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Is power not an infrastructure?
[Submitted by CA. K. Balasubramanian,
Senior Manager (Finance), BHEL,
New Delhi]
February 5, 2008
Background:
One may wonder as to why this question is raised. The answer is
simple. In the views of the Government of India, for levy of Service Tax,
power is not considered as an infrastructure. This article intends to
explain the treatment given for other projects as against power projects
under Service Tax
Services covered:
The installation and commissioning services were brought under tax net
with effect from 01/07/2003. The scope was extended by covering erection
within the ambit with effect from 10/09/2004. On the same day, Commercial
and Industrial construction services were also brought under tax net. From
01/06/2007, a new category was introduced under works contract service.
These three services are extensively used in setting up of the power
projects.
Exemption for infrastructure projects:
Let us examine the various exemptions available to various
infrastructure projects under various services. In respect of Commercial
and Industrial Construction service, Section 65 (25b) specifically
excludes services provided in respect of roads, airports, railways,
transport terminals, bridges, tunnels and dams. Similarly, the section
65(105)(zzzza), under works contract service excludes the services
rendered in respect of roads, airports, railways, transport terminals,
bridges, tunnels and dams. In addition to the above statutory provisions,
Notification Number 16/2005 ST Dated 07/06/2005 exempts construction
services in respect of port or other port from the whole of service tax
leviable thereon under section 66 of the Finance Act. Further,
Notification Number 17/2005 ST dated 07/06/2005 exempts the activities of
site formation and clearance, excavation and earthmoving and demolition
and such other similar activities provided to any person by any other
person in the course of construction of roads, airports, railways,
transport terminals, bridges, tunnels, dams, ports or other ports, from
the whole of service tax leviable.
Government's ambition:
The power ministry is having ambitious target of providing power for
all at affordable cost on demand. With this target in background, the
Government enacted The Electricity Act, 2003 and The Energy Conservation
Act, 2001 and constantly reviews the situation. Similarly, Finance
Ministry is eyeing on GDP growth rate of 10%.
Why not exempt all power projects from the ambit of Service Tax ?
It is abundantly clear that on the one hand Government intends to
improve infrastructure facilities such as Roads, Airports, Railways etc.
and having this in mind, has exempted the above infrastructure projects
from the ambit of service tax. It is also clear that the Government is
interested in providing power on demand at affordable cost. The Government
also intends to improve the GDP growth rate. Exempting all power projects
from the levy of service tax would definitely be a step in the right
direction at this moment.
Conclusion:
There is absolutely no logic in levying Service Tax on power projects,
when many major infrastructure projects are outside the purview of Service
Tax. I appeal to the Honorable Finance Minister to look in to this aspect.
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