The Reader

 

Dear Mr KSS

 

As per my understanding, the taxable event under GST could be the receipt of money or the raising of the invoice of the actual effecting of the sales /rendering of the services, whichever is the earliest.  If this is indeed the case, we could see the complications related to service tax getting extended to  GST well.

 

Of course, we cannot have two definitions for the taxable event, viz. one for service tax based on realisation of the invoices and another for the sale of goods on the basis of the invoice raised, as the same transaction would suffer both C-GST and S-GST.

 

The concept of accounting under Sch VI cannot determine tax issues...we already have such issues for works contractors, who are paying VAT on the basis of amount received, while for Sch VI, the percentage completion method is being followed.

 

Kind rgds

 

S Sivakumar / Director / http://www.s3soluti ons.in/ Tel :+91 80 42042944, 945, 946, 41538950 / Fax : +91 80 41155570 / Cell: +91 98455 07403/Email: sivakumar@s3solutio ns.in/ Address : No. 1, Seventh Main, II Stage, Indiranagar, Bangalore 560 038

From: K.Sankarasubramania n (Finance/TVS- E) [mailto:k.sankarasubramania n@tvs-e.in]
Sent: 11 December 2009 18:25
To: 'SIVAKUMAR S'; aaykarbhavan@ yahoogroups. com
Subject: FW: [aaykarbhavan] Will GST handle contentious service tax issues by S Sivakumar

 

Dear Respected Sivakumar-ji

 

I think there is one point which you have not covered !!

 

For GST levy on services, is it intended that it shall be taxed on realization basis only (similar to the current practices in service tax law today) ..and not simply on billing basis as what is done for VAT purposes?

 

This is because presently assessees face highly complicated accounting for service tax today …. wherein they maintain both cash basis of a/cing for service tax purposes … and also accrual basis of a/cing for SCH VI and all other purposes

 

Pl revert if your time permits

 

KSS/11.12.2009

 

 

 

K Sankarasubramanian		Taking IT to the heart of India
Senior Manager - Finance TVS Electronics Limited DP,34 South Phase, Industrial Estate, Guindy, Chennai 600 032. India.			Tel : +91-44-42275333 Fax : +91-44-22257577 Mob : +91-98400 93176 Mail : k.sankarasubramania n@tvs-e.in Web : www.tvs-e.in

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From: aaykarbhavan@ yahoogroups. com [mailto:aaykarbhavan@ yahoogroups. com] On Behalf Of SIVAKUMAR S
Sent: Friday, December 11, 2009 5:04 PostMeridian
To: 'SIVAKUMAR S'
Subject: [aaykarbhavan] Will GST handle contentious service tax issues by S Sivakumar

 

 

Dear Sir/Madam

Service tax law, as we know, has some unique and contentious provisions.. some good and most others, bad.

 

It would be interesting to know how the GST law seeks to handle these, under a unified platform.

 

My article on this subject, carried by TAX INDIA ONLINE, is reproduced below:

 

 

 

 

DECEMBER 11, 2009

 

WILL GST HANDLE CONTENTIOUS SERVICE TAX ISSUES?

 

By  S S Sivakumar, CA

 

As we know, the current service tax law contains several unique, contentious and obnoxious provisions. This piece is an attempt to highlight some of these issues, vis-a-vis the GST, which is all set to swallow the service tax law in toto.

 

1.  As we understand, the service tax law is extremely complicated with its own set of 110+ services and with a highly intricate definition of what constitutes a 'taxable service'. The usage of the words 'in relation to', in the definitions have been driving everybody crazy. The kind of litigation that this relatively new tax has attracted, over the last few years, is proof of the complexity that lies beneath the simple definitions.

One fervently hopes that 'service' is defined in a simple manner, under the GST law.

 

2. Under the service tax law, as we know, the service provider is liable to pay service tax even on advances received, irrespective of whether he renders services or not, while under the VAT law, the taxable event is the sale of goods, except in the case of works contracts.  As per the current indications, the taxable event under GST would be the rendering of the service/sale of goods or the receipt of consideration, whichever is earlier. It could be extremely difficult to have the taxable event for sale of goods, to be the receipt of money, without the sale taking place and this could play havoc in the case of inter-state transactions. One would hope that the taxable event under the GST is fixed as the effecting of the sale or rendering of the sale and not the receipt of the consideration. Even in respect of the central excise law, the taxable event is the clearance of the excisable goods from the point of removal. One hopes that this rather unique provision of taxing a service receiver even when he has not rendered the service gets removed under the GST.

