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Ambiguity over self-service tax continues to haunt GST
December, 11th 2015

The clamour for the Goods and Services Tax (GST), which will subsume all the current indirect levies to create a single nationwide tax market, may be getting louder but the issue of whether self-service activity would be taxed still remains unclear.

And despite tax experts having repeatedly posed this query to the policy makers, they haven't been able to eke out a clear response from them.

Amit Kumar Sarkar, partner, Grant Thornton India LLP, said the government has been "painfully" mum on this issue even when all indications were pointing to its occurrence once the GST rolled out. Even the partial leak of the draft GST does not throw light on this niggling issue.

"They (policy makers) have been painfully silent on it for the last four-and-a-half years. The government authorities from North Block, bureaucrats, policy makers – none of them have either said yes or no to it. Not even a slight hint from them on it. This is one of the 101 unanswered questions on GST," he told dna.

If self-service activities of a business entity are taxed under the GST, then a company would end up paying what is termed as reverse charge on services exchanged between its branches at different locations. So, if a particular entity has five offices in different places, then exchange of services between them would attract a reverse charge, credit for which could be claimed later.

While this would not impact a firm's bottomline or topline, it would be a drain on its working capital and disturb its cash flow management as entities would be effectively paying their GST liabilities in advance.

Such a levy already exists since 2006 under the current service tax law for overseas branches of Indian companies. So, if an Indian company has a branch abroad, which is providing service support to it, then the local company is required to pay service charge on that as the activity is construed as import of service.

Therefore, as self-service tax already exists under service tax, which will become part of new indirect tax regime, experts are expecting it to be stretched to GST.

"There is a technical possibility that this (self-service tax) could occur. But when we speak to the government officials in the public, they have always left it open-ended. So, we do not know whether this fear is actually real or it is something we, as tax experts, are imagining, but the fear exists," said Sarkar.

As per the current Reserve Bank of India (RBI) regulation, there is no billing required, only a mere accounting entry is sufficient.

On the other hand, there is full clarity that the self-service tax would be charged on supply of goods under the GST. What this means is when a company does a stock transfer of goods from one state to another even within its own organisation, then there will be an inter-state GST (IGST) on it.

Uday Pimprikar, tax partner, EY, argued that if GST is supposed to treat goods and services in the same way, then if there is IGST on stock transfer of goods between offices or branches of a company, then it could be stretched to services too.

Consultancy firms and information technology (IT) companies, which have low-cost offshore offices across the country and have massive exchange of services between them, could get impacted most by the self-service tax under GST.

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