Date:01/01/2004 URL: http://www.thehindubusinessline.com/2004/01/01/stories/2004010101630400.htm

Back Chamber seeks clear norms to claim tax exemption on secondary services

K.R. Srivats

New Delhi , Dec. 31

WITH a new service tax regime on `export of services' in the offing in the next few months, a section of Corporate India is hoping that the Finance Ministry will not disturb the applecart on the taxability of secondary services that are consumed in the services that are exported.

Currently, service tax is not charged on the secondary services that are consumed/merged with the services that are actually exported. In cases where the secondary service gets consumed in part or in-toto for providing service in India, the service tax is levied on the secondary service provider. This dispensation is prescribed under a revenue department circular that was issued in April 2003.

Faced with industry representation over the lack of clarity on the definition of export of services, the Finance Ministry had recently come up with draft proposals on the subject. The proposal prescribed a set of criteria to decide as to when a service is deemed to be exported. The draft proposals are silent on the scope for exemption for secondary service providers.

But, the revenue department has in its draft proposals specified that there would be a refund of the service tax paid on input service that is used for providing an exported output service.

Responding to the Finance Ministry's invitation for comments/suggestions on the draft proposal on export of services, the PHD Chamber of Commerce and Industry (PHDCCI) has suggested that procedure be laid down on the lines of Section 80HHC of the Income-Tax Act to enable the secondary service provider to claim service tax exemption on the secondary services that are used in the services that are exported.

"The secondary service provider may be asked to get a certificate from the principal service provider to claim the exemption. A report of the chartered accountant could be obtained to certify the consumption of secondary services in the primary services that are exported", a PHDCCI official told Business Line here.

The chamber has also suggested that taxability of real estate consultancy services should not only be on the basis of where the immovable property is located, but also on the basis of where the recipient is located. It has highlighted that real estate consultancy service is also often provided to entities located outside India.

These include location consultancy (helping these entities choose India over other countries), city studies (where to locate in India) and property identification. The chamber has therefore suggested that real estate consultancy should also be included in the criteria relating to the `location of recipient'.