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Total Number of Subscribers: 467 |
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Date:31st December 2008 |
Compiled by Mr. M. Sathya Kumar |
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Taxability of CA
services in Service Tax Backdrop : Some of the services rendered by members of our profession were
brought under Service Tax net in 1998, vide Notification No. 53/1998-ST, dated
7-10-1998 and scope amended, vide Notification Nos. 59/1998-ST, dated
16-10-1998 and 2/2006-ST, dated 1-3-2006. The professional services rendered
by practising chartered accountants (as also company secretaries and cost
& works accountants) have been a subject matter of discrimination vis-à-vis
services provided by other professionals, including legal practitioners. Recently, the Government came out with some relief, partly of
course, by way of Notification No. 25/2006-ST, dated 13-7-2006. This article
attempts to analyse the partial relief granted by the said exemption
Notification. Only partial relief : At last, 13th July 2006 saw some silver lining for finance,
accounting and corporate law professionals when the Central Government
announced some respite to practising Chartered Accountants (CAs), Company
Secretaries (CSs) and Cost Accountants (CWAs), by exempting taxable services
rendered in connection with representation before any statutory authority.
Such services shall be exempt w.e.f. 13-7-2006, but services rendered between
1-3-2006 and 12-7-2006 shall remain taxable. That is, the date from which all
services rendered by these professionals were made liable to service tax up
to the issuance of new Notification providing exemption to these professionals
in relation to legal representation services. Not much, but some relief is
there and the fact that there was discrimination between legal professionals
(advocates and solicitors) and accountants, company secretaries and cost
accountants has been recognised by the Ministry of Finance. Better late than
never — an old saying holds good here too. But there is nothing worth to be thankful to the Ministry of
Finance or to be happy of getting this breather. It appears that the people
in North Block did know the fact that there has been a judgemental drafting
lacuna while making all services rendered by CAs/CSs/CWAs taxable and at the
same time, continuing to allow legal professionals providing the same
services to render such services without falling in the ambit of service tax.
In fact, there were some writs also filed in the Courts. This exemption has been provided as an outcome of representation
from the three Institutes (ICAI, ICSI, ICWAI), on the ground that similar
services provided by other persons (who are not CAs/ CWAs/CSs) were not being
subjected to levy of service tax. Taxanomy of exemption : Vide Notification No. 25/2006-ST, dated 13-7-2006, the Central
Government has exempted levy of whole of service tax on services provided by
a practising chartered accountant/cost accountant/company secretary in
his/her professional capacity, to a client, relating to representing the
client before any statutory authority in the course of proceedings initiated
under any law for the time being in force, by way of issue of notice. While a
plain reading may sound to be a simple exemption, it is tagged with so many ‘ifs’ and ‘buts’ such as professional capacity, representing the
client, before statutory authority, in course of proceedings, under any law
and issuance of notice. The following points are relevant to note on the exemption in
relation to representation provided by these professionals : — The exemption is available w.e.f.
13-7-2006 only and not before. — Representation services continue
to be taxable services from 1-3-2006 to 12-7-2006. — All representation services are
not
exempt. — Only services of representation i.e., to
appear before a statutory authority are exempt w.e.f. 13-7-2006. — Such exemption would be available (a) to practising CAs/CSs/CWAs only (b) if the service rendered is representational service (c) if representation is before any statutory authority (d) if it is in course of any proceedings (e) if such representation/proceedings can be under any law in
force. (f) if the proceedings are initiated by way of issue of notice. If any one of the above is absent, the exemption would not be
available to practising professionals. Scope of exemption : Service tax will be applicable even on the legal services and
legal advice or opinion given to clients. A representation before any
statutory authority under any law will be taxable only for the period
1-3-2006 to 12-7-2006, as w.e.f. 13-7-2006, exemption has been granted from
levy of service tax in relation to eligible representational services. Thus,
only, representational services before any statutory authority under any law
shall be exempt w.e.f. 13-7-2006 and onwards. These may be under any tax law,
Companies Act, Customs Act, Debt Recovery Tribunal, Collector of Revenue,
Stamp Authorities, SEBI Act, Competition Act, FEMA, Information Technology
Act, Trademark Act, Copyright Act, Arbitration Proceedings under Arbitration
and Conciliation Act or any other law of the land. Representation could be
before any Commission, Appellate Authority, Court of Enquiry or Tribunal,
etc., but it should be in response to a notice or summons issued to the
client, to whom services are rendered. The representation should be the result of any proceedings
initiated under any law for the time being in force, i.e., it could be
in relation to any law of the land. Which laws would be covered have not been
mentioned, but it would cover all legislations. If a professional represents
a client, subject to other conditions like notice, etc., say, before the
Pollution Control Board under provisions of the Pollution Control Act, such
representation would qualify for the exemption. However, if a chartered
accountant represents an Indian company, say in the United States before the
appropriate authorities under the Sarbanes Oxley Act (SOX), it not may be
