IMC moots servce tax reduction on works contract

Mumbai-based trade body Indian Merchants' Chamber (IMC) has urged finance minister Pranab Mukherjee to reduce the rate of service tax under the works contract composition (WCC) scheme from 4 peer cent to 3 per cent and the rate of central sales tax from 2 per cent  to 1 per cent.

The chamber has pointed out that Budget 2010-11 proposed reducing service tax rate from 12 per cent to 10 per cent, but has not consequently amended the WCC scheme reducing the rate of 4 per cent to 3 per cent.

It also said that at the time of introduction of state level VAT five years ago, the government had aid that CST would be phased out. In spite of this, 2 per cent CST continued to be in force in respect of interstate transactions.

IMC said in a statement, the service tax law did not define what constituted "service". As a result, the same transactions, which are taxed as sale transactions (in view of deemed fiction contained in sales tax / VAT law) are also sometimes subjected to service tax.

"It is, therefore, essential to define service as "other than goods and deemed goods / immovable property". The multiple levies results in cascading effects and increases the final cost to the consumer," the statement said.

Define 'service'
IMC says that the term "service" should be explicitly defined for the purpose of service tax to exclude transactions which are subjected to sales tax  / VAT and related taxes.