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The service load on truckers' back

S. Sridharan

S. Sridharan suggests ways to resolve the transport service tax logjam

IT HAS been reported that the Finance Ministry has offered to shift the responsibility of collection and payment of service tax to the consignors in the organised sector and make the goods transport agents liable to collect and remit the service tax in respect of the unorganised sector.

The proposal will not be acceptable to the transport industry, which does not want anything to do with service tax. The issue, therefore, is: Should, and can, the Government shift the responsibility to collect and remit service tax on anyone other than the service provider?

It may be recalled that initially the responsibility to collect and remit service tax in respect of clearing and forwarding agent services and goods transport operator services was on the service receiver.

The Supreme Court had, in the landmark judgement in the Laghu Udyog case, struck down the levy of service tax on the service receiver and held that the levy should be only on the service provider.

While on the issue of levy of service tax on the service receiver, it is pertinent to note that in spite of the Laghu Udyog judgment, the service tax legislation casts an obligation on the receiver of services from a non-resident who does not have an office in India.

It appears that this provision has not been disputed in the court of law presumably because set off of the service tax has been made available to the service provider.

One way to overcome the legal hurdle could be to introduce a provision for service tax collection at source in the lines of the provisions in the Income-Tax Act. The service receiver may be given the facility of set off on obtaining a declaration from the non-resident service provider of not having availed input tax credit.

The levy and collection of service tax in the transport sector does pose practical problems and the concern of the industry is not unfounded. For instance, in the case of a goods transport agent who issues a consignment note and does not own any vehicle, the consignment is usually issued on "to pay" basis and so, how does he collect the service tax?

The vehicle owner will be collecting the freight from the consignee and if service tax is charged in the consignment note, how can the booking agent ensure that the vehicle owner who transported the goods collects and remits the service tax to the booking agent?

It is surprising to learn from press reports that the Government had entered into an agreement in 1997 with the transport sector for non levy of service tax in the future on certain entities. Is there a legal sanctity to such agreements?

The Government should not bow to pressure and backtrack on the levy as it would be unjust to other service providers who are not organised and do not have the bargaining power.

Since the transport industry will not be bearing the tax burden and will only be collecting the same from the consumers, the perception is that the strike is only because of the industry's fear of its business volumes being exposed to the tax authorities.

Some of the options that could be examined by the Government to make the responsibility of collection and remittance of tax less onerous on the transport sector could be:

Make available set off of excise duty paid on transport vehicles against the service tax payable.

This will benefit the goods transport agents who own vehicles and issue consignment notes.

Examine the possibility of levy of presumptive tax without facility of input tax credit on small goods transport agents who own vehicles, say, up to 10 vehicles, as in the Income-Tax Act.

The rate of tax could be kept low, bearing in mind that there will be no set off available to the service receiver.

Offer a simple compounding scheme as a flat percentage of the gross billing of goods transport agents who do not own any transport vehicles. The rate of tax on gross billing could be 6 per cent which rate according to Finance Ministry officials is the net impact on service providers after taking input tax credit on goods and services.

Considering that the tax paid under such a compounding option will not be available for set off to the service receiver, the rate of tax could be even lower.

Alternatively, the services of a goods transport agent who does not own vehicles may be brought to tax under business auxiliary services and service tax levied only on the commission received. This would be easier to collect and administer.

Even exempting goods transport agents who do not own any vehicles may be considered.

This will not have a major impact on revenue since the number of such service providers will not be significant.

(The author is a Madurai-based chartered accountant.)

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