Cell phone operators making more than Rs 1300 crore a year from J&K have skipped paying service tax by taking recourse to litigation. Officials tell Safwat Zargar, it is a yearly loss of Rs 500 crore which can simply be stopped
Cell phone companies making huge sum of money J&K are not paying the mandatory service tax and it has cost the state dearly. Insiders in the government said these companies paying the tax means a yearly income of Rs 500 crore to the public kitty.
“I do not know what we could have earned from them in last many years,” a senior officer in state’s commercial tax department said. “But we are sure; we are losing a substantial sum of Rs 500 a year by not taking a decision.”
J&K has levied a service tax of 10.5 percent on the cell phone services. Mobile phone service being one of the listed services are supposed to pay this tax that state collects.
J&K is the only state in India that collects services tax itself. When services were brought under the tax in India, Delhi’s central government gave an idea to all states about the money they will get from the central pool if the tax is collected by the centre directly. State government initially felt lured by the lump-sum but later it decided against giving this tax collection to the federal government.
Modelling its system on the federal structure, the state government drafted its own list of services. In the second stage it created the tariffs. Though the state is yet to have a separate service tax act, the tax is actually being collected under J&K General Sales Tax Act 1962 in which services are converted into goods for the time being.
Once the new tax regime was implemented, almost all the cell phone operators in J&K went to high court challenging state government’s right to levy the tax under the special provisions the state enjoys. It has been many years now that the case is in the court and there is no headway.
While the court is yet to finalize the case, the state coffers are suffering massive losses. J&K market is managed by seven cell operators. By the end of May 2014, J&K had 7189958 cell phone users. Bharti Airtel was the leader with 2736722 users followed by Dishnet Wireless with 2172823 users; it was the public sector BSNL that pioneered the service to J&K that is at third number with 1071907 users. The balance number of users is managed by Vodafone with 818448, Idea with 390058 users, Aircel and Reliance.
The investments involved in this business are quite huge. So are the returns. In 2013, the four mobile operators in J&K excepting the state owned BSNL earned Rs 1020.29 crore. Of this Rs 526.65 crore is that of Airtel, Rs 378.93 crore of Aircel, Rs 81.23 crore of Vodafone and Rs 33.47 crore of Idea. “This is not the only transaction,” said the senior taxman. “This service is interdependent on many services and that means that much of money.”
Officials involved in the taxing system said only Vodafone is making the payment. Others have made the issue disputed and are not paying. But they are willing to pay, the officials said.
The cell phone operators’ honchos have been flying to Srinagar year after year to discuss the issue with the state government officers. They are not willing to pay but prospectively and not retrospectively. The idea is that no authority can prevent the J&K government from levying a tax that falls under its rights. Given the companies losing the case, they fear it will become a huge amount if they are asked to pay retrospectively.
Officials said they will be happy if the government takes a call. “It is not bad that we start collecting the due prospectively,” one senior officer said. “Our kitty will get richer by Rs 500 crore.” But the government at the policy making level is unwilling to take a call.
This is not for the first time that the cell phone operators made the decisions of the state government disputed. As the mobile operators started importing equipment, the state government sought entry tax. Initially they paid. Later, however, the operators went to the court challenging the state government’s constitutional right to issue such an order. They termed the order a violation of Article 301 of the Constitution of India. After around four years of battling it out, they lost the case when the High Court directed all the mobile companies operating in the state to pay a fine of Rs 10 lakh each to the state government besides the entry tax as per rules.
The court ruled that while the penalty amount will be spent on orphans in the state, the entry tax collections would go to the public exchequer. This order issued early 2012 made the state government richer by a whopping Rs 459 crores.
Is the court helping state to have a repeat of entry tax in service tax? Or will the cell phone operators follow the rule of the law? The next few months are crucial on that front.
