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Govt may revisit grey areas in services tax

Assocham recommended to the Govt that services tax should be imposed in such a way so that a service is not taxed twice.

india Updated: Feb 21, 2006 19:17 IST
Press Trust of India
Press Trust of India

The Government may revisit certain grey areas in services tax, whose scope was expanded last year to include even those services received outside India under the tax net, in the forthcoming budget.

The clause (105) of section 65 of the Finance Act, 1994, has been in force since June, 2005, and has certain impractical ramifications, official sources said.

Streamlining the clause is under the consideration of the Government and changes may be incorporated in the budget, the sources said.

In fact, the Government has received a report from a study group on abatement of services tax on exporters and is considering its proposals.

Without divulging contents of the recommendations, the study group chairman V K Garg said at an Assocham seminar that the clause imposes tax even on the services received by MNCs' branches outside India and rendered by overseas units, if such companies have offices in India.

He said this area is a cause of concern and needs to be addressed.

This particular provision of the clause stretches things too far, he said.

The clause also imposes tax twice on any services consumed by employees of Indian companies outside India even if such services are outside Indian legislations, eminent tax expert Nihal Kothari said.

"Therefore, there is a question whether telephone services provided by a telephone operator in foreign country, not governed by Indian Telegraph Act, can be covered under taxable service," he asked.

CBEC Commissioner (Services Tax) Gautam Bhattacharya said services tax in India faced practical problems since it is based on provision of services and not on supply of services.

Countries with the Value Added Tax base services tax on their supply, he said.

In India, VAT is imposed only by state governments so far and they are not authorised to impose services tax.

Assocham recommended to the Government that services tax should be imposed in such a way so that a service is not taxed twice, refunds on import of services used for exports of services be simplified, and all services should be zero rated.

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