Tuesday, January 29, 2008

SERVICE TAX -clarification


    The Government has recently issued a circular to clarify the position on service tax of taxable services namely works contract services and renting of immovable property services.This circular has in part caused considerable disquiet.The clarification issued by the Government  has addressed this position by stating that the provider of the taxable service of works contract  is not eligible to take credit of the excise duty  paid on such goods.This clarification is logical.


      Other one is issue in relation to works contract service was  that of shifting of the classification of a works contract related service earlier classified under other categories of taxable services to this new definition.Now the works contract rule ,2007 provides an option  pay service tax at 2%of the gross amount charged for the works contract.The issue was whether a service provider could revice the classification of the existing service to that of works contract service and choose to pay service tax for the amount received after 01.06.07 under the composition scheme.A government has clarified that the classification of taxable service is determined based on the nature of service provided and vivisecting a single composit service and dividing it under two different headings, depending upon the time of receipt of the consideration is not legally sustainable.The clarification regarding construction services are not input services does not appear to the inline with the provision of service tax law.Services Obtained for Constructing immovable property, which is intended to be let out to earn rentals are clearly input services for the output service of renting of the said property and are hence eligible for input credits.

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