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Govt urged to scrap service tax on inland haulage, THC overseas
July, 19th 2006

The Engineering Export Promotion Council (EEPC) has sought the immediate withdrawal of service tax on inland haulage and terminal handling charges (THC) overseas on the plea that the tax is "unjustifiable."

Speaking to Business Line, Mr Rakesh Shah, Chairman of the EEPC, said that the council has already represented the matter to the Union Commerce Minister, Mr Kamal Nath.

He was particularly referring to the levy of service tax, as per a provision in the Finance Act 1994, in a situation where taxable services have been provided India and the provider of such services was an overseas agent not located in India.

He said that while service tax on ocean freight and air freight has been waived, the freight element provided by foreign agents overseas for inland haulage (rail/road, riverine mode, especially in the case of some land-locked countries), and THC at overseas destinations attract service tax of 12.24 per cent.

Describing such levies as being counter-productive to Government efforts in making Indian exports price competitive, he said that vendors based in foreign countries often push for a complete package of services that involve storage, warehousing, clearing & forwarding operations, and haulage from port to their factories/establishments.

He said that levy of service tax including educational cess on such services was illogical. "It goes against the Government's very stand that tax and duties are not to be exported."

Stating that Indian engineering exports, in particular, were becoming uncompetitive to the extent of eight per cent, he said: "There should not be any service tax on post-production export-related services."

Mr Shah expressed disappointment over the recent DGFT notification in respect of the Target Plus scheme, where the duty credit entitlement of 10 per cent and 15 per cent benefiting those who had achieved incremental exports of 25 per cent or more in f.o.b. value of their exports during licensing year April 1, 2005 to March 31, 2006 has been deleted with retrospective effect.

He also said that exporters generally factor in all Government incentives into their costing.

"If such efforts are nullified by a notification after a gap of 15 months, and that too, retrospectively, it has a demoralising effect, and also goes against accepted trade practices."

Mohan Padmanabhan

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