NISHITH.TV
  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York

Locations

  • Mumbai
  • Silicon Valley
  • Bengaluru
  • Singapore
  • Mumbai BKC
  • New Delhi
  • Munich
  • New York
  • Content
  • Home
  • ABOUT US
  • NDA in the Media
  • Areas of Service
  • Research and Articles
  • Opportunities
  • Contact
  • NDACloud
  • Client Access
  • Member Access
  • Events and Calender
  • How we perform
  • Knowledge anywhere, anytime
  • See our recent deals
  • Up to date legal developments
  • Case studies in M&A

Research and Articles

HTMLPDF

  • Research at NDA
  • Research Papers
  • Research Articles
  • NDA Think Tanks
  • NDA Hotline
  • New Ali Gunjan
  • Japan Desk ジャパンデスク

NDA-Hotline


  • Debt Funding in India Series
  • Private Equity Corner
  • The Startups Series
  • Court Corner
  • Investment Funds: Monthly Digest
  • Insolvency and Bankruptcy Hotline
  • Deal Destination
  • New Publication
  • M&A Interactive
  • Lit Corner
  • Private Debt Hotline
  • Food & Beverages Hotline
  • Companies Act Series
  • Gaming Law Wrap
  • Private Client Wrap
  • GIFT City Express
  • Regulatory Hotline
  • Capital Markets Hotline
  • Tax Hotline
  • Corpsec Hotline
  • Dispute Resolution Hotline
  • M&A Hotline
  • Pharma & Healthcare Update
  • Competition Law Hotline
  • HR Law Hotline
  • IP Hotline
  • Telecom Hotline
  • FEMA Hotline
  • Social Sector Hotline
  • iCe Hotline
  • SEZ Hotline
  • Media Hotline
  • Funds Hotline
  • Education Sector Hotline
  • International Trade Hotlines
  • Other Hotline
  • Real Estate Update
  • Realty Check
  • White Collar and Investigations Practice
  • Legal Update
  • IP Lab
  • Cross Examination
  • Technology & Tax Series
  • Technology Law Analysis
  • Yes, Governance Matters.
  • Financial Service Update
  • Japan Desk ジャパンデスク

Tax Hotline

April 5, 2003

Uncertainty over applicability of service tax: clarification sought

Taking into account the growing contribution of services to the Indian GDP, the Government of India ("GOI") first introduced indirect tax on services as a part of Finance Bill 1997. Since then subsequent Finance Bills have widened the scope of service tax by progressively adding new services every year. The Finance Bill, 2003 ("Bill") has kept up with this legacy and added 7 new services and broadened the application of 3 existing ones. The Bill has also proposed to enhance the service tax rate from the present 5% to 8%, but it is the withdrawal of exemption from service tax for proceeds received in foreign exchange this year that has led to a lot of confusion and anxiety amongst the service providers.

Service exporters were exempt from service tax vide the Government notification dated April 9, 1999. This covered services rendered to foreign clients outside India and also services provided for projects of foreign companies in India against payment in foreign exchange. This was much appreciated by the industry and regarded as being in line with the general principle followed in India and other countries of not levying local taxes on exports.

The GOI, vide notification dated March 31, 2003, has rescinded the aforementioned exemption and thus making all service exports chargeable to service tax with effect from April 1, 2003. Elimination of this exemption will have serious ramifications on the export sector as a whole and specifically on software and ITES/BPO service providers, engineering and management consultants, project exports, chartered and cost accountants, tour operators, securities and forex brokers and broadcasters.

Tax consultants state that the GOI has no intention to tax exports and this notification could be in fact an oversight on the part of the GOI. In fact the revenue officials clarified in a leading Indian financial daily that this notification would not apply to provision of services across Indian borders but to forex-earning services that are rendered within the domestic tariff area. However, the language of the notification does not support this view, thus leading to confusion amongst the exporters who are unclear on whether to include the service tax in their invoices. The Confederation of Indian Industry has made a representation to the GOI to withdraw this notification and restore the exemption. Until then the uncertainty would continue. Unless this exemption is withdrawn retrospectively, the exporters would still be liable for service tax for the interim period i.e. April 1, 2003 till the date of withdrawal. Further, if the exemption is not withdrawn and the Bill is enacted in its present form then the exporters would have to also collect the additional 3% from April 1, 2003.

Separately, please note that to enable levy of tax on services, an amendment to the Constitution is proposed (the 95th amendment bill has already been placed before the Parliament for ratification). This Constitutional amendment, and the consequent legislation would give the GOI the power to levy the tax and both the GOI and the State Governments sufficient powers to collect the proceeds.

 
 

Source: The Economic Times, April 4, 2003.

Mission and Vision


Distinctly Different

What's New


Law of Damages in India
New Publication: July 02,2022
Mid-year Regulatory Update 2022: Food Industry in India
Pharma & Healthcare Update : July 01,2022

Events


Webinars

Sustainable Mobility: Opportunities and Challenges
June 09,2022 - June 09,2022

This event is over. For event material please click here


Seminar

Navigating Disputes in India
February 26,2020 - February 26,2020

This event is over. For event material please click here


Round Table

Investing In Net Zero
July 14,2022 - July 14,2022

News Roundup


News Articles

Impact of Supreme Court’s new covidvaccination ruling on India’s employers
May 13,2022

Quotes

Are you a social media influencer or doctor? Here's how the new TDS rules will impact you
June 26,2022

Newsletters


New Publication

Law of Damages in India
July 02,2022

Pharma & Healthcare Update

Mid-year Regulatory Update 2022: Food Industry in India
July 01,2022

Competition Law Hotline

NCLAT Order in Amazon/FCPL Is a Missed Opportunity for Answering Substantive Questions of Law
July 01,2022

  • Disclaimer
  • Content
  • Feedback
  • Walkthrough
  • Subscribe
Nishith Desai Associates@2016 All rights reserved.