By G. Gokul Kishore
Union Excise, in India, with its well-structured Tariff Schedule does not offer the liberty that Service Tax provides in so far as nomenclature of taxable services is concerned. Service Tax does not have any tariff schedule simply because from the beginning the rate of tax has been single. While the taxable activity is specifically described in the statute, there is no HSN when it comes to nomenclature, it is ‘as you like it’. The 'Short-term Accommodation Service', introduced this year, is no exception. It can well be 'Accommodation Service' but then, since Section 65(105)(zzzzw) of Finance Act, 1994 seeks to cover only accommodation with duration of less than 3 months, and the C.B.E. & C. has in its Budget clarification D.O.F.No.334/3/2011-TRU, dated 28-2-2011 used the expression ‘short term accommodation’, we shall use the same expression.
The definition reads “service provided or to be provided to any person by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months”. The definition is in line with the avowed policy of widening of tax base by having provisions to achieve the same. Wide and expansive definitions guarantee that the maximum number comes under the ambit. A common method to achieve such objective is to use illustrative terms as to persons or activity that would be covered for the purpose of attracting the tax and to qualify it with a disclaimer. Often, the disclaimer to rule out adoption of any other connotation is ‘by whatever name called’ and such an expression renders the description of person or activity preceding it, otiose to a large extent. Large extent because, it is otherwise useful to take recourse to interpretation like ejusdem generis and make the provision applicable to a particular class or category of persons or activity.
All establishments which provide accommodation for the specified period are, therefore, covered under the ‘Short-term Accommodation Service’. Probably to distinguish the service from being categorised as renting service, a ceiling on duration of 3 months has been fixed. It appears that the intention is to tax such service only if it is less than 3 months and not accommodation of 3 months or more, without any break. Accommodation ranging from one day to a day less than 3 months can be said to be covered for attracting Service Tax levy under this category. If a guest stays intermittently but all such periods are less than 3 months, then all such periods would attract the levy simply because all such stays get classified under ‘short-term accommodation’.
As the alphabetical sub-clause in Finance Act, 1994 dealing with all taxable services is miserly in respect of this service, one has to look to official clarifications to comprehend it better. The budget clarification of the Department indicates the intention to bring out an exemption notification so as to effectively restrict levy of Service Tax to accommodation with declared tariff of Rs. 1000 per day or more. Budget lodges and those boarding houses frequented by common man are intended to be kept out of the net not by way of statutory provision but by treading the exemption route thus retaining the authority to alter scope of levy instead of waiting for the nod of legislature. The budget promise stands fulfilled by exemption vide Notification No. 31/2011-S.T., dated 25-4-2011 to accommodation having declared tariff of less than Rs. 1000 per day. An abatement of 50% from taxable value has also been granted by amending Notification No. 1/2006-S.T. vide Notification No. 34/2011-S.T. subject to the condition of non-availment of Cenvat credit on inputs and input services.
Liability to tax shall precede exemption. One cannot exempt what is or who is not liable at the first instance. It is well-settled that exemption notification cannot cast liability on an item or subject which is otherwise not liable to tax as per law. It has been clarified by C.B.E. & C. in its Circular No. 139/8/2011-TRU, dated 10-5-2011 that ‘the relevance of ‘declared tariff’ is in determining the liability to pay Service Tax as far as short term accommodation is concerned’. If the intention is to use declared tariff as the basis for liability, it could have been made part of the sub-clause in Section 65(105) itself. One can find similar provision in respect of Construction of Residential Complex Service with the 12 unit limit finding express mention in the relevant provision. Interpretation of a particular yardstick which is meant for ascertaining eligibility to exemption, as a determinant of liability can be brushed aside as drafting infirmity. But such measures may even be counter-productive, acting as incentive to publish tariff below Rs. 1000 and to charge in excess of such tariff without documents or raising fictitious bills.
Probably, taking cue from the practice of MRP-based assessment for specified excisable goods, the concept of ‘declared tariff’ has been introduced. The notional concept of declared tariff has been incorporated with the intention of plugging evasion by way of under-reporting of value charged and received. By taking declared tariff as the basis for determination of entitlement to exemption, taxing a transaction based on actual value charged for the service has been relegated. Though Notification No. 31/2011-S.T. excludes discount from the declared tariff, the basis for exemption, nevertheless, remains fixed. The quantum of actual receipts being less than Rs. 1000 will cut no ice if the declared tariff is more than Rs. 1000 per day. In such cases, tax will be payable on actual receipt even if the same is less than Rs. 1000 per day.
When, internationally, tax systems move towards transaction value, it is ironical that Service Tax in India continues to take support from notional concepts for taxation and exemption. This may even give room to entertain doubts as to inability of tax administration to operationalise a robust verification mechanism. Instead of using ‘declared tariff’ which is akin to list price to identify persons who will be required to pay the tax, the Department could have opted for transaction value while fixing the limit for exemption. Else, exemption route could have been avoided and the 'declared tariff' could have been made part of the statute itself.
