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Customs board seeks to widen service tax net
October, 16th 2006

The Central Board of Excise and Customs (CBEC) is set to widen the service tax net through clarificatory circulars. The drafts of such circulars have been put up on the CBEC website for comments. 
 
The draft circulars deal with services rendered at open cast mines, production of alcoholic beverages and international roaming services to in-bound subscribers. 
 
Mining companies have argued that activities such as excavation, drilling, earthmoving and demolition services are integral part of open cast mining activity although they may amount to preparatory services (i.e. site preparation) in case of deep mining. 
 
The draft circular has merely relied on the definition of taxable service namely, Site formation and clearance, excavation and earthmoving and demolition service and its own clarificatory circular to counter the view of the mining companies, without addressing the distinction that the mining companies have drawn between the nature of activities in deep mining and open cast mining. 
 
The draft circular says that the definition of open cast working itself calls the open cast mining activity as excavation for searching for or obtaining any material, conveniently omitting to take note that the definition amounts to calling excavation as mining activity and not the other way round. 
 
In open cast mining, contractors deploy workers and machinery for extraction, breaking of coal, conversion of coal layers into lumps etc. The draft circular says that these amount to production or processing of goods and should be taxed under the category business auxiliary services. 
 
The draft circular also covers under cargo handling services simple activities like loading, unloading of the layers of mud, boulders etc which are of no market value without involving packing, repacking or filling up containers etc. Even services like transport of coal within the premises of the mines amounts to transport of goods by road and must be taxed, says the circular. 
 
On the issue of collecting service tax from distillers for blending, manufacture, bottling or labelling etc. on a job-work basis, in respect of Indian Made Foreign Liquor on behalf of the brand owner, the CBEC seems to be on a stronger ground. 
 
The law ministry (on the basis of Supreme Court judgment in the matter of Gujarat Ambuja Cements Ltd versus UOI (2005)4 SCC 214, and TN Kalayana Mandapam Association versus UOI (2204) 5SCC 632, wherein service tax levy has been upheld on the service tax aspects of activities which are otherwise a part of the State List) has opined that levy of service tax on distillers is not constitutionally ultra vires but impinges on the legislative competence of the State Legislature to impose excise duties. 
 
The business auxiliary service, inter alia, covers production or processing of goods on behalf of clients provided such activity of production or processing does not amount to manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944. 
 
The draft circular also says that the domestic telecom operators providing international roaming service to in-bound roamers are liable to pay service tax on the amount received through the home network on account of service provided to such international roaming subscriber, as the essential characteristic of the service is telephone connection, even if the domestic telecom operator does not bill the in-bound roamer. 
 
The service is delivered and consumed in India and therefore not export of services 

T N C Rajagopalan

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