Given the present state of service tax law, where a majority of the definitions of taxable services and other related provisions continue to require a great deal of interpretation, clarifications from the revenue department in the form of circulars are indeed very helpful. Such circulars clarify intent, assist in interpretation and provide guidance to both assessees and the authorities alike.
In the period of 13 years that the service tax has been in existence, the department has issued approximately 200 such circulars. The problem that has cropped up is that the plethora of circulars has made it exceedingly difficult for an assessee to obtain a ready and easy understanding of the service tax provisions. Further, several earlier circulars have either become redundant due to change in law or have been superseded by subsequent circulars.
As a result, the need has clearly been felt for quite a while that these circulars need to be streamlined, collated and made concise.
The TR Rastogi Committee was set up to make recommendations in this regard and one of the recommendations of the committee was the issuance of omnibus circulars wherein the numerous erstwhile circulars as also their contents would be collated and presented in a logical and abbreviated manner.
The Central Board of Excise and Customs (CBEC) has recently issued two such omnibus circulars in draft form for public comments and suggestions.
While the one relates to the technical issues in service tax law such as the scope and classification of the taxable services, the levy of the service tax itself, the valuation of taxable services and on exports and imports of service, the other relates to the procedural issues in service tax.
The circular relating to the technical issues incorporates clarifications pertaining to all taxable services besides also addressing export, import and valuation of services. The issues and clarifications are presented in a user-friendly question-answer form.
However, not all of the relevant clarifications issued by the CBEC from time to time have been incorporated therein.
As a result, reference will need to be made to these erstwhile circulars for clarifications relating to issues addressed thereunder. Further, the circular does contain clarifications relating to several of the new services that are now covered under the ambit of service tax.
For example, in the context of the new category of works contract service, a commonly raised question is whether a service provider has the option to reclassify a construction contract as a works contract, and, if so, at what point of time could the service provider be able to reclassify the services from the erstwhile heading of construction and allied services to those relating to works contract.
Allied questions that require urgent clarification relate to the manner of functioning of the abatement scheme under the erstwhile heading of services related to construction, erection and commissioning etc., in conjunction with the composition scheme that has been provided under the new category of works contract.
Similarly, in the context of the new taxable category of renting of immovable property, an urgent clarification is required as to whether the service taxes relating to the erection and commissioning of the immovable property can be used to offset the service tax on the rentals relating to such property. These are very urgent matters and require clarifications through issuance of circulars.
The present master circular does not address these issues and is limited to the task of collation and summarisation of the various erstwhile circulars. The Government needs to be flexible in order to further expand this master circular to clarify issues arising out of the interpretation of the new taxable categories, so that the master circular achieves the purpose of being an omnibus and comprehensive one.
Again, the circular on the procedural clarifications is largely a reiteration of the existing provisions of service tax law, with a few clarifications on CENVAT credits and on goods transport agency services. This circular also does not incorporate some of the earlier clarifications issued by the CBEC on various issues such as registration, payment of tax, filing of returns etc.
Further, clarifications regarding computation of the period for payment of interest, the payment of service tax on statutory levies, the rate at which the service tax should be charged in the event of a change therein etc., all of which are relevant, have not found place in the master circular.
The master circular on procedures would serve its purpose better if it could also address several practical issues faced by the assessees in complying with the service tax procedures.
Although the two circulars have been issued with a view to supersede all other circulars, it has been clarified that the letters issued by the TRU at the time of introduction of the Finance Act will not be withdrawn and would continue to operate.
The department needs to immediately clarify the position relating to issues that are both addressed in these circulars and in the TRU letters, so as to remove any confusion.
It is however commendable that not only has the department taken the effort to streamline the numerous circulars but has also issued the master circulars in draft form for comment and discussion so that the finalised circulars are issued only after the comment period has expired and suggestions incorporated.
This is a salutary process and the government needs to be congratulated for following this method of transparency in the issuance of circulars.
It is now up to the industry associations and the professional bodies to ensure that they actively engage with the authorities during this comment period so that the final master circulars, as and when they are brought out, reflect the suggested modifications and additional clarifications so that they are comprehensive, updated and achieve the objective of providing clarity on this complex law.
The writer is leader, indirect tax practice, PricewaterhouseCoopers