Bom.).
The Indian National Shipowners Association, which was engaged in the operation of ships, challenged the constitutional validity of (i) section 66A of the Finance Act, 1994 introduced with effect from April 18, 2006 (ii) Explanation to section 65(105) which was in force between June 16, 2005 and April 17, 2006 and (iii) rule 2(1)(d)(iv) of the Service Tax Rules, 1994 inserted with effect from August 16, 2002, submitting that the service tax authorities on the basis of the above provisions were seeking to levy and recover service tax from persons resident in India on the services which were rendered and/or performed outside India by non-residents service providers. It was highlighted that the Indian Shipping Industry was obliged by statute and the provisions of the Merchant Shipping Act, 1958 and in terms of the normal conditions of trade, to obtain and consume out of India services such as Custom House Agents Services, Steamer Agents Services, Clearing and Forwarding Agents Services, Port Services, Cargo Handling Services, Storage and Warehouse Services, Maintenance or Repair Services, etc.
This article deals with the taxation of import of services in India and evaluation of levy of service tax in the light of some relevant circulars and notifications. The author has also referred to a decision of the Bombay High Court in Indian National Shipowners Association v. Union of India [2009] 18 STT 212.
1. Service tax evolution is not only informative but also interesting. This levy was imposed by the Finance Act, 1994 and the subsequent Finance Acts amended this Act to expand the base and increase the levy. This can be stated to be the only instance in the Indian Legislative history where a later Finance Act amends an earlier one.
Further, it would be astonishing to note that the Finance Act, 1994 is the only statute on the statute book which has no Statement of Objects and Reasons, and one of the few statutes that has not been considered either by a Parliamentary Committee or a Select Committee of the Parliament.
Yet another distinguishing feature is that this levy is imposed on the service sector but enforced by the Central Excise Authorities who are constituted under the Central Excise Act, 1944.
2. Service tax was introduced for the first time under Chapter V of the Finance Act, 1994. Section 66 of the Act was the charging section and provided for a levy of service tax at the rate of 5 per cent of the value of the taxable service.Taxable service was defined in section 65 to include only three services viz., any service provided to an investor by a stock broker, to a subscriber by the telegraph authority, and to a policy holder by an insurer carrying on general insurance business. Section 68 required every person providing the taxable service to collect service tax at the specified rate. Section 69 provided for the registration of a person responsible for collecting service tax. Sub-section (2) of section 5 indicated that it was the provider of the service who was responsible for collecting the tax and obliged to get registered. Sections 65, 66, 68 and 69 were subsequently amended, though the remaining sections continued as originally enacted with minor changes. Under section 70, every person responsible for collecting service tax is required to furnish to the Central Excise Officer in the prescribed form and verified in the prescribed manner, a clear return. Sections 71, 72 and 74 deal with filing of the returns, provision for assessment, reopening of assessment and rectification of mistake in the assessment order. Section 75 provides for payment of interest by the person responsible for collecting service tax if there is delay in paying the tax to the credit of the Central Government. Section 76 deals with exemption of penalty for failure to collect service tax. Section 77 deals with penalty for failure to furnish the prescribed return. Section 78 deals with penalty for suppression of the value of the taxable service. Section 79 deals with penalty for failure to comply with notice. Section 94 empowered the Central Government to make Rules for carrying out the provisions of ChapterV of the Finance Act, 1994. The Service Tax Rules, 1994 were framed pursuant to such power.
3. Service Tax Circular No. 36/4/2001, dated 8-2-2001 of the Government of India, Ministry of Finance clarified that services provided beyond the territorial waters of India are not liable to service tax, as provisions of service tax had not been extended to such areas. On March 1, 2002, Notification No. 1/2002-ST, dated 1-3-2002 was issued by which the provisions of Chapter V of the Finance Act, 1994 were extended to the Continental Shelf and Exclusive Economic Zone of India.
Notification No. 36/2004-ST, dated 31-12-2004 notified the following taxable services for the purposes of section 68(2) of the Finance Act, 1994, viz., services in relation to telephone connections as pager; general insurance business, insurance auxiliary service by an insurance agent; and transport of goods by road in a goods carriage. It was further provided that any taxable service by a person who is a non-resident or is from outside India, or does not have any office in India, is exigible to tax.
The Service Tax Rules, 1994 were amended on June 16, 2000, and a provision was added in rule 2, viz., rule 2(iv). By this provision while defining the term person liable to pay service tax, a person, who has received services outside India was made liable for the levy of service tax.
On June 16, 2005, an amendment was made in the Finance Act, 1994 by which an Explanation was added below section 65(105), to provide that if a service is provided by a person who does not have permanent residence in India, to a person having permanent residence in India it is deemed to be a taxable service. Section 66A was inserted in the Finance Act, 1994 with effect from April 18, 2006 to provide for Charge of service tax on services received from outside India.
4. Indian National Shipowners Association v. Union of India [2009] 18 STT 212 (Bom.).
The Indian National Shipowners Association, which was engaged in the operation of ships, challenged the constitutional validity of (i) section 66A of the Finance Act, 1994 introduced with effect from April 18, 2006 (ii) Explanation to section 65(105) which was in force between June 16, 2005 and April 17, 2006 and (iii) rule 2(1)(d)(iv) of the Service Tax Rules, 1994 inserted with effect from August 16, 2002, submitting that the service tax authorities on the basis of the above provisions were seeking to levy and recover service tax from persons resident in India on the services which were rendered and/or performed outside India by non-residents service providers. It was highlighted that the Indian Shipping Industry was obliged by statute and the provisions of the Merchant Shipping Act, 1958 and in terms of the normal conditions of trade, to obtain and consume out of India services such as Custom House Agents Services, Steamer Agents Services, Clearing and Forwarding Agents Services, Port Services, Cargo Handling Services, Storage and Warehouse Services, Maintenance or Repair Services, etc.
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