When the comprehensive service tax was conceived and proposed by economists and also a committee assigned the specific task of examining the structure of service tax, the concept that was mooted was that all services would be taxed excepting those in the Negative List. The Negative List could be big or small but there was no suggestion that there would be a an Exemption List. What we have now got is a so called comprehensive service tax with equally comprehensive exemptions.

The exemptions are so numerous that people are calling it mega Exemption List. It has got 39 services with so many sub-divisions. If these sub-divisions are counted separately then the number becomes 104.

If we add the 17 categories (leaving out sub-categories) in the Negative List, the number comes to 121. Earlier the number of services was 119. So now we have got a comprehensive service tax with equal number of specifically exempted services it was before.
So the difference is that we are handed down the same complicated structure with the different name. It is only in principle that it is comprehensive but in actuality it is as selective as the selective service tax earlier. It seems that the Government is incapable of making a comprehensive service tax in the true sense of the term.

Let us envisage the difficulties that will arise when the GST comes. If the Centre takes the power to give exemptions for services, the states will have to be given the corresponding power to give exemptions also. Now imagine how many exemptions will come if all the states give exemptions. It cannot also be guaranteed that the states will give the same exemptions as given by the Centre. It will become a big contentious issue between the Centre and the states. It will also inevitably delay the introduction of GST.

Fundamentally there is a difference between Negative List of services and Exempted List of services. First, services in the Negative List are not chargeable at all as they are excluded from Section 66B. Services in the exemption list are chargeable but exempted.

Second, services which are in the Negative List can be altered only in the Budget since the Negative List is part of the law which can be changed only with the approval of Parliament. The Exemption List can be altered by the Executive, that is, by the finance minister. Third, services in the Negative List should ideally be of general and permanent nature which need not be changed every now and then. But services in the Exemption List are of such nature which are of temporary nature and therefore cannot be withdrawn or given any time by the ministry. Such an instrument is necessary only for cases where suddenly an exemption is necessary.

The best example is that of giving exemption to passenger train services under the pressure of a particular constituent of the Government. But such cases are few and far between.

There was no need to make a mega exemption list because the Government was not under the pressure of any pressure group or lobby. It is the mind set of the Government to always give exemptions which has created this mega Exemption List that has undermined the very basis of the comprehensiveness of service tax regime.

If we analyse the Exemption List, we find that there was no need for giving exemptions to so many services. This is particularly true because there is already a threshold below which tax is not payable. Item 4 in the exemption list is for charitable activity which has been defined in item 2(k). This item 2(k) contains advancement of religion and spirituality.

By no stretch of imagination, can be religion be called charitable activity. It could have been exempted otherwise calling it religion. More appropriately it should have been in the Negative List which accommodate funeral, burial, cremation services. Item 8 of the Exemption List is for training in recreational activity relating to arts, culture and sports. This entry is vague. There are other examples also.

The conclusion is that without too many exemptions, it would have been a really comprehensive service tax. Now it remains a lawyersRs paradise.