sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
News Headlines »
 New direct tax code may have to wait until 2019
 New direct tax code may have to wait until 2019
 New direct tax code may have to wait until 2019
 New direct tax code may have to wait until 2019
 How to use your Form 16
 Which ITR form applies to you for financial year 2017-18?
 Income tax returns filing form-2 released; should you use it? Find out
  Are you planning to file ITR 1 form? here's how to do it Income Tax Return (ITR) filing
 30 LPA-Opening Financial Controller
 ITR form 2 in java release by CBDT for return filing by individuals
 How to file your income tax return using ITR Form-1 Income Tax efiling for AY 2018-19

Service tax liability not with the recipient
August, 06th 2007
How many times do we shell out service tax on various and sundry bills, grumbling at the imposition and the annual hike in the rates, but accepting it unconditionally as the statutory obligation of any recipient of services. Some of us, presumably more knowledgeable than others, assume that since every such transaction creates a concluded contract between the service provider and end user, there is an obligation to pay, particularly as service tax is an indirect levy.
Recently, I have had occasions to examine this issue minutely to arrive at an informed and reasoned conclusion that under law, a recipient is not liable to bear service tax, unless he agrees to do so contractually, or it is specifically provided under the Service Tax Rules.
Initially, Section 68 of the Service Tax Act, 1994 provided that while the service provider had to pay the tax, the tax for such service was to be collected as provided in Section 66, being the charging section, which enabled collection in the manner prescribed. Accordingly, Rule 2(1)(d) of the Service Tax Rules, specifically identified various categories of service providers being the persons responsible for collecting the tax. The reference to collectibility entitled the provider to recovery from the recipient
Section 68(1) A was inserted by the Finance Act, 1997 to clarify that every person who was providing the taxable service is the one required to collect the service tax, who under Section 70 and 71 is also the assessee. The 1998 amendments significantly changed these provisions, as Section 68(2) was amended to read that the provider pays the tax as if he is the person liable, and Section 68(1A) was omitted. The fact that four to six categories in Rule 2(1)(d) specifically require the customer to pay reinforces this.
There have been two decisions till date, one passed by the CESTAT Principal Bench and the other by the Allahabad High Court in 2006, which have interpreted Section 68 read with Rule 2(1)(d) to mean that if the payer is entitled to release or recover the same from the recipient, then it can be done only on the basis of a contractual understanding between the parties. There is no statutory basis for recovering this amount and whether or not a provider is able to recover the tax from the recipient makes no difference in so far as the tax authorities are concerned. Non-recovery of such tax from the recipient will not absolve the service provider from its liability, as it is open to the service provider to charge the amount to his customers or pay it from his own pocket. In case of any default, the provider would be subject to penalty and interest liabilities. There is no provision in the service tax laws and rules whereby recovery from the recipient can be enforced by the courts. If there is a contractual understanding, the service provider has to file a civil action for recovery on that basis, and his liability will not stand deferred on that account. The law however does not envisage payment of tax, unless the payment for the value of taxable services is received.
However, the matter is not entirely free from doubt. In a case before the Chennai High Court, it was argued that since Service Tax is an indirect tax, it has to be collected by the assessee from customers, users and other recipients placing reliance on Section 83 of the Finance Act, whereby certain provisions of the Central Excise Tax notably Sections 12 A and 12 B could establish the fact that the incident of the tax falls on the recipient. Section 12 B of the Central Excise Act incidentally contemplates that persons who pay excise duty on any goods under that Act shall, unless the contrary is proved deemed to have passed on the full incidence of the duty to the purchaser of the goods. Though the amendments had come into effect, it was held that notwithstanding amendments of Sections 68 and 66, 12 A and 12 B of the Central Excise Act would continue to prevail. This reasoning is inconsistent with the 1998 amendments, and demonstrative of poor cross referencing and of not properly reconciling the amendments with other provisions.
It is very likely therefore, that at some point this issue may have to be resolved by the Apex court. In the meanwhile the next time you dine out, keep in mind that the passing on of the service tax on your bill can be questioned on a strong legal basis.
Kumkum Sen is a Partner at Rajinder Narain & Co,
Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Achievements

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions