Revised concept paper on negative list needs further conceptual modification
November, 21st 2011
The CBEC deserves to be congratulated for bringing out a Revised Concept Paper on 18th November 2011 which makes it possible for stake holders to comment again. It is an extremely wise decision for the government to introduce the comprehensive service tax with a negative list even before the introduction of the GST. I have been suggesting the same in my previous articles. I am giving here my suggestions on some fundamental points.
There is no indication in the Revised Concept Paper whether the Negative List will be called exempted list or not. It should be called exempted list because that is the legal language.
Charging Section has been defined in 2.2 of the Revised Paper as follows: There shall be levied a tax (hereinafter referred to as service tax) at the rate of .. percent of the value of services provided or to be provided by a taxable person to another person and collected in such manner as may be prescribed. The age-old examples of the charging sections of Customs (Section 12) and Central Excise (Section 3) have not been kept in view while drafting this section.
Therefore, this definition suffers from several defects as pointed out below:
i)The proposed Charging Section provides for the rate of tax also. That must be avoided. The charging sections in Customs (Section 12) and in Central Excise (Section 3) do not indicate rate of duty but say that it will be given in a separate Schedule. Same thing should be done here also.
ii) The charging section does not have the expression on. The tax is on something. Like the Charging Section in Customs Act, says that the Customs duty is on the goods imported.. Similarly, Central Excise Charging Section, Section 3 says that the Central Excise duty is on all exciseable goods. So the crucial word is on which must be introduced.
iii) The word referred to should be replaced as as called. See the example of Section 3 of Central Excise.
iv) The expression to be provided must be deleted. Unless a service is provided, it cannot be taxed.
So the charging section should be reworded as below:
There shall be levied a tax (hereinafter called a service tax) on the service provided by a taxable person to another person and collected in such manner as may be prescribed and at such rates as set forth in the Schedule....
Clarification I clarify that the Schedule should indicate that the rate of tax will be on the value of service. The word value should not occur in the charging section.
2.4 of the Concept Paper Definition of taxable person has been defined as the following:
Taxable person may be defined as : any person who independently carries out any economic activity, whether or not for a pecuniary profit.
This definition needs to be deeply thought about. As it is worded it is insufficient and incorrect. Let us think of the activity of the Police or CISF in giving protection to airport or industrial unit on pecuniary consideration. Now the Government is charging service tax on this activity (which has also been reported in the media). This will not be covered by the proposed definition because it is not an economic activity. Protection or security cannot be called as an economic activity.
Therefore, the idea should be to tax all activity in the nature of service and not just economic activity (even provided by the Government) so long as it is paid for.
The expression whether or not for a pecuniary profit should be deleted and reworded as for pecuniary consideration. The word profit is incorrect. It should be consideration. Therefore the definition of taxable person should better be redrafted as any person who independently carries out any activity for pecuniary consideration. This definition will take care of the problem of not levying service tax on IFS, IAS, IRS, Judiciary etc. which are known as sovereign functions of the State.