Non Applicability of Service Tax in State of Jammu and Kashmir

-         Article 370 of Constitution restricts the Central Government to make laws for J&K, that is why service tax is not applicable to J&K

-         A person having place of business in J&K providing services out side J&K shall be charged to service tax. However if such person is not having any office or establishment outside J&K, collection of tax shall pose problem. But an opinion prevails that although charging of service tax in J&K is restricted but not the collection. Still it is a moot point

-         On the other hand a person in other parts of country providing service in J&K shall not be liable to service tax

-   A letter  of the Director General of Service Tax (F. No . V/DGST/03/GEN/INS/01/2004, dated 17-8-2004) referring the Central Board of Excise  and Customs (CBEC) Circular No. 56/5/2003, dated 25-4-2003 clarifies 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.