Common return for service tax, excise duty on back burner

Common return for excise duty and service tax was envisaged when 119 services were taxed

After a Goods & Services Tax (GST), implementation of another indirect tax reform, it turns out, is unlikely to see the light of day soon. The finance ministry is leant to have put its plan to harmonise service tax and central excise duty returns on the back burner.

An indefinite deferment of this measure, meant to simplify business processes, implies assessees will continue to file separate returns for service tax and excise duty till a GST is introduced.

According to officials, a common return for central excise duty and service tax was envisaged when 119 services were taxed. However, with the introduction of a ‘negative list’ for taxation of services in July 2012, it became difficult to merge the two forms. An internal committee formed by the Central Board of Excise and Customs (CBEC) had made this observation.  

“The proposal has been discarded. There were many issues, including different periodicity of the returns and the new reporting format under the negative list,” said a finance ministry official, asking not to be named.

In the negative-list regime, introduced in July 2012, all  services that do not figure on the list are taxed. It has about two dozen categories of services that are exempt.

The idea of harmonisation was to introduce monthly and quarterly filing of returns, and payment of taxes, for both service tax and excise duty. Under the current practice, returns for excise duty are filed on a monthly and quarterly basis, while that for service tax is filed on a half-yearly basis. On the other hand, payment of taxes are not aligned with service tax returns. The service tax payment is made every quarter in the case of individuals and proprietary & partnership firms, whereas it is done every month by all others.

According to the harmonisation proposal, the assessees who paid service tax of Rs 25 lakh or more in a previous year and new assessees other than individuals and firms were to file returns on a monthly basis, while the rest needed to do so every quarter.

“This will improve cash flow for small businesses registered as companies or other corporate bodies, while it will make large non-corporate entities pay tax on monthly business,” CBEC had said.

Also, a harmonisation could have facilitated better audit by bringing down paperwork in filing of the two returns — from about 15 pages to one page.

It was also seen as a precursor to the introduction of GST, which is to subsume most indirect taxes. But now the thinking in the finance ministry is that a single return will add an unnecessary process. So, it will be prudent to wait for the GST rollout.

The plan to bring a single form for service tax and central excise duty was announced in Budget 2012-13 by Pranab Mukherjee, the then finance minister. The announcement to introduce a negative list was made in the same Budget. Soon after, in April 2012, CBEC had issued a circular proposing amendments to harmonise returns for excise duty for service tax. These forms were never notified.

The U-turn on the return harmonisation plan means another of Mukherjee’s decisions has been reviewed by Finance Minister P Chidambaram. Some other such decisions are provisions related to the General Anti-Avoidance Rules, tax demand on Vodafone, fiscal deficit target for 2012-13 and negotiations with states on GST and Central Sales Tax compensation.