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of India vide Notification No.8/2009-ST dated 24^th February 2009 fixed the rate of service tax at 10% and the same was rescinded vide Notification No.2/2012-ST dated 17^th March 2012.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.

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.