CONSULTANT, ARCHITECTURAL, ACCOUNTING AND SIMILAR SERVICES PROVIDED TO SERVICE PROVIDER TO INFRA STRUCTURE PROJECTS ARE LIABLE TO SERVICE TAX

G.Jayaprakash

Superintendent of Central Excise

 Abolish tax exemptions to small scale units, bemoans experts of the private sector. Without much noise, multi crore industrial projects get the same tax exemptions. It is the wisdom and authority of the state.  Exemption from Service Tax available to infrastructural service providers, i.e. services provided to in construction of roads, airports, railways, transport terminals, bridges, tunnels and dams is one such exemption extended by excluding the same form purview of work contract services in the definition itself. These infrastructure projects involve participation of different professionals and whether services provided by them are within the ambit of the above exemption was extensively debated by high end consultants. Revenue, vide circular no.   138/07/11-ST dated 6.5.2011 explained that service provided to the service providers of infrastructural projects are classifiable under the respective services and liable to service tax. Industry had protested to the inflation it creates to its cost when service tax paid by its service providers is passed on to them.

Tax journals published different opinions questioning the wisdom of not extending exemptions to services provided to the main contractor who is excluded from the ambit of work contract services.. A query received was whether the contractor of dry cleaning services to an infrastructure project office is exempted or not. In a bid to end such queries, CBE&C issued   circular no. 147.16/2011-St dated 21.10.2011 clarifying that if services provided by a sub- contractor are per se classifiable under works contract services, it would continue to enjoy the exemption, while services are provided to the main contractor.

From these circulars, it can be seen that only such activities carried out by sub contractors which merit classification as works contract services alone will come within the ambit of the circular.  All other providers of taxable services to the main contractor are liable to pay service tax, even though the recipient of such services is exempted from service tax.

Another aspect appears to be the role of the circular.  Is circular no.147 (supra) is enough to extend the benefit .The controversy over circular 108/2009-St dated 29.1.2009 is well known and issuance of notification 32/2010 conferring retrospective exemption is, well, history. Whether the two different terms used in the definition of works contract services, in relation to and in respect of will pave way for different interpretations.

  Competent authorities may act to avoid C&AG audit objections based on circulars conveying concessions without the backing of law enacted.