Service tax rules leave India Inc vexed

Many taxation issues pertaining to inter-state delivery of services are being envisaged when states are given the power to tax a set of services. Two principal questions that seem to arise are — whether revenue will go to the jurisdiction of production or that of consumption; and how to identify the place of supply and that of actual use of the services in the case of inter-state delivery of services. Tax authorities are mulling solution to the first question taking cue from the destination principle followed by most countries to tax international transactions with VAT imposed on imports and rebated on exports. The second question is much more complex, and its solution involves greater efficiency of administration. The state governments are making their demand for the power for levy of service tax more vociferous. Tax policy managers at the centre would, however, do well to put the necessary administrative systems in place before the states’ demand is met