 

3.  The credit mechanism under the service tax law, as we know, is extremely complex as compared to the VAT law and Central Excise law. Under service tax, credit cannot be availed of, unless, the payment for the services has been effected.  The Cenvat credit process gets extremely complex in the case of part payments for services.  One hopes that the requirement for payment to be effected, for availment of credit, is discontinued under the GST law and the credit mechanism is seamless and allows for credit to be taken on receipt of goods/services.

 

4. Yet another unique service tax issue which have been driving everybody nuts relates to the provisions related to levy of service tax on transactions between 'Associated Enterprises'.  The Service Tax Department has been interpreting these provisions in a rather obnoxious manner, to include even inter-Group transactions which do not involve an underlying service and on the basis of accounting entries paid. One hopes that these provisions, which are not found under the VAT and Central Excise law, do not find a mention under GST.

 

5. Yet another obnoxious service tax issue has been the valuation of services in terms of the definition of the 'gross amount charged' under the Service Tax (Determination of Value) Rules, 2006. As we know, even services which are not paid for, are sought to be brought under the service tax levy. One hopes that these issues are appropriately addressed under GST, by clearly providing that, the consideration for the sale of goods/providing of services would be cash or cash equivalents and definitely not, debit/credit entries, etc. 

 

6. The rules related to self adjustment of the excess service tax paid, contained in Rule 6(4A) of the Service Tax Rules, 1994, which restrict such self-adjustment to  a measly Rs 1 lakh, are extremely obnoxious and business unfriendly.   One hopes that the GST would completely scarp these provisions and have business friendly provisions allowing for self-adjustment of excess GST paid, without any limit.

 

7. The current provisions related to the levy of service tax on import of services are extremely complex and highly litigation prone, especially in terms of foreign service providers rendering services in India, etc.  The Department has been seeking to levy service tax even on services which are received and utilized outside India, which goes against the very concept of service tax being a levy on services rendered in India. One hopes that we will have clearer provisions under the GST to handle these cases.  One also hopes that the GST does not bring services rendered and utilized outside India, within the tax net.

 

8. There are equally unclear provisions in respect of export of services and especially, in respect of services rendered by one EOU to another EOU. Even when payment is received in foreign exchange, the benefit of service tax exemption is sought to be denied in cases where the services are used within India (eg. Microsoft case). One would hope that the GST will have clear provisions related to exemption of GST on export of services under the GST law and that these provisions would provide for exemption in all cases, so long as the payment is received in convertible foreign exchange.

 

9.  The service tax law, unlike the VAT law as applicable in most States (excluding, Karnataka) does not provide for an advance ruling mechanism for the domestic players.  One cannot understand as how, why a domestic player should be denied the benefit of an advance ruling, as contrasted to a foreign player. One hopes that the GST would bring in a good advance ruling mechanism made applicable also to service tax, which can act as a good grievance redressal mechanism.

 

10. And lastly... it is not as if, the service tax law has only obnoxious provisions, Sir. It also has certain unique good features, as well, as compared to the VAT and Central Excise law. There are no prosecution proceedings in the service tax law. Neither, can somebody be arrested for service tax 'offences'. As we know, the prosecution and arrest provisions have been largely used under the central excise law. We must hope and ensure that these unique good provisions related to service tax are retained under the GST law, while the bad provisions are given the go by. I go mad in trying to understand the concept of 'clandestine rendering of services' as contrasted to 'clandestine sale of goods' or 'clandestine removal of goods'.

 

 

Before parting...

 

There is little doubt that the service tax law has provided enormous professional opportunities for lawyers, CAs and Consultants, especially over the last four to five years.  I don't think opportunities would diminish under the GST law, as the tax payer base would significantly increase.

 

But, it would definitely be more worthwhile for everybody including the Government, the tax payers and the Consultants, to have a good GST law minus the current obnoxious service tax provisions.

 

In terms of provisions related to the implementation of the law as it related to the three main streams of the taxes, viz. service tax, central excise duty and VAT, one would hope that the Government understands that services, being intangible, need to be handled differently and to ensure that  the implementation provisions as applicable to services are retained as per the current provisions contained in the Finance Act, 1994 and the Rules.

 

To have one single law applicable to both goods and services would result in more problems. The existing good features of the service tax law, including those on prosecution, etc. need to be retained under the GST law.

 

(The author is Director, S3 Solutions Pvt Ltd, Bangalore)

 

 

 

 

S Sivakumar / Director / http://www.s3soluti ons.in/ Tel :+91 80 42042944, 945, 946, 41538950 / Fax : +91 80 41155570 / Cell: +91 98455 07403/Email: sivakumar@s3solutio ns.in/ Address : No. 1, Seventh Main, II Stage, Indiranagar, Bangalore 560 038