We have seen with interest the Concept Paper for Public Debate and on behalf of the Bombay Chartered Accountants’ Society, and would like to humbly submit our representation on various aspects.
We hope that our representation will receive due consideration. We would be most willing to put forward our views in person should this be required. Thanking you,
We remain,
Yours truly,
For Bombay Chartered Accountants’ Society
Pradip K. Thanawala
President
Govind G. Goyal
Chairman,
Indirect Taxes & Allied Laws Committee
Representation of our Views on the Concept Paper for Public Debate Taxation of Services based on a Negative List of Services
1.0 Background Pursuant to the announcement made by the Honourable Finance Minister while presenting the Union Budget 2011, a concept paper on taxation of services based on negative list of services has been issued for public debate and views are solicited from all stakeholders before 30-9-2011. Accordingly, we present our views on the said concept paper.
2.0 Recommendations in brief The concept paper introduces the justification for the negative list on the grounds of administrative challenge, stability and comprehensiveness and proceeds to place certain questions for public debate and feedback. The questions placed and our summarised feedback on those questions is tabulated below:
The concept paper in paras 2, 3 and 4 highlights in detail the issues surrounding the positive and negative lists. While it does accept that the currently existing positive list has certain advantages in terms of definitiveness, it seeks to justify the introduction of the negative list by citing certain limitations of the current mechanism of positive list. We are of the view that most of the said limitations can be either removed even in positive list approach or are so inherent that they would exist even in the negative list approach. The following table explains the same :
On a perusal of the above table, it is evident that the reasons cited in favour of the transition appear to be more a mirage. The same issues can be addressed in the positive list or would likely to be continued in the negative list as well.
It may be noted that though the consolidated Excise Act was enacted in 1944, the residuary entry under Excise Law (converting the law from the negative list to positive list) was introduced only in 1975 i.e., more than 30 years after the introduction of the law. As compared to that time frame, the service tax law is merely 17 years old. Further, it is much easier to provide a comprehensive definition of ‘goods’ as compared to ‘services’. Therefore, the challenges of introducing a negative list in services can be compounded.
4.0 Even if it is felt that we need to adopt the negative list, the same should be adopted only at the time of GST and not earlier than that
The nation is on the verge of introducing a major indirect tax reform by introduction of comprehensive Goods and Service Tax (GST). The introduction of GST will obviate the need to classify transactions between goods and services to a great extent. Further, the Constitutional Amendments required for introducing GST will obviate many of the challenges faced currently in defining the scope of services. Therefore, it is felt that even if we need to adopt the negative list, the same should be adopted only at the time of GST and not earlier than that.
5.0 If the negative list is introduced prior to the introduction of the GST, the definition as recommended below should be adopted Service means any obligation undertaken by the assessee for a monetary consideration pursuant to a contract or agreement, whether written or not, (other than a contract or agreement for supply of goods, money or immoveable property) between two or more consenting parties and includes:
A. right to use an immovable property;
B. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of certificate of completion by a competent authority;
C. temporary transfer or permitting the use or enjoyment of any intellectual property right;
D. obligation to refrain from an act, or to tolerate an act or a situation, or to do an act;
E. service in relation to lease or hire of goods; and
F. right to enter any premises
But excludes a supply —
A. by an employee to an employer in the course of or in relation to the employment of the person;
B. by a constitutional authority under the Indian Constitution or a member of an Indian Legislature or a local self-government in that capacity;
C. that amounts to manufacture of excisable goods or is chargeable as part of the value of goods to a duty in terms of the provisions of Central Excise Act, 1944;
The above amended definition is preferable since the proposed definition states that service means ‘anything’. The word ‘anything’ does not convey any meaning. No statute defines the charging provision to be ‘anything’. There needs to be a certainty to what is proposed to be taxed. Anything conveys vagueness rather than certainty or definitiveness. Further, generally the term ‘thing’ is used for tangible products like book, CD, etc. However, a lecture delivered by a professor or song performed by a singer (some examples of services) cannot be said to be ‘things’ in general parlance. Therefore, in trying to define service as ‘anything’, the soul of service is missed out.
6.0 In addition to the negative list of services, another list of services eligible for zero rating should also be introduced
The concept paper includes a negative list of services. However, it does not include services which should be zero- rated. It is therefore important that another list consisting of zero-rated services (i.e. services which are not liable for tax on the output but at the same time eligible for input credit) should be included. The said list should include exports and supplies to SEZ units and developers.
