Ministries lock horns over bringing EPFO under service tax

The finance and labour ministries have locked horns over the issue of bringing retirement fund manager EPFO under the service tax net.

The Central Board of Excise and Customs has slapped a notice for recovery of service tax on Employees' Provident Fund Organisation but the Labour ministry has opposed it saying the organisation was not doing any commercial activity.

"Our stand is very clear that EPFO is not doing any commercial activity so its services provided to employees cannot be brought under the service tax net," Minister of State for Labour Harish Rawat said.

EPFO manages a corpus of about Rs 257,000 crore with subscribers' base of over 4.5 crore (45 million).

According to the CBEC notice, EPFO comes under the service tax net as it was providing fund management services.

Rawat said, "We do not charge anything from employees. They get all services free of cost. Moreover, it is a mandatory social security scheme for the beneficiaries and a large number of those are low-paid workforce."

"If you think that EPFO is earning something out of managing retirement fund. It is wrong. It is true that we do (take) charge from employers. Besides, them government also contributes in this fund," he said.

Managing retirement fund of the employees free of cost is under the directive of Parliament, Rawat added.

However, CBEC thinks the otherway round. It pointed out in its notice that EPFO provides fund managment service to employers and charges service tax from them. Thus, service tax should be levied.

The CBEC claimed that EPFO evaded service tax of Rs 461 crore during 2004-05 to 2007-08, excluding penalities.

The total tax demand could be around Rs 1,200 crore (Rs 12 billion), including penalties for non-payment of tax and service tax for 2008-09 and 2009-10.