Infrastructure consultancy companies demand changes in Service Tax Regime

New Delhi October 23  October , 2014   Infrastructure Consulting  Engineering companies providing services related to  survey, investigation, Design, detailed project report  for implementation of various infra-projects in the country have urged the Union Finance Minister Arun Jaitley to have a relook at the Service tax introduced under Finance Act 2012 and treat them at par with contractors and concessionaires as they are exempted from payment of service tax as per notification no 12/2012 dated June 20, 2012 .

“The Government funded infrastructure projects is impeded by discrimination against the Consulting Engineering Companies by levy of Service Tax. This critical issue originated with the introduction of Point of Taxation Rules 2011 & subsequent amendment in Finance Act 2012. The anomaly & discrimination in implementation of GST for Consulting Engineering Companies providing services for Government funded infrastructure projects .”said Mr K.K.KApila, Co-Chairman, FICCI’s National Committee on Transport Infrastructure and Chairman, International Road Federation .

“For implementing the infrastructure projects, practically all other agencies like Contractors and Concessionaires carrying out erection, construction, maintenance, repairs, alteration, renovation / restoration are exempted from payment of Service Tax as per Notification No. 12/2012 – Service Tax dated 20.06.2012.  Whereas, even though Consulting Engineering Companies are the first to develop the infrastructure projects for the Government leading to their execution and timely completion, they have been singularly denied the exemption and brought into the ambit of Service Tax.”. he added.

“As against the earlier provisions of paying Service Tax within 30 days of receipt of payment, the Consultants are being forced to pay Service Tax within 30 days of issuance of invoice itself, even if the invoices remain unpaid for months. Delayed payment of Service Tax further attracts huge interest @ 18%. The notification is thus highly discriminatory, prejudiced and unjust to the Consultants. While there is a strict timeline to pay Service Tax within 30 days of raising of an invoice, there are no such timeline stipulations in Consultancy agreements for the Clients to pay the bills within 30 days of their submission. In some Contracts, even where such provision exists, it is never honored. “ he added.

“Many of the Consultancy Companies are likely to go out of business or become defaulters in payment of Service Tax, due to the above stated discriminatory, unfair and unjust provisions. We demand government h should Provide relief to the Consulting Engineering Companies at par with other agencies for Government / Local Authorities infrastructure projects .” Mr Kapila said.

“However, if there is any difficulty in accepting the above recommendation, we would strongly urge that the Point of Taxation wherein the Consultants used to pay Service Tax within 30 days of the receipt of payment from the service receiver/ client be restored. Today, the law warrants that the Consultants deposit the Service Tax within 30 days of raising the bill, for services, irrespective of the fact that the Consultants receive the payment or not. In the event of delay in submission, interest @ 18% Tax is attracted. This requires immediate correction as these Consulting Companies do not have a Capital base and the means to pay Tax in advance for the bills yet to be cleared.  As such, it is humbly requested that this provision be corrected and the earlier position of Point of Taxation be restored lest the Consulting Companies which have become defaulters in varying degrees  are forced to exit from this business.” Mr Kapila said.

“Yet another option to bring in the correction is, to charge Service Tax via TDS mode. This would mean that when a Client makes payment to the Consultants for their services, he simultaneously deposits the Service Tax amount with the Service Tax Authorities against the Service Tax account of the Consultants. Regarding the accounting of CENVAT credit the refund can be claimed on same basis as in case of Refund of Income Tax on reconciliation. This mechanism would solve the entire problem, wherein, the Government will be able to collect its revenue faster, than it does at present and ensure full compliance. Besides the Service Tax Payers will heave a sigh of relief.” Mr Kapila concluded.