The finance ministry has decided not to follow up on showcause notices issued over a period of time to three categories of services. This could have resulted in additional revenue of at least Rs3,000 crore.
The decision to drop the showcause notices follows clarifications issued by the revenue department on 12 March regarding the applicability of service tax on goods transport agencies (GTAs), money changers and interconnect charges of telcos.
According to a revenue department official, showcause notices worth thousands of crores of rupees were issued in the case of GTA services—around Rs2,500 crore to telecom-service providers and Rs500 crore to money changers. The revenue department will now allow 75% rebate from service tax to GTAs and to persons who pay for movement of freight either themselves or through their agents for transport of goods by road. Earlier, only the transporter was entitled to claim rebate on the tax liability. Money changers are now exempt from service tax as the revenue department has clarified that the finance ministry’s aim was to levy service tax only on foreign exchange brokers and not on money changers. Officials said that in the absence of a clarification, the tax burden could have been imposed on foreign remittances and on exporters who use such services.
Interconnect usage charge (IUC), collected by telcos from other telcos that use their networks to put through calls, have been brought under the service tax net in the Union Budget. The service-tax will become effective once Parliament approves the Finance Bill.
Interconnect charges have long been a source of dispute between telcos and the finance ministry. The service charge on telecom services is currently charged on the amount billed to end users. The revenue department has clarified that service tax on IUC will be applicable only when the Finance Bill, 2007, is approved, and showcause notices issued earlier will be withdrawn.