[The author holds Ph.D. degree for study on Union Excise Duties and is a Senior Manager, Lakshmikumaran & Sridharan, New Delhi]
Union Excise, in India, with its well-structured Tariff Schedule does not offer the liberty that Service Tax provides in so far as nomenclature of taxable services is concerned. Service Tax does not have any tariff schedule simply because from the beginning the rate of tax has been single. While the taxable activity is specifically described in the statute, there is no HSN when it comes to nomenclature, it is ‘as you like it’. The 'Short-term Accommodation Service', introduced this year, is no exception. It can well be 'Accommodation Service' but then, since Section 65(105)(zzzzw) of Finance Act, 1994 seeks to cover only accommodation with duration of less than 3 months, and the C.B.E. & C. has in its Budget clarification D.O.F.No.334/3/2011-TRU, dated 28-2-2011 used the expression ‘short term accommodation’, we shall use the same expression.
The definition reads “service provided or to be provided to any person by a hotel, inn, guest house, club or camp-site, by whatever name called, for providing of accommodation for a continuous period of less than three months”. The definition is in line with the avowed policy of widening of tax base by having provisions to achieve the same. Wide and expansive definitions guarantee that the maximum number comes under the ambit. A common method to achieve such objective is to use illustrative terms as to persons or activity that would be covered for the purpose of attracting the tax and to qualify it with a disclaimer. Often, the disclaimer to rule out adoption of any other connotation is ‘by whatever name called’ and such an expression renders the description of person or activity preceding it, otiose to a large extent. Large extent because, it is otherwise useful to take recourse to interpretation like ejusdem generis and make the provision applicable to a particular class or category of persons or activity.
All establishments which provide accommodation for the specified period are, therefore, covered under the ‘Short-term Accommodation Service’. Probably to distinguish the service from being categorised as renting service, a ceiling on duration of 3 months has been fixed. It appears that the intention is to tax such service only if it is less than 3 months and not accommodation of 3 months or more, without any break. Accommodation ranging from one day to a day less than 3 months can be said to be covered for attracting Service Tax levy under this category. If a guest stays intermittently but all such periods are less than 3 months, then all such periods would attract the levy simply because all such stays get classified under ‘short-term accommodation’.
As the alphabetical sub-clause in Finance Act, 1994 dealing with all taxable services is miserly in respect of this service, one has to look to official clarifications to comprehend it better. The budget clarification of the Department indicates the intention to bring out an exemption notification so as to effectively restrict levy of Service Tax to accommodation with declared tariff of Rs. 1000 per day or more. Budget lodges and those boarding houses frequented by common man are intended to be kept out of the net not by way of statutory provision but by treading the exemption route thus retaining the authority to alter scope of levy instead of waiting for the nod of legislature. The budget promise stands fulfilled by exemption vide Notification No. 31/2011-S.T., dated 25-4-2011 to accommodation having declared tariff of less than Rs. 1000 per day. An abatement of 50% from taxable value has also been granted by amending Notification No. 1/2006-S.T. vide Notification No. 34/2011-S.T. subject to the condition of non-availment of Cenvat credit on inputs and input services.
Liability to tax shall precede exemption. One cannot exempt what is or who is not liable at the first instance. It is well-settled that exemption notification cannot cast liability on an item or subject which is otherwise not liable to tax as per law. It has been clarified by C.B.E. & C. in its Circular No. 139/8/2011-TRU, dated 10-5-2011 that ‘the relevance of ‘declared tariff’ is in determining the liability to pay Service Tax as far as short term accommodation is concerned’. If the intention is to use declared tariff as the basis for liability, it could have been made part of the sub-clause in Section 65(105) itself. One can find similar provision in respect of Construction of Residential Complex Service with the 12 unit limit finding express mention in the relevant provision. Interpretation of a particular yardstick which is meant for ascertaining eligibility to exemption, as a determinant of liability can be brushed aside as drafting infirmity. But such measures may even be counter-productive, acting as incentive to publish tariff below Rs. 1000 and to charge in excess of such tariff without documents or raising fictitious bills.
Probably, taking cue from the practice of MRP-based assessment for specified excisable goods, the concept of ‘declared tariff’ has been introduced. The notional concept of declared tariff has been incorporated with the intention of plugging evasion by way of under-reporting of value charged and received. By taking declared tariff as the basis for determination of entitlement to exemption, taxing a transaction based on actual value charged for the service has been relegated. Though Notification No. 31/2011-S.T. excludes discount from the declared tariff, the basis for exemption, nevertheless, remains fixed. The quantum of actual receipts being less than Rs. 1000 will cut no ice if the declared tariff is more than Rs. 1000 per day. In such cases, tax will be payable on actual receipt even if the same is less than Rs. 1000 per day.
When, internationally, tax systems move towards transaction value, it is ironical that Service Tax in India continues to take support from notional concepts for taxation and exemption. This may even give room to entertain doubts as to inability of tax administration to operationalise a robust verification mechanism. Instead of using ‘declared tariff’ which is akin to list price to identify persons who will be required to pay the tax, the Department could have opted for transaction value while fixing the limit for exemption. Else, exemption route could have been avoided and the 'declared tariff' could have been made part of the statute itself.
[The author holds Ph.D. degree for study on Union Excise Duties and is a Senior Manager, Lakshmikumaran & Sridharan, New Delhi]