Non applicability of Service Tax in the State of Jammu & Kashmir

[Surender Gupta]

Since 1994 when the service tax was first time introduced, a lot of water has been flown but the scope of section 64 of the Chapter V of the Finance Act, 1994 remains same.

Sub section (1) of section 64 states that,

"This chapter extends to the whole of India except the State of Jammu and Kashmir."

What is the meaning and interpretation of this exclusion? Legislatures are still confused.

Chapter V of the Finance Act, 1994, like any other tax law, contains various provisions which may be grouped as: -

- Extent, Commencement and application

- Definitions

- Charging Provisions

- Method of determination of tax

- Method of collection and other procedural aspects.

- Assessment

- Interest and penal provisions.

- Appeal and other related aspects.

Now from the above, which aspect is not applicable in the state of Jammu & Kashmir? From the reading of section 64(1) it is interpreted that all the aspect of the service tax are not applicable in the state of Jammu & Kashmir.

However, it appears that the revenue department is considering that the provisions of the section 64(1) excludes only the levy of service tax if provided in the state of Jammu & Kashmir and other aspects are applicable.

One may go through the letter of the Director General of Service Tax (F. No. V/DGST/03/GEN/INS/01/2004, dated 17-8-2004) which refers the Central Board of Excise  and Customs (CBEC) Circular No. 56/5/2003, dated 25-4-2003 in which CBEC has clarified that,  "Service Tax is a destination based consumption tax and the principle of consumption of services would determine the liability of Service Tax."

According to the above letter of the DGST, the insurance services rendered to the clients having assets outside the state of Jammu and Kashmir, by M/s. New India Assurance Company Ltd., Jammu would be liable to Service Tax. However, services provided to the clients having assets in state of Jammu and Kashmir, by your Jammu Branch are not liable to Service Tax.

Now a question of million arises that under which provision of the Chapter V of Finance Act, 1994, the revenue shall collect the amount of service tax from the Insurance Companies Situated in Jammu & Kashmir on the services provided to the client having asset outside the state of Jammu and Kashmir?