Effective date of enhanced rate of Service Tax

[Surender Gupta]

Which is the effective Date of Increased Rate of Service Tax @ 12% (plus Education Cess)?  Is it 18-4-2006 or 19-04-2006?

The Finance Act has got the assent of the president of India as on 18-4-2006 that means it became enacted on 18-4-2006 itself.

However, the Finance Act (No. 21 of 2006), 2006 has been published in the Gazette of India only on 19-04-2006. It means the public came to know the enactment on 19-4-2006 only.  [Note: - the authenticated copy of the Gazette is yet to be made public]

The letter issued by the TRU (Ministry of Finance) states that the provisions of the Finance Act with respect to increase of Rate of Service Tax come into effect from 18-4-2006 on the other side it has issued various notification and framed rules only on 19-4-2006 in accordance with the changes made by the Finance Act, 2006.

The letter of the TRU is being reproduced here:

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
TAX RESEARCH UNIT

Sub: Enactment of Finance Bill, 2006 - Reg

With the assent of the President of India on 18.4.2006, Finance Bill, 2006 has now become an Act. Consequently, changes announced in the Budget regarding in the rate of Service Tax and amendments in Service Tax Rules and CENVAT Credit Rules have become effective from 18.4.2006. A Press Release giving details of all these changes is placed below. It is requested that this may kindly be given wide publicity through print and electronic media.  Soft copy of the Press Release is also enclosed for facility of circulation.

F.NO.B1/4/2006-TRU

Manual of Rules of Procedure and Conduct of Business in the Lok Sabha,  published on the Web Site of Ministry of Parliamentary Affairs,  Chapter 7 and 9, prescribes the manner and procedure for introduction and passing and enactment of Budget / legislations.

In the manual the all the procedures has been specified including publication in the official Gazette but is salient on the issue of effective date of operation of enactment.

However, Himachal Pradesh Government has also published the manner and procedure for enactment /  PRESENTATION OF BILLS FOR ASSENT AND PUBLICATION AS ACTS etc. In the Chapter 8 paragraph no. 33 states that: -

33. Publication of the Bill as Act: A Bill becomes a law as soon as it is assented to by the Governor or the President, as the case may be. The general rule regarding coming into operation of an enactment is that in the absence of any express provision to the contrary, an Act comes into operation on the day on which it is first published in the Official Gazette, after which it receives the assent. Thus after the Bill is assented to by the President or the Governor, as the case may be, and is assigned the number and year by the Law Department, by making entry in the Register of Acts, the Bill, as assented to, is published as an Act in the Official Gazette.

Also, as per the set principles, all the Acts, Rules, Regulations or Notifications shall come into force from the date of publications into the official Gazette, unless otherwise stated in the respective Act, Rule or notification. In the main Finance Bill, 2006 (Act now) in the chapter IV, in section 68, in part A, it has been stated that: -

"in section 65, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint….."

However, no such condition has been put in the part B to part L of the Finance Bill. However, in the Explanatory note it has been stated that these provisions shall be made effective from the date of enactment of Finance Bill, 2006.

Whether explanatory note will decide the effective date of operation of Finance Act? Possibly no.

If we take 18-4-2006 as the effective date that means the services rendered on 18-4-2006 and invoices issued on this date are required to be taxable at the rate of 12% (plus cess) but relevant notification was issued on 19-4-2006 only.

Consequently: -

1 Valuation rule does not apply to the services rendered / invoices issued on 18-4-2006.

2  Import of Services is not taxable which have been received on 18-4-2006.

Is it the intention or purpose of the law?

Conclusion

Despite the foregoing discussions, since this matter is highly sensitive and  litigative, one may decide to increase the rate of service tax from 10% to 12% from 18-4-2006.