Since, the collection of service tax is increasing year after year there are a lot of demands & expectations of the service sector from the forthcoming budget with respect to simplification, rationalization & proper administration of this tax. The major shortcomings, confusions & controversies in this respect may be taken up one by one.

1.                Service Tax on GTA  

There are many controversies regarding this service. The manner in which the tax is imposed & responsibility of collection in different situations on different parties often confuse the members of the trade & industry. Show cause notices are frequently issued by the department. The matters which are creating problem are:-

a)                                         Abatement: - The department is not agreeing with a view that 75% abatement is also allowed to the service recipient, and not only to the service provider.

b)                                         Cenvat credit of service tax paid by the service recipients after claiming the abatement, is often challenged under notification 32/2004. The restriction regarding Cenvat credit is with respect to the service provider and not the service recipient.

 

So, this problem must be sorted out through this budget.

 

 

2.                A step to GST

 

While presenting the Union Budget 2006, The FM announced a target date of 01.04.2010 to introduce Goods & Service Tax (GST) in India. In this Budget, a clear indication is available to increase the rate of service tax. On the other hand, the CST rate is supposed to be reduced to 3%. It should be ensured that all taxes paid can be set-off against any tax liability.

 

3.                Separate Service Tax Department

 

Since the revenue from the service tax is increasing and becoming a major source of revenue to the Union Government, a full fledged administration of the levy and collection this tax now requires an independent Directorate, having specialized skills and attitude to analyse the transactions and problems of this new sector.

 

4.                Consolidation of Categories of Services

 

Service Categories which are similar in nature should be categorized in one group. This will remove the administrative hurdles and the scope for litigation will be reduced. Since a group will carry a single code, it will also reduce the number of codes.

 

5.                Small Scale Exemption

 

The exemption limit for small service providers may be raised to Rs. 10 lakhs in the forthcoming budget.

 

 

6.                Government Plans to Take TDS Route for Service Tax Collection

 

A proposal is mooted to introduce the concept of taxing the services at source by way of providing for TDS on service tax. In such a case, the service receivers will have to deduct service tax while making payments to service providers. The service providers will get credit for such amount deducted by the service receivers.

Comment: Service tax being an immatured piece of legislation, ambiguities prevail in regard to applicability of service tax in respect of various transactions. A responsibility to deduct TDS on the service receivers will inhibit a tendency on them to deduct TDS from every payment, without going into the applicability of the tax. This might unnecessarily subject the contracts to litigations by the service providers. Therefore, such withholding tax system should be avoided at this evolving stage of Service tax law.