Equally, over the years, the law and procedures relating to service tax have moved from simplicity to sophistication. Take the definition of value of taxable service. When the tax was introduced in 1994, value was defined for each of the three taxable services though in each case as the gross amount charged by the service provider.
This meaning continued all along 11 years since the service tax was introduced in 1994. Now, the Finance Act, 2006 has introduced a massive departure from the past.
The definition of value of taxable service is no longer confined to the gross amount charged in all situations. Thus far, if a service provider chose not to charge any money for the service provided, he was not required to pay tax on the free service. This is no longer the case now.
The new definition of value, effective April 18, 2006, is far more sophisticated in its style and clientele. The value of taxable service now depends upon the form and manner in which the consideration for providing the taxable service is received by the service provider. If the consideration is entirely in terms of money, the value shall be the gross amount of the money charged.
However, if the consideration is not wholly in terms of money or only partly in terms of money, then the value has to be determined applying the rigors of the recently notified Service Tax (Determination of Value) Rules, 2006. Sample the taste of textual sophistication of valuation provisions. There is a fanciful definition of money. It says: money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and similar instruments, but does not include currency that is held for its numismatic value.
Those who want to have a kick of complexity may consider this. Till recently, any reimbursable expenditure declared to be so could be claimed as exclusion from value. The valuation rules now contain a hefty legal mechanism- comprising two sub-rules, two explanations and four illustrations- for deciding the treatment to be accorded to reimbursable expenditure.
Now, only when the expenditure or costs incurred by the service provider as a pure agent of the recipient of service is allowed to be excluded from the value of taxable service provided it satisfies as many as eight of the listed conditions.
And, are you sure you know the meaning of pure agent If not, here it is. According to the definition in the valuation rules, pure agent means a person who (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course providing service; (b) neither intends to holds nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; (c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services.
The valuation rules put an obligation upon the service provider to determine and declare the value where the consideration is not entirely in terms of money. However, this can be subjected to scrutiny by the central excise officer. While such power is justified to safeguard the revenue, many are scary of the likely disputes and litigation. Sadly, they lament, the department s reputation of handling doubts or adjudicating disputes does not inspire enough confidence.
Most officials tend to simply pass on the buck to the higher appellate authorities, taking no chance of dropping the demands even in the most frivolous of the allegations of violation of law.
Service tax is a fast-growing tax. It is natural that in its desire to embrace modernity, it would acquire sophistication. So what if the taxpayers have to pay incur some extra compliance cost!
The author is ex-chief commissioner, Customs and Central Excise