Queries on taxation and service tax liabilities, addressed by Amit Bhagat & Jayanta Kalita of Ernst & Young.
We develop small residential complexes. Typically, we apply for a single electricity meter for the entire building. We also provide 100% power back- up to ensure continuous supply of electricity to residents. For such facility, we recover a fixed amount every month from flat owners. Should we deposit service tax for such charges under the negative list regime?
From the information provided by you and on the preliminary analysis of your activity, it appears to us that you are providing power back up to all the apartments in the complex. We understand that such charges are an integral part of the agreement entered into with the flat owners/residents. In this case, one may adopt a position that since the power back-up services are provided along with other maintenance services such charges may attract service tax.
Alternatively, one may also view the transaction to be separate for supply of power back-up to the residents. In such a case, one may contend that such services may be opted for by the residents and are charged for separately. Additionally, electricity being in the nature of goods, supply of electricity would not amount to provision of services but sale of goods/trading. Therefore, charges for providing such power back-up would not attract service tax but VAT. However, the position is litigative. A definite position on this issue would depend upon on the precise facts of the case and terms of the agreement.
Exemption from SAD
We are an SEZ unit engaged in the manufacture and export of footwear. In certain months, when production exceeds demand, we clear some goods in the domestic tariff area (DTA) to our group company. Our group company is paying Customs duty on the purchase of such goods. However, we have been recently advised that the clearance of our goods from SEZ to DTA would not attract special additional duty (SAD), which is charged in lieu of sales tax. Is this correct?
As per the SEZ regulations, an SEZ area is considered to be a foreign territory for the purpose of trade operations and duties/tariffs. Accordingly, where goods are supplied from an SEZ unit to DTA, the DTA unit would be liable to pay appropriate customs duty. Under customs notification no. 45/2005–Cus, dated May 16, 2005, goods produced or manufactured within an