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Govt wants shipping cos to drop petition on service tax
November, 30th 2006

New Delhi is trying to dissuade shipping companies from going ahead with the petition filed by them before the Bombay High Court on levy of service tax with retrospective effect.

Shipping companies have agreed to withdraw the petition provided the Finance Ministry gives a written assurance that service tax will not be slapped on them retrospectively.

Senior Finance Ministry officials indicated that the Ministry is prepared for the trade-off, authoritative sources told Business Line.

Through the Indian National Shipowners Association (INSA), the apex body, shipping companies had filed a petition before the High Court in June this year following repeated summons slapped on them by the Director-General of Central Excise Intelligence (DG-CEI).

The DG-CEI summons ordered shipping companies to furnish full details of the services that their ships availed at foreign ports and their foreign exchange payments from August 2002 to March 2006 for the purpose of assessing their cumulative service tax arrears.

The sources said that the Finance Ministry is aware that any negative ruling in the case may queer its pitch for expanding the service tax net in the run-up to the Budget.

As it does not want to take a chance, it is prepared for a trade-off with the shipping companies.

The sources said that an INSA delegation that met with senior Finance Ministry officials last week was assured that the DG-CEI summons would be taken back if it withdrew the petition.

However, the INSA wanted the assurance in writing before it complied with the Finance Ministry's request.

The first hearing on the petition, which was scheduled on November 24, was postponed to December 15 following a request from the DG-CEI's counsel.

This is expected to give adequate time to the Ministry to come out with a written assurance to satisfy the shipping companies, said sources.

Since May this year, the DG-CEI had issued repeated summons to shipping companies, seeking full details of their foreign exchange payments, including dry-docking expenses at foreign ports and related invoices, since August 2002.

Shipping companies said that as their ships have to visit foreign ports and consume a variety of services there as part of their routine operations, it was unfair to slap a tax on these services consumed overseas.

Industry sources said that the net service tax for the retrospective period would total Rs 80-100 crore, especially as 2004-05 was a boom time for the industry and ships had to undergo extensive dry-docking at foreign ports.

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