Service tax- Expected ease for small service providers and suggestion for exemption of tax duty on large tax payers for ease of business and taxation – no purpose in first collect and then refund policy need a change to make business easy

[CA DEV KUMAR KOTHARI]

News report:

From news on some business news channels it was learnt that it is expected that the limit for exemption to small service providers is likely to be increased to ₹ 25 lakh.

Advertisements of service tax department:

In advertisements  ( like I am a proud service tax payer…..)  of Service Tax department present exemption of Rs. Ten lakh is indicated   for service providers with rider that this exemption is not applicable to service provider in case of reverse charge method.

Therefore, for service receivers falling into reverse charge method, there is no exemption at all. Even if a company has paid directors fees of say ₹ 5000/- in a year, the company is liable to get registered and pay service tax. 

For people rendering taxable services and also availing taxable services falling under reverse mechanism, exemption limit for both may be prescribed.

Suggestion to extend ease of doing business for small service providers and receivers:

1. The expected exemption up to ₹ 25 lakh is a welcome step, and if it becomes reality it will make doing business easy for many service providers who are in nature of self-employed people.
2. The exemption should also be provided for service receivers who are liable to pay service tax on services availed.

Suggestion to extend ease of doing business for  big excise duty and service tax payers:

There is no purpose in approach of government under which tax is collected and then it is refunded or allowed credit against tax payable.

The examples of TDS  and refund of excess tax under income-tax Act, and charging of excise duty and service tax and then allowing credit by way of CENVAT credit are examples of such policies which have been in force in different manner for long period of time.

All these increases paper work, litigation, and corruption due to power to harass tax payer by disallowing claims on flimsy grounds.

Exemption from levy of tax on inputs:

A  tax / duty payer who  is found to have paid substantial amount of tax, even  after availing CENVAT credit,   can be exempted from levy of tax and duty on inputs and so there will be no CENVAT credit and tax/ duty payer will pay full amount of tax.

For example suppose a large bank has tax liability of say ₹ 100 crore in a month and avails CENVAT for input services to the extent of ₹ 20 crore and thus pay ₹ 80 crore. Such tax payer/ bank may be exempted from levy of service tax on services availed by it and then he will be required to pay ₹ 100 crore directly. This will obviate need of levy of service tax by large number of service providers., and also in case of reverse charge applicable, bank itself paying service tax on input services and then availing CENVAT.

Another  example,  suppose a large  steel plant has tax liability of  excise duty of say ₹ 500 crore in a month and avails CENVAT for input material, input capital goods and input  services to the extent of ₹ 60 crore and thus pay ₹ 440 crore. Such tax payer/ steel plant may be exempted from levy of service excise duty on input goods and input capital goods,  tax on services availed by it and then he will be required to pay ₹ 500 crore directly. This will obviate need of levy of excise duty on inputs goods received from suppliers, and service tax by large number of service providers, and also in case of reverse charge applicable, steel plant itself paying service tax on input services and then availing CENVAT on input goods, services and input services under reverse charge mechanism.