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No financial impact as service tax is pass on: SREI Infra
October, 08th 2013

The Central Board of Excise and Customs has said that tower companies cannot avail of central value added tax (CENVAT) credit on goods and services used in the construction of towers. This may in turn impact tower companies. However, Sunil Kanoria, Director of SREI Infrastructure says there is no impact per se because the service tax is a pass on. Also Read: Service tax dept slaps Rs 150 cr tax order on GTL Infra The tower owning companies used the taxes that they have paid as a set off against taxes they have to pay and hence got some bit of relief on taxes. But now with the department saying that such credit cannot be taken, notices have been sent to some of the tower companies.

SREI Infrastructure owns 18 percent stake in Viom Networks although the Tatas hold the larger stake. Kanoria says the net off in the last two years has been negligible because new tower rollouts have been very few. He says the sector has clearly slowed down, besides his own approach has been fairly conservative for close to two years now. Therefore, he expects to see slow growth in AUM in this current financial year. Below is the verbatim transcript of Sunil Kanoria's interview on CNBC-TV18

Q: Have you spoken to your own tax department or the tax authorities, are you likely to pay more taxes for your tower unit? A: The matter is subjudice and it is in different courts for the last couple of years now, relating to the CENVAT. However, if you see the impact on us per se it is not there because the service tax is a pass on. So whatever service tax is leviable, we get paid by the customer and the CENVAT is a credit to net off whatever we have paid but if we don’t get that, it is not that you are out of pocket. It is just that you get a net off if you are allowed. So per se there is no financial impact as such but yes, as a policy, the process is on and the matter is within the various appeals.

Q: How much did you get net off in the last financial year? A: Hardly anything because in the last two years, new tower rollouts have been very negligible. Therefore, you do not have it is basically an issue which has been there from 2008-2009 - maybe when the tower growth was happening. So last two years it is virtually very negligible.

Q: It is not as if you will see any prospective fall or a rise in taxes, could there be some deferred impact if at all, the tower companies were to lose this case? A: It will be in a deferred cash flow impact but ultimately the service tax is all VATable and pass on.

Q: Would you expect that you will be able to increase your assets under management (AUM) at all this year? One hears that there is hardly any demand for loans especially in this space, infrastructure? A: We are very clearly seeing a slow growth in the last one and a half years now. What we used to see in 2009-2010 and even up to 2011, the sector has very clearly slowed down and we have also been fairly conservative in our approach for the last almost close to two years now and therefore, we will see a slow growth in our AUM in this current financial year.

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