exempt from levy of service tax as SOX is a foreign law. The Notification
states ". . . . . . before any statutory
authority in course of proceedings initiated under any law for the time being
in force", which suggests to indicate that both, the ‘statutory authority’ as well as ‘any law’ have
to be Indian only. The Notification is issued u/s.93 of the Finance Act, 1994 and Service
Tax’s jurisdiction also applies to whole of India only. As
such,
it can be interpreted that the intention is to cover the law as well as
authority within the territorial jurisdiction of the tax law itself. It is
pertinent to keep in mind the Export of Services Rules, 2005 also and if the
service falls under the scope of export of service, there will be no levy of
Service Tax. Also, given the fact that the professional service was actually
rendered in the US, the Indian Government would have no jurisdiction to
charge the same, since the provisions of the Act extend to the whole of India
only. If the chartered accountant represents not in his professional capacity
as a chartered accountant but, say, as a CPA, then also the exemption
Notification may not apply to him. Another important condition is that the
representation should be a result of proceedings initiated under any law. It
could be proceedings initiated by client or the proceedings initiated by the
authorities. It is not mentioned that the proceedings should only be against
the client. It could be otherwise also. For example, in case of appeal before
an Appellate Authority, generally the proceedings are initiated by the
aggrieved assessee only. In such a case also, representation service will get
covered under the scope of the exemption, vide Notification No. 25/2006-ST,
dated 13-7-2006. So far as issuance of notice is concerned, it is not necessary
that a notice shall be issued for each hearing or against each
representation. If it is a case of continuous hearing, where first hearing is
adjourned to subsequent date or dates, no fresh notice may be required and
such continued
representation will qualify for exemption. Normally,
subsequent dates are either verbally conveyed or noted in the Court files or
note sheet and noted by the authorised representatives. Such a practice would
deem to be a case of continued hearing against a notice duly issued. It is a fact that whenever a notice is issued and the assessee
appears before the authority, in case of an adjournment, the matter is always
considered as ‘part heard’, the proceedings continue, they don’t come to an end. That being the case, there should be no
requirement for issuance of a fresh notice. Otherwise, there would be no
adjournments or the Department would simply keep on issuing notices, with
time for nothing else. Moreover, if the Court’s or
the Tribunal’s order mentions in the order or pronouncement itself that the
petitioner or the respondent was represented by so and so person, it would be
a conclusive evidence of representation which will be exempt from levy of
service tax. The services, such as helping filing of tax returns, tax
planning, preparing and drafting writs and appeals, liaison with statutory
bodies such as SEBI, RBI, various Government departments, incorpora-tion of a
company, filing of a merger application, etc. all would be subject to service
tax. Even preparing and filing of appeals would be taxable services, though
appearance before the Appellate Authorities, on issue of notice against the
appeal filed will be exempt from levy of service tax. It may be noted that service tax is levied on the taxable
services rendered and not on the amount received (advance), against which no
service has been rendered. If a representation service was rendered prior to
13-7-2006 but billed after 13-7-2006, it would be imperative for the service
provider to charge service tax. What is taxable is the service and not the
amount. The amount is only a measure of tax. If such service is rendered
after 13-7-2006, but for which advance was received prior to 13-7-2006
(whether service tax paid or not), in such cases, service tax paid could be
either adjusted from subsequent payments for current quarter or a refund may
be sought. If composite services provided on a retainership basis include
representational services also, it would be desirable to break such
consideration and raise two bills for taxable and non-taxable services. Conclusion : And finally, one needs to appreciate that these professionals,
as they are, are smart enough when it comes to planning their own issues. No wonder,
one can discover the representation practice going up and consequential
revenues from such services in the overall kitty of gross billing. It would
be desirable for the professionals to disclose representational income
separately in the bills/invoices. If a consolidated bill is raised for
taxable and exempt services, service tax is bound to be levied on the entire
amount. It is also suggested that when the same professional renders auditing
and accounting, company law and taxation services which include
representation services also, such fees arising out of exempt representation
services may be disclosed separately, both by the auditor in his invoice and
also by the client in its profit and loss account. That would make the
exemption claims more foolproof. Looking to the total number of chartered accountants (over 1.20
lakhs), the relief does not seem to be beneficial to chartered accountants at
large, as hardly 5% of this number appear at representation stage in various
Tribunals, etc. Also, the Department too would not lose much on revenue, as
such fees which will forgo service tax will be a small figure. It would, however, be advisable for the Revenue to tax all
services rendered by various professionals, on the principles of justice and
equity. Similar services if rendered by legal professionals or others should
also be taxed under business auxiliary services, as the levy of service tax
is on a taxable service, not on a service provider. Article
by Dr. Sanjiv Agarwal, Chartered Accountant |
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