Rate of Service Tax

[SPIC Ltd.]

Dear Sir,

We wish to bring to your kind notice that the rate of service tax was increased from 10% to 12% in the Finance Act, 2012. The Government of India vide Notification No.8/2009-ST dated 24^th February 2009 fixed the rate of service tax at 10% and the same was rescinded vide Notification No.2/2012-ST dated 17^th March 2012. The rescinding notification came into force on the 1^st day of April 2012.

As per the existing practice, the rate of tax on various services was fixed by Government of India only by notifications and it does not find place either in the charging section or other provisions of the Finance Act, 1994. However, for the first time in the service tax regime, a new section namely 66B being the charging section was introduced in the Finance Act, 2012, which has the specific provision for the rate of tax at 12% on the value of all services, other than those services specified in the negative list. The amendment has been introduced vide Section 143F of the Finance Act, 2012.

As per Notification No.19/2012-ST dated 5^th June 2012, Government of India has appointed the 1^st day of July 2012 as the date on which the provisions of Section 143F shall come into force. This was also confirmed by another Order No.1/2012 dated 15^th June 2012.

If we relate the Notification No.19/2012 dated 5^th June 2012 as confirmed vide Order No.1/2012 dated 15^th June 2012 with the rescinding Notification No.2/2012 dated 17^th March 2012, there is no rate of tax for the interregnum period between 01.04.2012 to 30.06.2012, which according to us needs to be examined.

Since there cannot be a levy of tax without a rate, there seems to be a vacuum during the aforesaid period and the levy of service tax already made during the relevant period is likely to become constitutionally invalid.

We request you to kindly go through this query and shall be much thankful to have your feedback.

Thanks & Regards

Chief Manager (Taxation)

SPIC Ltd., Chennai.

[sv bhasker]

Sir,

Please refer to Section 66 of the Finance Act,1994 which specifies rate of service tax as 12%. It may please be noted that the said Section 66 will be in force till midnight of 30.6.2012. Therefore, there is no scope for any vacuum  with regard to service tax rate between 1.4.2012 to 30.6.2012, as opined by you.

[SPIC Ltd.]

Dear Sir

We thank you for your feedback. With reference to your mail, we wish to inform you that a proviso to Section 66 of the Finance Act,1994 was introduced vide Section 143D of the Finance Act 2012 wherein it has been stipulated that the provisions of Section 66 shall not apply w.e.f such date as the Central Government may by notification appoint. The Govt. of India vide Notification No.18/2012-ST dated 01.06.2012 has appointed the 1st day of June 2012 as the effective date for S.143Dand correspondingly the appointed day for the new Section 66B (charging section) which was introduced in the Finance Act 2012 vide S.143F was notified as 1st day of July 2012. Further, the Govt. of India vide Notification No.22/2012-ST dated 5^th June 2012, has appointed the 1^st day of July 2012 as the date from which the provisions of Section 66 will not apply, without modifying or amending Notification No.18/2012-ST dated 01.06.2012, which says that the appointed date of S.143D, under which the proviso to Section 66 was introduced, as 1^st June 2012. This aspect may please be examined at your end and clarified. According to us, the Central Govt. ought to have clearly amended or rescinded Notification No.18/2012-ST dated 1^st June 2012 to the extent of the appointed day for Section 143D.

Thanks & Regards

K. Govindan

Chief Manager (Taxation)

SPIC Ltd

[sv bhasker]

Dear Govindan Sir,

I would like to rely on the information provided by you to clarify the point that Section 66 of FA,1994 that prsecibed rate of service as 12% was in force till 30.6.2012. Contents of the Notfn No. 18/2012-ST and 22/2012-ST self explanatory. Proviso to Section 66 that has a power to specify the date from when the said Section would cease to be in operation,was made effective w.e f 1.6.2012 vide Notfn No. 18/2012-ST. Further, Notfn No, 22/2012-ST issued in exercise of powers conferred under Proviso to Section 66, prescribed the date 1.7.2012  from when the said Section shall not be in operation.  

Therefore, harmonious reading of the  above two Notfns make it clear that Section 66 of the Finance Act that prescribed service tax rate as 12% was in force till 30.6.2012. Accordingly, there is no room for any ambiguity on tax rate please.

AI Summary

Service tax rate continuity affirmed after notifications resolving alleged interregnum, sustaining enforceability of the charging provision. A contested interregnum is alleged because a rescinding notification removed the earlier notified service tax rate before the newly enacted charging provision prescribing the tax rate came into force. The Finance Act added a new charging provision and a proviso allowing the earlier charging provision to cease from a notified date; subsequent administrative notifications appointed differing commencement and cessation dates. The countervailing position is that a harmonious reading of the proviso and the notifications shows the earlier charging provision remained effective until the appointed day, so no vacuum in the rate occurred.