Thursday, August 05, 2010

SERVICE TAX – IS PAGING TAXABLE?


 

By

K.Vijay Kumar, M.A.,B.Ed., B.L.,

SUPERINTENDENT OF CENTRAL EXCISE


 

The 1994 budget introduced a New tax called Service Tax, covering

Telephones, General Insurance and Shares. No new services were brought under the purview of the Act later. The scope of this article is limited to service tax on paging services. Recently all major urban centres in the country have been provided with Paging Services and some of the major pager companies are collecting Service Tax from their customers.


 

Is this right? Let's see the relevant provisions of the law.


 

Section 66 of Chapter V of Finance Act , 1994 (dealing with Service Tax)

states-

"Charges of Service Tax : On and from the commencement of this chapter there shall be charged a Tax(herein-after referred to as Service Tax)at the rate of five percent of the value of the Taxable Services provided to any person by the person responsible for collecting the Service Tax".


 

This means that the tax is on taxable services provided by the person responsible for collecting the Service Tax.

                            

What are Taxable Services? Section 16(b) defines taxable service as "any service provided to a subscriber' , by the telegraph authority, in relation to a telephone connection".


 

Who is the person responsible for collecting the Service Tax?

Rule 2(d) of the Service Tax Rules, 1994 defines it as "Person responsible for collecting the Service Tax means –

(i) In relation to a telephone connection –

  1. The Director General of Posts & Telegraphs,
  2. The Chairman-cum-Managing Director, Mahanagar Telephone Nigam Ltd;,
  3. Any other person who has been granted a licence by the Central Government under the first proviso to sub-section (1) of Section 4 of the Indian Telegraph Act 1985"


 

So this tax is leviable only on Services provided to a Subscriber by the telegraph authority in relation to a telephone connection.(Telegraph authority also include any person who has been granted a license). Paging is not service provided in relation to a telephone. In fact you don't need a telephone to be a pager subscriber; while calling up the Pager service, the telephone is used and service Tax on that call is paid, but when the pager agency transmits the message – this actually is the service provided by them - it is not in relation to a telephone.

A clear analogy can perhaps be the telegraph service. You can book a telegram over the telephone (Phonograms), but the telegraph authorities do not collect any service Tax on the telegrams, rightly so, because the telegram is not a service in relation to a telephone. Only the telephone is used for getting that service and for that service tax on telephone is paid, but tax is not leviable on the service of transmitting a message received through telephone by telegram or paging.


 

Then why are paging services collecting service Tax? I feel it is ILLEGAL. Then should this illegal collection be credited to the Government? The answer sadly is 'NO'.

    

Under Section 11D of the Central Excises & Salt Act, 1944, every person who has collected any amount from the buyer in any manner as representing duty of Excise, shall forthwith pay the amount so collected to the credit of the Central Government.


 

Though section 83 of Chapter V of Finance Act, 1994 (Service Tax), makes several Sections of the Central Excises & Salt Act, 1944 applicable to Service Tax, Section 11D is not made applicable. In the absence of Section 11D being applicable to Service Tax, paging agencies are not obliged to deposit with the Government, the service tax collected by them. (Continued on the next page)

I personally feel that pager companies are collecting Service Tax illegally and thus enjoying an extra profit at the cost of the consumers. It is for the enlightened to clarify whether:


 

  1. Service Tax is leviable on Paging?
  2. If not, can paging agencies collect service Tax and what should be done with such amounts collected?

EXCISE LAW TIMES – 01.03. 1996 – A 82

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