Service Tax: What’s In For Assessees

Dr. Sanjiv Agarwal

Union Budget 2014 brings a mixed bag of some relief and some hard times for service tax assessees. The changes are aimed at widening the tax base as also enhance the compliance levels. The emphasis has been on ensuring stability and continuity in the light of proposed goods and service tax, which will replace most of the indirect taxes (service tax, VAT, excise etc) by next fiscal.

To widen the tax base, negative list of services has been pruned to make services of radio taxies (such as meru cabs, my cab, meri car etc) and renting or hiring of space for advertisement in online media and mobile as taxable services. Thus,   new web based and mobile advertisements would attract service tax, so also commuting in radio taxies. All sorts of taxies other than ordinary metered cabs would be taxed. However, auto rickshaws would continue to be out of service tax net.

Exemption has been withdrawn to services of technical testing of drugs, vaccines and herbal remedies. Also passenger transportation by air conditioned contract carriage will attract service tax. Exemption to renting of immovable properties to educational institutes has also been withdrawn. In case of educational institutions, services received for transportation of students, faculty, staff; catering including mid- day- meal, security, cleaning,   housekeeping; examination and admission related services will be exempted but other services would be taxed.

Certain new services on which service tax shall be exempt include transport of organic manure; loading, packing, storage or warehousing of cotton; services to foreign tourists for foreign tours, accommodation services by non- commercial entities etc.

Budget comes as a heavy blow on defaulters. In case where payment of service tax is delayed, assessees will have to pay interest as high as 30 percent p.a. on delayed payment, which is perhaps the highest rate of interest ever. W.e.f October 2014, rate of interest will go up from present 18 percent per annum to 18 percent upto 6 months delay, 24 percent for delay from 6 months to one year and 30 percent for delay over a year. This will cause undue hardship in genuine cases of delay either due to liquidity or where interpretational issues are under appeal or adjudication. Moreover,   30 percent interest is unheard of. If there is a delay in refund to the assessee, the Government pays interest only @ 6 percent. In all fairness, rate of interest ought to be reduced. Another financial hardship would be caused by the new provisions of mandatory pre-deposit of demands in appeal. Assessees will have to compulsory pay service tax equivalent to 10 percent of total demand before filing appeal in Tribunal.

Non- compliances are thus, going to be a costly affair from now. Let’s hope that with too much of amount going as taxes, both as central tax or state tax, assessees are lift with reasonable amount to battle with the realities of life.