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EPFO moves tribunal against service tax Demand, early PF withdrawal issue

The employees’ provident fund organisation has decided to contest the two tax demands slapped on it by the tax authorities.

, ET Bureau|
Updated: May 26, 2011, 04.33 AM IST
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NEW DELHI: The employees’ provident fund organisation, or EPFO, has decided to contest the two tax demands slapped on it by the tax authorities, underlining the uneasy relationship it has had with the finance ministry in recent months. It has gone to the income tax appellate tribunal against demand of service tax and tax on early PF withdrawals.

The Central Board of Excise and Customs sent a service tax notice to the EPFO in 2009 claiming that it evaded service tax of Rs 460 crore during 2004-05 to 2007-08 which added up to about Rs 1,200 crore with the inclusion of penalties.

Earlier this year, a tax notice of.`7,000 crore was served by the income tax department to the EPFO for not taxing pre-mature withdrawals by PF subscribers.

The EPFO is ready to take the matter to the high court if it feels that it has not got a fair hearing, an EPFO official said. “We are convinced that both the tax notices are unwarranted and are ready to fight it out,” the official said.

“We have told the finance ministry in no uncertain terms that there was no justification behind imposing service tax on us,” Central Provident Fund Commissioner Samirendra Chatterjee said. “We are a social security organisation and cannot be treated at par with service-oriented commercial institutions,” he added.

The EPFO also maintains that it should not be held responsible for EPFO subscribers who leave their jobs before the mandatory five years after which they are entitled for tax exemption. “We are not the employers and are not supposed to keep tab,” Chatterjee said.

The finance ministry should understand that the taxes imposed by it has to be paid from the interest suspense account of the fund and ultimately interest payments made to the current EPFO subscribers are going to get affected, Chatterjee said.

The EPFO paid a 9.5% interest to its subscribers last year, which was 1% higher than the regular interest rate on account of distribution of surplus money in the interest suspense account. If it is made to pay the tax claims made by the finance ministry, it could lead to a steep drop in future interest payments to subscribers.

The EPFO, which is the custodian of about .`3.5 lakh crore of subscribers money, would file a case with the high court if it does not get a favourable verdict, the first official said. “We would definitley approach the high court as we do not want to be saddled with a financial burden that we do not deserve,” he said.

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