M. Ramesh

Chennai , Jan. 21

WHEN you go to a shop and purchase a product, you do pay a sales tax. But do you also file sales tax returns?

Herein lies the difference between tax `burden' and `liability'. The burden is on you, but the liability for paying the tax is the shopkeeper's.

The Ministry of Finance has failed to appreciate this difference, feel many traders. The issue relates to the shifting of service tax liability on trade and industry, for the service provided by goods transport agents. The Ministry's move is not only unfair, but also goes against a Supreme Court decision on a similar case, trade bodies say.

The `lorry agents' do provide a useful economic service. They liaise between those who have goods to be moved and the truck operators. The Central Budget 2004-05, decided to tax this service and accordingly, a 10.2 per cent tax was levied on the services provided by the `Goods Transport Agents'.

A howl of protest from the agents ensued. Consequently, the government formed a `Committee for the Purpose of Looking into Appropriate Mechanism/Modalities for Collection and Payment of Service Tax on Goods Transport Agency'. The agents represented that they were illiterate and, therefore, were not capable of handling the documentation involved.

The report of the Committee "takes note of the fact that sector faces problems of illiteracy, unorganised nature, involvement of multiple players etc." Therefore, "in case the consignor or the consignee bearing the freight is in the organised sector, the burden of tax payment can be shifted on to such persons paying freight charges and the same can be collected directly from them."

The Government has accepted the committee's recommendation and has notified that trade and industry should pay the service tax from January 1, 2005.

The Tamil Nadu Chamber of Commerce & Industry has pointed out that in the committee that made this "startling recommendation", no representation was given to representatives from trade and industry. "Service receivers can only bear the burden of the levy. They cannot be made responsible for remitting the tax and submission of returns to the government," says Mr S. Rethinavelu, President of the Chamber.

The Chamber quotes a parallel. In 1997, the Finance Minister, Mr P. Chidambaram, brought in a service tax on transport of goods, following which truck operators went on a month-long stir. Unable to levy the tax on them, the Finance Ministry shifted the burden of levy on consignor or consignee. Trade and industry went to the Supreme Court.

In a judgment delivered in the case of Board of Trustees of the Port of Bombay Vs Sriyanesh Knitters, the Court said: "we have no hesitation in holding that the provisions, insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operators as being responsible for collecting the service tax, are ultra vires the Act itself." Traders now feel that the shift of liability of service tax onto them, goes against the spirit of this judgment.

Secondly, the Government has notified that 25 per cent of lorry freight charges would be taken as commission charges paid to the agents on which a service tax of 10.2 per cent would be levied. This notional commission of `25 per cent of the freight charges' is ridiculously high. Nowhere are the agents paid so much. "I might have to pay the truck operator sometimes even Rs 40,000 for moving the goods. Should the notional commission charges for the booking agent be taken at Rs 10,000 ?", asks, Mr P. Mohan, a hardware merchant in Chennai.

If service tax is levied on an assumed commission of 25 per cent, it would only get built into the cost of transport of goods and eventually consumers will have to pay a higher price, traders observe.

The Finance Minister, Mr P Chidambaram, has said the tax itself is to be levied "only" on seven categories of entities. But as the list includes entities such as `any company registered under the Companies Act', `any factory registered under the Factories Act' and `any co-operative society under any law', it practically covers the entire universe of consignors and consignees.

Above all, many traders feel that being `illiterate' is no reason to be exempt from tax. "Are the illiterate goods transport agents exempt from personal income tax ?"

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